e424b1
Filed Pursuant to 424(b)(1)
Registration
No. 333-173948-01
PROSPECTUS
SWIFT SERVICES HOLDINGS,
INC.
AND THE GUARANTORS
OFFER TO
EXCHANGE
$500 million
aggregate principal amount of 10.000% Senior Second
Priority Secured Notes due 2018
CUSIP No. 870755 AA3, ISIN
No. US870755AA35 (the Restricted
Notes)
for
$500 million aggregate
principal amount of 10.000% Senior Second Priority Secured
Notes due 2018
(the Exchange
Notes and, together with the Restricted Notes, the
notes) which have been
registered under the Securities
Act of 1933, as amended (the Securities
Act).
The exchange offer will expire at 12:00 midnight, New York
City time, on June 16, 2011, unless we extend the exchange offer
in our sole and absolute discretion.
Terms of the exchange offer:
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We will exchange Exchange Notes for all outstanding Restricted
Notes that are validly tendered and not withdrawn prior to the
expiration or termination of the exchange offer.
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You may withdraw tenders of Restricted Notes at any time prior
to the expiration or termination of the exchange offer.
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The terms of the Exchange Notes are substantially identical to
those of the outstanding Restricted Notes, except that the
transfer restrictions, registration rights and additional
interest provisions relating to the Restricted Notes do not
apply to the Exchange Notes.
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The exchange of Restricted Notes for Exchange Notes will not be
a taxable transaction for United States federal income tax
purposes, but you should see the discussion under the caption
Material United States Federal Income Tax
Considerations for more information.
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We will not receive any proceeds from the exchange offer.
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We issued the Restricted Notes on December 21, 2010 in a
transaction not requiring registration under the Securities Act
and, as a result, their transfer is restricted. We are making
the exchange offer to satisfy your registration rights, as a
holder of the Restricted Notes.
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Each broker-dealer that receives Exchange Notes for its own
account pursuant to the exchange offer must acknowledge that it
will deliver a prospectus in connection with any resale of such
Exchange Notes. By so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it
is an underwriter within the meaning of the
Securities Act. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer
in connection with resales of Exchange Notes received in
exchange for Restricted Notes where such Restricted Notes were
acquired by such broker-dealer as a result of market-making
activities or other trading activities. We have agreed that, for
a period of up to 180 days after the closing of this
exchange offer, we will make this prospectus available to any
broker-dealer for use in connection with any such resale. See
Plan of Distribution.
No public market currently exists for the Restricted Notes. We
do not intend to list the Exchange Notes on any securities
exchange and, therefore, no active public market for the
Exchange Notes is anticipated to exist.
See Risk Factors beginning on page 25 for a
discussion of risks you should consider prior to tendering your
outstanding Restricted Notes for exchange.
Neither the Securities and Exchange Commission (the
SEC) nor any state securities commission has
approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to
the contrary is a criminal offense.
The date of this prospectus is May
19, 2011.
TABLE OF
CONTENTS
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F-1
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SUMMARY
This summary highlights significant aspects of our business
and the exchange offer contained elsewhere in this prospectus,
but it is not complete and does not contain all of the
information that you should consider before making your
investment decision. You should carefully read this entire
prospectus, including the information presented under the
section entitled Risk Factors and the historical
financial data and related notes, before making an investment
decision. This summary contains forward-looking statements that
involve risks and uncertainties. Our actual results may differ
significantly from the results discussed in the forward-looking
statements as a result of certain factors, including those set
forth in Risk Factors and Forward-Looking
Statements.
Unless we state otherwise or the context otherwise requires,
references in this prospectus to Swift,
we, our, us, and the
Company for all periods subsequent to the
reorganization transactions described in the section entitled
2010 Transactions refer to Swift Transportation
Company (formerly Swift Holdings Corp.), a Delaware corporation,
and its consolidated subsidiaries after giving effect to such
reorganization transactions. For all periods from May 11,
2007 until the completion of such reorganization transactions on
December 21, 2010, these terms refer to Swift Corporation,
a Nevada corporation, which is also referred to herein as our
successor, and its consolidated subsidiaries. For
all periods prior to May 11, 2007, these terms refer to
Swift Corporations predecessor, Swift Transportation Co.,
Inc., a Nevada corporation that has been converted to a Delaware
limited liability company known as Swift Transportation Co.,
LLC, which also is referred to herein as Swift Transportation,
or our predecessor, and its consolidated
subsidiaries. We refer to Swift Services Holdings, Inc., a
Delaware corporation, as the issuer.
Overview
We are a multi-faceted transportation services company and the
largest truckload carrier in North America. At March 31,
2011, we operated a tractor fleet of approximately
16,100 units comprised of 12,100 tractors driven by company
drivers and 4,000 owner-operator tractors, a fleet of 49,400
trailers, and 5,000 intermodal containers from 34 major
terminals positioned near major freight centers and traffic
lanes in the United States and Mexico. During 2010, our tractors
covered 1.5 billion miles and we transported or arranged
approximately three million loads for shippers throughout North
America. Our asset-based operations include general truckload,
dedicated truckload, and cross-border truckload services, each
of which offer a combination of dry van, temperature controlled,
flatbed, or other specialized equipment. Our complementary and
more rapidly growing asset-light services include
rail intermodal, freight brokerage, and third-party logistics
operations. We use sophisticated technologies and systems that
contribute to asset productivity, operating efficiency, customer
satisfaction, and safety. We believe the depth of our fleet
capacity, the breadth of our terminal network, our commitment to
customer service, and our extensive suite of services provide us
and our customers with significant advantages.
We principally operate in
short-to-medium-haul
traffic lanes around our terminals, with an average loaded
length of haul of less than 500 miles. We concentrate on
this length of haul because the majority of domestic truckload
freight (as measured by revenue) moves in these lanes and our
extensive terminal network affords us marketing, equipment
control, supply chain, customer service, and driver retention
advantages in local markets. Our relatively short average length
of haul also helps reduce competition from railroads and
trucking companies that lack a regional presence.
Truckload carriers typically transport a full trailer (or
container) of freight for a single customer from origin to
destination without intermediate sorting and handling. Truckload
carriers provide the largest part of the transportation supply
chain for most retail and manufactured goods in North America.
Many of our customers are large corporations with extensive
operations, geographically distributed locations, and diverse
shipping needs. We receive revenue from a broad customer base
that includes clients from the retail, discount retail, consumer
products, food and beverage, and transportation and logistics
industries. We offer the opportunity for
one-stop-shopping for their truckload transportation
needs through our broad spectrum of services and equipment.
Since 2006, our asset-light rail intermodal and freight
brokerage and logistics services have grown rapidly, and we
expanded owner-operators from 16.5% of our total fleet at
year-end 2006 to 24.7% of our total fleet at March 31,
2011. Going forward, we intend to continue to expand our revenue
from these operations to improve our overall return on invested
capital.
In addition to economic cycles, the trucking industry faces
other challenges that we believe we are well-positioned to
address. First, we believe that the new regulatory initiatives
such as
hours-of-service
limitations, electric on-board recorders, and the Federal Motor
Carrier Safety Administrations, or FMCSA, new
Comprehensive Safety Analysis, or CSA, may reduce the size of
the driver pool. Moreover, new or changing regulatory
constraints on drivers may further decrease the utilization of
an already shrinking driver pool. As this occurs, we believe our
driver development programs, including our driver training
schools and nationwide recruiting, will become increasingly
advantageous. In addition, we believe that the impact of such
regulations will be partially mitigated by our average length of
haul, regional terminal network, and less mileage-intensive
operations, such as intermodal, dedicated, brokerage, and
cross-border operations. Further, we are currently in the
process of retrofitting our entire tractor fleet with electronic
on-board recorders, which we believe can help us more
efficiently utilize our drivers available hours of
service. Second, we believe that significant increases and rapid
fluctuations in fuel prices will continue to be a challenge to
the industry. We believe we can effectively address these issues
through fuel surcharges, effective fuel procurement strategies
and network management systems, and further developing our
dedicated, intermodal, and brokerage operations. Third, the
industry also faces increased prices for new revenue equipment,
design changes of new engines, and volatility in the used
equipment sales market. We believe that we are well-positioned
to effectively address these issues because of our relatively
new fleet, trade-back protections, buying power, and in-house
nationwide maintenance facilities.
Our
Industry and Competition
The U.S. trucking industry is large, fragmented, and highly
competitive. We compete with thousands of other truckload
carriers, most of which operate fewer than 100 trucks. To a
lesser extent, we compete with railroads,
less-than-truckload
carriers, third-party logistics providers, and other
transportation companies. The 25 largest for-hire truckload
carriers are estimated to comprise approximately 7.3% of the
total for-hire truckload market, according to 2009 data
published by the ATA. The principal means of competition in our
industry are service, the ability to provide capacity when and
where needed, and price. In times of strong freight demand,
service and capacity become increasingly important, and in times
of weak freight demand pricing becomes increasingly important.
Because most truckload contracts (other than dedicated
contracts) do not guarantee truck availability or load levels,
pricing is influenced by supply and demand.
Since 2000, we believe our industry has encountered three major
economic cycles: (1) the period of industry over-capacity
and depressed freight volumes from 2000 through 2001;
(2) the economic expansion from 2002 through 2006; and
(3) the freight slowdown, fuel price spike, economic
recession, and credit crisis from 2007 through 2009. In the
fourth quarter of 2009 and into 2010, industry freight data
began to show strong positive trends. Although it is too early
to be certain, we believe the trucking industry has entered a
new economic cycle marked by a return to economic growth as well
as a tighter supply of available tractors due to several years
of below average truck builds and an increase in truckload fleet
bankruptcies.
Our
Competitive Strengths
We believe the following competitive strengths provide a solid
platform for pursuing our goals and strategies:
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North American truckload leader with broad terminal network
and a modern fleet. We operate North
Americas largest truckload fleet, have 34 major terminals
and multiple other locations throughout the United States and
Mexico, and offer customers one-stop-shopping for a
broad spectrum of their truckload transportation needs. Our
fleet size offers wide geographic coverage while maintaining the
efficiencies associated with significant traffic density within
our operating regions. Our terminals are strategically located
near key population centers, driver recruiting areas, and
cross-border hubs, often in
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close proximity to our customers. This broad network offers
benefits such as in-house maintenance, more frequent equipment
inspections, localized driver recruiting, rapid customer
response, and personalized marketing efforts. Our size allows us
to achieve substantial economies of scale in purchasing items
such as tractors, trailers, containers, fuel, and tires where
pricing is volume-sensitive. We believe our scale also offers
additional benefits in brand awareness and access to capital.
Additionally, our modern company tractor fleet, with an average
age of 3.2 years for our approximately 9,000 linehaul
sleeper units, lowers maintenance and repair expense, aids in
driver recruitment, and increases asset utilization as compared
with an older fleet.
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High quality customer service and extensive suite of
services. Our intense focus on customer
satisfaction contributed to 20 carrier of the year
or similar awards in 2009 and 24 in 2010, and has helped us
establish a strong platform for cross-selling our other
services. Our strong and diversified customer base, ranging from
Fortune 500 companies to local shippers, has a wide variety
of shipping needs, including general and specialized truckload,
imports and exports, regional distribution, high-service
dedicated operations, rail intermodal service, and surge
capacity through fleet flexibility and brokerage and logistics
operations. We believe customers continue to seek fewer
transportation providers that offer a broader range of services
to streamline their transportation management functions. We
believe the breadth of our services helps diversify our customer
base and provides us with a competitive advantage, especially
for customers with multiple needs and international shipments.
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Strong and growing owner-operator business. We
supplement our company tractors with tractors provided by
owner-operators, who operate their own tractors and are
responsible for most ownership and operating expenses. We
believe that owner-operators provide significant advantages that
primarily arise from the entrepreneurial motivation of business
ownership. Our owner-operators tend to be more experienced, have
lower turnover, have fewer accidents per million miles, and
produce higher weekly trucking revenue per tractor than our
average company drivers.
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Leader in driver and owner-operator
development. Driver recruiting and retention
historically have been significant challenges for truckload
carriers. To address these challenges, we employ nationwide
recruiting efforts through our terminal network, operate five
driver training schools, maintain an active and successful
owner-operator development program, provide drivers modern
tractors, and employ numerous driver satisfaction policies.
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Regional operating model. Our short- and
medium-haul regional operating model contributes to higher
revenue per mile and takes advantage of shipping trends toward
regional distribution. We also experience less competition in
our short- and medium-haul regional business from railroads. In
addition, our regional terminal network allows our drivers to be
home more often, which we believe assists with driver retention.
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Experienced management aligned with corporate
success. Our management team has a proven track
record of growth and cost control. Management focuses on
disciplined execution and financial performance by measuring our
progress through a combination of financial metrics. We align
managements priorities with our own through equity option
awards and an annual performance based bonus plan.
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Our
Growth Strategy
Our goals are to grow revenue in excess of 10% annually over the
next several years, increase our profitability, and generate
returns on capital in excess of our cost of capital. These goals
are in part dependent on continued improvement in industry-wide
truckload volumes and pricing. Although we expect the economic
environment and capacity constraints in our industry to support
achievement of our goals, we have limited ability to affect
industry volumes and pricing and cannot assure you that this
environment will continue.
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Nevertheless, we believe our competitive strengths and the
current supply and demand environment in the truckload industry
are aligned to support the achievement of our goals through the
following strategies:
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Profitable revenue growth. To increase freight
volumes and yield, we intend to further penetrate our existing
customer base, cross-sell our services, and pursue new customer
opportunities by leveraging our superior customer service and
extensive suite of truckload services. In addition, we are
further enhancing our sophisticated freight selection management
tools to allocate our equipment to more profitable loads and
complementary lanes. As freight volumes increase, we intend to
prioritize the following areas for growth:
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Rail intermodal. Our growing rail intermodal
presence complements our regional operating model and allows us
to better serve customers in longer haul lanes and reduce our
investment in fixed assets. Since its inception in 2005, we have
expanded our rail intermodal business by growing our fleet to
approximately 5,000 containers as of March 31, 2011, and we
expect to add another 1,400 to 1,800 containers in 2011. We
expect to continue to add intermodal containers each year as our
volumes grow. We have intermodal agreements with all major
U.S. railroads and negotiated more favorable terms in 2009
with our largest intermodal provider, which has helped increase
our volumes through more competitive pricing.
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Dedicated services and private fleet
outsourcing. The size and scale of our fleet and
terminal network allow us to provide the equipment availability
and high service levels required for dedicated contracts.
Dedicated contracts often are used for high-service and
high-priority freight, sometimes to replace private fleets
previously operated by customers. Dedicated operations generally
produce higher margins and lower driver turnover than our
general truckload operations. We believe these opportunities
will increase in times of scarce capacity in the truckload
industry.
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Cross-border Mexico-U.S. freight. The
combination of our U.S., cross-border, customs brokerage, and
Mexican operations enables us to provide efficient
door-to-door
service between the United States and Mexico. We believe our
sophisticated load security measures, as well as our Department
of Homeland Security, or DHS, status as a C-TPAT carrier, allow
us to offer more efficient service than most competitors and
afford us substantial advantages with major international
shippers.
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Freight brokerage and third-party
logistics. We believe we have a substantial
opportunity to continue to increase our non-asset based freight
brokerage and third-party logistics services. We believe many
customers increasingly seek transportation companies that offer
both asset-based and non-asset based services to gain additional
certainty that safe, secure, and timely truckload service will
be available on demand and to reward asset-based carriers for
investing in fleet assets. We intend to continue growing our
transportation management and freight brokerage capability to
build market share with customers, earn marginal revenue on more
loads, and preserve our assets for the most attractive lanes and
loads.
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Customer satisfaction. In our pursuit to be
best in class, we survey our customers and identify areas where
we can accelerate the capture of new freight opportunities,
improve our customers experience, and profit from
enhancing the value our customers receive. Based on the results
of the surveys, we focus on areas of improvement such as meeting
customer commitments for on-time
pick-up and
delivery, improving billing accuracy, defining and documenting
expectations of new customers, and enhancing responsiveness of
our personnel. We believe that improving overall customer
satisfaction will create opportunities to growth with our
customers and help to cross-sell our entire suite of services.
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Increase asset productivity and return on
capital. Because of our size and operating
leverage, even small improvements in our asset productivity and
yield can have a significant impact on our operating results. We
believe we have a substantial opportunity to improve the
productivity and yield of our existing assets through the
following measures:
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increasing the percentage of our fleet provided by
owner-operators, who generally produce higher weekly trucking
revenue per tractor than our company drivers;
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increasing company tractor utilization through measures such as
equipment pools, relays, and team drivers;
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capitalizing on a stronger freight market to increase average
trucking revenue per mile by using sophisticated freight
selection and network management tools to upgrade our freight
mix and reduce deadhead miles;
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maintaining discipline regarding the timing and extent of
company tractor fleet growth based on availability of
high-quality freight; and
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rationalizing unproductive assets as necessary, thereby
improving our return on capital.
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Continue to focus on efficiency and cost
control. We intend to continue to implement the
Lean Six Sigma, accountability, and discipline measures that
helped us improve our Adjusted Operating Ratio in 2010 and 2009.
We presently have ongoing efforts in the following areas that we
expect will yield benefits in future periods:
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managing the flow of our tractor capacity through our network to
balance freight flows and reduce deadhead miles;
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integrating systems and improving processes to achieve more
efficient utilization of our tractors, trailers, and
drivers available hours of service;
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improving driver and owner-operator satisfaction to improve
performance and reduce attrition costs; and
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reducing waste in shop methods and procedures and in other
administrative processes.
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Pursue selected acquisitions. In addition to
expanding our company tractor fleet through organic growth, and
to take advantage of opportunities to add complementary
operations, we expect to pursue selected acquisitions. We
operate in a highly fragmented and consolidating industry where
we believe the size and scope of our operations afford us
significant competitive advantages. Acquisitions can provide us
an opportunity to expand our fleet with customer revenue and
drivers already in place. In our history, we have completed
twelve acquisitions, most of which were immediately integrated
into our existing business. Given our size in relation to most
competitors, we expect most future acquisitions to be integrated
quickly. As with our prior acquisitions, our goal is for any
future acquisitions to be accretive to our earnings within two
full calendar quarters.
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Mission,
Vision, and Most Important Goals
Since going private in 2007, our management team has instilled a
culture of discipline and accountability throughout our
organization. We accomplished this in several ways. First, we
established our mission, vision, purpose, and values to give the
organization guidance. Second, we identified our most important
goals and trained our entire organization in the discipline of
executing on these goals, including focusing on our priorities,
breaking down each employees responsibilities to identify
those which contribute to achieving our priorities, creating a
scoreboard of daily results, and requiring weekly reporting of
recent results and plans for the next week. Third, we
established cross-functional business transformation teams
utilizing Lean Six Sigma techniques to analyze and enhance value
streams throughout Swift. Fourth, we enhanced our annual
operating plan process to break down our financial plans into
budgets, metrics, goals, and targets that each department and
salesperson can influence and control. And finally, we developed
and implemented a strategic planning and deployment process to
establish actionable plans to achieve best in class performance
in key areas of our business.
Our mission is to attract and retain customers by providing best
in class transportation solutions and fostering a profitable,
disciplined culture of safety, service, and trust. At the
beginning of 2009, we defined our vision, which consists of
seven primary themes:
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we are an efficient and nimble world class service organization
that is focused on the customer;
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we are aligned and working together at all levels to achieve our
common goals;
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our team enjoys our work and co-workers and this enthusiasm
resonates both internally and externally;
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we are on the leading edge of service, always innovating to add
value to our customers;
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our information and resources can be easily adapted to analyze
and monitor what is most important in a changing environment;
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our financial health is strong, generating excess cash flows and
growing profitability year-after-year with a culture that is
cost-and environmentally-conscious; and
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we train, build, and develop our employees through perpetual
learning opportunities to enhance their skill sets, allowing us
to maximize potential of our talented people.
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In light of our mission and vision, we currently define our most
important goals as follows:
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Improving financial performance. To improve
our financial performance, we have developed and deployed
several strategies, including profitable, revenue growth,
improved asset utilization and return on capital, and cost
reductions. We measure our performance on these strategies by
Adjusted EBITDA, Adjusted Operating Ratio, revenue growth, EPS,
and return on invested capital. In this regard, we have
identified numerous specific activities as outlined in Our
Growth Strategy section above. We also engage all of our
sales personnel in specific planning of
month-by-month
volume and rate goals for each of their major customers and
identify specific, controllable operating metrics for each of
our terminal managers.
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Improving driver, non-driver, and owner-operator
satisfaction. We realize we are only as good as
our people. We believe that a thoroughly engaged workforce is
safer, more productive, and more creative and yields higher
retention in response to being heard, valued, and given
opportunities to grow and develop. By unleashing the talent of
our people we can meet and exceed our organizational goals while
enabling our employees to increase their own potential. To
achieve this environment, we have implemented initiatives
targeted at each group to improve internal customer service and
recognition of results, and we have deployed leadership training
and other tools to enhance feedback, mutual understanding, and
our leadership practices.
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Improving safety culture. Safety is
foundational in what we do, and it cannot be compromised in
pursuit of profit or convenience. Safety not only impacts our
financial results, but the lives of our people and our
communities. Producing Best in Class safety results can only
come out of instilling a safety mindset at all levels of our
organization. In this effort we are working to enhance the
effectiveness of safety communications and feedback, increase
recognition of safe behavior, build methodologies that support
good choices, ensure that our core values are known and
understood by our people, and expand the training of our safety
professionals.
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2010
Transactions
In this prospectus, we refer to the following collectively as
the 2010 Transactions:
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the merger of Swift Corporation with and into Swift, the
conversion of all of the outstanding common stock of Swift
Corporation into shares of Class B common stock of Swift on
a
one-for-one
basis, the conversion of the outstanding stock options of Swift
Corporation into options to purchase shares of Class A
common stock of Swift and the cancellation of the stockholder
loans;
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the sale of 73,300,000 shares of Class A common stock
of Swift in an initial public offering and the sale of an
additional 6,050,000 shares of Class A common stock of
Swift pursuant to the underwriters option to purchase
additional shares of Class A common stock to cover
over-allotments (the initial public offering);
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the sale of $500,000,000 aggregate principal amount of the
Restricted Notes in a transaction not requiring registration
under the Securities Act;
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Swift Transportations entrance into a new senior secured
credit facility;
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the repayment of Swifts old senior secured credit
facility; and
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the repurchase of indebtedness pursuant to an agreement with the
largest holders of our senior secured notes and tender offers
and the consummation of consent solicitations with respect to
all of our outstanding senior secured floating rate notes and
all of our outstanding senior secured fixed rate notes.
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With the exception of the closing of the underwriters
option to purchase additional shares of Class A common
stock to cover over-allotments on January 20, 2011, the
2010 Transactions were completed on December 21, 2010.
For more information regarding the 2010 Transactions, see
2010 Transactions and Description of Other
Indebtedness.
Stockholder
Offering
In conjunction with our initial public offering, Jerry Moyes and
the Moyes Affiliates (as defined herein) were involved in a
private placement by a newly formed, unaffiliated trust, or the
Trust, of $262.3 million of its mandatory common exchange
securities, including the initial purchasers exercise of
their option to purchase additional securities, which is herein
referred to as the Stockholder Offering.
Subject to certain exceptions, the Trusts securities are
exchangeable into shares of our Class A common stock or
alternatively settled in cash equal to the value of those shares
of Class A common stock three years following the closing
date of the Stockholder Offering. We did not receive any
proceeds from the Stockholder Offering.
Organizational
Structure and Corporate History
Swifts predecessor was founded by Jerry Moyes, along with
his father and brother, in 1966 with one truck and taken public
on the NASDAQ stock market in 1990.
In April 2007, Mr. Moyes and his wife contributed their
ownership of all of the issued and outstanding shares of
Interstate Equipment Leasing, Inc. (now Interstate Equipment
Leasing, LLC), or IEL, to Swift Corporation in exchange for
additional Swift Corporation shares. In May 2007,
Mr. Moyes, The Jerry and Vickie Moyes Family Trust dated
12/11/87,
and various Moyes childrens trusts, collectively referred
to as the Moyes Affiliates, contributed their
shares of Swift Transportation common stock to Swift Corporation
in exchange for additional Swift Corporation shares. Swift
Corporation then completed its acquisition of Swift
Transportation through a merger on May 10, 2007, thereby
acquiring the remaining outstanding shares of Swift
Transportation common stock, the foregoing sequence of
transactions being, collectively, the 2007 Transactions. Upon
completion of the 2007 Transactions, Swift Transportation became
a wholly-owned subsidiary of Swift Corporation and at the close
of the market on May 10, 2007, the common stock of Swift
Transportation ceased trading on NASDAQ.
On May 20, 2010, in contemplation of our initial public
offering, Swift Corporation formed Swift Transportation Company
(formerly Swift Holdings Corp.), a Delaware corporation. Swift
Transportation Company did not engage in any business or other
activities except in connection with its formation and the
initial public offering and held no assets and had no
subsidiaries prior to such offering.
Immediately prior to the consummation of the initial public
offering, Swift Corporation merged with and into Swift
Transportation Company, with Swift Transportation Company
surviving as a Delaware corporation. In the merger, all of the
outstanding common stock of Swift Corporation was converted into
shares of Swift Transportation Company Class B common stock
on a
one-for-one
basis, and all outstanding stock options of Swift Corporation
were converted into options to purchase shares of Class A
common stock of Swift Transportation Company. All outstanding
Class B shares are held by Mr. Moyes and the Moyes
Affiliates.
In December 2010, Swift Transportation Company completed its
initial public offering of 73,300,000 shares of its
Class A common stock at $11.00 per share and received
proceeds of $766.0 million net of underwriting discounts
and commissions and before expenses of such issuance. The
proceeds were used, together with the $1.06 billion of
proceeds from our senior secured term loan and $490 million
of proceeds
7
from our private placement of the Restricted Notes, which debt
issuances were completed substantially concurrently with the
initial public offering, to (a) repay all amounts
outstanding under our senior secured credit facility,
(b) purchase an aggregate amount of $490.0 million of
our senior secured fixed-rate notes and $192.6 million of
our senior secured floating rate notes, (c) pay
$66.4 million to our interest rate swap counterparties to
terminate the interest rate swap agreements related to our
existing floating rate debt, and (d) pay fees and expenses
related to the debt issuance and stock offering. Further, in
January 2011, Swift Transportation Company issued an additional
6,050,000 shares of its Class A common stock to the
underwriters of our initial public offering at the initial
public offering price of $11.00 per share, less the
underwriters discount, and received proceeds of
$63.2 million in cash pursuant to the over-allotment option
in the underwriting agreement. We used $60.0 million of
these proceeds in January 2011 to pay down our new first lien
term loan, and we used the remaining $3.2 million in
February 2011 to pay down our accounts receivable securitization
facility. Following this issuance, we have
79,350,000 shares of Class A common stock outstanding.
Our Class A common stock is listed for trading on the New
York Stock Exchange under the symbol SWFT.
Our principal executive offices are located at 2200 South
75th Avenue, Phoenix, Arizona 85043, and our telephone
number at that address is
(602) 269-9700.
Our website is located at
http://www.swifttrans.com.
The information on our website is not part of this prospectus.
The following chart represents our organizational structure as
of the date hereof. All entities are wholly owned by their
immediate parent unless otherwise indicated.
Our non-guarantor subsidiaries had, before intercompany
eliminations, total liabilities, including trade payables, of
$291.0 million and total assets of $506.9 million as
of March 31, 2011, and had operating revenue, before
intercompany eliminations, of $41.3 million for the three
months ended March 31, 2011.
8
SUMMARY
DESCRIPTION OF THE EXCHANGE OFFER
On December 21, 2010, the issuer completed the private
offering of the Restricted Notes. As part of that offering, the
issuer, Swift and the Subsidiary Guarantors (as defined below)
entered into a Registration Rights Agreement (the
Registration Rights Agreement) with the
initial purchasers of the Restricted Notes (the Initial
Purchasers). In the Registration Rights Agreement, we
agreed, among other things, to complete an exchange offer for
the Restricted Notes. Below is a summary of the exchange offer
that we are making by means of this prospectus.
|
|
|
Restricted Notes |
|
$500 million aggregate principal amount of 10.000% Senior
Second Priority Secured Notes due 2018. |
|
Exchange Notes |
|
$500 million aggregate principal amount of
10.000% Senior Second Priority Secured Notes due 2018, the
issuance of which has been registered under the Securities Act.
The form and terms of the Exchange Notes are identical in all
material respects to those of the Restricted Notes, except that
the transfer restrictions, registration rights and additional
interest provisions relating to the Restricted Notes do not
apply to the Exchange Notes. |
|
Exchange Offer |
|
We are offering to issue up to $500 million aggregate
principal amount of 10.000% Senior Second Priority Secured
Notes due 2018 to satisfy our obligations under the Registration
Rights Agreement. |
|
|
|
Expiration Date; Tenders |
|
The exchange offer will expire at 12:00 midnight, New York
City time, on June 16, 2011, unless extended in our sole and
absolute discretion. By tendering your Restricted Notes, you
represent to us that: |
|
|
|
|
|
you are not our affiliate, as defined in
Rule 405 under the Securities Act;
|
|
|
|
you are not engaged in, and do not intend to engage
in, and have no arrangement or understanding with any person to
participate in, a distribution of the Exchange Notes;
|
|
|
|
you are acquiring the Exchange Notes in your
ordinary course of business; and
|
|
|
|
if you are a broker-dealer, you will receive the
Exchange Notes for your own account in exchange for Restricted
Notes that were acquired by you as a result of your
market-making or other trading activities and that you will
deliver a prospectus in connection with any resale of the
Exchange Notes you receive. For further information regarding
resales of the Exchange Notes by participating broker-dealers,
see the discussion under the caption Plan of
Distribution.
|
|
|
|
Withdrawal |
|
You may withdraw any Restricted Notes tendered in the exchange
offer at any time prior to 12:00 midnight, New York City
time, on June 16, 2011. |
|
|
|
Conditions to the Exchange Offer |
|
The exchange offer is subject to customary conditions, which we
may waive. See the discussion below under the caption The
Exchange Offer Conditions to the Exchange
Offer for more information regarding the conditions to the
exchange offer. |
9
|
|
|
Procedures for Tendering the Restricted Notes |
|
Except as described in the section entitled The Exchange
Offer Procedures for Tendering Restricted
Notes, a tendering holder must, on or prior to the
expiration date, transmit an agents message to the
exchange agent at the address listed in this prospectus. In
order for your tender to be considered valid, the exchange agent
must receive a confirmation of book entry transfer of your
Restricted Notes into the exchange agents account at The
Depository Trust Company (DTC) prior to
the expiration or termination of the exchange offer. |
|
Special Procedures for Beneficial Owners |
|
If you are a beneficial owner whose Restricted Notes are
registered in the name of a broker, dealer, commercial bank,
trust company or other nominee, and you wish to tender your
Restricted Notes in the exchange offer, you should promptly
contact the person in whose name the Restricted Notes are
registered and instruct that person to tender on your behalf.
Any registered holder that is a participant in DTCs
book-entry transfer facility system may make book-entry delivery
of the Restricted Notes by causing DTC to transfer the
Restricted Notes into the exchange agents account. |
|
Use of Proceeds |
|
We will not receive any proceeds from the exchange offer. |
|
Exchange Agent |
|
U.S. Bank National Association is the exchange agent for the
exchange offer. You can find the address and telephone number of
the exchange agent below under the caption The Exchange
Offer Exchange Agent. |
|
Resales |
|
Based on interpretations by the staff of the SEC, as detailed in
a series of no-action letters issued to unrelated third parties,
we believe that the Exchange Notes issued in the exchange offer
may be offered for resale, resold or otherwise transferred by
you without compliance with the registration and prospectus
delivery requirements of the Securities Act as long as: |
|
|
|
you are acquiring the Exchange Notes in the ordinary
course of your business;
|
|
|
|
you are not participating, do not intend to
participate and have no arrangement or understanding with any
person to participate, in a distribution of the Exchange Notes;
and
|
|
|
|
you are not an affiliate of ours.
|
|
|
|
If you are an affiliate of ours, are engaged in or intend to
engage in or have any arrangement or understanding with any
person to participate in a distribution of the Exchange Notes: |
|
|
|
you cannot rely on the applicable interpretations of
the staff of the SEC;
|
|
|
|
you will not be entitled to participate in the
exchange offer; and
|
|
|
|
you must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with
any resale transaction.
|
10
|
|
|
|
|
See the discussion below under the caption The Exchange
Offer Consequences of Exchanging or Failing to
Exchange Restricted Notes for more information. |
|
Broker-Dealer |
|
Each broker or dealer that receives Exchange Notes for its own
account in exchange for Restricted Notes that were acquired as a
result of market-making or other trading activities must
acknowledge that it will comply with the registration and
prospectus delivery requirements of the Securities Act in
connection with any offer to resell or other transfer of the
Exchange Notes issued in the exchange offer, including the
delivery of a prospectus that contains information with respect
to any selling holder required by the Securities Act in
connection with any resale of the Exchange Notes. |
|
|
|
Furthermore, any broker-dealer that acquired any of its
Restricted Notes directly from us: |
|
|
|
may not rely on the applicable interpretation of the
staff of the SECs position contained in Exxon Capital
Holdings Corp., SEC no-action letter (April 13, 1988),
Morgan, Stanley & Co. Inc., SEC no-action letter
(June 5, 1991) and Shearman & Sterling, SEC
no-action letter (July 2, 1993); and
|
|
|
|
must also be named as a selling bondholder in
connection with the registration and prospectus delivery
requirements of the Securities Act relating to any resale
transaction.
|
|
|
|
This prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with
resales of Exchange Notes received in exchange for Restricted
Notes which were received by such broker-dealer as a result of
market making activities or other trading activities. We have
agreed that for a period of not less than 180 days after
the consummation of the exchange offer, we will make this
prospectus available to any broker-dealer for use in connection
with any such resale. See Plan of Distribution for
more information. |
|
Registration Rights Agreement |
|
When the Restricted Notes were issued, the issuer, Swift and the
Subsidiary Guarantors entered into the Registration Rights
Agreement with the Initial Purchasers. Under the terms of the
Registration Rights Agreement, we agreed to use our reasonable
best efforts to: |
|
|
|
file with the SEC and cause to become effective a
registration statement relating to an offer to exchange the
Restricted Notes for the Exchange Notes; and
|
|
|
|
keep the exchange offer open for not less than 20
business days (or longer if required by applicable law) after
the date of notice thereof is mailed to the holders of the
Restricted Notes.
|
|
|
|
If we do not complete the exchange offer (or, if required, the
shelf registration statement described below is not declared
effective) on or before the date that is 180 days after the
issuance of the Restricted Notes, subject to certain exceptions,
or if we fail to meet certain other conditions described under
Description of the Exchange Notes Additional
Interest, the interest rate borne by |
11
|
|
|
|
|
the Restricted Notes will increase at a rate of 0.25% per annum
every 90 days (but shall not exceed 1.00% per annum) until
the condition which gave rise to the additional interest is
cured. |
|
|
|
Under some circumstances set forth in the Registration Rights
Agreement, holders of Restricted Notes, including certain
holders who are not permitted to participate in the exchange
offer, may require us to file and cause to become effective, a
shelf registration statement covering resales of the Restricted
Notes by these holders. |
|
|
|
A copy of the Registration Rights Agreement is as an exhibit to
the registration statement of which this prospectus forms a
part. See Description of the Exchange Notes
Registration Rights. |
12
SUMMARY
HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
The table below sets forth our summary historical consolidated
financial and other data for the periods and as of the dates
indicated. The selected financial and other data for the years
ended December 31, 2010, 2009, and 2008 are derived from
our audited consolidated financial statements, included
elsewhere in this prospectus and include, in the opinion of
management, all adjustments that management considers necessary
for the presentation of the information outlined in these
financial statements. The selected financial and other data for
the three months ended March 31, 2011 and 2010 are derived
from the unaudited consolidated financial statements included
elsewhere in this prospectus and include, in the opinion of
management, all adjustments that management considers necessary
for the presentation of the information outlined in these
financial statements. In addition, for comparative purposes, we
have included a pro forma (provision) benefit for income taxes
assuming we had been taxed as a subchapter C corporation in all
periods when our subchapter S corporation election was in
effect. The summary historical consolidated financial and other
data for the years ended December 31, 2007 and 2006 are
derived from our historical financial statements and those of
our predecessor not included in this prospectus.
Swift Corporation acquired our predecessor on May 10, 2007
in conjunction with the 2007 Transactions. Thus, although our
results for the year ended December 31, 2007 present
results for a full year period, they only include the results of
our predecessor after May 10, 2007. You should read the
selected financial and other data together with the consolidated
financial statements and related notes appearing elsewhere in
this prospectus, as well Selected Historical Consolidated
Financial and Other Data and Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2007
|
|
|
Year Ended
|
|
(Dollars in thousands,
|
|
March 31,
|
|
|
Year Ended December 31,
|
|
|
Through May 10,
|
|
|
December 31,
|
|
except per share data)
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007(1)
|
|
|
2007
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated statement of operations data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
$
|
758,889
|
|
|
$
|
654,830
|
|
|
$
|
2,929,723
|
|
|
$
|
2,571,353
|
|
|
$
|
3,399,810
|
|
|
$
|
2,180,293
|
|
|
$
|
1,074,723
|
|
|
$
|
3,172,790
|
|
Operating income (loss)
|
|
$
|
46,729
|
|
|
$
|
23,193
|
|
|
$
|
243,055
|
|
|
$
|
132,001
|
|
|
$
|
114,936
|
|
|
$
|
(154,691
|
)
|
|
$
|
(25,657
|
)
|
|
$
|
243,731
|
|
Interest and derivative interest expense(2)
|
|
$
|
41,714
|
|
|
$
|
86,090
|
|
|
$
|
321,528
|
|
|
$
|
256,146
|
|
|
$
|
240,876
|
|
|
$
|
184,348
|
|
|
$
|
9,277
|
|
|
$
|
25,736
|
|
Income (loss) before income taxes
|
|
$
|
5,526
|
|
|
$
|
(62,526
|
)
|
|
$
|
(168,845
|
)
|
|
$
|
(108,995
|
)
|
|
$
|
(135,187
|
)
|
|
$
|
(330,504
|
)
|
|
$
|
(34,999
|
)
|
|
$
|
221,274
|
|
Net income (loss)
|
|
$
|
3,205
|
|
|
$
|
(53,001
|
)
|
|
$
|
(125,413
|
)
|
|
$
|
(435,645
|
)
|
|
$
|
(146,555
|
)
|
|
$
|
(96,188
|
)
|
|
$
|
(30,422
|
)
|
|
$
|
141,055
|
|
Diluted earnings (loss) per share(3)
|
|
$
|
0.02
|
|
|
$
|
(0.88
|
)
|
|
$
|
(1.98
|
)
|
|
$
|
(7.25
|
)
|
|
$
|
(2.44
|
)
|
|
$
|
(2.43
|
)
|
|
$
|
(0.40
|
)
|
|
$
|
1.86
|
|
Pro forma data as if taxed as a C corporation
(unaudited):(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical loss before income taxes
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
(108,995
|
)
|
|
$
|
(135,187
|
)
|
|
$
|
(330,504
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
Pro forma provision (benefit) for income taxes
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
5,693
|
|
|
|
(26,573
|
)
|
|
|
(19,166
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
(114,688
|
)
|
|
$
|
(108,614
|
)
|
|
$
|
(311,338
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
(1.91
|
)
|
|
$
|
(1.81
|
)
|
|
$
|
(7.86
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
Consolidated balance sheet data (at end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (excl. restricted cash)
|
|
|
21,549
|
|
|
|
87,327
|
|
|
|
47,494
|
|
|
|
115,862
|
|
|
|
57,916
|
|
|
|
78,826
|
|
|
|
81,134
|
|
|
|
47,858
|
|
Net property and equipment
|
|
|
1,315,399
|
|
|
|
1,327,210
|
|
|
|
1,339,638
|
|
|
|
1,364,545
|
|
|
|
1,583,296
|
|
|
|
1,588,102
|
|
|
|
1,478,808
|
|
|
|
1,513,592
|
|
Total assets
|
|
|
2,555,680
|
|
|
|
2,638,739
|
|
|
|
2,567,895
|
|
|
|
2,513,874
|
|
|
|
2,648,507
|
|
|
|
2,928,632
|
|
|
|
2,124,293
|
|
|
|
2,110,648
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitization of accounts receivable(5)
|
|
|
136,000
|
|
|
|
150,000
|
|
|
|
171,500
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
160,000
|
|
|
|
180,000
|
|
Long-term debt and obligations under capital leases (incl.
current)(5)
|
|
|
1,693,809
|
|
|
|
2,382,181
|
|
|
|
1,774,100
|
|
|
|
2,466,934
|
|
|
|
2,494,455
|
|
|
|
2,427,253
|
|
|
|
200,000
|
|
|
|
200,000
|
|
Other financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per share(6)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.27
|
|
|
$
|
0.56
|
|
|
$
|
0.75
|
|
|
$
|
|
|
|
$
|
|
|
Adjusted EBITDA (unaudited)(7)
|
|
|
104,749
|
|
|
|
90,335
|
|
|
|
497,673
|
|
|
|
405,860
|
|
|
|
409,598
|
|
|
|
291,597
|
|
|
|
109,687
|
|
|
|
498,601
|
|
Adjusted Operating Ratio (unaudited)(8)
|
|
|
92.5
|
%
|
|
|
94.4
|
%
|
|
|
89.0
|
%
|
|
|
93.9
|
%
|
|
|
94.5
|
%
|
|
|
94.4
|
%
|
|
|
97.4
|
%
|
|
|
90.4
|
%
|
Adjusted EPS (unaudited)(9)
|
|
$
|
0.06
|
|
|
$
|
(0.38
|
)
|
|
$
|
0.02
|
|
|
$
|
(0.73
|
)
|
|
$
|
(0.86
|
)
|
|
$
|
(0.67
|
)
|
|
$
|
0.14
|
|
|
$
|
1.91
|
|
Operating statistics (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weekly trucking revenue per tractor
|
|
$
|
2,862
|
|
|
$
|
2,711
|
|
|
$
|
2,879
|
|
|
$
|
2,660
|
|
|
$
|
2,916
|
|
|
$
|
2,903
|
|
|
$
|
2,790
|
|
|
$
|
3,011
|
|
Deadhead miles %
|
|
|
12.1
|
%
|
|
|
12.2
|
%
|
|
|
12.1
|
%
|
|
|
13.2
|
%
|
|
|
13.6
|
%
|
|
|
13.0
|
%
|
|
|
13.2
|
%
|
|
|
12.2
|
%
|
Average loaded length of haul (miles)
|
|
|
430
|
|
|
|
438
|
|
|
|
439
|
|
|
|
442
|
|
|
|
469
|
|
|
|
483
|
|
|
|
492
|
|
|
|
522
|
|
Average tractors available:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-operated
|
|
|
11,105
|
|
|
|
10,747
|
|
|
|
10,838
|
|
|
|
11,262
|
|
|
|
12,657
|
|
|
|
14,136
|
|
|
|
13,857
|
|
|
|
13,314
|
|
Owner-operator
|
|
|
3,972
|
|
|
|
3,696
|
|
|
|
3,829
|
|
|
|
3,607
|
|
|
|
3,367
|
|
|
|
3,056
|
|
|
|
2,959
|
|
|
|
3,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
15,077
|
|
|
|
14,443
|
|
|
|
14,667
|
|
|
|
14,869
|
|
|
|
16,024
|
|
|
|
17,192
|
|
|
|
16,816
|
|
|
|
16,466
|
|
Trailers (end of period)
|
|
|
49,366
|
|
|
|
49,436
|
|
|
|
48,992
|
|
|
|
49,215
|
|
|
|
49,695
|
|
|
|
49,879
|
|
|
|
48,959
|
|
|
|
50,013
|
|
13
|
|
|
(1) |
|
Our audited results of operations include the full year
presentation of Swift Corporation as of and for the year ended
December 31, 2007. Swift Corporation was formed in 2006 for
the purpose of acquiring Swift Transportation, but that
acquisition was not completed until May 10, 2007 as part of
the 2007 Transactions, and, as such, Swift Corporation had
nominal activity from January 1, 2007 through May 10,
2007. The results of Swift Transportation from January 1,
2007 to May 10, 2007 are not reflected in the audited
results of Swift Corporation for the year ended
December 31, 2007. Additionally, although IEL was an entity
under common control prior to its contribution on April 7,
2007, the audited results of Swift Corporation for the year
ended December 31, 2007 exclude the results of IEL for the
period January 1, 2007 to April 6, 2007 as the results
for IEL prior to its contribution are immaterial to the results
of Swift Corporation. These financial results include the impact
of the 2007 Transactions. |
|
(2) |
|
Interest expense between May 2007 and December 2010 was
primarily based on our previous senior secured term loan with an
original aggregate principal amount of $1.72 billion
($1.49 billion on December 21, 2010), our previous
senior secured second-priority floating rate notes with an
original aggregate principal amount of $240 million
($203.6 million outstanding on December 21, 2010), and
our previous 12.50% senior secured second-priority fixed
rate notes with an original aggregate principal amount of
$595 million ($505.6 million outstanding on
December 21, 2010). Derivative interest expense between May
2007 and December 2010 was primarily based on our previous
interest rate swaps related to the debt described in the
previous sentence from the 2007 Transactions, which swaps
originally totaled $1.28 billion of notional amount
($832 million remaining on December 21, 2010). Our
previous senior secured credit facility, the remaining interest
rate swaps, and substantially all of our previous senior secured
second-priority fixed and floating rate notes were paid off in
conjunction with our initial public offering and refinancing
transactions on December 21, 2010. Interest and derivative
interest expense increased during 2010 over 2009 as a result of
the second amendment to our previous senior secured credit
facility, which resulted in an increase in interest applicable
to the previous senior secured term loan of 6.0% (consisting of
the implementation of a 2.25% LIBOR floor and a 2.75% increase
in applicable margin). Further, our remaining interest rate
swaps no longer qualified for hedge accounting after the second
amendment in 2009, and thereafter the entire
mark-to-market
adjustment was recorded in our statement of operations as
opposed to being recorded in equity as a component of other
comprehensive income under the prior cash flow hedge accounting
treatment. |
|
(3) |
|
Represents historical actual diluted earnings (loss) per common
share outstanding for each of the historical periods. Share
amounts and per share data for our predecessor have not been
adjusted to reflect our
four-for-five
reverse stock split effective November 29, 2010, as the
capital structure of our predecessor is not comparable. |
|
(4) |
|
From May 11, 2007 until October 10, 2009, we had
elected to be taxed under the Internal Revenue Code of 1986, as
amended (the Internal Revenue Code) as a
subchapter S corporation. A subchapter S corporation passes
through essentially all taxable earnings and losses to its
stockholders and does not pay federal income taxes at the
corporate level. Historical income taxes during this time
consist mainly of state income taxes in certain states that do
not recognize subchapter S corporations, and an income tax
provision or benefit was recorded for certain of our
subsidiaries, including our Mexican subsidiaries and our sole
domestic captive insurance company at the time, which were not
eligible to be treated as qualified subchapter S corporations.
In October 2009, we elected to be taxed as a subchapter C
corporation. For comparative purposes, we have included a pro
forma (provision) benefit for income taxes assuming we had been
taxed as a subchapter C corporation in all periods when our
subchapter S corporation election was in effect. The pro forma
effective tax rate for 2009 of 5.2% differs from the expected
federal tax benefit of 35% primarily as a result of income
recognized for tax purposes on the partial cancellation of the
stockholder loan agreement with Mr. Moyes and the Moyes
Affiliates, which reduced the tax benefit rate by 32.6%. In
2008, the pro forma effective tax rate was reduced by 8.8% for
stockholder distributions and 4.4% for non-deductible goodwill
impairment charges, which resulted in a 19.7% effective tax
rate. In 2007, the pro forma effective tax rate of 5.8% resulted
primarily from a non-deductible goodwill impairment charge,
which reduced the rate by 25.1%. |
14
|
|
|
(5) |
|
Effective January 1, 2010, we adopted ASU
No. 2009-16
under which we were required to account for our 2008 RSA as a
secured borrowing on our balance sheet as opposed to a sale,
with our 2008 RSA program fees characterized as interest
expense. From March 27, 2008 through December 31,
2009, our 2008 RSA has been accounted for as a true sale in
accordance with GAAP. Therefore, as of December 31, 2009
and 2008, such accounts receivable and associated obligation are
not reflected in our consolidated balance sheets. For periods
prior to March 27, 2008, and again beginning
January 1, 2010, accounts receivable and associated
obligation are recorded on our balance sheet. Long-term debt
excludes securitization amounts outstanding for each period. |
|
(6) |
|
During the period we were taxed as a subchapter S corporation,
we paid dividends to our stockholders in amounts equal to the
actual amount of interest due and payable under the stockholder
loan agreement with Mr. Moyes and the Moyes Affiliates.
Also, in 2010 we made $1.3 million of distributions in the
form of tax payments, on behalf of the stockholders, to certain
state tax jurisdictions as required with our filing of the S
corporation income tax returns for our final subchapter S
corporation period. |
|
(7) |
|
We use the term Adjusted EBITDA throughout this
prospectus. Adjusted EBITDA, as we define this term, is not
presented in accordance with GAAP. We use Adjusted EBITDA as a
supplement to our GAAP results in evaluating certain aspects of
our business, as described below. |
|
|
|
We define Adjusted EBITDA as net income (loss) plus
(i) depreciation and amortization, (ii) interest and
derivative interest expense, including other fees and charges
associated with indebtedness, net of interest income,
(iii) income taxes, (iv) non-cash impairments,
(v) non-cash equity compensation expense, (vi) other
unusual non-cash items, and (vii) excludable transaction
costs. |
|
|
|
While we were private, our board of directors and executive
management team focused on Adjusted EBITDA as a key measure of
our performance, for business planning, and for incentive
compensation purposes. Adjusted EBITDA assists us in comparing
our performance over various reporting periods on a consistent
basis because it removes from our operating results the impact
of items that, in our opinion, do not reflect our core operating
performance. Our method of computing Adjusted EBITDA is
consistent with that used in our debt covenants and also is
routinely reviewed by management for that purpose. For a
reconciliation of our Adjusted EBITDA to our net income (loss),
the most directly related GAAP measure, please see the table
below. |
|
|
|
Our Chief Executive Officer, who is our chief operating
decision-maker, and our compensation committee, used Adjusted
EBITDA thresholds in setting performance goals for our
employees, including senior management. |
|
|
|
As a result, the annual bonuses for certain members of our
management typically were based at least in part on Adjusted
EBITDA. At the same time, some or all of these executives have
responsibility for monitoring our financial results generally,
including the items included as adjustments in calculating
Adjusted EBITDA (subject ultimately to review by our board of
directors in the context of the boards review of our
quarterly financial statements). While many of the adjustments
(for example, transaction costs and our previous senior secured
credit facility fees) involve mathematical application of items
reflected in our financial statements, others (such as
determining whether a non-cash item is unusual) involve a degree
of judgment and discretion. While we believe that all of these
adjustments are appropriate, and although the quarterly
calculations are subject to review by our board of directors in
the context of the boards review of our quarterly
financial statements and certification by our Chief Financial
Officer in a compliance certificate provided to the lenders
under our previous senior secured credit facility, this
discretion may be viewed as an additional limitation on the use
of Adjusted EBITDA as an analytical tool. |
|
|
|
We believe our presentation of Adjusted EBITDA is useful because
it provides investors and securities analysts the same
information that we use internally for purposes of assessing our
core operating performance. |
|
|
|
Adjusted EBITDA is not a substitute for net income (loss),
income (loss) from continuing operations, cash flows from
operating activities, operating margin, or any other measure
prescribed by GAAP. There are limitations to using non-GAAP
measures such as Adjusted EBITDA. Although we believe that
Adjusted EBITDA can make an evaluation of our operating
performance more consistent because it removes items that, in
our opinion, do not reflect our core operations, other companies
in our industry may define |
15
|
|
|
|
|
Adjusted EBITDA differently than we do. As a result, it may be
difficult to use Adjusted EBITDA or similarly named non-GAAP
measures that other companies may use to compare the performance
of those companies to our performance. |
|
|
|
Because of these limitations, Adjusted EBITDA should not be
considered a measure of the income generated by our business or
discretionary cash available to us to invest in the growth of
our business. Our management compensates for these limitations
by relying primarily on our GAAP results and using Adjusted
EBITDA supplementally. |
|
|
|
A reconciliation of GAAP net income (loss) to Adjusted EBITDA
for each of the periods indicated is as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
through
|
|
|
Year Ended
|
|
|
|
Ended March 31,
|
|
|
Year Ended December 31,
|
|
|
May 10,
|
|
|
December 31,
|
|
(Dollars in thousands)
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
3,205
|
|
|
$
|
(53,001
|
)
|
|
$
|
(125,413
|
)
|
|
$
|
(435,645
|
)
|
|
$
|
(146,555
|
)
|
|
$
|
(96,188
|
)
|
|
$
|
(30,422
|
)
|
|
$
|
141,055
|
|
Adjusted for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
55,085
|
|
|
|
65,497
|
|
|
|
226,751
|
|
|
|
253,531
|
|
|
|
275,832
|
|
|
|
187,043
|
|
|
|
82,949
|
|
|
|
222,376
|
|
Interest expense
|
|
|
37,501
|
|
|
|
62,596
|
|
|
|
251,129
|
|
|
|
200,512
|
|
|
|
222,177
|
|
|
|
171,115
|
|
|
|
9,454
|
|
|
|
26,870
|
|
Derivative interest expense (income)
|
|
|
4,680
|
|
|
|
23,714
|
|
|
|
70,399
|
|
|
|
55,634
|
|
|
|
18,699
|
|
|
|
13,233
|
|
|
|
(177
|
)
|
|
|
(1,134
|
)
|
Interest income
|
|
|
(467
|
)
|
|
|
(220
|
)
|
|
|
(1,379
|
)
|
|
|
(1,814
|
)
|
|
|
(3,506
|
)
|
|
|
(6,602
|
)
|
|
|
(1,364
|
)
|
|
|
(2,007
|
)
|
Income tax (benefit) expense
|
|
|
2,321
|
|
|
|
(9,525
|
)
|
|
|
(43,432
|
)
|
|
|
326,650
|
|
|
|
11,368
|
|
|
|
(234,316
|
)
|
|
|
(4,577
|
)
|
|
|
80,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
102,325
|
|
|
$
|
89,061
|
|
|
$
|
378,055
|
|
|
$
|
398,868
|
|
|
$
|
378,015
|
|
|
$
|
34,285
|
|
|
$
|
55,863
|
|
|
$
|
467,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash impairments(a)
|
|
|
|
|
|
|
1,274
|
|
|
|
1,274
|
|
|
|
515
|
|
|
|
24,529
|
|
|
|
256,305
|
|
|
|
|
|
|
|
27,595
|
|
Non-cash equity comp(b)
|
|
|
2,424
|
|
|
|
|
|
|
|
22,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,501
|
|
|
|
3,627
|
|
Loss on debt extinguishment
|
|
|
|
|
|
|
|
|
|
|
95,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other unusual non-cash items(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,418
|
|
|
|
|
|
Excludable transaction costs(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,477
|
|
|
|
7,054
|
|
|
|
1,007
|
|
|
|
38,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
104,749
|
|
|
$
|
90,335
|
|
|
$
|
497,673
|
|
|
$
|
405,860
|
|
|
$
|
409,598
|
|
|
$
|
291,597
|
|
|
$
|
109,687
|
|
|
$
|
498,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Non-cash impairments include the following:
|
|
|
|
|
|
For the three months ended March 31, 2010, revenue
equipment with a carrying amount of $3.6 million was
written down to its fair value of $2.3 million, resulting
in an impairment charge of $1.3 million in the first
quarter of 2010.
|
|
|
|
|
|
for the year ended December 31, 2010, revenue equipment
with a carrying amount of $3.6 million was written down to
its fair value of $2.3 million, resulting in an impairment
charge of $1.3 million;
|
|
|
|
for the year ended December 31, 2009, non-operating real
estate properties held and used with a carrying amount of
$2.1 million were written down to their fair value of
$1.6 million, resulting in an impairment charge of
$0.5 million;
|
|
|
|
for the year ended December 31, 2008, we incurred
$24.5 million in pre-tax impairment charges comprised of a
$17.0 million impairment of goodwill relating to our Mexico
freight transportation reporting unit, and impairment charges
totaling $7.5 million on tractors, trailers, and several
non-operating real estate properties and other assets;
|
|
|
|
for the year ended December 31, 2007, we recorded a
goodwill impairment of $238.0 million pre-tax related to
our U.S. freight transportation reporting unit and trailer
impairment of $18.3 million pre-tax; and
|
|
|
|
for the year ended December 31, 2006, we incurred pre-tax
charges of $9.2 million related to the impairment of
certain trailers, Mexico real property and equipment, and
$18.4 million for the write-off of a note receivable and
other outstanding amounts related to our sale of our auto haul
business in April 2005.
|
16
|
|
|
|
|
(b) For the year ended December 31, 2010, we incurred
a $22.6 million one-time non-cash equity compensation
charge representing certain stock options that vested upon our
initial public offering and $0.3 million of ongoing equity
compensation expense following our initial public offering, each
on a pre-tax basis.
|
|
|
|
(c) For the period January 1, 2007 through
May 10, 2007, we incurred a $2.4 million pre-tax
impairment of a note receivable recorded in non-operating other
(income) expense.
|
|
|
|
(d) Excludable transaction costs include the following:
|
|
|
|
|
|
for the year ended December 31, 2009, we incurred
$4.2 million of pre-tax transaction costs in the third and
fourth quarters of 2009 related to an amendment to our senior
secured credit facility and the concurrent senior secured notes
amendments, and $2.3 million of pre-tax transaction costs
during the third quarter of 2009 related to our cancelled bond
offering;
|
|
|
|
for the year ended December 31, 2008, we incurred
$7.1 million of pre-tax expense associated with the closing
of our 2008 RSA on July 30, 2008, and financial advisory
fees associated with an amendment to our senior secured credit
facility;
|
|
|
|
for the year ended December 31, 2007, we incurred
$1.0 million in pre-tax transaction costs related to our
going private transaction; and
|
|
|
|
for the period January 1, 2007 to May 10, 2007, our
predecessor incurred $16.4 million related to
change-in-control
payments to former officers and $22.5 million for financial
advisory, legal, and accounting fees, all resulting from the
2007 Transactions.
|
|
|
|
(8) |
|
We use the term Adjusted Operating Ratio throughout
this prospectus. Adjusted Operating Ratio, as we define this
term, is not presented in accordance with GAAP. We use Adjusted
Operating Ratio as a supplement to our GAAP results in
evaluating certain aspects of our business, as described below. |
|
|
|
We define Adjusted Operating Ratio as (a) total operating
expenses, less (i) fuel surcharges, (ii) non-cash
impairment charges, (iii) other unusual items, and
(iv) excludable transaction costs, as a percentage of
(b) total revenue excluding fuel surcharge revenue. |
|
|
|
Our board of directors and executive management team also focus
on Adjusted Operating Ratio as a key indicator of our
performance from period to period. We believe fuel surcharge is
sometimes volatile and eliminating the impact of this source of
revenue (by netting fuel surcharge revenue against fuel expense)
affords a more consistent basis for comparing our results of
operations. We also believe excluding impairments and other
unusual items enhances the comparability of our performance from
period to period. For a reconciliation of our Adjusted Operating
Ratio to our Operating Ratio, please see the table below. |
|
|
|
We believe our presentation of Adjusted Operating Ratio is
useful because it provides investors and securities analysts the
same information that we use internally for purposes of
assessing our core operating performance. |
|
|
|
Adjusted Operating Ratio is not a substitute for operating
margin or any other measure derived solely from GAAP measures.
There are limitations to using non-GAAP measures such as
Adjusted Operating Ratio. Although we believe that Adjusted
Operating Ratio can make an evaluation of our operating
performance more consistent because it removes items that, in
our opinion, do not reflect our core operations, other companies
in our industry may define Adjusted Operating Ratio differently
than we do. As a result, it may be difficult to use Adjusted
Operating Ratio or similarly named non-GAAP measures that other
companies may use to compare the performance of those companies
to our performance. |
17
|
|
|
|
|
A reconciliation of our Adjusted Operating Ratio for each of the
periods indicated is as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
Three Months Ended
|
|
|
|
|
|
January 1, 2007
|
|
|
Year Ended
|
|
|
|
March 31,
|
|
|
Year Ended December 31,
|
|
|
Through May 10,
|
|
|
December 31,
|
|
(Dollars in thousands)
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total GAAP operating revenue
|
|
$
|
758,889
|
|
|
$
|
654,830
|
|
|
$
|
2,929,723
|
|
|
$
|
2,571,353
|
|
|
$
|
3,399,810
|
|
|
$
|
2,180,293
|
|
|
$
|
1,074,723
|
|
|
$
|
3,172,790
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel surcharge revenue
|
|
|
137,817
|
|
|
|
88,816
|
|
|
|
(429,155
|
)
|
|
|
(275,373
|
)
|
|
|
(719,617
|
)
|
|
|
(344,946
|
)
|
|
|
(147,507
|
)
|
|
|
(462,529
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue, net of fuel surcharge revenue
|
|
|
621,072
|
|
|
|
566,014
|
|
|
|
2,500,568
|
|
|
|
2,295,980
|
|
|
|
2,680,193
|
|
|
|
1,835,347
|
|
|
|
927,216
|
|
|
|
2,710,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total GAAP operating expense
|
|
|
712,160
|
|
|
|
631,637
|
|
|
|
2,686,668
|
|
|
|
2,439,352
|
|
|
|
3,284,874
|
|
|
|
2,334,984
|
|
|
|
1,100,380
|
|
|
|
2,929,059
|
|
Adjusted for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel surcharge revenue
|
|
|
(137,817
|
)
|
|
|
(88,816
|
)
|
|
|
(429,155
|
)
|
|
|
(275,373
|
)
|
|
|
(719,617
|
)
|
|
|
(344,946
|
)
|
|
|
(147,507
|
)
|
|
|
(462,529
|
)
|
Excludable transaction costs(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,477
|
)
|
|
|
(7,054
|
)
|
|
|
(1,007
|
)
|
|
|
(38,905
|
)
|
|
|
|
|
Non-cash impairments(b)
|
|
|
|
|
|
|
(1,274
|
)
|
|
|
(1,274
|
)
|
|
|
(515
|
)
|
|
|
(24,529
|
)
|
|
|
(256,305
|
)
|
|
|
|
|
|
|
(27,595
|
)
|
Other unusual items(c)
|
|
|
|
|
|
|
(7,382
|
)
|
|
|
(7,382
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,952
|
|
Acceleration of non-cash stock options(d)
|
|
|
|
|
|
|
|
|
|
|
(22,605
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating expense
|
|
|
574,343
|
|
|
|
534,165
|
|
|
$
|
2,226,252
|
|
|
$
|
2,156,987
|
|
|
$
|
2,533,674
|
|
|
$
|
1,732,726
|
|
|
$
|
902,843
|
|
|
$
|
2,448,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Operating Ratio(e)
|
|
|
92.5
|
%
|
|
|
94.4
|
%
|
|
|
89.0
|
%
|
|
|
93.9
|
%
|
|
|
94.5
|
%
|
|
|
94.4
|
%
|
|
|
97.4
|
%
|
|
|
90.4
|
%
|
Operating Ratio
|
|
|
93.8
|
%
|
|
|
96.5
|
%
|
|
|
91.7
|
%
|
|
|
94.9
|
%
|
|
|
96.6
|
%
|
|
|
107.1
|
%
|
|
|
102.4
|
%
|
|
|
92.3
|
%
|
|
|
|
|
|
(a) Excludable transaction costs include the items
discussed in (7)(d) above.
|
|
|
|
(b) Non-cash impairments include items discussed in note
(7)(a) above.
|
|
|
|
(c) Other unusual items included the following:
|
|
|
|
|
|
in the first quarter of 2010, we incurred $7.4 million of
incremental depreciation expense reflecting managements
revised estimates regarding salvage value and useful lives for
approximately 7,000 dry van trailers, which management decided
during the quarter to scrap; and
|
|
|
|
for the year ended December 31, 2006, we recognized a
$4.8 million and $5.2 million pre-tax benefit for the
change in our discretionary match to our 401(k) profit sharing
plan and a gain from the settlement of litigation, respectively.
|
|
|
|
|
|
(d) Acceleration of non-cash stock options includes the
following:
|
|
|
|
|
|
for the year ended December 31, 2010, we incurred a
$22.6 million one-time non-cash equity compensation charge
for certain stock options that vested upon our initial public
offering. Going forward, ongoing quarterly non-cash equity
compensation expense for existing grants is estimated to be
approximately $2.4 million per quarter in the first three
quarters of 2011 and $1.8 million per quarter thereafter
through the third quarter of 2012, at which point approximately
87% of awards outstanding at December 31, 2010 will be
vested; and
|
|
|
|
for the period January 1, 2007 to May 10, 2007, we
incurred $11.1 million related to the acceleration of stock
incentive awards as a result of the 2007 Transactions.
|
|
|
|
|
|
(e) We have not included adjustments to Adjusted Operating
Ratio to reflect the non-cash amortization expense of
$19.3 million, $22.0 million, $24.2 million, and
$16.8 million for the years ended December 31, 2010,
2009, 2008, and 2007, respectively, relating to certain
intangible assets identified in the 2007 going-private
transaction through which Swift Corporation acquired Swift
Transportation.
|
|
(9) |
|
We use the term Adjusted EPS throughout this
prospectus. Adjusted EPS, as we define this term, is not
presented in accordance with GAAP. We use Adjusted EPS as a
supplement to our GAAP results in evaluating certain aspects of
our business, as described below. |
|
|
|
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 unusual non-cash items, (iv) excludable
transaction costs, and (v) the
mark-to-market
adjustment on our interest rate swaps that is recognized in the
statement of operations in a given period; (2) reduced by
income taxes at 39%, our normalized effective tax rate;
(3) divided by weighted average diluted shares outstanding.
In addition, we expect an adjustment to this calculation in 2011
and 2012 for $15.1 million and $5.3 million,
respectively, |
18
|
|
|
|
|
representing derivative interest expense from the amortization
of previous losses on our terminated interest rate swaps
recorded in accumulated other comprehensive income. Such losses
were incurred in prior periods when hedge accounting applied to
our swaps and will be expensed in the periods indicated in
accordance with Topic 815, Derivatives and
Hedging. In calculating diluted shares outstanding for
the purposes of Adjusted EPS, the dilutive effect of outstanding
stock options has only been included for the period following
our initial public offering when a market price was available to
assess the dilutive effect of such options. |
|
|
|
Now that we are public, our board of directors and executive
management team focus on Adjusted EPS as a key measure of our
performance, for business planning, and for incentive
compensation purposes. Adjusted EPS assists us in comparing our
performance over various reporting periods on a consistent basis
because it removes from our operating results the impact of
items that, in our opinion, do not reflect our core operating
performance. For a reconciliation of our Adjusted EPS to our net
income (loss), the most directly related GAAP measure, please
see the table below. |
|
|
|
Our Chief Executive Officer, who is our chief operating
decision-maker, and our compensation committee, now use Adjusted
EPS thresholds in setting performance goals for our employees,
including senior management. |
|
|
|
As a result, the annual bonuses for certain members of our
management will be based at least in part on Adjusted EPS. At
the same time, some or all of these executives have
responsibility for monitoring our financial results generally,
including the items included as adjustments in calculating
Adjusted EPS (subject ultimately to review by our board of
directors in the context of the boards review of our
quarterly financial statements). While many of the adjustments
(for example, transaction costs and our previous senior secured
credit facility fees) involve mathematical application of items
reflected in our financial statements, others (such as
determining whether a non-cash item is unusual) involve a degree
of judgment and discretion. While we believe that all of these
adjustments are appropriate, and although the quarterly
calculations are subject to review by our board of directors in
the context of the boards review of our quarterly
financial statements, this discretion may be viewed as an
additional limitation on the use of Adjusted EPS as an
analytical tool. |
|
|
|
We believe our presentation of 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. |
|
|
|
Adjusted EPS is not a substitute for income (loss) per share or
any other measure prescribed by GAAP. There are limitations to
using non-GAAP measures such as Adjusted EPS. Although we
believe that Adjusted EPS can make an evaluation of our
operating performance more consistent because it removes items
that, in our opinion, do not reflect our core operations, other
companies in our industry may define Adjusted EPS differently
than we do. As a result, it may be difficult to use Adjusted EPS
or similarly named non-GAAP measures that other companies may
use to compare the performance of those companies to our
performance. |
|
|
|
Because of these limitations, Adjusted EPS should not be
considered a measure of the income generated by our business.
Our management compensates for these limitations by relying
primarily on our GAAP results and using Adjusted EPS
supplementally. |
19
|
|
|
|
|
A reconciliation of GAAP diluted earnings (loss) per share to
Adjusted EPS for each of the periods indicated is as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
|
Three Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2007
|
|
|
Year Ended
|
|
|
|
March 31,
|
|
|
Year Ended December 31,
|
|
|
through
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
May 10, 2007
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
0.02
|
|
|
$
|
(0.88
|
)
|
|
$
|
(1.98
|
)
|
|
$
|
(7.25
|
)
|
|
$
|
(2.44
|
)
|
|
$
|
(2.43
|
)
|
|
$
|
(0.40
|
)
|
|
$
|
1.86
|
|
Adjusted for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) expense
|
|
|
0.02
|
|
|
|
(0.16
|
)
|
|
|
(0.69
|
)
|
|
|
5.43
|
|
|
|
0.19
|
|
|
|
(5.91
|
)
|
|
|
(0.06
|
)
|
|
|
1.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
0.04
|
|
|
|
(1.04
|
)
|
|
|
(2.67
|
)
|
|
|
(1.82
|
)
|
|
|
(2.25
|
)
|
|
|
(8.34
|
)
|
|
|
(0.46
|
)
|
|
|
2.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash impairments(a)
|
|
|
|
|
|
|
0.02
|
|
|
|
0.02
|
|
|
|
0.01
|
|
|
|
0.41
|
|
|
|
6.47
|
|
|
|
|
|
|
|
0.36
|
|
Acceleration of non-cash stock options(b)
|
|
|
|
|
|
|
|
|
|
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.15
|
|
|
|
|
|
Loss on debt extinguishment
|
|
|
|
|
|
|
|
|
|
|
1.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other unusual non-cash items(c)
|
|
|
|
|
|
|
0.12
|
|
|
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.03
|
|
|
|
(0.13
|
)
|
Excludable transaction costs(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.11
|
|
|
|
0.12
|
|
|
|
0.03
|
|
|
|
0.51
|
|
|
|
|
|
Mark-to-market
adjustment of interest rate swaps(e)
|
|
|
|
|
|
|
0.19
|
|
|
|
0.39
|
|
|
|
0.13
|
|
|
|
(0.09
|
)
|
|
|
0.33
|
|
|
|
|
|
|
|
(0.01
|
)
|
Amortization of certain intangibles(f)
|
|
|
0.03
|
|
|
|
0.09
|
|
|
|
0.30
|
|
|
|
0.37
|
|
|
|
0.40
|
|
|
|
0.42
|
|
|
|
|
|
|
|
|
|
Amortization of unrealized losses on interest rate swaps(g)
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted income (loss) before income taxes
|
|
|
0.10
|
|
|
|
(0.62
|
)
|
|
|
0.03
|
|
|
|
(1.20
|
)
|
|
|
(1.41
|
)
|
|
|
(1.09
|
)
|
|
|
0.23
|
|
|
|
3.14
|
|
Provision for income tax (benefit) expense at normalized
effective rate
|
|
|
0.04
|
|
|
|
(0.29
|
)
|
|
|
0.01
|
|
|
|
(0.47
|
)
|
|
|
(0.55
|
)
|
|
|
(0.43
|
)
|
|
|
0.09
|
|
|
|
1.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EPS
|
|
$
|
0.06
|
|
|
$
|
(0.38
|
)
|
|
$
|
0.02
|
|
|
$
|
(0.73
|
)
|
|
$
|
(0.86
|
)
|
|
$
|
(0.67
|
)
|
|
$
|
0.14
|
|
|
$
|
1.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Non-cash impairments include the items noted in (7)(a)
above.
|
|
|
|
(b) Acceleration of noncash stock options includes the
items noted in (8)(d) above.
|
|
|
|
(c) Other unusual non-cash items include the items noted in
(7)(c) and (8)(c) above.
|
|
|
|
(d) Excludable transaction costs include the items
discussed in (7)(d) above.
|
|
|
|
(e) Mark-to-market
adjustment of interest rate swaps reflects the portion of the
change in fair value of these financial instruments which is
recorded in earnings in each period indicated and excludes the
portion recorded in accumulated other comprehensive income under
cash flow hedge accounting.
|
|
|
|
(f) Amortization of certain intangibles reflects the
non-cash amortization expense of $19.3 million,
$22.0 million, $24.2 million, and $16.8 million
for the years ended December 31, 2010, 2009, 2008, and
2007, respectively, relating to certain intangible assets
identified in the 2007 going-private transaction through which
Swift Corporation acquired Swift Transportation.
|
|
|
|
|
|
(g) Amortization of unrealized losses on interest rate
swaps reflects the non-cash amortization expense of
$4.7 million for the three months ended March 31, 2011
comprised of previous losses recorded in accumulated other
comprehensive income related to the interest rate swaps we
terminated upon our initial public offering and concurrent
refinancing transactions in December 2010. Such losses were
incurred in prior periods when hedge accounting applied to the
swaps and are expensed in relation to the hedged interest
payments through the original maturity of the swaps in August
2012.
|
20
CONSEQUENCES
OF NOT EXCHANGING RESTRICTED NOTES
If you do not exchange your Restricted Notes in the exchange
offer, your Restricted Notes will continue to be subject to the
restrictions on transfer currently applicable to the Restricted
Notes. In general, you may offer or sell your Restricted Notes
only:
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|
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|
if they are registered under the Securities Act and applicable
state securities laws;
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|
if they are offered or sold under an exemption from registration
under the Securities Act and applicable state securities
laws; or
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|
|
if they are offered or sold in a transaction not subject to the
Securities Act and applicable state securities laws.
|
We do not currently intend to register the Restricted Notes
under the Securities Act. Under some circumstances, however,
holders of the Restricted Notes, including holders who are not
permitted to participate in the exchange offer or who may not
freely resell Exchange Notes received in the exchange offer, may
require us to file, and to cause to become effective, a shelf
registration statement covering resales of Restricted Notes by
these holders. For more information regarding the consequences
of not tendering your Restricted Notes and our obligation to
file a shelf registration statement, see The Exchange
Offer Consequences of Exchanging or Failing to
Exchange Restricted Notes and Description of the
Exchange Notes Registration Rights.
21
SUMMARY
DESCRIPTION OF THE NOTES
The summary below describes the principal terms of the Exchange
Notes. Certain of the terms and conditions described below are
subject to important limitations and exceptions. The
Description of the Exchange Notes section of this
prospectus contains a more detailed description of the terms and
conditions of the Exchange Notes.
|
|
|
Issuer |
|
Swift Services Holdings, Inc., a Delaware corporation. |
|
Exchange Notes |
|
$500.0 million aggregate principal amount of
10.000% Senior Second Priority Secured Notes due 2018, the
issuance of which has been registered under the Securities Act. |
|
Maturity Date |
|
The Exchange Notes will mature on November 15, 2018. |
|
Interest |
|
The Exchange Notes will bear interest at a rate of 10.000% per
annum. |
|
Interest Payment Dates |
|
May 15 and November 15 of each year. |
|
Guarantees |
|
The Exchange Notes will be fully and unconditionally guaranteed
by Swift Transportation Company, the ultimate parent company of
the issuer, and by each of Swift Transportation Companys
existing and future domestic subsidiaries that guarantee Swift
Transportations obligations under the senior secured
credit facilities (the Subsidiary Guarantors
and, together with Swift, the guarantors).
None of Swifts foreign subsidiaries, special purpose
financing subsidiaries, captive insurance companies or Swift
Academy LLC guarantee senior the secured credit facilities or
will guarantee the Exchange Notes. |
|
|
|
Under certain circumstances, a Guarantors guarantee of the
Exchange Notes will be released automatically. See
Description of the Exchange Notes Note
Guarantees. |
|
Security |
|
The Exchange Notes and the guarantees will be senior secured
obligations of the issuer and the guarantors, respectively, and
will rank senior in right of payment to all of the issuers
and the guarantors present and future indebtedness that is
expressly subordinated in right of payment. The Exchange Notes
and the guarantees will be secured, subject to certain
exceptions and permitted liens, by second priority liens on all
of the issuers and the guarantors assets and capital
stock that secure the issuers and the guarantors
obligations under the senior secured credit facilities. |
|
|
|
No appraisal of any collateral has been prepared by us or on our
behalf in connection with this exchange offer. The value of the
collateral at any time will depend on market and other economic
conditions, including the availability of suitable buyers for
the collateral. In addition, the indenture governing the
Exchange Notes (the indenture) and the
security documents allow the issuer and the guarantors to incur
other permitted liens on our and their assets, as well as
additional indebtedness that may be secured by first or second
priority liens on the collateral securing the Exchange Notes. |
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|
|
Under certain circumstances, to the extent that collateral is
released under the senior secured credit facilities, the
security interest of the holders of the Exchange Notes in the
same collateral will be |
22
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|
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|
|
released automatically. See Description of the Exchange
Notes Security. |
|
Intercreditor Agreement |
|
Pursuant to an intercreditor agreement, the liens securing the
Exchange Notes are expressly subordinated to all liens that
secure the senior secured credit facilities and future
indebtedness incurred to replace or refinance the senior secured
credit facilities in accordance with the terms of the indenture.
Pursuant to the intercreditor agreement, the second priority
liens securing the Exchange Notes may not be enforced at any
time when the obligations secured by the first priority liens
are outstanding, subject to certain limited exceptions. The
holders of the first priority liens will receive all proceeds
from any realization on the collateral until the obligations
secured by the first priority liens are paid in full. |
|
Ranking |
|
The Exchange Notes and the related guarantees will be the
issuers and the guarantors senior obligations and
will rank: |
|
|
|
equal in right of payment with all of the
issuers and the guarantors senior indebtedness; and
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|
senior to all of the issuers and the
guarantors subordinated indebtedness.
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|
The Exchange Notes and the related guarantees also will be
effectively senior to the issuers unsecured indebtedness
and effectively subordinated to the issuers and the
guarantors obligations under the senior secured credit
facilities, any other indebtedness secured by a first priority
lien on the same collateral and any other indebtedness secured
by assets other than the collateral, in each case to the extent
of the value of the assets securing such obligations. See
Description of Other Indebtedness. |
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|
As of March 31, 2011, we had approximately
$1.3 billion of indebtedness secured by liens on the
collateral effectively senior to the liens securing the Exchange
Notes. |
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|
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|
The Exchange Notes will also be effectively junior to
liabilities of our subsidiaries that do not guarantee the
Exchange Notes. Our non-guarantor subsidiaries had, before
intercompany eliminations, total liabilities, including trade
payables, of $291.0 million and total assets of
$506.9 million as of March 31, 2011, and had operating
revenue, before intercompany eliminations, of $41.3 million
for the three months ended March 31, 2011. |
|
|
|
Optional Redemption |
|
Prior to November 15, 2014, the issuer may redeem all or
part of the Exchange Notes at a redemption price equal to 100%
of the principal amount of the Exchange Notes redeemed plus an
applicable premium set forth herein, plus accrued and unpaid
interest, if any, to the redemption date. Beginning on
November 15, 2014, the issuer may redeem some or all of the
Exchange Notes at any time and from time to time at the
redemption prices set forth herein plus accrued and unpaid
interest, if any, to the redemption date. |
|
|
|
In addition, at any time prior to November 15, 2013, the
issuer may redeem up to 35% of the aggregate principal amount of
the Exchange Notes with the proceeds of certain equity offerings
at a |
23
|
|
|
|
|
redemption price of 110.000% of the principal amount of the
Exchange Notes redeemed plus accrued and unpaid interest, if
any, to the redemption date. |
|
|
|
Please see the section entitled Description of the
Exchange Notes Optional Redemption. |
|
Mandatory Offer to Purchase; Asset Sales |
|
If a change of control occurs, the issuer must give holders of
the Exchange Notes an opportunity to sell their Exchange Notes
at a purchase price of 101% of the principal amount of such
Exchange Notes, plus accrued and unpaid interest, to the date of
repurchase. The term change of control is defined
under Description of the Exchange Notes
Certain Definitions. |
|
|
|
If the issuer or any restricted subsidiaries sell assets under
certain circumstances, the issuer will be required to make an
offer to purchase the Exchange Notes at their face amount, plus
accrued and unpaid interest, if any, to the date of repurchase.
See Description of the Exchange Notes
Repurchase at the Option of Holders Asset
sales. |
|
Certain Covenants |
|
The indenture contains covenants that, among other things, limit
our ability and the ability of the issuer and the restricted
subsidiaries to, among other things: |
|
|
|
incur additional indebtedness or issue certain
preferred equity;
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|
pay dividends on, repurchase or make distributions
in respect of our or their capital stock, prepay, redeem or
repurchase certain debt or make other restricted payments;
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|
make certain investments;
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|
create liens;
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|
enter into sale and leaseback transactions;
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|
|
enter into agreements restricting our
subsidiaries ability to pay dividends to us;
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|
consolidate, merge, sell or otherwise dispose of all
or substantially all of our or their assets;
|
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|
|
enter into certain transactions with our or their
affiliates; and
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|
|
|
designate our subsidiaries as unrestricted
subsidiaries.
|
|
|
|
If the Exchange Notes are rated investment grade by the credit
rating agencies, certain of these covenants will be suspended.
These covenants are also subject to a number of important
limitations and exceptions. See Description of the
Exchange Notes Certain Covenants. |
24
RISK
FACTORS
Investing in the in the Exchange Notes involves a high degree
of risk. You should carefully consider the following information
about these risks, together with the other information included
in this prospectus, before tendering your Restricted Notes in
the exchange offer. We cannot assure you that any of the events
discussed in the risk factors below will not occur. If they do,
our business, financial condition or results of operations could
be materially and adversely affected and you may lose all or
part of your investment in the Exchange Notes.
Risks
Related to Our Indebtedness and the Exchange Notes
We
have significant ongoing capital requirements that could harm
our financial condition, results of operations, and cash flows
if we are unable to generate sufficient cash from operations, or
obtain financing on favorable terms.
The truckload industry is capital intensive. Historically, we
have depended on cash from operations, borrowings from banks and
finance companies, issuance of notes, and leases to expand the
size of our terminal network and revenue equipment fleet and to
upgrade our revenue equipment. We expect that capital
expenditures to replace and upgrade our revenue equipment will
increase from their low levels in 2009 to maintain or lower our
current average company tractor age, to upgrade our trailer
fleet that has increased in age over our historical average age,
and as justified by increased freight volumes, to expand our
company tractor fleet, tractors we lease to owner-operators, and
our intermodal containers. See Managements
Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources.
There continues to be concern over the stability of the credit
markets. If the credit markets weaken, our business, financial
results, and results of operations could be materially and
adversely affected, especially if consumer confidence declines
and domestic spending decreases. If the credit markets erode, we
may not be able to access our current sources of credit and our
lenders may not have the capital to fund those sources. We may
need to incur additional indebtedness or issue debt or equity
securities in the future to refinance existing debt, fund
working capital requirements, make investments, or for general
corporate purposes. As a result of contractions in the credit
market, as well as other economic trends in the credit market,
we may not be able to secure financing for future activities on
satisfactory terms, or at all.
In addition, the indenture provides that we may only incur
additional indebtedness if, after giving effect to the new
incurrence, a minimum fixed charge coverage ratio of 2.00:1.00
is met or the indebtedness qualifies under certain specifically
enumerated carve-outs and debt incurrence baskets, including a
provision that permits us to incur capital lease obligations of
up to $350 million at any one time. As of March 31,
2011, we had a fixed charge coverage ratio of 3.47:1.00.
However, there can be no assurance that we can maintain a fixed
charge coverage ratio over 2.00:1.00, in which case our ability
to incur additional indebtedness under our existing credit
arrangements to satisfy our ongoing capital requirements would
be limited as noted above, although we believe the combination
of our expected cash flows, financing available through allowed
additional indebtedness and operating leases which are not
subject to debt incurrence baskets, the capital lease basket,
and the funds available to us through our accounts receivable
sale facility and our revolving credit facility will be
sufficient to fund our expected capital expenditures for the
remainder 2011.
If we are unable to generate sufficient cash from operations,
obtain sufficient financing on favorable terms in the future, or
maintain compliance with financial and other covenants in our
financing agreements in the future, we may face liquidity
constraints or be forced to enter into less favorable financing
arrangements or operate our revenue equipment for longer periods
of time, any of which could reduce our profitability.
Additionally, such events could impact our ability to provide
services to our customers and may materially and adversely
affect our business, financial results, current operations,
results of operations, and potential investments.
25
Our
substantial leverage could adversely affect our ability to raise
additional capital to fund our operations, limit our ability to
react to changes in the economy or our industry, and prevent us
from meeting our obligations under our senior secured credit
facility and the Restricted Notes.
As of March 31, 2011, our total indebtedness outstanding
was approximately $1,829.8 million and our total
stockholders deficit was $9.8 million. Our high
degree of leverage could have important consequences, including:
|
|
|
|
|
increasing our vulnerability to adverse economic, industry, or
competitive developments;
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|
|
|
requiring a substantial portion of cash flow from operations to
be dedicated to the payment of principal and interest on our
indebtedness, therefore reducing our ability to use our cash
flow to fund our operations, capital expenditures, and future
business opportunities;
|
|
|
|
exposing us to the risk of increased interest rates because
certain of our borrowings, including borrowings under our senior
secured credit facility, are at variable rates of interest;
|
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|
|
making it more difficult for us to satisfy our obligations with
respect to our indebtedness, and any failure to comply with the
obligations of any of our debt instruments, including
restrictive covenants and borrowing conditions, could result in
an event of default under the agreements governing such
indebtedness, including our senior secured credit facility and
the indenture;
|
|
|
|
restricting us from making strategic acquisitions or causing us
to make non-strategic divestitures;
|
|
|
|
limiting our ability to obtain additional financing for working
capital, capital expenditures, product development, debt service
requirements, acquisitions, and general corporate or other
purposes; and
|
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|
|
limiting our flexibility in planning for, or reacting to,
changes in our business, market conditions, or in the economy,
and placing us at a competitive disadvantage compared with our
competitors who are less highly leveraged and who, therefore,
may be able to take advantage of opportunities that our leverage
prevents us from exploiting.
|
Despite
our high indebtedness level, we and our subsidiaries are able to
incur significant additional amounts of debt, which could
further exacerbate the risks associated with our substantial
indebtedness.
We and our subsidiaries may be able to incur substantial
additional indebtedness in the future. Although the indenture
and our senior secured credit facilities contain restrictions on
the incurrence of additional indebtedness, these restrictions
are subject to a number of significant qualifications and
exceptions, and under certain circumstances, the amount of
indebtedness that could be incurred in compliance with these
restrictions could be substantial. As of March 31, 2011, we
had $234.8 million available for additional borrowing under
our senior secured credit facilities, all of which would be
effectively senior to the Exchange Notes to the extent of the
assets securing such additional borrowings. If we incur any
additional indebtedness that ranks equally with the Exchange
Notes, the holders of that debt will be entitled to share
ratably with you in any proceeds distributed in connection with
any insolvency, liquidation, reorganization, dissolution or
other winding up of us. If new debt is added to our and our
subsidiaries existing debt levels, the related risks that
we now face would increase. In addition, the indenture and our
senior secured credit facilities do not prevent us from
incurring obligations that do not constitute indebtedness
thereunder.
Our
debt agreements contain restrictions that limit our flexibility
in operating our business.
The indentures governing our senior secured credit facility and
the indenture contain various covenants that limit our ability
to engage in specified types of transactions, which limit our
and our subsidiaries ability to, among other things:
|
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|
|
incur additional indebtedness or issue certain preferred shares;
|
|
|
|
pay dividends on, repurchase, or make distributions in respect
of our capital stock or make other restricted payments;
|
26
|
|
|
|
|
make certain investments;
|
|
|
|
sell certain assets;
|
|
|
|
create liens;
|
|
|
|
enter into sale and leaseback transactions;
|
|
|
|
make capital expenditures;
|
|
|
|
prepay or defease specified debt;
|
|
|
|
consolidate, merge, sell, or otherwise dispose of all or
substantially all of our assets; and
|
|
|
|
enter into certain transactions with our affiliates.
|
In addition, our senior secured credit facility requires
compliance with certain financial tests and ratios, including
leverage and interest coverage ratios, and maximum capital
expenditures.
A breach of any of these covenants could result in a default
under one or more of these agreements, including as a result of
cross default provisions, and, in the case of our
$400.0 million revolving line of credit under our senior
secured credit facility and our current accounts receivable sale
agreement (the 2008 RSA), permit the lenders
to cease making loans to us. Upon the occurrence of an event of
default under our senior secured credit facility (including with
respect to our maintenance of financial ratios thereunder), the
lenders could elect to declare all amounts outstanding
thereunder to be immediately due and payable and terminate all
commitments to extend further credit. Such actions by those
lenders could cause cross defaults under our other indebtedness.
If we were unable to repay those amounts, the lenders under our
senior secured credit facility could proceed against the
collateral granted to them to secure that indebtedness. If the
lenders under our senior secured credit facility were to
accelerate the repayment of borrowings, we might not have
sufficient assets to repay all amounts borrowed thereunder as
well as the Restricted Notes. In addition, our 2008 RSA includes
certain restrictive covenants and cross default provisions with
respect to our senior secured credit facility and the indenture.
Failure to comply with these covenants and provisions may
jeopardize our ability to continue to sell receivables under the
facility and could negatively impact our liquidity.
When
the senior secured credit facilities mature, we may not be able
to refinance or replace them.
The senior secured credit facilities have an earlier maturity
date than that of the Exchange Notes. When the senior secured
credit facilities mature, we may need to refinance them and may
not be able to do so on favorable terms or at all. If we are
able to refinance maturing indebtedness, the terms of any
refinancing or alternate credit arrangements may contain terms
and covenants that restrict our financial and operating
flexibility.
We may
not be able to generate sufficient cash to service all of our
indebtedness, including the Exchange Notes, and may be forced to
take other actions to satisfy our obligations under our
indebtedness, which may not be successful.
Our ability to make scheduled payments on or to refinance our
debt obligations depends on our financial condition and
operating performance, which is subject to prevailing economic
and competitive conditions and to certain financial, business
and other factors beyond our control. We may not be able to
maintain a level of cash flows from operating activities
sufficient to permit us to pay the principal, premium, if any,
and interest on our indebtedness, including the Exchange Notes.
If our cash flows and capital resources are insufficient to fund
our debt service obligations, we may be forced to reduce or
delay investments and capital expenditures, or to sell assets,
seek additional capital or restructure or refinance our
indebtedness, including the Exchange Notes. Our ability to
restructure or refinance our debt will depend on the condition
of the capital markets and our financial condition at such time.
Any refinancing of our debt could be at higher interest rates
and may require us to comply with more onerous covenants, which
could further restrict our business operations. The terms of
existing or future debt instruments, including the senior
secured credit facilities, and the indenture restrict us from
adopting some of
27
these alternatives. In addition, any failure to make payments of
interest and principal on our outstanding indebtedness on a
timely basis would likely result in a reduction of our credit
rating, which could harm our ability to incur additional
indebtedness. These alternative measures may not be successful
and may not permit us to meet our scheduled debt service
obligations.
Some
of the cash that appears on our balance sheet may not be
available for use in our business or to meet our debt
obligations.
Insurance regulations require that we deposit cash in separate
accounts in respect of our captive insurance subsidiaries. The
cash deposits are blocked and not available for other uses in
our business and will not be in accounts subject to control
agreements in favor of the holders of the Exchange Notes. In
addition, at times we are required to make cash deposits to
support bank guarantees of our obligations under certain office
leases or amounts we owe to certain vendors from whom we
purchase goods and services. These cash deposits are not
available for other uses as long as the bank guarantees are
outstanding. Finally, certain countries in which we do business,
such as Mexico, have regulations that restrict our ability to
send cash out of the country. As a result, excess cash at our
subsidiaries in those countries in an amount equal to
approximately $6.8 million as of March 31,
2011 may not be available to meet obligations we have in
other countries. In light of the foregoing factors, the amount
of cash that appears on our balance sheet may exceed the amount
of liquidity we have available to meet our business or debt
obligations, including obligations under the Exchange Notes.
Certain
assets are excluded from the collateral.
Certain assets are excluded from the collateral securing the
Exchange Notes as described under Description of the
Exchange Notes Certain definitions
Excluded Assets including, among other things, customary
exclusions, such as accounts receivable and related assets
included in certain receivable transactions of restricted
subsidiaries; the capital stock of Swift Academy LLC, any
captive insurance subsidiaries, or other special purpose
entities; certain parcels of owned real property that are not
material to the operations of Swift on a consolidated basis; any
asset that is subject to liens under permitted purchase money
indebtedness or permitted capital leases to the extent such
indebtedness or capital leases contain a valid prohibition on
using these assets to secure other indebtedness; certain deposit
and securities accounts used for special purposes or which in
the aggregate assets are below a certain threshold; any asset as
to which the grant of a security interest would be void or
illegal under applicable governmental law, rule or regulation or
would result in the termination of that asset; any contract,
instrument, license or other document, any rights thereunder or
assets subject thereto, in which the grant of a security
interest therein would either (i) constitute a violation of
a valid and enforceable restriction in favor of a third party
(unless required consents have been obtained) or (ii) give
another party the right to terminate its obligations under such
contract, instrument, license or document; any motor vehicle
acquired by us, our Subsidiary Guarantors and our restricted
subsidiaries that we reasonably anticipate will become subject
to a financing subject to certain circumstances; and any capital
stock of any foreign subsidiary directly owned by us or any
Subsidiary Guarantor in excess of 65% of the outstanding voting
stock of such foreign subsidiary.
There
may not be sufficient collateral to pay all or any of the
Exchange Notes.
Indebtedness under the senior secured credit facilities
(referred to in these Risk Factors as the first
priority lien obligations) are secured, subject to
permitted liens and other agreed upon exceptions, by a first
priority lien on and perfected security interest in (1) all
the capital stock of the direct subsidiaries of Swift
Transportation and of each guarantor of the senior secured
credit facilities (limited, in the case of foreign subsidiaries,
to 65% of the capital stock of such subsidiaries) and
(2) substantially all present and future assets of Swift
Transportation and each such guarantor (including, without
limitation, intellectual property and material fee owned real
property), in each case to the extent otherwise permitted by
applicable law or contract. The Exchange Notes are secured by a
second priority lien on and perfected security interest in the
capital stock and assets that secure the first priority lien
obligations. The Exchange Notes effectively rank junior to all
amounts owed under the senior secured credit facilities as well
as certain hedging and cash management
28
obligations because the first priority lien obligations are
secured by a first priority lien on the same collateral that
will be pledged for the benefit of the Exchange Notes.
In addition, under the indenture, we, the issuer and our
restricted subsidiaries may incur additional debt that will be
secured by first priority liens on such collateral or by liens
on assets that are not pledged to the holders of Exchange Notes,
all of which effectively ranks senior to the Exchange Notes to
the extent of the value of the assets securing the debt.
Moreover, any collateral securing the Exchange Notes is shared
by additional indebtedness that may be secured on a second lien
basis, including any additional Exchange Notes issued under the
indenture which may be in an unlimited amount so long as the
requirements of the covenant limiting the incurrence of
indebtedness and certain other requirements are met. Please see
the section entitled Description of the Exchange
Notes.
In the event of a bankruptcy, liquidation, dissolution,
reorganization or similar proceeding against us, the issuer or
any of our existing or future domestic subsidiaries, the assets
that are pledged as shared collateral securing the first
priority lien obligations and the Exchange Notes must be used
first to pay the first priority lien obligations as well as any
other obligation secured by a first priority lien on the
collateral in full before the holders of the Exchange Notes and
other obligations secured by second priority liens will be
entitled to any recovery from the collateral. The proceeds from
the sale of the shared collateral may not be sufficient to
satisfy the amounts outstanding under the Exchange Notes and
other obligations secured by the second priority liens, if any,
after payment in full of all obligations secured by the first
priority liens on the collateral. If not, the holders of the
Exchange Notes (to the extent not repaid from the proceeds of
the sale of the collateral) would only have an unsecured claim
on our remaining assets, which claim will rank equal in priority
to unsecured claims with respect to any unsatisfied portion of
the obligations secured by the first priority liens and our
other unsecured senior indebtedness.
As of March 31, 2011, we had $1.3 billion of first
priority lien obligations, excluding $165.2 million of
outstanding letters of credit under our revolving credit
facility and an additional $234.8 million of availability
under our revolving credit facility. This amount included an
aggregate of $175.2 million of outstanding capital leases,
which are secured by liens on the assets subject to the leases
that would rank prior to liens on these assets for the benefit
of the Exchange Notes, and accounts receivable securitization
facilities with an aggregate value of $136.0 million. In
addition, the indenture allows a significant amount of
indebtedness and other obligations to be secured by a lien on
the collateral securing the Exchange Notes on a first priority
basis and an unlimited amount of indebtedness secured by a lien
on such collateral on an equal and ratable basis (and thus such
indebtedness will be effectively senior to the Exchange Notes to
the extent of the assets subject to such lien), provided
that, in each case, such indebtedness or other obligations
could be incurred under the debt incurrence covenant contained
in the indenture. As of March 31, 2011, the net book value
of the property and equipment of the issuer and the guarantors,
which secures our first priority lien obligations and the
Exchange Notes, was $1.0 billion, excluding assets financed
under capital leases. These assets comprise the majority of the
tangible assets securing our first priority lien obligations and
the Exchange Notes. Any additional obligations secured by a lien
on the collateral securing the Exchange Notes (whether senior to
or equal with the second priority lien of the Exchange Notes)
will adversely affect the relative position of the holders of
the Exchange Notes with respect to the collateral securing such
Exchange Notes.
The assets owned by our non-guarantor subsidiaries are not part
of the collateral securing the Exchange Notes. Our non-guarantor
subsidiaries are permitted to incur substantial indebtedness in
compliance with covenants under the senior secured credit
facilities and the indenture. With respect to those assets that
are not part of the collateral securing the Exchange Notes but
which secure other obligations, the Exchange Notes will be
effectively junior to these obligations to the extent of the
value of such assets.
No appraisals of any collateral have been prepared in connection
with this exchange offer. The value of the collateral at any
time will depend on market and other economic conditions,
including the availability of suitable buyers for the
collateral. By their nature, some or all of the pledged assets
may be illiquid and may have no readily ascertainable market
value. The value of the assets pledged as collateral for the
Exchange Notes could be impaired in the future as a result of
changing economic conditions, our failure to implement our
business strategy, competition and other future trends. In the
event of a foreclosure, liquidation, bankruptcy
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or similar proceeding, no assurance can be given that the
proceeds from any sale or liquidation of the collateral will be
sufficient to pay the issuers obligations under the
Exchange Notes, in full or at all, after first satisfying its
obligations in full under the first priority lien obligations
and any other obligations secured by a priority lien on the
collateral.
Accordingly, there may not be sufficient collateral to pay all
or any of the amounts due on the Exchange Notes. Any claim for
the difference between the amount, if any, realized by holders
of the Exchange Notes from the sale of the collateral securing
the Exchange Notes and the obligations under the Exchange Notes
will rank equally in right of payment with all of the
issuers other unsecured unsubordinated indebtedness and
other obligations, including trade payables.
Holders
of the Exchange Notes will not control decisions regarding
collateral.
The rights of the holders of the Exchange Notes with respect to
the collateral securing such Notes is substantially limited
pursuant to the terms of the lien-ranking provisions in the
intercreditor agreement and the indenture. Under those
lien-ranking provisions, the holders of the first priority lien
obligations control substantially all matters related to the
collateral securing the first priority lien obligations and the
Exchange Notes. The holders of the first priority lien
obligations may cause the applicable collateral agent to dispose
of, release or foreclose on, or take other actions with respect
to, the shared collateral with which holders of the Exchange
Notes may disagree or that may be contrary to the interests of
holders of the Exchange Notes. To the extent shared collateral
is released from securing the first priority lien obligations,
the second priority liens securing the Exchange Notes will be
released automatically. In addition, the security documents and
intercreditor agreement generally provide that, so long as the
first priority lien obligations are in effect, the holders of
the first priority lien obligations may change, waive, modify or
vary the security documents without the consent of the holders
of the Exchange Notes, provided that any such change,
waiver or modification does not materially adversely affect the
rights of the holders of the Exchange Notes and the other
secured creditors, unless the holders of first priority lien
obligations are effected in a like or similar manner. Except
under limited circumstances, if at any time the first priority
lien obligations cease to be in effect, the second priority
liens securing the Exchange Notes will also be released and the
Exchange Notes will become unsecured senior obligations. See
Description of the Exchange Notes
Security.
In addition, there are some states in which we have motor
vehicles which do not provide for the listing of more than one
lienholder on the titles to motor vehicles. In these states, the
collateral agent under the senior secured credit facilities
serves as collateral control agent for security interest
perfection purposes on behalf of both the collateral agent under
the senior secured credit facilities and on behalf of the
trustee, as the collateral agent for the Exchange Notes. Because
the trustee will not be listed by name as lienholder on those
vehicle titles, a court might rule that the trustee does not
have a perfected security interest for the benefit of the
holders of the Exchange Notes in those motor vehicles.
Furthermore, the security documents generally allow us and our
subsidiaries to remain in possession of, retain exclusive
control over, to freely operate, and to collect, invest and
dispose of any income from, the collateral securing the Exchange
Notes. In addition, to the extent we sell any assets that
constitute collateral, the proceeds from such sale will be
subject to the second priority lien securing the Exchange Notes
only to the extent such proceeds would otherwise constitute
collateral securing the Exchange Notes under the
security documents. To the extent the proceeds from any such
sale of collateral do not constitute collateral
under the security documents, the pool of assets securing the
Exchange Notes would be reduced and the Exchange Notes would not
be secured by such proceeds.
30
There
are circumstances other than repayment or discharge of the
Exchange Notes under which the collateral securing the Exchange
Notes and Exchange Note Guarantees, or the Exchange Note
Guarantees themselves, will be released automatically, without
your consent or the consent of the trustee, and you may not
realize any payment upon disposition of such collateral or
release of such Exchange Note Guarantees.
Under various circumstances, the collateral securing the
Exchange Notes will be released automatically, including:
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a sale, transfer or other disposal of collateral in a
transaction not prohibited under the indenture and the
collateral documents;
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with respect to collateral held by a Guarantor, upon the release
of such Guarantor from its guarantee in accordance with the
indenture;
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with respect to collateral that is capital stock, upon the
dissolution of the issuer of such capital stock in accordance
with the indenture;
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subject to certain exceptions, upon certain releases (other than
in connection with a cancellation or termination of the senior
secured credit facilities) of collateral by the administrative
agent of our senior secured credit facilities and upon certain
sales and dispositions of collateral resulting in the release of
the lien on such collateral securing the senior secured credit
facilities;
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in whole or in part, as applicable, with respect to collateral
which has been taken by eminent domain, condemnation or other
similar circumstances;
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in whole upon a legal defeasance or covenant defeasance of the
indenture as described in the section titled Description
of the Exchange Notes Legal Defeasance and Covenant
Defeasance;
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in whole or substantially all with the consent of holders
holding
662/3%
or more of the principal amount of the Exchange Notes
outstanding; and
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in part or less than substantially all with the consent of a
majority of holders or more of the principal amount of the
Exchange Notes outstanding.
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In addition, upon certain sales of the assets, we will be
required to repay amounts outstanding under our senior secured
credit facilities, prior to repayment of any of our other
indebtedness, including the Exchange Notes, with the proceeds of
such collateral disposition.
In addition, the guarantee of a Guarantor will be automatically
released in connection with a sale of such Guarantor in a
transaction not prohibited by the indenture. The indenture also
permits us to designate one or more of our restricted
subsidiaries that is a Guarantor as an unrestricted subsidiary.
If we designate a Guarantor as an unrestricted subsidiary for
purposes of the indenture, all of the liens on any collateral
owned by such subsidiary or any of its subsidiaries and any
Exchange Note Guarantees by such subsidiary or any of its
subsidiaries will be released under the indenture but not
necessarily under the senior secured credit facilities.
Designation of an unrestricted subsidiary will reduce the
aggregate value of the collateral securing the Exchange Notes to
the extent that liens on the assets of the unrestricted
subsidiary and its subsidiaries are released. There will also be
various releases in accordance with the provisions of the
intercreditor agreement. In addition, the creditors of the
unrestricted subsidiary and its subsidiaries will have a senior
claim on the assets of such unrestricted subsidiary and its
subsidiaries. See Description of the Exchange Notes.
Because
of our holding company structure, we depend on our subsidiaries
for cash flow.
Swift is a holding company with no business operations of our
own. Our only significant asset is and, we expect, will continue
to be the outstanding capital stock of our subsidiaries. We
conduct, and intend to conduct, all of our business operations
through our subsidiaries. Accordingly, our only source of cash
to pay our obligations is distributions from our subsidiaries of
their net earnings and cash flows. We cannot assure you that our
subsidiaries will be able to, or will be permitted to, make
distributions to us that will enable us to make payments in
respect of our indebtedness, including the Exchange Notes. Each
of our subsidiaries is a
31
distinct legal entity and, under certain circumstances, legal
and contractual restrictions may limit our ability to obtain
cash from our subsidiaries. Subject to certain qualifications
and exceptions, our subsidiaries will not be allowed to place
restrictions on their ability to pay dividends or make other
intercompany payments to us under the indenture. In the event
that we do not receive distributions from our subsidiaries, we
may be unable to make the required principal and interest
payments on our indebtedness, including the Exchange Notes.
The
Exchange Notes will be structurally subordinated to claims of
creditors of our current and future non-guarantor
subsidiaries.
The Notes are structurally subordinated to indebtedness and
other liabilities of our subsidiaries that are not guarantors
under the Exchange Notes. Our non-guarantor subsidiaries had,
before intercompany eliminations, $291.0 million of total
liabilities, including trade payables and $506.9 million of
total assets as of March 31, 2011, and had operating
revenue, before intercompany eliminations, of $41.3 million
for the three months ended March 31, 2011. The
indenture allows the non-guarantor subsidiaries to incur certain
additional indebtedness in the future. Any right that the issuer
or the guarantors have to receive any assets of any of the
non-guarantor subsidiaries upon the liquidation or
reorganization of those subsidiaries, and the consequent rights
of holders of the Exchange Notes to realize proceeds from the
sale of any of those subsidiaries assets, will be
effectively subordinated to the claims of those non-guarantor
subsidiaries creditors, including trade creditors and
holders of preferred equity interests of those subsidiaries.
Accordingly, in the event of a bankruptcy, liquidation or
reorganization of any of the non-guarantor subsidiaries, such
non-guarantor subsidiaries will pay the holders of their debts,
holders of their preferred equity interests and their trade
creditors before they will be able to distribute any of their
assets to the issuer or the guarantors.
Rights
of holders of Exchange Notes in the collateral may be adversely
affected by bankruptcy proceedings.
The right of the collateral agent to repossess and dispose of
the collateral securing the Exchange Notes upon acceleration is
likely to be significantly impaired by federal bankruptcy law if
bankruptcy proceedings are commenced by or against us prior to
or possibly even after the collateral agent has repossessed and
disposed of the collateral. Under the U.S. Bankruptcy Code,
a secured creditor, such as the collateral agent, is prohibited
from repossessing its security from a debtor in a bankruptcy
case, or from disposing of security repossessed from a debtor,
without bankruptcy court approval. Moreover, bankruptcy law
permits the debtor to continue to retain and to use collateral,
and the proceeds, products, rents or profits of the collateral,
even though the debtor is in default under the applicable debt
instruments, provided that the secured creditor is given
adequate protection. The meaning of the term
adequate protection may vary according to
circumstances, but it is intended in general to protect the
value of the secured creditors interest in the collateral
and may include cash payments or the granting of additional
security, if and at such time as the court in its discretion
determines, for any diminution in the value of the collateral as
a result of the stay of repossession or disposition or any use
of the collateral by the debtor during the pendency of the
bankruptcy case. In view of the broad discretionary powers of a
bankruptcy court, it is impossible to predict how long payments
under the Exchange Notes could be delayed following commencement
of a bankruptcy case, whether or when the collateral agent would
repossess or dispose of the collateral, or whether or to what
extent holders of the Exchange Notes would be compensated for
any delay in payment of loss of value of the collateral through
the requirements of adequate protection.
Furthermore, in the event the bankruptcy court determines that
the value of the collateral is not sufficient to repay all
amounts due on the Exchange Notes, the holders of the Exchange
Notes would have undersecured claims as to the
difference. Federal bankruptcy laws do not permit the payment or
accrual of interest, costs and attorneys fees for
undersecured claims during the debtors
bankruptcy case.
In addition, the intercreditor agreement provides that, in the
event of a bankruptcy, the trustee, as the collateral agent for
the Exchange Notes, may not object to a number of important
matters following the filing of a bankruptcy petition so long as
any first priority lien obligations are outstanding. After such
a filing, the value of the collateral securing the Exchange
Notes could materially deteriorate and you would be unable to
raise an objection. The right of the holders of first priority
lien obligations to foreclose upon and sell the
32
collateral upon the occurrence of an event of default also would
be subject to limitations under applicable bankruptcy laws if we
or any of the guarantors become subject to a bankruptcy
proceeding.
Any
future pledge of collateral might be avoidable in
bankruptcy.
Any future pledge of collateral in favor of the collateral agent
for the Exchange Notes, including pursuant to security documents
delivered after the date of the indenture, might be avoidable by
the pledgor (as debtor in possession) or by its trustee in
bankruptcy if certain events or circumstances exist or occur,
including, among others, if the pledgor is insolvent at the time
of the pledge, the pledge permits the holders of the Exchange
Notes to receive a greater recovery than if the pledge had not
been given and a bankruptcy proceeding in respect of the pledgor
is commenced within 90 days following the pledge, or, in
certain circumstances, a longer period.
Rights
of holders of the Exchange Notes in the collateral may be
adversely affected by the failure to perfect security interests
in certain collateral acquired in the future.
The security interest in the collateral securing the Exchange
Notes includes certain of our assets, both tangible and
intangible, whether now owned or acquired or arising in the
future. Applicable law requires that certain property and rights
acquired after the grant of a general security interest can only
be perfected at the time such property and rights are acquired
and identified. There can be no assurance that the trustee or
the collateral agent will monitor, or that we will inform the
trustee or the collateral agent of, the future acquisition of
property and rights that constitute collateral, and that the
necessary action will be taken to properly perfect the security
interest in such after-acquired collateral. Such failure may
result in the loss of the security interest therein or the
priority of the security interest in favor of the Exchange Notes
against third parties.
Federal
and state fraudulent transfer laws may permit a court to void
the Exchange Notes and the Exchange Note Guarantees, subordinate
claims in respect of the Exchange Notes and the Exchange Note
Guarantees, and require holders of the Exchange Notes to return
payments received and, if that occurs, you may not receive any
payments on the Exchange Notes.
Federal and state fraudulent transfer and conveyance statutes
may apply to the issuance of the Exchange Notes and the
incurrence of any guarantees of the Exchange Notes entered into
upon issuance of the Exchange Notes and subsidiary guarantees
that may be entered into in the future under the terms of the
indenture. Under federal bankruptcy law and comparable
provisions of state fraudulent transfer or conveyance laws,
which may vary from state to state, the Exchange Notes or the
guarantees could be voided as a fraudulent transfer or
conveyance if (1) the issuer or any of the guarantors, as
applicable, issued the Exchange Notes or incurred the guarantees
with the intent of hindering, delaying or defrauding creditors
or (2) the issuer or any of the guarantors, as applicable,
received less than reasonably equivalent value or fair
consideration in return for either issuing the Exchange Notes or
incurring the guarantees and, in the case of (2) only, one
of the following is also true at the time thereof:
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the issuer or any of the guarantors, as applicable, were
insolvent or rendered insolvent by reason of the issuance of the
Exchange Notes or the incurrence of the guarantees;
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the issuance of the Exchange Notes or the incurrence of the
guarantees left the issuer or any of the guarantors, as
applicable, with an unreasonably small amount of capital to
carry on the business;
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the issuer or any of the guarantors intended to, or believed
that the issuer or guarantor would, incur debts beyond the
issuers or guarantors ability to pay such debts as
they mature; or
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the issuer or any of the guarantors issued the Exchange Notes or
its guarantee, as applicable, to or for the benefit of an
insider, or incurred such obligation to or for the benefit of an
insider, under an employment contract and not in the ordinary
course of business.
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A court would likely find that the issuer or a guarantor did not
receive reasonably equivalent value or fair consideration for
the Exchange Notes or such guarantee if the issuer or guarantor
did not substantially benefit directly or indirectly from the
issuance of the Exchange Notes or the applicable guarantee. As a
general
33
matter, value is given for a transfer or an obligation if, in
exchange for the transfer or obligation, property is transferred
or an antecedent debt is secured or satisfied. A debtor will
generally not be considered to have received value in connection
with a debt offering if the debtor uses the proceeds of that
offering to make a dividend payment or otherwise retire or
redeem equity securities issued by the debtor.
We cannot be certain as to the standards a court would use to
determine whether or not the issuer or the guarantors were
solvent at the relevant time or, regardless of the standard that
a court uses, that the issuance of the guarantees would not be
further subordinated to the issuer or the guarantors other
debt. Generally, however, an entity would be considered solvent
if, at the time it incurred indebtedness:
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the sum of its debts, including contingent liabilities, was
greater than the fair saleable value of all its assets; or
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the present fair saleable value of its assets was less than the
amount that would be required to pay its probable liability on
its existing debts, including contingent liabilities, as they
become absolute and mature; or
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it could not pay its debts as they become due.
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If a court were to find that the issuance of the Exchange Notes
or the incurrence of a guarantee was a fraudulent transfer or
conveyance, the court could void the payment obligations under
the Exchange Notes or such guarantee or further subordinate the
Exchange Notes or such guarantee to presently existing and
future indebtedness of the issuer or of the related guarantor,
or require the holders of the Exchange Notes to repay any
amounts received with respect to such guarantee. In the event of
a finding that a fraudulent transfer or conveyance occurred, you
may not receive any repayment on the Exchange Notes. Further,
the voidance of the Exchange Notes could result in an event of
default with respect to our and our subsidiaries other
debt that could result in acceleration of such debt.
Although each guarantee to be entered into by one of our
subsidiaries will contain a provision intended to limit such
guarantors liability to the maximum amount that it could
incur without causing the incurrence of obligations under its
guarantee to be a fraudulent transfer, this provision may not be
effective to protect those guarantees from being voided under
fraudulent transfer law, or may reduce that guarantors
obligation to an amount that effectively makes its guarantee
worthless.
Holders
of the Exchange Notes may not be able to determine when a change
of control giving rise to their right to have the Exchange Notes
repurchased has occurred following a sale of substantially
all of our assets.
The definition of change of control in the indenture includes a
phrase relating to the sale of all or substantially
all of our assets. There is no precise established
definition of the phrase substantially all under
applicable law. Accordingly, the ability of a holder of Notes to
require us to repurchase its Notes as a result of a sale of less
than all our assets to another person may be uncertain.
The
issuer may not be able to repurchase the Exchange Notes upon a
change of control.
Upon the occurrence of specific kinds of change of control
events, the issuer will be required to offer to repurchase all
outstanding notes at 101% of their principal amount plus accrued
and unpaid interest. The source of funds for any such purchase
of the Exchange Notes will be the issuers available cash
or cash generated from our subsidiaries operations or
other sources, including borrowings, sales of assets or sales of
equity. The issuer may not be able to repurchase the Exchange
Notes upon a change of control because it may not have
sufficient financial resources to purchase all of the Exchange
Notes that are tendered upon a change of control. Further, the
issuer is contractually restricted under the terms of the senior
secured credit facilities from repurchasing all of the Exchange
Notes tendered by holders upon a change of control. Accordingly,
the issuer may not be able to satisfy its obligations to
purchase the Exchange Notes unless it is able to refinance or
obtain waivers under the senior secured credit facilities. The
issuers failure to repurchase the Exchange Notes upon a
change of control would cause a default under the indenture and
a cross default under the senior secured credit facilities. The
senior secured credit facilities also provide that a change of
control will be a
34
default that permits lenders to accelerate the maturity of
borrowings thereunder. Any future debt agreements may contain
similar provisions.
There
is no established trading market for the Exchange Notes and
there is no guarantee that an active trading market for the
Exchange Notes will develop.
The Exchange Notes are a new issue of securities, and there is
currently no established trading market for the Exchange Notes.
We do not intend to apply for the Exchange Notes to be listed on
any securities exchange or to arrange for quotation on any
automated dealer quotation system. In connection with the 2010
Transactions, the initial purchasers advised us that they
intended to make a market in the Restricted Notes and the
Exchange Notes, but they are not obligated to do so and may
discontinue any market making in the Exchange Notes at any time,
in their sole discretion. You may not be able to sell your
Exchange Notes at a particular time or at favorable prices. As a
result, we cannot assure you as to the liquidity of any trading
market for the Exchange Notes. Accordingly, you may be required
to bear the financial risk of your investment in the Exchange
Notes indefinitely. If a trading market were to develop, future
trading prices of the Exchange Notes may be volatile and will
depend on many factors, including:
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our operating performance and financial condition;
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the interest of securities dealers in making a market for
them; and
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the market for similar securities.
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The market for non-investment grade debt historically has been
subject to disruptions that have caused substantial volatility
in the prices of securities similar to the Exchange Notes. The
market for the Exchange Notes, if any, may be subject to similar
disruptions that could adversely affect their value.
A
lowering or withdrawal of the ratings assigned to our debt
securities by rating agencies may increase our future borrowing
costs and reduce our access to capital.
Our debt currently has a non-investment grade rating, and there
can be no assurance that any rating assigned by the rating
agencies will remain for any given period of time or that a
rating will not be lowered or withdrawn entirely by a rating
agency if, in that rating agencys judgment, future
circumstances relating to the basis of the rating, such as
adverse changes, so warrant. A lowering or withdrawal of the
ratings assigned to our debt securities by rating agencies may
increase our future borrowing costs and reduce our access to
capital, which could have a material adverse impact on our
financial condition and results of operations.
Certain
covenants contained in the indenture are not applicable during
any period in which the Exchange Notes are rated investment
grade.
The indenture provides that certain covenants do not apply to us
during any period in which the Exchange Notes are rated
investment grade by both Standard & Poors and
Moodys and no default has otherwise occurred and is
continuing under the indenture. The covenants that would be
suspended include, among others, restrictions on our ability to
pay dividends, incur indebtedness, sell certain assets, enter
into transactions with affiliates and to enter into certain
other transactions. Any actions that we take while these
covenants are not in force will be permitted even if the
Exchange Notes are subsequently downgraded below investment
grade and such covenants are subsequently reinstated. There can
be no assurance that the Exchange Notes will ever be rated
investment grade, or that if they are rated investment grade,
the Exchange Notes will maintain such ratings. See
Description of the Exchange Notes Certain
Covenants Effectiveness of Covenants.
Variable
rate indebtedness subjects us to interest rate risk, which could
cause our debt service obligations to increase
significantly.
Our borrowings under the senior secured credit facilities are at
variable rates of interest and expose us to interest rate risk.
If interest rates increase, our debt service obligations on the
variable rate indebtedness would increase even though the amount
borrowed remained the same, and our net income would decrease.
The applicable margin with respect to loans under the senior
secured credit facilities are a percentage per annum
35
equal to a reference rate plus the applicable margin. As of
March 31, 2011, assuming all revolving loans were fully
drawn up to the amount available for borrowing at March 31,
2011, each quarter point change in interest rates would have
resulted in a $0.6 million change in annual interest
expense on our senior secured revolving credit facility and a
$2.5 million change in annual interest expense on our
senior secured term loan credit facility. In the future, we may
enter into interest rate hedging arrangements, to reduce
interest rate volatility.
The
second-lien collateral is subject to casualty risks and
potential environmental liabilities.
We intend to maintain insurance or otherwise insure against loss
or damage from hazards in a manner appropriate and customary for
our industry. There are, however, certain losses that may be
either uninsurable or not economically insurable, or insured for
values less than the current fair market value of such
equipment, in whole or in part. As a result, insurance proceeds
may not compensate us fully for our losses. If there is a
complete or partial loss of any of the pledged second-lien
collateral, the insurance proceeds may not be sufficient to
satisfy all of the secured obligations, including the Exchange
Notes and the guarantees. In the event of a total or partial
loss to any of our facilities, certain items of equipment and
inventory may not be easily replaced. Accordingly, even though
there may be insurance coverage, the extended period needed to
manufacture replacement units or inventory could cause
significant delays.
Moreover, holders of the Exchange Notes may need to evaluate the
impact of potential liabilities before determining to foreclose
on second-lien collateral consisting of real property because
secured creditors that foreclose on a security interest in real
property may in some instances be held liable under
environmental laws for the costs of remediating or preventing
the release or threatened release of hazardous substances at
such real property. Consequently, the collateral agent may
decline to foreclose on such second-lien collateral or exercise
remedies available in respect thereof if it does not receive
indemnification to its satisfaction from the holders of the
Exchange Notes.
Risks
Related to Our Business and Industry
Our
business is subject to general economic and business factors
affecting the truckload industry that are largely beyond our
control, any of which could have a material adverse effect on
our operating results.
The truckload industry is highly cyclical, and our business is
dependent on a number of factors that may have a negative impact
on our results of operations, many of which are beyond our
control. We believe that some of the most significant of these
factors are economic changes that affect supply and demand in
transportation markets, such as:
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recessionary economic cycles, such as the period from 2007 to
2009;
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changes in customers inventory levels and in the
availability of funding for their working capital;
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excess tractor capacity in comparison with shipping
demand; and
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downturns in customers business cycles.
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The risks associated with these factors are heightened when the
U.S. economy is weakened. Some of the principal risks
during such times, which risks we experienced during the recent
recession, are as follows:
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we may experience low overall freight levels, which may impair
our asset utilization;
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certain of our customers may face credit issues and cash flow
problems, as discussed below;
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freight patterns may change as supply chains are redesigned,
resulting in an imbalance between our capacity and our
customers freight demand;
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customers may bid out freight or select competitors that offer
lower rates from among existing choices in an attempt to lower
their costs and we might be forced to lower our rates or lose
freight; and
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we may be forced to incur more deadhead miles to obtain loads.
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Economic conditions that decrease shipping demand or increase
the supply of tractors and trailers can exert downward pressure
on rates and equipment utilization, thereby decreasing asset
productivity. As a result of depressed freight volumes and
excess truckload capacity in our industry, we experienced lower
miles per tractor, freight rates, and freight volumes in recent
periods, all of which negatively impacted our results. Another
period of declining freight rates and volumes, a prolonged
recession, or general economic instability could result in
further declines in our results of operations, which declines
may be material.
We also are subject to cost increases outside our control that
could materially reduce our profitability if we are unable to
increase our rates sufficiently. Such cost increases include,
but are not limited to, increases in fuel prices, driver wages,
interest rates, taxes, tolls, license and registration fees,
insurance, revenue equipment, and healthcare for our employees.
In addition, events outside our control, such as strikes or
other work stoppages at our facilities or at customer, port,
border, or other shipping locations, or actual or threatened
armed conflicts or terrorist attacks, efforts to combat
terrorism, military action against a foreign state or group
located in a foreign state, or heightened security requirements
could lead to reduced economic demand, reduced availability of
credit, or temporary closing of the shipping locations or
U.S. borders. Such events or enhanced security measures in
connection with such events could impair our operating
efficiency and productivity and result in higher operating costs.
We
operate in the highly competitive and fragmented truckload
industry, and our business and results of operations may suffer
if we are unable to adequately address downward pricing and
other competitive pressures.
We compete with many truckload carriers and, to a lesser extent,
with
less-than-truckload
carriers, railroads, and third-party logistics, brokerage,
freight forwarding, and other transportation companies.
Additionally, some of our customers may utilize their own
private fleets rather than outsourcing loads to us. Some of our
competitors may have greater access to equipment, a wider range
of services, greater capital resources, less indebtedness, or
other competitive advantages. Numerous competitive factors could
impair our ability to maintain or improve our profitability.
These factors include the following:
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many of our competitors periodically reduce their freight rates
to gain business, especially during times of reduced growth in
the economy, which may limit our ability to maintain or increase
freight rates or to maintain or expand our business or may
require us to reduce our freight rates;
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some of our customers also operate their own private trucking
fleets and they may decide to transport more of their own
freight;
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some shippers have reduced or may reduce the number of carriers
they use by selecting core carriers as approved service
providers and in some instances we may not be selected;
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many customers periodically solicit bids from multiple carriers
for their shipping needs and this process may depress freight
rates or result in a loss of business to competitors;
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the continuing trend toward consolidation in the trucking
industry may result in more large carriers with greater
financial resources and other competitive advantages, and we may
have difficulty competing with them;
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advances in technology may require us to increase investments in
order to remain competitive, and our customers may not be
willing to accept higher freight rates to cover the cost of
these investments;
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higher fuel prices and, in turn, higher fuel surcharges to our
customers may cause some of our customers to consider freight
transportation alternatives, including rail transportation;
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competition from freight logistics and brokerage companies may
negatively impact our customer relationships and freight
rates; and
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economies of scale that may be passed on to smaller carriers by
procurement aggregation providers may improve such
carriers ability to compete with us.
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37
We
have several major customers, the loss of one or more of which
could have a material adverse effect on our
business.
A significant portion of our revenue is generated from a number
of major customers, the loss of one or more of which could have
a material adverse effect on our business. For the year ended
December 31, 2010, our top 25 customers, based on revenue,
accounted for approximately 52% of our revenue; our top
10 customers, approximately 36% of our revenue; our top 5
customers, approximately 27% our revenue; and our largest
customer, al-Mart and its subsidiaries, accounted for
approximately 10% of our revenue. A substantial portion of our
freight is from customers in the retail and discount retail
sales industries. As such, our volumes are largely dependent on
consumer spending and retail sales, and our results may be more
susceptible to trends in unemployment and retail sales than
carriers that do not have this concentration.
Economic conditions and capital markets may adversely affect our
customers and their ability to remain solvent. Our
customers financial difficulties can negatively impact our
results of operations and financial condition and our ability to
comply with the covenants in our debt agreements and accounts
receivable securitization agreements, especially if they were to
delay or default on payments to us. Generally, we do not have
contractual relationships that guarantee any minimum volumes
with our customers, and we cannot assure you that our customer
relationships will continue as presently in effect. Our
dedicated business is generally subject to longer term written
contracts than our non-dedicated business; however, certain of
these contracts contain cancellation clauses and there is no
assurance any of our customers, including our dedicated
customers, will continue to utilize our services, renew our
existing contracts, or continue at the same volume levels. A
reduction in or termination of our services by one or more of
our major customers, including our dedicated customers, could
have a material adverse effect on our business and operating
results.
We may
not be able to sustain the cost savings realized as part of our
recent cost reduction initiatives.
In 2008 and 2009 we implemented cost reduction initiatives that
resulted in over $250 million of annualized cost savings,
many of which we expect to result in ongoing savings. The cost
savings entail several elements, including reducing our tractor
fleet by 17.2%, improving fuel efficiency, improving our tractor
to non-driver ratio, suspending bonuses and 401(k) matching,
streamlining maintenance and administrative functions, improving
safety and claims management, and limiting discretionary
expenses. However, in recent periods we have experienced an
increase in expenses related to headcount, compensation, and
employee benefits, such as the reinstatement of our 401(k)
matching contribution and the accrual of bonuses in 2010, as
competition for employees and expenses relating to driving more
miles has increased and the economy has improved. Our
maintenance expenses also would be expected to increase to the
extent average miles driven increases and our fleet ages.
We may
not be successful in achieving our strategy of growing our
revenue.
Our current goals include increasing revenue in excess of 10%
over the next several years, including by growing our current
service offerings. While we currently believe we can achieve
these stated goals through the implementation of various
business strategies, there can be no assurance that we will be
able to effectively and successfully implement such strategies
and realize our stated goals. Our goals may be negatively
affected by a failure to further penetrate our existing customer
base, cross-sell our service offerings, pursue new customer
opportunities, manage the operations and expenses of new or
growing service offerings, or otherwise achieve growth of our
service offerings. Further, we may not achieve profitability
from our new service offerings. There is no assurance that
successful execution of our business strategies will result in
us achieving our current business goals.
We
have a recent history of net losses.
For the years ended December 31, 2008, 2009 and 2010, we
incurred net losses of $146.6 million, $435.6 million
(including $324.8 million to recognize deferred income
taxes upon our election to be taxed as a subchapter C
corporation), and $125.4 million, respectively. Achieving
profitability depends upon numerous factors, including our
ability to increase our trucking revenue per tractor, expand our
overall volume, and
38
control expenses. We might not achieve profitability or, if we
do, we may not be able to sustain or increase profitability in
the future.
Fluctuations
in the price or availability of fuel, the volume and terms of
diesel fuel purchase commitments, and surcharge collection may
increase our costs of operation, which could materially and
adversely affect our profitability.
Fuel is one of our largest operating expenses. Diesel fuel
prices fluctuate greatly due to factors beyond our control, such
as political events, terrorist activities, armed conflicts,
depreciation of the dollar against other currencies, and
hurricanes and other natural or man-made disasters, such as the
oil spill in the Gulf of Mexico in 2010, each of which may lead
to an increase in the cost of fuel. Fuel prices also are
affected by the rising demand in developing countries, including
China, and could be adversely impacted by the use of crude oil
and oil reserves for other purposes and diminished drilling
activity. Such events may lead not only to increases in fuel
prices, but also to fuel shortages and disruptions in the fuel
supply chain. Because our operations are dependent upon diesel
fuel, significant diesel fuel cost increases, shortages, or
supply disruptions could materially and adversely affect our
results of operations and financial condition.
Fuel also is subject to regional pricing differences and often
costs more on the West Coast and in the Northeast, where we have
significant operations. Increases in fuel costs, to the extent
not offset by rate per mile increases or fuel surcharges, have
an adverse effect on our operations and profitability. We obtain
some protection against fuel cost increases by maintaining a
fuel-efficient fleet and a compensatory fuel surcharge program.
We have fuel surcharge programs in place with the vast majority
of our customers, which have helped us offset the majority of
the negative impact of rising fuel prices associated with loaded
or billed miles. However, we also incur fuel costs that cannot
be recovered even with respect to customers with which we
maintain fuel surcharge programs, such as those associated with
deadhead miles, or the time when our engines are idling. Because
our fuel surcharge recovery lags behind changes in fuel prices,
our fuel surcharge recovery may not capture the increased costs
we pay for fuel, especially when prices are rising, leading to
fluctuations in our levels of reimbursement; and our levels of
reimbursement have fluctuated in the past. Further, during
periods of low freight volumes, shippers can use their
negotiating leverage to impose less compensatory fuel surcharge
policies. There can be no assurance that such fuel surcharges
can be maintained indefinitely or will be sufficiently effective.
We have not used derivatives to mitigate volatility in our fuel
costs, but periodically evaluate their possible use. We have
contracted with some of our fuel suppliers to buy fuel at a
fixed price or within banded pricing for a specific period,
usually not exceeding twelve months, to mitigate the impact of
rising fuel costs. However, these purchase commitments only
cover a small portion of our fuel consumption and, accordingly,
our results of operations could be negatively impacted by fuel
price fluctuations.
Increased
prices for new revenue equipment, design changes of new engines,
volatility in the used equipment sales market, and the failure
of manufacturers to meet their sale or trade-back obligations to
us could adversely affect our financial condition, results of
operations, and profitability.
We have experienced higher prices for new tractors over the past
few years. The resale value of the tractors and the residual
values under arrangements we have with manufacturers have not
increased to the same extent. In addition, the engines used in
tractors manufactured in 2010 and after are subject to more
stringent emissions control regulations issued by the
Environmental Protection Agency, or EPA. Compliance with such
regulations has increased the cost of the tractors, and resale
prices or residual values may not increase to the same extent.
Accordingly, our equipment costs, including depreciation expense
per tractor, are expected to increase in future periods. As with
any engine redesign, there is a risk that the newly designed
2010 diesel engines will have unforeseen problems. Additionally,
we have not operated many of the new 2010 diesel engines, so we
cannot be certain how they will operate.
Many engine manufacturers are using selective catalytic
reduction, or SCR, equipment to comply with the EPAs 2010
diesel engine emissions standards. SCR equipment requires a
separate urea-based liquid known as diesel exhaust fluid, which
is stored in a separate tank on the truck. If the new tractors
we purchase are
39
equipped with SCR technology and require us to use diesel
exhaust fluid, we will be exposed to additional costs associated
with the price and availability of diesel exhaust fluid, the
weight of the diesel exhaust fluid tank and SCR system, and
additional maintenance costs associated with the SCR system.
Additionally, we may need to train our drivers to use the new
SCR equipment. Problems relating to the new 2010 engines or
increased costs associated with the new 2010 engines resulting
from regulatory requirements or otherwise could adversely impact
our business.
A depressed market for used equipment could require us to trade
our revenue equipment at depressed values or to record losses on
disposal or impairments of the carrying values of our revenue
equipment that is not protected by residual value arrangements.
Used equipment prices are subject to substantial fluctuations
based on freight demand, supply of used trucks, availability of
financing, the presence of buyers for export to countries such
as Russia and Brazil, and commodity prices for scrap metal. We
took impairment charges related to the value of certain tractors
and trailers in 2007, 2008, and the first quarter of 2010. If
there is another deterioration of resale prices, it could have a
material adverse effect on our business and operating results.
Trades at depressed values and decreases in proceeds under
equipment disposals and impairments of the carrying values of
our revenue equipment could adversely affect our results of
operations and financial condition.
We lease or finance certain revenue equipment under leases that
are structured with balloon payments at the end of the lease or
finance term equal to the value we have contracted to receive
from the respective equipment manufacturers upon sale or trade
back to the manufacturers. To the extent we do not purchase new
equipment that triggers the trade back obligation, or the
manufacturers of the equipment do not pay the contracted value
at the end of the lease term, we could be exposed to losses for
the amount by which the balloon payments owed to the respective
lease or finance companies exceed the proceeds we are able to
generate in open market sales of the equipment. In addition, if
we purchase equipment subject to a buy-back agreement and the
manufacturer refuses to honor the agreement or we are unable to
replace equipment at a reasonable price, we may be forced to
sell such equipment at a loss.
We
operate in a highly regulated industry, and changes in existing
regulations or violations of existing or future regulations
could have a material adverse effect on our operations and
profitability.
We operate in the United States throughout the 48 contiguous
states pursuant to operating authority granted by the
U.S. Department of Transportation, or DOT, in Mexico
pursuant to operating authority granted by Secretarìa de
Communiciones y Transportes, and in various Canadian provinces
pursuant to operating authority granted by the Ministries of
Transportation and Communications in such provinces. Our company
drivers and owner-operators also must comply with the safety and
fitness regulations of the DOT, including those relating to drug
and alcohol testing and
hours-of-service.
Such matters as weight and equipment dimensions also are subject
to government regulations. We also may become subject to new or
more restrictive regulations relating to fuel emissions,
drivers
hours-of-service,
ergonomics, on-board reporting of operations, collective
bargaining, security at ports, and other matters affecting
safety or operating methods. The DOT is currently engaged in a
rulemaking proceeding regarding drivers
hours-of-service,
and the result could negatively impact utilization of our
equipment. The Federal Motor Carrier Safety Administration, or
FMCSA, was recently ordered by the U.S. Court of Appeals
for the District of Columbia Circuit to issue a proposed rule by
the end of 2010 on supporting documents for
hours-of-service
compliance. The FMCSA submitted a proposed rule which, among
other things, considers a potential reduction in the driving day
from 11 hours to 10 hours and proposes additional
specified break times within the 34 hour restart period
which could limit driver availability. It is anticipated that a
final rule will be proposed in 2011. If and when the final rule
is submitted, there will be a grace period allowing companies to
adjust prior to full implementation. Other agencies, such as the
EPA and the DHS, also regulate our equipment, operations, and
drivers. Future laws and regulations may be more stringent,
require changes in our operating practices, influence the demand
for transportation services, or require us to incur significant
additional costs. Higher costs incurred by us or by our
suppliers who pass the costs onto us through higher prices could
adversely affect our results of operations.
In the aftermath of the September 11, 2001 terrorist
attacks, federal, state, and municipal authorities implemented
and continue to implement various security measures, including
checkpoints and travel
40
restrictions on large trucks. The Transportation Security
Administration, or TSA, has adopted regulations that require
determination by the TSA that each driver who applies for or
renews his license for carrying hazardous materials is not a
security threat. This could reduce the pool of qualified
drivers, which could require us to increase driver compensation,
limit fleet growth, or let trucks sit idle. These regulations
also could complicate the matching of available equipment with
hazardous material shipments, thereby increasing our response
time and our deadhead miles on customer orders. As a result, it
is possible that we may fail to meet the needs of our customers
or may incur increased expenses to do so. These security
measures could negatively impact our operating results.
During 2010, the FMCSA launched CSA, a new enforcement and
compliance model implementing driver standards in addition to
our current standards. As discussed more fully below, CSA may
reduce the number of eligible drivers
and/or
negatively impact our fleet safety ranking.
In addition, our operations are subject to various environmental
laws and regulations dealing with the transportation, storage,
presence, use, disposal, and handling of hazardous materials,
discharge of wastewater and storm water, and with waste oil and
fuel storage tanks. Our truck terminals often are located in
industrial areas where groundwater or other forms of
environmental contamination could occur. Our operations involve
the risks of fuel spillage or seepage, environmental damage, and
hazardous waste disposal, among others. Certain of our
facilities have waste oil or fuel storage tanks and fueling
islands. A small percentage of our freight consists of low-grade
hazardous substances, which subjects us to a wide array of
regulations. Although we have instituted programs to monitor and
control environmental risks and promote compliance with
applicable environmental laws and regulations, if we are
involved in a spill or other accident involving hazardous
substances, if there are releases of hazardous substances we
transport, if soil or groundwater contamination is found at our
facilities or results from our operations, or if we are found to
be in violation of applicable laws or regulations, we could be
subject to cleanup costs and liabilities, including substantial
fines or penalties or civil and criminal liability, any of which
could have a material adverse effect on our business and
operating results.
EPA regulations limiting exhaust emissions became more
restrictive in 2010. On May 21, 2010, President Obama
signed an executive memorandum directing the National Highway
Traffic Safety Administration, or NHTSA, and the EPA to develop
new, stricter fuel efficiency standards for heavy trucks,
beginning in 2014. On October 25, 2010, the NHTSA and the
EPA proposed regulations that regulate fuel efficiency and
greenhouse gas emissions beginning in 2014. In December 2008,
California adopted new performance requirements for diesel
trucks, with targets to be met between 2011 and 2023, and
California also has adopted aerodynamics requirements for
certain trailers. These regulations, as well as proposed
regulations or legislation related to climate change that
potentially impose restrictions, caps, taxes, or other controls
on emissions of greenhouse gas, could adversely affect our
operations and financial results. In addition, increasing
efforts to control emissions of greenhouse gases are likely to
have an impact on us. The EPA has announced a finding relating
to greenhouse gas emissions that may result in promulgation of
greenhouse gas emission limits. Federal and state lawmakers also
are considering a variety of climate-change proposals.
Compliance with such regulations could increase the cost of new
tractors and trailers, impair equipment productivity, and
increase operating expenses. These effects, combined with the
uncertainty as to the operating results that will be produced by
the newly designed diesel engines and the residual values of
these vehicles, could increase our costs or otherwise adversely
affect our business or operations.
In order to reduce exhaust emissions, some states and
municipalities have begun to restrict the locations and amount
of time where diesel-powered tractors, such as ours, may idle.
These restrictions could force us to alter our drivers
behavior, purchase on-board power units that do not require the
engine to idle, or face a decrease in productivity.
From time to time, various federal, state, or local taxes are
increased, including taxes on fuels. We cannot predict whether,
or in what form, any such increase applicable to us will be
enacted, but such an increase could adversely affect our
profitability.
41
CSA
could adversely affect our profitability and operations, our
ability to maintain or grow our fleet, and our customer
relationships.
Under CSA, drivers and fleets are evaluated and ranked based on
certain safety-related standards. The proposed methodology for
determining a carriers DOT safety rating has been
expanded, and as a result, certain current and potential drivers
may no longer be eligible to drive for us, and our safety rating
could be adversely impacted. We recruit and retain a substantial
number of first-time drivers, and these drivers may have a
higher likelihood of creating adverse safety events under CSA. A
reduction in eligible drivers or a poor fleet ranking may result
in difficulty attracting and retaining qualified drivers, and
could cause our customers to direct their business away from us
and to carriers with higher fleet rankings, which would
adversely affect our results of operations.
Although certain CSA information has been made available to
carriers and the public, the current SafeStat measurement system
will remain in effect until final rulemaking on CSA is
completed. There is currently no current proposed rulemaking
with respect to CSA but such rulemaking is anticipated sometime
in 2011. Rulemaking and enforcement have already been delayed
and may be subject to further change. The published results of
our CSA ranking score us in the acceptable level in each
safety-related category, although these scores are preliminary
and are subject to change by the FMCSA. There is a possibility
that a worsening of our CSA rankings could lead to an adverse
impact on our DOT safety rating, but we are preparing for CSA
through evaluation of existing programs and training our drivers
and potential drivers on CSA standards.
The FMCSA also is considering revisions to the existing rating
system and the safety labels assigned to motor carriers
evaluated by the DOT. We currently have a satisfactory DOT
rating, which is the best available rating under the current
safety rating scale. If we were to receive a conditional or
unsatisfactory DOT safety rating, it could adversely affect our
business because some of our customer contracts require a
satisfactory DOT safety rating, and a conditional or
unsatisfactory rating could negatively impact or restrict our
operations. In addition, there is a possibility that a drop to
conditional status could affect our ability to self-insure for
personal injury and property damage relating to the
transportation of freight, which could cause our insurance costs
to increase. Under the revised rating system being considered by
the FMCSA, our safety rating would be evaluated more regularly,
and our safety rating would reflect a more in-depth assessment
of safety-based violations.
Finally, proposed FMCSA rules and practices followed by
regulators may require carriers to install electronic, on-board
recorders in their tractors (a) if they experience
unfavorable compliance with rules or receive an adverse change
in safety rating or (b) under an announced rulemaking which
could require all carriers to equip all tractors with
electronic, on board recorders by 2015. As noted under the
heading Business Operations, we are
already in the process of installing new Qualcomm units on our
tractors, which will include electronic, on board recorders, in
conjunction with our efforts to improve efficiency and
communications with drivers and owner-operators. However, such
installation could cause an increase in driver turnover, adverse
information in litigation, cost increases, and decreased asset
utilization.
Increases
in driver compensation or other difficulties attracting and
retaining qualified drivers could adversely affect our
profitability and ability to maintain or grow our
fleet.
Like many truckload carriers, from time to time we have
experienced difficulty in attracting and retaining sufficient
numbers of qualified drivers, including owner-operators, and
such shortages may recur in the future. Recent driver shortages
have resulted in increased hiring expenses, including recruiting
and advertising. Because of the intense competition for drivers,
we may face difficulty maintaining or increasing our number of
drivers. Due in part to the economic recession, we reduced our
driver pay in 2009. The compensation we offer our drivers and
owner-operators is subject to market conditions and we have
recently increased and may in future periods increase driver and
owner-operator compensation, which will be more likely to the
extent that economic conditions improve. In addition, like most
in our industry, we suffer from a high turnover rate of drivers,
especially in the first 90 days of employment. Our high
turnover rate requires us to continually recruit a substantial
number of drivers in order to operate existing revenue
equipment. If we are unable to continue to attract and retain a
sufficient number of drivers, we could be required to adjust our
compensation packages, or operate with fewer trucks and face
difficulty meeting shipper demands, all of which could adversely
affect our profitability and ability to maintain our size or
grow.
42
We
self-insure a significant portion of our claims exposure, which
could significantly increase the volatility of, and decrease the
amount of, our earnings.
We self-insure a significant portion of our claims exposure and
related expenses related to cargo loss, employee medical
expense, bodily injury, workers compensation, and property
damage and maintain insurance with licensed insurance companies
above our limits of self-insurance. Our substantial self-insured
retention of $10.0 million for bodily injury and property
damage per occurrence and up to $5.0 million per occurrence
for workers compensation claims can make our insurance and
claims expense higher or more volatile. Additionally, with
respect to our third-party insurance, we face the risks of
increasing premiums and collateral requirements and the risk of
carriers or underwriters leaving the trucking sector, which may
materially affect our insurance costs or make insurance in
excess of our self-insured retention more difficult to find, as
well as increase our collateral requirements.
We accrue the costs of the uninsured portion of pending claims
based on estimates derived from our evaluation of the nature and
severity of individual claims and an estimate of future claims
development based upon historical claims development trends.
Actual settlement of the self-insured claim liabilities could
differ from our estimates due to a number of uncertainties,
including evaluation of severity, legal costs, and claims that
have been incurred but not reported. Due to our high
self-insured amounts, we have significant exposure to
fluctuations in the number and severity of claims and the risk
of being required to accrue or pay additional amounts if our
estimates are revised or the claims ultimately prove to be more
severe than originally assessed. Although we endeavor to limit
our exposure arising with respect to such claims, we also may
have exposure if carrier subcontractors under our brokerage
operations are inadequately insured for any accident.
Since November 1, 2010, our liability coverage has had a
maximum aggregate limit of $200.0 million while the limit
was $150.0 million prior to this date. If any claim were to
exceed our aggregate coverage limit, we would bear the excess,
in addition to our other self-insured amounts. Although we
believe our aggregate insurance limits are sufficient to cover
reasonably expected claims, it is possible that one or more
claims could exceed those limits. Our insurance and claims
expense could increase, or we could find it necessary to raise
our self-insured retention or decrease our aggregate coverage
limits when our policies are renewed or replaced. Our operating
results and financial condition may be adversely affected if
these expenses increase, we experience a claim in excess of our
coverage limits, we experience a claim for which we do not have
coverage, or we have to increase our reserves.
Insuring
risk through our wholly-owned captive insurance companies could
adversely impact our operations.
We insure a significant portion of our risk through our
wholly-owned captive insurance companies, Mohave Transportation
Insurance Company, or Mohave, and Red Rock Risk Retention Group,
Inc., or Red Rock. In addition to insuring portions of our own
risk, Mohave insures certain owner-operators in exchange for an
insurance premium paid by the owner-operator to Mohave. As a
risk retention group, Red Rock must insure at least two
operating companies; accordingly, Red Rock insures us and
Central Refrigerated Services, Inc., or Central Refrigerated, a
company of which Jerry Moyes or the Moyes Affiliates are the
ultimate owners, for a portion of its auto liability claims. The
insurance and reinsurance markets are subject to market
pressures. Our captive insurance companies abilities or
needs to access the reinsurance markets may involve the
retention of additional risk, which could expose us to
volatility in claims expenses. Additionally, an increase in the
number or severity of claims for which we insure could adversely
impact our results of operations.
To comply with certain state insurance regulatory requirements,
cash and cash equivalents must be paid to Red Rock and Mohave as
capital investments and insurance premiums to be restricted as
collateral for anticipated losses. Such restricted cash is used
for payment of insured claims. In the future, we may continue to
insure our automobile liability risk through our captive
insurance subsidiaries, which will cause the required amount of
our restricted cash, as recorded on our balance sheet, or other
collateral, such as letters of credit, to rise. Significant
future increases in the amount of collateral required by
third-party insurance carriers and regulators would reduce our
liquidity and could adversely affect our results of operations
and capital resources.
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Our
wholly-owned captive insurance companies are subject to
substantial government regulation.
State authorities regulate our insurance subsidiaries in the
states in which they do business. These regulations generally
provide protection to policy holders rather than stockholders.
The nature and extent of these regulations typically involve
items such as: approval of premium rates for insurance,
standards of solvency and minimum amounts of statutory capital
surplus that must be maintained, limitations on types and
amounts of investments, regulation of dividend payments and
other transactions between affiliates, regulation of
reinsurance, regulation of underwriting and marketing practices,
approval of policy forms, methods of accounting, and filing of
annual and other reports with respect to financial condition and
other matters. These regulations may increase our costs of
regulatory compliance, limit our ability to change premiums,
restrict our ability to access cash held in our captive
insurance companies, and otherwise impede our ability to take
actions we deem advisable.
We are
subject to certain risks arising from doing business in
Mexico.
We have a growing operation in Mexico, including through our
wholly-owned subsidiary, Trans-Mex. As a result, we are subject
to risks of doing business internationally, including
fluctuations in foreign currencies, changes in the economic
strength of Mexico, difficulties in enforcing contractual
obligations and intellectual property rights, burdens of
complying with a wide variety of international and
U.S. export and import laws, and social, political, and
economic instability. In addition, if we are unable to maintain
our C-TPAT status, we may have significant border delays, which
could cause our Mexican operations to be less efficient than
those of competitor truckload carriers also operating in Mexico
that obtain or continue to maintain C-TPAT status. We also face
additional risks associated with our foreign operations,
including restrictive trade policies and imposition of duties,
taxes, or government royalties imposed by the Mexican
government, to the extent not preempted by the terms of North
American Free Trade Agreement. Factors that substantially affect
the operations of our business in Mexico may have a material
adverse effect on our overall operating results.
Our
use of owner-operators to provide a portion of our tractor fleet
exposes us to different risks than we face with our tractors
driven by company drivers.
We provide financing to certain of our owner-operators
purchasing tractors from us. If we are unable to provide such
financing in the future, due to liquidity constraints or other
restrictions, we may experience a decrease in the number of
owner-operators available to us. Further, if owner-operators
operating the tractors we finance default under or otherwise
terminate the financing arrangement and we are unable to find a
replacement owner-operator, we may incur losses on amounts owed
to us with respect to the tractor in addition to any losses we
may incur as a result of idling the tractor.
During times of increased economic activity, we face heightened
competition for owner-operators from other carriers. To the
extent our turnover increases, if we cannot attract sufficient
owner-operators, or it becomes economically difficult for
owner-operators to survive, we may not achieve our goal of
increasing the percentage of our fleet provided by
owner-operators.
Pursuant to our owner-operator fuel reimbursement program, we
absorb all increases in fuel costs above a certain level to
protect our owner-operators from additional increases in fuel
prices with respect to certain of our owner-operators. A
significant increase or rapid fluctuation in fuel prices could
significantly increase our purchased transportation costs due to
reimbursement rates under our fuel reimbursement program
becoming higher than the benefits to us under our fuel surcharge
programs with our customers.
Our lease contracts with our owner-operators are governed by the
federal leasing regulations, which impose specific requirements
on us and our owner-operators. In the past, we have been the
subject of lawsuits, alleging the violation of leasing
obligations or failure to follow the contractual terms. It is
possible that we could be subjected to similar lawsuits in the
future, which could result in liability.
44
If our
owner-operators are deemed by regulators or judicial process to
be employees, our business and results of operations could be
adversely affected.
Tax and other regulatory authorities have in the past sought to
assert that owner-operators in the trucking industry are
employees rather than independent contractors. Proposed federal
legislation would make it easier for tax and other authorities
to reclassify independent contractors, including
owner-operators, as employees. Proposed legislation introduced
in April 2010 would, among other things, increase the
recordkeeping requirements for employers of independent
contractors and heighten the penalties of employers who
misclassify their employees and are found to have violated
employees overtime
and/or wage
requirements. This legislation currently is being considered by
committees in both the House and the Senate. Additionally,
proposed legislation introduced in 2009 would abolish the
current safe harbor allowing taxpayers meeting certain criteria
to treat individuals as independent contractors if they are
following a long-standing, recognized industry practice. This
legislation also is currently being considered by committees in
both the House and the Senate. Some states have put initiatives
in place to increase their revenues from items such as
unemployment, workers compensation, and income taxes, and
a reclassification of owner-operators as employees would help
states with this initiative. Further, class actions and other
lawsuits have been filed against us and others in our industry
seeking to reclassify owner-operators as employees for a variety
of purposes, including workers compensation and health
care coverage. Taxing and other regulatory authorities and
courts apply a variety of standards in their determination of
independent contractor status. If our owner-operators are
determined to be our employees, we would incur additional
exposure under federal and state tax, workers
compensation, unemployment benefits, labor, employment, and tort
laws, including for prior periods, as well as potential
liability for employee benefits and tax withholdings.
We are
dependent on certain personnel that are of key importance to the
management of our business and operations.
Our success depends on the continuing services of our founder
and Chief Executive Officer, Mr. Moyes. We currently do not
have an employment agreement with Mr. Moyes. We believe
that Mr. Moyes possesses valuable knowledge about the
trucking industry and that his knowledge and relationships with
our key customers and vendors would be very difficult to
replicate.
In addition, many of our other executive officers are of key
importance to the management of our business and operations,
including our President, Richard Stocking, and our Chief
Financial Officer, Virginia Henkels. We currently do not have
employment agreements with any of our management. Our future
success depends on our ability to retain our executive officers
and other capable managers. Any unplanned turnover or our
failure to develop an adequate succession plan for our
leadership positions could deplete our institutional knowledge
base and erode our competitive advantage. Although we believe we
could replace key personnel given adequate prior notice, the
unexpected departure of key executive officers could cause
substantial disruption to our business and operations. In
addition, even if we are able to continue to retain and recruit
talented personnel, we may not be able to do so without
incurring substantial costs.
We
engage in transactions with other businesses controlled by
Mr. Moyes, our Chief Executive Officer and the interests of
Mr. Moyes could conflict with the interests of our other
stockholders.
We engage in multiple transactions with related parties. These
transactions include providing and receiving freight services
and facility leases with entities owned by Mr. Moyes and
certain members of his family, the provision of air
transportation services from an entity owned by Mr. Moyes
and certain members of his family, and the acquisition of
approximately 100 trailers from an entity owned by
Mr. Moyes and certain members of his family in 2009.
Because certain entities controlled by Mr. Moyes and
certain members of his family operate in the transportation
industry, Mr. Moyes ownership may create conflicts of
interest or require judgments that are disadvantageous to
stockholders in the event we compete for the same freight or
other business opportunities. As a result, Mr. Moyes may
have interests that conflict with our stockholders. We have
adopted a policy relating to prior approval of related party
transactions and our amended and restated certificate of
incorporation contains provisions that specifically relate to
prior approval for transactions with Mr. Moyes, the Moyes
Affiliates, and any Moyes affiliated entities. However, we
cannot assure you that the policy or these provisions will be
successful in eliminating conflicts of interests. See
Certain Relationships and Related Party Transactions.
45
Our amended and restated certificate of incorporation also
provides that in the event that any of our officers or directors
is also an officer or director or employee of an entity owned by
or affiliated with Mr. Moyes or any of the Moyes Affiliates
and acquires knowledge of a potential transaction or other
corporate opportunity not involving the truck transportation
industry or involving refrigerated transportation or
less-than-truckload
transportation, then, subject to certain exceptions, we shall
not be entitled to such transaction or corporate opportunity and
you should have no expectancy that such transaction or corporate
opportunity will be available to us. See Certain
Relationships and Related Party Transactions.
Mr. Moyes
may pledge or borrow against a portion of his Class B
common stock, which may also cause his interests to conflict
with the interests of our other stockholders and may adversely
affect the trading price of our Class A Common
Stock.
In the past, in order to fund the operations of or otherwise
provide financing for some of Mr. Moyes other
businesses, Mr. Moyes pledged substantially all of his
ownership interest in our predecessor company and it is possible
that the needs of these businesses in the future may cause him
to sell or pledge shares of our Class B common stock.
Concurrently with our initial public offering in December 2010,
Mr. Moyes and the Moyes Affiliates completed a private
placement by a newly formed, unaffiliated trust, or the Trust,
of $250.0 million of its mandatory common exchange
securities (or $262.3 million of its mandatory common
exchange securities following the exercise by the initial
purchasers of their option to purchase additional securities in
January 2011), herein referred to as the Stockholder
Offering. Subject to certain exceptions, the
Trusts securities will be exchangeable into shares of our
Class A common stock or alternatively settled in cash equal
to the value of those shares of Class A common stock three
years following December 15, 2010, the closing date of the
Stockholder Offering. We did not receive any proceeds from the
Stockholder Offering.
In connection with the Stockholder Offering, Mr. Moyes and
the Moyes Affiliates pledged to the Trust 23.8 million
shares of Class B common stock deliverable upon exchange of
the Trusts securities (or a number of shares of
Class B common stock representing $262.3 million in
value of shares of Class A common stock) three years
following December 15, 2010, the closing of the Stockholder
Offering, subject to Mr. Moyes and the Moyes
Affiliates option to settle their obligations to the Trust
in cash. Although Mr. Moyes and the Moyes Affiliates may
settle their obligations to the Trust in cash three years
following the closing date of the Stockholder Offering, any or
all of the pledged shares could be converted into Class A
common stock and delivered on such date in exchange for the
Trusts securities. Such pledges or sales of our common
stock, or the perception that they may occur, may have an
adverse effect on the trading price of our Class A common
stock and may create conflicts of interests for Mr. Moyes.
Although our board of directors has limited the right of
employees or directors to pledge more than 20% of their family
holdings to secure margin loans pursuant to our securities
trading policy, there can be no assurance that such policy will
not be changed under circumstances deemed by the board to be
appropriate.
Mr. Moyes,
our Chief Executive Officer, has substantial ownership interests
in and guarantees related to several other businesses and real
estate investments, which may expose Mr. Moyes to
significant lawsuits or liabilities.
In addition to being our Chief Executive Officer and principal
stockholder, Mr. Moyes is the principal owner of, and
serves as chairman of the board of directors of Central
Refrigerated, a temperature controlled truckload carrier,
Central Freight Lines, Inc., an LTL carrier, SME Industries,
Inc., a steel erection and fabrication company, Southwest
Premier Properties, L.L.C. a real estate management company, and
is involved in other business endeavors in a variety of
industries and has made substantial real estate investments.
Although Mr. Moyes devotes the substantial majority of his
time to his role as Chief Executive Officer of Swift, the
breadth of Mr. Moyes other interests may place
competing demands on his time and attention. In addition, in one
instance of litigation arising from another business owned by
Mr. Moyes, Swift was named as a defendant even though Swift
was not a party to the transactions that were the subject of the
litigation. It is possible that litigation relating to other
businesses owned by Mr. Moyes in the future may result in
Swift being named as a defendant and, even if such claims are
without merit, that we will be required to incur the expense
46
of defending such matters. In many instances, Mr. Moyes has
given personal guarantees to lenders to the various businesses
and real estate investments in which he has an ownership
interest and in certain cases, the underlying loans are in
default. In order to satisfy these obligations, Mr. Moyes
intends to use a portion of the net proceeds he will receive
from the Stockholder Offering and to sell various investments he
holds. If Mr. Moyes is otherwise unable to raise the
necessary amount of proceeds to satisfy his obligations to such
lenders, he may be subject to significant lawsuits.
We
depend on third parties, particularly in our intermodal and
brokerage businesses, and service instability from these
providers could increase our operating costs and reduce our
ability to offer intermodal and brokerage services, which could
adversely affect our revenue, results of operations, and
customer relationships.
Our intermodal business utilizes railroads and some third-party
drayage carriers to transport freight for our customers. In most
markets, rail service is limited to a few railroads or even a
single railroad. Any reduction in service by the railroads with
which we have or in the future may have relationships could
reduce or eliminate our ability to provide intermodal service in
certain traffic lanes and is likely to increase the cost of the
rail-based services we provide and reduce the reliability,
timeliness, and overall attractiveness of our rail-based
services. Furthermore, railroads increase shipping rates as
market conditions permit. Price increases could result in higher
costs to our customers and reduce or eliminate our ability to
offer intermodal services. In addition, we may not be able to
negotiate additional contracts with railroads to expand our
capacity, add additional routes, or obtain multiple providers,
which could limit our ability to provide this service.
Our brokerage business is dependent upon the services of
third-party capacity providers, including other truckload
carriers. These third-party providers seek other freight
opportunities and may require increased compensation in times of
improved freight demand or tight trucking capacity. Our
inability to secure the services of these third parties, or
increases in the prices we must pay to secure such services,
could have an adverse effect on our operations and profitability.
We are
dependent on computer and communications systems, and a systems
failure could cause a significant disruption to our
business.
Our business depends on the efficient and uninterrupted
operation of our computer and communications hardware systems
and infrastructure. We currently maintain our computer system at
our Phoenix, Arizona headquarters, along with computer equipment
at each of our terminals. Our operations and those of our
technology and communications service providers are vulnerable
to interruption by fire, earthquake, natural disasters, power
loss, telecommunications failure, terrorist attacks, Internet
failures, computer viruses, and other events beyond our control.
Although we attempt to reduce the risk of disruption to our
business operations should a disaster occur through redundant
computer systems and networks and backup systems from an
alternative location in Phoenix, this alternative location is
subject to some of the same interruptions as may affect our
Phoenix headquarters. In the event of a significant system
failure, our business could experience significant disruption,
which could impact our results of operations.
Efforts
by labor unions could divert management attention and have a
material adverse effect on our operating results.
Although our only collective bargaining agreement exists at our
Mexican subsidiary, Trans-Mex, we always face the risk that our
employees could attempt to organize a union. To the extent our
owner-operators were re-classified as employees, the magnitude
of this risk would increase. Congress or one or more states
could approve legislation significantly affecting our businesses
and our relationship with our employees, such as the proposed
federal legislation referred to as the Employee Free Choice Act,
which would substantially liberalize the procedures for union
organization. Any attempt to organize by our employees could
result in increased legal and other associated costs. In
addition, if we entered into a collective bargaining agreement,
the terms could negatively affect our costs, efficiency, and
ability to generate acceptable returns on the affected
operations.
47
We may
not be able to execute or integrate future acquisitions
successfully, which could cause our business and future
prospects to suffer.
Historically, a key component of our growth strategy has been to
pursue acquisitions of complementary businesses. Although we
currently do not have any acquisition plans, we expect to
consider acquisitions from time to time in the future. If we
succeed in consummating future acquisitions, our business,
financial condition, and results of operations, may be
negatively affected because:
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some of the acquired businesses may not achieve anticipated
revenue, earnings, or cash flows;
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we may assume liabilities that were not disclosed to us or
otherwise exceed our estimates;
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we may be unable to integrate acquired businesses successfully
and realize anticipated economic, operational, and other
benefits in a timely manner, which could result in substantial
costs and delays or other operational, technical, or financial
problems;
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acquisitions could disrupt our ongoing business, distract our
management, and divert our resources;
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we may experience difficulties operating in markets in which we
have had no or only limited direct experience;
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there is a potential for loss of customers, employees, and
drivers of any acquired company;
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we may incur additional indebtedness; and
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if we issue additional shares of stock in connection with any
acquisitions, ownership of existing stockholders would be
diluted.
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Seasonality
and the impact of weather and other catastrophic events affect
our operations and profitability.
Our tractor productivity decreases during the winter season
because inclement weather impedes operations and some shippers
reduce their shipments after the winter holiday season. At the
same time, operating expenses increase and fuel efficiency
declines because of engine idling and harsh weather creating
higher accident frequency, increased claims, and higher
equipment repair expenditures. We also may suffer from
weather-related or other events such as tornadoes, hurricanes,
blizzards, ice storms, floods, fires, earthquakes, and
explosions. These events may disrupt fuel supplies, increase
fuel costs, disrupt freight shipments or routes, affect regional
economies, destroy our assets, or adversely affect the business
or financial condition of our customers, any of which could harm
our results or make our results more volatile.
Our
total assets include goodwill and other indefinite-lived
intangibles. If we determine that these items have become
impaired in the future, net income could be materially and
adversely affected.
As of March 31, 2011, we had recorded goodwill of
$253.3 million and certain indefinite-lived intangible
assets of $181.0 million primarily as a result of the 2007
Transactions. Goodwill represents the excess of cost over the
fair market value of net assets acquired in business
combinations. In accordance with Financial Accounting Standards
Board Accounting Standards Codification, Topic 350,
Intangibles Goodwill and Other,
or Topic 350, we test goodwill and indefinite-lived
intangible assets for potential impairment annually and between
annual tests if an event occurs or circumstances change that
would more likely than not reduce the fair value of a reporting
unit below its carrying amount. Any excess in carrying value
over the estimated fair value is charged to our results of
operations. Our evaluations in 2010 and 2009 produced no
indication of impairment of our goodwill or indefinite-lived
intangible assets. Based on the results of our evaluation in
2008, we recorded a non-cash impairment charge of
$17.0 million related to the decline in fair value of our
Mexico freight transportation reporting unit resulting from the
deterioration in truckload industry conditions as compared with
the estimates and assumptions used in our original valuation
projections used at the time of the partial acquisition of Swift
Transportation in 2007. We may never realize the full value of
our intangible assets. Any future determination requiring the
write-off of a significant portion of intangible assets would
have an adverse effect on our financial condition and results of
operations.
48
Complying
with federal securities laws as a public company is expensive,
and we will incur significant time and expense enhancing,
documenting, testing, and certifying our internal control over
financial reporting. Any deficiencies in our financial reporting
or internal controls could adversely affect our business and the
trading price of our Class A Common Stock.
As a public company, SEC rules require that our Chief Executive
Officer and Chief Financial Officer periodically certify the
existence and effectiveness of our internal controls over
financial reporting. Our independent registered public
accounting firm will be required, beginning with our Annual
Report on
Form 10-K
for our fiscal year ending on December 31, 2011, to attest
to our assessment of our internal controls over financial
reporting. This process will require significant documentation
of policies, procedures, and systems, review of that
documentation by our internal accounting staff and our outside
auditors, and testing of our internal controls over financial
reporting by our internal accounting staff and our outside
independent registered public accounting firm. This process will
involve considerable time and expense, may strain our internal
resources, and have an adverse impact on our operating costs. We
may experience higher than anticipated operating expenses and
outside auditor fees during the implementation of these changes
and thereafter.
During the course of our testing, we may identify deficiencies
that would have to be remediated to satisfy the SEC rules for
certification of our internal controls over financial reporting.
As a consequence, we may have to disclose in periodic reports we
file with the SEC material weaknesses in our system of internal
controls. The existence of a material weakness would preclude
management from concluding that our internal controls over
financial reporting are effective and would preclude our
independent auditors from issuing an unqualified opinion that
our internal controls over financial reporting are effective. In
addition, disclosures of this type in our SEC reports could
cause investors to lose confidence in our financial reporting
and may negatively affect the trading price of our Class A
common stock. Moreover, effective internal controls are
necessary to produce reliable financial reports and to prevent
fraud. If we have deficiencies in our disclosure controls and
procedures or internal controls over financial reporting, it may
negatively impact our business, results of operations, and
reputation.
Our
Chief Executive Officer and the Moyes Affiliates control a large
portion of our stock and have substantial control over us, which
could limit other stockholders ability to influence the
outcome of key transactions, including changes of
control.
Our Chief Executive Officer, Mr. Moyes, and the Moyes
Affiliates beneficially own approximately 45.1% of our
outstanding common stock including 100% of our Class B
common stock. On all matters with respect to which our
stockholders have a right to vote, including the election of
directors, the holders of our Class A common stock are
entitled to one vote per share, and the holders of our
Class B common stock are entitled to two votes per share.
All outstanding shares of Class B common stock are owned by
Mr. Moyes and the Moyes Affiliates and are convertible to
Class A common stock on a
one-for-one
basis at the election of the holders thereof or automatically
upon transfer to someone other than Mr. Moyes and the Moyes
Affiliates. This voting structure gives Mr. Moyes and the
Moyes Affiliates approximately 60.2% of the voting power of all
of our outstanding stock. Furthermore, due to our dual class
structure, Mr. Moyes and the Moyes Affiliates are able to
control all matters submitted to our stockholders for approval
even though they own less than 50% of the total outstanding
shares of our common stock. These stockholders can exert
significant influence over our management and affairs and
matters requiring stockholder approval, including the election
of directors and the approval of significant corporate
transactions, such as mergers, consolidations, or the sale of
substantially all of our assets. Consequently, this
concentration of ownership may have the effect of delaying or
preventing a change of control, including a merger,
consolidation, or other business combination involving us, or
discouraging a potential acquirer from making a tender offer or
otherwise attempting to obtain control, even if that change of
control would benefit our other stockholders.
Because Mr. Moyes and the Moyes Affiliates control a
majority of the voting power of our common stock, we qualify as
a controlled company as defined by the New York
Stock Exchange, or NYSE, and, as such, we may elect not to
comply with certain corporate governance requirements of such
stock exchange. We do not intend to utilize these exemptions,
but may choose to do so in the future.
49
FORWARD-LOOKING
STATEMENTS
This prospectus contains forward-looking statements
within the meaning of the federal securities laws that involve
risks and uncertainties. Forward-looking statements include
statements we make concerning our plans, objectives, goals,
strategies, future events, future revenues or performance,
capital expenditures, financing needs, and other information
that is not historical information and, in particular, appear
under the headings entitled Summary, Risk
Factors, Managements Discussion and Analysis
of Financial Condition and Results of Operations,
Business, and Executive
Compensation Compensation Discussion and
Analysis. When used in this prospectus, the words
estimates, expects,
anticipates, projects,
forecasts, plans, intends,
believes, foresees, seeks,
likely, may, will,
should, goal, target, and
variations of these words or similar expressions (or the
negative versions of any such words) are intended to identify
forward-looking statements. In addition, we, through our senior
management, from time to time make forward-looking public
statements concerning our expected future operations and
performance and other developments. These forward-looking
statements are subject to risks and uncertainties that may
change at any time, and, therefore, our actual results may
differ materially from those that we expected. Accordingly,
investors should not place undue reliance on our forward-looking
statements. We derive many of our forward-looking statements
from our operating budgets and forecasts, which are based upon
many detailed assumptions. While we believe that our assumptions
are reasonable, we caution that it is very difficult to predict
the impact of known factors, and, of course, it is impossible
for us to anticipate all factors that could affect our actual
results. All forward-looking statements are based upon
information available to us on the date of this prospectus. We
undertake no obligation to publicly update or revise
forward-looking statements to reflect events or circumstances
after the date made or to reflect the occurrence of
unanticipated events, except as required by law.
Important factors that could cause actual results to differ
materially from our expectations (cautionary
statements) are disclosed under Risk
Factors and elsewhere in this prospectus. All
forward-looking statements in this prospectus and subsequent
written and oral forward-looking statements attributable to us,
or persons acting on our behalf, are expressly qualified in
their entirety by the cautionary statements. The Company
undertakes no obligation to update or revise forward-looking
statements to reflect changed assumptions, the occurrence of
unanticipated events or changes to projections over time. The
factors that we believe could affect our results include, but
are not limited to:
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any future recessionary economic cycles and downturns in
customers business cycles, particularly in market segments
and industries in which we have a significant concentration of
customers;
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increasing competition from trucking, rail, intermodal, and
brokerage competitors;
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a significant reduction in, or termination of, our trucking
services by a key customer;
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our ability to sustain cost savings realized as part of our
recent cost reduction initiatives;
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our ability to achieve our strategy of growing our revenue;
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volatility in the price or availability of fuel;
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increases in new equipment prices or replacement costs;
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the regulatory environment in which we operate, including
existing regulations and changes in existing regulations, or
violations by us of existing or future regulations;
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the costs of environmental compliance
and/or the
imposition of liabilities under environmental laws and
regulations;
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difficulties in driver recruitment and retention;
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increases in driver compensation to the extent not offset by
increases in freight rates;
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potential volatility or decrease in the amount of earnings as a
result of our claims exposure through our wholly-owned captive
insurance companies;
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uncertainties associated with our operations in Mexico;
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our ability to attract and maintain relationships with
owner-operators;
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our ability to retain or replace key personnel;
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conflicts of interest or potential litigation that may arise
from other businesses owned by Mr. Moyes;
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potential failure in computer or communications systems;
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our labor relations;
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our ability to execute or integrate any future acquisitions
successfully;
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seasonal factors such as harsh weather conditions that increase
operating costs; and
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our ability to service our outstanding indebtedness, including
compliance with our indebtedness covenants, and the impact such
indebtedness may have on the way we operate our business.
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51
USE OF
PROCEEDS
We will not receive any proceeds from the exchange offer. Any
Restricted Notes that are properly tendered and exchanged
pursuant to the exchange offer will be retired and cancelled.
52
RATIO OF
EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of earnings to fixed
charges on a historical basis for the periods indicated.
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Successor
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Predecessor
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Three Months
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Ended
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January 1, 2007
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Year Ended
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March 31,
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Year Ended December 31,
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Through May 10,
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December 31,
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2011
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2010
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2010
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|
2009
|
|
2008
|
|
2007
|
|
2007
|
|
2006
|
|
Ratio of Earnings to Fixed Charges(1)
|
|
|
1.07
|
|
|
|
0.41
|
|
|
|
0.50
|
|
|
|
0.60
|
|
|
|
0.47
|
|
|
|
|
|
|
|
|
|
|
|
7.31
|
|
|
|
|
(1) |
|
For purposes of calculating the ratio of earnings to fixed
charges, (i) earnings represent the sum of
income before cumulative effect of changes in accounting
principles, provision for (benefit from) income taxes,
non-controlling interests in earnings (losses) of consolidated
subsidiaries, adjustment for companies accounted for by the
equity method, capitalized interest and amortization of
capitalized interest plus fixed charges, and
(ii) fixed charges represent the sum of
interest and debt expense, capitalized interest and an estimate
of interest within rental expense. Our earnings were
insufficient to cover fixed charges by approximately
$53 million for the three months ended March 31, 2010
and by $169 million, $109 million, $135 million,
$331 million, and $35 million for the years ended
December 31, 2010, 2009, 2008, 2007, and that of our
predecessor for the period from January 1, 2007 through
May 10, 2007, respectively. The ratio is based solely on
historical financial information. |
53
SELECTED
HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
The table below sets forth our selected historical consolidated
financial and other data for the periods and as of the dates
indicated. The selected financial and other data for the years
ended December 31, 2010, 2009, and 2008 are derived from
our audited consolidated financial statements, included
elsewhere in this prospectus and include, in the opinion of
management, all adjustments that management considers necessary
for the presentation of the information outlined in these
financial statements. The selected financial and other data for
the three months ended March 31, 2011 and 2010 are derived
from the unaudited consolidated financial statements included
elsewhere in this prospectus and include, in the opinion of
management, all adjustments that management considers necessary
for the presentation of the information outlined in these
financial statements. In addition, for comparative purposes, we
have included a pro forma (provision) benefit for income taxes
assuming we had been taxed as a subchapter C corporation in all
periods when our subchapter S corporation election was in
effect. The selected financial and other data for the years
ended December 31, 2007 and 2006 are derived from our
historical financial statements and those of our predecessor not
included in this prospectus.
Swift Corporation acquired our predecessor on May 10, 2007
in conjunction with the 2007 Transactions. Thus, although our
results for the year ended December 31, 2007 present
results for a full year period, they only include the results of
our predecessor after May 10, 2007. You should read the
selected financial and other data together with the consolidated
financial statements and related notes appearing elsewhere in
this prospectus, as well Managements Discussion and
Analysis of Financial Condition and Results of Operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Successor
|
|
|
Predecessor
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2007
|
|
|
Year Ended
|
|
(Dollars in thousands,
|
|
March 31,
|
|
|
Year Ended December 31,
|
|
|
Through May 10,
|
|
|
December 31,
|
|
except per share data)
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007(1)
|
|
|
2007
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated statement of operations data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
$
|
758,889
|
|
|
$
|
654,830
|
|
|
$
|
2,929,723
|
|
|
$
|
2,571,353
|
|
|
$
|
3,399,810
|
|
|
$
|
2,180,293
|
|
|
$
|
1,074,723
|
|
|
$
|
3,172,790
|
|
Operating income (loss)
|
|
$
|
46,729
|
|
|
$
|
23,193
|
|
|
$
|
243,055
|
|
|
$
|
132,001
|
|
|
$
|
114,936
|
|
|
$
|
(154,691
|
)
|
|
$
|
(25,657
|
)
|
|
$
|
243,731
|
|
Interest and derivative interest expense(2)
|
|
$
|
41,714
|
|
|
$
|
86,090
|
|
|
$
|
321,528
|
|
|
$
|
256,146
|
|
|
$
|
240,876
|
|
|
$
|
184,348
|
|
|
$
|
9,277
|
|
|
$
|
25,736
|
|
Income (loss) before income taxes
|
|
$
|
5,526
|
|
|
$
|
(62,526
|
)
|
|
$
|
(168,845
|
)
|
|
$
|
(108,995
|
)
|
|
$
|
(135,187
|
)
|
|
$
|
(330,504
|
)
|
|
$
|
(34,999
|
)
|
|
$
|
221,274
|
|
Net income (loss)
|
|
$
|
3,205
|
|
|
$
|
(53,001
|
)
|
|
$
|
(125,413
|
)
|
|
$
|
(435,645
|
)
|
|
$
|
(146,555
|
)
|
|
$
|
(96,188
|
)
|
|
$
|
(30,422
|
)
|
|
$
|
141,055
|
|
Diluted earnings (loss) per share(3)
|
|
$
|
0.02
|
|
|
$
|
(0.88
|
)
|
|
$
|
(1.98
|
)
|
|
$
|
(7.25
|
)
|
|
$
|
(2.44
|
)
|
|
$
|
(2.43
|
)
|
|
$
|
(0.40
|
)
|
|
$
|
1.86
|
|
Pro forma data as if taxed as a C corporation
(unaudited):(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical loss before income taxes
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
(108,995
|
)
|
|
$
|
(135,187
|
)
|
|
$
|
(330,504
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
Pro forma provision (benefit) for income taxes
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
5,693
|
|
|
|
(26,573
|
)
|
|
|
(19,166
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
(114,688
|
)
|
|
$
|
(108,614
|
)
|
|
$
|
(311,338
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
(1.91
|
)
|
|
$
|
(1.81
|
)
|
|
$
|
(7.86
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
Consolidated balance sheet data (at end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents (excl. restricted cash)
|
|
|
21,549
|
|
|
|
87,327
|
|
|
|
47,494
|
|
|
|
115,862
|
|
|
|
57,916
|
|
|
|
78,826
|
|
|
|
81,134
|
|
|
|
47,858
|
|
Net property and equipment
|
|
|
1,315,399
|
|
|
|
1,327,210
|
|
|
|
1,339,638
|
|
|
|
1,364,545
|
|
|
|
1,583,296
|
|
|
|
1,588,102
|
|
|
|
1,478,808
|
|
|
|
1,513,592
|
|
Total assets
|
|
|
2,555,680
|
|
|
|
2,638,739
|
|
|
|
2,567,895
|
|
|
|
2,513,874
|
|
|
|
2,648,507
|
|
|
|
2,928,632
|
|
|
|
2,124,293
|
|
|
|
2,110,648
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitization of accounts receivable(5)
|
|
|
136,000
|
|
|
|
150,000
|
|
|
|
171,500
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
160,000
|
|
|
|
180,000
|
|
Long-term debt and obligations under capital leases (incl.
current)(5)
|
|
|
1,693,809
|
|
|
|
2,382,181
|
|
|
|
1,774,100
|
|
|
|
2,466,934
|
|
|
|
2,494,455
|
|
|
|
2,427,253
|
|
|
|
200,000
|
|
|
|
200,000
|
|
Other financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per share(6)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.27
|
|
|
$
|
0.56
|
|
|
$
|
0.75
|
|
|
$
|
|
|
|
$
|
|
|
Adjusted EBITDA (unaudited)(7)
|
|
|
104,749
|
|
|
|
90,335
|
|
|
|
497,673
|
|
|
|
405,860
|
|
|
|
409,598
|
|
|
|
291,597
|
|
|
|
109,687
|
|
|
|
498,601
|
|
Adjusted Operating Ratio (unaudited)(8)
|
|
|
92.5
|
%
|
|
|
94.4
|
%
|
|
|
89.0
|
%
|
|
|
93.9
|
%
|
|
|
94.5
|
%
|
|
|
94.4
|
%
|
|
|
97.4
|
%
|
|
|
90.4
|
%
|
Adjusted EPS (unaudited)(9)
|
|
$
|
0.06
|
|
|
$
|
(0.38
|
)
|
|
$
|
0.02
|
|
|
$
|
(0.73
|
)
|
|
$
|
(0.86
|
)
|
|
$
|
(0.67
|
)
|
|
$
|
0.14
|
|
|
$
|
1.91
|
|
Operating statistics (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weekly trucking revenue per tractor
|
|
$
|
2,862
|
|
|
$
|
2,711
|
|
|
$
|
2,879
|
|
|
$
|
2,660
|
|
|
$
|
2,916
|
|
|
$
|
2,903
|
|
|
$
|
2,790
|
|
|
$
|
3,011
|
|
Deadhead miles %
|
|
|
12.1
|
%
|
|
|
12.2
|
%
|
|
|
12.1
|
%
|
|
|
13.2
|
%
|
|
|
13.6
|
%
|
|
|
13.0
|
%
|
|
|
13.2
|
%
|
|
|
12.2
|
%
|
Average loaded length of haul (miles)
|
|
|
430
|
|
|
|
438
|
|
|
|
439
|
|
|
|
442
|
|
|
|
469
|
|
|
|
483
|
|
|
|
492
|
|
|
|
522
|
|
Average tractors available:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-operated
|
|
|
11,105
|
|
|
|
10,747
|
|
|
|
10,838
|
|
|
|
11,262
|
|
|
|
12,657
|
|
|
|
14,136
|
|
|
|
13,857
|
|
|
|
13,314
|
|
Owner-operator
|
|
|
3,972
|
|
|
|
3,696
|
|
|
|
3,829
|
|
|
|
3,607
|
|
|
|
3,367
|
|
|
|
3,056
|
|
|
|
2,959
|
|
|
|
3,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
15,077
|
|
|
|
14,443
|
|
|
|
14,667
|
|
|
|
14,869
|
|
|
|
16,024
|
|
|
|
17,192
|
|
|
|
16,816
|
|
|
|
16,466
|
|
Trailers (end of period)
|
|
|
49,366
|
|
|
|
49,436
|
|
|
|
48,992
|
|
|
|
49,215
|
|
|
|
49,695
|
|
|
|
49,879
|
|
|
|
48,959
|
|
|
|
50,013
|
|
54
|
|
|
(1) |
|
Our audited results of operations include the full year
presentation of Swift Corporation as of and for the year ended
December 31, 2007. Swift Corporation was formed in 2006 for
the purpose of acquiring Swift Transportation, but that
acquisition was not completed until May 10, 2007 as part of
the 2007 Transactions, and, as such, Swift Corporation had
nominal activity from January 1, 2007 through May 10,
2007. The results of Swift Transportation from January 1,
2007 to May 10, 2007 are not reflected in the audited
results of Swift Corporation for the year ended
December 31, 2007. Additionally, although IEL was an entity
under common control prior to its contribution on April 7,
2007, the audited results of Swift Corporation for the year
ended December 31, 2007 exclude the results of IEL for the
period January 1, 2007 to April 6, 2007 as the results
for IEL prior to its contribution are immaterial to the results
of Swift Corporation. These financial results include the impact
of the 2007 Transactions. |
|
(2) |
|
Interest expense between May 2007 and December 2010 was
primarily based on our previous senior secured term loan with an
original aggregate principal amount of $1.72 billion
($1.49 billion on December 21, 2010), our previous
senior secured second-priority floating rate notes with an
original aggregate principal amount of $240 million
($203.6 million outstanding on December 21, 2010), and
our previous 12.50% senior secured second-priority fixed
rate notes with an original aggregate principal amount of
$595 million ($505.6 million outstanding on
December 21, 2010). Derivative interest expense between May
2007 and December 2010 was primarily based on our previous
interest rate swaps related to the debt described in the
previous sentence from the 2007 Transactions, which swaps
originally totaled $1.28 billion of notional amount
($832 million remaining on December 21, 2010). Our
previous senior secured credit facility, the remaining interest
rate swaps, and substantially all of our previous senior secured
second-priority fixed and floating rate notes were paid off in
conjunction with the initial public offering and refinancing
transactions on December 21, 2010. Interest and derivative
interest expense increased during 2010 over 2009 as a result of
the second amendment to our previous senior secured credit
facility, which resulted in an increase in interest applicable
to the previous senior secured term loan of 6.0% (consisting of
the implementation of a 2.25% LIBOR floor and a 2.75% increase
in applicable margin). Further, our remaining interest rate
swaps no longer qualified for hedge accounting after the second
amendment in 2009, and thereafter the entire
mark-to-market
adjustment was recorded in our statement of operations as
opposed to being recorded in equity as a component of other
comprehensive income under the prior cash flow hedge accounting
treatment. |
|
(3) |
|
Represents historical actual diluted earnings (loss) per common
share outstanding for each of the historical periods. Share
amounts and per share data for our predecessor have not been
adjusted to reflect our
four-for-five
reverse stock split effective November 29, 2010, as the
capital structure of our predecessor is not comparable. |
|
(4) |
|
From May 11, 2007 until October 10, 2009, we had
elected to be taxed under the Internal Revenue Code as a
subchapter S corporation. A subchapter S corporation passes
through essentially all taxable earnings and losses to its
stockholders and does not pay federal income taxes at the
corporate level. Historical income taxes during this time
consist mainly of state income taxes in certain states that do
not recognize subchapter S corporations, and an income tax
provision or benefit was recorded for certain of our
subsidiaries, including our Mexican subsidiaries and our sole
domestic captive insurance company at the time, which were not
eligible to be treated as qualified subchapter S corporations.
In October 2009, we elected to be taxed as a subchapter C
corporation. For comparative purposes, we have included a pro
forma (provision) benefit for income taxes assuming we had been
taxed as a subchapter C corporation in all periods when our
subchapter S corporation election was in effect. The pro forma
effective tax rate for 2009 of 5.2% differs from the expected
federal tax benefit of 35% primarily as a result of income
recognized for tax purposes on the partial cancellation of the
stockholder loan agreement with Mr. Moyes and the Moyes
Affiliates, which reduced the tax benefit rate by 32.6%. In
2008, the pro forma effective tax rate was reduced by 8.8% for
stockholder distributions and 4.4% for non-deductible goodwill
impairment charges, which resulted in a 19.7% effective tax
rate. In 2007, the pro forma effective tax rate of 5.8% resulted
primarily from a non-deductible goodwill impairment charge,
which reduced the rate by 25.1%. |
|
(5) |
|
Effective January 1, 2010, we adopted ASU
No. 2009-16
under which we were required to account for our 2008 RSA as a
secured borrowing on our balance sheet as opposed to a sale,
with our 2008 RSA program |
55
|
|
|
|
|
fees characterized as interest expense. From March 27, 2008
through December 31, 2009, our 2008 RSA has been accounted
for as a true sale in accordance with GAAP. Therefore, as of
December 31, 2009 and 2008, such accounts receivable and
associated obligation are not reflected in our consolidated
balance sheets. For periods prior to March 27, 2008, and
again beginning January 1, 2010, accounts receivable and
associated obligation are recorded on our balance sheet.
Long-term debt excludes securitization amounts outstanding for
each period. |
|
(6) |
|
During the period we were taxed as a subchapter S corporation,
we paid dividends to our stockholders in amounts equal to the
actual amount of interest due and payable under the stockholder
loan agreement with Mr. Moyes and the Moyes Affiliates.
Also, in 2010 we made $1.3 million of distributions in the
form of tax payments, on behalf of the stockholders, to certain
state tax jurisdictions as required with our filing of the S
corporation income tax returns for our final subchapter S
corporation period. |
56
MANAGEMENTS
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial
condition and results of operations should be read together with
Selected Historical Consolidated Financial and Other
Data, Business and the consolidated financial
statements and the related notes included elsewhere in this
prospectus. This discussion contains forward-looking statements
as a result of many factors, including those set forth under
Risk Factors, Forward-Looking
Statements, and elsewhere in this prospectus. These
statements are based on current expectations and assumptions
that are subject to risks and uncertainties. Actual results
could differ materially from those discussed in the
forward-looking statements. Factors that could cause or
contribute to these differences include those discussed below
and elsewhere in this prospectus, particularly in Risk
Factors.
Unless we state otherwise or the context otherwise requires,
references in this discussion and analysis of financial
condition and results of operations to Swift,
we, our, us and the
Company for all periods subsequent to the
reorganization transactions described in the section entitled
2010 Transactions refer to Swift Transportation
Company (formerly Swift Holdings Corp.) and its consolidated
subsidiaries after giving effect to such reorganization
transactions. For all periods from May 11, 2007 until the
completion of the 2010 Transactions, these terms refer to Swift
Corporation, a Nevada corporation, which also is referred to
herein as our successor, and its consolidated
subsidiaries. For all periods prior to May 11, 2007, these
terms refer to Swift Corporations predecessor, Swift
Transportation Co., Inc., a Nevada corporation that has been
converted into a Delaware limited liability company known as
Swift Transportation Co., LLC, which also is referred to herein
as Swift Transportation or our predecessor, and its
consolidated subsidiaries. Our discussion of pro forma financial
and operating results for 2007 refers to the combination of our
predecessors results for the period January 1, 2007
through May 10, 2007, and our results for the year ended
December 31, 2007.
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:
|
|
|
|
|
Net income (loss) adjusted to remove interest, taxes,
depreciation, amortization, impairment, and other special items
in order to arrive at Adjusted EBITDA as defined in our senior
secured credit facility;
|
|
|
|
Our Operating Ratio adjusted to subtract fuel surcharges from
total revenue and net them against fuel expense and to remove
non-cash impairment charges, other unusual items, and excludable
transaction costs in order to arrive at Adjusted Operating
Ratio; and
|
|
|
|
Diluted earnings (loss) per share adjusted to remove
amortization of intangibles recorded in our 2007 going-private
transaction, non-cash impairment charges, other unusual items,
excludable transaction costs, and the income tax effects of
these items in order to arrive at Adjusted EPS.
|
Adjusted EBITDA, Adjusted Operating Ratio, and Adjusted EPS are
not recognized measures under GAAP and should not be considered
alternatives to or superior to expense and profitability
measures derived in accordance with GAAP. See Selected
Financial Data for more information on our use of Adjusted
EBITDA, Adjusted Operating Ratio, and Adjusted EPS, as well as a
description of the computation and reconciliation of our net
loss to Adjusted EBITDA and Adjusted EPS and our Operating Ratio
to our Adjusted Operating Ratio.
Overview
During a challenging environment in 2009, when both loaded miles
and rates were depressed across our industry, we instituted a
number of efficiency and cost savings measures. The main areas
of savings included the following: reducing our tractor fleet by
17.2%, improving fuel efficiency, improving our tractor to
non-driver ratio, suspending bonuses and 401(k) matching,
streamlining maintenance and administrative functions, improving
safety and claims management, and limiting discretionary
expenses. Some of the cost reductions, such as insurance and
claims and maintenance expense, have a variable component that
will increase or decrease with the miles we run. However, these
expenses and others also have controllable components such as
fleet size and age, staffing levels, safety, use of technology,
and discipline in execution. While our total costs will
generally vary over time with our revenue, we believe a
significant portion of the described cost
57
savings, and additional savings based on the same principles,
will continue in future periods. In addition, our management
team has implemented strategic initiatives that have
concentrated on rebuilding our owner-operator program, expanding
our faster growing and less asset intensive services,
re-focusing our customer service efforts, and implementing
accountability and cost discipline throughout our operations. As
a result of these strategic initiatives and the above
cost-saving efforts, during the recent economic recession,
amidst industry-wide declining tonnage and pricing levels, our
operating income increased from $114.9 million in 2008
(3.4% operating margin) to $132.0 million in 2009 (5.1%
operating margin) despite a $384.2 million, or 14.3%,
reduction in operating revenue (excluding fuel surcharges).
These efforts helped us improve our Adjusted Operating Ratio by
60 basis points and Adjusted EBITDA was substantially flat
in 2009 compared with 2008.
During 2010, we have continued to apply the efficiency, cost
saving, and strategic measures noted above. We also began to
benefit from an improving freight market, as industry-wide
freight tonnage increased and industry-wide trucking capacity
remained constrained due to lagging new truck builds. These
factors, as well as internal operational improvements, allowed
us to increase the productivity of our assets (as measured by
weekly trucking revenue per tractor) and to improve our
operating margin throughout the year in spite of the fact that
we reinstituted our 401(k) matching contribution and bonuses in
2010. Our quarterly operating margins during 2010 were 3.5% in
the first quarter, 8.3% in the second quarter, 10.8% in the
third quarter, and 9.8% in the fourth quarter of 2010 (which
fourth quarter results included a $22.6 million non-cash
equity compensation charge upon our initial public offering as
discussed below). Additionally, our Adjusted Operating Ratio
improved 490 basis points in 2010 compared with 2009.
The table below reflects our total operating revenue, net loss,
revenue excluding fuel surcharges, Operating Ratio, Adjusted
Operating Ratio, Adjusted EBITDA, diluted loss per common share,
and Adjusted EPS for 2010, 2009 and 2008, and for the three
months ended March 31, 2011 and 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Year Ended December 31,
|
|
|
2011
|
|
2010
|
|
2010
|
|
2009
|
|
2008
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Total operating revenue
|
|
$
|
758,889
|
|
|
$
|
654,830
|
|
|
$
|
2,929,723
|
|
|
$
|
2,571,353
|
|
|
$
|
3,399,810
|
|
Revenue excluding fuel surcharge revenue
|
|
$
|
621,072
|
|
|
$
|
566,014
|
|
|
$
|
2,500,568
|
|
|
$
|
2,295,980
|
|
|
$
|
2,680,193
|
|
Net income (loss)
|
|
$
|
3,205
|
|
|
$
|
(53,001
|
)
|
|
$
|
(125,413
|
)
|
|
$
|
(435,645
|
)
|
|
$
|
(146,555
|
)
|
Diluted earnings (loss) per common share
|
|
$
|
0.02
|
|
|
$
|
(0.88
|
)
|
|
$
|
(1.98
|
)
|
|
$
|
(7.25
|
)
|
|
$
|
(2.44
|
)
|
Operating Ratio
|
|
|
93.8
|
%
|
|
|
96.5
|
%
|
|
|
91.7
|
%
|
|
|
94.9
|
%
|
|
|
96.6
|
%
|
Adjusted Operating Ratio
|
|
|
92.5
|
%
|
|
|
94.4
|
%
|
|
|
89.0
|
%
|
|
|
93.9
|
%
|
|
|
94.5
|
%
|
Adjusted EBITDA
|
|
$
|
104,749
|
|
|
$
|
90,335
|
|
|
$
|
497,673
|
|
|
$
|
405,860
|
|
|
$
|
409,598
|
|
Adjusted EPS
|
|
$
|
0.06
|
|
|
$
|
(0.38
|
)
|
|
$
|
0.02
|
|
|
$
|
(0.73
|
)
|
|
$
|
(0.86
|
)
|
Revenue
and Expenses
We primarily generate revenue by transporting freight for our
customers. Generally, we are paid a predetermined rate per mile
for our services. We enhance our revenue by charging for fuel
surcharges, stop-off pay, loading and unloading activities,
tractor and trailer detention, and other ancillary services. The
main factors that affect our revenue are the rate per mile we
receive from our customers and the number of loaded miles we
generate with our equipment, which in turn produce our weekly
trucking revenue per tractor one of our key
performance indicators and our total trucking
revenue.
The most significant expenses in our business vary with miles
traveled and include fuel, driver-related expenses (such as
wages and benefits), and services purchased from owner-operators
and other transportation providers, such as the railroads,
drayage providers, and other trucking companies (which are
recorded on the Purchased transportation line of our
consolidated statements of operations). Expenses that have both
fixed
58
and variable components include maintenance and tire expense and
our total cost of insurance and claims. These expenses generally
vary with the miles we travel, but also have a controllable
component based on safety, fleet age, efficiency, and other
factors. Our main fixed costs are depreciation of long-term
assets, such as tractors, trailers, containers, and terminals,
interest expense, and the compensation of non-driver personnel.
Because a significant portion of our expenses are either fully
or partially variable based on the number of miles traveled,
changes in weekly trucking revenue per tractor caused by
increases or decreases in deadhead 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.
Income
Taxes
From May 11, 2007 until October 10, 2009, we had
elected to be taxed under the Internal Revenue Code as a
subchapter S corporation. Such election followed the
completion of the 2007 Transactions at the close of the market
on May 10, 2007, which resulted in our becoming a private
company. The election provided an income tax benefit of
approximately $230 million associated with the partial
reversal of previously recognized net deferred tax liabilities.
Under subchapter S provisions, we did not pay corporate income
taxes on our taxable income. Instead, our stockholders were
liable for federal and state income taxes on their proportionate
share of our taxable income. An income tax provision or benefit
was recorded for certain of our subsidiaries, including our
Mexican subsidiary and Mohave, our sole domestic captive
insurance company at that time, which were not eligible to be
treated as qualified subchapter S corporations.
Additionally, we recorded a provision for state income taxes
applicable to taxable income attributed to states that do not
recognize the subchapter S corporation election.
In conjunction with the second amendment to our senior secured
credit facility, we revoked our election to be taxed as a
subchapter S corporation and, beginning October 10,
2009, we became taxed as a subchapter C corporation. Under
subchapter C, we are liable for federal and state corporate
income taxes on our taxable income. As a result of our
subchapter S revocation, we recorded approximately
$325 million of income tax expense on October 10,
2009, primarily in recognition of our deferred tax assets and
liabilities as a subchapter C corporation.
Key
Performance Indicators
We use a number of primary indicators to monitor our revenue and
expense performance and efficiency. Our main measure of
productivity is weekly trucking revenue per tractor. Weekly
trucking revenue per tractor is affected by our loaded miles,
which only include the miles driven when hauling freight, the
size of our fleet (because available loads may be spread over
fewer or more tractors), and the rates received for our
services. We strive to increase our revenue per tractor by
improving freight rates with our customers and hauling more
loads with our existing equipment, effectively moving freight
within our network, keeping tractors maintained, and recruiting
and retaining drivers and owner-operators.
We also strive to reduce our number of deadhead miles. We
measure our performance in this area by monitoring our deadhead
miles percentage, which is calculated by dividing the number of
unpaid miles by the total number of miles driven. By planning
consecutive loads with shorter distances between the drop-off
and pick-up
locations, we are able to reduce the percentage of deadhead
miles driven to allow for more revenue-
59
generating miles during our drivers
hours-of-service.
This also enables us to reduce costs associated with deadhead
miles, such as wages and fuel.
Average tractors available measures the number of tractors we
have available for dispatch and includes tractors driven by
company drivers as well as owner-operator units. This measure
changes based on our ability to increase or decrease our fleet
size to respond to changes in demand.
We consider our Adjusted Operating Ratio to be our most
important measure of our operating profitability. Operating
Ratio is operating expenses as a percentage of revenue, or the
inverse of operating margin, and produces a quick indication of
operating efficiency. It is widely used in our industry as an
assessment of managements effectiveness in controlling all
categories of operating expenses. We net fuel surcharge revenue
against fuel expense in the calculation of our Adjusted
Operating Ratio, therefore excluding fuel surcharge revenue from
total revenue in the denominator. We exclude fuel surcharge
revenue because fuel prices and fuel surcharge revenue are often
volatile and changes in fuel surcharge revenue largely offset
corresponding changes in our fuel expense. Eliminating the
volatility (by netting fuel surcharge revenue against fuel
expense) affords a more consistent basis for comparing our
results of operations between periods. We also exclude
impairments and other unusual or non-cash items in the
calculation of our Adjusted Operating Ratio because we believe
this enhances the comparability of our performance between
periods. Accordingly, we believe Adjusted Operating Ratio is a
better indicator of our core operating profitability than
Operating Ratio and provides a better basis for comparing our
results between periods and against others in our industry.
We monitor weekly trucking revenue per tractor, deadhead miles
percentage, and average tractors available on a daily basis, and
we measure Adjusted Operating Ratio on a monthly basis. For the
years ended December 31, 2010, 2009, and 2008, and for the
three months ended March 31, 2011 and 2010, our performance with
respect to these indicators was as follows (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Weekly trucking revenue per tractor
|
|
$
|
2,862
|
|
|
$
|
2,711
|
|
|
$
|
2,879
|
|
|
$
|
2,660
|
|
|
$
|
2,916
|
|
Deadhead miles percentage
|
|
|
12.1
|
%
|
|
|
12.2
|
%
|
|
|
12.1
|
%
|
|
|
13.2
|
%
|
|
|
13.6
|
%
|
Average tractors available for dispatch:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
11,105
|
|
|
|
10,747
|
|
|
|
10,838
|
|
|
|
11,262
|
|
|
|
12,657
|
|
Owner Operator
|
|
|
3,972
|
|
|
|
3,696
|
|
|
|
3,829
|
|
|
|
3,607
|
|
|
|
3,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
15,077
|
|
|
|
14,443
|
|
|
|
14,667
|
|
|
|
14,869
|
|
|
|
16,024
|
|
Operating Ratio
|
|
|
93.8
|
%
|
|
|
96.5
|
%
|
|
|
91.7
|
%
|
|
|
94.9
|
%
|
|
|
96.6
|
%
|
Adjusted Operating Ratio
|
|
|
92.5
|
%
|
|
|
94.4
|
%
|
|
|
89.0
|
%
|
|
|
93.9
|
%
|
|
|
94.5
|
%
|
Results
of Operations
Factors
Affecting Comparability Between Periods
Change as
a Result of the 2010 Transactions
We expect an approximately $97 million reduction in
on-going annual interest expense assuming the debt and capital
lease balances and interest rates in effect at December 31,
2010, based on the application of the estimated net proceeds of
our initial public offering and refinancing transactions.
We also expect that, unless and until we enter into any future
interest rate hedging arrangements, derivative interest expense
will be reduced to $15.1 million in 2011 and
$5.3 million in 2012, respectively, reflecting amortization
of previous losses on our terminated interest rate swaps, which
are recorded in accumulated other comprehensive income. Such
losses were incurred in prior periods when hedge accounting
applied to our swaps and will be expensed in the periods
indicated in accordance with Topic 815, Derivatives and
Hedging.
60
Three
Months Ended March 31, 2011 Results of Operations
Net income for the three months ended March 31, 2011 was
$3.2 million. Items impacting comparability between the
first quarter of 2011 and the corresponding prior year period
include the following:
|
|
|
|
|
approximately $25 million reduction in interest expense
resulting from our initial public offering and refinancing
transactions that occurred in December 2010; and
|
|
|
|
|
|
approximately $19 million reduction in derivative interest
expense resulting from our termination of our remaining interest
rate swaps in December 2010 in conjunction with our initial
public offering and refinancing transactions.
|
Three
Months Ended March 31, 2010 Results of Operations
Net loss for the three months ended March 31, 2010 was
$53.0 million. Items impacting comparability between the
first quarter of 2010 and the corresponding current year period
include the following:
|
|
|
|
|
$1.3 million of pre-tax impairment charge for trailers
reclassified to assets held for sale; and
|
|
|
|
|
|
$7.4 million of incremental pre-tax depreciation expense
reflecting managements decision in the first quarter to
sell as scrap approximately 7,000 dry van trailers over the
course of the next several years and the corresponding revision
to estimates regarding salvage and useful lives of such trailers.
|
2010
Results of Operations
Our net loss for the year ended December 31, 2010 was
$125.4 million. Items impacting comparability between 2010
and other periods include the following:
|
|
|
|
|
$1.3 million of pre-tax impairment charge for trailers
reclassified to assets held for sale during the first quarter;
|
|
|
|
$7.4 million of incremental pre-tax depreciation expense
reflecting managements decision in the first quarter to
sell as scrap approximately 7,000 dry van trailers over the
course of the next several years and the corresponding revision
to estimates regarding salvage and useful lives of such trailers;
|
|
|
|
$43.4 million of income tax benefit as a result of
recognition of subchapter C corporation tax benefits after our
becoming a subchapter C corporation in the fourth quarter of
2009;
|
|
|
|
$22.6 million of one-time pre-tax non-cash equity
compensation charge related to certain stock options that vested
upon our initial public offering in December 2010; and
|
|
|
|
$95.5 million of pre-tax loss on debt extinguishment
related to the premium and fees we paid to tender for our old
notes and the non-cash write-off of the deferred financing costs
associated with our previous indebtedness that was repaid in
December 2010 as a result of our refinancing transactions.
|
2009
Results of Operations
Our net loss for the year ended December 31, 2009 was
$435.6 million. Items impacting comparability between 2009
and other periods include the following:
|
|
|
|
|
$0.5 million pre-tax impairment of three non-operating real
estate properties in the first quarter of 2009;
|
|
|
|
$4.2 million of pre-tax transaction costs incurred in the
third and fourth quarters of 2009 related to an amendment to our
senior secured credit facility and the concurrent senior secured
notes amendments;
|
|
|
|
$2.3 million of pre-tax transaction costs incurred during
the third quarter related to our cancelled bond offering;
|
|
|
|
$12.5 million pre-tax benefit in other income for net
proceeds received during the third quarter pursuant to a
litigation settlement entered into by us on September 25,
2009;
|
61
|
|
|
|
|
$4.0 million pre-tax benefit in other income from the sale
of our investment in Transplace in the fourth quarter of 2009,
representing the recovery of a note receivable that had been
previously written off;
|
|
|
|
$324.8 million of non-cash income tax expense primarily in
recognition of net deferred tax liabilities in the fourth
quarter of 2009 reflecting our subchapter S revocation; and
|
|
|
|
$29.2 million in additional interest expense and derivative
interest expense related to higher interest rates and loss of
hedge accounting for our interest rate swaps as a result of an
amendment to our senior secured credit facility in the fourth
quarter of 2009.
|
2008
Results of Operations
Our net loss for the year ended December 31, 2008 was
$146.6 million. Items impacting comparability between 2008
and other periods include the following:
|
|
|
|
|
$17.0 million of pre-tax charges associated with impairment
of goodwill of our Mexico freight transportation reporting unit;
|
|
|
|
$7.5 million of pre-tax impairment charges for certain real
property, tractors, trailers, and a note receivable; and
|
|
|
|
$6.7 million in pre-tax expense associated with the closing
of our 2008 RSA on July 30, 2008 and $0.3 million in
financial advisory fees associated with an amendment to our
senior secured credit facility.
|
Revenue
We record three types of revenue: trucking revenue, fuel
surcharge revenue, and other revenue. A summary of our revenue
generated by type for 2010, 2009, and 2008, and for the three
months ended March 31, 2011 and 2010, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Trucking revenue
|
|
$
|
554,721
|
|
|
$
|
503,507
|
|
|
$
|
2,201,684
|
|
|
$
|
2,062,296
|
|
|
$
|
2,443,271
|
|
Fuel surcharge revenue
|
|
|
137,817
|
|
|
|
88,816
|
|
|
|
429,155
|
|
|
|
275,373
|
|
|
|
719,617
|
|
Other revenue
|
|
|
66,351
|
|
|
|
62,507
|
|
|
|
298,884
|
|
|
|
233,684
|
|
|
|
236,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
$
|
758,889
|
|
|
$
|
654,830
|
|
|
$
|
2,929,723
|
|
|
$
|
2,571,353
|
|
|
$
|
3,399,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trucking
revenue
Trucking revenue is generated by hauling freight for our
customers using our trucks or our owner-operators
equipment and includes all revenue we earn from our general
truckload, dedicated, cross border, and drayage services.
Generally, our customers pay for our services based on the
number of miles in the most direct route between
pick-up and
delivery locations and other ancillary services we provide.
Trucking revenue is the product of the number of
revenue-generating miles driven and the rate per mile we receive
from customers plus accessorial charges, such as loading and
unloading freight for our customers or fees for detaining our
equipment. The main factors that affect trucking revenue are our
average tractors available and our weekly trucking revenue per
tractor. Trucking revenue is affected by fluctuations in North
American economic activity, as well as changes in inventory
levels, changes in shipper packaging methods that reduce
volumes, specific customer demand, the level of capacity in the
truckload industry, driver availability, and modal shifts
between truck and rail intermodal shipping (which we record in
other revenue).
For the three months ended March 2011, our trucking revenue
increased by $51.2 million, or 10.2%, compared with the
same period in 2010. This increase was comprised of a 5.9%
growth in loaded trucking miles and a 4.0% increase in average
trucking revenue per loaded mile, excluding fuel surcharge,
compared
62
with the same period in 2010. These increases contributed to a
5.6% increase in productivity, measured by weekly trucking
revenue per tractor in the 2011 quarter over the 2010 quarter.
For 2010, our trucking revenue increased by $139.4 million,
or 6.8%, compared with the 2009. This increase was comprised of
a 4.7% growth in loaded trucking miles and a 1.9% increase in
average trucking revenue per loaded mile, excluding fuel
surcharge, compared with 2009. We achieved the year over year
increase in trucking revenue per loaded mile, excluding fuel
surcharge, through sequential quarterly increases throughout
2010 after experiencing sequential quarterly decreases
throughout 2009.
For 2009, our trucking revenue decreased by $381.0 million,
or 15.6%, compared with 2008. This decrease primarily resulted
from a 12.9% reduction in loaded trucking miles and a 3.1%
decrease in average trucking revenue per loaded mile. These
reductions resulted in an 8.8% decrease in weekly trucking
revenue per tractor and a 6.1% decrease in average loaded miles
per available tractor despite our 7.2% reduction in average
tractors available. This decline in trucking demand accelerated
in the first half of 2009, and our fleet reductions were not as
rapid as the decrease in freight volumes for two reasons. First,
a depressed used equipment market made disposal of company
tractors and owner-operator leased units unattractive. Second,
we chose not to downsize our owner-operator fleet consistent
with our longer term strategy of increasing our number of
owner-operators. During 2009, excess capacity of tractors in our
industry continued to place pressure on rates.
Fuel
surcharge revenue
Fuel surcharges are designed to compensate us for fuel costs
above a certain cost per gallon base. Generally, we receive fuel
surcharges on the miles for which we are compensated by
customers. The main factors that affect fuel surcharge revenue
are the price of diesel fuel and the number of loaded miles. Our
fuel surcharges are billed on a lagging basis, meaning we
typically bill customers in the current week based on a previous
weeks applicable index. Therefore, in times of increasing
fuel prices, we do not recover as much as we are currently
paying for fuel. In periods of declining prices, the opposite is
true.
For the three months ended March 2011, fuel surcharge revenue
increased by $49.0 million, or 55.2%, compared with the same
period in 2010. The average of the DOEs national weekly
average diesel fuel index increased 26.7% to $3.61 per gallon in
2011 compared with $2.85 per gallon in the 2010 period. The 5.9%
increase in loaded trucking miles combined with a 3.7% increase
in loaded intermodal miles in the 2011 quarter also increased
fuel surcharge revenue.
For 2010, fuel surcharge revenue increased by
$153.8 million, or 55.8%, compared with 2009. The average
of the DOEs national weekly average diesel fuel index
increased 21.1% to $2.99 per gallon in 2010 compared with $2.47
per gallon in 2009. The 4.7% increase in loaded trucking miles
combined with a 28.1% increase in loaded intermodal miles in
2010 also increased fuel surcharge revenue.
For 2009, fuel surcharge revenue decreased $444.2 million,
or 61.7%, compared with 2008. The average of the DOEs
national weekly average diesel price index decreased 35.0% to
$2.47 per gallon in 2009 compared with $3.80 per gallon in 2008.
In addition, we operated 12.9% fewer loaded miles in 2009.
Other
revenue
Our other revenue is generated primarily by our rail intermodal
business, non-asset based freight brokerage and logistics
management service, tractor leasing revenue of IEL, premium
revenue generated by our wholly-owned captive insurance
companies, and other revenue generated by our shops. The main
factors that affect other revenue are demand for our intermodal
and brokerage and logistics services and the number of
owner-operators leasing equipment from us.
For the three months ended March 31, 2011, other revenue
increased by $3.8 million, or 6.1%, compared with the 2010
period. This resulted primarily from the 3.7% increase in loaded
intermodal miles noted above, driven by increasing intermodal
freight demand, and a $2.7 million increase in tractor leasing
revenue of IEL resulting from the growth in our owner operator
fleet.
63
For 2010, other revenue increased by $65.2 million, or
27.9%, compared with 2009. This resulted primarily from a 28.1%
increase in loaded intermodal miles, driven by increasing
intermodal freight demand and the recent awards of new business,
and an $8.0 million increase in tractor leasing revenue of
IEL resulting from the growth in our owner-operator fleet.
For 2009, other revenue decreased by $3.2 million, or 1.4%,
compared with 2008. This resulted primarily from a 61% decrease
in logistics revenue, partially offset by a $7.2 million
increase in tractor leasing revenue of IEL, resulting from
growth of our owner-operator fleet.
Operating
Expenses
Salaries,
Wages, and Employee Benefits
Salaries, wages, and employee benefits consist primarily of
compensation for all employees. Salaries, wages, and employee
benefits are primarily affected by the total number of miles
driven by company drivers, the rate per mile we pay our company
drivers, employee benefits including but not limited to health
care and workers compensation, and to a lesser extent by
the number of, and compensation and benefits paid to, non-driver
employees.
The following is a summary of our salaries, wages, and employee
benefits for the years ended December 31, 2010, 2009, and
2008, and for the three months ended March 31, 2011 and
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
Year Ended December 31,
|
|
|
2011
|
|
2010
|
|
2010
|
|
2009
|
|
2008
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Salaries, wages, and employee benefits
|
|
$
|
195,476
|
|
|
$
|
177,803
|
|
|
$
|
763,962
|
|
|
$
|
728,784
|
|
|
$
|
892,691
|
|
% of revenue, excluding fuel surcharge revenue
|
|
|
31.5
|
%
|
|
|
31.4
|
%
|
|
|
30.6
|
%
|
|
|
31.7
|
%
|
|
|
33.3
|
%
|
% of operating revenue
|
|
|
25.8
|
%
|
|
|
27.2
|
%
|
|
|
26.1
|
%
|
|
|
28.3
|
%
|
|
|
26.3
|
%
|
For the three months ended March 31, 2011, salaries, wages, and
employee benefits increased by $17.7 million, or 9.9%, compared
with the same period in 2010. As a percentage of revenue
excluding fuel surcharge revenue, salaries, wages, and employee
benefits were relatively flat with the same period in 2010. The
dollar increase was primarily as a result of the 6.9% increase
in the total miles driven by company drivers in the first
quarter of 2011 compared to the first quarter of 2010 and an
increase in administrative staff to support the growing
business. Additionally, there was $2.4 million of stock option
compensation expense recognized in the first quarter of 2011
whereas no stock option compensation expense was recognized in
the first quarter of 2010 because the vesting of our options was
conditioned upon our initial public offering.
For 2010, salaries, wages, and employee benefits increased by
$35.2 million, or 4.8%, compared with 2009. This increase
in expense primarily resulted from the $22.6 million
one-time non-cash equity compensation charge in December 2010
related to stock options that vested upon the initial public
offering, as discussed below. Also, salaries, wages, and
employee benefits increased in 2010 due to the accrual of
bonuses and the resumption of our 401(k) match during 2010, and
because the 2009 period included the one-week furlough for
non-drivers we had implemented during the second quarter of
2009. These increases offset the reduction in salaries, wages,
and employee benefits that resulted from the headcount
reductions we implemented in January and October of 2009 and the
reduction in driver pay resulting from the
year-over-year
decrease in miles driven by company drivers during the first
half of 2010. As a percentage of revenue excluding fuel
surcharge revenue, salaries, wages, and employee benefits
decreased by 110 basis points compared with 2009 primarily
due to the growth in our owner-operator fleet and intermodal
business, resulting in a 397 basis point reduction in the
percentage of total miles driven by company drivers over the
comparative year to date periods.
For 2009, salaries, wages, and employee benefits decreased
$163.9 million, or 18.4%, compared with 2008. As a
percentage of revenue excluding fuel surcharge revenue,
salaries, wages, and employee benefits decreased to 31.7%,
compared with 33.3% for 2008. This decline is primarily due to
an overall decline in
64
shipping volumes and associated miles as well as a mix shift
between company drivers and owner-operators, which combined to
result in an 18.3% reduction in the number of miles driven by
company drivers. We also reduced our average, non-driving
workforce in 2009 by 11.6% compared with the average for 2008 as
a result of efficiency measures developed by our Lean Six Sigma
initiatives, as well as reductions in force related to a smaller
tractor fleet and revenue base. In addition, we reduced the rate
of pay to drivers in 2009, eliminated bonuses and our 401(k)
match, and imposed a one-week furlough for non-driving personnel
in the second quarter.
We currently have 6.1 million stock options outstanding
pursuant to our 2007 Omnibus Incentive Plan, as amended and
restated. Approximately 20% of these options vested and became
exercisable simultaneously with the closing of the initial
public offering on December 21, 2010. Accordingly, our
salaries, wages, and employee benefits expense increased upon
the consummation of the offering as stock compensation expense
immediately recognized was $22.6 million, which charge
represented the portion of the option holders respective
service periods that had been performed at the time the initial
public offering satisfied the condition to vesting under the
option terms. We recorded an additional $0.3 million of
ongoing non-cash equity compensation expense following the
initial public offering date through the end of the year.
Additionally, upon closing the initial public offering we
repriced 4.3 million outstanding stock options that had
strike prices above the initial public offering price per share
to $11.00, the initial public offering price per share. This
resulted in additional unrecognized equity compensation expense
totaling $5.6 million, which will be recognized over the
remaining vesting term of the repriced options in accordance
with Topic 718, Compensation Stock
Compensation. Going forward, ongoing quarterly non-cash
equity compensation expense for existing grants is estimated to
be approximately $2.4 million per quarter in the first
three quarters of 2011 and $1.8 million per quarter
thereafter through the third quarter of 2012, at which point
approximately 87% of awards outstanding at December 31,
2010 will be vested.
All other things equal, reductions in the portion of our total
miles driven by company drivers such as we have been
experiencing given our fleet reduction efforts through the third
quarter of 2009 and our growing intermodal business and
owner-operator fleet, generally cause expenses related to
company driver miles, such as wages, fuel, and to a lesser
extent maintenance, to be reduced as a percentage of revenue,
while purchased transportation expenses increase as a percentage
of revenue. If we are successful in continuing to grow our
intermodal business and owner-operator fleet, we would expect
such shifts in the composition of our operating expenses to
continue.
The compensation paid to our drivers and other employees has
increased and may increase further in future periods as the
economy strengthens and other employment alternatives become
more available. Furthermore, because we believe that the market
for drivers has tightened, we expect hiring expenses, including
recruiting and advertising, to increase in order to attract
sufficient numbers of qualified drivers to operate our fleet.
Operating
Supplies and Expenses
Operating supplies and expenses consist primarily of ordinary
vehicle repairs and maintenance, the physical damage repairs to
our equipment resulting from accidents, costs associated with
preparing tractors and trailers for sale or trade-in, driver
expenses, driver recruiting costs, legal and professional
services fees, general and administrative expenses, and other
costs. Operating supplies and expenses are primarily affected by
the age of our company-owned fleet of tractors and trailers, the
number of miles driven in a period, driver turnover, and to a
lesser extent by efficiency measures in our shop.
65
The following is a summary of our operating supplies and
expenses for the years ended December 31, 2010, 2009, and
2008, and for the three months ended March 31, 2011 and
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Year Ended December 31,
|
|
|
2011
|
|
2010
|
|
2010
|
|
2009
|
|
2008
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Operating supplies and expenses
|
|
$
|
57,104
|
|
|
$
|
47,830
|
|
|
$
|
217,965
|
|
|
$
|
209,945
|
|
|
$
|
271,951
|
|
% of revenue, excluding fuel surcharge revenue
|
|
|
9.2
|
%
|
|
|
8.5
|
%
|
|
|
8.7
|
%
|
|
|
9.1
|
%
|
|
|
10.1
|
%
|
% of operating revenue
|
|
|
7.5
|
%
|
|
|
7.3
|
%
|
|
|
7.4
|
%
|
|
|
8.2
|
%
|
|
|
8.0
|
%
|
For the three months ended March 31, 2011, operating supplies
and expenses increased by $9.3 million, or 19.4%, compared
with the same period in 2010. As a percentage of revenue
excluding fuel surcharge revenue, operating supplies and
expenses increased to 9.2%, compared with 8.5% for the 2010
period. The increase was primarily the result of an increase in
tractor maintenance expense due to the 6.9% increase in total
miles driven by company tractors in the first quarter of 2011
compared to the first quarter of 2010 and an overall increase in
our fleet age. Additionally, our driver recruiting expenses
increased due to our expanded hiring of drivers to meet the
increase volume demands.
For 2010, operating supplies and expenses increased by
$8.0 million, or 3.8%, compared with 2009. As a percentage
of revenue excluding fuel surcharge revenue, operating supplies
and expenses decreased to 8.7%, compared with 9.1% for 2009. The
increase in expense was primarily the result of an increase in
tractor maintenance expense due to the increase in our fleet age
compared with 2009, partially offset by the reduction in our
company tractor fleet, and cost control and maintenance
efficiency initiatives we implemented during 2009. The reduction
as a percentage of revenue excluding fuel surcharge revenue is
largely the result of the mix shift whereby a lower percentage
of our business is performed by company tractors and drivers.
Going forward, we expect our operating supplies and expenses to
increase on a
per-mile
basis over the next several years to reflect increased
maintenance expenses associated with an older fleet and
increased recruiting costs due to a tightening supply of truck
drivers.
For 2009, operating supplies and expenses decreased
$62.0 million, or 22.8%, compared with 2008. As a
percentage of revenue, excluding fuel surcharge revenue,
operating supplies and expenses decreased to 9.1%, compared with
10.1% for 2008. This
year-over-year
decrease was primarily due to the reduction in our tractor
fleet, improved driver turnover, and several cost control and
maintenance efficiency initiatives we implemented during 2009,
resulting in lower driver recruiting and training, equipment
maintenance, and other discretionary costs. These decreases were
partially offset by $6.5 million of expenses for
transaction costs related to the amendments of our financing
agreements and a cancelled bond offering during the third and
fourth quarters of 2009, which we recorded in operating supplies
and expenses.
Fuel
Expense
Fuel expense consists primarily of diesel fuel expense for our
company-owned tractors and fuel taxes. The primary factors
affecting our fuel expense are the cost of diesel fuel, the
miles per gallon we realize with our equipment, and the number
of miles driven by company drivers.
We believe the most effective protection against fuel cost
increases is (i) to maintain a fuel-efficient fleet by
incorporating fuel efficiency measures, such as slower tractor
speeds, engine idle limitations, and a reduction of deadhead
miles into our business, (ii) to actively manage fuel
procurement, and (iii) to implement an effective fuel
surcharge program. To mitigate unrecovered fuel exposure, we
have worked to negotiate more robust surcharge programs with
customers identified as having inadequate programs. We generally
have not used derivatives as a hedge against higher fuel costs
in the past, but continue to evaluate this possibility. We have
contracted with some of our fuel suppliers to buy a portion of
our fuel at a fixed price or within banded pricing for a
specific period, usually not exceeding twelve months, to
mitigate the impact of rising fuel costs.
66
The following is a summary of our fuel expense for the years
ended December 31, 2010, 2009, and 2008, and for the three
months ended March 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Year Ended December 31,
|
|
|
2011
|
|
2010
|
|
2010
|
|
2009
|
|
2008
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Fuel expense
|
|
$
|
150,281
|
|
|
$
|
106,082
|
|
|
$
|
468,504
|
|
|
$
|
385,513
|
|
|
$
|
768,693
|
|
% of operating revenue
|
|
|
19.8
|
%
|
|
|
16.2
|
%
|
|
|
16.0
|
%
|
|
|
15.0
|
%
|
|
|
22.6
|
%
|
To measure the effectiveness of our fuel surcharge program, we
subtract fuel surcharge revenue (other than the fuel surcharge
revenue we reimburse to owner-operators, the railroads, and
other third parties which is included in purchased
transportation) from our fuel expense. The result is referred to
as net fuel expense. Our net fuel expense as a percentage of
revenue excluding fuel surcharge revenue is affected by the cost
of diesel fuel net of surcharge collection, the percentage of
miles driven by company trucks, our fuel economy, and our
percentage of deadhead miles, for which we do not receive fuel
surcharge revenues. Net fuel expense as a percentage of revenue
less fuel surcharge revenue is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Total fuel surcharge revenue
|
|
$
|
137,817
|
|
|
$
|
88,816
|
|
|
$
|
429,155
|
|
|
$
|
275,373
|
|
|
$
|
719,617
|
|
Less: fuel surcharge revenue reimbursed to owner-operators and
other third parties
|
|
|
50,785
|
|
|
|
32,866
|
|
|
|
155,883
|
|
|
|
92,341
|
|
|
|
216,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company fuel surcharge revenue
|
|
$
|
87,032
|
|
|
$
|
55,950
|
|
|
$
|
273,272
|
|
|
$
|
183,032
|
|
|
$
|
503,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fuel expense
|
|
$
|
150,281
|
|
|
$
|
106,082
|
|
|
$
|
468,504
|
|
|
$
|
385,513
|
|
|
$
|
768,693
|
|
Less: Company fuel surcharge revenue
|
|
|
87,032
|
|
|
|
55,950
|
|
|
|
273,272
|
|
|
|
183,032
|
|
|
|
503,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net fuel expense
|
|
$
|
63,249
|
|
|
$
|
50,132
|
|
|
$
|
195,232
|
|
|
$
|
202,481
|
|
|
$
|
265,261
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of revenue, excluding fuel surcharge revenue
|
|
|
10.2
|
%
|
|
|
8.9
|
%
|
|
|
7.8
|
%
|
|
|
8.8
|
%
|
|
|
9.9
|
%
|
For three months ended March 31, 2011, net fuel expense
increased $13.1 million, or 26.2%, compared with the same
period in 2010. As a percentage of revenue excluding fuel
surcharge revenue, net fuel expense increased to 10.2%, compared
with 8.9% for the 2010 period largely due to the negative impact
of the lag effect of our fuel surcharge program amidst rising
fuel prices and the mix shift whereby the percentage of our
total miles driven by company tractors increased by 90 basis
points compared to the first quarter in 2010.
For 2010, net fuel expense decreased $7.2 million, or 3.6%,
compared with 2009. As a percentage of revenue excluding fuel
surcharge revenue, net fuel expense decreased to 7.8%, compared
with 8.8% for 2009. The decrease in net fuel expense is
primarily the result of the 110 basis point decrease in our
deadhead miles percentage and the 0.8% decrease in total miles
driven by company tractors. Further, net fuel expense also
decreased as a percentage of revenue excluding fuel surcharge
revenue during the period largely due to the mix shift whereby
the percentage of our total miles driven by company tractors
decreased by 397 basis points compared to the prior year
period.
For 2009, net fuel expense decreased by $62.8 million, or
23.7%, compared with 2008. As a percentage of revenue, excluding
fuel surcharge revenue, net fuel expense decreased to 8.8%,
compared with 9.9% for 2008. This decline was caused by an 18.3%
decrease in miles driven by company tractors, lower diesel fuel
prices, a slight improvement in fuel economy, and improvements
in fuel procurement strategies.
67
Purchased
Transportation
Purchased transportation consists of the payments we make to
owner-operators, railroads, and third-party carriers that haul
loads we broker to them, including fuel surcharge reimbursements
paid to such parties.
The following is a summary of purchased transportation expense
for the years ended December 31, 2010, 2009, and 2008, and
for the three months ended March 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Year Ended December 31,
|
|
|
2011
|
|
2010
|
|
2010
|
|
2009
|
|
2008
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Purchased transportation expense
|
|
$
|
194,037
|
|
|
$
|
175,702
|
|
|
$
|
771,333
|
|
|
$
|
620,312
|
|
|
$
|
741,240
|
|
% of operating revenue
|
|
|
25.6
|
%
|
|
|
26.8
|
%
|
|
|
26.3
|
%
|
|
|
24.1
|
%
|
|
|
21.8
|
%
|
Because we reimburse owner-operators and other third parties for
fuel surcharges we receive, we subtract fuel surcharge revenue
reimbursed to third parties from our purchased transportation
expense. The result, referred to as purchased transportation,
net of fuel surcharge reimbursements, is evaluated as a
percentage of revenue less fuel surcharge revenue, as shown
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Purchased transportation
|
|
$
|
194,037
|
|
|
$
|
175,702
|
|
|
$
|
771,333
|
|
|
$
|
620,312
|
|
|
$
|
741,240
|
|
Less: fuel surcharge revenue reimbursed to owner-operators and
other third parties
|
|
|
50,785
|
|
|
|
32,866
|
|
|
|
155,883
|
|
|
|
92,341
|
|
|
|
216,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased transportation, net of fuel surcharge reimbursement
|
|
$
|
143,252
|
|
|
$
|
142,836
|
|
|
$
|
615,450
|
|
|
$
|
527,971
|
|
|
$
|
525,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of revenue, excluding fuel surcharge revenue
|
|
|
23.1
|
%
|
|
|
25.2
|
%
|
|
|
24.6
|
%
|
|
|
23.0
|
%
|
|
|
19.6
|
%
|
For three months ended March 31, 2011, purchased
transportation, net of fuel surcharge reimbursement, increased
$0.4 million, or 0.3%, compared with 2010. As a percentage
of revenue excluding fuel surcharge revenue, purchased
transportation, net of fuel surcharge reimbursement, decreased
to 23.1%, compared with 25.2% for 2010. The decrease in
percentage of revenue excluding fuel surcharge revenue is
primarily a result of a reduction in the average cost per mile
of our purchased transportation, and the mix shift noted above
resulting in a 90 basis point increase in the percentage of
total miles driven by company tractors, opposed to
owner-operators or rail providers.
For 2010, purchased transportation, net of fuel surcharge
reimbursement, increased $87.5 million, or 16.6%, compared
with 2009. As a percentage of revenue excluding fuel surcharge
revenue, purchased transportation, net of fuel surcharge
reimbursement, increased to 24.6%, compared with 23.0% for 2009.
The increase in cost and percentage of revenue excluding fuel
surcharge revenue is primarily due to a 30.3% increase in total
intermodal miles, and a 13.1% increase in total owner-operator
miles, while the percentage of total miles driven by company
tractors decreased by 397 basis points, as noted above.
For 2009, purchased transportation, net of fuel surcharge
reimbursement, was relatively flat in dollar amount, but as a
percentage of revenue, excluding fuel surcharge, increased to
23.0%, compared with 19.6% for 2008. The percentage increase is
primarily the result of the mix shift from company drivers to
owner- operators, as noted above, which produced a 1.5% increase
in loaded miles driven by owner-operators despite a 12.9%
reduction in total loaded miles.
68
Insurance
and Claims
Insurance and claims expense consists of insurance premiums and
the accruals we make for estimated payments and expenses for
claims for bodily injury, property damage, cargo damage, and
other casualty events. The primary factors affecting our
insurance and claims are the number of miles run by our drivers
and owner operators, the frequency and severity of accidents,
trends in the development factors used in our actuarial
accruals, and developments in large, prior-year claims. The
frequency of accidents tends to increase with the miles we
travel. To the extent economic conditions improve and to the
extent such improvement results in an increase in the miles we
travel, we could experience an increase in our claims exposure,
which could adversely affect our profitability. Furthermore, our
substantial, self-insured retention of $10.0 million per
occurrence for accident claims can make this expense item
volatile.
The following is a summary of our insurance and claims expense
for the years ended December 31, 2010, 2009, and 2008, and
for the three months ended March 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Year Ended December 31,
|
|
|
2011
|
|
2010
|
|
2010
|
|
2009
|
|
2008
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Insurance and claims
|
|
$
|
22,725
|
|
|
$
|
20,207
|
|
|
$
|
87,411
|
|
|
$
|
81,332
|
|
|
$
|
141,949
|
|
% of revenue, excluding fuel surcharge revenue
|
|
|
3.7
|
%
|
|
|
3.6
|
%
|
|
|
3.5
|
%
|
|
|
3.5
|
%
|
|
|
5.3
|
%
|
% of operating revenue
|
|
|
3.0
|
%
|
|
|
3.1
|
%
|
|
|
3.0
|
%
|
|
|
3.2
|
%
|
|
|
4.2
|
%
|
For the three months ended March 31, 2011, insurance and
claims expense increased by $2.5 million, or 12.5%,
compared with the same period in 2010. The increase is primarily
due to a 5.3% increase in total miles driven, while insurance
and claims expense as a percentage of revenue excluding fuel
surcharge revenue was relatively flat with the same period in
2010.
For 2010, insurance and claims expense increased by
$6.1 million, or 7.5%, compared with 2009. The increase is
primarily due to the 5.8% increase in total miles, while
insurance and claims expense as a percentage of revenue
excluding fuel surcharge revenue was flat with the same period
in 2009.
For 2009, insurance and claims expense decreased by
$60.6 million, or 42.7%, compared with 2008. As a
percentage of revenue, excluding fuel surcharge revenue,
insurance and claims expense decreased to 3.5%, compared with
5.3% for 2008. The decrease partially reflected an increase in
claims expense during the fourth quarter of 2008, as additional
information regarding several large loss claims for accidents
that had occurred in 2006 and 2007 resulted in an increase in
reserves and additional expense during 2008. Insurance and
claims expense also decreased in 2009 because of the decrease in
total miles in 2009 versus 2008. Furthermore, our recent
reductions in accident frequency and severity resulted in less
expense as a percentage of revenue, excluding fuel surcharge.
Rental
Expense and Depreciation and Amortization of Property and
Equipment
Rental expense consists primarily of payments for tractors and
trailers financed with operating leases. Depreciation and
amortization of property and equipment consists primarily of
depreciation for owned tractors and trailers or amortization of
those financed with capital leases. The primary factors
affecting these expense items include the size and age of our
tractor, trailer, and container fleet, the cost of new
equipment, and the relative percentage of owned versus leased
equipment. Because the mix of our leased versus owned tractors
varies, we believe it is appropriate to combine our rental
expense with our depreciation and amortization of property and
equipment when comparing
year-over-year
results for analysis purposes.
69
The following is a summary of our rental expense and
depreciation and amortization of property and equipment for the
years ended December 31, 2010, 2009, and 2008, and for the
three months ended March 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Rental expense
|
|
$
|
17,989
|
|
|
$
|
18,903
|
|
|
$
|
76,540
|
|
|
$
|
79,833
|
|
|
$
|
76,900
|
|
Depreciation and amortization of property and equipment
|
|
|
50,358
|
|
|
|
60,019
|
|
|
|
206,279
|
|
|
|
230,339
|
|
|
|
250,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental expense and depreciation and amortization of property and
equipment
|
|
$
|
68,347
|
|
|
$
|
78,922
|
|
|
$
|
282,819
|
|
|
$
|
310,172
|
|
|
$
|
327,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of revenue, excluding fuel surcharge revenue
|
|
|
11.0
|
%
|
|
|
13.9
|
%
|
|
|
11.3
|
%
|
|
|
13.5
|
%
|
|
|
12.2
|
%
|
% of operating revenue
|
|
|
9.0
|
%
|
|
|
12.1
|
%
|
|
|
9.7
|
%
|
|
|
12.1
|
%
|
|
|
9.6
|
%
|
Rental expense and depreciation and amortization of property and
equipment were primarily driven by our fleet of tractors and
trailers shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
Tractors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owned
|
|
|
6,683
|
|
|
|
7,657
|
|
|
|
6,844
|
|
|
|
7,881
|
|
|
|
9,811
|
|
Leased capital leases
|
|
|
3,050
|
|
|
|
2,680
|
|
|
|
3,048
|
|
|
|
2,485
|
|
|
|
1,977
|
|
Leased operating leases
|
|
|
2,378
|
|
|
|
2,152
|
|
|
|
2,331
|
|
|
|
2,074
|
|
|
|
1,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total company tractors
|
|
|
12,111
|
|
|
|
12,489
|
|
|
|
12,223
|
|
|
|
12,440
|
|
|
|
13,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner-operator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financed through the Company
|
|
|
2,768
|
|
|
|
2,761
|
|
|
|
2,813
|
|
|
|
2,687
|
|
|
|
2,417
|
|
Other
|
|
|
1,197
|
|
|
|
970
|
|
|
|
1,054
|
|
|
|
898
|
|
|
|
1,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total owner-operator tractors
|
|
|
3,965
|
|
|
|
3,731
|
|
|
|
3,867
|
|
|
|
3,585
|
|
|
|
3,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tractors
|
|
|
16,076
|
|
|
|
16,220
|
|
|
|
16,090
|
|
|
|
16,025
|
|
|
|
17,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trailers
|
|
|
49,366
|
|
|
|
49,436
|
|
|
|
48,992
|
|
|
|
49,215
|
|
|
|
49,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Containers
|
|
|
5,042
|
|
|
|
4,262
|
|
|
|
4,842
|
|
|
|
4,262
|
|
|
|
5,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2011, rental expense
and depreciation and amortization of property and equipment
decreased by $10.6 million, or 13.4%, compared with the same
period in 2010. As a percentage of revenue excluding fuel
surcharge revenue, such expenses decreased to 11.0%, compared
with 13.9% for the 2010 period. This decrease was primarily due
to the $7.4 million of incremental depreciation expense during
the first quarter of 2010, reflecting managements revised
estimates regarding salvage value and useful lives for
approximately 7,000 dry van trailers, which management decided
during the first quarter of 2010 to sell as scrap over the next
few years. Also we had lower depreciation expense due to a
smaller average number of owned tractors in the first quarter of
2011 as compared to the first quarter of 2010. Additionally, the
increase in weekly trucking revenue per tractor noted above also
contributed to the decreases in cost as a percentage of revenue
excluding fuel surcharge revenue.
70
For 2010, rental expense and depreciation and amortization of
property and equipment decreased by $27.4 million, or 8.8%,
compared with 2009. As a percentage of revenue excluding fuel
surcharge revenue, such expenses decreased to 11.3%, compared
with 13.5% for 2009. This decrease was primarily associated with
lower depreciation expense due to a smaller average number of
owned tractors in 2010 as compared to 2009 as we completed our
fleet reduction by September 30, 2009. This decrease was
partially offset by an increase in amortization expense related
to tractors financed with capital leases in the 2010 period
compared to the 2009 period. Additionally, the assignment of
intermodal container leases in 2009, the growth of our
intermodal business throughout 2010, and the increase in weekly
trucking revenue per tractor noted above also contributed to the
decreases in cost and percentage of revenue excluding fuel
surcharge revenue. These decreases were partially offset by
$7.4 million of incremental depreciation expense during the
first quarter of 2010, reflecting managements revised
estimates regarding salvage value and useful lives for
approximately 7,000 dry van trailers, which management decided
during the first quarter to sell as scrap over the next few
years.
For 2009, rental expense and depreciation and amortization of
property and equipment decreased $17.2 million, or 5.2%,
compared with 2008. As a percentage of revenue, excluding fuel
surcharge revenue, such expenses increased to 13.5%, compared
with 12.2% for 2008. The dollar decrease was the result of lower
depreciation expense because of a smaller number of depreciable
tractors in 2009 as compared with 2008, as well as reductions in
container and trailer leases. This decrease was partially offset
by an increase in rental expense because of an increase in the
number of company trucks financed with operating leases,
including trucks we lease to owner-operators. The increase as a
percentage of revenue, net of fuel surcharge revenue, was a
result of lower revenue per tractor.
Our rental expense and depreciation and amortization of property
and equipment may increase in future periods because of
increased costs associated with newer tractors. Any engine
manufactured on or after January 1, 2010 must comply with
the new emissions regulations, and we anticipate higher costs
associated with these engines will be reflected in increased
depreciation and rental expense. We expect, as emissions
requirements become stricter, that the price of equipment will
continue to rise.
In the first quarter of 2011, we decided to replace within the
next 12 months certain Qualcomm units with remaining useful
lives extending beyond twelve months. Accordingly, we have
revised their estimated useful lives, which will result in an
increase of approximately $3 million in depreciation
expense in 2011 of which $0.7 million was included in the
first quarter.
Amortization
of Intangibles
Amortization of intangibles consists primarily of amortization
of $261.2 million gross carrying value of definite-lived
intangible assets recognized under purchase accounting in
connection with our going private in the 2007 Transactions in
which Swift Corporation acquired Swift Transportation.
The following is a summary of our amortization of intangibles
for the years ended December 31, 2010, 2009, and 2008, and
for the three months ended March 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
Year Ended December 31,
|
|
|
2011
|
|
2010
|
|
2010
|
|
2009
|
|
2008
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
Amortization of intangibles
|
|
$
|
4,727
|
|
|
$
|
5,478
|
|
|
$
|
20,472
|
|
|
$
|
23,192
|
|
|
$
|
25,399
|
|
Amortization of intangibles for the three months ended
March 31, 2011 and 2010 is comprised of $4.4 million
and $5.2 million, respectively, related to intangible
assets recognized in conjunction with the 2007 going private
transaction and $0.3 million in each period related to
previous intangible assets from smaller acquisitions by Swift
Transportation prior to the going private transaction.
Amortization expense decreased slightly in the 2011 quarter from
the prior year quarter primarily due to the 150% declining
balance amortization method applied to the customer relationship
intangible recognized in conjunction with the 2007 going private
transaction.
71
Amortization of intangibles for 2010, 2009, and 2008 is
comprised of $19.3 million, $22.0 million, and
$24.2 million respectively, related to intangible assets
recognized in conjunction with the 2007 Transactions and
$1.2 million in each year related to intangible assets
existing prior to the 2007 Transactions. Amortization of
intangibles decreased in each successive year primarily as a
result of the 150% declining balance amortization method applied
to the customer relationship intangible recognized in
conjunction with the 2007 Transactions.
We estimate that our non-cash amortization expense associated
with all of the intangibles on our balance sheet at
December 31, 2010 will be $18.3 million in 2011,
$16.9 million in 2012, and $16.8 million in each of
2013, 2014, and 2015 all but $1.2 million of which, in each
period, represents amortization of the intangible assets
recognized in conjunction with the 2007 Transactions.
Impairments
The following is a summary of our impairment expense for the
years ended December 31, 2010, 2009, and 2008, and for the
three months ended March 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Impairment expense
|
|
$
|
|
|
|
$
|
1,274
|
|
|
$
|
1,274
|
|
|
$
|
515
|
|
|
$
|
24,529
|
|
Results for the three months ended March 31, 2010 include a
$1.3 million pre-tax impairment charge for trailers, as
discussed in Note 10 to our unaudited consolidated financial
statements included elsewhere in this prospectus.
In 2010, we incurred $1.3 million in pre-tax impairment
charges related to trailers. In 2009, we incurred
$0.5 million in pre-tax charges for impairment of three
non-operating real estate properties. In 2008, we incurred
$24.5 million in impairment charges comprised of (i) a
$17.0 million impairment of goodwill relating to our Mexico
freight transportation reporting unit, and (ii) pre-tax
impairment charges of (a) $0.3 million for the
write-off of a note receivable related to the sale of our Volvo
truck delivery business assets in 2006, and
(b) $7.2 million on tractors, trailers, and several
non-operating real estate properties.
Operating
Taxes and Licenses
Operating taxes and licenses expense primarily represents the
costs of taxes and licenses associated with our fleet of
equipment and will vary according to the size of our equipment
fleet in future periods. The following is a summary of our
operating taxes and licenses expense for the years ended
December 31, 2010, 2009, and 2008, and for the three months
ended March 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Operating taxes and licenses expense
|
|
$
|
15,258
|
|
|
$
|
13,365
|
|
|
$
|
56,188
|
|
|
$
|
57,236
|
|
|
$
|
67,911
|
|
% of revenue, excluding fuel surcharge revenue
|
|
|
2.5
|
%
|
|
|
2.4
|
%
|
|
|
2.2
|
%
|
|
|
2.5
|
%
|
|
|
2.5
|
%
|
% of operating revenue
|
|
|
2.0
|
%
|
|
|
2.0
|
%
|
|
|
1.9
|
%
|
|
|
2.2
|
%
|
|
|
2.0
|
%
|
For the three months ended March 31, 2011, operating taxes
and licenses expense increased $1.9 million, or 14.2%,
compared with the three months ended March 31, 2010. This
increase primarily resulted from increased property taxes as
well as an increase in fuel and mileage taxes due to our
increase in miles driven in the 2011 quarter. As a percentage of
revenue, excluding fuel surcharge revenue, this increase in
expense was largely offset by the increase in average revenue
per mile in the 2011 quarter.
For 2010, operating taxes and licenses expense decreased
$1.0 million, or 1.8%, compared with 2009. As a percentage
of revenue, excluding fuel surcharge revenue, operating taxes
and licenses expense decreased to
72
2.2%, compared with 2.5% for 2009 due to a reduction in the
average size of our tractor fleet and a corresponding decrease
in vehicle registration costs. Also, the expense decreased as a
percentage of revenue excluding fuel surcharge due to the
increase in average revenue per mile in 2010.
For 2009, operating taxes and licenses expense decreased
$10.7 million, or 15.7%, compared with 2008. The decrease
resulted from the smaller size of our company tractor fleet. As
a percentage of revenue, excluding fuel surcharge, operating
taxes and licenses expense was relatively consistent
year-over-year
because the decrease in average freight rates during 2009 offset
the effect of the expense reductions.
Interest
Interest expense consists of cash interest, and amortization of
related issuance costs and fees, but excludes expenses related
to our interest rate swaps.
The following is a summary of our interest expense for the years
ended December 31, 2010, 2009, and 2008, and for the three
months ended March 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Interest expense
|
|
$
|
37,501
|
|
|
$
|
62,596
|
|
|
$
|
251,129
|
|
|
$
|
200,512
|
|
|
$
|
222,177
|
|
Interest expense for the three months ended March 31, 2011
is primarily based on the end of period debt balances of
$999.2 million for the senior secured first lien term loan,
$490.4 million of senior second priority secured notes, and
$26.6 million for our previous fixed and floating rate
notes, whereas interest expense in the prior year quarter is
primarily based on the previous debt balances of
$1.51 billion for our previous first lien term loan and
$709 million for our previous senior secured notes. In
addition, as of March 31, 2011, we had $175.2 million
of capital lease obligations compared to $162.7 million of
capital leases at March 31, 2010. Interest expense
decreased for the three months ended March 31, 2011 largely
because of our initial public offering and refinancing
transactions which occurred in December 2010 resulting in
lower debt balances and lower interest rates on the senior
secured credit facility and fixed rate notes.
Also included in interest expense during the three months ended
March 31, 2011 and 2010 were the fees associated with the
2008 RSA totaling $1.3 million and $1.1 million,
respectively, as discussed in Note 7 to the unaudited
consolidated financial statements included elsewhere in this
prospectus.
Interest expense for the year ended December 31, 2010 is
primarily based on the previous debt balances of
$1.49 billion for our first lien term loan and
$709 million for our senior secured notes. In addition, as
of December 31, 2010, we had $194.6 million of capital
lease obligations. Interest expense increased in 2010 largely
because of the second amendment to our senior secured credit
facility in October 2009, which resulted in the addition of a
2.25% LIBOR floor and a 275 basis point increase in
applicable margin for our senior secured credit facility, and a
50 basis point increase in the unused commitment fee for
our revolving line of credit.
Also included in interest expense for the year ended
December 31, 2010 were the fees associated with our 2008
RSA totaling $5.2 million. In 2009, these fees of
$5.0 million were included in Other expense
consistent with the true sale accounting treatment previously
applicable to our 2008 RSA. As discussed in our consolidated
financial statements appearing elsewhere in this prospectus, the
accounting treatment for our 2008 RSA changed effective
January 1, 2010, upon our adoption of Financial Accounting
Standards Board Accounting Standards Codification Accounting
Standards Update, or ASU,
No. 2009-16,
Accounting for Transfers of Financial Assets (Topic
860), after which we were required to account for our 2008
RSA as a secured borrowing as opposed to a sale, with our 2008
RSA program fees characterized as interest expense.
Interest expense for the year ended December 31, 2009 is
primarily based on debt balances of $1.51 billion for our
first lien term loan and $799 million for our senior
secured notes. In addition, as of December 31, 2009, we had
$152.9 million of capital leases. As noted above, as a
result of the second amendment to our senior secured credit
facility, interest expense increased during the fourth quarter
of 2009 because of the addition of a
73
2.25% LIBOR floor for our senior secured credit facility, a
275 basis point increase in applicable margin for our
secured credit facility, and a 50 basis point increase in
the unused commitment fee for our revolving line of credit. The
decrease in interest rates, specifically LIBOR, during 2009
partially offset this increase in interest expense for the year
ended December 31, 2009, compared with 2008.
Interest expense for the year ended December 31, 2008 is
primarily based on the debt balance of $1.52 billion for
our first lien term loan, $835 million for our senior
secured notes, and $136.4 million of our capital leases.
Also included in interest expense through March 27, 2008
were the fees associated with our prior accounts receivable sale
facility. Subsequent to this facility being amended on
March 27, 2008, these fees were included in Other
expense consistent with the true sale accounting treatment
applicable to our prior accounts receivable sale facility.
We expect an approximately $97 million reduction in ongoing
annual interest expense assuming the debt and capital lease
balances and interest rates in effect at December 31, 2010,
based on the application of the net proceeds of our initial
public offering and refinancing transactions.
Derivative
Interest
Derivative interest expense consists of expenses related to our
interest rate swaps, including the income effect of
mark-to-market
adjustments of interest rate swaps and settlement payments. We
de-designated our previous swaps and discontinued hedge
accounting effective October 1, 2009, as a result of an
amendment to our prior senior secured credit facility, after
which the entire
mark-to-market
adjustment is charged to earnings rather than being recorded in
equity as a component of other comprehensive income under cash
flow hedge accounting treatment. Furthermore, the non-cash
amortization of previous losses recorded in other comprehensive
income in prior periods when hedge accounting was in effect is
recorded in derivative interest expense. In December 2010, in
conjunction with our initial public offering and refinancing
transactions, we terminated all our remaining interest rate
swaps and paid $66.4 million to our counterparties in full
satisfaction of these interest rate swap agreements. The
following is a summary of our derivative interest expense for
the years ended December 31, 2010, 2009, and 2008, and for
the three months ended March 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Derivative interest expense
|
|
$
|
4,680
|
|
|
$
|
23,714
|
|
|
$
|
70,399
|
|
|
$
|
55,634
|
|
|
$
|
18,699
|
|
Derivative interest expense for the three months ended
March 31, 2011 represents the previous losses recorded in
accumulated other comprehensive income(OCI) that is
amortized to derivative interest expense over the original term
of the swaps, which had a maturity of August 2012. Derivative
interest expense for the three months ended March 31, 2010
represents settlement payments and changes in fair value of our
previous interest rate swaps with notional amounts of
$1.14 billion. Cash settlements paid pursuant to the swaps
in the three months ended March 31, 2010 were
$13.6 million.
Derivative interest expense for the years ended
December 31, 2010, 2009 and 2008 is related to our interest
rate swaps with notional amounts of $832 million,
$1.22 billion, and $1.34 billion, respectively.
Derivative interest expense increased in 2010 over 2009
primarily as a result of the decrease in three month LIBOR, the
underlying index for the swaps, and our cessation of hedge
accounting in October 2009, as noted above.
Derivative interest expense increased in 2009 over 2008
primarily as a result of the significant decrease in three month
LIBOR, and our cessation of hedge accounting in October 2009, as
noted above.
We estimate that $15.1 million and $5.3 million,
respectively, of previous losses on the interest rate swaps
recorded in accumulated other comprehensive income will be
amortized to derivative interest expense in 2011, and 2012,
respectively. Such losses were incurred in prior periods when
hedge accounting applied to our swaps and will be expensed in
the periods indicated in accordance with Topic 815,
Derivatives and Hedging.
74
Other
(Income) Expense
The following is a summary of our other (income) expense for the
years ended December 31, 2010, 2009, and 2008, and for the
three months ended March 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Other (income) expense
|
|
$
|
(511
|
)
|
|
$
|
(371
|
)
|
|
$
|
(3,710
|
)
|
|
$
|
(13,336
|
)
|
|
$
|
12,753
|
|
Other (income) expenses were generally immaterial to our results
in the three months ended March 31, 2011 and 2010 and are
not quantifiable with respect to any major items.
Other (income) expenses were generally immaterial to our results
in the year ended December 31, 2010 and are not
quantifiable with respect to any major items.
Other (income) expenses improved in the year ended
December 31, 2009, as a result of the $4.0 million
gain from the sale of our investment in Transplace and
$12.5 million in net settlement proceeds received in the
third quarter of 2009.
Other (income) expenses for the year ended December 31,
2008 included $6.7 million of closing costs associated with
our 2008 RSA, our current accounts receivable securitization
facility that was put in place during the third quarter of 2008.
Consistent with the true sale accounting treatment applied to
our securitization under Topic 860, costs associated with the
sale transaction were charged directly to earnings rather than
being deferred as in a secured financing arrangement.
Income
Tax Expense
From May 11, 2007 through October 10, 2009, we elected
to be treated as a subchapter S corporation under the
Internal Revenue Code. A subchapter S corporation passes
essentially all taxable income and losses to its stockholders
and does not pay federal income taxes at the corporate level. In
October 2009, we revoked our subchapter S corporation
election and elected to be taxed as a subchapter C corporation.
Under subchapter C, we are liable for federal and state
corporate income taxes on our taxable income.
The following is a summary of our income tax expense for the
years ended December 31, 2010, 2009, and 2008, and for the
three months ended March 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Income tax (benefit) expense
|
|
$
|
2,321
|
|
|
$
|
(9,525
|
)
|
|
$
|
(43,432
|
)
|
|
$
|
326,650
|
|
|
$
|
11,368
|
|
Income tax expense for the three months ended March 31,
2011 reflects an effective tax rate of 42%, which is 3% higher
than the expected effective tax rate primarily due to the
amortization of previous losses from accumulated OCI to income
(for book purposes) related to the Companys previous
interest rate swaps that were terminated in December 2010.
Income tax expense for the three months ended March 31,
2010 reflects an effective tax rate of 15%, which is 15% less
than the 2010 expected effective tax rate of 30% and is also
primarily due to the amortization of previous losses from
accumulated OCI related to the interest rate swaps. This item
had a larger impact on the effective tax rate in 2010 because
the amortization was larger in 2010, and because the magnitude
of the estimated expected pre-tax income (loss) for 2010 was
smaller.
For the year ended December 31, 2010, income tax expense
decreased $370.1 million compared with 2009, primarily due
to the approximately $325 million of income tax expense we
recorded upon our revocation of our subchapter S election on
October 10, 2009, which charge was primarily in recognition
of our deferred tax assets and liabilities as a subchapter C
corporation. Also, income tax expense decreased related to the
full
75
period tax treatment as a subchapter C corporation and the
realization of a tax benefit for net operating loss
carry-forwards to offset taxable income in future periods.
For the year ended December 31, 2009, income tax expense
increased $315.3 million compared with 2008 primarily as a
result of the approximately $325 million charge recorded
upon our subchapter S revocation, as noted above.
If we had been taxed as a subchapter C corporation on our actual
results for each of the years ended December 31, 2009 and
2008, we would have had pro forma income tax expense (benefit)
of $5.7 million, and $(26.6) million, respectively.
The pro forma C corporation effective tax rate in 2009 was
higher than 2010 primarily due to the cancellation of debt
income we recognized for tax purposes related to
Mr. Moyes purchases during the first few months of
2009 of $125.8 million face amount of our previous senior
secured notes in open market transactions, which he subsequently
forgave as discussed in our consolidated financial statements
included elsewhere in this prospectus.
The increase in the pro forma C corporation effective tax rate
in 2009 over 2008 primarily resulted from the cancellation of
debt income related to the senior secured notes purchased by
Mr. Moyes as noted above.
We expect the reversal of deferred tax assets of
$5.6 million and $2.0 million during 2011, and 2012,
respectively, related to the interest rate swap losses recorded
in accumulated other comprehensive income that will be amortized
to derivative interest expense as noted under derivative
interest above, will have the effect of raising our effective
tax rate in these periods.
Liquidity
and Capital Resources
Overview
At March 31, 2011 and December 31, 2010 we had the
following sources of liquidity available to us:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Cash and cash equivalents, excluding restricted cash
|
|
$
|
21,549
|
|
|
$
|
47,494
|
|
Availability under revolving line of credit due December 2015
|
|
|
234,759
|
|
|
|
246,809
|
|
Availability under 2008 RSA
|
|
|
56,000
|
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
Total unrestricted liquidity
|
|
$
|
312,308
|
|
|
$
|
296,803
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
85,078
|
|
|
|
84,568
|
|
|
|
|
|
|
|
|
|
|
Total liquidity, including restricted cash
|
|
$
|
397,386
|
|
|
$
|
381,371
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2011 and December 31, 2010, we had
restricted cash of $85.1 million and $84.6 million,
respectively, primarily held by our captive insurance companies
for the payment of claims. As of March 31, 2011, there were
no outstanding borrowings, and there were $165.2 million
letters of credit outstanding under our $400 million
revolving line of credit.
Our business requires substantial amounts of cash to cover
operating expenses as well as to fund items such as cash capital
expenditures, other assets, working capital changes, principal
and interest payments on our obligations, letters of credit to
support insurance requirements, and tax payments to fund our
taxes in periods when we generate taxable income.
We make substantial net capital expenditures to maintain a
modern company tractor fleet, refresh our trailer fleet, and
potentially fund growth in our revenue equipment fleet if
justified by customer demand and
76
our ability to finance the equipment and generate acceptable
returns. As of March 31, 2011, we expect our net cash
capital expenditures to be approximately $220 million to
$240 million for the remainder of 2011. However, we expect
to continue to obtain a portion of our equipment under operating
and capital leases, which are not reflected as net cash capital
expenditures. Beyond 2011, we expect our net capital
expenditures to remain substantial.
As of March 31, 2011, we had $834.2 million of
purchase commitments outstanding to acquire replacement tractors
through the rest of 2011 and 2012. We generally have the option
to cancel tractor purchase orders with 60 to 90 days notice
prior to scheduled production, although the notice date has
lapsed for approximately 70% of the commitments remaining at
March 31, 2011. In addition, we had trailer and intermodal
container purchase commitments outstanding at March 31,
2011 for $58.0 million and $21.8 million,
respectively, through the rest of 2011. We believe these
purchases are expected to be financed by the combination of
operating leases, capital leases, debt, proceeds from sales of
existing equipment and cash flows from operations.
As of March 31, 2011, we have outstanding purchase
commitments of approximately $2.5 million for fuel,
facilities, and non-revenue equipment. Factors such as costs and
opportunities for future terminal expansions may change the
amount of such expenditures.
We believe we can finance our expected cash needs, including
debt repayment, in the short-term with cash flows from
operations, borrowings available under our revolving line of
credit, borrowings under our 2008 RSA, and lease financing
believed to be available for at least the next twelve months.
Over the long-term, we will continue to have significant capital
requirements, which may require us to seek additional
borrowings, lease financing, or equity capital. The availability
of financing or equity capital will depend upon our financial
condition and results of operations as well as prevailing market
conditions. If such additional borrowings, lease financing, or
equity capital is not available at the time we need to incur
such indebtedness, then we may be required to utilize the
revolving portion of our senior secured credit facility (if not
then fully drawn), extend the maturity of then-outstanding
indebtedness, rely on alternative financing arrangements, or
engage in asset sales.
In addition, the indenture provides that we may only incur
additional indebtedness if, after giving effect to the new
incurrence, we meet a minimum fixed charge coverage ratio of
2.00:1.00, as defined therein, or the indebtedness qualifies
under certain specifically enumerated carve-outs and debt
incurrence baskets, including a provision that permits us to
incur capital lease obligations of up to $350 million at
any one time. As of March 31, 2011, we had a fixed charge
coverage ratio of 3.47:1.00. However, there can be no assurance
that we can maintain a fixed charge coverage ratio over
2.00:1.00, in which case our ability to incur additional
indebtedness under our existing financial arrangements to
satisfy our ongoing capital requirements would be limited as
noted above, although we believe the combination of our expected
cash flows, financing available through operating leases which
are not subject to debt incurrence baskets, the capital lease
basket, and the funds available to us through our accounts
receivable sale facility and our revolving credit facility will
be sufficient to fund our expected capital expenditures for 2011.
The 2008 RSA contains certain restrictions and provisions
(including cross-default provisions to the Companys other
debt agreements) which, if not met, could restrict the
Companys ability to borrow against future eligible
receivables. The inability to borrow against additional
receivables would reduce liquidity as the daily proceeds from
collections on the receivables levered prior to termination are
remitted to the lenders, with no further reinvestment of these
funds by the lenders into the Company.
Our initial public offering and refinancing transactions in
December 2010 provided us (i) a reduction in interest
expense resulting from a reduction in indebtedness and the
interest rates applicable to our new debt facilities and
(ii) a deferred maturity date in connection with our senior
secured credit facility, which positively impacts our liquidity
on a long-term basis.
Additionally, we meet the fixed charge coverage ratio required
to incur additional indebtedness under the Restricted Notes
(whereas we did not previously meet such ratio under our senior
secured notes), which also positively impacts liquidity.
77
Cash
Flows
Our summary statements of cash flows information for the years
ended December 31, 2010, 2009, and 2008, and for the three
months ended March 31, 2011 and 2010, is set forth in the
table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
March 31,
|
|
|
Year Ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Net cash provided by operating activities
|
|
$
|
59,875
|
|
|
$
|
15,107
|
|
|
$
|
58,439
|
|
|
$
|
115,335
|
|
|
$
|
119,740
|
|
Net cash used in investing activities
|
|
$
|
(31,549
|
)
|
|
$
|
(35,131
|
)
|
|
$
|
(178,521
|
)
|
|
$
|
(1,127
|
)
|
|
$
|
(118,517
|
)
|
Net cash provided by (used in) financing activities and effect
of exchange rate changes
|
|
$
|
(54,271
|
)
|
|
$
|
(8,511
|
)
|
|
$
|
51,714
|
|
|
$
|
(56,262
|
)
|
|
$
|
(22,133
|
)
|
Operating
Activities
The $44.8 million increase in net cash provided by
operating activities during the first three months ended
March 31, 2011 versus the same period in 2010 was primarily
the result of the $63.7 million decrease in cash paid for
interest and taxes between the periods, primarily as a result of
the decrease in debt balances and interest rates after our
initial public offering and refinancing transactions that
occurred in December 2010 and a reduction in tax payments made
in the first quarter of 2011 compared to that of 2010.
Additionally, there was a $23.5 million increase in
operating income between the periods, and a $6.3 million
reduction in claims payments made over the same periods. This
increase in net cash provided by operating activities was
partially offset by an increase in accounts receivable between
the periods.
The $56.9 million decrease in net cash provided by
operating activities during the year ended December 31,
2010, compared with the year ended December 31, 2009, was
primarily the result of the $66.4 million payment to
terminate and settle our remaining interest rate swap agreements
as part of our initial public offering and refinancing
transactions, and a $136.8 million increase in cash paid
for interest and taxes between the periods, primarily as a
result of the increase in coupon under our senior secured credit
facility following the second amendment to our senior secured
credit facility and our change in tax filing status during the
fourth quarter of 2009. The increase in cash paid for interest
also includes the payment of $34.4 million of accrued
interest on our refinanced debt through the closing date of the
2010 Transactions, which interest normally would have been paid
in January and February of 2011 as scheduled. These increases
were partially offset by a $111.1 million increase in
operating income, and a $7.4 million reduction in claims
payments made during 2010 as compared to 2009.
The $4.4 million decrease in net cash provided by operating
activities during the year ended December 31, 2009,
compared with the year ended December 31, 2008, primarily
was the result of a $17.6 million increase in net cash paid
for income taxes and a $13.9 million greater reduction in
accounts payable, accrued, and other liabilities during 2009 as
compared to 2008. This includes a $5.8 million increase in
claims payments made in 2009, reflecting recent settlements of
several large automobile liability claims from prior years.
These items were mostly offset by a reduction in cash interest
payments as a result of the decline in LIBOR.
Investing
Activities
The $3.6 million decrease in net cash used in investing
activities during the first three months ended March 31,
2011 versus the same period in 2010 was driven mainly by a
$23.5 million decrease in restricted cash changes. In the
first quarter of 2010, restricted cash increased due to a change
in our insurance strategy as we began insuring our first million
dollars of liability through our wholly-owned captive insurance
subsidiaries, Mohave Transportation Insurance Company, and Red
Rock Risk Retention Group, Inc. thus increasing our collateral
requirements. This decrease in net cash used in investing
activities was partially offset by a $21.2 million increase
in net capital expenditures between the periods.
78
Cash used in investing activities increased from a net outflow
of $1.2 million in 2009 to a net outflow of
$178.5 million in 2010, for a total increase of
$177.4 million. This was driven mainly by increased capital
expenditures and lower sales proceeds from equipment disposals.
Gross capital expenditures increased $93.4 million while
disposal proceeds decreased $31.2 million in 2010 versus
2009 as our fleet reduction efforts were largely completed by
the third quarter of 2009. Also, restricted cash balances grew
by $59.7 million more in 2010 versus 2009, which further
contributed to the cash used in investing activities. The
increase in restricted cash during 2010 primarily reflects
increased collateral requirements pertaining to our wholly-owned
captive insurance subsidiaries, Mohave and Red Rock, which
together, beginning on February 1, 2010, insure the first
$1 million (per occurrence) of our motor vehicle liability
risk. To comply with certain state insurance regulatory
requirements, we paid $55.2 million during 2010 to Red Rock
and Mohave as collateral in the form of restricted cash for
anticipated losses incurred in 2010. This restricted cash will
be used to make payments on these losses as they are settled in
future periods and such payments will reduce our claims accruals
balances.
The $117.4 million reduction in net cash used in investing
activities during the year ended December 31, 2009,
compared with the year ended December 31, 2008 results, was
driven mainly by a $256.5 million decrease in gross capital
expenditures as a result of our fleet reduction efforts in the
face of softening demand, which was partially offset by a
$121.4 million decrease in sales proceeds from equipment
disposals. In addition, restricted cash increased by
$6.4 million during the year ended December 31, 2009,
after decreasing by $3.6 million in the year ended
December 31, 2008. Further, payments received on assets
held for sale and equipment sales receivable decreased
$9.5 million for the year ended December 31, 2009
compared with the year ended December 31, 2008.
Financing
Activities
Cash used in financing activities increased by
$45.8 million in the three months ended March 31, 2011
as compared to the same period in 2011. This increase reflects a
$71.1 million increase in payments on long term debt and
capital lease obligations and a net $35.5 million paydown
of amounts outstanding under the 2008 RSA partially offset by
proceeds of $63.2 million, before expenses, from the sale
of our Class A common stock, pursuant to the over-allotment
option in connection with our initial public offering.
Cash provided by financing activities increased from a net
outflow of $56.3 million in 2009 to a net inflow of
$51.7 million in 2010, for a total increase of
$108.0 million. This increased inflow primarily reflects
that $66.4 million of the net proceeds from our initial
public offering and refinancing transactions were used to settle
our existing interest rate swap liabilities and the
$34.4 million proceeds used to pay accrued interest on the
refinanced debt, which payments are included in operating
activities as noted above. Additionally, we had a net
$23.5 million of borrowing under the 2008 RSA in 2010,
which is now reflected as a financing activity given the
accounting treatment as a secured borrowing beginning
January 1, 2010. These proceeds were partially offset by a
$12.7 million increase in payments on long-term debt and
capital leases as well as short term notes, including an
$18.7 million excess cash flow payment on our previous
first lien term loan in April 2010 under the terms of our
previous senior secured credit facility, as amended.
In the year ended December 31, 2009, cash used in financing
activities increased by $34.0 million compared with the
year ended December 31, 2008. This increased usage reflects
an increase of $14.2 million in payments made on our
long-term debt, notes payable, and capital leases, an increase
of $11.0 million in payment of deferred loan costs
resulting from the second amendment to our existing senior
secured credit facility and indenture amendments, and
$6.2 million of payments made in 2009 on short-term notes
payable, which had financed a portion of our insurance premiums
in 2009. In the year ended December 31, 2008, we had net
repayments of $16.6 million on capital leases and long-term
debt.
Capital
and Operating Leases
In addition to the net cash capital expenditures discussed
above, we also acquired revenue equipment with capital and
operating leases.
79
During the quarter ended March 31, 2011, we acquired
tractors through capital leases with gross values of $0.7
million while no tractors were acquired through operating leases
and there were no operating lease terminations for tractors in
the first quarter of 2011. During the quarter ended
March 31, 2010, we acquired tractors through capital and
operating leases with gross values of $15.2 million and $5.1
million, respectively, which was partially offset by operating
lease terminations with originating values of $9.1 million for
tractors in the first quarter of 2010. In addition, no trailer
leases expired in the three months ended March 31, 2010
while $22.5 million of trailer leases expired in the three
months ended March 31, 2010.
During the year ended December 31, 2010, we acquired
tractors through capital and operating leases with gross values
of $66.6 million and $5.6 million, respectively, which
were offset by operating lease terminations with originating
values of $22.8 million for tractors in 2010. In addition,
$32.0 million of trailer leases expired in the year ended
December 31, 2010, while no trailer leases expired in the
year ended December 31, 2009.
During the year ended December 31, 2009, we acquired
tractors through capital and operating leases with gross values,
net of down payments, of $36.8 million and
$45.6 million, respectively, which were offset by operating
lease terminations with original values of $50.9 million
for tractors in 2009. During the year ended December 31,
2008, we acquired tractors through capital and operating leases
with gross values of $81.3 million and $104.1 million,
respectively, which were offset by operating lease terminations
with originating values of $83.2 million for tractors in
2008.
Working
Capital
As of March 31, 2011, we had a working capital surplus of
$204.6 million, which was an improvement of
$18.4 million from December 31, 2010. The increase is
primarily due to the issuance of additional Class A common stock
in January 2011 pursuant to the underwriters
over-allotment option, as discussed in Note 2 to the
unaudited consolidated financial statements included elsewhere
in this prospectus, and our use of the majority of the proceeds
to pay down our first lien term loan. This reduced the current
portion of this obligation by $10.7 million during the
first quarter of 2011.
As of December 31, 2010, we had a working capital surplus
of $186.1 million, which was an improvement of
$202.7 million from December 31, 2009. The increase
primarily resulted from the change in accounting treatment for
our 2008 RSA. The accounting treatment for our 2008 RSA changed
effective January 1, 2010, upon our adoption of ASU
No. 2009-16,
at which time we were required to account for our 2008 RSA as a
secured borrowing rather than a sale. As a result, the
previously de-recognized accounts receivable were brought back
onto our balance sheet as current assets and the related
securitization proceeds were recognized as non-current debt due
to the terms of our accounts receivable securitization facility.
As of December 31, 2009, we had a working capital deficit
of $16.5 million. The deficit primarily resulted from our
accounts receivable securitization program. In 2007, the initial
securitization proceeds totaling $200 million were used to
repay principal on the first lien term loan, the majority of
which was applied to the non-current portion of the first lien
term loan. The result was to reduce our current assets and a
long-term liability, resulting in a reduction of working capital.
Material
Debt Agreements
Overview
As of March 31, 2011 and December 31, 2010, we had the
following material debt agreements:
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senior secured credit facility consisting of a term loan due
December 2016, and a revolving line of credit due December 2015
(none drawn);
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Restricted Notes;
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floating rate notes due May 2015;
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fixed rate notes due May 2017;
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2008 RSA due July 2013; and
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other secured indebtedness and capital lease agreements.
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80
The amounts outstanding under such agreements and other debt
instruments were as follows as of March 31, 2011 and
December 31, 2010:
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March 31,
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December 31,
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|
2011
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|
2010
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(Dollars in thousands)
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New senior secured first lien term loan due December 2016, net
of $10,196 and $10,649 OID at March 31, 2011 and
December 31, 2010, respectively
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$
|
999,193
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|
$
|
1,059,351
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|
New senior second priority secured notes due November 15,
2018, net of $9,649 and $9,965 OID at March 31, 2011 and
December 31, 2010, respectively
|
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490,351
|
|
|
|
490,035
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|
Floating rate notes due May 15, 2015
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11,000
|
|
|
|
11,000
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|
Fixed rate notes due May 15, 2017
|
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15,638
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|
|
|
15,638
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|
2008 RSA
|
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|
136,000
|
|
|
|
171,500
|
|
Other secured debt and capital leases
|
|
|
177,627
|
|
|
|
198,076
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt and capital leases
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|
$
|
1,829,809
|
|
|
$
|
1,945,600
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|
Less: current portion
|
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|
41,714
|
|
|
|
66,070
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and capital leases, less current portion
|
|
$
|
1,788,095
|
|
|
$
|
1,879,530
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|
|
|
|
|
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|
The majority of currently outstanding debt was issued in
December 2010 to refinance debt associated with the
Companys acquisition of Swift Transportation Co. in May
2007, a going private transaction under SEC rules. The debt
outstanding at March 31, 2011 primarily consists of
proceeds from a first lien term loan pursuant to a senior
secured credit facility with a group of lenders with a face
value of $1.01 billion at March 31, 2011, net of
unamortized original issue discount of $10.2 million, and
proceeds from the offering of $500 million face value of
senior second priority secured notes, net of unamortized
original issue discount of $9.6 million at March 31,
2011. The credit facility and Restricted Notes are secured by
substantially all of the assets of the Company and are
guaranteed by Swift Transportation Company, IEL, Swift
Transportation Co. and its domestic subsidiaries other than its
captive insurance subsidiaries, driver training academy
subsidiary, and its bankruptcy-remote special purpose subsidiary.
On January 20, 2011, the Company issued an additional
6,050,000 shares of its Class A common stock to the
underwriters of its initial public offering at the initial
public offering price of $11.00 per share, less the
underwriters discount, and received proceeds of
$63.2 million, before expenses, pursuant to the
over-allotment option in the underwriting agreement. Of these
proceeds, $60.0 million were used in January 2011 to
pay down the first lien term loan. As a result of this
prepayment, the next scheduled principal payment on the first
lien term loan is due September 30, 2016.
New
Senior Secured Credit Facility
The credit facility was entered into on December 21, 2010
and consists of a first lien term loan with an original
aggregate principal amount of $1.07 billion due December
2016 and a $400 million revolving line of credit due
December 2015. As of March 31, 2011, the principal
outstanding under the first lien term loan was
$1.01 billion and the unamortized original issue discount
was $10.2 million.
Principal payments on the first lien term loan are due in equal
quarterly installments in annual aggregate amounts equal to 1.0%
of the initial aggregate principal amount, except that the final
installment will be equal to the remaining amount of the senior
secured term loan facility. The Company will be permitted to
make voluntary prepayments at any time, without premium or
penalty (other than LIBOR breakage and redeployment costs, if
applicable). The Company will be required to make mandatory
prepayments under the senior secured credit agreement with
(1) a percentage of excess cash flow, as defined in the
credit agreement (which percentage may decrease over time based
on its leverage ratio), (2) net cash proceeds from
permitted, non-ordinary course asset sales and from insurance
and condemnation events (subject to a reinvestment period and
certain agreed exceptions), (3) net cash proceeds from
certain issuances of indebtedness (subject to certain
81
agreed exceptions), and (4) a percentage of net cash
proceeds from the issuance of additional equity interests in the
Company or any of its subsidiaries otherwise permitted under the
senior secured credit facility (which percentage may decrease
over time based on its leverage ratio).
As of March 31, 2011, there were no borrowings under the
$400 million revolving line of credit. The unused portion
of the revolving line of credit is subject to a commitment fee
ranging from 0.50% to 0.75% depending on the Companys
consolidated leverage ratio as defined in the credit agreement.
The revolving line of credit also includes capacity for letters
of credit up to $300 million. As of March 31, 2011,
the Company had outstanding letters of credit under the
revolving line of credit primarily for workers
compensation and self-insurance liability purposes totaling
$165.2 million, leaving $234.8 million available under
the revolving line of credit. Outstanding letters of credit
incur fees of 4.50% per annum.
Borrowings under the senior secured credit facility will bear
interest, at the Companys option, at (1) a rate equal
to the rate for LIBOR deposits for a period the Company selects,
appearing on LIBOR 01 Page published by Reuters, with a minimum
LIBOR rate of 1.50% with respect to the senior secured term loan
facility (the LIBOR floor), plus 4.50%, or
(2) a rate equal to the highest of (a) the rate
publicly announced by Bank of America, N.A. as its prime rate in
effect at its principal office in New York City, (b) the
federal funds effective rate plus 0.50%, and (c) the LIBOR
Rate applicable for an interest period of one month plus 1.00%,
or the Base Rate (with a minimum base rate of 2.50% with respect
to the senior secured term loan facility), plus 3.50%. Interest
on the term loan and outstanding borrowings under the revolving
line of credit is payable on the last day of each interest
period or on the date of principal prepayment, if any, with
respect to LIBOR rate loans, and on the last day of each
calendar quarter with respect to base rate loans. As of
December 31, 2010, interest accrues at 6.00% (the LIBOR
floor plus 4.50%).
The senior secured credit agreement contains certain financial
covenants with respect to maximum leverage ratio, minimum
consolidated interest coverage ratio, and maximum capital
expenditures in addition to customary representations and
warranties and customary events of default, including a change
of control default. The senior secured credit agreement also
contains certain affirmative and negative covenants, including,
but not limited to, restrictions, subject to certain exceptions,
on incremental indebtedness, asset sales, certain restricted
payments, certain incremental investments or advances,
transactions with affiliates, engaging in additional business
activities, and prepayments of certain other indebtedness. The
Company was in compliance with these covenants at March 31,
2011.
Restricted
Notes
On December 21, 2010, the issuer completed a private
placement of Restricted Notes totaling $500 million face
value which mature in November 2018 and bear interest at 10.00%.
The Company received proceeds of $490 million, net of a
$10.0 million original issue discount. Interest on the
Restricted Notes is payable on May 15 and November 15 each year,
beginning May 15, 2011.
The Company must pay additional interest to the holders of the
Restricted Notes if it fails to complete the exchange offer
described in this prospectus within 180 days after the
issuance of such Restricted Notes or if certain other conditions
are not satisfied. The Registration Rights Agreement generally
provides that the Company shall complete a registered offer to
exchange the Restricted Notes for registered notes with terms
substantially identical in all material respects to the
Restricted Notes issued, except that the registered notes will
not contain terms with respect to transfer restrictions. Subject
to certain exceptions, if the Company has not completed the
exchange offer within 180 days after the original issuance
of the Restricted Notes, then additional interest will accrue on
the principal amount of the Restricted Notes at 0.25% per annum,
which rate shall be increased by 0.25% per annum for each
subsequent
90-day
period that such additional interest continues to accrue,
provided that the maximum rate for such additional interest
shall not exceed 1.0% per annum.
At any time prior to November 15, 2013, the Company may
redeem up to 35% of the Restricted Notes at a redemption price
of 110.00% of their principal amount plus accrued interest with
the net cash proceeds of one or more equity offerings, subject
to certain conditions. Other than in conjunction with an equity
offering, the Company may redeem all or a part of the Restricted
Notes at any time throughout the term of such
82
Restricted Notes at various premiums provided for in the
indenture governing the Restricted Notes, which premium shall be
not less than 105% of the principal amount of such Restricted
Notes at any time prior to November 15, 2014.
The indenture governing the Restricted Notes contains covenants
that, among other things, limit the Companys ability to
incur additional indebtedness or issue certain preferred shares,
to pay dividends on, repurchase, or make distributions in
respect of capital stock or make other restricted payments, to
make certain investments, to sell certain assets, to create
liens, enter into sale and leaseback transactions, prepay or
defease subordinated debt, to consolidate, merge, sell, or
otherwise dispose of all or substantially all assets, and to
enter into certain transactions with affiliates. These covenants
are subject to a number of limitations and exceptions. The
indenture governing the Restricted Notes includes certain events
of default including failure to pay principal and interest on
the Restricted Notes, failure to comply with covenants, certain
bankruptcy, insolvency, or reorganization events, the
unenforceability, invalidity, denial, or disaffirmation of the
guarantees and default in the performance of the security
agreements, or any other event that adversely affects the
enforceability, validity, perfection, or priority of such liens
on a material portion of the collateral underlying the
Restricted Notes. The Company was in compliance with these
covenants at March 31, 2011.
Fixed
and Floating-Rate Notes
On May 10, 2007, the Company completed a private placement
of second-priority senior secured notes associated with the
acquisition of Swift Transportation Co. totaling
$835.0 million, which consisted of: $240 million
aggregate principal amount second-priority senior secured
floating rate notes due May 15, 2015, and $595 million
aggregate principal amount of 12.50% second-priority senior
secured fixed rate notes due May 15, 2017.
At the time of the Companys initial public offering and
refinancing transactions in December 2010, $203.6 million
aggregate principal amount of the second-priority senior secured
floating rate notes were outstanding and $505.6 million
aggregate principal amount of the second-priority senior secured
fixed rate notes were outstanding. The reductions in outstanding
principal amount subsequent to issuance occurred as a result of
Mr. Moyes agreeing in October 2009, in conjunction with the
second amendment to the Companys previous senior secured
credit facility, to cancel notes he had personally acquired in
open market transactions during the first half of 2009. Refer to
Note 12 to our consolidated financial statements included
elsewhere in this prospectus for further discussion of the
cancellation.
In conjunction with the Companys initial public offering
and refinancing transactions in December 2010, the Company
undertook a tender offer and consent solicitation process which
resulted in the Company redeeming and canceling
$192.6 million aggregate principal amount of the
second-priority senior secured floating rate notes (leaving
$11.0 million remaining outstanding at March 31,
2011) and $490.0 million aggregate principal amount of
the second-priority senior secured fixed rate notes (leaving
$15.6 million remaining outstanding at March 31,
2011) and the elimination of substantially all covenants,
guarantees, and claims to collateral from the indentures and
related documents governing the remaining notes. Consequently,
the remaining fixed and floating rate notes no longer carry a
second-priority senior secured status.
Interest on the floating rate notes is payable on
February 15, May 15, August 15, and
November 15, accruing at three-month LIBOR plus 7.75%
(8.06% at March 31, 2011). The Company may redeem any of
the remaining floating rate notes on any interest payment date
at a redemption price of 101% of their principal amount and
accrued interest through May 2011 and 100% thereafter.
Interest on the 12.50% fixed rate notes is payable on May 15 and
November 15. The Company may redeem any of the remaining
fixed rate notes on or after May 15, 2012 at an initial
redemption price of 106.25% of their principal amount and
accrued interest.
2008
RSA
On July 30, 2008, through our wholly-owned
bankruptcy-remote special purpose subsidiary, we entered into
our 2008 RSA to sell, on a revolving basis, undivided interests
in our accounts receivable. The program
83
limit under our 2008 RSA is $210.0 million and is subject
to eligible receivables and reserve requirements. Outstanding
balances under our 2008 RSA accrue interest at a yield of LIBOR
plus 300 basis points or Prime plus 200 basis points,
at our discretion. Our 2008 RSA expires on July 30, 2013
and is subject to an unused commitment fee ranging from 25 to
50 basis points, depending on the aggregate unused
commitment of our 2008 RSA. Pursuant to the 2008 RSA,
collections on the underlying receivables by the Company are
held for the benefit of Swift Receivables Company II, LLC and
the lenders in the facility and are unavailable to satisfy
claims of the Company and its subsidiaries.
As of January 1, 2010, our 2008 RSA no longer qualified for
true sale accounting treatment and is now instead treated as a
secured borrowing. As a result, the previously de-recognized
accounts receivable were brought back onto our balance sheet and
the related securitization proceeds were recognized as debt,
while the program fees for the facility were reported as
interest expense beginning January 1, 2010. The
re-characterization of program fees from other expense to
interest expense did not affect our interest coverage ratio
calculation, and the change in accounting treatment for the
securitization proceeds from sales proceeds to debt did not
affect the leverage ratio calculation, as defined in our senior
secured credit facility, as amended.
Our 2008 RSA contains certain restrictions and provisions
(including cross-default provisions to our debt agreements)
which, if not met, could restrict our ability to borrow against
future eligible receivables. The inability to borrow against
additional receivables would reduce liquidity as the daily
proceeds from collections on the receivables levered prior to
termination are remitted to the lenders, with no further
reinvestment of these funds by our lenders into Swift. The
Company was in compliance with these provisions at
March 31, 2011. As of March 31, 2011, the amount
outstanding under our 2008 RSA was $136.0 million while the
total available borrowing base was $192.0 million, leaving
$56.0 million available.
Off-Balance
Sheet Arrangements
Operating
Leases
We lease approximately 3,800 tractors under operating leases.
Operating leases have been an important source of financing for
our revenue equipment. Tractors held under operating leases are
not carried on our consolidated balance sheets, and lease
payments in respect of such tractors are reflected in our
consolidated statements of operations in the line item
Rental expense. Our revenue equipment rental expense
was $17.2 million in the three months ended March 31,
2011, compared with $18.2 million in the three months ended
March 31, 2010. The total amount of remaining payments
under operating leases as of December 31, 2010, was
approximately $105 million. In connection with various
operating leases, we issued residual value guarantees, which
provide that if we do not purchase the leased equipment from the
lessor at the end of the lease term, we are liable to the lessor
for an amount equal to the shortage (if any) between the
proceeds from the sale of the equipment and an agreed residual
value. As of March 31, 2011, the maximum possible payment
under the residual value guarantees was approximately
$16.1 million. To the extent the expected value at the
lease termination date is lower than the residual value
guarantee, we would accrue for the difference over the remaining
lease term. We believe that proceeds from the sale of equipment
under operating leases would exceed the payment obligation on
substantially all operating leases.
Accounts
Receivable Sale Facility
Effective January 1, 2010, upon adoption of ASU
No. 2009 16, we were required to cease the off-balance
sheet accounting treatment for our 2008 RSA and have brought the
previously de-recognized accounts receivable back onto our
balance sheet, recognizing the related securitization proceeds
as debt. Prior to January 1, 2010, our accounts receivable
securitized through a special purpose subsidiary were not
carried on our balance sheet as we qualified for true sale
accounting treatment.
84
Contractual
Obligations
The table below summarizes our contractual obligations as of
December 31, 2010 (in thousands):
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|
|
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Payments Due By Period(6)
|
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|
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|
Less Than
|
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|
|
|
|
|
|
More Than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
Long-term debt obligations, including OID of $20,614
|
|
$
|
1,600,086
|
|
|
$
|
12,190
|
|
|
$
|
23,358
|
|
|
$
|
32,400
|
|
|
$
|
1,532,138
|
|
2008 RSA(1)
|
|
|
171,500
|
|
|
|
|
|
|
|
171,500
|
|
|
|
|
|
|
|
|
|
Capital lease obligations(2)
|
|
|
194,628
|
|
|
|
55,766
|
|
|
|
85,057
|
|
|
|
53,805
|
|
|
|
|
|
Interest obligations(3)
|
|
|
825,013
|
|
|
|
134,670
|
|
|
|
252,979
|
|
|
|
229,346
|
|
|
|
208,018
|
|
Operating lease obligations(4)
|
|
|
104,566
|
|
|
|
60,104
|
|
|
|
42,079
|
|
|
|
2,152
|
|
|
|
231
|
|
Purchase obligations(5)
|
|
|
558,806
|
|
|
|
558,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
3,454,599
|
|
|
$
|
821,536
|
|
|
$
|
574,973
|
|
|
$
|
317,703
|
|
|
$
|
1,740,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents borrowings owed at December 31, 2010. The total
borrowing of $171.5 million consists of multiple amounts,
the interest on each varies. |
|
(2) |
|
Represents principal payments owed at December 31, 2010.
The borrowing consists of capital leases with finance companies,
with fixed borrowing amounts and fixed interest rates, as set
forth on each applicable lease schedule. Accordingly, interest
on each lease varies between schedules. |
|
(3) |
|
Represents interest obligations on long-term debt, 2008 RSA, and
capital lease obligations and excludes fees and accretion of
OID. For variable rate debt, the interest rate in effect as of
December 31, 2010, was utilized. The table assumes
long-term debt and the 2008 RSA are held to maturity, and does
not reflect the effect of events subsequent to December 31,
2010, such as our issuance of 6,050,000 shares of
Class A common stock in January 2011 pursuant to the
underwriters over-allotment option and our use of
$60.0 million of the proceeds to pay down the first lien
term loan and the remaining $3.2 million of the proceeds to
pay down the securitization facility. |
|
(4) |
|
Represents future monthly rental payment obligations, which
include an interest element, under operating leases for
tractors, trailers, chassis, and facilities. Substantially all
lease agreements for revenue equipment have fixed payment terms
based on the passage of time. The tractor lease agreements
generally stipulate maximum miles and provide for mileage
penalties for excess miles. These leases generally run for a
period of three to five years for tractors and five to seven
years for trailers. We also have guarantee obligations of
residual values under certain operating leases, which
obligations are not included in the amounts presented. Upon
termination of these leases, we would be responsible for the
excess of the guarantee amount above the fair market value of
the equipment, if any. As of December 31, 2010, the maximum
potential amount of future payments we could be required to make
under these guarantees is $17.8 million. |
|
(5) |
|
Represents purchase obligations for revenue equipment, fuel, and
facilities of which a significant portion is expected to be
financed with operating and capital leases to the extent
available. We generally have the option to cancel tractor
purchase orders with 60 to 90 days notice. As of
December 31, 2010, approximately 40% of this amount had
become non-cancelable. |
|
(6) |
|
Deferred taxes and long-term portion of claims accruals are
excluded from other long-term liabilities in the table above. |
Inflation
Inflation can have an impact on our operating costs. A prolonged
period of inflation could cause interest rates, fuel, wages, and
other costs to increase, which would adversely affect our
results of operations unless freight rates correspondingly
increased. However, with the exception of fuel, the effect of
inflation has been minor in recent years. Our average fuel cost
per gallon has increased 32.7% between the three months ended
March 31, 2010 and 2011. Historically, the majority of the
increase in fuel costs has been passed on to our customers
through a corresponding increase in fuel surcharge revenue,
making the impact of the increased fuel
85
costs on our operating results less severe. If fuel costs
escalate and we are unable to recover these costs timely with
effective fuel surcharges, it would have an adverse effect on
our operation and profitability.
Seasonality
In the transportation industry, results of operations generally
show a seasonal pattern. As customers ramp up for the holiday
season at year-end, the late third and fourth quarters have
historically been our strongest volume quarters. As customers
reduce shipments after the winter holiday season, the first
quarter has historically been a lower volume quarter for us than
the other three quarters. In the eastern and midwestern United
States, and to a lesser extent in the western United States,
during the winter season, our equipment utilization typically
declines and our operating expenses generally increase, with
fuel efficiency declining because of engine idling and harsh
weather sometimes creating higher accident frequency, increased
claims, and more equipment repairs. Our revenue also may be
affected by bad weather and holidays as a result of curtailed
operations or vacation shutdowns, because our revenue is
directly related to available working days of shippers. From
time to time, we also suffer short-term impacts from
weather-related events such as tornadoes, hurricanes, blizzards,
ice storms, floods, fires, earthquakes, and explosions that
could harm our results of operations or make our results of
operations more volatile.
Critical
Accounting Policies
The preparation of our consolidated financial statements in
conformity with GAAP requires us to make estimates and
assumptions that impact the amounts reported in our consolidated
financial statements and accompanying notes. Therefore, the
reported amounts of assets, liabilities, revenue, expenses, and
associated disclosures of contingent assets and liabilities are
affected by these estimates and assumptions. We evaluate these
estimates and assumptions on an ongoing basis, utilizing
historical experience, consultation with experts, and other
methods considered reasonable in the particular circumstances.
Nevertheless, actual results may differ significantly from our
estimates and assumptions, and it is possible that materially
different amounts will be reported using differing estimates or
assumptions. We consider our critical accounting policies to be
those that require us to make more significant judgments and
estimates when we prepare our financial statements. Our critical
accounting policies include the following:
Claims
accruals
We are self-insured for a portion of our liability,
workers compensation, property damage, cargo damage, and
employee medical expense risk. This self-insurance results from
buying insurance coverage that applies in excess of a retained
portion of risk for each respective line of coverage. Each
reporting period, we accrue the cost of the uninsured portion of
pending claims. These accruals are estimated based on our
evaluation of the nature and severity of individual claims and
an estimate of future claims development based upon historical
claims development trends. Insurance and claims expense will
vary as a percentage of operating revenue from period to period
based on the frequency and severity of claims incurred in a
given period as well as changes in claims development trends.
Actual settlement of the self-insured claim liabilities could
differ from our estimates due to a number of uncertainties,
including evaluation of severity, legal cost, and claims that
have been incurred but not reported. If claims development
factors that are based upon historical experience had increased
by 10%, our claims accrual as of December 31, 2010 would
have potentially increased by $11.5 million.
Goodwill
We have recorded goodwill, which primarily arose from the
partial acquisition of Swift Transportation. Goodwill represents
the excess of the purchase price over the fair value of net
assets acquired. In accordance with Topic 350,
Intangibles Goodwill and Other,
we test goodwill for potential impairment annually as of
November 30 and between annual tests if an event occurs or
circumstances change that would more likely than not reduce the
fair value of a reporting unit below its carrying amount.
86
We evaluate goodwill for impairment using the two-step process
prescribed in Topic 350. The first step is to identify potential
impairment by comparing the fair value of a reporting unit with
the book value, including goodwill. If the fair value of a
reporting unit exceeds the book value, goodwill is not
considered impaired. If the book value exceeds the fair value,
the second step of the process is performed to measure the
amount of impairment. Our test of goodwill and indefinite-lived
intangible assets requires judgment, including the
identification of reporting units, assigning assets (including
goodwill) and liabilities to reporting units, and determining
the fair value of each reporting unit. For determining fair
value as of November 30, 2010, we used a combination of
comparative valuation multiples of publicly traded companies and
a discounted cash flow model. The discounted cash flow model
included several significant assumptions, including estimating
future cash flows and determining appropriate discount rates.
Changes in these estimates and assumptions could materially
affect the determination of fair value
and/or
goodwill impairment for each reporting unit.
Our evaluation as of November 30, 2010 produced no
indication of impairment of goodwill or indefinite-lived
intangible assets. Based on our analysis, none of our reporting
units was at risk of failing step one of the test. Our
evaluation as of November 30, 2009 produced no indication
of impairment of goodwill or indefinite-lived intangible assets.
Based on the results of our evaluation as of November 30,
2008, we recorded a non-cash impairment charge of
$17.0 million with no tax impact in the fourth quarter of
2008 related to the decline in fair value of our Mexico freight
transportation reporting unit resulting from the deterioration
in truckload industry conditions as compared with the estimates
and assumptions used in our original valuation projections used
at the time of the partial acquisition of Swift Transportation.
This charge is included in impairments in the consolidated
statements of operations for the year ended December 31,
2008.
Revenue
recognition
We recognize operating revenue and related direct costs to
recognizing revenue as of the date the freight is delivered,
which is consistent with Topic
605-20-25-13,
Services for
Freight-in-Transit
at the End of a Reporting Period.
We recognize revenue from leasing tractors and related equipment
to owner-operators as operating leases. Therefore, revenue for
rental operations are recognized on the straight-line basis as
earned under the operating lease agreements. Losses from lease
defaults are recognized as an offset to revenue in the amount of
earned, but not collected, revenue.
Depreciation
and amortization
Depreciation on property and equipment is calculated on the
straight-line method over the estimated useful lives of 5 to
40 years for facilities and improvements, 3 to
15 years for revenue and service equipment, and 3 to
5 years for software, furniture, and office equipment.
Amortization of the customer relationships acquired in the
acquisition of Swift Transportation is calculated on the 150%
declining balance method over the estimated useful life of
15 years. The customer relationships contributed to us at
May 9, 2007 are amortized using the straight-line method
over 15 years. The owner-operator relationship was
amortized using the straight-line method over three years and
was fully amortized by December 31, 2010. The trade name
has an indefinite useful life and is not amortized, but rather
is tested for impairment annually on November 30, unless
events occur or circumstances change between annual tests that
would more likely than not reduce the fair value.
Impairments
of long-lived assets
We evaluate our long-lived assets, including property and
equipment, and certain intangible assets subject to amortization
for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable in accordance with Topic 360 and Topic 350,
respectively. If circumstances require a long-lived asset be
tested for possible impairment, we compare undiscounted cash
flows expected to be generated by an asset to the carrying value
of the asset. If the carrying value of the long-lived asset is
not
87
recoverable on an undiscounted cash flow basis, impairment is
recognized to the extent that the carrying value exceeds its
fair value. Fair value is determined through various valuation
techniques including discounted cash flow models, quoted market
values, and third-party independent appraisals, as necessary.
During the first quarter of 2010, revenue equipment with a
carrying amount of $3.6 million was written down to its
fair value of $2.3 million, resulting in an impairment
charge of $1.3 million, which was included in impairments
in the consolidated statement of operations for the year ended
December 31, 2010. The impairment of these assets was
identified due to our decision to remove them from the operating
fleet through sale or salvage.
In the first quarter of 2009, we recorded impairment charges
related to real estate properties totaling $0.5 million
before taxes. In the third and fourth quarter of 2008, we
recorded impairment charges totaling $7.5 million, before
taxes, related to real estate properties, tractors, trailers,
and a note receivable from our sale of our Volvo truck delivery
business assets in 2006.
Goodwill and indefinite-lived intangible assets are reviewed for
impairment at least annually in accordance with the provisions
of Topic 350 as noted under the heading Goodwill
above.
Taxes
Our deferred tax assets and liabilities represent items that
will result in taxable income or a tax deduction in future years
for which we have already recorded the related tax expense or
benefit in our consolidated statements of operations. Deferred
tax accounts arise as a result of timing differences between
when items are recognized in our consolidated financial
statements compared to when they are recognized in our tax
returns. Significant management judgment is required in
determining our provision for income taxes and in determining
whether deferred tax assets will be realized in full or in part.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered
or settled. We periodically assess the likelihood that all or
some portion of deferred tax assets will be recovered from
future taxable income. To the extent we believe the likelihood
of recovery is not sufficient, a valuation allowance is
established for the amount determined not to be realizable. We
have recorded a valuation allowance of $0.6 million at
December 31, 2010, reflecting state net operating loss
carryforwards that we expect will expire before they can be
utilized. All other deferred tax assets are considered more
likely than not to be realized as they are expected to be
utilized by the reversal of the existing deferred tax
liabilities in future periods.
We believe that we have adequately provided for our future tax
consequences based upon current facts and circumstances and
current tax law. However, should our tax positions be
challenged, different outcomes could result and have a
significant impact on the amounts reported through our
consolidated statements of operations.
Lease
accounting and off-balance sheet transactions
In accordance with Topic 840, Leases,
property and equipment held under operating leases, and
liabilities related thereto, are not reflected on our balance
sheet. All expenses related to operating leases are reflected on
our consolidated statements of operations in the line item
entitled Rental expense.
We issue residual value guarantees in connection with certain of
our operating leases of certain revenue equipment. If we do not
purchase the leased equipment from the lessor at the end of the
lease term, we are liable to the lessor for an amount equal to
the shortage (if any) between the proceeds from the sale of the
equipment and an agreed value up to a maximum shortfall per
unit. For substantially all of these tractors, we have residual
value agreements from manufacturers at amounts equal to our
residual obligation to the lessors. For all other equipment (or
to the extent we believe any manufacturer will refuse or be
unable to meet its obligation), we are required to recognize
additional rental expense to the extent we believe the fair
market value at the lease termination will be less than our
obligation to the lessor. We believe that proceeds from the sale
of equipment under operating leases would exceed the payment
obligation on substantially all operating leases. The estimated
values at lease termination involve management judgments. As of
December 31, 2010,
88
the maximum potential amount of future payments we would be
required to make under these guarantees is $17.8 million.
In addition, as leases are entered into, determination as to the
classification as an operating or capital lease involves
management judgments on residual values and useful lives.
Stock-based
employee compensation
We issue several types of share-based compensation, including
awards that vest based on service and performance conditions or
a combination of the conditions. Performance-based awards vest
contingent upon meeting certain performance criteria established
by our compensation committee. All awards require future service
and thus forfeitures are estimated based on historical
forfeitures and the remaining term until the related award vests.
We adopted Topic 718 using the modified prospective method. This
Topic requires that all share-based payments to employees,
including grants of employee stock options, be recognized in the
financial statements based upon a grant-date fair value of an
award. Determining the appropriate amount to expense in each
period is based on likelihood and timing of achievement of the
stated targets for performance-based awards, and requires
judgment, including forecasting future financial results and
market performance. The estimates are revised periodically based
on the probability and timing of achieving the required
performance targets, respectively, and adjustments are made as
appropriate. Awards that only are subject to time-vesting
provisions are amortized using the straight-line method. Awards
subject to time-based vesting and performance conditions are
amortized using the individual vesting tranches. In the future,
we may make market-based awards that will vest contingent upon
meeting certain market criteria established by our compensation
committee.
Segment
information
We have one reportable segment under the provisions of Topic
280, Segment Reporting. Each of our transportation
service offerings and operations that meet the quantitative
threshold requirements of Topic 280 provides truckload
transportation services that have been aggregated as they have
similar economic characteristics and meet the other aggregation
criteria of Topic 280. Accordingly, we have not presented
separate financial information for each of our service offerings
and operations as the consolidated financial statements present
our one reportable segment. We generate other revenue through
operations that provide freight brokerage as well as intermodal
services. These operations do not meet the quantitative
threshold of Topic 280.
Accounting
Standards Not Yet Adopted
The FASB has issued Accounting Standards Updates
(ASU) to the Accounting Standards
Codification (ASC) for which the required
implementation dates have not yet become effective. Note 1
to the Consolidated Financial Statements included elsewhere in
this prospectus includes discussion of accounting standards not
yet adopted by the Company under the caption Recent
accounting Pronouncements and is incorporated by reference
herein.
Quantitative
and Qualitative Disclosures About Market Risk
We have interest rate exposure arising from our senior secured
credit facility, senior secured floating rate notes, 2008 RSA,
and other financing agreements, which have variable interest
rates. These variable interest rates are impacted by changes in
short-term interest rates, although the volatility related to
the first lien term loan is mitigated due a 1.50% LIBOR floor on
our senior secured credit facility. We manage interest rate
exposure through a mix of variable rate debt, and fixed rate
notes and lease financing. In addition, we anticipate that we
will enter into hedging instruments to mitigate exposure to
volatility of interest rates in the future in accordance with
the requirements of our senior secured credit facility. Assuming
the current level of borrowings, a hypothetical one-percentage
point increase in interest rates would increase our annual
interest expense by $1.5 million, including the impact of
the 1.50% LIBOR floor.
We have commodity exposure with respect to fuel used in
company-owned tractors. Further increases in fuel prices will
continue to raise our operating costs, even after applying fuel
surcharge revenue. Historically,
89
we have been able to recover a majority of fuel price increases
from our customers in the form of fuel surcharges. The weekly
average diesel price per gallon in the United States, as
reported by the DOE, rose from an average of $2.85 per gallon
for the three months ended March 31, 2010 to an average of
$3.61 per gallon for the three months ended March 31, 2011.
We cannot predict the extent or speed of potential changes in
fuel price levels in the future, the degree to which the lag
effect of our fuel surcharge programs will impact us as a result
of the timing and magnitude of such changes, or the extent to
which effective fuel surcharges can be maintained and collected
to offset such increases. We generally have not used derivative
financial instruments to hedge our fuel price exposure in the
past, but continue to evaluate this possibility.
90
BUSINESS
Overview
We are a multi-faceted transportation services company and the
largest truckload carrier in North America. At March 31,
2011, we operated a tractor fleet of approximately
16,100 units comprised of 12,100 tractors driven by company
drivers and 4,000 owner-operator tractors, a fleet of 49,400
trailers, and 5,000 intermodal containers from 34 major
terminals positioned near major freight centers and traffic
lanes in the United States and Mexico. During 2010, our tractors
covered 1.5 billion miles and we transported or arranged
approximately three million loads for shippers throughout North
America. Our asset-based operations include general truckload,
dedicated truckload, and cross-border truckload services, each
of which offer a combination of dry van, temperature controlled,
flatbed, or other specialized equipment. Our complementary and
more rapidly growing asset-light services include
rail intermodal, freight brokerage, and third-party logistics
operations. We use sophisticated technologies and systems that
contribute to asset productivity, operating efficiency, customer
satisfaction, and safety. We believe the depth of our fleet
capacity, the breadth of our terminal network, our commitment to
customer service, and our extensive suite of services provide us
and our customers with significant advantages.
We principally operate in
short-to-medium-haul
traffic lanes around our terminals, with an average loaded
length of haul of less than 500 miles. We concentrate on
this length of haul because the majority of domestic truckload
freight (as measured by revenue) moves in these lanes and our
extensive terminal network affords us marketing, equipment
control, supply chain, customer service, and driver retention
advantages in local markets. Our relatively short average length
of haul also helps reduce competition from railroads and
trucking companies that lack a regional presence.
Truckload carriers typically transport a full trailer (or
container) of freight for a single customer from origin to
destination without intermediate sorting and handling. Truckload
carriers provide the largest part of the transportation supply
chain for most retail and manufactured goods in North America.
Many of our customers are large corporations with extensive
operations, geographically distributed locations, and diverse
shipping needs. We receive revenue from a broad customer base
that includes clients from the retail, discount retail, consumer
products, food and beverage, and transportation and logistics
industries. We offer the opportunity for
one-stop-shopping for their truckload transportation
needs through our broad spectrum of services and equipment.
Since 2006, our asset-light rail intermodal and freight
brokerage and logistics services have grown rapidly, and we
expanded owner-operators from 16.5% of our total fleet at
year-end 2006 to 24.7% of our total fleet at March 31,
2011. Going forward, we intend to continue to expand our revenue
from these operations to improve our overall return on invested
capital.
In addition to economic cycles, the trucking industry faces
other challenges that we believe we are well-positioned to
address. First, we believe that the new regulatory initiatives
such as
hours-of-service
limitations, electric on-board recorders, and the Federal Motor
Carrier Safety Administrations, or FMCSA, new
Comprehensive Safety Analysis, or CSA, may reduce the size of
the driver pool. Moreover, new or changing regulatory
constraints on drivers may further decrease the utilization of
an already shrinking driver pool. As this occurs, we believe our
driver development programs, including our driver training
schools and nationwide recruiting, will become increasingly
advantageous. In addition, we believe that the impact of such
regulations will be partially mitigated by our average length of
haul, regional terminal network, and less mileage-intensive
operations, such as intermodal, dedicated, brokerage, and
cross-border operations. Further, we are currently in the
process of retrofitting our entire tractor fleet with electronic
on-board recorders, which we believe can help us more
efficiently utilize our drivers available hours of
service. Second, we believe that significant increases and rapid
fluctuations in fuel prices will continue to be a challenge to
the industry. We believe we can effectively address these issues
through fuel surcharges, effective fuel procurement strategies
and network management systems, and further developing our
dedicated, intermodal, and brokerage operations. Third, the
industry also faces increased prices for new revenue equipment,
design changes of new engines, and volatility in the used
equipment sales market. We believe that we are well-positioned
to effectively address these issues
91
because of our relatively new fleet, trade-back protections,
buying power, and in-house nationwide maintenance facilities.
Organizational
Structure and Corporate History
Swifts predecessor was founded by Jerry Moyes, along with
his father and brother, in 1966 with one truck and taken public
on the NASDAQ stock market in 1990.
In April 2007, Mr. Moyes and his wife contributed their
ownership of all of the issued and outstanding shares of
Interstate Equipment Leasing, Inc. (now Interstate Equipment
Leasing, LLC), or IEL, to Swift Corporation in exchange for
additional Swift Corporation shares. In May 2007,
Mr. Moyes, The Jerry and Vickie Moyes Family Trust dated
12/11/87,
and various Moyes childrens trusts, collectively referred
to as the Moyes Affiliates, contributed their shares of Swift
Transportation common stock to Swift Corporation in exchange for
additional Swift Corporation shares. Swift Corporation then
completed its acquisition of Swift Transportation through a
merger on May 10, 2007, thereby acquiring the remaining
outstanding shares of Swift Transportation common stock, the
foregoing sequence of transactions being, collectively, the 2007
Transactions. Upon completion of the 2007 Transactions, Swift
Transportation became a wholly-owned subsidiary of Swift
Corporation and at the close of the market on May 10, 2007,
the common stock of Swift Transportation ceased trading on
NASDAQ.
On May 20, 2010, in contemplation of our initial public
offering, Swift Corporation formed Swift Transportation Company
(formerly Swift Holdings Corp.), a Delaware corporation. Swift
Transportation Company did not engage in any business or other
activities except in connection with its formation and the
initial public offering and held no assets and had no
subsidiaries prior to such offering.
Immediately prior to the consummation of the initial public
offering, Swift Corporation merged with and into Swift
Transportation Company, with Swift Transportation Company
surviving as a Delaware corporation. In the merger, all of the
outstanding common stock of Swift Corporation was converted into
shares of Swift Transportation Company Class B common stock
on a
one-for-one
basis, and all outstanding stock options of Swift Corporation
were converted into options to purchase shares of Class A
common stock of Swift Transportation Company. All outstanding
Class B shares are held by Mr. Moyes and the Moyes
Affiliates.
In December 2010, Swift Transportation Company completed its
initial public offering of 73,300,000 shares of its
Class A common stock at $11.00 per share and received
proceeds of $766.0 million net of underwriting discounts
and commissions and before expenses of such issuance. The
proceeds were used, together with the $1.06 billion of
proceeds from our senior secured term loan and $490 million
of proceeds from our private placement of the Restricted Notes,
which debt issuances were completed substantially concurrently
with the initial public offering, to (a) repay all amounts
outstanding under our senior secured credit facility,
(b) purchase an aggregate amount of $490.0 million of
our senior secured fixed-rate notes and $192.6 million of
our senior secured floating rate notes, (c) pay
$66.4 million to our interest rate swap counterparties to
terminate the interest rate swap agreements related to our
existing floating rate debt, and (d) pay fees and expenses
related to the debt issuance and stock offering. Further, in
January 2011, Swift Transportation Company issued an additional
6,050,000 shares of its Class A common stock to the
underwriters of our initial public offering at the initial
public offering price of $11.00 per share, less the
underwriters discount, and received proceeds of
$63.2 million in cash pursuant to the over-allotment option
in the underwriting agreement. We used $60.0 million of
these proceeds in January 2011 to pay down our new first lien
term loan, and we used the remaining $3.2 million in
February 2011 to pay down our accounts receivable securitization
facility. Following this issuance, we have
79,350,000 shares of Class A common stock outstanding.
Our Class A common stock is listed for trading on the New
York Stock Exchange under the symbol SWFT.
92
Our
Industry and Competition
The U.S. trucking industry is large, fragmented, and highly
competitive. We compete with thousands of other truckload
carriers, most of which operate fewer than 100 trucks. To a
lesser extent, we compete with railroads,
less-than-truckload
carriers, third-party logistics providers, and other
transportation companies. The 25 largest for-hire truckload
carriers are estimated to comprise approximately 7.3% of the
total for-hire truckload market, according to 2009 data
published by the ATA. The principal means of competition in our
industry are service, the ability to provide capacity when and
where needed, and price. In times of strong freight demand,
service and capacity become increasingly important, and in times
of weak freight demand pricing becomes increasingly important.
Because most truckload contracts (other than dedicated
contracts) do not guarantee truck availability or load levels,
pricing is influenced by supply and demand.
Since 2000, we believe our industry has encountered three major
economic cycles: (1) the period of industry over-capacity
and depressed freight volumes from 2000 through 2001;
(2) the economic expansion from 2002 through 2006; and
(3) the freight slowdown, fuel price spike, economic
recession, and credit crisis from 2007 through 2009. In the
fourth quarter of 2009 and into 2010, industry freight data
began to show strong positive trends. Although it is too early
to be certain, we believe the trucking industry has entered a
new economic cycle marked by a return to economic growth as well
as a tighter supply of available tractors due to several years
of below average truck builds and an increase in truckload fleet
bankruptcies.
Our
Competitive Strengths
We believe the following competitive strengths provide a solid
platform for pursuing our goals and strategies:
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North American truckload leader with broad terminal network
and a modern fleet. We operate North
Americas largest truckload fleet, have 34 major terminals
and multiple other locations throughout the United States and
Mexico, and offer customers one-stop-shopping for a
broad spectrum of their truckload transportation needs. Our
fleet size offers wide geographic coverage while maintaining the
efficiencies associated with significant traffic density within
our operating regions. Our terminals are strategically located
near key population centers, driver recruiting areas, and
cross-border hubs, often in close proximity to our customers.
This broad network offers benefits such as in-house maintenance,
more frequent equipment inspections, localized driver
recruiting, rapid customer response, and personalized marketing
efforts. Our size allows us to achieve substantial economies of
scale in purchasing items such as tractors, trailers,
containers, fuel, and tires where pricing is volume-sensitive.
We believe our scale also offers additional benefits in brand
awareness and access to capital. Additionally, our modern
company tractor fleet, with an average age of 3.2 years for
our approximately 9,000 linehaul sleeper units, lowers
maintenance and repair expense, aids in driver recruitment, and
increases asset utilization as compared with an older fleet.
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High quality customer service and extensive suite of
services. Our intense focus on customer
satisfaction contributed to 20 carrier of the year
or similar awards in 2009 and 24 in 2010, and has helped us
establish a strong platform for cross-selling our other
services. Our strong and diversified customer base, ranging from
Fortune 500 companies to local shippers, has a wide variety
of shipping needs, including general and specialized truckload,
imports and exports, regional distribution, high-service
dedicated operations, rail intermodal service, and surge
capacity through fleet flexibility and brokerage and logistics
operations. We believe customers continue to seek fewer
transportation providers that offer a broader range of services
to streamline their transportation management functions. We
believe the breadth of our services helps diversify our customer
base and provides us with a competitive advantage, especially
for customers with multiple needs and international shipments.
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Strong and growing owner-operator business. We
supplement our company tractors with tractors provided by
owner-operators, who operate their own tractors and are
responsible for most ownership and operating expenses. We
believe that owner-operators provide significant advantages that
primarily arise from the entrepreneurial motivation of business
ownership. Our owner-operators tend to be more
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experienced, have lower turnover, have fewer accidents per
million miles, and produce higher weekly trucking revenue per
tractor than our average company drivers.
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Leader in driver and owner-operator
development. Driver recruiting and retention
historically have been significant challenges for truckload
carriers. To address these challenges, we employ nationwide
recruiting efforts through our terminal network, operate five
driver training schools, maintain an active and successful
owner-operator development program, provide drivers modern
tractors, and employ numerous driver satisfaction policies.
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Regional operating model. Our short- and
medium-haul regional operating model contributes to higher
revenue per mile and takes advantage of shipping trends toward
regional distribution. We also experience less competition in
our short- and medium-haul regional business from railroads. In
addition, our regional terminal network allows our drivers to be
home more often, which we believe assists with driver retention.
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Experienced management aligned with corporate
success. Our management team has a proven track
record of growth and cost control. Management focuses on
disciplined execution and financial performance by measuring our
progress through a combination of financial metrics. We align
managements priorities with our own through equity option
awards and an annual performance based bonus plan.
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Our
Growth Strategy
Our goals are to grow revenue in excess of 10% annually over the
next several years, increase our profitability, and generate
returns on capital in excess of our cost of capital. These goals
are in part dependent on continued improvement in industry-wide
truckload volumes and pricing. Although we expect the economic
environment and capacity constraints in our industry to support
achievement of our goals, we have limited ability to affect
industry volumes and pricing and cannot assure you that this
environment will continue. Nevertheless, we believe our
competitive strengths and the current supply and demand
environment in the truckload industry are aligned to support the
achievement of our goals through the following strategies:
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Profitable revenue growth. To increase freight
volumes and yield, we intend to further penetrate our existing
customer base, cross-sell our services, and pursue new customer
opportunities by leveraging our superior customer service and
extensive suite of truckload services. In addition, we are
further enhancing our sophisticated freight selection management
tools to allocate our equipment to more profitable loads and
complementary lanes. As freight volumes increase, we intend to
prioritize the following areas for growth:
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Rail intermodal. Our growing rail intermodal
presence complements our regional operating model and allows us
to better serve customers in longer haul lanes and reduce our
investment in fixed assets. Since its inception in 2005, we have
expanded our rail intermodal business by growing our fleet to
approximately 5,000 containers as of March 31, 2011, and we
expect to add another 1,400 to 1,800 containers in 2011. We
expect to continue to add intermodal containers each year as our
volumes grow. We have intermodal agreements with all major
U.S. railroads and negotiated more favorable terms in 2009
with our largest intermodal provider, which has helped increase
our volumes through more competitive pricing.
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Dedicated services and private fleet
outsourcing. The size and scale of our fleet and
terminal network allow us to provide the equipment availability
and high service levels required for dedicated contracts.
Dedicated contracts often are used for high-service and
high-priority freight, sometimes to replace private fleets
previously operated by customers. Dedicated operations generally
produce higher margins and lower driver turnover than our
general truckload operations. We believe these opportunities
will increase in times of scarce capacity in the truckload
industry.
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Cross-border Mexico-U.S. freight. The
combination of our U.S., cross-border, customs brokerage, and
Mexican operations enables us to provide efficient
door-to-door
service between the United States and Mexico. We believe our
sophisticated load security measures, as well as our Department
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of Homeland Security, or DHS, status as a C-TPAT carrier, allow
us to offer more efficient service than most competitors and
afford us substantial advantages with major international
shippers.
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Freight brokerage and third-party
logistics. We believe we have a substantial
opportunity to continue to increase our non-asset based freight
brokerage and third-party logistics services. We believe many
customers increasingly seek transportation companies that offer
both asset-based and non-asset based services to gain additional
certainty that safe, secure, and timely truckload service will
be available on demand and to reward asset-based carriers for
investing in fleet assets. We intend to continue growing our
transportation management and freight brokerage capability to
build market share with customers, earn marginal revenue on more
loads, and preserve our assets for the most attractive lanes and
loads.
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Customer satisfaction. In our pursuit to be
best in class, we survey our customers and identify areas where
we can accelerate the capture of new freight opportunities,
improve our customers experience, and profit from
enhancing the value our customers receive. Based on the results
of the surveys, we focus on areas of improvement such as meeting
customer commitments for on-time
pick-up and
delivery, improving billing accuracy, defining and documenting
expectations of new customers, and enhancing responsiveness of
our personnel. We believe that improving overall customer
satisfaction will create opportunities to growth with our
customers and help to cross-sell our entire suite of services.
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Increase asset productivity and return on
capital. Because of our size and operating
leverage, even small improvements in our asset productivity and
yield can have a significant impact on our operating results. We
believe we have a substantial opportunity to improve the
productivity and yield of our existing assets through the
following measures:
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increasing the percentage of our fleet provided by
owner-operators, who generally produce higher weekly trucking
revenue per tractor than our company drivers;
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increasing company tractor utilization through measures such as
equipment pools, relays, and team drivers;
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capitalizing on a stronger freight market to increase average
trucking revenue per mile by using sophisticated freight
selection and network management tools to upgrade our freight
mix and reduce deadhead miles;
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maintaining discipline regarding the timing and extent of
company tractor fleet growth based on availability of
high-quality freight; and
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rationalizing unproductive assets as necessary, thereby
improving our return on capital.
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Continue to focus on efficiency and cost
control. We intend to continue to implement the
Lean Six Sigma, accountability, and discipline measures that
helped us improve our Adjusted Operating Ratio in 2010 and 2009.
We presently have ongoing efforts in the following areas that we
expect will yield benefits in future periods:
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managing the flow of our tractor capacity through our network to
balance freight flows and reduce deadhead miles;
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integrating systems and improving processes to achieve more
efficient utilization of our tractors, trailers, and
drivers available hours of service;
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improving driver and owner-operator satisfaction to improve
performance and reduce attrition costs; and
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reducing waste in shop methods and procedures and in other
administrative processes.
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Pursue selected acquisitions. In addition to
expanding our company tractor fleet through organic growth, and
to take advantage of opportunities to add complementary
operations, we expect to pursue selected acquisitions. We
operate in a highly fragmented and consolidating industry where
we believe
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the size and scope of our operations afford us significant
competitive advantages. Acquisitions can provide us an
opportunity to expand our fleet with customer revenue and
drivers already in place. In our history, we have completed
twelve acquisitions, most of which were immediately integrated
into our existing business. Given our size in relation to most
competitors, we expect most future acquisitions to be integrated
quickly. As with our prior acquisitions, our goal is for any
future acquisitions to be accretive to our earnings within two
full calendar quarters.
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Mission,
Vision, and Most Important Goals
Since going private in 2007, our management team has instilled a
culture of discipline and accountability throughout our
organization. We accomplished this in several ways. First, we
established our mission, vision, purpose, and values to give the
organization guidance. Second, we identified our most important
goals and trained our entire organization in the discipline of
executing on these goals, including focusing on our priorities,
breaking down each employees responsibilities to identify
those which contribute to achieving our priorities, creating a
scoreboard of daily results, and requiring weekly reporting of
recent results and plans for the next week. Third, we
established cross-functional business transformation teams
utilizing Lean Six Sigma techniques to analyze and enhance value
streams throughout Swift. Fourth, we enhanced our annual
operating plan process to break down our financial plans into
budgets, metrics, goals, and targets that each department and
salesperson can influence and control. And finally, we developed
and implemented a strategic planning and deployment process to
establish actionable plans to achieve best in class performance
in key areas of our business.
Our mission is to attract and retain customers by providing best
in class transportation solutions and fostering a profitable,
disciplined culture of safety, service, and trust. At the
beginning of 2009, we defined our vision, which consists of
seven primary themes:
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we are an efficient and nimble world class service organization
that is focused on the customer;
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we are aligned and working together at all levels to achieve our
common goals;
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our team enjoys our work and co-workers and this enthusiasm
resonates both internally and externally;
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we are on the leading edge of service, always innovating to add
value to our customers;
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our information and resources can be easily adapted to analyze
and monitor what is most important in a changing environment;
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our financial health is strong, generating excess cash flows and
growing profitability year-after-year with a culture that is
cost-and environmentally-conscious; and
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we train, build, and develop our employees through perpetual
learning opportunities to enhance their skill sets, allowing us
to maximize potential of our talented people.
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In light of our mission and vision, we currently define our most
important goals as follows:
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Improving financial performance. To improve
our financial performance, we have developed and deployed
several strategies, including profitable, revenue growth,
improved asset utilization and return on capital, and cost
reductions. We measure our performance on these strategies by
Adjusted EBITDA, Adjusted Operating Ratio, revenue growth, EPS,
and return on invested capital. In this regard, we have
identified numerous specific activities as outlined in Our
Growth Strategy section above. We also engage all of our
sales personnel in specific planning of
month-by-month
volume and rate goals for each of their major customers and
identify specific, controllable operating metrics for each of
our terminal managers.
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Improving driver, non-driver, and owner-operator
satisfaction. We realize we are only as good as
our people. We believe that a thoroughly engaged workforce is
safer, more productive, and more creative and yields higher
retention in response to being heard, valued, and given
opportunities to grow and develop. By unleashing the talent of
our people we can meet and exceed our organizational goals while
enabling our employees to increase their own potential. To
achieve this environment, we have
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implemented initiatives targeted at each group to improve
internal customer service and recognition of results, and we
have deployed leadership training and other tools to enhance
feedback, mutual understanding, and our leadership practices.
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Improving safety culture. Safety is
foundational in what we do, and it cannot be compromised in
pursuit of profit or convenience. Safety not only impacts our
financial results, but the lives of our people and our
communities. Producing Best in Class safety results can only
come out of instilling a safety mindset at all levels of our
organization. In this effort we are working to enhance the
effectiveness of safety communications and feedback, increase
recognition of safe behavior, build methodologies that support
good choices, ensure that our core values are known and
understood by our people, and expand the training of our safety
professionals.
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Operations
We strive to provide what we believe are timely, efficient,
safe, and cost effective transportation solutions that help our
customers better manage their transportation needs. Our broad
spectrum of services includes the following:
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General truckload service. Our general
truckload service consists of one-way movements over irregular
routes throughout the United States and in Canada through dry
van, temperature controlled, flatbed, or specialized trailers,
as well as drayage operations, using both company tractors and
owner-operator tractors. Our regional terminal network and
operating systems enable us to enhance driver recruitment and
retention by maintaining open communication lines with our
drivers and by planning loads and routes that will regularly
return drivers to their homes. Our operating systems provide
access to current information regarding driver and equipment
status and location, special load and equipment instructions,
routing, and dispatching. These systems enable our operations to
match available equipment and drivers to available loads and
plan future loads based on the intended destinations. Our
operating systems also facilitate the scheduling of regular
equipment maintenance and fueling at our terminals or other
locations, as appropriate, which also enhance productivity and
asset utilization while reducing empty miles and repair costs.
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Dedicated truckload service. Through our
dedicated truckload service, we devote exclusive use of
equipment and offer tailored solutions under long-term
contracts, generally with higher operating margins and lower
driver turnover. Dedicated truckload service allows us to
provide tailored solutions to meet specific customer needs. Our
dedicated operations use our terminal network, operating
systems, and for-hire freight volumes to source backhaul
opportunities to improve asset utilization and reduce deadhead
miles. In our dedicated operations, we typically provide
transportation professionals
on-site at
each customers facilities and have a centralized team of
transportation engineers to design transportation solutions to
support private fleet conversions
and/or
augment customers transportation requirements.
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Cross-border Mexico/U.S. truckload
service. Our growing cross-border, Mexico
truckload business includes service through Trans-Mex, our
wholly-owned subsidiary, which is one of the largest trucking
companies in Mexico. Our Mexican operations primarily haul
through commercial border crossings from Laredo, Texas westward
to California. Through Trans-Mex, we can move freight
efficiently across the
U.S.-Mexico
border, and our integrated systems allow customers to track
their goods from origin to destination. Our revenue from Mexican
operations was approximately $68 million, $61 million,
and $62 million in the years ended December 31, 2010,
2009 and 2008, respectively, in each case prior to intercompany
eliminations. As of December 31, 2010 and 2009, the total
U.S. dollar book value of our Mexico operations long-lived
assets was $48.5 million and $46.9 million,
respectively.
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Rail intermodal service. Our rail intermodal
business involves arranging for rail service for primary freight
movement and related drayage service and requires lower tractor
investment than general truckload service, making it one of our
less asset-intensive businesses. At December 31, 2010, we
offered
Trailer-on-Flat-Car
through our approximately 49,000 trailers and
Container-on-Flat-Car
through a dedicated fleet of 4,800 53-foot containers. We offer
these products to and from 82 active rail
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ramps located across the United States and Canada. We operate
our own drayage fleet and have contracts with over 350 drayage
operators across North America.
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Non-asset based freight brokerage and logistics management
services. Through our freight brokerage and
logistics management services, we offer our transportation
management expertise
and/or
arrange for other trucking companies to haul freight that does
not fit our network, earning us a revenue share with little
investment. Our freight brokerage and logistics management
services enable us to offer capacity to meet seasonal demands
and surges.
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Other revenue generating services. In addition
to the services referenced above, our services include providing
tractor leasing arrangements through IEL to owner-operators,
underwriting insurance through our wholly-owned captive
insurance companies, and providing repair services through our
maintenance and repair shops to owner-operators and other third
parties.
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We offer our services on a local, regional, and transcontinental
basis through an established network of 34 major regional
terminals and facilities located near key population centers,
often in close proximity to major customers. Our fleet size and
terminal network allow us to commit significant capacity to
major shippers in multiple markets, while still achieving
efficiencies, such as rapid customer response and fewer deadhead
miles, associated with traffic density in most of our regions.
The achievement of significant regular freight volumes on
high-density routes and the ability to achieve better shipment
scheduling over these routes are key elements of our operating
strategy. We employ network management tools to manage the
complexity of operating in
short-to-medium-haul
traffic lanes throughout North America. Network management tools
focus on four key elements:
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Velocity how efficiently revenue is generated
in light of the time between pickup and delivery of the load;
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Price how the load is rated on a revenue per
mile basis;
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Lane flow how the lane fits in our network
based on relative strength of origin and destination
markets; and
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Seasonality how consistent the freight demand
is throughout the year.
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We invest in sophisticated technologies and systems that allow
us to increase the utilization of our assets and our operating
efficiency, improve customer satisfaction, and communicate
critical information to our drivers. In virtually all of our
trucks, we have installed
Qualcommtm
onboard, two-way satellite communication systems. This
communication system links drivers to regional terminals and
corporate headquarters, allowing us to alter routes rapidly in
response to customer requirements and weather conditions and to
eliminate the need for driver detours to report problems or
delays. This system allows drivers to inform dispatchers and
driver managers of the status of routing, loading and unloading,
or the need for emergency repairs. We believe our customers, our
drivers, and our company benefit from this investment through
service-oriented items such as on-time deliveries, continuous
tracking of loads, updating of customer commitments, rapid
in-cab communication of routing, fueling, and delivery
instructions, and our integrated service offerings that support
a paperless, electronic environment from tender of loads to
collection of accounts. We are in the process of upgrading our
fleet to the Qualcomm MCP-200, which we believe will provide
additional benefits such as electronic, on-board recorders,
text-to-voice
messaging,
turn-by-turn
directions designed specifically for our industry, and video
streaming to enhance communications with our drivers. Based on
our initial testing we have found that the link between the
electronic, on-board recorders and our planning systems have
afforded us additional productivity as we are able to more
efficiently plan and dispatch our drivers to utilize more of
their available driving hours. In addition, other features of
the device, such as,
text-to-messaging
and
turn-by-turn
directions, have also helped to improve productivity and driver
satisfaction. We are targeting to have the conversion to
electronic, on-board recorders complete by December 31,
2011. We reduce costs through programs that manage equipment
maintenance, select fuel purchasing locations in our nationwide
network of terminals and approved truck stops, and inform us of
inefficient or undesirable driving behaviors that are
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monitored and reported through electronic engine sensors. We
believe our technologies and systems are superior to those
employed by most of our smaller competitors.
Our trailers and containers are virtually all equipped with
Qualcommtm
trailer-tracking devices, which allow us, via satellite, to
monitor locations of empty and loaded equipment, as well as to
receive notification if a unit is moved outside of the
electronic geofence encasing each piece of equipment. This
enables us to more efficiently utilize equipment, by identifying
unused units, and enhances our ability to charge for units
detained by customers. This technology has enabled us to reduce
theft as well as to locate units hijacked with merchandise on
board.
Owner-Operators
In addition to the company drivers we employ, we enter into
contracts with owner-operators. Owner-operators operate their
own tractors (although some employ drivers they hire) and
provide their services to us under contractual arrangements.
They are responsible for most ownership and operating expenses
and are compensated by us primarily on a rate per mile basis. By
operating safely and productively, owner-operators can improve
their own profitability and ours. We believe that our
owner-operator fleet provides significant advantages that
primarily arise from the motivation of business ownership.
Owner-operators tend to be more experienced, produce more
miles-per-truck
per-week, and cause fewer
accidents-per-million
miles than average company drivers, thus providing better
profitability and financial returns. As of March 31, 2011,
owner-operators comprised approximately 24.7% of our total
fleet, as measured by tractor count. If we are unable to
continue to contract with a sufficient number of owner-operators
or fleet operators, it could adversely affect our operations and
profitability.
We provide tractor financing to independent owner-operators
through our subsidiary, IEL. IEL generally leases premium
equipment from the original equipment manufacturers and
subleases the equipment to owner-operators. The owner-operators
are qualified based on their driving and safety records. In our
experience, we have lower turnover among owner-operators who
obtain their financing through IEL than with our other
owner-operators and our company drivers. In the event of
default, IEL regains possession of the tractor and subleases it
to a replacement owner-operator.
Additional services offered to owner-operators include
insurance, maintenance, and fuel pass-throughs. Through our
wholly-owned insurance captive subsidiary, Mohave Transportation
Insurance Company, or Mohave, we offer owner-operators
occupational-accident, physical damage, and other types of
insurance. Owner-operators also are enabled to procure
maintenance services at our in-house shops and fuel at our
terminals. We believe we provide these services at competitive
and attractive prices to our owner-operators that also enable us
to earn additional revenue and margin.
Customers
and Marketing
Customer satisfaction is an important priority for us, which is
demonstrated by the 20 carrier of the year or
similar awards we received from customers in 2009 and the 24
awards we received in 2010. Such achievements have helped us
maintain a large and stable customer base featuring Fortune 500
and other leading companies from a number of different
industries. The principal types of freight we transport include
discount and other retail merchandise, perishable and
non-perishable food, beverages and beverage containers, paper
and packaging products, consumer non-durable products,
manufactured goods, automotive goods, and building materials.
Consistent with industry practice, our typical customer
contracts (other than dedicated contracts) do not guarantee
shipment volumes by our customers or truck availability by us.
This affords us and our customers some flexibility to negotiate
rates up or down in response to changes in freight demand and
industry-wide truck capacity. We believe our fleet capacity
terminal network, customer service, and breadth of services
offer a competitive advantage to major shippers, particularly in
times of rising freight volumes when shippers must access
capacity quickly across multiple facilities and regions.
We concentrate our marketing efforts on expanding the amount of
service we provide to existing customers, as well as on
establishing new customers with shipment needs that complement
our terminal
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network and existing routes. At March 31, 2011, we had a
sales staff of approximately 50 individuals across the United
States and Mexico, who work closely with senior management to
establish and expand accounts.
When soliciting new customers, we concentrate on attracting
non-cyclical, financially stable organizations that regularly
ship multiple loads from locations that complement traffic flows
of our existing business. Customer shipping point locations are
regularly monitored, and, as shipping patterns of existing
customers expand or change, we attempt to obtain additional
customers that will complement the new traffic flow. Through
this strategy, we attempt to increase equipment utilization and
reduce deadhead miles.
Our strategy of growing business with existing customers
provides us with a significant base of revenue. For the years
ended December 31, 2010, and 2009, respectively, our top 25
customers generated approximately 52% and 54% of our total
revenue, and our top 200 customers accounted for approximately
87% and 89% of our total revenue.
Wal-Mart and its subsidiaries, our largest customer, and a
customer we have had for over 20 years, accounted for
approximately 10%, 10%, and 11% of our operating revenue for the
years ended December 31, 2010, 2009, and 2008,
respectively. No other customer accounted for more than 10% of
our operating revenue during any of the three years ended
December 31, 2010, 2009, or 2008.
Revenue
Equipment
We operate a modern company tractor fleet to help attract and
retain drivers, promote safe operations, and reduce maintenance
and repair costs. We believe our modern fleet offers at least
four key advantages over competitors with older fleets. First,
newer tractors typically have lower operating costs. Second,
newer tractors require fewer repairs and are available for
dispatch more of the time. Third, newer tractors typically are
more attractive to drivers. Fourth, we believe many competitors
that allowed their fleets to age excessively will face a
deferred capital expenditure spike accompanied by difficulty in
replacing their tractors because new tractor prices have
increased, the value received for the old tractors will be low,
and financing sources have diminished. According to ACT
Research, the average age of Class 8 trucks on the road is
6.7 years, whereas the average age of our fleet is
3.5 years. The following table shows the type and age of
our owned and leased tractors and trailers at December 31,
2010:
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Model Year
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Tractors(1)
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Trailers
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2011
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848
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2,865
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2010
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529
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110
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2009
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3,905
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4,288
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2008
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3,170
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1,813
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2007
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2,093
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40
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2006
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372
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5,445
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2005
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515
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1,579
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2004
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244
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1,087
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2003
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161
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2,936
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2002 and prior
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386
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28,829
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Total
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12,223
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48,992
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(1) |
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Excludes 3,876 owner-operator tractors. |
We typically purchase tractors and trailers manufactured to our
specifications. We follow a comprehensive maintenance program
designed to reduce downtime and enhance the resale value of our
equipment. In addition to our major maintenance facilities in
Phoenix, Arizona, Memphis, Tennessee, and Greer, South Carolina,
we perform routine servicing and maintenance of our equipment at
most of our regional terminal facilities, in an effort to avoid
costly on-road repairs and deadhead miles. The contracts
governing our equipment purchases typically contain
specifications of equipment, projected delivery dates, warranty
terms, and trade or return conditions, and are typically
cancelable upon 60 to 90 days notice without penalty.
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Our current tractor trade-in cycle ranges from approximately
48 months to 72 months, depending on equipment type
and usage. Management believes this tractor trade cycle is
appropriate based on current maintenance costs, capital
requirements, prices of new and used tractors, and other
factors, but we will continue to evaluate the appropriateness of
our tractor trade cycle. We balance the lower maintenance costs
of a shorter tractor trade cycle against the lower capital
expenditure and financing costs of a longer tractor trade cycle.
In addition, we seek to improve asset utilization by matching
available tractors with tendered freight and using untethered
trailer tracking to identify the location, loaded status, and
availability for dispatch of our approximately 49,400 trailers
and 5,000 intermodal containers. We believe this information
enables our planners to manage our equipment more efficiently by
enabling drivers to quickly locate the assigned trailer, reduce
unproductive time during available hours of service, and bill
for detention charges when appropriate. It also allows us to
reduce cargo losses through trailer theft prevention, and to
mitigate cargo claims through recovery of stolen trailers.
Employees
Terminal
staff
Our larger terminals are staffed with terminal managers, fleet
managers, driver managers, and customer service representatives.
Our terminal managers work with driver managers, customer
service representatives, and other operations personnel to
coordinate the needs of both our customers and our drivers.
Terminal managers also are responsible for soliciting new
customers and serving existing customers in their areas. Each
fleet manager supervises approximately five driver managers at
our larger terminals. Each driver manager is responsible for the
general operation of approximately 40 trucks and their drivers,
focusing on driver retention, productivity per truck, routing,
fuel consumption and efficiency, safety, and scheduled
maintenance. Customer service representatives are assigned
specific customers to ensure specialized, high-quality service
and frequent customer contact.
Company
drivers
All of our drivers must meet or exceed specific guidelines
relating primarily to safety records, driving experience, and
personal evaluations, including a physical examination and
mandatory drug and alcohol testing. Upon being hired, drivers
are to be trained in our policies and operations, safety
techniques, and fuel-efficient operation of the equipment. All
new drivers must pass a safety test and have a current
Commercial Drivers License, or CDL. In addition, we have ongoing
driver efficiency and safety programs to ensure that our drivers
comply with our safety procedures.
Senior management is actively involved in the development and
retention of drivers. Recognizing the continuing need for
qualified drivers, we have established five driver training
academies across the U.S. Our academies are strategically
located in areas where external driver-training organizations
are lacking. In other areas of the U.S., we have contracted with
driver-training schools, which are managed by outside
organizations such as local community colleges. Candidates for
the schools must be at least 23 years old with a minimum of
a high school education or equivalent, pass a basic skills test,
and pass the Department of Transportation, or DOT, physical
examination, which includes drug and alcohol screening. Students
are required to complete three weeks of instructor-led
study/training and then spend a minimum of 240 behind the wheel
hours, driving with an experienced trainer.
In order to attract and retain qualified drivers and promote
safe operations, we purchase high quality tractors equipped with
optional comfort and safety features, such as air ride
suspension, air conditioning, high quality interiors, power
steering, engine brakes, and raised-roof, double-sleeper cabs.
We base our drivers at terminals and monitor each drivers
location on our computer system. We use this information to
schedule the routing for our drivers so they can return home
regularly. The majority of company drivers are compensated based
on dispatched miles, loading/unloading, and number of stops or
deliveries, plus bonuses. The drivers base pay per mile
increases with the drivers length of experience, as
augmented by the ranking system
101
described below. Drivers employed by us are eligible to
participate in company-sponsored health, life, and dental
insurance plans and are eligible to participate in our 401(k)
plan subject to customary enrollment terms.
We believe our driver-training programs, driver compensation,
regionalized operations, trailer tracking, and late-model
equipment provide important incentives to attract and retain
qualified drivers. We have made a concerted effort to reduce the
level of driver turnover and increase our driver satisfaction.
We have recently implemented a driver ranking program that ranks
drivers into five categories based on criteria for safety, legal
operation, customer service, and number of miles driven. The
higher rankings provide drivers with additional benefits
and/or
privileges, such as special recognition, the ability to
self-select freight, and the opportunity for increased pay when
pay raises are given. We monitor the effectiveness of our driver
programs by measuring driver turnover and actively addressing
issues that may cause driver turnover to increase. Given the
recent recession and softness in the labor market since the
beginning of 2008, voluntary driver turnover has been
significantly lower than historical levels. We have taken
advantage of this opportunity to upgrade our driving workforce,
but no assurance can be given that a shortage of qualified
drivers will not adversely affect us in the future.
Employment
As of December 31, 2010, we employed approximately
18,000 employees, of whom approximately 14,300 were drivers
(including driver trainees), 1,300 were technicians and other
equipment maintenance personnel, and the balance were support
personnel, such as corporate managers and sales and
administrative personnel. As of December 31, 2010, our 700
Trans-Mex drivers were our only employees represented by a union.
Safety
and Insurance
We take pride in our safety-oriented culture and maintain an
active safety and loss-prevention program at each of our
terminals. We have terminal and regional safety management
personnel that focus on loss prevention for their designated
facilities. We also equip our tractors with many safety
features, such as roll-over stability devices and critical-event
recorders, to help prevent, or reduce the severity of, accidents.
We self-insure for a significant portion of our claims exposure
and related expenses. We currently carry six main types of
insurance, which generally have the following self-insured
retention amounts, maximum benefits per claim, and other
limitations:
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automobile liability, general liability, and excess
liability $150.0 million of coverage per
occurrence through October 31, 2010 and $200.0 million
beginning November 1, 2010, subject to a $10.0 million
per-occurrence, self-insured retention;
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cargo damage and loss $2.0 million limit per
truck or trailer with a $10.0 million limit per occurrence;
provided that there is a $250,000 limit for tobacco loads
and a $250,000 self-insured retention for all perils;
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property and catastrophic physical damage
$150.0 million limit for property and $100.0 million
limit for vehicle damage, excluding over the road exposures,
subject to a $1.0 million self-insured retention;
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workers compensation/employers liability
statutory coverage limits; employers liability of
$1.0 million bodily injury by accident and disease, subject
to a $5.0 million self-insured retention for each accident
or disease;
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employment practices liability primary policy with a
$10.0 million limit subject to a $2.5 million
self-insured retention; we also have an excess liability policy
that provides coverage for the next $7.5 million of
liability for a total coverage limit of
$17.5 million; and
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health care we self-insure for the first $400,000
through December 31, 2010 and $500,000 beginning
January 1, 2011, of each employee health care claim and
maintain commercial insurance for the balance.
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102
In June 2006, we started to insure certain casualty risks
through our wholly-owned captive insurance company, Mohave. In
addition to insuring a proportionate share of our corporate
casualty risk, Mohave provides insurance coverage to certain of
our and our affiliated companies owner-operators in
exchange for insurance premiums paid to Mohave by the
owner-operators. In February 2010, we initiated operations of a
second wholly-owned captive insurance subsidiary, Red Rock Risk
Retention Group, Inc., or Red Rock. Beginning in 2010, Red Rock
and Mohave each insured a share of our automobile liability risk.
While under dispatch and furthering our business, our
owner-operators are covered by our liability coverage and
self-insurance retentions. However, each is responsible for
physical damage to his or her own equipment, occupational
accident coverage, liability exposure while the truck is used
for non-company purposes, and, in the case of fleet operators,
any applicable workers compensation requirements for their
employees.
We regulate the speed of our company tractors to a maximum of
62 miles per hour and have adopted a speed limit of
68 miles per hour for owner-operator tractors through their
contractual terms with us. These adopted speed limits are below
the limits established by statute in many states. We believe our
adopted speed limits reduce the frequency and severity of
accidents, enhance fuel efficiency, and reduce maintenance
expense, when compared to operating without our imposed speed
limits. Substantially all of our company tractors are equipped
with electronically-controlled engines that are set to limit the
speed of the vehicle.
Fuel
We actively manage our fuel purchasing network in an effort to
maintain adequate fuel supplies and reduce our fuel costs. In
2010, we purchased approximately 17% of our fuel in bulk at 36
Swift and dedicated customer locations across the United States
and Mexico and substantially all of the rest of our fuel through
a network of retail truck stops with which we have negotiated
volume purchasing discounts. The volumes we purchase at
terminals and through the fuel network vary based on procurement
costs and other factors. We seek to reduce our fuel costs by
routing our drivers to truck stops when fuel prices at such
stops are cheaper than the bulk rate paid for fuel at our
terminals. We store fuel in underground storage tanks at four of
our bulk fueling terminals and in above-ground storage tanks at
our other bulk fueling terminals. In addition, we store fuel for
our use at the Salt Lake City, Utah and Houston, Texas terminal
locations of Central Refrigerated Services, Inc., or Central
Refrigerated, and Central Freight Lines, Inc., respectively,
which are transportation companies controlled by Mr. Moyes.
We believe that we are in substantial compliance with applicable
environmental laws and regulations relating to the storage of
fuel.
Shortages of fuel, increases in fuel prices, or rationing of
petroleum products could have a material adverse effect on our
operations and profitability. In response to increases in fuel
costs, we utilize a fuel surcharge program to pass on the
majority of the increases in fuel costs to our customers. We
believe that our most effective protection against fuel cost
increases is to maintain a fuel-efficient fleet and to continue
our fuel surcharge program. However, there can be no assurance
that fuel surcharges will adequately cover potential future
increases in fuel prices. We generally have not used derivative
instruments as a hedge against higher fuel costs in the past,
but continue to evaluate this possibility. We have contracted
with some of our fuel suppliers to buy limited quantities of
fuel at a fixed price or within banded pricing for a specific
period, usually not exceeding twelve months, to mitigate the
impact of rising fuel costs on miles not covered by fuel
surcharges.
Seasonality
In the transportation industry, results of operations generally
show a seasonal pattern. As customers ramp up for the holiday
season at year-end, the late third and fourth quarters have
historically been our strongest volume quarters. As customers
reduce shipments after the winter holiday season, the first
quarter has historically been a lower volume quarter for us than
the other three quarters. In 2008 and 2009, the traditional
surge in volume in the third and fourth quarters did not occur
due to the economic recession while the increase in volumes in
the second half of 2010 was muted as a result of the sharp
increase in demand in the second quarter of 2010. In the eastern
and midwestern United States, and to a lesser extent in the
western United
103
States, during the winter season, our equipment utilization
typically declines and our operating expenses generally
increase, with fuel efficiency declining because of engine
idling and harsh weather sometimes creating higher accident
frequency, increased claims, and more equipment repairs. Our
revenue also may be affected by bad weather and holidays as a
result of curtailed operations or vacation shutdowns, because
our revenue is directly related to available working days of
shippers. From time to time, we also suffer short-term impacts
from weather-related events such as tornadoes, hurricanes,
blizzards, ice storms, floods, fires, earthquakes, and
explosions that could harm our results of operations or make our
results of operations more volatile.
Regulation
Our operations are regulated and licensed by various government
agencies in the United States, Mexico, and Canada. Our company
drivers and owner-operators must comply with the safety and
fitness regulations of the DOT, including those relating to
drug- and alcohol-testing and
hours-of-service.
Weight and equipment dimensions also are subject to government
regulations. We also may become subject to new or more
restrictive regulations relating to fuel emissions,
drivers
hours-of-service,
driver eligibility requirements, on-board reporting of
operations, ergonomics, and other matters affecting safety or
operating methods. Other agencies, such as the Environmental
Protection Agency, or EPA, and DHS, also regulate our equipment,
operations, and drivers.
The DOT, through the Federal Motor Carrier Administration,
imposes safety and fitness regulations on us and our drivers.
Rules that limit driver
hours-of-service
were adopted by the FMCSA in 2004 and subsequently modified in
2005 before portions of the rules were vacated by a federal
court in July 2007. Two of the key portions that were vacated
include the expansion of the driving day from 10 hours to
11 hours, and the
34-hour
restart, which allowed drivers to restart calculations of
the weekly time limits after the driver had at least 34
consecutive hours off duty. In November 2008, the FMCSA
published its final rule, which retains the
11-hour
driving day and the
34-hour
restart. However, advocacy groups have continually challenged
the final rule, and the
hours-of-service
rules are still under review by the FMCSA. In April 2010, the
FMCSA issued a final rule applicable to carriers with a history
of serious
hours-of-service
violations, which includes new performance standards for
electronic, on-board recorders (which record information
relating to
hours-of-service,
among other information) installed on or after June 4,
2012. In September 2010, the U.S. Court of Appeals for the
District of Columbia Circuit ordered the FMCSA to issue a
proposed rule by the end of 2010 on supporting documents for
hours-of-service
compliance. The FMCSA submitted a proposed rule which, among
other things, considers a potential reduction in the driving day
from 11 hours to 10 hours and proposes additional
specified break times within the 34 hour restart period
which could limit driver availability. It is anticipated that a
final rule will be proposed in 2011. If and when a final rule is
submitted, there will be a grace period allowing companies to
adjust prior to full implementation. We believe a decision to
significantly change the
hours-of-service
final rule would decrease productivity and cause some loss of
efficiency, as drivers and shippers may need to be retrained,
computer programming may require modifications, additional
drivers may need to be employed, additional equipment may need
to be acquired, and some shipping lanes may need to be
reconfigured.
CSA introduces a new enforcement and compliance model that will
rank both fleets and individual drivers on seven categories of
safety-related data and will eventually replace the current
Safety Status measurement system, or SafeStat. The seven
categories of safety-related data, known as Behavioral Analysis
and Safety Improvement Categories, or BASICs, include Unsafe
Driving, Fatigued Driving
(Hours-of-Service),
Driver Fitness, Controlled Substances/Alcohol, Vehicle
Maintenance, Cargo-Related, and Crash Indicator. Under the new
regulations, the proposed methodology for determining a
carriers DOT safety rating will be expanded. Although
certain BASICs information has been made available to carriers
and the public, the current SafeStat measurement system will
remain in effect until final rules for BASICs are adopted. There
is currently no proposed rulemaking with respect to BASICs, but
such rulemaking is anticipated sometime in 2011. Delays already
have taken place in the implementation and enforcement dates.
The published results of our CSA rankings preview score us in
the acceptable level in each safety-related category, although
these scores are preliminary and are subject to change by the
FMCSA. There is a possibility that a worsening of our CSA
104
rankings could lead to an adverse impact on our DOT safety
rating, but we are preparing for CSA through evaluation of
existing programs and training our drivers and potential drivers
on CSA standards.
The FMCSA also is considering revisions to the existing rating
system and the safety labels assigned to motor carriers
evaluated by the DOT. We currently have a satisfactory SafeStat
DOT rating, which is the best available rating under the current
safety rating scale. Under the revised rating system being
considered by the FMCSA, our safety rating would be evaluated
more regularly, and our safety rating would reflect a more
in-depth assessment of safety-based violations.
Finally, proposed FMCSA rules and practices followed by
regulators may require carriers receiving adverse compliance
reviews to install electronic, on-board recorders in their
tractors (paperless logs). As noted under the heading
Operations, above, we are already in the
process of installing new Qualcomm units on our tractors, which
will include electronic, on-board recorders, in conjunction with
our efforts to improve efficiency and communications with
drivers and owner-operators.
The Transportation Security Administration, or TSA, has adopted
regulations that require a determination by the TSA that each
driver who applies for or renews his or her license for carrying
hazardous materials is not a security threat. This could reduce
the pool of qualified drivers, which could require us to
increase driver compensation, limit our fleet growth, or allow
trucks to be idled. These regulations also could complicate the
matching of available equipment with hazardous material
shipments, thereby increasing our response time on customer
orders and our deadhead miles. As a result, it is possible we
may fail to meet the needs of our customers or may incur
increased expenses to do so.
We are subject to various environmental laws and regulations
dealing with the hauling and handling of hazardous materials,
fuel storage tanks, emissions from our vehicles and facilities,
engine-idling, discharge and retention of storm water, and other
environmental matters that involve inherent environmental risks.
We have instituted programs to monitor and control environmental
risks and maintain compliance with applicable environmental
laws. As part of our safety and risk management program, we
periodically perform internal environmental reviews. We are a
Charter Partner in the EPAs SmartWay Transport
Partnership, a voluntary program promoting energy efficiency and
air quality. We believe that our operations are in substantial
compliance with current laws and regulations and do not know of
any existing environmental condition that would reasonably be
expected to have a material adverse effect on our business or
operating results. If we are found to be in violation of
applicable laws or regulations, we could be subject to costs and
liabilities, including substantial fines or penalties or civil
and criminal liability, any of which could have a material
adverse effect on our business and operating results.
We maintain bulk fuel storage and fuel islands at many of our
terminals. We also have vehicle maintenance, repair, and washing
operations at some of our facilities. Our operations involve the
risks of fuel spillage or seepage, discharge of contaminants,
environmental damage, and hazardous waste disposal, among
others. Some of our operations are at facilities where soil and
groundwater contamination have occurred, and we or our
predecessors have been responsible for remediating environmental
contamination at some locations.
We would be responsible for the cleanup of any releases caused
by our operations or business, and in the past we have been
responsible for the costs of clean up of cargo and diesel fuel
spills caused by traffic accidents or other events. We transport
a small amount of environmentally hazardous materials. We
generally transport only hazardous material rated as
low-to-medium-risk,
and less than 1% of our total shipments contain any hazardous
materials. If we are found to be in violation of applicable laws
or regulations, we could be subject to liabilities, including
substantial fines or penalties or civil and criminal liability.
We have paid penalties for spills and violations in the past.
EPA regulations limiting exhaust emissions became effective in
2002 and became more restrictive for engines manufactured in
2007 and again for engines manufactured after January 1,
2010. On May 21, 2010, President Obama signed an executive
memorandum directing the National Highway Traffic Safety
Administration, or NHTSA, and the EPA to develop new, stricter
fuel-efficiency standards for heavy trucks. On October 25,
2010, the NHTSA and the EPA proposed regulations that regulate
fuel efficiency and greenhouse gas emissions beginning in 2014
through 2018. California adopted new performance requirements
for diesel
105
trucks, with targets to be met between 2011 and 2023. In
December 2008, California also adopted new trailer regulations,
which require all 53-foot or longer box-type trailers (dry vans
and refrigerated vans) that operate at least some of the time in
California (no matter where they are registered) to meet
specific aerodynamic efficiency requirements when operating in
California. California-based refrigerated trailers were required
to register with California Air Regulations Board by
July 31, 2009, and enforcement for those trailers began in
August 2009. Beginning January 1, 2010, 2011 model year and
newer 53-foot or longer box-type trailers subject to the
California regulations were required to be either SmartWay
certified or equipped with low-rolling, resistance tires and
retrofitted with SmartWay-approved, aerodynamic technologies.
Beginning December 31, 2012, pre-2011 model year 53-foot or
longer box-type trailers (with the exception of certain 2003 to
2008 refrigerated van trailers) must meet the same requirements
as 2011 model year and newer trailers or have prepared and
submitted a compliance plan, based on fleet size, that allows
them to phase in their compliance over time. Compliance
requirements for 2003 to 2008 refrigerated van trailers will be
phased in between 2017 and 2019. Federal and state lawmakers
also have proposed potential limits on carbon emissions under a
variety of climate-change proposals. Compliance with such
regulations has increased the cost of our new tractors, may
increase the cost of any new trailers that will operate in
California, may require us to retrofit certain of our pre-2011
model year trailers that operate in California, and could impair
equipment productivity and increase our operating expenses.
These adverse effects, combined with the uncertainty as to the
reliability of the newly-designed, diesel engines and the
residual values of these vehicles, could materially increase our
costs or otherwise adversely affect our business or operations.
Certain states and municipalities continue to restrict the
locations and amount of time where diesel-powered tractors, such
as ours, may idle, in order to reduce exhaust emissions. These
restrictions could force us to alter our operations.
In addition, increasing efforts to control emissions of
greenhouse gases are likely to have an impact on us. The EPA has
announced a finding relating to greenhouse gas emissions that
may result in promulgation of greenhouse gas air quality
standards. Federal and state lawmakers are also considering a
variety of climate-change proposals. New greenhouse gas
regulations could increase the cost of new tractors, impair
productivity, and increase our operating expenses.
Properties
Our headquarters is owned by the Company and situated on
approximately 118 acres in the southwestern part of
Phoenix, Arizona. Our headquarters consists of a three story
administration building with 126,000 square feet of office
space; repair and maintenance buildings with 106,000 square
feet; a 20,000 square-foot drivers center and
restaurant; an 8,000 square-foot recruiting and training
center; a 6,000 square foot warehouse; a
140,000 square-foot, three-level parking facility; a
two-bay truck wash; and an
eight-lane
fueling facility.
We have terminals throughout the continental United States and
Mexico. A terminal may include customer service, marketing,
fuel, and repair facilities. We also operate driver training
schools in Phoenix, Arizona and several other cities. We believe
that substantially all of our property and equipment is in good
condition, subject to normal wear and tear, and that our
facilities have sufficient capacity to meet our current needs.
From time to time, we may invest in additional facilities to
meet the needs of our business as we
106
pursue additional growth. The following table provides
information regarding our 34 major terminals in the United
States and Mexico, as well as our driving academies and certain
other locations:
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Owned or
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Location
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Leased
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Description of Activities at Location
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Western region
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Arizona Phoenix
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Owned
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Customer Service, Marketing, Administration, Driver Training
School
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California Fontana
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Owned
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Customer Service, Marketing, Fuel, Repair
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California Lathrop
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Owned
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Customer Service, Marketing, Fuel, Repair
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California Mira Loma
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Owned
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Customer Service, Fuel, Repair
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California Otay Mesa
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Owned
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Customer Service
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California Wilmington
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Owned
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Fuel, Repair
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California Willows
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Owned
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Customer Service, Fuel, Repair
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Colorado Denver
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Owned
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Customer Service, Marketing, Fuel, Repair
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Idaho Lewiston
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Owned/Leased
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Customer Service, Marketing, Fuel, Repair, Driver Training School
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Nevada Sparks
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Owned
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Customer Service, Fuel, Repair
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New Mexico Albuquerque
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Owned
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Customer Service, Fuel, Repair
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Oklahoma Oklahoma City
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Owned
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Customer Service, Marketing, Fuel, Repair
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Oregon Troutdale
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Owned
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Customer Service, Marketing, Fuel, Repair
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Texas El Paso
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Owned
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Customer Service, Marketing, Fuel, Repair
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Texas Houston
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Leased
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Customer Service, Repair, Fuel
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Texas Lancaster
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Owned
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Customer Service, Marketing, Fuel, Repair
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Texas Laredo
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Owned
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Customer Service, Marketing, Fuel, Repair
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Texas San Antonio
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Leased
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Driver Training School
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Utah Salt Lake City
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Owned
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Customer Service, Marketing, Fuel, Repair
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Washington Sumner
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Owned
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Customer Service, Marketing, Fuel, Repair
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Eastern region
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Florida Ocala
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Owned
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Customer Service, Marketing, Fuel, Repair
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Georgia Decatur
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Owned
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Customer Service, Marketing, Fuel, Repair
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Illinois Manteno
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Owned
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Customer Service, Fuel, Repair
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Indiana Gary
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Owned
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Customer Service, Fuel, Repair
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Kansas Edwardsville
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Owned
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Customer Service, Marketing, Fuel, Repair
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Michigan New Boston
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Owned
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Customer Service, Marketing, Fuel, Repair
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Minnesota Inver Grove Heights
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Owned
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Customer Service, Marketing, Fuel, Repair
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New York Syracuse
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Owned
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Customer Service, Marketing, Fuel, Repair
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Ohio Columbus
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Owned
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Customer Service, Marketing, Fuel, Repair
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Pennsylvania Jonestown
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Owned
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Customer Service, Fuel, Repair
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South Carolina Greer
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Owned
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Customer Service, Marketing, Fuel, Repair
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Tennessee Memphis
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Owned
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Customer Service, Marketing, Fuel, Repair
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Tennessee Millington
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Leased
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Driver Training School
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Virginia Richmond
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Owned
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Customer Service, Marketing, Fuel, Repair, Driver Training School
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Wisconsin Town of Menasha
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Owned
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Customer Service, Marketing, Fuel, Repair
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Mexico
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Tamaulipas Nuevo Laredo
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Owned
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Customer Service, Marketing, Fuel, Repair
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Sonora Nogales
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Leased
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Customer Service, Repair
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Nuevo Leon Monterrey
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Owned
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Customer Service, Administration
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In addition to the facilities listed above, we own parcels of
vacant land as well as several non-operating facilities in
various locations around the United States, and we maintain
various drop yards throughout the United States and Mexico. As
of December 31, 2010, our aggregate monthly rent for all
leased properties was $226,231 with varying terms expiring
through October 2019. Several of our properties are, or will be,
encumbered by mortgages or deeds of trust securing our senior
secured credit facility and the notes.
Legal
Proceedings
We are involved in litigation and claims primarily arising in
the normal course of business, which include claims for personal
injury or property damage incurred in the transportation of
freight. Our insurance program for liability, physical damage,
and cargo damage involves self-insurance with varying risk
retention levels. Claims in excess of these risk retention
levels are covered by insurance in amounts that management
considers to be adequate. We expense legal fees as incurred and
make a provision for the uninsured portion of contingent losses
when it is both probable that a liability has been incurred and
the amount of the loss can be reasonably estimated. Based on its
knowledge of the facts and, in certain cases, advice of outside
counsel, management believes the resolution of claims and
pending litigation, taking into account existing reserves, will
not have a material adverse effect on us. See
Safety and Insurance. Moreover, the
results of complex
107
legal proceedings are difficult to predict and the
Companys view of these matters may change in the future as
the litigation and events related thereto unfold. In addition,
we are involved in the following litigation:
2004
owner-operator class action litigation
On January 30, 2004, a class action lawsuit was filed by
Leonel Garza on behalf of himself and all similarly situated
persons against Swift Transportation: Garza vs. Swift
Transportation Co., Inc., Case
No. CV07-0472.
The putative class originally involved certain owner-operators
who contracted with us under a 2001 Contractor Agreement that
was in place for one year. The putative class is alleging that
we should have reimbursed owner-operators for actual miles
driven rather than the contracted and industry standard
remuneration based upon dispatched miles. The trial court denied
plaintiffs petition for class certification, the plaintiff
appealed, and on August 6, 2008, the Arizona Court of
Appeals issued an unpublished Memorandum Decision reversing the
trial courts denial of class certification and remanding
the case back to the trial court. On November 14, 2008, we
filed a petition for review to the Arizona Supreme Court
regarding the issue of class certification as a consequence of
the denial of the Motion for Reconsideration by the Court of
Appeals. On March 17, 2009, the Arizona Supreme Court
granted our petition for review, and on July 31, 2009, the
Arizona Supreme Court vacated the decision of the Court of
Appeals opining that the Court of Appeals lacked automatic
appellate jurisdiction to reverse the trial courts
original denial of class certification and remanded the matter
back to the trial court for further evaluation and
determination. Thereafter, plaintiff renewed his 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. We filed a petition to
the Arizona Court of Appeals to dismiss class certification,
urging dismissal on several grounds including, but not limited
to, the lack of an employee class representative, and because
the named owner-operator class representative only contracted
with us for a
3-month
period under a
one-year
contract that no longer exists. We intend to pursue all
available appellate relief supported by the record, which we
believe demonstrates that the class is improperly certified and,
further, that the claims raised have no merit or are subject to
mandatory arbitration. The Maricopa County trial courts
decision pertains only to the issue of class certification, and
we retain all of our defenses against liability and damages. The
final disposition of this case and the impact of such final
disposition cannot be determined at this time.
Driving
academy class action litigation
On March 11, 2009, a class action lawsuit was filed by
Michael Ham, Jemonia Ham, Dennis Wolf, and Francis Wolf on
behalf of themselves and all similarly situated persons against
Swift Transportation: Michael Ham, Jemonia Ham, Dennis Wolf
and Francis Wolf v. Swift Transportation Co., Inc.,
Case
No. 2:09-cv-02145-STA-dkv,
or the Ham Complaint. The case was filed in the United States
District Court for the Western Section of Tennessee Western
Division. The putative class involves former students of our
Tennessee driving academy who are seeking relief against us for
the suspension of their Commercial Drivers Licenses, or CDLs,
and any CDL retesting that may be required of the former
students by the relevant state department of motor vehicles. The
allegations arise from the Tennessee Department of Safety, or
TDOS, having released a general statement questioning the
validity of CDLs issued by the State of Tennessee in connection
with the Swift Driving Academy located in the State of
Tennessee. We have filed an answer to the Ham Complaint. We have
also filed a cross claim against the Commissioner of the TDOS,
or the Commissioner, for a judicial declaration and judgment
that we did not engage in any wrongdoing as alleged in the
complaint and a grant of injunctive relief to compel the
Commissioner to redact any statements or publications that
allege wrongdoing by us and to issue corrective statements to
any recipients of any such publications. The Commissioners
motion to dismiss our cross claim has been dismissed by the
court. The issue of class certification must first be resolved
before the court will address the merits of the case, and we
retain all of our defenses against liability and damages pending
a determination of class certification.
On or about April 23, 2009, two class action lawsuits were
filed against us in New Jersey and Pennsylvania, respectively:
Michael Pascarella, et al. v. Swift Transportation Co.,
Inc., Sharon A. Harrington,
108
Chief Administrator of the New Jersey Motor Vehicle
Commission, and David Mitchell, Commissioner of the Tennessee
Department of Safety, Case
No. 09-1921(JBS),
in the United States District Court for the District of New
Jersey, or the Pascarella Complaint; and Shawn McAlarnen et
al. v. Swift Transportation Co., Inc., Janet Dolan,
Director of the Bureau of Driver Licensing of The Pennsylvania
Department of Transportation, and David Mitchell, Commissioner
of the Tennessee Department of Safety, Case
No. 09-1737
(E.D. Pa.), in the United States District Court for the Eastern
District of Pennsylvania, or the McAlarnen Complaint. Both
putative class action complaints involve former students of our
Tennessee driving academy who are seeking relief against us, the
TDOS, and the state motor vehicle agencies for the threatened
suspension of their CDLs and any CDL retesting that may be
required of the former students by the relevant state department
of motor vehicles. The potential suspension and CDL re-testing
was initiated by certain states in response to the general
statement by the TDOS questioning the validity of CDL licenses
the State of Tennessee issued in connection with the Swift
Driving Academy located in Tennessee. The Pascarella Complaint
and the McAlarnen Complaint are both based upon substantially
the same facts and circumstances as alleged in the Ham
Complaint. The only notable difference among the three
complaints is that both the Pascarella and McAlarnen Complaints
name the local motor vehicles agency and the TDOS as defendants,
whereas the Ham Complaint does not. We deny the allegations of
any alleged wrongdoing and intend to vigorously defend our
position. The McAlarnen Complaint has been dismissed without
prejudice because the McAlarnen plaintiff has elected to pursue
the Director of the Bureau of Driver Licensing of the
Pennsylvania Department of Transportation for damages. We have
filed an answer to the Pascarella Complaint. We have also filed
a cross-claim against the Commissioner for a judicial
declaration and judgment that we did not engage in any
wrongdoing as alleged in the complaint and a request for
injunctive relief to compel the Commissioner to redact any
statements or publications that allege wrongdoing by us and to
issue corrective statements to any recipients of any such
publications. The Commissioners motion to dismiss our
cross claim has been dismissed by the court.
On May 29, 2009, we were served with two additional class
action complaints involving the same alleged facts as set forth
in the Ham Complaint and the Pascarella Complaint. The two
matters are (i) Gerald L. Lott and Francisco Armenta on
behalf of themselves and all others similarly situated v.
Swift Transportation Co., Inc. and David Mitchell the
Commissioner of the Tennessee Department of Safety, Case
No. 2:09-cv-02287,
filed on May 7, 2009 in the United States District Court
for the Western District of Tennessee, or the Lott Complaint;
and (ii) Marylene Broadnax on behalf of herself and all
others similarly situated v. Swift Transportation
Corporation, Case
No. 09-cv-6486-7,
filed on May 22, 2009 in the Superior Court of Dekalb
County, State of Georgia, or the Broadnax Complaint. While the
Ham Complaint, the Pascarella Complaint, and the Lott Complaint
all were filed in federal district courts, the Broadnax
Complaint was filed in state court. As with all of these related
complaints, we have filed an answer to the Lott Complaint and
the Broadnax Complaint. We have also filed a cross-claim against
the Commissioner for a judicial declaration and judgment that we
did not engage in any wrongdoing as alleged in the complaint and
a request for injunctive relief to compel the Commissioner to
redact any statements or publications that allege wrongdoing by
us and to issue corrective statements to any recipients of any
such publications. The Commissioners motion to dismiss our
cross claim has been dismissed by the court.
The Pascarella Complaint, the Lott Complaint, and the Broadnax
Complaint are consolidated with the Ham Complaint in the United
States District Court for the Western District of Tennessee and
discovery is ongoing.
The portion of the Lott complaint against the Commissioner has
been dismissed as a result of a settlement agreement reached
between the approximately 138 Lott class members and the
Commissioner granting the class members 90 days to retake
the test for their CDL.
In connection with the above referenced class action lawsuits,
on June 21, 2009, we filed a Petition for Access to Public
Records against the Commissioner. Since the inception of these
class action lawsuits, we have made numerous requests to the
TDOS for copies of any records that may have given rise to TDOS
questioning the validity of CDLs issued by the State of
Tennessee in connection with the Swift Driving Academy located
in the State of Tennessee. As a consequence of TDOSs
failure to provide any such information, we filed a petition
against TDOS for violation of Tennessees Public Records
Act. In response to our petition for access to public records,
TDOS delivered certain documents to us.
109
We intend to vigorously defend against certification of the
class for all of the foregoing class action lawsuits as well as
the allegations made by the plaintiffs should the class be
certified. For the consolidated case described above, the issue
of class certification must first be resolved before the court
will address the merits of the case, and we retain all of our
defenses against liability and damages pending a determination
of class certification. Based on its knowledge of the facts and
advice of outside counsel, management does not believe the
outcome of this litigation is likely to have a material adverse
effect on us; however, the final disposition of this case and
the impact of such final disposition cannot be determined at
this time.
Owner-operator
misclassification class action litigation
On December 22, 2009, a class action lawsuit was filed
against Swift Transportation and IEL: John Doe 1 and
Joseph Sheer v. Swift Transportation Co., Inc., and
Interstate Equipment Leasing, Inc., Jerry Moyes, and Chad
Killebrew, Case
No. 09-CIV-10376
filed in the United States District Court for the Southern
District of New York, or the Sheer Complaint. The putative class
involves owner-operators alleging that Swift Transportation
misclassified owner-operators as independent contractors in
violation of the federal Fair Labor Standards Act, or FLSA, and
various New York and California state laws and that such
owner-operators should be considered employees. The lawsuit also
raises certain related issues with respect to the lease
agreements that certain owner-operators have entered into with
IEL. At present, in addition to the named plaintiffs,
approximately 200 other current or former owner-operators
have joined this lawsuit. Upon our motion, the matter has been
transferred from the United States District Court for the
Southern District of New York to the United States District
Court in Arizona. On May 10, 2010, plaintiffs filed a
motion to conditionally certify an FLSA collective action and
authorize notice to the potential class members. On
June 23, 2010, plaintiffs filed a motion for a preliminary
injunction seeking to enjoin Swift and IEL from collecting
payments from plaintiffs who are in default under their lease
agreements and related relief. On September 30, 2010, the
District Court granted Swifts motion to compel arbitration
and ordered that the class action be stayed pending the outcome
of arbitration. The Court further denied plaintiffs motion
for preliminary injunction and motion for conditional class
certification. The Court also denied plaintiffs request to
arbitrate the matter as a class. The plaintiff has filed a
petition for a writ of mandamus asking that the District
Courts order be vacated. We intend to vigorously defend
against any arbitration proceedings. The final disposition of
this case and the impact of such final disposition cannot be
determined at this time.
California
employee class action
On March 22, 2010, a class action lawsuit was filed by John
Burnell, individually and on behalf of all other similarly
situated persons against Swift Transportation: John Burnell
and all others similarly situated v. Swift Transportation
Co., Inc., Case No. CIVDS 1004377 filed in the Superior
Court of the State of California, for the County of
San Bernardino, or the Burnell Complaint. On June 3,
2010, upon motion by Swift, the matter was removed to the United
States District Court for the Central District of California,
Case
No. EDCV10-00809-VAP.
The putative class includes drivers who worked for us during the
four years preceding the date of filing alleging that we failed
to pay the California minimum wage, failed to provide proper
meal and rest periods, and failed to timely pay wages upon
separation from employment. The Burnell Complaint is currently
subject to a stay of proceedings pending determination of
similar issues in a case unrelated to Swift, Brinker v.
Hohnbaum, which is currently pending before the California
Supreme Court. We intend to vigorously defend certification of
the class as well as the merits of these matters should the
class be certified. The final disposition of this case and the
impact of such final disposition of this case cannot be
determined at this time.
Environmental
notice
On April 17, 2009, we received a notice from the Lower
Willamette Group, or LWG, advising that there are a total of 250
potentially responsible parties, or PRPs, with respect to
alleged environmental contamination of the Lower Willamette
River in Portland, Oregon designated as the Portland Harbor
Superfund site, or the Site, and that as a previous landowner at
the Site we have been asked to join a group of 60 PRPs and
proportionately contribute to (i) reimbursement of funds
expended by LWG to investigate environmental
110
contamination at the Site and (ii) remediation costs of the
same, rather than be exposed to potential litigation. Although
we do not believe we contributed any contaminants to the Site,
we were at one time the owner of property at the Site and the
Comprehensive Environmental Response, Compensation and Liability
Act imposes a standard of strict liability on property owners
with respect to environmental claims. Notwithstanding this
standard of strict liability, we believe our potential
proportionate exposure to be minimal and not material. No formal
complaint has been filed in this matter. Our pollution liability
insurer has been notified of this potential claim. We do not
believe the outcome of this matter is likely to have a material
adverse effect on us. However, the final disposition of this
matter and the impact of such final disposition cannot be
determined at this time.
California
owner-operator and employee driver class action
On July 1, 2010, a class action lawsuit was filed by
Michael Sanders against Swift Transportation and IEL: Michael
Sanders individually and on behalf of others similarly
situated v. Swift Transportation Co., Inc. and Interstate
Equipment Leasing, Case No. 10523440 in the Superior
Court of California, County of Alameda, or the Sanders
Complaint. The putative class involves both owner-operators and
driver employees alleging differing claims against Swift and
IEL. Many of the claims alleged by both the putative class of
owner-operators and the putative class of employee drivers
overlap the same claims as alleged in the Sheer Complaint with
respect to owner-operators and the Burnell Complaint as it
relates to employee drivers. As alleged in the Sheer Complaint,
the putative class includes owner-operators of Swift during the
four years preceding the date of filing alleging that Swift
misclassified owner-operators as independent contractors in
violation of the federal FLSA and various California state laws
and that such owner-operators should be considered employees. As
also alleged in the Sheer Complaint, the owner-operator portion
of the Sanders Complaint also raises certain related issues with
respect to the lease agreements that certain owner-operators
have entered into with IEL. As alleged in the Burnell Complaint,
the putative class in the Sanders Complaint includes drivers who
worked for us during the four years preceding the date of filing
alleging that we failed to provide proper meal and rest periods,
failed to provide accurate wage statements upon separation from
employment, and failed to timely pay wages upon separation from
employment. The Sanders Complaint also raises two issues with
respect to the owner-operators and two issues with respect to
drivers that were not also alleged as part of either the Sheer
Complaint or the Burnell Complaint. These separate
owner-operator claims allege that Swift failed to provide
accurate wage statements and failed to properly compensate for
waiting times. The separate employee driver claims allege that
Swift failed to reimburse business expenses and coerced driver
employees to patronize the employer. The Sanders Complaint seeks
to create two classes, one which is mostly (but not entirely)
encompassed by the Sheer Complaint and another which is mostly
(but not entirely) encompassed by the Burnell Complaint. Upon
our motion, the Sanders Complaint has been transferred from the
Superior Court of California for the County of Alameda to the
United States District Court for the Northern District of
California. The Sanders matter is currently subject to a stay of
proceedings pending determinations in other unrelated appellate
cases that seek to address similar issues.
The issue of class certification must first be resolved before
the court will address the merits of the case, and we retain all
of our defenses against liability and damages pending a
determination of class certification. We intend to vigorously
defend against certification of the class as well as the merits
of this matter should the class be certified. The final
disposition of this case and the impact of such final
disposition cannot be determined at this time.
111
MANAGEMENT
Executive
Officers and Directors
The following table sets forth the names, ages, and positions of
our executive officers and directors as of December 31,
2010:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Jerry Moyes
|
|
|
66
|
|
|
Chief Executive Officer and Director
|
William Post
|
|
|
60
|
|
|
Chairman
|
Richard H. Dozer
|
|
|
54
|
|
|
Director
|
David Vander Ploeg
|
|
|
52
|
|
|
Director
|
Glenn Brown
|
|
|
67
|
|
|
Director
|
Richard Stocking
|
|
|
41
|
|
|
President
|
Virginia Henkels
|
|
|
42
|
|
|
Executive Vice President, Chief Financial Officer, and Treasurer
|
James Fry
|
|
|
49
|
|
|
Executive Vice President, General Counsel, and Corporate
Secretary
|
Mark Young
|
|
|
53
|
|
|
Executive Vice President Swift Transportation Co. of
Arizona, LLC, President Swift Intermodal
|
Kenneth C. Runnels
|
|
|
46
|
|
|
Executive Vice President, Eastern Region Swift
Transportation Co. of Arizona, LLC
|
Rodney Sartor
|
|
|
55
|
|
|
Executive Vice President, Western Region Swift
Transportation Co. of Arizona, LLC
|
Chad Killebrew
|
|
|
36
|
|
|
Executive Vice President, Business Transformation
Swift Transportation Co. of Arizona, LLC
|
Jerry Moyes is our Chief Executive Officer and a member
of our board of directors. He served as Chief Executive Officer,
President and Chairman of our board of directors from May 2007
when Mr. Moyes took the Company private, until
Mr. Post was appointed Chairman of the board of directors
on December 16, 2010 in connection with our initial public
offering. In 1966, Mr. Moyes formed Common Market
Distribution Corp., which was later merged with Swift
Transportation which he also founded. In 1986, Mr. Moyes
became Chairman of the board, President, and Chief Executive
Officer of Swift Transportation, positions he held until 2005.
In October 2005, Mr. Moyes stepped down from his executive
positions at Swift Transportation, although he continued to
serve as a board member. Mr. Moyes has a history of
leadership and involvement with the transportation and logistics
industry, such as serving as past Chairman and President of the
Arizona Trucking Association, board member and Vice President of
the American Trucking Associations, Inc., and a board member of
the Truckload Carriers Association. Also, Mr. Moyes is a
highly regarded, frequently sought after speaker at logistics
and transportation forums. Mr. Moyes experience,
comprehensive knowledge of the transportation and logistics
services industry and inside perspective of our day to day
operations provides essential insight and guidance to our board
of directors. Mr. Moyes holds complete or significant
ownership interests in, and serves as Chairman of the board of
directors of, numerous other entities, including Central
Refrigerated Services, Inc., Central Freight Lines, Inc., SME
Industries, Inc., Southwest Premier Properties, L.L.C., and
various commercial and residential real estate properties.
Mr. Moyes also served from September 2000 until April 2002
as Chairman of the board of Simon Transportation Services, Inc.,
a former publicly traded trucking company providing nationwide,
predominantly temperature controlled, transportation services
for major shippers. Mr. Moyes graduated from Weber State
University in 1966 with a bachelor of science degree in business
administration. The Weber State College of Education is named
after Mr. Moyes.
Mr. Moyes was a member of the board of directors of the
Phoenix Coyotes of the National Hockey League, or the NHL, from
2002 until 2009 and was the majority owner of the Phoenix
Coyotes from September 2006 until November 2, 2009, when
the assets of the team were purchased by the NHL out of a
bankruptcy filed on May 5, 2009. The bankruptcy proceedings
are continuing and a plan of reorganization has
112
been filed but has not been approved. On March 5, 2010, the
NHL filed a complaint against Mr. Moyes in New York state
court alleging breach of contract and aiding and abetting breach
of fiduciary duty claims arising out of the bankruptcy filing
and an attempt to sell the Coyotes without NHL consent. The NHL
is claiming damages of at least approximately $60 million.
The lawsuit has since been removed to federal court in New York
and transferred to the bankruptcy court for the federal court in
Arizona. Mr. Moyes has filed a motion to dismiss the
NHLs claims and is vigorously defending this action.
Mr. Moyes also served from September 2000 until April 2002
as Chairman of the board of Simon Transportation Services Inc.,
a publicly traded trucking company providing nationwide,
predominantly temperature-controlled, transportation services
for major shippers. Simon Transportation Services Inc. filed for
protection under Chapter 11 of the United States Bankruptcy
Code on February 25, 2002, and was subsequently purchased
from bankruptcy by Central Refrigerated Services, Inc.
In September 2005, the SEC filed a complaint in federal court in
Arizona alleging that Mr. Moyes purchased an aggregate of
187,000 shares of Swift Transportation stock in May 2004
while he was aware of material non-public information.
Mr. Moyes timely filed the required reports of such trades
with the SEC, and voluntarily escrowed funds equal to his
putative profits into a trust established by the company. After
conducting an independent investigation of such purchases and
certain other repurchases made by Swift Transportation that year
at Mr. Moyes direction under its repurchase program,
Swift instituted a stricter insider trading policy and a
pre-clearance process for all trades made by insiders.
Mr. Moyes stepped down as President in November 2004 and as
Chief Executive Officer in October 2005. Mr. Moyes agreed,
without admitting or denying any claims, to settle the SEC
investigation and to the entry of a decree permanently enjoining
him from violating securities laws, and paid approximately
$1.5 million in disgorgement, prejudgment interest, and
penalties.
William Post was appointed Chairman of our board of
directors on December 16, 2010 in connection with the
closing of our initial public offering. He is a member of the
audit committee, compensation committee and is Chair of the
nominating and corporate governance committee. In 2009,
Mr. Post retired as Chairman and Chief Executive Officer of
Pinnacle West Capital Corporation, and retired from its board of
directors in 2010. He joined Arizona Public Service (the largest
subsidiary of Pinnacle West and the largest electric utility in
Arizona) in 1973 and held various officer positions at Arizona
Public Service beginning in 1982, including Vice President and
Controller, Vice President of Finance and Regulation, then in
1997 Chief Operating Officer and President, and Chief Executive
Officer in 1999. Mr. Post joined the board of Arizona
Public Service in 1994 and the board of Pinnacle West in 1997.
He became the Chairman of the board of Pinnacle West in 2001 and
retired from the boards of both APS and Pinnacle West in 2010.
Mr. Post received a bachelor of science degree from Arizona
State University in 1973. He currently serves on the boards of
First Solar, Inc., Translational Genomics Research Institute,
and the Thunderbird School of International Management.
Mr. Posts qualifications to serve as Chairman of our
board of directors include his substantial experience serving as
Chairman on numerous boards of directors, including his current
roles as Chairman of both Blue Cross Blue Shield of Arizona and
the Board of Trustees of Arizona State University, and as a past
Chairman on the boards of Suncor Development Company, Stagg
Information Systems, Nuclear Assurance Corporation, Nuclear
Electric Insurance Limited, the Institute of Nuclear Power, and
El Dorado Investment Company. Mr. Post also served as a
director of Phelps Dodge Corporation from 2001 to 2007.
In addition to his corporate work, Mr. Post has also been
very active in the community serving as Chairman of the board of
the Business Coalition, Greater Phoenix Leadership, Greater
Phoenix Economic Council, Greater Phoenix Chamber of Commerce,
and the United Way campaign. Mr. Post also received a
bachelor of science degree from the Arizona State University in
1973.
Mr. Post has received numerous awards and honors including
the National Americanism Award from the Anti-Defamation League,
the American Heritage Award and an Honorary Doctorate of Letters
from Northern Arizona University.
Richard H. Dozer has served as a director of Swift
Corporation since April 2008. He is Chair of the audit committee
and a member of the compensation committee and nominating and
corporate governance committee. Mr. Dozer is currently
Chairman of GenSpring Family Office Phoenix. Prior
to this role, Mr. Dozer
113
served as principal of CDK Partners from 2006 until 2008.
Mr. Dozer served as President of the Arizona Diamondbacks
Major League Baseball team from its inception in 1995 until
2006, and Vice President and Chief Operating Officer of the
Phoenix Suns National Basketball Association team from 1987
until 1995. Early in his career, he was an audit manager with
Arthur Andersen and served as its Director of Recruiting for the
Phoenix, Arizona office. Mr. Dozer holds a bachelor of
science degree in business administration accounting
from the University of Arizona and is a former certified public
accountant. Mr. Dozer currently serves on the boards of
directors of Blue Cross Blue Shield of Arizona and Viad
Corporation, a publicly traded company that provides exhibition,
event, and retail marketing services, as well as travel and
recreation services in North America, the United Kingdom, and
the United Arab Emirates. Mr. Dozer is presently or has
previously served on many boards, including Teach for
America Phoenix, Phoenix Valley of the Sun
Convention and Visitors Bureau, Greater Phoenix
Leadership, Greater Phoenix Economic Council, ASU-Board of the
Deans Council of 100, Arizona State University MBA
Advisory Council, Valley of the Sun YMCA, Nortust of Arizona,
and others. Mr. Dozers qualifications to serve on our
board of directors include his experience serving as a director
of Viad Corporation, a publicly traded company and his service
as the chair of the audit committee of Blue Cross Blue Shield of
Arizona, and as a member of the audit committee of Viad
Corporation. Mr. Dozer also has financial experience from
his audit manager position and other positions with Arthur
Andersen from 1979 to 1987, during which time he held a
certified public accountant license. In addition, Mr. Dozer
has long-standing relationships within the business, political,
and charitable communities in the State of Arizona.
Glenn Brown was appointed to our board of directors on
December 16, 2010 in connection with our initial public
offering. He is a member of the compensation committee and the
nominating and corporate governance committee. In 2005,
Mr. Brown retired as the Chief Executive Officer of
Contract Freighters Inc., a
U.S.-Mexico
truckload carrier that was sold to Con-way Inc. in 2007, where
Mr. Brown worked since 1976. During his tenure at Contract
Freighters, Mr. Brown also served as President and
Chairman. Prior to working with Contract Freighters,
Mr. Brown was employed by Tri-State Motor Transit from 1966
through 1976. Mr. Brown serves on the boards of directors
of Freeman Health System and the Joplin (Missouri) Humane
Society. Mr. Browns qualifications to serve on our
board of directors include his extensive experience gained in
various roles within the transportation and logistics services
industry, including his service as a past Vice-Chairman of the
American Trucking Associations, Inc., and as a board member of
the Truckload Carriers Association and the Missouri Trucking
Association.
David Vander Ploeg has served as a director of Swift
Corporation since September 2009. He is the Chair of the
compensation committee and a member of the audit committee and
nominating and corporate governance committee. Mr. Vander
Ploeg has served as the Executive Vice President and Chief
Financial Officer of School Specialty, Inc. since April 2008.
Prior to this role, Mr. Vander Ploeg served as Chief
Operating Officer of Dutchland Plastics Corp., from 2007 until
April 2008. Prior to that role, Mr. Vander Ploeg spent
24 years at Schneider National, Inc., a provider of
transportation and logistics services, and was Executive Vice
President Chief Financial Officer from 2004 until
his departure in 2007. Prior to joining Schneider National,
Inc., Mr. Vander Ploeg was a senior auditor for Arthur
Andersen. Mr. Vander Ploeg holds a bachelor of science
degree in accounting and a masters degree in business
administration from the University of Wisconsin-Oshkosh. He is a
past board member at Dutchland Plastics and a member of the
American Institute of Certified Public Accountants and the
Wisconsin Institute of Certified Public Accountants.
Mr. Vander Ploegs qualifications to serve on our
board of directors include his
24-year
career at Schneider National, Inc., where he advanced through
several positions of increasing responsibility and gained
extensive experience in the transportation and logistics
services industry.
Richard Stocking has served as our President since July
2010 and as President and Chief Operating Officer of our
trucking subsidiary, Swift Transportation Co. of Arizona, LLC,
since January 2009. Mr. Stocking served as Executive Vice
President, Sales of Swift from June 2007 until July 2010.
Mr. Stocking previously served as Regional Vice President
of Operations of Swifts Central Region from October 2002
to March 2005, and as Executive Vice President of the Central
Region from March 2005 to June 2007. Prior to these roles,
Mr. Stocking held various operations and sales management
positions with Swift over the preceding 13 years.
114
Virginia Henkels has served as our Executive Vice
President, Treasurer, and Chief Financial Officer since May 2008
and as our Corporate Secretary through May 2010.
Ms. Henkels joined Swift in 2004 and, prior to her current
position, was most recently the Assistant Treasurer and Investor
Relations Officer. Prior to joining Swift, Ms. Henkels
served in various finance and accounting leadership roles for
Honeywell during a
12-year
tenure. During her last six years at Honeywell, Ms. Henkels
served as Director of Financial Planning and Reporting for its
global industrial controls business segment, Finance Manager of
its building controls segment in the United Kingdom, and Manager
of External Corporate Reporting. Ms. Henkels completed her
bachelor of science degree in finance and real estate at the
University of Arizona, obtained her masters degree in
business administration from Arizona State University, and
passed the May 1995 certified public accountant examination.
James Fry has served as our Executive Vice President,
General Counsel, and Corporate Secretary since May 2010.
Mr. Fry joined Swift in January 2008 and prior to his
current position he served as corporate counsel for us through
August 2008 when he became General Counsel and Vice President.
For the five-year period prior to joining us, Mr. Fry
served as General Counsel for the publicly-traded company,
Global Aircraft Solutions, Inc. and its wholly-owned
subsidiaries, Hamilton Aerospace and Worldjet Corporation. In
addition to the foregoing general counsel positions,
Mr. Fry also served for eight years as in-house corporate
counsel for both public and private aviation companies and
worked in private practice in Pennsylvania for seven years prior
to his in-house positions. Mr. Fry also served as a hearing
officer for the county court in Pennsylvania. Mr. Fry
received a bachelors degree with honors from the
Pennsylvania State University and obtained his Juris Doctor from
the Temple University School of Law. Mr. Fry is admitted to
practice law in the State of Pennsylvania and is admitted as
in-house counsel in the State of Arizona.
Mark Young has served as Executive Vice President of
Swift and President of our subsidiary, Swift Intermodal, LLC,
since November 2005. Mr. Young joined us in 2004 and, prior
to his current position, he served as Vice President of Swift
Intermodal, LLC. Prior to joining us, Mr. Young worked in
transportation logistics with Hub Group for five years as Vice
President of National Sales, President of Hub Group in Texas,
and President of Hub Group in Atlanta. Mr. Young was also
employed by CSX Intermodal as Director of Sales for the
southeast, southwest, and Mexico regions for eight years prior
to his employment with Hub Group. Before joining CSX Intermodal,
Mr. Young worked for ABF Freight System, Inc. where he held
a variety of sales, operating, and management positions.
Mr. Young received a bachelor of science in business
administration from the University of Arkansas and is a graduate
of the executive program, Darden School of Business, University
of Virginia. Mr. Young is a member of the Intermodal
Association of North America, National Freight Transportation
Association, National Defense Transportation Association, and
the Traffic Club of New York.
Kenneth C. Runnels has served as Executive Vice
President, Eastern Region Operations of Swift Transportation Co.
of Arizona, LLC since November 2007. Mr. Runnels previously
served as Vice President of Fleet Operations, Regional Vice
President, and various operations management positions from 1983
to June 2006. From June 2006 until his return to Swift,
Mr. Runnels was Vice President of Operations with
U.S. Xpress Enterprises, Inc.
Rodney Sartor has served as Executive Vice President,
Western Region Operations of Swift Transportation Co. of
Arizona, LLC since returning to Swift in May 2007.
Mr. Sartor initially joined us in May 1979. He served as
our Executive Vice President from May 1990 until November 2005,
as Regional Vice President from August 1988 until May 1990, and
as Director of Operations from May 1982 until August 1988. From
November 2005 until May 2007, Mr. Sartor served as Vice
President of Truckload Linehaul Operations for Central Freight
Lines, Inc.
Chad Killebrew has served as our Executive Vice President
of Business Transformation since March 2008. Mr. Killebrew
most recently served as President of IEL from 2005 to 2008, and
as Vice President of our owner-operator division since 2007. He
has held various positions in finance, operations, and
recruiting with Swift and Central Refrigerated Services, Inc.
from 1997 to 2005. Mr. Killebrew received a bachelor of
science degree in finance from the University of Utah and a
masters degree in business administration from Westminster
College. Mr. Killebrew is the nephew of Jerry Moyes.
115
Corporate
Governance Documents
In furtherance of its goals of providing effective governance of
Swifts business and affairs for the long-term benefit of
stockholders and promoting a culture and reputation of the
highest ethics, integrity and reliability, the board of
directors has adopted corporate governance guidelines, charters
for each of the committees of the board of directors, and a code
of business conduct and ethics for directors, officers and
employees of the Company. Each of these documents is available
in the corporate governance section of the Investor Relations
page of our web site at
http://www.swifttrans.com.
Risk
Management and Oversight
Our full board of directors oversees our risk management
process. Our board of directors oversees a company-wide approach
to risk management, carried out by our management. Our full
board of directors determines the appropriate risk for us
generally, assesses the specific risks faced by us, and reviews
the steps taken by management to manage those risks.
While the full board of directors maintains the ultimate
oversight responsibility for the risk management process, its
committees oversee risk in certain specified areas. In
particular, our compensation committee is responsible for
overseeing the management of risks relating to our executive
compensation plans and arrangements, and the incentives created
by the compensation awards it administers. Our audit committee
oversees management of enterprise risks as well as financial
risks, and is responsible for overseeing potential conflicts of
interests. Our nominating and corporate governance committee is
responsible for overseeing the management of risks associated
with the independence of our board of directors. Pursuant to the
board of directors instruction, management regularly
reports on applicable risks to the relevant committee or the
full board of directors, as appropriate, with additional review
or reporting on risks conducted as needed or as requested by our
board of directors and its committees.
Composition
of Board and Board Leadership Structure
Our board of directors currently consists of five members,
William Post, Jerry Moyes, Richard H. Dozer, David Vander Ploeg
and Glenn Brown, all of whom other than Mr. Moyes qualify
as independent directors under the corporate governance
standards of the NYSE and the independence requirements of
Rule 10A-3
of the Securities Exchange Act of 1934 (the Exchange
Act).
Our board of directors requires the separation of the offices of
the Chairman of our board of directors and our Chief Executive
Officer. Currently, our independent Chairman of the board of
directors is William Post. Our board of directors will be free
to choose the Chairman in any way that it deems best for us at
any given point in time, provided that the Chairman not
be our Chief Executive Officer or any other employee of our
company. If the Chairman of the board of directors is not an
independent director, our boards independent directors
will designate one of the independent directors on the board to
serve as lead independent director. In addition, so long as our
Chief Executive Officer is a Permitted Holder or a
Moyes-affiliated person under our certificate of incorporation,
the Chairman of our board of directors must be an independent
director. Conversely, so long as our Chairman is a Permitted
Holder or a Moyes-affiliated person under our certificate of
incorporation, our Chief Executive Officer may not be a
Permitted Holder or a Moyes-affiliated person thereunder. The
duties of the Chairman, or the lead independent director if the
Chairman is not independent, include:
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presiding at all executive sessions of the independent directors;
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presiding at all meetings of our board of directors and the
stockholders (in the case of the lead independent director,
where the Chairman is not present);
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in the case of the lead independent director or the Chairman who
is an independent director, coordinating the activities of the
independent directors;
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preparing board meeting agendas in consultation with the Chief
Executive Officer and lead independent director or Chairman, as
the case may be, and coordinating board meeting schedules;
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116
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authorizing the retention of outside advisors and consultants
who report directly to the board;
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requesting the inclusion of certain materials for board meetings;
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consulting with respect to, and where practicable receiving in
advance, information sent to the board;
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collaborating with the Chief Executive Officer and lead
independent director or Chairman, as the case may be, in
determining the need for special meetings;
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in the case of the lead independent director, acting as liaison
for stockholders between the independent directors and the
Chairman, as appropriate;
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communicating to the Chief Executive Officer, together with the
chairman of the compensation committee, the results of the
boards evaluation of the Chief Executive Officers
performance;
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responding directly to stockholder and other stakeholder
questions and comments that are directed to the Chairman of the
board, or to the lead independent director or the independent
directors as a group, as the case may be; and
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performing such other duties as our board of directors may
delegate from time to time.
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In the absence or disability of the Chairman, the duties of the
Chairman (including presiding at all meetings of our board of
directors and the stockholders) shall be performed and the
authority of the Chairman may be exercised by an independent
director designated for this purpose by our board of directors.
The Chairman of our board of directors (if he or she is an
independent director) or the lead independent director, if any,
may only be removed from such position with the affirmative vote
of a majority of the independent directors, only for the reasons
set forth in our bylaws, including a determination that the
Chairman, or lead independent director, as the case may be, is
not exercising his or her duties in the best interests of Swift
and our stockholders.
Board
Committees
As a result of Mr. Moyes and the various Moyes
childrens trusts controlling a majority of our voting
common stock, we qualify as a controlled company
within the meaning of the corporate governance standards of the
NYSE.
As such, we have the option to elect not to comply with certain
of such listing standards. However, consistent with our goal to
implement strong corporate governance standards, we do not, and
do not intend to, elect to be treated as a controlled
company under the rules of the NYSE.
Our board of directors has an audit committee, compensation
committee, and nominating and corporate governance committee.
Members serve on these committees until their respective
resignations or until otherwise determined by our board of
directors. Our board of directors may from time to time
establish other committees.
Committee memberships are as follows:
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Nominating and Corporate
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Audit Committee
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Compensation Committee
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Governance Committee
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Richard H. Dozer (Chairman)
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David Vander Ploeg (Chairman)
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William Post (Chairman)
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William Post
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William Post
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Richard Dozer
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David Vander Ploeg
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Richard Dozer
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David Vander Ploeg
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Glenn Brown
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Glenn Brown
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117
Audit
Committee
The audit committee, which held ten meetings in 2010, performs
the following functions:
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reviews the audit plans and findings of our independent
registered public accounting firm and our internal audit and
risk review staff, as well as the results of regulatory
examinations, and tracks managements corrective action
plans where necessary;
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reviews our financial statements, including any significant
financial items
and/or
changes in accounting policies, with our senior management and
independent registered public accounting firm;
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reviews our financial risk and control procedures, compliance
programs, and significant tax, legal, and regulatory matters;
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has the sole discretion to appoint annually our independent
registered public accounting firm, evaluate its independence and
performance, and set clear hiring policies for employees or
former employees of the independent registered public accounting
firm; and
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regularly reviews matters and monitors compliance with
procedures with Swifts internal audit department.
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The board of directors has determined that all members of the
audit committee, Richard Dozer, David Vander Ploeg and William
Post, are audit committee financial experts and
independent directors as defined under the rules of
the NYSE and
Rule 10A-3
of the Exchange Act.
Compensation
Committee
The compensation committee, which held four meetings in 2010,
performs the following functions:
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annually reviews corporate goals and objectives relevant to the
compensation of our executive officers and evaluates performance
in light of those goals and objectives;
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approves base salary and other compensation of our executive
officers;
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adopts, oversees, and periodically reviews the operation of all
of Swifts equity-based employee (including management and
director) compensation plans and incentive compensation plans,
programs and arrangements, including stock option grants and
other perquisites and fringe benefit arrangements;
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periodically reviews the outside directors compensation
arrangements to ensure their competitiveness and compliance with
applicable laws; and
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approves corporate goals and objectives and determines whether
such goals are met.
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The board of directors has determined that all members of the
compensation committee, David Vander Ploeg, William Post,
Richard Dozer and Glenn Brown, are non-employee
directors as defined in
Rule 16b-3(b)(3)
under the Exchange Act, and outside directors within
the meaning of Section 162(m)(4)(c)(i) of the Internal
Revenue Code.
Nominating
and Corporate Governance Committee
The nominating and corporate governance committee, which held
four meetings in 2010, performs the following functions:
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is responsible for identifying, screening, and recommending
candidates to the board for board membership;
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advises the board with respect to the corporate governance
principles applicable to us; and
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oversees the evaluation of the board and management.
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118
The board of directors has determined that all members of the
nominating and corporate governance committee, William Post,
Richard Dozer, David Vander Ploeg and Glenn Brown, are
independent directors under the rules of the NYSE.
Corporate
Governance Policy
Our board of directors has adopted a corporate governance policy
to assist the board in the exercise of its duties and
responsibilities and to serve the best interests of us and our
stockholders. A copy of this policy has been posted on our
website at
http://www.swifttrans.com.
These guidelines, which provide a framework for the conduct of
the boards business, provide that:
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directors are responsible for attending board meetings and
meetings of committees on which they serve and to review in
advance of meetings material distributed for such meetings;
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the boards principal responsibility is to oversee and
direct our management in building long-term value for our
stockholders and to assure the vitality of Swift for our
customers, clients, employees, and the communities in which we
operate;
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at least two-thirds of the board shall be independent directors,
and other than our Chief Executive Officer and up to one
additional non-independent director, all of the members of our
board of directors will be independent directors;
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our nominating and corporate governance committee is responsible
for nominating members for election to our board of directors
and will consider candidates submitted by stockholders;
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our board of directors believes that it is important for each
director to have a financial stake in Swift to help align the
directors interests with those of our stockholders;
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although we do not impose a limit to the number of other public
company boards on which a director serves, our board of
directors expects that each member be fully committed to
devoting adequate time to his or her duties to us;
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the independent directors meet in executive session on a regular
basis, but not less than quarterly;
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each of our audit committee, compensation committee, and
nominating and corporate governance committee must consist
solely of independent directors;
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new directors participate in an orientation program and all
directors are encouraged to attend, at our expense, continuing
educational programs to further their understanding of our
business and enhance their performance on our board; and
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our board of directors and its committees will sponsor annual
self-evaluations to determine whether members of the board are
functioning effectively.
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In addition, our governance policy includes a resignation policy
requiring sitting directors to tender resignations if they fail
to obtain a majority vote in uncontested elections.
Business
Code of Ethics
The audit committee and our board of directors have adopted a
business code of ethics (within the meaning of Item 406(b)
of
Regulation S-K)
that applies to our board of directors and all executive
officers, including our Chief Executive Officer, Chief Financial
Officer, Controller, and such other persons designated by our
board of directors or an appropriate committee thereof. The
board believes that these individuals must set an exemplary
standard of conduct for us, particularly in the areas of
accounting, internal accounting control, auditing, and finance.
The code of ethics sets forth ethical standards the designated
officers must adhere to. The business code of ethics is posted
on our website at
http://www.swifttrans.com.
119
Compensation
Committee Interlocks and Insider Participation
During 2009, Mr. Moyes was a member of our compensation
committee while also serving as our Chief Executive Officer and
President. Mr. Moyes no longer serves as a member of our
compensation committee and none of the members of our
compensation committee is an officer or employee of Swift. None
of our executive officers other than Mr. Moyes currently
serves, or in the past year has served, as a member of the board
of directors or compensation committee of any entity that has
one or more executive officers serving on our board of directors
or compensation committee. During fiscal 2010, none of the
members of the compensation committee had any relationship
requiring disclosure under Item 404 of
Regulation S-K.
Director
Compensation
Swift pays only non-employee directors for their services as
directors. Directors who are also officers or employees of the
Company are not eligible to receive any of the compensation
described below.
In calendar year 2010, compensation for non-employee directors
was as follows:
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an annual retainer of $20,000, paid in Company stock, cash or
any combination thereof;
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an annual retainer of $10,000, paid in cash, to the audit
committee Chairman;
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an annual retainer of $5,000, paid in cash, to the compensation
committee Chairman;
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an annual retainer of $5,000, paid in cash, to the nominating
and corporate governance committee Chairman;
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$1,500 for each board of directors meeting attended;
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$1,500 for each committee meeting attended;
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$500 each for each meeting attended telephonically; and
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reimbursement of expenses to attend board of directors and
committee meetings.
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During the fourth quarter of 2010, the compensation committee
reviewed a summary of various compensation packages awarded to
directors of various public companies and determined that the
board of directors compensation would be changed to the
following for 2011:
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an annual retainer of $75,000 paid in cash to the Chairman of
the board of directors;
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an annual retainer of $50,000 paid in cash to non-employee board
of directors members;
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an annual retainer of $10,000, paid in cash, to the audit
committee Chairman;
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an annual retainer of $5,000, paid in cash, to the nominating
and corporate governance committee Chairman;
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an annual retainer of $5,000 paid in cash to the compensation
committee Chairman;
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$5,000 for each board of directors meeting attended in person;
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an annual grant of $35,000 in Class A common stock of the
Company, subject to four year holding requirement from the date
of grant;
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$1,000 for each board of directors meeting attended
telephonically;
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$3,000 for each audit committee meeting attended;
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$1,250 for each compensation committee meeting attended;
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$1,250 for each nominating and corporate governance committee
meeting attended; and
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reimbursement of expenses to attend board of directors and
committee meetings.
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120
The following table provides information for the fiscal year
ended December 31, 2010, regarding all plan and non-plan
compensation awarded to, earned by, or paid to, each person who
served as a director for some portion or all of 2010:
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Fees Earned or
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Name
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Paid in Cash ($)
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Total ($)
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Jerry Moyes(1)
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−
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−
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William Post
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−
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−
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Glen Brown
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−
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−
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Richard H. Dozer(2)
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91,500
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91,500
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David Vander Ploeg(2)
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77,500
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77,500
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Earl Scudder(3)
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12,000
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12,000
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Jeff A. Shumway(4)
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15,000
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15,000
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(1) |
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Jerry Moyes served as our Chairman and Chief Executive Officer
up to December 16, 2010 and previously served as our
Chairman, Chief Executive Officer and President until July 2010.
Employees of Swift who serve as directors receive no additional
compensation, although we may reimburse them for travel and
other expenses. |
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See Executive Compensation 2010 Summary
Compensation Table below for disclosure of
Mr. Moyes compensation as Chief Executive Officer and
President for 2010. |
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$34,000 earned in 2010, but paid in 2011 for each of Messrs.
Dozer and Vander Ploeg. |
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Earl Scudder resigned from our board of directors and all
committees effective July 21, 2010. |
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Jeff A. Shumway resigned from our board of directors and all
committees effective July 21, 2010. |
As of December 31, 2010, each of our non-employee
directors, except for Messrs. Post and Brown, held options
to acquire 4,000 shares of our common stock. In connection
with a
four-for-five
reverse stock split effective on November 29, 2010, the
number of shares of our common stock underlying options held by
our non-employee directors and the corresponding exercise prices
of such options have been proportionately adjusted.
121
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
Introduction
The purpose of this compensation discussion and analysis, or
CD&A, is to provide information about the compensation
earned by our named executive officers (as such term is defined
in the Summary Compensation Table section below) and
to explain our compensation process and philosophy and the
policies and factors that underlie our decisions with respect to
the named executive officers compensation. As we describe
in more detail below, the principal objectives of our executive
compensation strategy are to attract and retain talented
executives, reward strong business results and performance, and
align the interest of executives with our stockholders. In
addition to rewarding business and individual performance, the
compensation program is designed to promote both annual
performance objectives and longer-term objectives.
Processes
and Procedures for Considering and Determining Executive
Compensation
Our compensation committee is responsible for reviewing and
approving the compensation of the Chief Executive Officer and
the other named executive officers. Compensation for our named
executive officers is established based upon the scope of their
responsibilities, experience, and individual and company
performance, taking into account the compensation level from
their recent prior employment, if applicable. Since
July 21, 2010, the compensation committee consists entirely
of non-employee directors as defined in
Rule 16b-3(b)(3)
under the Exchange Act, outside directors within the
meaning of Section 162(m)(4)(c)(i) of the Internal Revenue
Code, and independent directors as defined under the
rules of the NYSE.
The compensation committees responsibilities include, but
are not limited to:
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administering all of Swifts stock-based and other
incentive compensation plans;
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annually reviewing corporate goals and objectives relevant to
the compensation of our named executive officers and evaluating
performance in light of those goals and objectives;
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approving base salary and other compensation of our named
executive officers;
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overseeing and periodically reviewing the operation of all of
Swifts stock-based employee (including management and
director) compensation plans;
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reviewing and adopting all employee (including management and
director) compensation plans, programs, and arrangements,
including stock option grants and other perquisites, and fringe
benefit arrangements;
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periodically reviewing the outside directors compensation
arrangements to ensure their competitiveness and compliance with
applicable laws; and
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approving corporate goals and objectives and determining whether
such goals have been met.
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Role of compensation consultants. The
compensation committee has the authority to obtain advice and
assistance from outside legal, accounting, or other advisors and
consultants as deemed appropriate to assist in the continual
development and evaluation of compensation policies and
determination of compensation awards. We did not utilize outside
consultants in evaluating our compensation policies and awards
during 2010, 2009 or 2008.
Role of management in determining executive
compensation. Our Chief Financial Officer and our
President provide information to the compensation committee on
our financial performance for consideration in determining the
named executive officers compensation. Our Chief Financial
Officer and our President also assist the compensation committee
in recommending salary levels and the type and structure of
other awards.
122
Objectives
of our Compensation Programs
The principal objectives of our executive compensation programs
are to attract, retain, and motivate talented executives, reward
strong business results and performance, and align the
executives interests with stockholder interests. The
objectives are based on the following core principles, which we
explain in greater detail below:
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Business performance
accountability. Compensation should be tied to
our performance in key areas so that executives are held
accountable through their compensation for our performance.
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Individual performance
accountability. Compensation should be tied to an
individuals performance so that individual contributions
to our performance are rewarded.
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Alignment with stockholder
interests. Compensation should be tied to our
performance through stock incentives so that executives
interests are aligned with those of our stockholders.
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Retention. Compensation should be designed to
promote the retention of key employees.
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Competitiveness. Compensation should be
designed to attract, retain, and reward key leaders critical to
our success by providing competitive total compensation.
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Elements
of our Compensation Program
In general, our compensation program consists of three major
elements: base salary, performance-based annual cash incentives,
and long-term incentives designed to promote long-term
performance and key employee retention. Our named executive
officers are not employed pursuant to employment agreements.
Base salary. The compensation committee, with
the assistance of our Chief Executive Officer with respect to
the other named executive officers, annually reviews the base
salary of each named executive officer. If appropriate,
adjustments are made to base salaries as a result. Annual
salaries are based on our performance for the fiscal year and
subjective evaluation of each executives contribution to
that performance.
The following base annual salaries were effective in 2010 for
the named executive officers (including car allowance benefit):
Mr. Moyes $508,400;
Mr. Stocking $408,400;
Ms. Henkels $283,400;
Mr. Runnels $226,400; and
Mr. Sartor $226,384.
Annual cash incentives. Annual incentives in
our compensation program are cash-based. The compensation
committee believes that annual cash incentives promote superior
operational performance, disciplined cost management, and
increased productivity and efficiency that contribute
significantly to positive results for our stockholders. Our
compensation structure provides for annual performance
incentives that are linked to our earnings objectives for the
year and intended to compensate our named executive officers
(other than Mr. Moyes) for our overall financial
performance. Mr. Moyes was not eligible for the annual
performance incentives prior to the completion of our initial
public offering in December 2010. The annual incentive process
involves the following basic steps:
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establishing our overall performance goals;
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setting target incentives for each individual; and
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measuring our actual financial performance against the
predetermined goals to determine incentive payouts.
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The steps for the 2010 annual bonus are described below:
(1) Establishing our performance
goals. For the 2010 annual bonus, the
compensation committee set company-wide performance goals for
the 2010 fiscal year, which were approved by the board of
directors on May 20, 2010. Such goals were set in order to
incentivize management to improve profitability and thereby
increase long-term stockholder value. The bonus payout
percentages were determined based on our meeting specified
Adjusted EBITDA levels. Adjusted EBITDA for this purpose means
net income or loss plus (i) depreciation and
amortization, (ii) interest and derivative interest
123
expense, including other fees and charges associated with
indebtedness, net of interest income, (iii) income taxes,
(iv) non-cash impairments, (v) non-cash equity
compensation expense, (vi) other unusual non-cash items,
and (vii) excludable transaction costs. The 2010 bonus
payout percentages upon attainment of certain levels of Adjusted
EBITDA were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level of Attainment:
|
|
Threshold
|
|
Target
|
|
Stretch
|
|
Maximum
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
Adjusted EBITDA
|
|
$
|
440,000
|
|
|
$
|
450,000
|
|
|
$
|
475,000
|
|
|
$
|
500,000
|
|
Bonus Payout %
|
|
|
50
|
%
|
|
|
100
|
%
|
|
|
150
|
%
|
|
|
200
|
%
|
(2) Setting a target incentive. The 2010
target incentive amounts for each named executive officer (other
than the Chief Executive Officer), expressed as a percentage of
the executives base salary, were based on the
executives job grade. The actual payments were based on
achievement of the specified levels of Adjusted EBITDA set forth
above and individual performance. The actual payments these
named executive officers received corresponds to the percentage
of their individual target incentive multiplied by the
percentage of the corresponding bonus payout, which may have
been adjusted based on overall team performance, terminal or
department performance, and individual performance. The target
incentive for each of the named executive officers (other than
the Chief Executive Officer) for 2010 were as follows: 70% for
Mr. Stocking and 50% for Ms. Henkels and
Messrs. Sartor and Runnels.
(3) Measuring performance. The
compensation committee reviewed Swifts actual performance
against the established goals and determined that the
performance targets to quality for a 2010 bonus were met and,
accordingly, bonuses were paid in 2010.
Long-term incentives. Long-term incentives in
our compensation program are principally stock-based. Our
stock-based incentives in 2010 consisted of stock options
granted under our 2007 Omnibus Incentive Plan and are designed
to promote long-term performance and the retention of key
employees. The compensation committee grants stock options to
individual employees and executives in the form of stock option
grants, in amounts determined based on pay grade. The objective
of the program is to align compensation over a multi-year period
with the interests of our stockholders by motivating and
rewarding the creation and preservation of long-term stockholder
value. The level of long-term incentive compensation is
determined based on an evaluation of competitive factors in
conjunction with total compensation provided to the named
executive officers and the goals of the compensation program
described above.
The options granted to individuals having a salary grade of 31
or above (including all of our named executive officers), or
Tier I options, will vest (i) upon the occurrence of a
sale or a change in control of Swift or, if earlier,
(ii) over a five-year vesting period at a rate of
331/3%
beginning with the third anniversary date of the grant, subject
to continued employment. The options granted to individuals
having a salary grade of 30 and below, or Tier II options,
will vest upon a five-year vesting period at a rate of
331/3%
beginning with the third anniversary date of the grant, subject
to continued employment. To the extent vested, both Tier I
options and Tier II options become exercisable
simultaneously with the closing of the earlier of a sale, or a
change in control of Swift (subject to any applicable blackout
period).
Under our 2007 Omnibus Incentive Plan, our board of directors
approved in October 2007 option awards to a group of employees
based on salary grade. In August 2008 and December 2009,
additional option awards were approved by our board of directors
and granted to groups of employees based on salary grade that
were hired or promoted subsequent to the 2007 grant, including a
December 2009 grant of options for 40,000 shares of our
common stock to Mr. Stocking in connection with his
promotion to Chief Operating Officer. Effective
February 25, 2010, the board of directors approved and
granted options for 1.4 million shares of our common stock
to certain employees at an exercise price of $8.80 per share,
which equaled the fair value of the common stock on the date of
grant. Fair market value was determined by a third-party
valuation analysis performed within 90 days of the date of
grant and considered a number of factors, including our
discounted, projected cash flows, comparative multiples of
similar companies, the lack of liquidity of our common stock,
and certain risks we faced at the time of the valuation. The
options granted on February 25, 2010 included options for
the following number of shares of our common stock for our named
executive officers: Mr. Moyes 0;
Mr. Stocking 32,000;
Ms. Henkels 24,000; Mr. Sartor
12,000; and Mr. Runnels 24,000. On
124
November 29, 2010, our board of directors approved the
conversion of all of Ms. Henkels Tier II options
into Tier I options. In connection with the
four-for-five
reverse stock split effective November 29, 2010, the number
of shares of our common stock underlying the options held by our
named executive officers and the corresponding exercise prices
of such options were proportionately adjusted. Upon the closing
of our initial public offering in December 2010, all outstanding
options held by our named executive officers converted into
options to purchase shares of Class A common stock of Swift
Transportation Company and the exercise price for any options
with an exercise price greater than the initial offering price
of $11.00 per share were decreased to the $11.00 per share
price. Future options may be approved and granted by the
compensation committee and the board of directors.
Compensation
Arrangements for 2011
We intend to continue to grant equity awards under the 2007
Omnibus Incentive Plan and our compensation committee will
determine the specific criteria for future equity grants under
our 2007 Omnibus Incentive Plan. Our 2011 annual cash incentive
bonus program is described below:
(1) Establishing our performance
goals. For the 2011 annual bonus, the
compensation committee set company-wide performance goals for
the 2011 fiscal year, which were approved by the board of
directors in February 2011. Such goals were set in order to
incentivize management to improve profitability and thereby
increase long-term stockholder value. The bonus payout
percentages were determined based on our meeting specified
Adjusted EPS levels. Adjusted EPS for this purpose means
(1) income (loss) before income taxes plus
(i) amortization of the intangibles from our 2007
going-private transaction, (ii) non-cash impairments,
(iii) other unusual non-cash items, (iv) excludable
transaction costs, (v) the
mark-to-market
adjustment on our interest rate swaps that is recognized in the
statement of operations in a given period, and (vi) the
amortization of previous losses recorded in accumulated other
comprehensive income related to the interest rate swaps we
terminated upon our initial public offering and refinancing
transactions in December 2010; (2) reduced by income taxes
at 39%, our normalized effective tax rate; (3) divided by
weighted average diluted shares outstanding. The 2011 bonus
payout percentages upon attainment of certain levels of Adjusted
EPS would be as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level of Attainment:
|
|
Threshold
|
|
Target
|
|
Stretch
|
|
Maximum
|
|
|
(Dollars in thousands)
|
|
Adjusted EPS
|
|
$
|
0.83
|
|
|
$
|
0.94
|
|
|
$
|
1.03
|
|
|
$
|
1.12
|
|
Bonus Payout %
|
|
|
50
|
%
|
|
|
100
|
%
|
|
|
150
|
%
|
|
|
200
|
%
|
(2) Setting a target incentive. The 2011
target incentive amounts for each named executive officer,
expressed as a percentage of the executives base salary,
are based on the executives job grade. The actual payments
will be based on achievement of the specified levels of Adjusted
EPS set forth above and individual performance. The actual
payments these named executive officers receive corresponds to
the percentage of their individual target incentive multiplied
by the percentage of the corresponding bonus payout, which may
be adjusted based on overall team performance, terminal or
department performance, and individual performance. The target
incentive for each of the named executive officers for 2011 are
as follows: 70% for Mr. Stocking and 50% for
Ms. Henkels and Messrs. Sartor and Runnels.
Individual
Agreements with our Named Executive Officers
We have not entered and do not anticipate entering into
employment, change in control or severance agreements with any
of our named executive officers.
Material
Perquisites to our Named Executive Officers
We do not offer any material perquisites.
125
Alignment
of each Element of Compensation and our Decisions regarding that
Element with Overall Compensation Objectives and effect on
Decisions regarding other Elements
Before establishing or recommending executive compensation
payments or awards, the compensation committee considers all the
components of such compensation, including current pay (salary
and bonus), annual and long-term incentive awards, and prior
grants. The compensation committee considers each element in
relation to the others when setting total compensation, with a
goal of setting overall compensation at levels that the
compensation committee believes are appropriate.
Impact
of Taxation and Accounting Considerations on the Decisions
regarding Executive Compensation
The compensation committee also takes into account tax and
accounting consequences of the total compensation program and
the individual components of compensation, and weighs these
factors when setting total compensation and determining the
individual elements of an officers compensation package.
We do not believe that the compensation paid to our named
executive officers is or will be subject to limits of
deductibility under the Internal Revenue Code.
2010
Summary Compensation Table
The following table provides information about compensation
awarded and earned during 2010, 2009 and 2008 by our Chief
Executive Officer, Chief Financial Officer, and the three most
highly compensated executive officers (other than the Chief
Executive Officer and Chief Financial Officer), or collectively,
the named executive officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
Incentive Plan
|
|
All Other
|
|
|
|
|
|
|
|
|
Bonus
|
|
Awards($)
|
|
Compensation ($)
|
|
Compensation ($)
|
|
|
Name and Principal Position
|
|
Year
|
|
Salary ($)
|
|
($)(1)
|
|
(2)
|
|
(3)
|
|
(4)
|
|
Total ($)
|
|
Jerry Moyes,
|
|
|
2010
|
|
|
|
501,292
|
|
|
|
−
|
|
|
|
−
|
|
|
|
−
|
|
|
|
12,274
|
|
|
|
13,566
|
|
Chief Executive Officer
|
|
|
2009
|
|
|
|
490,385
|
|
|
|
−
|
|
|
|
−
|
|
|
|
−
|
|
|
|
10,256
|
|
|
|
500,641
|
|
|
|
|
2008
|
|
|
|
500,000
|
|
|
|
87,500
|
|
|
|
−
|
|
|
|
−
|
|
|
|
10,256
|
|
|
|
597,756
|
|
Virginia Henkels
|
|
|
2010
|
|
|
|
276,292
|
|
|
|
|
|
|
|
100,560
|
|
|
|
283,400
|
|
|
|
9,156
|
|
|
|
669,408
|
|
Executive Vice President and
|
|
|
2009
|
|
|
|
269,711
|
|
|
|
−
|
|
|
|
−
|
|
|
|
−
|
|
|
|
10,256
|
|
|
|
279,967
|
|
Chief Financial Officer
|
|
|
2008
|
|
|
|
235,385
|
|
|
|
34,375
|
|
|
|
776,250
|
|
|
|
|
|
|
|
14,751
|
|
|
|
1,060,761
|
|
Richard Stocking,
|
|
|
2010
|
|
|
|
401,292
|
|
|
|
−
|
|
|
|
134,080
|
|
|
|
571,600
|
|
|
|
9,001
|
|
|
|
1,115,973
|
|
President and Chief
|
|
|
2009
|
|
|
|
386,707
|
|
|
|
−
|
|
|
|
169,500
|
|
|
|
−
|
|
|
|
11,447
|
|
|
|
567,654
|
|
Operating Officer
|
|
|
2008
|
|
|
|
231,985
|
|
|
|
27,248
|
|
|
|
−
|
|
|
|
−
|
|
|
|
13,252
|
|
|
|
272,485
|
|
Rodney Sartor,
|
|
|
2010
|
|
|
|
219,276
|
|
|
|
−
|
|
|
|
50,280
|
|
|
|
226,384
|
|
|
|
10,146
|
|
|
|
506,086
|
|
Executive Vice President
|
|
|
2009
|
|
|
|
213,792
|
|
|
|
−
|
|
|
|
−
|
|
|
|
−
|
|
|
|
10,256
|
|
|
|
224,048
|
|
|
|
|
2008
|
|
|
|
217,984
|
|
|
|
27,248
|
|
|
|
−
|
|
|
|
−
|
|
|
|
10,676
|
|
|
|
255,908
|
|
Kenneth Runnels,
|
|
|
2010
|
|
|
|
219,292
|
|
|
|
|
|
|
|
100,560
|
|
|
|
226,400
|
|
|
|
9,306
|
|
|
|
555,558
|
|
Executive Vice President
|
|
|
2009
|
|
|
|
213,808
|
|
|
|
−
|
|
|
|
−
|
|
|
|
−
|
|
|
|
10,909
|
|
|
|
224,717
|
|
|
|
|
2008
|
|
|
|
218,000
|
|
|
|
27,250
|
|
|
|
931,500
|
|
|
|
−
|
|
|
|
55,311
|
|
|
|
1,232,061
|
|
|
|
|
(1) |
|
Amounts in this column represent discretionary cash bonuses paid
in 2008 to the respective named executive officers as described
in Note 3 below. |
|
(2) |
|
This column represents the grant date fair value of stock
options under Topic 718 granted to each of the named executive
officers in 2010, 2009, and 2008. For additional information on
the valuation assumptions with respect to the 2010, 2009, and
2008 grants, refer to Note 19 of Swift Corporations
audited consolidated financial statements. See
Grants of Plan-Based Awards in 2010
below for information on options granted in 2010. |
|
(3) |
|
This column represents the cash incentive compensation amounts
approved by the compensation committee and Chief Executive
Officer paid to the named executive officers. The amounts for a
given year represent the amount of incentive compensation earned
with respect to such year. The bonuses were calculated based on
our actual financial performance for 2010, 2009 and 2008, as
compared with established targets. |
126
|
|
|
|
|
The performance targets to qualify for a 2010 bonus were met
and, accordingly, awards were paid in 2010. The performance
targets to qualify for a 2009 bonus were not met and,
accordingly, no awards were paid in 2009. For the 2008 cash
bonuses, the Chief Executive Officer determined in December 2008
that, even though we would not achieve the 2008 performance
targets in order to qualify for payout under the 2008 bonus
plan, Swift would make a discretionary payout in amounts
generally equal to 25% of what each employees target bonus
was under the 2008 bonus plan. These cash bonuses were paid to
the named executive officers at the end of 2008 and are
reflected in the Bonus column rather than the
Non-Equity Incentive Plan Compensation column. |
|
(4) |
|
This column represents all other compensation paid to the named
executive officers for employer 401(k) matches, executive
disability insurance, car allowance, and other benefits, none of
which individually exceeded $10,000. |
Grants
of Plan-Based Awards in 2010
The following table provides information about equity and
non-equity plan-based awards granted to the named executive
officers in 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
Exercise or
|
|
|
|
|
|
|
|
|
Estimated Future Payouts Under
|
|
Number of
|
|
Base Price
|
|
Grant Date
|
|
|
|
|
Board
|
|
Non-Equity Incentive Plan Awards(1)
|
|
Securities
|
|
of Option
|
|
Fair Value
|
|
|
Grant
|
|
Approval
|
|
Threshold
|
|
|
|
Maximum
|
|
Underlying
|
|
Awards
|
|
of Option
|
Name
|
|
Date
|
|
Date
|
|
($)
|
|
Target ($)
|
|
($)
|
|
Options (#)(2)
|
|
($/SH)(3)
|
|
Awards
|
|
Jerry Moyes(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Virginia Henkels
|
|
|
02/28/2010
|
|
|
|
11/24/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,000
|
|
|
|
8.80
|
|
|
$
|
100,560
|
|
|
|
|
|
|
|
|
|
|
|
|
70,850
|
|
|
|
141,700
|
|
|
|
283,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard Stocking
|
|
|
02/28/2010
|
|
|
|
11/24/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,000
|
|
|
|
8.80
|
|
|
$
|
134,080
|
|
|
|
|
|
|
|
|
|
|
|
|
142,940
|
|
|
|
285,880
|
|
|
|
571,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rodney Sartor
|
|
|
02/28/2010
|
|
|
|
11/24/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,000
|
|
|
|
8.80
|
|
|
$
|
50,280
|
|
|
|
|
|
|
|
|
|
|
|
|
56,596
|
|
|
|
113,192
|
|
|
|
226,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kenneth Runnels
|
|
|
02/28/2010
|
|
|
|
11/24/2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,000
|
|
|
|
8.80
|
|
|
$
|
100,560
|
|
|
|
|
|
|
|
|
|
|
|
|
56,600
|
|
|
|
113,200
|
|
|
|
226,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
These columns represent the potential value of 2010 annual cash
incentive payouts for each named executive officer, for which
target amounts were approved by the compensation committee in
May 2010. As discussed in Note 3 to the Summary
Compensation Table, the 2010 performance targets to
qualify for a payout under the 2010 plan were met and,
accordingly, awards were paid under this plan. Although eligible
under the 2007 Plan, Mr. Moyes elected not to participate
in the annual cash incentive program for 2010. |
|
(2) |
|
This column shows the number of stock options granted in 2010 to
the named executive officers. The options granted to
Ms. Henkels, Mr. Stocking. Mr. Sartor and
Mr. Runnels are Tier I options and will vest
(i) upon the occurrence of the earlier of a sale or a
change in control of Swift or, if earlier (ii) a five-year
vesting period at a rate of
331/3%
beginning with the third anniversary date of the grant. To the
extent vested, these options become exercisable simultaneously
with the closing of the earlier of (i) a sale, or
(ii) change in control of Swift. |
|
(3) |
|
This column shows the exercise price for the stock options
granted, as determined by our board of directors, which equaled
the fair value of the common stock on the date of grant. |
|
(4) |
|
No plan-based awards were made to Mr. Moyes in 2010. |
127
Outstanding
Equity Awards at 2010 Fiscal Year-End
The following table provides information on the current holdings
of stock options of the named executive officers. This table
includes unexercised and unvested options as of
December 31, 2010. Each equity grant is shown separately
for each named executive officer.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Securities
|
|
Number of Securities
|
|
|
|
|
|
|
Underlying
|
|
Underlying
|
|
|
|
Option
|
|
|
Unexercised Options
|
|
Unexercised Options
|
|
Option Exercise
|
|
Expiration
|
Name
|
|
(#) Exercisable
|
|
(#) Unexercisable
|
|
Price ($)(3)
|
|
Date
|
|
Jerry Moyes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Virginia Henkels
|
|
|
6,666
|
(1)
|
|
|
13,334
|
(1)
|
|
|
11.00
|
|
|
10/16/2017
|
|
|
|
|
|
|
|
100,000
|
(2)
|
|
|
11.00
|
|
|
08/27/2018
|
|
|
|
|
|
|
|
24,000
|
(2)
|
|
|
8.80
|
|
|
02/28/2020
|
Richard Stocking
|
|
|
40,000
|
(2)
|
|
|
80,000
|
(2)
|
|
|
11.00
|
|
|
10/16/2017
|
|
|
|
|
|
|
|
40,000
|
(2)
|
|
|
8.61
|
|
|
12/31/2019
|
|
|
|
|
|
|
|
32,000
|
(2)
|
|
|
8.80
|
|
|
02/28/2020
|
Rodney Sartor
|
|
|
40,000
|
(2)
|
|
|
80,000
|
(2)
|
|
|
11.00
|
|
|
10/16/2017
|
|
|
|
|
|
|
|
12,000
|
(2)
|
|
|
8.80
|
|
|
02/28/2020
|
Kenneth Runnels
|
|
|
|
|
|
|
120,000
|
(2)
|
|
|
11.00
|
|
|
08/27/2018
|
|
|
|
|
|
|
|
24,000
|
(2)
|
|
|
8.80
|
|
|
02/28/2020
|
|
|
|
(1) |
|
The stock options are Tier II options and will vest upon a
five-year vesting period at a rate of
331/3%
beginning with the third anniversary date of the grant,. The
grant date for Ms. Henkels award of 20,000 stock
options was October 16, 2007. To the extent vested, the
options become exercisable simultaneously with the closing of
the earlier of (i) a sale, or (ii) a change in control
of Swift. On November 29, 2010, the compensation committee
approved the conversion of Ms. Henkels outstanding
Tier II options to Tier I options, which vest as
discussed under note (2). |
|
(2) |
|
The stock options are Tier I options and will vest upon the
occurrence of the earliest of (i) a sale or a change in
control of Swift or (ii) a five-year vesting period at a
rate of
331/3%
beginning with the third anniversary date of the grant. The
grant date for Ms. Henkels award of 100,000 stock
options was August 27, 2008. The grant dates for
Mr. Stockings awards of 120,000 stock options and
40,000 stock options were October 16, 2007 and
December 31, 2009, respectively. The grant date for
Mr. Sartors award of 120,000 stock options was
October 16, 2007. The grant date for Mr. Runnels
award of 120,000 stock options was August 27, 2008. To the
extent vested, the options become exercisable simultaneously
with the closing of the earlier of (i) an initial public
offering, (ii) a sale, or (iii) a change in control of
Swift. |
|
(3) |
|
We repriced our outstanding stock options that had strike prices
above the initial public offering price per share to $11.00, the
initial public offering price per share. |
Option
Exercises and Stock Vested in 2010, 2009, and 2008
No named executive officer exercised stock options in 2010,
2009, or 2008.
Potential
Payments Upon Termination or
Change-in-Control
We do not currently have employment,
change-in-control,
or severance agreements with any of our named executive officers.
As described under the heading Elements of our
Compensation Program Long term incentives,
pursuant to the named executive officers individual option
award agreements, options held by the named executive officers
all vest upon a change in control of Swift. Assuming a
change-of-control
occurred on December 31, 2010, the intrinsic value of
unvested options for our named executive officers would be as
follows: Ms. Henkels $260,173;
Mr. Stocking $395,520;
Mr. Sartor $165,320; and
Mr. Runnels
128
$270,240. The above amounts are based on a closing price of
$12.51 per share of our common stock on the NYSE on
December 31, 2010.
Retirement
and Deferred Compensation
We do not provide any retirement benefits or deferred
compensation arrangements to our named executive officers other
than our 401(k) plan, which is available to all employees
meeting the plans basic eligibility requirements.
129
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the
beneficial ownership of shares of our Class A common stock
and Class B common stock as of April 12, 2011 for:
|
|
|
|
|
all of our executive officers and directors as a group;
|
|
|
|
each of our named executive officers;
|
|
|
|
each of our directors; and
|
|
|
|
each beneficial owner of more than 5% of either class of our
outstanding shares.
|
The percentage of beneficial ownership of our common stock is
based on 79,359,344 shares of Class A common stock
issued and outstanding and 60,116,713 shares of
Class B common stock issued and outstanding for a total of
139,476,057 shares of common stock issued and outstanding
as of April 12, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Beneficially Owned
|
|
|
|
|
|
|
Percent of
|
|
Percent of
|
|
Percent of
|
|
|
Class of
|
|
|
|
Class of
|
|
Total
|
|
Total
|
Name and Address of Beneficial
|
|
Common
|
|
Number of
|
|
Common
|
|
Common
|
|
Voting
|
Owner(1)(2)
|
|
Stock
|
|
Shares
|
|
Stock
|
|
Stock(3)
|
|
Power(4)
|
|
Named Executive Officers and Directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jerry Moyes(5)(6)
|
|
B
|
|
|
19,704,618
|
|
|
|
32.8
|
%
|
|
|
14.1
|
%
|
|
|
19.7
|
%
|
Virginia Henkels
|
|
A
|
|
|
16,666
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
Richard Stocking
|
|
A
|
|
|
40,000
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
Rodney Sartor
|
|
A
|
|
|
40,000
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
Kenneth Runnels
|
|
A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William Post
|
|
A
|
|
|
2,336
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
Richard H. Dozer
|
|
A
|
|
|
2,336
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
David Vander Ploeg
|
|
A
|
|
|
2,336
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
Glenn Brown
|
|
A
|
|
|
2,336
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
All executive officers and directors as a group (12 persons)
|
|
A
|
|
|
106,010
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
|
B
|
|
|
19,704,618
|
|
|
|
32.8
|
%
|
|
|
14.1
|
%
|
|
|
19.7
|
%
|
Other 5% Stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Various Moyes Childrens Trusts(6)(7)
|
|
B
|
|
|
16,120,528
|
|
|
|
26.8
|
%
|
|
|
11.6
|
%
|
|
|
16.2
|
%
|
Cactus Holding Company, LLC(8)
|
|
B
|
|
|
13,001,567
|
|
|
|
21.6
|
%
|
|
|
9.3
|
%
|
|
|
13.0
|
%
|
Cactus Holding Company II, LLC(9)
|
|
B
|
|
|
11,290,000
|
|
|
|
18.8
|
%
|
|
|
8.1
|
%
|
|
|
11.3
|
%
|
Wellington Management Company, LLP(10)
|
|
A
|
|
|
10,262,000
|
|
|
|
12.9
|
%
|
|
|
7.4
|
%
|
|
|
5.1
|
%
|
280 Congress Street
Boston, MA 02210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Point LLC(11)
|
|
A
|
|
|
4,251,500
|
|
|
|
5.4
|
%
|
|
|
3.0
|
%
|
|
|
2.1
|
%
|
390 Park Avenue
New York, NY 10022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Invesco Ltd.(12)
|
|
A
|
|
|
4,896,030
|
|
|
|
6.2
|
%
|
|
|
3.5
|
%
|
|
|
2.5
|
%
|
1555 Peachtree Street NE
Atlanta, GA 30309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valinor Management, LLC and David Gallo(13)
|
|
A
|
|
|
5,380,312
|
|
|
|
6.8
|
%
|
|
|
3.9
|
%
|
|
|
2.7
|
%
|
90 Park Avenue, 40th Floor
New York, NY 10016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Beneficially Owned
|
|
|
|
|
|
|
Percent of
|
|
Percent of
|
|
Percent of
|
|
|
Class of
|
|
|
|
Class of
|
|
Total
|
|
Total
|
Name and Address of Beneficial
|
|
Common
|
|
Number of
|
|
Common
|
|
Common
|
|
Voting
|
Owner(1)(2)
|
|
Stock
|
|
Shares
|
|
Stock
|
|
Stock(3)
|
|
Power(4)
|
|
SAB Capital Advisors, L.L.C., SAB Capital Management,
L.P., SAP Capital Management, L.L.C., and Scott A. Bommer(14)
|
|
A
|
|
|
4,835,842
|
|
|
|
6.1
|
%
|
|
|
3.5
|
%
|
|
|
2.4
|
%
|
767 Fifth Avenue, 21st Floor
New York, NY 10153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FMR LLC(15)
|
|
A
|
|
|
13,445,311
|
|
|
|
16.9
|
%
|
|
|
9.6
|
%
|
|
|
6.7
|
%
|
82 Devonshire Street
Boston, MA 02109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Represents less than 1% of the outstanding shares of our common
stock. |
|
(1) |
|
Except as otherwise indicated, addresses are
c/o Swift,
2200 South 75th Avenue, Phoenix, Arizona 85043. |
|
(2) |
|
Beneficial ownership is determined in accordance with the rules
of the SEC. In computing the number of shares beneficially owned
by a person and the percentage ownership of that person, shares
of our common stock subject to options or warrants held by that
person that are currently exercisable or exercisable within
60 days of April 12, 2011 are deemed outstanding, but
are not deemed outstanding for computing the percentage
ownership of any other person. These rules generally attribute
beneficial ownership of securities to persons who possess sole
or shared voting power or investment power with respect to such
securities. |
|
(3) |
|
Percent of total common stock represents the percentage of total
shares of outstanding Class A common stock and Class B
common stock. |
|
(4) |
|
Percent of total voting power represents voting power with
respect to all shares of our Class A common stock and
Class B common stock, as a single class. Each holder of
Class A common stock is generally entitled to one vote per
share of Class A common stock and each holder of
Class B common stock is generally entitled to two votes per
share of Class B common stock on all matters submitted to
our stockholders for a vote. |
|
(5) |
|
Consists of shares of Class B common stock owned by
Mr. Moyes, Mr. Moyes and Vickie Moyes, jointly, and
the Jerry and Vickie Moyes Family Trust dated December 11,
1987, including 72,215 shares of Class B common stock
over which Mr. Moyes has sole voting and dispositive power
and 19,632,403 shares of Class B common stock over
which Mr. Moyes has shared voting and dispositive power.
Excludes 16,120,528 shares of Class B common stock
owned by the various Moyes childrens trusts,
13,001,567 shares of Class B common stock owned by
Cactus Holding Company, LLC which is solely managed by the Jerry
and Vickie Moyes Family Trust, and 11,290,000 shares of
Class B common stock owned by Cactus Holding Company II,
LLC which is solely managed by the Jerry and Vickie Moyes Family
Trust. |
|
(6) |
|
Consists of (x) 2,710,274 shares of Class B
common stock owned by the Todd Moyes Trust,
2,710,274 shares of Class B common stock owned by the
Hollie Moyes Trust, 2,710,274 shares of Class B common
stock owned by the Chris Moyes Trust, 2,629,636 shares of
Class B common stock owned by the Lyndee Moyes Nester
Trust, and 2,649,796 shares of Class B common stock
owned by the Marti Lyn Moyes Trust, for each of which Michael J.
Moyes is the trustee and for which he has sole voting and
dispositive power and (y) 2,710,274 shares of
Class B common stock owned by the Michael J. Moyes Trust.
Lyndee Moyes Nester is the trustee of the Michael J. Moyes Trust
and has sole voting and dispositive power with respect to shares
of Class B common stock held by the trust. |
|
(7) |
|
This amount includes shares of Class B common stock pledged
to the Trust, as defined and discussed below in this footnote
(7). Concurrently with our initial public offering in December
2010, Mr. Moyes and the various Moyes childrens
trusts completed a private placement by a newly formed,
unaffiliated trust, or the Trust, of $250.0 million of its
mandatory common exchange securities (or $262.3 million of |
131
|
|
|
|
|
its mandatory common exchange securities following the exercise
by the initial purchasers of their option to purchase additional
securities in January 2011), herein referred to as the
Stockholder Offering. Subject to certain
exceptions, the Trusts securities will be exchangeable
into shares of our Class A common stock or alternatively
settled in cash equal to the value of those shares of
Class A common stock three years following
December 15, 2010, the closing date of the Stockholder
Offering. In connection with the Stockholder Offering,
Mr. Moyes and the various Moyes childrens trusts
pledged to the Trust 23.8 million shares of
Class B common stock deliverable upon exchange of the
Trusts securities (or a number of shares of Class B
common stock representing $262.3 million in value of shares
of Class A common stock) three years following
December 15, 2010, the closing of the Stockholder Offering,
subject to Mr. Moyes and the Moyes Affiliates
option to settle their obligations to the Trust in cash.
Although Mr. Moyes and the and the various Moyes
childrens trusts may settle their obligations to the Trust
in cash three years following the closing date of the
Stockholder Offering, any or all of the pledged shares of
Class B common stock could be converted into Class A
common stock and delivered on such date in exchange for the
Trusts securities. |
|
(8) |
|
Cactus Holding Company, LLC is solely managed by
Jerry & Vickie Moyes Family Trust. Mr. Moyes has
shared voting and dispositive power as to the
13,001,567 shares of Class B common stock owned by
Cactus Holding Company, LLC. |
|
(9) |
|
Cactus Holding Company II, LLC is solely managed by
Jerry & Vickie Moyes Family Trust. Mr. Moyes has
shared voting and dispositive power as to the
11,290,000 shares of Class B common stock owned by
Cactus Holding Company II, LLC. |
|
(10) |
|
Wellington Management Company, LLP Schedule 13G/A filing,
dated April 11, 2011, reports beneficial ownership
collectively of 10,262,000 shares of Class A common
stock, with sole voting power as to 5,982,032 shares of
Class A common stock and sole dispositive power as to
10,262,000 shares of Class A common stock. |
|
(11) |
|
Third Point LLC Schedule 13G filing, dated
February 11, 2011, reports beneficial ownership of
4,251,500 shares of Class A common stock, with sole
voting and dispositive power. |
|
(12) |
|
Invesco Ltd. Schedule 13G filing, dated February 11,
2011, reports beneficial ownership of 4,896,030 shares of
Class A common stock, with sole voting and dispositive
power. |
|
(13) |
|
Valinor Management, LLC and David Gallo Schedule 13G
filing, dated January 25, 2011, reports beneficial
ownership collectively of 5,380,312 shares of Class A
common stock, with sole voting and dispositive power. |
|
(14) |
|
SAB Capital Advisors, LLC., SAB Capital Management,
L.P., SAB Capital Management, L.L.C., and Scott A. Bommer
Schedule 13G filing, dated January 24, 2011, reports
beneficial ownership collectively of 4,835,842 shares of
Class A common stock, with sole voting power and sole
dispositive power as to 2,841,849 shares of Class A
common stock in SAB Capital Partners, L.P., sole voting
power and sole dispositive power as to 108,286 shares of
Class A common stock in SAB Capital Partners II, L.P.
and sole voting power and sole dispositive power as to 1,885,707
shares of Class A common stock in SAB Overseas Master Fund,
LP. |
|
(15) |
|
FMR LLC Schedule 13G filing, dated January 10, 2011,
reports beneficial ownership collectively of
13,445,311 shares of Class A common stock with sole
voting power as to 7,624,114 shares of Class A common
stock and sole dispositive power as to 13,445,311 shares of
Class A common stock. |
132
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Overview
We have in place a written policy regarding the review and
approval of all transactions between Swift and any of our
executive officers, directors, and their affiliates. The policy
may only be amended by an affirmative vote of a majority of our
independent directors, including the affirmative vote of the
Chairman of our board of directors if the Chairman is an
independent director, or the lead independent director if the
Chairman is not an independent director.
Prior to entering into the related person transaction, the
related person must provide written notice to our legal
department and our Chief Financial Officer describing the facts
and circumstances of the proposed transaction.
If our legal department determines that the proposed transaction
is permissible, unless such transaction is required to be
approved by our board of directors under our amended and
restated certificate of incorporation or any indenture or other
agreement, the proposed transaction will be submitted for
consideration to our nominating and corporate governance
committee (exclusive of any member related to the person
effecting the transaction) at its next meeting or, if not
practicable or desirable, to the chair of such committee.
Such committee or chair will consider the relevant facts and
circumstances, including but not limited to: the benefits to us;
the impact on a directors independence; the availability
of other sources for comparable products or services; the terms
of the transaction; and arms length nature of the
arrangement. The nominating and corporate governance committee
or the chair will approve only those transactions that are in,
or are not inconsistent with, the best interests of us and our
stockholders.
In addition, our amended and restated certificate of
incorporation provides that for so long as
(1) Mr. Moyes, Vickie Moyes, and their respective
estates, executors, and conservators, (2) any trust
(including the trustee thereof) established for the benefit of
Mr. Moyes, Vickie Moyes, or any children (including adopted
children) thereof, (3) any such children upon transfer from
Mr. Moyes or Vickie Moyes, or upon distribution from any
such trust or from the estates of Mr. Moyes or Vickie
Moyes, and (4) any corporation, limited liability company,
or partnership, the sole stockholders, members, or partners of
which are referred to in (1), (2), or (3) above, or
collectively, the Permitted Holders, hold in excess of 20% of
the voting power of Swift, Swift shall not enter into any
contract or transaction with any Permitted Holder or any
Moyes-affiliated entities unless such contract or transaction
shall have been approved by either (i) at least 75% of the
independent directors, including the affirmative vote of the
Chairman of our board of directors if the Chairman is an
independent director, or the lead independent director if the
Chairman is not an independent director or (ii) the holders
of a majority of the outstanding shares of Class A common
stock held by persons other than Permitted Holders or any
Moyes-affiliated entities. Independent director
means a director who is not a Permitted Holder or a director,
officer, or employee of any Moyes-affiliated entity and is
independent, as that term is defined in the listing
rules of the NYSE as such rules may be amended from time to time.
Transactions
with Moyes-Affiliated Entities
We provide and receive freight services, facility leases,
equipment leases, and other services, including repair and
employee services to and from several companies controlled by
and/or
affiliated with Mr. Moyes. Competitive market rates based
on local market conditions are used for facility leases.
The rates we charge for freight services to each of these
companies for transportation services are market rates, which
are comparable to what we charge third-party customers. The
transportation services we provide to affiliated entities
provide us with an additional source of operating revenue at our
normal freight rates. Freight services received from affiliated
entities are brokered out at rates lower than the rate charged
to the customer, therefore allowing us to realize a profit.
These brokered loads make it possible for us to provide freight
services to customers even in areas that we do not serve,
providing us with an additional source of income.
133
Other services that we provided to Moyes-affiliated entities
included employee services provided by our personnel, including
accounting-related services and negotiations for parts
procurement, repair and other truck stop services, and other
services. The daily rates we charge for employee-related
services reflect market salaries for employees performing
similar work functions. Other payments we make to and receive
from Moyes-affiliated entities include fuel tank usage, employee
expense reimbursement, executive air transport, and
miscellaneous repair services. Unless noted below, these
relationships and transactions continue in fiscal 2011.
Central
Freight Lines, Inc.
Mr. Moyes and the Moyes-affiliated entities are the
principal stockholders of Central Freight Lines, Inc., or
Central Freight. For the year ended December 31, 2010, the
services we provided to Central Freight included
$7.4 million for freight services and $0.5 million for
facility leases. For the same period, the services we received
from Central Freight included $0.1 million for freight
services and $0.4 million for facility leases. As of
December 31, 2010, amounts owed to us by Central Freight
totaled $0.3 million. For the year ended December 31,
2009, the services we provided to Central Freight included
$3.9 million for freight services and $0.7 million for
facility leases. For the same period, the services we received
from Central Freight included $0.1 million for freight
services and $0.4 million for facility leases. As of
December 31, 2009, amounts owed to us by Central Freight
totaled $1.2 million. For the year ended December 31,
2008, the services we provided to Central Freight included
$18.8 million for freight services and $0.8 million
for facility leases. For the same period, the services received
from Central Freight included $0.5 million for facility
leases. As of December 31, 2008, amounts owed to us by
Central Freight totaled $0.8 million.
Central
Refrigerated Holdings, LLC
Mr. Moyes and the Moyes-affiliated entities are the members
of Central Refrigerated Holdings, LLC, or Central Holdings. For
the year ended December 31, 2010, the services we provided
to Central Refrigerated Services, Inc., or Central Refrigerated,
an indirect subsidiary of Central Holdings, included
$0.1 million for freight services. For the same period, the
services we received from Central Refrigerated included
$1.9 million for freight services. For the year ended
December 31, 2009, the services we provided to Central
Refrigerated included $0.2 million for freight services.
For the same period, the services we received from Central
Refrigerated included $1.9 million for freight services.
For the year ended December 31, 2008, the services we
provided to Central Refrigerated included $0.3 million for
freight services. For the same period, the services we received
from Central Refrigerated included $0.6 million for freight
services.
In addition, in the second quarter of 2009, we entered into a
one-time agreement with Central Refrigerated to purchase 100
model year
2001-2002
Utility refrigerated trailers. The purchase price paid for the
trailers was comparable to the market price of similar model
year utility trailers according to the most recent auction value
guide at the time of the sale. The total amount that we paid to
Central Refrigerated for the equipment was $1.2 million.
There was no further amount due to Central Refrigerated for the
purchase of the trailers as of December 31, 2010 or 2009.
In addition to the above referenced transactions, in November
2010, Central Refrigerated acquired a membership interest in Red
Rock Risk Retention Group Inc., or Red Rock (Swifts
subsidiary captive insurance entity), for a $100,000 capital
investment in order to participate in a common interest motor
carrier risk retention group, which required the participation
by a second carrier, through which Central Refrigerated will
also insure up to $2 million in auto liability claims.
Under this auto liability insurance policy, Central Refrigerated
will be responsible for the first $1 million in claims and
25% of any claims between $1 million and $2 million,
with Red Rock insuring 75% of any claims in this $1 million
to $2 million layer. Central Refrigerated will obtain
insurance from other third-party carriers for claims in excess
of $2 million. Red Rock will provide this coverage to
Central Refrigerated for an annual premium of approximately
$500,000. After reasonable investigation and market analysis,
the terms of Central Refrigerateds participation in Red
Rock and the pricing of the auto liability coverage provided
thereunder is comparable to the market price of similar
insurance coverage offered by third-party carriers in the
industry. The inclusion of the similar risk of this third party
supports the standing of our risk retention group with the
insurance regulators.
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Transpay
Our subsidiary, IEL, contracts its employees from a third party,
Transpay, Inc., or Transpay, which is partially owned by
Mr. Moyes. Transpay is responsible for all payroll-related
liabilities and employee benefits administration for IEL. For
the years ended December 31, 2010, 2009 and 2008, we paid
Transpay $0.8 million, $1.0 million and
$1.0 million, respectively, for employee services and
administration fees. As of December 31, 2010, 2009 and
2008, we had no outstanding balance owing to Transpay for these
services.
Swift
Motor Sports
An entity affiliated with the Moyes-affiliated entities was an
obligor on a $1.7 million obligation with IEL, at
December 31, 2009, which obligation was cancelled prior to
the consummation of our initial public offering in December
2010. The obligation was guaranteed by Jerry Moyes. The
obligation accrued interest at 7.0% per annum with monthly
installments equal to $38,000 through October 10, 2013 when
the remaining balance was due.
Other
Affiliated Entities
For the year ended December 31, 2010, the services provided
by us to other affiliated entities of Mr. Moyes, including
SME Industries, Inc. and Swift Air LLC, included
$0.3 million for freight services. For the year ended
December 31, 2009, the services that we provided to those
other affiliated entities included $0.3 million for freight
services. For the same period, the services received by Swift
from these other affiliated entities included $0.1 million
for other services. For the year ended December 31, 2008,
the services that we provided to these other affiliated entities
included $0.5 million for freight services.
Scudder
Law Firm
We have obtained legal services from Scudder Law
Firm, P.C., L.L.O., or Scudder Law Firm. Earl Scudder, a
director of Swift until July 21, 2010, is a member of
Scudder Law Firm. The rates charged to the Company for legal
services reflect market rates charged by unrelated law firms for
comparable services. For the years ended December 31, 2010,
2009 and 2008, we incurred fees for legal services from Scudder
Law Firm, a portion of which were provided by Mr. Scudder,
in the amount of $1.4 million, $0.8 million and
$0.4 million, respectively. As of December 31, 2010,
we had $0.5 million outstanding owing to Scudder Law Firm
for these services. As of December 31, 2009 and 2008, we
had no outstanding balance owing to Scudder Law Firm for these
services.
Stockholder
Loans Receivable
On May 10, 2007, we entered into a stockholder loan
agreement with our stockholders. Under the agreement we loaned
the stockholders $560 million to be used to satisfy their
indebtedness owed to Morgan Stanley Senior Funding, Inc.
(Morgan Stanley). The proceeds of the Morgan
Stanley loan had been used to repay all indebtedness of the
stockholders secured by the common stock of Swift Transportation
owned by the Moyes Affiliates prior to the contribution by them
of that common stock to Swift Corporation on May 9, 2007 in
conjunction with our going private transaction.
During 2009 and 2008, we paid distributions on a quarterly basis
totaling $16.4 million and $33.8 million,
respectively, to the stockholders, who then repaid the same
amounts to us as interest.
In connection with an amendment to our old senior secured credit
facility, on October 9, 2009, Mr. Moyes agreed to
cancel $125.8 million of our senior notes he held in return
for a $325.0 million reduction of the stockholder loan. The
floating rate notes held by Mr. Moyes, totaling
$36.4 million in principal amount, were cancelled at
closing on October 13, 2009 and, correspondingly, the
stockholder loan was reduced by $94.0 million. The fixed
rate notes held by Mr. Moyes, totaling $89.4 million
in principal amount, were cancelled in January 2010 and the
stockholder loan was reduced further by an additional
$231.0 million. The amount of the stockholder loan
cancelled in exchange for the contribution of notes was
negotiated by
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Mr. Moyes with the steering committee of lenders, comprised
of a number of the largest lenders (by holding size) and the
administrative agent of our old senior secured credit facility.
The $244.6 million remaining balance of the stockholder
loan, $6.2 million of which was attributable to interest on
the principal amount, was cancelled prior to the consummation of
our initial public offering in December 2010. Due to the
classification of the stockholder loan as contra-equity, the
reductions in the stockholder loan did not reduce our
stockholders equity.
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DESCRIPTION
OF OTHER INDEBTEDNESS
New
Senior Secured Credit Agreement
As part of the 2010 Transactions, our wholly-owned subsidiary,
Swift Transportation, as borrower, and Swift, as its parent
company, entered into a senior secured credit agreement with
Bank of America, N.A., as administrative agent, Morgan Stanley
Senior Secured Funding, Inc., as collateral agent, Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Morgan
Stanley Senior Funding, Inc., Wells Fargo Securities, LLC, PNC
Capital Markets, LLC and Citigroup Global Markets Inc., as the
joint lead arrangers and joint bookrunners, and the other
lenders identified in the senior secured credit agreement.
As of March 31, 2011, the aggregate amount of borrowings
under our senior secured credit agreement was
$1,010 million, consisting of $1,010 million of
outstanding borrowings under a senior secured term loan facility
and no outstanding borrowings under a $400 million senior
secured revolving credit facility.
Swift Transportation is the borrower under the senior secured
revolving credit facility and the senior secured term loan
facility. The senior secured revolving credit facility includes
a
sub-facility
available for letters of credit and a
sub-facility
for short-term borrowings.
The following is a description of the terms of the senior
secured credit agreement that Swift Transportation entered into.
Interest
rate and fees
Borrowings under our senior secured credit facility bear
interest, at Swift Transportations option, at (1) a
rate equal to the rate for LIBOR deposits for a period Swift
Transportation selects, appearing on LIBOR 01 Page published by
Reuters, or the LIBOR Rate, (with a minimum LIBOR Rate of 1.50%
with respect to the senior secured term loan facility) plus
4.50%, or (2) a rate equal to the highest of (a) the
rate publicly announced by Bank of America, N.A. as its prime
rate in effect at its principal office in New York City,
(b) the federal funds effective rate plus 0.50%, and
(c) the LIBOR Rate applicable for an interest period of one
month plus 1.00%, (the Base Rate) (with a
minimum Base Rate of 2.50% with respect to the senior secured
term loan facility), plus 3.50%.
In addition to paying interest on outstanding principal under
our senior secured credit agreement, Swift Transportation pays
ongoing customary commitment fees and letter of credit fees
under the senior secured revolving credit facility and customary
letter of credit fronting fees to the letter of credit issuer
under the senior secured revolving credit facility.
Prepayments
and amortization
Swift Transportation is permitted to make voluntary prepayments
at any time, without premium or penalty (other than LIBOR
breakage and redeployment costs, if applicable). Swift
Transportation is required to make mandatory prepayments under
our senior secured credit agreement with (1) a percentage
of excess cash flow (which percentage may decrease over time
based on its leverage ratio), (2) net cash proceeds from
permitted, non-ordinary course asset sales and from insurance
and condemnation events (subject to a reinvestment period and
certain agreed exceptions), (3) net cash proceeds from
certain issuances of indebtedness (subject to certain agreed
exceptions) and (4) a percentage of net cash proceeds from
the issuance of additional equity interests in the Company or
any of its subsidiaries otherwise permitted under our senior
secured credit facility (which percentage may decrease over time
based on its leverage ratio).
Loans under the senior secured term loan facility are repayable
in equal quarterly installments in annual aggregate amounts
equal to 1.0% of the initial aggregate principal amount, except
that the final installment will be equal to the remaining amount
of the senior secured term loan facility and will be due on the
sixth anniversary of the closing date for the senior secured
term loan facility; provided, however, that if more than
$50 million of Swift Transportations senior secured
floating rate notes due May 2015 remain outstanding on
February 12, 2015, then the senior secured term loan
facility will be due on February 12, 2015. Amounts drawn
under the senior secured revolving credit facility will become
due and payable on the fifth anniversary
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of the closing date for the senior secured revolving credit
facility; provided, however, that if more than $50 million
of Swift Transportations senior secured floating rate
notes due May 2015 remain outstanding on February 12, 2015,
then amounts drawn under the senior secured revolving credit
facility will become due and payable on February 12, 2015.
Guarantee
and security
All obligations under the senior secured credit agreement are
guaranteed by us, Swift Transportation, and each of Swift
Transportations direct and indirect wholly-owned material
domestic subsidiaries (subject to certain exceptions) (each, a
guarantor).
Our senior secured credit facility is secured, subject to
permitted liens and other agreed upon exceptions, by a first
priority lien on and perfected security interest in (1) all
the capital stock of each of Swift Transportations and
each guarantors direct subsidiaries (limited, in the case
of foreign subsidiaries, to 65% of the capital stock of such
first-tier foreign subsidiaries), (2) substantially all
present and future assets of Swift Transportation and each
guarantor (including, without limitation, intellectual property
and material fee-owned real property), and (3) all present
and future intercompany indebtedness owing to Swift
Transportation and each guarantor, in each case to the extent
otherwise permitted by applicable law or contract, and, in any
event, including all assets securing the issuers
outstanding senior secured notes or any guarantee thereof.
Certain
covenants and other terms
The senior secured credit agreement contains customary
representations and warranties and customary events of default,
including a change of control default. The senior secured credit
agreement also contains certain affirmative and negative
covenants, including, but not limited to, restrictions, subject
to certain exceptions, on our ability and the ability of Swift
Transportation and its restricted subsidiaries to:
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create, incur, assume, or permit to exist any additional
indebtedness (including guarantee obligations);
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create, incur, assume, or permit to exist any liens upon any
properties;
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liquidate or dissolve, consolidate with, acquire, or merge into
any other person;
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dispose of certain of assets;
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declare or make a restricted payment;
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purchase, make, incur, assume, or permit to exist any
investment, loan, or advance to or in any other person;
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enter into any transactions with affiliates;
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directly or indirectly enter into any agreement or arrangement
providing for the sale or transfer of any property to a person
and the subsequent lease or rental of such property from such
person;
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engage in any business activity except those engaged in on the
date of the senior secured credit agreement or activities
reasonably incidental or reasonably related thereto; and
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make any prepayments of certain other indebtedness.
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The senior secured credit agreement also contains certain
financial covenants with respect to maximum consolidated
leverage ratio, minimum consolidated interest coverage ratio,
and maximum capital expenditures.
Old
Senior Secured Notes
On May 10, 2007, we completed a private placement of second
priority senior secured notes associated with the acquisition of
Swift Transportation totaling $835.0 million, which
consisted of: $240 million aggregate principal amount
second priority senior secured floating rate notes due
May 15, 2015, and $595 million aggregate principal
amount of 12.50% second priority senior secured fixed rate notes
due May 15, 2017. As part of the 2010 Transactions, we
entered into a purchase arrangement with the largest holders of
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senior secured notes and completed tender offers and consent
solicitations with respect to our outstanding senior secured
floating rate notes and our outstanding senior secured fixed
rate notes. Following the 2010 Transactions, there are
$11.0 million aggregate principal amount of floating rate
notes and $15.6 million aggregate principal amount of fixed
rate notes outstanding as of March 31, 2011.
Interest on the senior secured floating rate notes is payable on
February 15, May 15, August 15, and
November 15, accruing at three-month LIBOR plus 7.75%
(8.06% at March 31, 2011). Interest on the
12.50% senior secured fixed rate notes is payable on May 15
and November 15.
Accounts
Receivable Securitization
On July 6, 2007, Swift Corporation, through Swift
Receivables Corporation, a wholly-owned bankruptcy-remote
special purpose subsidiary, entered into the 2007 RSA in order
to sell, on a revolving basis, undivided interests in Swift
Corporations accounts receivable to an unrelated financial
entity. On July 30, 2008, through Swift Receivables Company
II, LLC, a wholly-owned bankruptcy-remote special purpose
subsidiary, Swift Corporation entered into the 2008 RSA, a new
receivable sale agreement with Wells Fargo Foothill, LLC, as the
administrative agent and General Electric Capital Corporation,
Morgan Stanley Senior Funding, Inc., and Wells Fargo Foothill,
LLC, as Co-Collateral Agents, Morgan Stanley Senior Funding,
Inc., as syndication agent, sole bookrunner, and lead arranger
and the purchasers from time to time party thereto to replace
the 2007 RSA and to sell, on a revolving basis, undivided
interests in Swift Corporations consolidated accounts
receivable.
The program limit under the 2008 RSA is $210 million and is
subject to eligible receivables and reserve requirements.
Outstanding balances under the 2008 RSA accrue interest at a
yield of LIBOR plus 300 basis points or Prime plus
200 basis points, at the Companys discretion. The
2008 RSA terminates on July 30, 2013 and is subject to an
unused commitment fee ranging from 25 to 50 basis points,
depending on the aggregate unused commitment of the 2008 RSA.
The 2008 RSA contains certain termination events including the
failure of Swift Corporation to pay any of its indebtedness or a
default under any agreement under which such indebtedness was
created, causing the payment of such indebtedness to be
accelerated. As of March 31, 2011, the balance of Swift
Corporations obligation relating to the accounts
receivable securitization was approximately $136.0 million.
See Note 7 to the unaudited consolidated financial
statements of Swift Transportation Company for the three months
ended March 31, 2011 included elsewhere in this prospectus
for a further discussion of Swift Transportation Companys
securitization facilities, the use of proceeds therefrom,
retained interest, and loss on sale.
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THE
EXCHANGE OFFER
Purpose
of the Exchange Offer
When the Restricted Notes were sold on December 21, 2010,
the issuer, Swift and the Subsidiary Guarantors entered into a
Registration Rights Agreement with the initial purchasers of
those Restricted Notes. Under the terms of the Registration
Rights Agreement, we agreed to use our reasonable best efforts
to:
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file with the SEC and cause to become effective, a registration
statement relating to an offer to exchange the Restricted Notes
for the Exchange Notes; and
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keep the exchange offer open for not less than 20 business days
(or longer if required by applicable law) after the date of
notice thereof is mailed to the holders of the Restricted Notes.
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The Registration Rights Agreement provides that we will be
required to pay additional cash interest (additional
interest) to the holders of the Restricted Notes,
subject to certain exceptions, if the exchange offer is not
completed within 180 days of the issuance of the Restricted
Notes or if certain other conditions described under
Description of the Exchange Notes Additional
Interest are not met. Under some circumstances set forth
in the Registration Rights Agreement, holders of Restricted
Notes, including holders who are not permitted to participate in
the exchange offer, may require us to file and cause to become
effective, a shelf registration statement covering resales of
the Restricted Notes by these holders.
Each broker-dealer that receives Exchange Notes for its own
account in exchange for Restricted Notes, where the Restricted
Notes were acquired by it as a result of market-making
activities or other trading activities, must acknowledge that it
will deliver a prospectus that meets the requirements of the
Securities Act in connection with any resale of the Exchange
Notes. By so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an
underwriter within the meaning of the Securities
Act. See Plan of Distribution.
The exchange offer is not being made to holders of Restricted
Notes in any jurisdiction in which the exchange offer would not
comply with the securities or blue sky laws of such
jurisdiction. The summary herein of certain provisions of the
Registration Rights Agreement does not purport to be complete,
and is qualified in its entirety by reference to all the
provisions of the Registration Rights Agreement, which is an
exhibit to the registration statement of which this prospectus
forms a part.
Terms of
the Exchange Offer
Subject to the terms and the satisfaction or waiver of the
conditions detailed in this prospectus, we will accept for
exchange Restricted Notes which are properly tendered on or
prior to the expiration date and not withdrawn as permitted
below. As used herein, the term expiration date
means 12:00 midnight, New York City time, on June 16, 2011. We
may, however, in our sole discretion, extend the period of time
during which the exchange offer is open. The term
expiration date means the latest time and date to
which the exchange offer is extended.
As of the date of this prospectus, $500,000,000 aggregate
principal amount of Restricted Notes are outstanding. This
prospectus is first being sent on or about the date hereof, to
all holders of Restricted Notes known to us.
We expressly reserve the right, at any time prior to the
expiration of the exchange offer, to extend the period of time
during which the exchange offer is open, and delay acceptance
for exchange of any Restricted Notes, by giving oral or written
notice of such extension to holders thereof as described below.
During any such extension, all Restricted Notes previously
tendered will remain subject to the exchange offer and may be
accepted for exchange by us. Any Restricted Notes not accepted
for exchange for any reason will be returned without expense to
an account maintained with DTC as promptly as practicable after
the expiration or termination of the exchange offer.
Restricted Notes tendered in the exchange offer must be in
denominations of principal amount of $2,000 and any integral
multiple thereof.
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We expressly reserve the right to amend or terminate the
exchange offer, and not to accept for exchange any Restricted
Notes, upon the occurrence of any of the conditions of the
exchange offer specified under Conditions to
the Exchange Offer. We will give oral or written notice of
any extension, amendment, non-acceptance or termination to the
holders of the Restricted Notes as promptly as practicable. Such
notice, in the case of any extension, will be issued by means of
a press release or other public announcement no later than
9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date.
Procedures
for Tendering Restricted Notes
You may only tender your Restricted Notes by book-entry transfer
of the Restricted Notes into the exchange agents account
at DTC. The tender to us of Restricted Notes by you, as set
forth below, and our acceptance of the Restricted Notes will
constitute a binding agreement between us and you, upon the
terms and subject to the conditions set forth in this
prospectus. Except as set forth below, to tender Restricted
Notes for exchange pursuant to the exchange offer, you must
transmit an agents message to U.S. Bank National
Association, as exchange agent, at the address listed below
under the heading Exchange Agent. In
addition, the exchange agent must receive, on or prior to the
expiration date, a timely confirmation of book-entry transfer (a
book-entry confirmation) of the Restricted
Notes into the exchange agents account at DTC.
The term agents message means a
message, transmitted to DTC and received by the exchange agent
and forming a part of a book-entry transfer.
If you are a beneficial owner whose Restricted Notes are
registered in the name of a broker, dealer, commercial bank,
trust company or other nominee, and wish to tender, you should
promptly instruct the registered holder to tender on your
behalf. Any registered holder that is a participant in
DTCs book-entry transfer facility system may make
book-entry delivery of the Restricted Notes by causing DTC to
transfer the Restricted Notes into the exchange agents
account.
We or the exchange agent, in our sole discretion, will make a
final and binding determination on all questions as to the
validity, form, eligibility (including time of receipt) and
acceptance of Restricted Notes tendered for exchange. We reserve
the absolute right to reject any and all tenders not properly
tendered or to not accept any tender which acceptance might, in
our judgment or our counsels, be unlawful. We also reserve
the absolute right to waive any defects or irregularities or
conditions of the exchange offer as to any individual tender
before the expiration date (including the right to waive the
ineligibility of any holder who seeks to tender Restricted Notes
in the exchange offer). Our or the exchange agents
interpretation of the terms and conditions of the exchange offer
as to any particular tender either before or after the
expiration date will be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders
of Restricted Notes for exchange must be cured within a
reasonable period of time, as we determine. We are not, nor is
the exchange agent or any other person, under any duty to notify
you of any defect or irregularity with respect to your tender of
Restricted Notes for exchange, and no one will be liable for
failing to provide such notification.
By tendering Restricted Notes, you represent to us that:
(i) you are not our affiliate, (ii) you are not
engaged in, and do not intend to engage in, and have no
arrangement or understanding with any person to participate in,
a distribution of the Exchange Notes to be issued in the
exchange offer, (iii) you are acquiring the Exchange Notes
in your ordinary course of business and (iv) if you are a
broker-dealer, you will receive the Exchange Notes for your own
account in exchange for Restricted Notes that were acquired by
you as a result of your market-making or other trading
activities and that you will deliver a prospectus in connection
with any resale of the Exchange Notes you receive. For further
information regarding resales of the Exchange Notes by
participating broker-dealers, see the discussion under the
caption Plan of Distribution.
If any holder or other person is an affiliate of
ours, as defined under Rule 405 of the Securities Act, or
is engaged in, or intends to engage in, or has an arrangement or
understanding with any person to participate in, a distribution
of the Exchange Notes, that holder or other person cannot rely
on the applicable interpretations of the staff of the SEC, may
not tender its Restricted Notes in the exchange offer and must
141
comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale
transaction.
Each broker-dealer that receives Exchange Notes for its own
account in exchange for Restricted Notes, where the Restricted
Notes were acquired by it as a result of market-making
activities or other trading activities, must acknowledge that it
will deliver a prospectus that meets the requirements of the
Securities Act in connection with any resale of the Exchange
Notes. By so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an
underwriter within the meaning of the Securities
Act. See Plan of Distribution.
Furthermore, any broker-dealer that acquired any of its
Restricted Notes directly from us:
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may not rely on the applicable interpretation of the staff of
the SECs position contained in Exxon Capital Holdings
Corp., SEC no-action letter (April 13, 1988), Morgan,
Stanley & Co. Inc., SEC no-action letter (June 5,
1991) and Shearman & Sterling, SEC no-action
letter (July 2, 1993); and
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must also be named as a selling bondholder in connection with
the registration and prospectus delivery requirements of the
Securities Act relating to any resale transaction.
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By delivering an agents message, a beneficial owner (whose
Restricted Notes are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee) or holder will
be deemed to have irrevocably appointed the exchange agent as
its agent and attorney-in-fact (with full knowledge that the
exchange agent is also acting as an agent for us in connection
with the exchange offer) with respect to the Restricted Notes,
with full power of substitution (such power of attorney being
deemed to be an irrevocable power coupled with an interest
subject only to the right of withdrawal described in this
prospectus), to receive for our account all benefits and
otherwise exercise all rights of beneficial ownership of such
Restricted Notes, in accordance with the terms and conditions of
the exchange offer.
Each beneficial owner or holder will also be deemed to have
represented and warranted to us that it has authority to tender,
exchange, sell, assign and transfer the Restricted Notes it
tenders and that, when the same are accepted for exchange, we
will acquire good, marketable and unencumbered title to such
Restricted Notes, free and clear of all liens, restrictions,
charges and encumbrances, and that the Restricted Notes tendered
are not subject to any adverse claims or proxies. Each
beneficial owner and holder, by tendering its Restricted Notes,
also agrees that it will comply with its obligations under the
Registration Rights Agreement.
Acceptance
of Restricted Notes for Exchange; Delivery of Exchange
Notes
Upon satisfaction or waiver of all of the conditions to the
exchange offer, we will accept, promptly after the expiration
date, all Restricted Notes properly tendered and will issue the
Exchange Notes promptly after acceptance of the Restricted
Notes. See Conditions to the Exchange
Offer. For purposes of the exchange offer, we will be
deemed to have accepted properly tendered Restricted Notes for
exchange if and when we give oral (confirmed in writing) or
written notice to the exchange agent.
The holder of each Restricted Note accepted for exchange will
receive an Exchange Note in the amount equal to the surrendered
Restricted Note. Holders of Exchange Notes on the relevant
record date for the first interest payment date following the
consummation of the exchange offer will receive interest
accruing from the most recent date to which interest has been
paid on the Restricted Notes or, if no interest has been paid,
from the issue date of the Restricted Notes. Holders of Exchange
Notes will not receive any payment in respect of accrued
interest on Restricted Notes otherwise payable on any interest
payment date, the record date for which occurs on or after the
consummation of the exchange offer.
In all cases, issuance of Exchange Notes for Restricted Notes
that are accepted for exchange will be made only after timely
receipt by the exchange agent of an agents message and a
timely confirmation of book-entry transfer of the Restricted
Notes into the exchange agents account at DTC.
If any tendered Restricted Notes are not accepted for any reason
set forth in the terms and conditions of the exchange offer or
if Restricted Notes are submitted for a greater principal amount
than the holder desires
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to exchange, such unaccepted or non-exchanged Restricted Notes
will be returned without expense to an account maintained with
DTC promptly after the expiration or termination of the exchange
offer.
Book
Entry Transfers
The exchange agent will make a request to establish an account
for the Restricted Notes at DTC for purposes of the exchange
offer within two business days after the date of this
prospectus. Any financial institution that is a participant in
DTCs systems must make book-entry delivery of Restricted
Notes by causing DTC to transfer those Restricted Notes into the
exchange agents account at DTC in accordance with
DTCs procedure for transfer. This participant should
transmit its acceptance to DTC on or prior to the expiration
date. DTC will verify this acceptance, execute a book-entry
transfer of the tendered Restricted Notes into the exchange
agents account at DTC and then send to the exchange agent
confirmation of this book-entry transfer. The transmission of
the Restricted Notes and agents message to DTC and
delivery by DTC to and receipt by the exchange agent of the
related agents message will be deemed to be a valid tender.
Withdrawal
Rights
For a withdrawal of a tender of Restricted Notes to be
effective, the exchange agent must receive a valid withdrawal
request through the Automated Tender Offer Program system from
the tendering DTC participant before the expiration date. Any
such request for withdrawal must include the voluntary offering
instruction number of the tender to be withdrawn and the name of
the ultimate beneficial owner of the related Restricted Notes in
order that such bonds may be withdrawn. Properly withdrawn
Restricted Notes may be re-tendered by following the procedures
described under Procedures for Tendering
Restricted Notes above at any time on or before 12:00
midnight, New York City time, on the expiration date.
We will determine all questions as to the validity, form and
eligibility, including time of receipt, of notices of
withdrawal. Any Restricted Notes so withdrawn will be deemed not
to have been validly tendered for exchange. No Exchange Notes
will be issued unless the Restricted Notes so withdrawn are
validly re-tendered.
Conditions
to the Exchange Offer
Notwithstanding any other provision of the exchange offer, we
are not required to accept for exchange, or to issue Exchange
Notes in exchange for, any Restricted Notes and may terminate or
amend the exchange offer, if any of the following events occur
prior to acceptance of such Restricted Notes:
(a) the exchange offer violates any applicable law or
applicable interpretation of the staff of the SEC; or
(b) there is threatened, instituted or pending any action
or proceeding before, or any injunction, order or decree has
been issued by, any court or governmental agency or other
governmental regulatory or administrative agency or commission,
(1) seeking to restrain or prohibit the making or
consummation of the exchange offer or any other transaction
contemplated by the exchange offer, or assessing or seeking any
damages as a result thereof, or
(2) resulting in a material delay in our ability to accept
for exchange or exchange some or all of the Exchange Notes
pursuant to the exchange offer;
or any statute, rule, regulation, order or injunction has been
sought, proposed, introduced, enacted, promulgated or deemed
applicable to the exchange offer or any of the transactions
contemplated by the exchange offer by any government or
governmental authority, domestic or foreign, or any action has
been taken, proposed or threatened, by any government,
governmental authority, agency or court, domestic or foreign,
that in our sole judgment might, directly or indirectly, result
in any of the consequences referred to in clauses (1) or
(2) above or, in our reasonable judgment, might result in
the holders of Exchange Notes having obligations with respect to
resales and transfers of Exchange Notes which are greater than
those described in the
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interpretation of the SEC referred to on the cover page of this
prospectus, or would otherwise make it inadvisable to proceed
with the exchange offer; or
(c) there has occurred:
(1) any general suspension of or general limitation on
prices for, or trading in, securities on any national securities
exchange or in the
over-the-counter
market,
(2) any limitation by a governmental agency or authority
which may adversely affect our ability to complete the
transactions contemplated by the exchange offer,
(3) a declaration of a banking moratorium or any suspension
of payments in respect of banks in the United States or any
limitation by any governmental agency or authority which
adversely affects the extension of credit, or
(4) a commencement of a war, armed hostilities or other
similar international calamity directly or indirectly involving
the United States, or, in the case of any of the foregoing
existing at the time of the commencement of the exchange offer,
a material acceleration or worsening thereof; or
(d) any change (or any development involving a prospective
change) has occurred or is threatened in our business,
properties, assets, liabilities, financial condition,
operations, results of operations or prospects and our
subsidiaries taken as a whole that, in our reasonable judgment,
is or may be adverse to us, or we have become aware of facts
that, in our reasonable judgment, have or may have adverse
significance with respect to the value of the Restricted Notes
or the Exchange Notes;
which in our reasonable judgment in any case, and regardless of
the circumstances (including any action by us) giving rise to
any such condition, makes it inadvisable to proceed with the
exchange offer
and/or with
such acceptance for exchange or with such exchange.
The foregoing conditions are for our sole benefit and may be
asserted by us regardless of the circumstances giving rise to
any condition or may be waived by us in whole or in part at any
time in our reasonable discretion. Our failure at any time to
exercise any of the foregoing rights will not be deemed a waiver
of any such right and each such right will be deemed an ongoing
right which may be asserted at any time.
In addition, we will not accept for exchange any Restricted
Notes tendered, and no Exchange Notes will be issued in exchange
for any such Restricted Notes, if at such time any stop order is
threatened or in effect with respect to the Registration
Statement, of which this prospectus constitutes a part, or the
qualification of the indenture under the Trust Indenture
Act.
Exchange
Agent
We have appointed U.S. Bank National Association as the
exchange agent for the exchange offer. Questions and requests
for assistance, requests for additional copies of this
prospectus or of other documents should be directed to the
exchange agent addressed as follows:
U.S. Bank National Association
By Registered, Certified Mail or Regular Mail:
U.S. Bank
Corporate Trust Services
60 Livingston Avenue
St. Paul, Minnesota 55107
Attention: Specialized Finance
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By Overnight Courier or Hand Delivery:
U.S. Bank
Corporate Trust Services
60 Livingston Avenue
1st Floor Bond Drop Window
St. Paul, Minnesota 55107
For Information Call:
(800) 934-6802
For Facsimile Transmission
(for Eligible Institutions only):
(651) 495-8158
Fees and
Expenses
The principal solicitation is being made through DTC by
U.S. Bank National Association, as exchange agent. We will
pay the exchange agent customary fees for its services,
reimburse the exchange agent for its reasonable
out-of-pocket
expenses incurred in connection with the provision of these
services and pay other registration expenses, including
registration and filing fees, fees and expenses of compliance
with federal securities and state blue sky securities laws,
printing expenses, messenger and delivery services and
telephone, fees and disbursements to our counsel, application
and filing fees and any fees and disbursement to our independent
certified public accountants. We will not make any payment to
brokers, dealers or others soliciting acceptances of the
exchange offer.
Additional solicitation may be made by telephone, facsimile or
in person by our and our affiliates officers and regular
employees and by persons so engaged by the exchange agent.
Accounting
Treatment
We will record the Exchange Notes at the same carrying value as
the Restricted Notes, as reflected in our accounting records on
the date of the exchange. Accordingly, we will not recognize any
gain or loss for accounting purposes. The expenses of the
exchange offer will be amortized over the term of the Exchange
Notes.
Transfer
Taxes
You will not be obligated to pay any transfer taxes in
connection with the tender of Restricted Notes in the exchange
offer unless you instruct us to register Exchange Notes in the
name of, or request that Restricted Notes not tendered or not
accepted in the exchange offer be returned to, a person other
than the registered tendering holder. In those cases, you will
be responsible for the payment of any applicable transfer tax.
Consequences
of Exchanging or Failing to Exchange Restricted Notes
The information below concerning specific interpretations of and
positions taken by the staff of the SEC is not intended to
constitute legal advice, and prospective purchasers should
consult their own legal advisors with respect to those matters.
If you do not exchange your Restricted Notes for Exchange Notes
in the exchange offer, your Restricted Notes will continue to be
subject to the provisions of the indenture regarding transfer
and exchange of the Restricted Notes and the restrictions on
transfer of the Restricted Notes imposed by the Securities Act
and state securities law. These transfer restrictions are
required because the Restricted Notes were issued under an
exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act and applicable
state securities laws. In general, the Restricted Notes may not
be offered or sold unless registered
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under the Securities Act, except under an exemption from, or in
a transaction not subject to, the Securities Act and applicable
state securities laws. We do not plan to register the Restricted
Notes under the Securities Act.
Based on interpretations by the staff of the SEC, as detailed in
a series of no-action letters issued to third parties, we
believe that the Exchange Notes issued in the exchange offer may
be offered for resale, resold or otherwise transferred by you
without compliance with the registration and prospectus delivery
requirements of the Securities Act as long as:
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you are acquiring the Exchange Notes in the ordinary course of
your business;
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you are not participating, do not intend to participate and have
no arrangement or understanding with any person to participate,
in a distribution of the Exchange Notes; and
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you are not an affiliate of ours.
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If you are an affiliate of ours, are engaged in or intend to
engage in or have any arrangement or understanding with any
person to participate in the distribution of the Exchange Notes:
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you cannot rely on the applicable interpretations of the staff
of the SEC;
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you will not be entitled to participate in the exchange
offer; and
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you must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale
transaction.
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We do not intend to seek our own interpretation regarding the
exchange offer, and we cannot assure you that the staff of the
SEC would make a similar determination with respect to the
Exchange Notes as it has in other interpretations to third
parties.
Each holder of Restricted Notes who wishes to exchange such
Restricted Notes for the related Exchange Notes in the exchange
offer represents that:
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it is not our affiliate;
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it is not engaged in, and does not intend to engage in, and has
no arrangement or understanding with any person to participate
in, a distribution of the Exchange Notes to be issued in the
exchange offer;
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it is acquiring the Exchange Notes in its ordinary course of
business; and
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if it is a broker-dealer, it will receive the Exchange Notes for
its own account in exchange for Restricted Notes that were
acquired by it as a result of its market-making or other trading
activities and that it will deliver a prospectus in connection
with any resale of the Exchange Notes it receives. For further
information regarding resales of the Exchange Notes by
participating broker-dealers, see the discussion under the
caption Plan of Distribution.
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As discussed above, in connection with resales of Exchange
Notes, any participating broker-dealer must deliver a prospectus
meeting the requirements of the Securities Act. The staff of the
SEC has taken the position that participating broker-dealers may
fulfill their prospectus delivery requirements with respect to
the Exchange Notes, other than a resale of an unsold allotment
from the original sale of the Restricted Notes, with the
prospectus contained in the exchange offer registration
statement. Under the Registration Rights Agreement, we have
agreed, for a period of up to 180 days following the
consummation of the exchange offer, to make available a
prospectus meeting the requirements of the Securities Act to any
participating broker-dealer for use in connection with any
resale of any Exchange Notes acquired in the exchange offer.
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DESCRIPTION
OF THE EXCHANGE NOTES
Unless the context otherwise requires, in this Description
of the Exchange Notes, (i) the term Restricted
Notes refers to the 10.000% Senior Second Priority
Secured Notes due 2018, which were issued on December 21,
2010 and have not been registered under the Securities Act;
(ii) the term Restricted Note Guarantee means
the guarantee by Parent and each Subsidiary Guarantor of
Swifts obligations under the indenture and the Restricted
Notes pursuant to the terms of the indenture and any
supplemental indenture thereto; (iii) the term
notes refers to the 10.000% Senior Second
Priority Secured Notes due 2018, which have been registered
under the Securities Act and will be issued on completion of the
exchange offer described in this prospectus in consideration for
a like amount of Restricted Notes tendered pursuant thereto; and
(iv) the term Note Guarantee means the
guarantee by Parent and each Subsidiary Guarantor of
Swifts obligations under the indenture and the notes
pursuant to the terms of the indenture and any supplemental
indenture thereto.
The issuer will issue the notes under the indenture, dated as of
December 21, 2010 (the indenture), by
and among the issuer, Swift Transportation Company, the
Subsidiary Guarantors and U.S. Bank National Association,
as trustee. The indenture under which the notes are to be issued
is the same indenture under which the Restricted Notes were
issued on December 21, 2010. Any Restricted Notes that
remain outstanding after the completion of the exchange offer,
together with the notes issued in connection with the exchange
offer, will be treated as a single class of securities under the
indenture.
The terms of the notes are substantially identical to those of
the outstanding Restricted Notes, except that the transfer
restrictions, registration rights and additional interest
provisions relating to the Restricted Notes do not apply to the
notes.
The following description is a summary of the material
provisions of the indenture, the Security Documents and the
intercreditor agreement. It does not restate the indenture, the
Security Documents and the intercreditor agreement in their
entirety. We urge you to read the indenture, the Security
Documents and the intercreditor agreement because they, and not
this description, define your rights as a Holder of the notes.
Copies of the indenture, the Security Documents and the
intercreditor agreement are available as set forth below under
Additional Information.
You can find the definitions of certain terms used in this
description under the subheading Certain
Definitions. In this description, the terms
Swift, we,
our, us, and the
issuer refer to Swift Services Holdings, Inc.
and its successors under the indenture and not to any of its
subsidiaries; Parent refers to Swift
Transportation Company and its successors under the indenture
and not to any of its subsidiaries. Certain defined terms used
in this description but not defined below under
Certain Definitions have the meanings
assigned to them in the indenture, the Security Documents and
the intercreditor agreement.
The Holder of a note will be treated as the owner of it for all
purposes. Only Holders will have rights under the indenture.
Brief
Description of the Exchange Notes
The notes:
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will be general senior obligations of the issuer;
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will be unconditionally guaranteed on a joint and several and
senior basis by each of the Parent and the Subsidiary Guarantors;
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will be secured on a second priority lien basis by the
Collateral;
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will rank equally in right of payment with the Other Second
Priority Secured Notes;
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will rank equally in right of payment with all existing and
future senior indebtedness of the issuer and senior in right of
payment to any existing or future subordinated indebtedness of
the issuer;
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will rank effectively senior to all of the issuers
existing and future unsecured indebtedness to the extent of the
value of the Collateral (after giving effect to any senior Lien
on the Collateral);
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will rank effectively junior (on a lien priority basis) to any
debt of the issuer which is either (i) secured by a Lien on
the Collateral that is senior or prior to the Liens securing the
notes, including the First Priority Lien Obligations and any
Permitted Liens, or (ii) secured by assets of the issuer
and the guarantors that are not part of the Collateral securing
the notes, to the extent of the value of such assets; and
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will be structurally subordinated to any existing and future
Indebtedness and liabilities of non-guarantor Subsidiaries,
including any Unrestricted Subsidiaries.
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All of the Parents Subsidiaries are Restricted
Subsidiaries. Under the circumstances described below under the
caption Certain Covenants
Designation of Restricted and Unrestricted Subsidiaries,
Parent and the issuer will be permitted to designate
Subsidiaries as Unrestricted Subsidiaries.
Parents Unrestricted Subsidiaries will not be subject to
many of the restrictive covenants in the indenture.
Parents Unrestricted Subsidiaries will not guarantee the
notes.
All of the Parents Subsidiaries, except Swift Receivables
Company II, Mohave Transportation Insurance Company, Red Rock
Risk Retention Group Inc., Swifts Foreign Subsidiaries and
Swift Academy LLC will be Subsidiary Guarantors. Mohave
Transportation Insurance Company and Red Rock Risk Retention
Group Inc. are Swifts wholly owned captive insurance
companies. Swifts Foreign Subsidiaries currently consist
of the following Mexican subsidiaries: Swift Logistics Mexico,
S.A. de C.V., Trans-Mex, Inc. S.A. de C.V., Swift International
S.A. de C.V., and TMX Administration S.A. de C.V.
Principal,
Maturity and Interest
The issuer will issue up to $500.0 million in aggregate
principal amount of notes in this exchange offer. The issuer
will issue notes in denominations of $2,000 and integral
multiples of $1,000 in excess thereof.
The notes will mature on November 15, 2018. Interest on the
notes will accrue at the rate of 10.000% per annum and will be
payable semi-annually in arrears on May 15 and November 15 of
each year. Interest will be paid to the Holders of record at the
close of business on the May 1 or November 1 immediately
preceding the interest payment date. Interest on the notes will
accrue from the date of original issuance or, if interest has
already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a
360-day year
comprised of twelve
30-day
months. If an interest payment date for the notes falls on a day
that is not a Business Day, the interest payment shall be
postponed to the next succeeding Business Day, and no interest
on such payment shall accrue for the period from and after such
interest payment date.
The issuer may issue an unlimited amount of additional notes
under the indenture from time to time after this exchange offer.
Any issuance of additional notes is subject to all of the
covenants in the indenture, including the covenant described
below under the caption Certain
Covenants Incurrence of Indebtedness and Issuance of
Preferred Equity, and the covenants in the Credit
Agreement. The notes and any additional notes subsequently
issued under the indenture will be treated as a single class for
all purposes under such indenture, including, without
limitation, waivers, amendments, redemptions and offers to
purchase.
Security
The notes and the Note Guarantees will be secured by second
priority security interests (subject to Permitted Liens) in the
Collateral. The assets will be secured by stock pledges of all
of the Parents Restricted Subsidiaries (other than Mohave
Transportation Insurance Company, Red Rock Risk Retention Group
Inc. and Swift Academy LLC), provided that stock pledges
of foreign subsidiaries will be limited to pledges of 65% of
such capital stock. The Collateral also consists of all of the
property and assets, in each case, of Parent, the issuer or any
of the Subsidiary Guarantors, except to the extent constituting
Excluded Assets.
The security interests securing the notes will be second in
priority to any and all security interests at any time granted
to secure the First Priority Lien Obligations and will also be
subject to all other Permitted Liens.
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The First Priority Lien Obligations will include Secured Bank
Indebtedness and related obligations, as well as certain Hedging
Obligations and Cash Management Obligations. The holders of such
First Priority Lien Obligations may have rights and remedies
with respect to the property subject to such Liens that, if
exercised, could adversely affect the value of the Collateral or
the ability of the First Lien Agent to realize or foreclose on
the Collateral.
Parent, the issuer and the Subsidiary Guarantors will be able to
incur additional Indebtedness that could share in the
Collateral, including additional First Priority Lien Obligations
that would be secured on a senior basis to the notes and
additional Indebtedness that would be secured on a pari passu
basis with the notes. The amount of such First Priority Lien
Obligations and additional Indebtedness will be limited by the
covenants described under Certain
Covenants Liens and Certain
Covenants Limitation on Incurrence of Indebtedness
and Issuance of Preferred Stock. Under certain
circumstances, the amount of such First Priority Lien
Obligations and additional Indebtedness could be significant.
The Equity Interests or intercompany note of a Restricted
Subsidiary will constitute Collateral only to the extent that
such Equity Interests or intercompany note can secure the notes
without
Rule 3-16
of
Regulation S-X
under the Securities Act (or any other law, rule or regulation)
requiring separate financial statements of such Restricted
Subsidiary to be filed with the SEC. In the event that
Rule 3-16
of
Regulation S-X
under the Securities Act requires or is amended, modified or
interpreted by the SEC to require (or is replaced with another
rule or regulation, or any other law, rule or regulation is
adopted, that would require) the filing with the SEC of separate
financial statements of any Restricted Subsidiary due to the
fact that such Restricted Subsidiarys Equity Interests or
intercompany note secures the notes, then the Equity Interests
or intercompany note of such Restricted Subsidiary shall
automatically be deemed not to be part of the Collateral. In
such event, the Security Documents may be amended or modified,
without the consent of any Holder of notes, to the extent
necessary to release the Liens on the Equity Interests or
intercompany note that is so deemed to no longer constitute part
of the Collateral.
In the event that
Rule 3-16
of
Regulation S-X
under the Securities Act is amended, modified or interpreted by
the SEC to permit (or is replaced with another rule or
regulation, or any other law, rule or regulation is adopted,
which would permit) such Restricted Subsidiarys Equity
Interests or intercompany note to secure the notes without the
filing with the SEC of separate financial statements of such
Restricted Subsidiary, then the Equity Interests or intercompany
note of such Restricted Subsidiary shall automatically be deemed
to be a part of the Collateral. In such event, the Security
Documents may be amended or modified, without the consent of any
Holder of notes, to the extent necessary to subject such Equity
Interests or intercompany note to the Liens under the Security
Documents.
In accordance with the limitations set forth in the immediately
two preceding paragraphs as in effect on the date hereof, the
Collateral will include Equity Interests or intercompany note of
any Restricted Subsidiaries only to the extent that the
applicable value of such Equity Interests or intercompany note
(on a Restricted
Subsidiary-by-Restricted
Subsidiary basis) is less than 20% of the aggregate principal
amount of the notes outstanding. Accordingly, the portion of the
Equity Interests or intercompany note of Restricted Subsidiaries
constituting Collateral in the future may decrease or increase
as described above.
After-Acquired
Collateral
Subject to certain limitations and exceptions, if Parent, the
issuer or any Subsidiary Guarantor creates any additional
security interest upon any property or asset to secure any First
Priority Lien Obligations, it must concurrently grant a second
priority security interest (subject to Permitted Liens) upon
such property as security for the notes.
Security
Documents
Parent, the issuer, the Subsidiary Guarantors and the trustee
entered into Security Documents which define the terms of the
security interests that will secure the notes and the Note
Guarantees. These security interests will secure the payment and
performance when due of all of the Obligations of Parent, the
issuer and
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the Subsidiary Guarantors under the notes, the indenture, the
Note Guarantees and the Security Documents, as provided in the
Security Documents.
Intercreditor
Agreement
The Collateral securing the notes and the Note Guarantees also
serves as collateral to secure the First Priority Lien
Obligations on a first priority basis. The issuer, the
guarantors, the trustee, on behalf of itself and the Holders of
Restricted Notes and notes, and the collateral agent under the
Credit Agreement (the First Lien Agent) have
entered into an Intercreditor Agreement which defines the rights
of lenders and certain other parties under the Credit Agreement
(the Credit Agreement Secured Parties) and
related agreements and the Holders with respect to the
Collateral. The Intercreditor Agreement provides, among other
things, that (1) Liens on the Collateral securing the notes
will be junior to the Liens in favor of the First Lien Agent
securing the First Priority Lien Obligations, and consequently,
the Credit Agreement Secured Parties and holders of other First
Priority Lien Obligations, will be entitled to receive the
proceeds from the disposition of any Collateral prior to the
Holders, and (2) certain procedures for enforcing the
second priority Liens on the Collateral shall be followed
(including a
270-day
standstill in the rights of the Holders against the Collateral).
The indenture provides that (a) if Indebtedness is incurred
under clause (1) of the second paragraph under
Certain covenants Incurrence of
Indebtedness and Issuance of Preferred Equity and such
Indebtedness is secured on a first priority basis by any
Collateral held or released by the First Lien Agent and the
notes and the Note Guarantees are secured by any such asset that
qualifies as Collateral, then the trustee and the representative
of the holders of such Indebtedness will become party to an
intercreditor agreement with terms substantially similar to the
Intercreditor Agreement or an amendment or supplement to the
Intercreditor Agreement and (b) if Indebtedness is incurred
that is, and is permitted to be pursuant to the terms of the
indenture, secured on a second priority basis by any Collateral
held or released by the First Lien Agent, and the notes and the
Note Guarantees are secured by any such asset that qualifies as
Collateral, then the trustee, at the request of the issuer, will
agree to enter into an intercreditor agreement with customary
terms and provisions, or an amendment or supplement to the
Intercreditor Agreement, with the representative of holders of
such Indebtedness and the First Lien Agent (if the First Lien
Agent so agrees).
Pursuant to the terms of the Intercreditor Agreement, so long as
First Priority Lien Obligations are secured, the First Lien
Agent (or representative of any other First Priority Lien
Obligations) will determine the time and method by which the
security interests in the Collateral will be enforced except as
provided in the following paragraph. The trustee, except in
certain limited circumstances described below, will not be
permitted to enforce the security interests and certain other
rights related to the notes on the Collateral even if an Event
of Default (as defined in Events of Default
and Remedies) has occurred and the notes have been
accelerated except in any insolvency or liquidation proceeding
as necessary to file a claim or statement of interest with
respect to the notes or any Note Guarantee. After the discharge
of the first priority Liens securing the First Priority Lien
Obligations, the trustee, acting at the instruction of the
Holders of a majority in principal amount of the notes and
holders of any Pari Passu Indebtedness, voting as one class, in
accordance with the provisions of the indenture and the Security
Documents, will determine the time and method by which its Liens
on the Collateral will be enforced and, if applicable, will
distribute proceeds (after payment of the costs of enforcement
and collateral administration) of the Collateral received by it
under the Security Documents for the ratable benefit of the
Holders and Holders of the Pari Passu Indebtedness.
The trustee may exercise rights and remedies with respect to the
security interests in the Collateral after the passage of a
period of 270 days from the first date on which the trustee
has notified the First Lien Agent that an Event of Default has
occurred, but only to the extent that the First Lien Agent is
not diligently pursuing in good faith the exercise of its rights
and remedies with respect to the Collateral or an insolvency
proceeding with respect to the issuer or any guarantor has not
been commenced. If the Holders receive any amounts contrary to
the terms of the Intercreditor Agreement, they will be obligated
to hold such amounts in trust and turn them over to the First
Lien Agent for the benefit of the holders of First Priority Lien
Obligations.
In addition, the Intercreditor Agreement provides that, prior to
the discharge of Secured Bank Indebtedness, (1) the holders
of First Priority Lien Obligations and the First Lien Agent
shall have the exclusive right
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to make determinations regarding the release of Collateral
without the consent of the Holders of the notes, (2) the
Intercreditor Agreement may be amended, without the consent of
the trustee and the Holders of the notes, to add additional
secured creditors holding additional First Priority Lien
Obligations or Other Second Priority Lien Obligations so long as
such additional First Priority Lien Obligations or Other Second
Priority Lien Obligations are not prohibited by the provisions
of the agreements governing the First Priority Lien Obligations
or the indenture and (3) the holders of the First Priority
Lien Obligations may change, waive, modify or vary the Security
Documents or the Note Guarantees without the consent of the
Holders of the notes, provided, that any such change,
waiver or modification does not materially adversely affect the
rights of the Holders of the notes and not the other secured
creditors in a like or similar manner.
Holders will be deemed to have agreed and accepted the terms of
the Intercreditor Agreement by their acceptance of the notes.
Release
of Collateral
Parent, the issuer and the Subsidiary Guarantors are entitled to
the releases of property and other assets included in the
Collateral from the Liens securing the notes under any one or
more of the following circumstances:
(1) at any time the Liens on such Collateral securing the
First Priority Lien Obligations are released in whole or in part
by the First Lien Agent;
(2) to enable Parent, the issuer or the applicable
Subsidiary Guarantor to consummate an Asset Sale to the extent
such Asset Sale is not prohibited under the covenant described
under Repurchase at the Option of
Holders Asset Sales;
(3) in the case of a Subsidiary Guarantor that is released
from its Note Guarantee with respect to the notes, the release
of the property and assets of such Subsidiary Guarantor; or
(4) as described under Amendment,
Supplement and Waiver below.
The second priority security interests in all Collateral
securing the notes also will be released upon (i) payment
in full of the principal of, together with accrued and unpaid
interest on, the notes and all other Obligations under the
indenture, the Note Guarantees and the Security Documents that
are due and payable at or prior to the time such principal,
together with accrued and unpaid interest, are paid (including
pursuant to a satisfaction and discharge of the indenture as
described below under Satisfaction and
Discharge) or (ii) a legal defeasance or covenant
defeasance under the indenture as described below under
Legal Defeasance and Covenant Defeasance.
Sufficiency
of Collateral
The fair market value of the Collateral is subject to
fluctuations based on factors that include, among others, the
condition of the industry, the ability to sell the Collateral in
an orderly sale, general economic conditions, the availability
of buyers and similar factors. The amount to be received upon a
sale of the Collateral would also be dependent on numerous
factors, including, but not limited to, the actual fair market
value of the Collateral at such time and the timing and the
manner of the sale. By their nature, portions of the Collateral
may be illiquid and may have no readily ascertainable market
value. Accordingly, there can be no assurance that the
Collateral can be sold in a short period of time or in an
orderly manner or that there will be sufficient Collateral to
pay all or any of the amounts due on the First Priority Lien
Obligations, the notes or any Other Second Priority Lien
Obligations. Any claim for the difference between the amount, if
any, realized by Holders of the notes from the sale of the
Collateral, on the one hand, and the Obligations under the
notes, after the satisfaction of any First Priority Lien
Obligations, on the other hand, will rank equally in right of
payment with any Other Second Priority Lien Obligations, Senior
Unsecured Pari Passu Indebtedness and other senior unsecured
Obligations, including trade payables, of Parent, the issuer and
the Subsidiary Guarantors. In addition, in the event of a
bankruptcy, the ability of the holders to realize upon any of
the Collateral may be subject to certain bankruptcy law
limitations as described below.
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Certain
Bankruptcy Limitations
The right of the First Lien Agent to repossess and dispose of
the Collateral upon the occurrence of an Event of Default would
be significantly impaired by any Bankruptcy Law in the event
that a bankruptcy case were to be commenced by or against the
issuer or any guarantor prior to the First Lien Agent having
repossessed and disposed of the Collateral. Upon the
commencement of a case for relief under the Bankruptcy Code, a
secured creditor such as the First Lien Agent is prohibited from
repossessing its security from a debtor in a bankruptcy case, or
from disposing of security without bankruptcy court approval.
In view of the broad equitable powers of a U.S. bankruptcy
court, it is impossible to predict how long payments under the
notes could be delayed following commencement of a bankruptcy
case, whether or when the First Lien Agent could repossess or
dispose of the Collateral, the value of the Collateral at any
time during a bankruptcy case or whether or to what extent
Holders of the notes would be compensated for any delay in
payment or loss of value of the Collateral. The Bankruptcy Code
permits only the payment
and/or
accrual of post-petition interest, costs and attorneys
fees to a secured creditor during a debtors bankruptcy
case to the extent the value of such creditors interest in
the Collateral is determined by the bankruptcy court to exceed
the aggregate outstanding principal amount of the obligations
secured by the Collateral.
Furthermore, in the event a domestic or foreign bankruptcy court
determines that the value of the Collateral is not sufficient to
repay all First Priority Lien Obligations as well as the
Obligations under the notes and any Other Second Priority Lien
Obligations, the Holders of the notes would hold secured claims
only to the extent of the value of the Collateral to which the
Holders of the notes are entitled, and unsecured claims with
respect to such shortfall.
Compliance
with Trust Indenture Act
The indenture provides that the issuer will comply with the
provisions of TIA § 314 to the extent applicable. To
the extent applicable, the issuer will cause TIA
§ 313(b), relating to reports, and TIA
§ 314(d), relating to the release of property or
securities subject to the Lien of the Security Documents, to be
complied with. Any certificate or opinion required by TIA
§ 314(d) may be made by an officer or legal counsel,
as applicable, of the issuer except in cases where TIA
§ 314(d) requires that such certificate or opinion be
made by an independent Person, which Person will be an
independent engineer, appraiser or other expert selected by or
reasonably satisfactory to the trustee. Notwithstanding anything
to the contrary in this paragraph, the issuer will not be
required to comply with all or any portion of TIA
§ 314(d) if it reasonably determines that under the
terms of TIA § 314(d) or any interpretation or
guidance as to the meaning thereof of the SEC and its staff,
including no action letters or exemptive orders, all
or any portion of TIA § 314(d) is inapplicable to any
release or series of releases of Collateral.
Without limiting the generality of the foregoing, certain no
action letters issued by the SEC have permitted an indenture
qualified under the TIA to contain provisions permitting the
release of collateral from Liens under such indenture in the
ordinary course of the issuers business without requiring
the issuer to provide certificates and other documents under
Section 314(d) of the TIA.
Note
Guarantees
The notes will be jointly and severally, fully and
unconditionally guaranteed, on a senior basis, by Parent and
each of the Subsidiary Guarantors. The initial Subsidiary
Guarantors as of the Original Issue Date will be each of the
Subsidiaries of Parent that guaranteed the obligations of Swift
Transportation under the Credit Agreement on the Issue Date and
will be the same entities that guarantee the obligations of the
issuer under the Restricted Notes immediately prior to the
consummation of the exchange offer.
The Note Guarantee of Parent and each Note Guarantee of a
Subsidiary Guarantor:
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will be general senior obligations of Parent or such Subsidiary
Guarantor;
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will be secured on a second priority lien basis by the
Collateral;
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will rank equally in right of payment with the Other Second
Priority Secured Notes and with all existing and future senior
Indebtedness of Parent or such Subsidiary Guarantor;
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will rank equally in right of payment with all existing and
future senior indebtedness of Parent or such Subsidiary
Guarantor and senior in right of payment to any existing or
future subordinated indebtedness of Parent or such Subsidiary
Guarantor;
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will rank effectively senior to all Parents or such
Subsidiary Guarantors existing and future unsecured
indebtedness to the extent of the value of the Collateral (after
giving effect to any senior Lien on the Collateral);
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will rank effectively junior (on a lien priority basis) to any
debt of Parent or such Subsidiary Guarantor which is either
(i) secured by a Lien on the Collateral that is senior or
prior to the Liens securing the notes, including the First
Priority Lien Obligations and any Permitted Liens, or
(ii) secured by assets that are not part of the Collateral
securing the notes, in each case, to the extent of the value of
the assets securing such debt; and
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will be senior in right of payment to all subordinated
Indebtedness of Parent or such Subsidiary Guarantor.
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Pursuant to the indenture, Parent or a Subsidiary Guarantor may
consolidate with, merge with or into, or transfer all or
substantially all of its assets to any other Person to the
extent described below under Certain
Covenants Merger, Consolidation or Sale of
Assets; provided, however, that if such other
Person is not Parent, the issuer or a Subsidiary Guarantor,
Parent or such Subsidiary Guarantors obligations under the
indenture, the Note Guarantees and the Security Documents must
be expressly assumed by such other Person, subject (with respect
to a Subsidiary Guarantor) to the following paragraph.
The Note Guarantee of a Subsidiary Guarantor will be released
with respect to the notes and its obligations under the
Registration Rights Agreement:
(1) in connection with any sale, disposition or transfer of
all or substantially all of the assets of that Subsidiary
Guarantor (including by way of merger or consolidation) to a
Person that is not (either before or after giving effect to such
transaction) Parent, the issuer or a Subsidiary Guarantor, if
the sale, disposition or transfer does not violate the covenant
described under Repurchase at the Option of
Holders Asset Sales;
(2) in connection with any sale, disposition or transfer of
all of the Capital Stock of that Subsidiary Guarantor to a
Person that is not (either before or after giving effect to such
transaction) Parent, the issuer or a Subsidiary Guarantor, if
the sale, disposition or transfer does not violate the covenant
described under Repurchase at the Option of
Holders Asset Sales;
(3) if the issuer designates any Restricted Subsidiary of
Parent that is a Subsidiary Guarantor to be an Unrestricted
Subsidiary in accordance with the applicable provisions of the
indenture;
(4) upon legal defeasance or satisfaction and discharge of
the indenture as provided below under the captions
Legal Defeasance and Covenant Defeasance
and Satisfaction and Discharge; or
(5) at such time as such Subsidiary Guarantor does not have
any Indebtedness outstanding that would have required such
Subsidiary Guarantor to enter into a Note Guarantee pursuant to
the covenant described under Certain
Covenants Additional Note Guarantees.
In the event that Parent or any Subsidiary Guarantor makes a
payment under its Note Guarantee, it will be entitled upon
payment in full of all guaranteed obligations under the
indenture to a contribution from Parent and each other
Subsidiary Guarantor in an amount equal to Parent or such other
Subsidiary Guarantors pro rata portion of such payment
based on the respective net assets of Parent and all of the
Subsidiary Guarantors at the time of such payment, determined in
accordance with GAAP.
The obligations of Parent and each Subsidiary Guarantor under
its Note Guarantee will be limited as necessary to prevent that
Note Guarantee from constituting a fraudulent conveyance under
applicable law. See
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Risk Factors Risks Related to Our Indebtedness
and the Notes Federal and state fraudulent transfer
laws may permit a court to void the notes and the Note
Guarantees, subordinate claims in respect of the notes and the
Exchange Note Guarantees, and require noteholders to return
payments received and, if that occurs, you may not receive any
payments on the Exchange Notes.
If a Note Guarantee were rendered voidable, it could be
subordinated by a court to all other indebtedness (including
guarantees and other contingent liabilities) of Parent or the
applicable Subsidiary Guarantor, and, depending on the amount of
such indebtedness, Parents or a Subsidiary
Guarantors liability on its Note Guarantee could be
reduced to zero. See Risk Factors Risks
Related to Our Indebtedness and the Exchange Notes
Federal and state fraudulent transfer laws may permit a court to
void the notes and the Note Guarantees, subordinate claims in
respect of the notes and the Exchange Note Guarantees, and
require noteholders to return payments received and, if that
occurs, you may not receive any payments on the Exchange
Notes.
Ranking
Senior
Indebtedness versus Notes
The Indebtedness evidenced by the notes and the Note Guarantees
will rank pari passu in right of payment to any other
senior Indebtedness of Parent, the issuer and the Subsidiary
Guarantors, as the case may be, and has the benefit of the
second priority security interest in the Collateral as described
under Security.
As of March 31, 2011:
(1) The issuers senior Indebtedness (excluding
amounts guaranteed by the issuer) was approximately
$500.0 million, which would have constituted Obligations
under the notes; and
(2) Parents and the Subsidiary Guarantors
consolidated senior Indebtedness (including guaranteed amounts)
was approximately $1,713.7 million, of which approximately
$1,009.4 million constituted First Priority Lien
Obligations under the Credit Agreement, approximately
$500.0 million would have constituted Obligations under the
notes, approximately $177.6 million constituted other
consolidated secured long-term debt and obligations under
capital leases, and approximately $26.7 million constituted
obligations under our senior secured floating rate notes and
senior secured fixed rate notes, which became unsecured by
virtue of the 2010 Transactions.
In addition, as of March 31, 2011, an additional
$234.8 million of secured Indebtedness, which would
constitute First Priority Lien Obligations if incurred, was
available for borrowing by Swift under the revolving credit
facility pursuant to the Credit Agreement.
Although the notes and Note Guarantees will be secured, pursuant
to the terms of the Security Documents and the Intercreditor
Agreement, the security interests in the Collateral securing the
notes and Note Guarantees will be second in priority to all
security interests at any time granted to secure First Priority
Lien Obligations, including obligations with respect to the
Credit Agreement. Accordingly, the notes and Note Guarantees
will be effectively subordinated to the First Priority Lien
Obligations. In addition, certain Indebtedness of Parent, the
issuer or the Subsidiary Guarantors may become secured by assets
that do not secure the notes and the Note Guarantees, and, in
such event, such Indebtedness will be effectively senior to the
notes and the Note Guarantees to the extent of the value of the
assets securing such Indebtedness.
Liabilities
of Subsidiaries versus Note Guarantees
All of Parents and Swifts operations will be
conducted through their subsidiaries. Certain of Parents
and Swifts subsidiaries will not initially guarantee the
notes and, as described above under Note
Guarantees, the Note Guarantees of the Subsidiary
Guarantors may be released under certain circumstances. In
addition, Parents and Swifts future subsidiaries may
not be required to guarantee the notes. Claims of creditors of
such non-guarantor subsidiaries, including trade creditors and
creditors holding Indebtedness issued by such non-guarantor
subsidiaries, and claims of preferred stockholders of such
non-guarantor
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subsidiaries, generally will have priority with respect to the
assets and earnings of such non-guarantor subsidiaries over the
claims of Parents and the issuers creditors,
including the Holders of the notes. Accordingly, the notes will
be effectively subordinated to creditors (including trade
creditors) and preferred stockholders, if any, of Parents
and Swifts non-guarantor subsidiaries.
The total Indebtedness and other liabilities of Parents
and Swifts subsidiaries (other than the issuer and the
Subsidiary Guarantors), before intercompany eliminations, was
$292.4 million as of March 31, 2011, including trade
payables, claims accruals, deferred income taxes and other
liabilities.
Methods
of Receiving Payments on the Notes
If a Holder has given wire transfer instructions to Swift, the
paying agent will remit on behalf of the issuer all principal,
interest and premium, if any, on that Holders notes in
accordance with those instructions. All other payments on the
notes will be made by check mailed to the Holders at their
addresses set forth in the register of Holders.
Paying
Agent and Registrar for the Notes
The trustee will initially act as paying agent and registrar.
The issuer may change the paying agent or registrar without
prior notice to the Holders, and the issuer, Parent or any of
its other Subsidiaries may act as paying agent or registrar.
Transfer
and Exchange
A Holder may transfer or exchange notes in accordance with the
provisions of the indenture. The issuer, the registrar and the
trustee may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents in connection
with a transfer of notes. Holders will be required to pay all
taxes due on transfer. Neither the issuer nor the registrar will
be required to transfer or exchange any note selected for
redemption. Also, neither the issuer nor the registrar will be
required to transfer or exchange any note for a period of
15 days before a selection of notes to be redeemed.
Optional
Redemption
At any time prior to November 15, 2013, Swift may on any
one or more occasions redeem up to 35% of the aggregate
principal amount of notes issued under the indenture (including
any additional notes issued after the Issue Date) at a
redemption price of 110.000% of the principal amount, plus
accrued and unpaid interest, to, but not including, the
redemption date, with the net cash proceeds of one or more
Equity Offerings; provided that:
(1) at least 65% of the aggregate principal amount of notes
issued under the indenture (including any additional notes
issued after the Issue Date but excluding notes held by Parent
or its Subsidiaries) remains outstanding immediately after the
occurrence of such redemption; and
(2) the redemption occurs within 120 days of the date
of the closing of such Equity Offering.
At any time prior to November 15, 2014, Swift may on any
one or more occasions redeem all or a part of the notes at a
redemption price equal to 100% of the principal amount of the
notes redeemed plus the Applicable Premium, plus accrued and
unpaid interest to, but not including, the redemption date.
Except pursuant to the preceding paragraphs, the notes will not
be redeemable at Swifts option prior to November 15,
2014. Swift is not, however, prohibited under the indenture from
acquiring the notes by means other than a redemption, whether
pursuant to a tender offer, open market purchase or otherwise,
so long as the acquisition does not violate the terms of the
indenture.
On or after November 15, 2014, Swift may redeem all or a
part of the notes at the redemption prices (expressed as
percentages of principal amount) set forth below plus accrued
and unpaid interest on the notes to be redeemed, to, but not
including, the applicable redemption date, if redeemed during
the twelve month
155
period beginning on November 15 of the years indicated below,
subject to the rights of Holders on the relevant record date to
receive interest on the relevant interest payment date:
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Year
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Percentage
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2014
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105.000%
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2015
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102.500%
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2016 and thereafter
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100.000%
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All redemptions of the notes will be made upon not less than
30 days nor more than 60 days prior notice
mailed by first class mail to each Holders registered
address. Unless the issuer defaults in the payment of the
redemption price, interest will cease to accrue on the notes or
portions thereof called for redemption on the applicable
redemption date.
Mandatory
Redemption
The issuer is not required to make mandatory redemption or
sinking fund payments with respect to the notes.
Repurchase
at the Option of Holders
Change
of Control
If a Change of Control occurs, each Holder will have the right
to require Swift to repurchase all or any part (equal to $2,000
or a larger integral multiple of $1,000) of that Holders
notes pursuant to a Change of Control Offer on the terms set
forth in the indenture. In the Change of Control Offer, Swift
will offer a Change of Control Payment in cash equal to 101% of
the aggregate principal amount of notes repurchased plus accrued
and unpaid interest on the notes repurchased to, but not
including, the date of purchase, subject to the rights of
Holders on the relevant record date to receive interest due on
the relevant interest payment date. Within 30 days
following any Change of Control, Swift will or will cause the
trustee to mail a notice (Change of Control
Offer) to each Holder describing the transaction or
transactions that constitute the Change of Control and offering
to repurchase notes on the Change of Control Payment Date
specified in the notice, which date shall be no earlier than
30 days and no later than 60 days from the date such
notice is mailed (Change of Control Payment
Date), pursuant to the procedures required by the
indenture and described in such notice. Swift will comply with
the requirements of
Rule 14e-1
under the Exchange Act and any other securities laws and
regulations thereunder to the extent those laws and regulations
are applicable in connection with the repurchase of the notes as
a result of a Change of Control. To the extent that the
provisions of any securities laws or regulations conflict with
the Change of Control provisions of the indenture, Swift will
comply with the applicable securities laws and regulations and
will not be deemed to have breached its obligations under the
Change of Control provisions of the indenture by virtue of such
compliance.
On the Change of Control Payment Date, Swift will, to the extent
lawful:
(1) accept for payment all notes or portions of notes
properly tendered pursuant to the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the
Change of Control Payment in respect of all notes or portions of
notes properly tendered; and
(3) deliver or cause to be delivered to the trustee the
notes properly accepted together with an Officers
Certificate stating the aggregate principal amount of notes or
portions of notes being purchased by Swift.
The paying agent will promptly mail or wire transfer to each
Holder of notes properly tendered and so accepted the Change of
Control Payment for such notes, and the trustee will promptly
authenticate and mail (or cause to be transferred by book entry)
to each Holder a new note equal in principal amount to any
unpurchased portion of the notes surrendered, if any;
provided that each new note will be in a principal amount
of $2,000 or a larger integral multiple of $1,000. Any note so
accepted for payment will cease to
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accrue interest on and after the Change of Control Payment Date.
Swift will publicly announce the results of the Change of
Control Offer on or as soon as reasonably practicable after the
Change of Control Payment Date.
The provisions described above that require Swift to make a
Change of Control Offer following a Change of Control will be
applicable whether or not any other provisions of the indenture
are applicable. Except as described above with respect to a
Change of Control, the indenture does not contain provisions
that permit the Holders to require that the issuer repurchase or
redeem the notes in the event of a takeover, recapitalization or
similar transaction.
Notwithstanding the above, Swift will not be required to make a
Change of Control Offer upon a Change of Control if (1) a
third party makes the Change of Control Offer in the manner, at
the times and otherwise in compliance with the requirements set
forth in the indenture applicable to a Change of Control Offer
made by Swift and purchases all notes properly tendered and not
withdrawn under the Change of Control Offer, or (2) notice
of redemption has been given pursuant to the indenture as
described above under the caption Optional
Redemption, unless and until there is a default in payment
of the applicable redemption price. Notwithstanding anything to
the contrary herein, a Change of Control Offer may be made in
advance of a Change of Control, conditional upon such Change of
Control, if a definitive agreement is in place for the Change of
Control at the time of making of the Change of Control Offer.
The definition of Change of Control includes a phrase relating
to the direct or indirect sale, lease, transfer, conveyance or
other disposition of all or substantially all of the
properties or assets of Swift and its Subsidiaries taken as a
whole. Although there is a limited body of case law interpreting
the phrase substantially all, there is no precise
established definition of the phrase under applicable law.
Accordingly, the ability of a Holder to require Swift to
repurchase its notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets
of Swift and its Subsidiaries taken as a whole to another Person
or group may be uncertain.
Asset
Sales
Parent and Swift will not, and will not permit any of
Parents Restricted Subsidiaries to, consummate an Asset
Sale unless:
(1) Parent, Swift or such Restricted Subsidiary, as the
case may be, receives consideration at the time of the Asset
Sale at least equal to the Fair Market Value of the assets or
Equity Interests issued or sold or otherwise disposed
of; and
(2) at least 75% of the consideration received in the Asset
Sale by Parent, Swift or such Restricted Subsidiary is in the
form of cash or Cash Equivalents or Marketable Securities. For
purposes of this provision, each of the following will be deemed
to be cash:
(a) any liabilities, as shown on Parents most recent
consolidated balance sheet, of Parent, Swift or any Restricted
Subsidiary of Parent (other than contingent liabilities and
liabilities that are by their terms subordinated to the notes or
any Note Guarantee) that are assumed by the transferee of any
such assets pursuant to a customary novation or other agreement
that releases Parent, Swift or such Restricted Subsidiary from
further liability;
(b) any securities, notes or other obligations received by
Parent, Swift or any such Restricted Subsidiary from such
transferee that are converted by Parent, Swift or such
Restricted Subsidiary into cash or Cash Equivalents within
120 days of the receipt thereof, to the extent of the cash
or Cash Equivalents received in that conversion; or
(c) any Capital Stock or assets of the kind referred to in
clause (2) or (4) of the second following paragraph of
this covenant.
In the event of an Asset Sale consisting of (x) any sale
and leaseback transaction (but excluding sale and leaseback
transactions the proceeds of which are used to finance or
refinance the purchase of Motor Vehicles and related assets
acquired within 180 days prior to the incurrence of such
Indebtedness) or (y) any Qualified
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Receivables Transaction to the extent such Qualified Receivables
Transaction raises Net Proceeds in excess of $275.0 million
(and only to the extent of any such excess) (each, a
Designated Asset Sale), the issuer (or the
Parent or the applicable Restricted Subsidiary, as the case may
be) shall apply the Net Proceeds from such Designated Asset Sale
(Designated Net Proceeds) either to:
(1) within five business days of the receipt of such Net
Proceeds, repay outstanding first priority lien obligations and,
if such first priority lien obligations are revolving credit
Indebtedness, to correspondingly permanently reduce commitments
with respect thereto; and
(2) in the event that any Designated Net Proceeds remain
after the repayment referred to in the immediately preceding
clause (1) (such remaining Net Proceeds are herein referred to
as Excess Designated Proceeds), within
30 days after the Designated Asset Sale giving rise to such
Excess Designated Proceeds, Swift (or the Parent or the
applicable Restricted Subsidiary, as the case may be) will make
an Asset Sale Offer (a Designated Asset Sale
Offer) to all Holders and all holders of Pari Passu
Indebtedness containing provisions similar to those set forth in
the indenture with respect to offers to purchase or redeem with
the proceeds of sales of assets to purchase the maximum
principal amount of notes and such Pari Passu Indebtedness that
may be purchased out of their pro rata portion of the Excess
Designated Proceeds. The offer price in any Designated Asset
Sale Offer will be equal to 100% of the principal amount of the
notes and such Pari Passu Indebtedness plus accrued and unpaid
interest on the notes and such Pari Passu Indebtedness to, but
excluding, the date of purchase and will be payable in cash. If
any Excess Designated Proceeds remain after consummation of a
Designated Asset Sale Offer, Swift may use those Excess
Designated Proceeds for any purpose not otherwise prohibited by
the indenture. If the aggregate principal amount of the notes
and Pari Passu Indebtedness tendered into such Designated Asset
Sale Offer exceeds the amount of Excess Designated Proceeds, the
notes and such Pari Passu Indebtedness to be purchased shall be
purchased on a pro rata basis based on the principal amount of
notes and such Pari Passu Indebtedness tendered. In such event,
the trustee shall select the notes to be purchased as provided
under the caption Selection and Notice.
Upon completion of each Designated Asset Sale Offer and any
related purchase or repayment of Pari Passu Indebtedness, the
amount of Excess Designated Proceeds will be reset at zero.
Unless otherwise provided in the preceding paragraph, within
365 days after the receipt of any Net Proceeds from an
Asset Sale, Swift (or the Parent or the applicable Restricted
Subsidiary, as the case may be), may apply such Net Proceeds, at
its option:
(1) to repay First Priority Lien Obligations and, if such
First Priority Lien Obligations is revolving credit
Indebtedness, to correspondingly permanently reduce commitments
with respect thereto;
(2) to acquire all or substantially all of the assets of,
or any Capital Stock of, another Permitted Business;
provided, that in the case of any such acquisition of
Capital Stock, the Permitted Business is or becomes a Restricted
Subsidiary of Parent, and provided further, that if such
acquisition is made with the proceeds from any Asset Sale of
Collateral, the acquired assets or Capital Stock shall be
pledged as Collateral as soon as practicable or as otherwise
permissible under Certain
Covenants After-Acquired Property and, in the
case of Capital Stock, subject to the limitations described
above under Security; provided
further, that acquisitions of assets or Capital Stock
described in this clause (2) that occurred within
90 days prior to the relevant Asset Sale shall be treated
as a permitted application pursuant to this clause (2);
(3) to make a capital expenditure; or
(4) to acquire other assets that are not classified as
current assets under GAAP and that are used or useful in a
Permitted Business; provided, that if such acquisition is
made with the proceeds from any Asset Sale of Collateral, the
acquired assets or Capital Stock shall be pledged as Collateral
as soon as practicable or as otherwise permissible under
Certain Covenants After-Acquired
Property, with the Lien on such Collateral securing the
notes being of the same priority with respect to the notes or
Indebtedness as the Lien on the assets disposed of; provided
further, that acquisitions of assets described
158
in this clause (4) that occurred within 90 days prior
to the relevant Asset Sale shall be treated as a permitted
application pursuant to this clause (4).
Pending the final application of any Net Proceeds, the issuer
(or the Parent or the applicable Restricted Subsidiary, as the
case may be), may temporarily reduce revolving credit borrowings
or otherwise invest the Net Proceeds in any manner that is not
prohibited by the indenture.
Any Net Proceeds from Asset Sales that are not applied or
invested as provided in the third paragraph of this covenant
will constitute Excess Proceeds. When the aggregate
amount of Excess Proceeds exceeds $20.0 million, within
30 days thereof, Swift will make an Asset Sale Offer to all
Holders and all holders of Pari Passu Indebtedness containing
provisions similar to those set forth in the indenture with
respect to offers to purchase or redeem with the proceeds of
sales of assets to purchase the maximum principal amount of
notes and such Pari Passu Indebtedness that may be purchased out
of the Excess Proceeds. The offer price in any Asset Sale Offer
will be equal to 100% of the principal amount of the notes and
such Pari Passu Indebtedness plus accrued and unpaid interest on
the notes and such Pari Passu Indebtedness to, but excluding,
the date of purchase and will be payable in cash. If any Excess
Proceeds remain after consummation of an Asset Sale Offer, Swift
may use those Excess Proceeds for any purpose not otherwise
prohibited by the indenture. If the aggregate principal amount
of notes and Pari Passu Indebtedness tendered into such Asset
Sale Offer exceeds the amount of Excess Proceeds, the notes and
such Pari Passu Indebtedness to be purchased shall be purchased
on a pro rata basis based on the principal amount of notes and
such Pari Passu Indebtedness tendered. In such event, the
trustee shall select the notes to be purchased as provided under
the caption Selection and Notice. Upon
completion of each Asset Sale Offer, the amount of Excess
Proceeds will be reset at zero.
Swift will comply with the requirements of
Rule 14e-1
under the Exchange Act and any other securities laws and
regulations thereunder to the extent those laws and regulations
are applicable in connection with each repurchase of notes
pursuant to an Asset Sale Offer or a Designated Asset Sale
Offer. To the extent that the provisions of any securities laws
or regulations conflict with the Asset Sale provisions of the
indenture, Swift will comply with the applicable securities laws
and regulations and will not be deemed to have breached its
obligations under the Asset Sale provisions of such indenture by
virtue of such compliance.
The agreements governing Swifts other Indebtedness
contain, and future agreements may contain, prohibitions of
certain events, including events that would constitute a Change
of Control or an Asset Sale and including repurchases of or
other prepayments in respect of the notes. The exercise by the
Holders of their right to require Swift to repurchase the notes
upon a Change of Control or an Asset Sale could cause a default
under these other agreements, even if the Change of Control or
Asset Sale itself does not, due to the financial effect of such
repurchases on Swift. In the event a Change of Control or Asset
Sale occurs at a time when Swift is prohibited from purchasing
notes, Swift could seek the consent of its other lenders to the
purchase of notes or could attempt to refinance the borrowings
that contain such prohibition. If Swift does not obtain a
consent or repay those borrowings, Swift will remain prohibited
from purchasing notes. In that case, Swifts failure to
purchase tendered notes would constitute an Event of Default
under the indenture which could, in turn, constitute a default
under the other indebtedness. Finally, Swifts ability to
pay cash to the Holders upon a repurchase may be limited by
Swifts then existing financial resources. See Risk
Factors The issuer may not be able to repurchase the
Exchange Notes upon a change of control.
Selection
and Notice
If less than all of the notes are to be redeemed at any time,
the trustee will select Notes for redemption as follows:
(1) if the notes are listed on any national securities
exchange, in compliance with the requirements of the principal
national securities exchange on which the notes are
listed; or
(2) if the notes are not listed on any national securities
exchange, on a pro rata basis.
No notes of $2,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least
30 days but not more than 60 days before the
redemption date to each Holder of notes to be redeemed at its
registered address, except that redemption notices may be mailed
more than 60 days prior to a
159
redemption date if the notice is issued in connection with a
defeasance of the notes or a satisfaction and discharge of the
indenture. Notices of redemption may not be conditional.
If any note is to be redeemed in part only, the notice of
redemption that relates to that note will state the portion of
the principal amount of that note that is to be redeemed. A new
note in principal amount equal to the unredeemed portion of the
original note will be issued in the name of the Holder upon
cancellation of the original note. Notes called for redemption
become due on the date fixed for redemption. On and after the
redemption date, unless Swift defaults in the payment of the
redemption price, interest ceases to accrue on notes or portions
of notes called for redemption.
Certain
Covenants
Effectiveness
of Covenants
Following the first day:
(a) the notes have an Investment Grade Rating from both of
the Ratings Agencies; and
(b) no default has occurred and is continuing under the
indenture,
The issuer, the Parent and the Parents Restricted
Subsidiaries will not be subject to the provisions of the
indenture summarized under the subheadings below:
(1) Certain Covenants
Restricted Payments,
(2) Certain Covenants
Incurrence of Indebtedness and Issuance of Preferred
Equity,
(3) Certain Covenants
Dividend and Other Payment Restrictions Affecting
Subsidiaries,
(4) Certain Covenants
Transactions with Affiliates,
(5) Repurchase at the Option of
Holders Change of Control,
(6) Repurchase at the Option of
Holders Asset Sales, and
(7) Clause (4) of the first and third paragraphs under
Certain Covenants Merger,
Consolidation or Sale of Assets
(collectively, the Suspended Covenants). If
at any time the notes credit rating is downgraded from an
Investment Grade Rating by any Rating Agency, then the Suspended
Covenants will thereafter be reinstated as if such covenants had
never been suspended and be applicable pursuant to the terms of
the indenture (including in connection with performing any
calculation or assessment to determine compliance with the terms
of the indenture), unless and until the notes subsequently
attain an Investment Grade Rating (in which event the Suspended
Covenants shall no longer be in effect for such time that the
notes maintain an Investment Grade Rating); provided,
however, that no default, Event of Default or breach of any
kind shall be deemed to exist under the indenture, the notes or
the Note Guarantees with respect to the Suspended Covenants
based on, and none of the issuer, the Parent or any of its
Subsidiaries shall bear any liability for, any actions taken or
events occurring after the notes attain Investment Grade Rating
and before any reinstatement of such Suspended Covenants as
provided above, or any actions taken at any time pursuant to any
contractual obligation arising prior to such reinstatement,
regardless of whether such actions or events would have been
permitted if the applicable Suspended Covenants remained in
effect during such period; provided, further, that
(1) all Indebtedness incurred, or Disqualified Stock or
preferred stock issued, during the period when the Suspended
Covenants are suspended will be classified to have been incurred
or issued pursuant to clause (2) of the second paragraph of
Incurrence of indebtedness and issuance of
preferred equity and (2) upon any such reinstatement
the amount of Excess Proceeds from Net Proceeds shall be reset
at zero.
During any period when the Suspended Covenants are suspended,
the Board of Directors of Parent may not designate any of the
Parents Subsidiaries as Unrestricted Subsidiaries pursuant
to the indenture.
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Restricted
Payments
Parent and Swift will not, and will not permit any of
Parents Restricted Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment
or distribution on account of Parents, Swifts or any
of Parents Restricted Subsidiaries Equity Interests
or to the direct or indirect holders of Parents,
Swifts or any of Parents Restricted
Subsidiaries Equity Interests in their capacity as such
(other than dividends or distributions payable in Equity
Interests (other than Disqualified Stock) of Parent and other
than dividends or distributions payable to Parent, Swift or any
of Parents Restricted Subsidiaries);
(2) purchase, redeem or otherwise acquire or retire for
value any Equity Interests of Parent, Swift or any of
Parents Restricted Subsidiaries (other than any Equity
Interests owned by Parent, Swift or any of Parents
Restricted Subsidiaries);
(3) (a) make any payment on or with respect to, or
purchase, redeem, defease or otherwise acquire or retire for
value, any Indebtedness of Parent, Swift or any Subsidiary
Guarantor that is contractually subordinated to the notes or to
any Note Guarantee (excluding any intercompany Indebtedness
between or among Parent, Swift and any of Parents
Restricted Subsidiaries), except a payment of interest or
principal at the Stated Maturity thereof, or (b) make any
payment or prepayment of principal of, or premium or interest
on, any Senior Unsecured Pari Passu Indebtedness (including any
redemption or retirement thereof) (i) other than the
stated, scheduled date for payment of interest or principal set
forth in the documents governing such Senior Unsecured Pari
Passu Indebtedness; or
(4) make any Restricted Investment;
(all such payments and other actions set forth in these
clauses (1) through (4) above being collectively
referred to as Restricted Payments), unless,
at the time of and after giving effect to such Restricted
Payment:
(1) no Default or Event of Default has occurred and is
continuing or would occur as a consequence of such Restricted
Payment;
(2) Swift would, after giving pro forma effect to such
Restricted Payment as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have
been permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test
set forth in the first paragraph of the covenant described below
under the caption Incurrence of Indebtedness
and Issuance of Preferred Equity; and
(3) such Restricted Payment, together with the aggregate
amount of all other Restricted Payments made by Parent, Swift
and Parents Restricted Subsidiaries since the Original
Issue Date (excluding Restricted Payments permitted by clauses
(2), (3), (5), (6), (9) and (10), of the next succeeding
paragraph), is less than the sum, without duplication, of:
(a) 50% of the Consolidated Net Income of Parent during the
period (taken as one accounting period) from the Original Issue
Date to the end of Parents most recently ended fiscal
quarter for which internal financial statements are available at
the time of such Restricted Payment (or, if such Consolidated
Net Income for such period is a deficit, less 100% of such
deficit) provided, that, with respect to the period
commencing on the Original Issue Date until the last day of the
fiscal quarter in which the Original Issue Date occurred, the
Consolidated Net Income of Parent shall be deemed to equal the
product of (x) the Consolidated Net Income of Parent for
the entire fiscal quarter in which the Original Issue Date
occurred, times (y) a fraction, (A) the numerator of
which equals the number days in the period commencing on, but
excluding, the Original Issue Date and ending on, and including,
the last day of such fiscal quarter, and (B) the
denominator of which equals the total number of days in such
fiscal quarter; plus
(b) 100% of the aggregate net cash proceeds received by
Parent subsequent to the Original Issue Date (x) as a
contribution to its common equity capital or (y) from the
issue or sale of Equity
161
Interests of Parent (other than Disqualified Stock or any other
Equity Interest issued to an employee stock ownership plan or to
a trust established by Parent or any of its Subsidiaries for the
benefit of their employees) or from the issue or sale of
convertible or exchangeable Disqualified Stock or convertible or
exchangeable debt securities that have been converted into or
exchanged for such Equity Interests (other than Equity Interests
(or Disqualified Stock or debt securities) sold to a Subsidiary
of Parent or issued to an employee stock ownership plan or to a
trust established by Parent or any of its Subsidiaries for the
benefit of their employees; plus
(c) to the extent that any Restricted Investment that was
made subsequent to the Original Issue Date is sold for cash or
otherwise liquidated or repaid for cash, the lesser of
(i) the cash received as return of capital with respect to
such Restricted Investment (less the cost of disposition if any)
and (ii) the amount of such Restricted Investment as of
immediately prior to such sale as defined pursuant to the last
sentence of the definition of Investment; plus
(d) to the extent that any Unrestricted Subsidiary of
Parent designated as such after the Original Issue Date is
redesignated as a Restricted Subsidiary after the Original Issue
Date, 100% of the Fair Market Value of Parents Investment
in such Subsidiary as of the date of such redesignation.
So long as (solely in the case of clauses (4), (7) and
(10)) no Default has occurred and is continuing or would be
caused thereby, the preceding provisions will not prohibit:
(1) the payment of any dividend or distribution or the
consummation of any irrevocable redemption within 60 days
after the date of declaration of the dividend or distribution or
giving of the redemption notice, as the case may be, if, at the
date of declaration or notice, the dividend, distribution or
redemption payment would have complied with the provisions of
the indenture;
(2) the making of any Restricted Payment in exchange for,
or out of the net cash proceeds received by Parent of the
substantially concurrent sale (other than to a Subsidiary of
Parent) of, Equity Interests of Parent (other than Disqualified
Stock or any other Equity Interest issued to an employee stock
ownership plan or to a trust established by Parent or any of its
Subsidiaries for the benefit of their employees) or from the
substantially concurrent cash capital contribution received by
Parent from its stockholders; provided that the amount of
any such net cash proceeds that are utilized for any such
Restricted Payment will be excluded from clause (3)(b) of the
preceding paragraph;
(3) (a) the repurchase, redemption, defeasance or
other acquisition or retirement for value of Indebtedness of
Parent, Swift or any Subsidiary Guarantor that is contractually
subordinated to the notes or to any Note Guarantee with the net
cash proceeds from a substantially concurrent incurrence of, or
in exchange for, Permitted Refinancing Indebtedness that is
contractually subordinated to the notes and the Note Guarantee
to the same extent as the Indebtedness being refinanced, or
(b) the repurchase, redemption, defeasance or other
acquisition or retirement for value of Indebtedness of Parent,
Swift or any Subsidiary Guarantor that constitutes Senior
Unsecured Pari Passu Indebtedness with the net cash proceeds
from a substantially concurrent incurrence of, or in exchange
for, Permitted Refinancing Indebtedness that constitutes Senior
Unsecured Pari Passu Indebtedness as to the same extent as the
Indebtedness being refinanced;
(4) the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of Parent, Swift or
any Restricted Subsidiary of Parent held by any current or
former officer, director, consultant or employee of Parent,
Swift or any Restricted Subsidiary of Parent pursuant to any
equity subscription agreement, stock option agreement,
shareholders or members agreement or similar
agreement, plan or arrangement; provided that
(x) the aggregate price paid for all such repurchased,
redeemed, acquired or retired Equity Interests may not exceed
$5.0 million in any calendar year (provided, however,
that Parent, Swift or Parents Restricted Subsidiaries
may carry over and make in the immediately subsequent calendar
year, in addition to the amounts permitted for any such calendar
year, the amount of such repurchases, redemptions or other
acquisitions or retirements for value permitted to have been
made, but not made, in the immediately preceding calendar year),
and (y) the aggregate price
162
paid for all such repurchased, redeemed, acquired or retired
Equity Interests on or after the Original Issue Date may not
exceed $40.0 million in the aggregate;
(5) the repurchase of Equity Interests deemed to occur upon
the exercise of stock options to the extent such Equity
Interests represent a portion of the exercise price of those
stock options and the repurchase of Equity Interests deemed to
occur in connection with the exercise of stock options and to
the extent necessary to pay applicable withholding taxes;
(6) any dividend (or, in the case of any partnership or
limited liability company, any similar distribution) by a
Restricted Subsidiary of Parent to the holders of its Equity
Interests on a pro rata basis;
(7) the declaration and payment of regularly scheduled or
accrued dividends or distributions to holders of any class or
series of Disqualified Stock of Parent, Swift or any Restricted
Subsidiary of Parent issued on or after the Original Issue Date
in accordance with the Fixed Charge Coverage Ratio test
described below under the caption Incurrence
of Indebtedness and Issuance of Preferred Equity;
(8) the purchase of fractional shares upon conversion of
any securities of Parent or Swift into, or the exercise of
rights with respect to, Equity Interests of Parent or Swift
provided that the such fractional shares or the right to
receive such fractional shares shall have not been created for
the purpose of circumventing the provisions of this covenant;
(9) any redemption or repurchase of the Other Second
Priority Secured Notes; and
(10) other Restricted Payments in an aggregate amount not
to exceed $50.0 million since the Original Issue Date.
The amount of all Restricted Payments (other than cash) will be
the Fair Market Value on the date of the Restricted Payment of
the asset(s) or securities proposed to be transferred or issued
by Parent, Swift or such Restricted Subsidiary, as the case may
be, pursuant to the Restricted Payment. The Fair Market Value of
any assets or securities that are required to be valued by this
covenant will be determined by the Board of Directors of Swift
whose resolution with respect thereto will be delivered to the
trustee. The Board of Directors determination must be
based upon an opinion or appraisal issued by an accounting,
appraisal or investment banking firm of national standing if the
Fair Market Value exceeds $25.0 million. For purposes of
determining compliance with this covenant, if a Restricted
Payment meets the criteria of more than one of the exceptions
described in clauses (1) through (10) above or is
entitled to be made according to the first paragraph of this
covenant, Swift may, in its sole discretion, classify the
Restricted Payment in any manner that complies with this
covenant.
Incurrence
of Indebtedness and Issuance of Preferred Equity
Parent and Swift will not, and will not permit any of
Parents Restricted Subsidiaries to, directly or
indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, incur) any
Indebtedness (including Acquired Debt), and Parent and Swift
will not issue any Disqualified Stock and will not permit Swift
or any of Parents Restricted Subsidiaries to issue any
Disqualified Stock or any shares of preferred equity;
provided, however, that Parent, Swift and any of
Parents Restricted Subsidiaries may incur Indebtedness
(including Acquired Debt) or issue Disqualified Stock and Swift
and any of Parents Restricted Subsidiaries may issue
preferred equity, if, on the date of such incurrence or
issuance, the Fixed Charge Coverage Ratio for Parents most
recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the
date on which such additional Indebtedness is incurred or such
Disqualified Stock or such preferred equity is issued, as the
case may be, would have been at least 2.00 to 1.00, determined
on a pro forma basis (including a pro forma application of the
net proceeds therefrom), as if the additional Indebtedness had
been incurred or the Disqualified Stock or the preferred equity
had been issued, as the case may be, at the beginning of such
four-quarter period; provided further, that the amount of
Indebtedness (including Acquired Debt) that may be incurred
pursuant to the foregoing Restricted Subsidiaries of Parent that
are not Subsidiary Guarantors of the notes shall not exceed
$50.0 million at any one time outstanding.
163
The first paragraph of this covenant will not prohibit the
incurrence of any of the following items of Indebtedness
(collectively, Permitted Debt):
(1) the incurrence by Parent, Swift or any Subsidiary
Guarantor of Indebtedness and letters of credit and
bankers acceptances thereunder under Credit Facilities in
an aggregate principal amount at any one time outstanding under
this clause (1) (with letters of credit being deemed to have a
principal amount equal to the maximum potential liability of
Parent, Swift and such Subsidiary Guarantor thereunder) not to
exceed $1,650.0 million less the aggregate amount of all
Net Proceeds of Asset Sales applied by Parent, Swift or any of
Parents Restricted Subsidiaries since the Original Issue
Date to repay any term Indebtedness under a Credit Facility or
to repay any revolving credit Indebtedness under a Credit
Facility and effect a corresponding commitment reduction
thereunder pursuant to the covenant described above under the
caption Repurchase at the Option of
Holders Asset Sales;
(2) the incurrence by Parent, Swift and Parents
Restricted Subsidiaries of Indebtedness represented by
(a) the Restricted Notes, the Restricted Note Guarantees
and the notes and the Note Guarantees, (b) any Indebtedness
(other than Indebtedness described in clause (1)) and
(c) issuance of preferred equity outstanding on the
Original Issue Date, reduced to the extent such amounts shall
have been repaid or retired;
(3) the incurrence by Parent, Swift or any of Parents
Restricted Subsidiaries of Indebtedness represented by mortgage
financings or purchase money obligations (but not Capital Lease
Obligations), in each case, incurred for the purpose of
financing all or any part of the purchase price or cost of
design, development, construction, installation or improvement
of property (real or personal), plant or equipment used in the
ordinary course of business of Parent, Swift or any of
Parents Restricted Subsidiaries and any Permitted
Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to renew, refund, refinance, replace, defease or
discharge any Indebtedness (other than intercompany
Indebtedness) that was permitted by this clause in an aggregate
principal amount which, when taken together with all other
Indebtedness of Parent, Swift and Parents Restricted
Subsidiaries incurred pursuant to this clause (3) and
clause (14) and outstanding on the date of such incurrence,
does not exceed $350.0 million;
(4) the incurrence by Parent, Swift or any of Parents
Restricted Subsidiaries of Permitted Refinancing Indebtedness in
exchange for, or the net proceeds of which are used to renew,
refund, refinance, replace, defease or discharge any
Indebtedness (other than intercompany Indebtedness) that was
permitted by the indenture to be incurred under the first
paragraph of this covenant or clause (1), (2), (4) or
(11) of this paragraph;
(5) the incurrence by Parent, Swift or any of Parents
Restricted Subsidiaries of intercompany Indebtedness between or
among Parent, Swift and any of Parents Restricted
Subsidiaries; provided, however, that:
(a) if Parent, Swift or any Subsidiary Guarantor is the
obligor on such Indebtedness and the payee is not Parent, Swift
or a Subsidiary Guarantor, such Indebtedness is expressly
subordinated in right of payment to the prior payment in full in
cash of all Obligations then due with respect to the notes, in
the case of Swift, or the Note Guarantee, in the case of Parent
or a Subsidiary Guarantor; and
(b) (i) any subsequent issuance or transfer of Equity
Interests that results in any such Indebtedness being held by a
Person other than Parent, Swift or a Restricted Subsidiary of
Parent and (ii) any sale or other transfer of any such
Indebtedness to a Person that is not either Parent, Swift or a
Restricted Subsidiary of Parent, shall be deemed, in each case,
to constitute an incurrence of such Indebtedness by Parent,
Swift or such Restricted Subsidiary, as the case may be, that
was not permitted by this clause (5);
164
(6) the issuance by Swift or any of Parents
Restricted Subsidiaries to Parent or Swift or to another
Restricted Subsidiary of Parent of shares of preferred equity;
provided, however, that:
(a) any subsequent issuance or transfer of Equity Interests
that results in any such preferred equity being held by a Person
other than Parent, Swift or a Restricted Subsidiary of
Parent, and
(b) any sale or other transfer of any such preferred equity
to a Person that is not either Parent, Swift or a Restricted
Subsidiary of Parent,
shall be deemed, in each case, to constitute an issuance of such
preferred equity or Disqualified Stock by Swift or such
Restricted Subsidiary that was not permitted by this clause (6);
(7) the incurrence by Parent, Swift or any of Parents
Restricted Subsidiaries of Hedging Obligations in the ordinary
course of business and not for speculative purposes;
(8) the guarantee by Parent, Swift or any Restricted
Subsidiary of Parent of Indebtedness of Parent, Swift or a
Restricted Subsidiary of Parent that was permitted to be
incurred by another provision of this covenant (including the
first paragraph hereof); provided that (A) if the
Indebtedness being guaranteed is subordinated in right of
payment to the notes or the Note Guarantees, as applicable, then
the guarantee thereof shall be subordinated in right of payment
to the notes or the Note Guarantee, as applicable, to the same
extent as the Indebtedness so guaranteed and (B) if the
Indebtedness being guaranteed is pari passu in right of
payment to the notes or the Note Guarantee, then the guarantee
thereof shall be pari passu in right of payment to the
notes or the Note Guarantee, as applicable, to the same extent
as the Indebtedness so guaranteed, provided, further,
that any Restricted Subsidiary of Parent that guarantees
other Indebtedness pursuant to this clause (8) shall
concurrently guarantee, or already be a Subsidiary Guarantor
with respect to, the notes pursuant to the covenant described
under the caption Additional Note
Guarantees;
(9) the incurrence by Parent, Swift or any of Parents
Restricted Subsidiaries of Indebtedness in respect of
workers compensation claims, payment obligations in
connection with health or other types of social security
benefits, unemployment or other insurance or self-insurance
obligations, insurance premium finance agreements, reclamation,
statutory obligations, bankers acceptances and
performance, appeal or surety bonds in the ordinary course of
business;
(10) the incurrence by Parent, Swift or any of
Parents Restricted Subsidiaries of Indebtedness arising
from the honoring by a bank or other financial institution of a
check, draft or similar instrument inadvertently drawn against
insufficient funds so long as such Indebtedness is covered
within five business days;
(11) Indebtedness, Disqualified Stock or preferred equity
of any Person that is acquired by Parent, Swift or any of
Parents Restricted Subsidiaries or merged into or
consolidated with, or transfers substantially all of its assets
to, a Restricted Subsidiary in of Parent accordance with the
terms of the indenture; provided, however, that such
Indebtedness, Disqualified Stock or preferred equity is not
incurred or issued in contemplation of such acquisition or
merger or to provide all or a portion of the funds or credit
support required to consummate such acquisition or merger;
provided further, that the aggregate principal amount of
any such Indebtedness, Disqualified Stock or preferred equity
incurred or issued pursuant to this clause (11) since the
Original Issue Date, including all Permitted Refinancing
Indebtedness incurred to extend, renew, refund, refinance,
replace, defease or discharge any Indebtedness incurred pursuant
to this clause (11), shall not exceed $50.0 million in the
aggregate;
(12) the incurrence of Indebtedness consisting of
indemnification, adjustment of purchase price or similar
obligations, in each case, incurred or assumed in connection
with the disposition of any business, assets or a Subsidiary in
accordance with the terms of the indenture, other than
guarantees of Indebtedness incurred or assumed by any Person
acquiring all or any portion of such business, assets or
Subsidiary for the purpose of financing such acquisition;
(13) the incurrence of Indebtedness of Swift owing to the
Captive Insurance Companies; provided, that the aggregate
principal amount of any such Indebtedness incurred pursuant to
this clause (13) shall
165
not exceed $35.0 million at any one time outstanding;
provided, further, that (i) any event that results
in a Captive Insurance Company ceasing to be a Subsidiary of
Parent or (ii) any sale or other transfer of any such
Indebtedness to a Person that is not a Captive Insurance
Company, shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by Swift that was not permitted
by this clause (13);
(14) the incurrence by Parent, Swift or any of
Parents Restricted Subsidiaries in the ordinary course of
business of Capital Lease Obligations with respect to Motor
Vehicles and any Permitted Refinancing Indebtedness in exchange
for, or the net proceeds of which are used to renew, refund,
refinance, replace, defease or discharge any Indebtedness (other
than intercompany Indebtedness) that was permitted by this
clause in an aggregate principal amount which, when taken
together with all other Capital Lease Obligations of Parent,
Swift and Parents Restricted Subsidiaries incurred
pursuant to this clause (14) and clause (3) above and
outstanding on the date of such incurrence, does not exceed
$350.0 million;
(15) the incurrence of Indebtedness by a Receivables
Subsidiary in a Qualified Receivables Transaction that is not
recourse to Parent or any of Parents Restricted Subsidiary
that is not a Receivables Subsidiary (except for Standard
Securitization Undertakings), provided that Parent, Swift
or the applicable Restricted Subsidiary applies the proceeds of
such transaction in compliance with the covenant described above
under the caption Repurchase at the Option of
Holders Asset Sales; and
(16) the incurrence by Parent, Swift or any of
Parents Restricted Subsidiaries of additional Indebtedness
or issuance of Disqualified Stock or preferred equity in an
aggregate principal amount at any time outstanding, including
all Permitted Refinancing Indebtedness incurred to extend,
renew, refund, refinance, replace, defease or discharge any
Indebtedness incurred pursuant to this clause (16), not to
exceed $80.0 million.
Parent and Swift will not incur, and will not permit any
Subsidiary Guarantor to incur, any Indebtedness (including
Permitted Debt) that is contractually subordinated in right of
payment to any other Indebtedness of Parent, Swift or such
Subsidiary Guarantor unless such Indebtedness is also
contractually subordinated in right of payment to the notes and
the applicable Note Guarantee on substantially identical terms;
provided, however, that no Indebtedness will be deemed to
be contractually subordinated in right of payment to any other
Indebtedness of Parent, Swift or any Subsidiary Guarantor solely
by virtue of being unsecured or by virtue of being secured on a
first or junior Lien basis.
For purposes of determining compliance with this
Incurrence of Indebtedness and Issuance of Preferred
Equity covenant, in the event that an item of proposed
Indebtedness, Disqualified Stock or preferred equity meets the
criteria of more than one of the categories of Permitted Debt
described in clauses (1) through (16) above, or is
entitled to be incurred pursuant to the first paragraph of this
covenant, Swift will be permitted to classify such item of
Indebtedness, Disqualified Stock or preferred equity on the date
of its incurrence and will only be required to include the
amount and type of such Indebtedness, Disqualified Stock or
preferred equity in one of the above clauses or as having been
incurred pursuant to the first paragraph of this covenant,
although Swift may divide and classify an item of Indebtedness,
Disqualified Stock or preferred equity in one or more of the
categories of Permitted Debt described in such clauses or as
having been incurred pursuant to the first paragraph of this
covenant and may later reclassify all or a portion of such item
of Indebtedness, Disqualified Stock or preferred equity, in any
manner that complies with this covenant. Indebtedness under
Credit Facilities outstanding on the Original Issue Date and the
Indebtedness represented by the notes and the related Note
Guarantees will be deemed to have been incurred on such date in
reliance on the exception provided by clause (1) of the
definition of Permitted Debt. The accrual of interest or
dividends, the accretion of accreted value or amortization of
original issue discount, the payment of interest on any
Indebtedness in the form of additional Indebtedness with the
same terms, the reclassification of preferred equity as
Indebtedness due to a change in accounting principles, and the
payment of dividends on Disqualified Stock or preferred equity
in the form of additional shares of the same class of
Disqualified Stock or preferred equity will not be deemed to be
an incurrence of Indebtedness or an issuance of Disqualified
Stock or preferred equity for purposes of this covenant;
provided, in each such case (other than preferred stock
that is not Disqualified Stock), that the amount of any such
accrual, accretion or amortization or payment (without
duplication) is included in Fixed Charges of Parent, Swift and
Parents Restricted Subsidiaries as accrued, accreted or
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amortized or paid. Notwithstanding any other provision of this
covenant, the maximum amount of Indebtedness that Parent, Swift
or any Restricted Subsidiary may incur pursuant to this covenant
shall not be deemed to be exceeded solely as a result of
fluctuations in exchange rates or currency values.
The amount of any Indebtedness outstanding as of any date will
be:
(1) the accreted value of the Indebtedness, in the case of
any Indebtedness issued with original issue discount;
(2) the principal amount of the Indebtedness, in the case
of any other Indebtedness; and
(3) in respect of Indebtedness of another Person secured by
a Lien on the assets of the specified Person, the lesser of:
(a) the Fair Market Value of such assets at the date of
determination; and
(b) the amount of the Indebtedness of the other Person.
Liens
Parent and Swift will not and will not permit any of
Parents Restricted Subsidiaries to create, incur, assume
or otherwise cause or suffer to exist or become effective
(i) any Lien of any kind (other than Permitted Liens) on
any asset or property of Parent, Swift or any of Parents
Restricted Subsidiaries securing Indebtedness unless the notes
are equally and ratably secured with (or on a senior basis to,
in the case of obligations subordinated in right of payment to
the notes) the obligations so secured until such time as such
obligations are no longer secured by a Lien or (ii) any
Lien of any kind securing any First Priority Lien Obligation of
Parent, Swift or any Subsidiary Guarantor without effectively
providing that the notes or the applicable Note Guarantee, as
the case may be, shall be granted a second priority security
interest (subject to Permitted Liens) upon the assets or
property constituting the collateral for such First Priority
Lien Obligations, except as set forth under
Security; provided, however,
that, with respect to this clause (ii), if granting such
second priority security interest requires the consent of a
third party, Swift will use commercially reasonable efforts to
obtain such consent with respect to the second priority interest
for the benefit of the trustee on behalf of the Holders of the
notes; provided further, however, that, with respect to
this clause (ii), if such third party does not consent to the
granting of such second priority security interest after the use
of such commercially reasonable efforts, Parent, Swift or such
Subsidiary Guarantor, as the case may be, will not be required
to provide such security interest.
Limitation
on Sale and Leaseback Transactions
Parent and Swift will not, and will not permit any of
Parents Restricted Subsidiaries to, enter into any sale
and leaseback transaction; provided that Parent, Swift or
any Restricted Subsidiary of Parent may enter into a sale and
leaseback transaction if:
(1) Parent, Swift or that Restricted Subsidiary, as
applicable, could have (a) incurred Indebtedness in an
amount equal to the Attributable Debt relating to such sale and
leaseback transaction under the covenant described above under
the caption Incurrence of Indebtedness and
Issuance of Preferred Stock and (b) incurred a Lien
to secure such Indebtedness pursuant to the covenant described
above under the caption Liens;
(2) the gross cash proceeds of that sale and leaseback
transaction are at least equal to the Fair Market Value, as
determined in good faith by the Board of Directors of Swift and
set forth in an Officers Certificate delivered to the
trustee, of the property that is the subject of that sale and
leaseback transaction; and
(3) the transfer of assets in that sale and leaseback
transaction is permitted by, and Parent, Swift or the applicable
Restricted Subsidiary applies the proceeds of such transaction
in compliance with, the covenant described above under the
caption Repurchase at the Option of
Holders Asset Sales.
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Dividend
and Other Payment Restrictions Affecting
Subsidiaries
Parent and Swift will not, and will not permit any of
Parents Restricted Subsidiaries to, directly or
indirectly, create or permit to exist or become effective any
consensual encumbrance or restriction on the ability of Swift or
any Restricted Subsidiary of Parent to:
(a) pay dividends or make any other distributions on its
Capital Stock to Parent, Swift or any of Parents
Restricted Subsidiaries, or with respect to any other interest
or participation in, or measured by, its profits, or pay any
Indebtedness owed to Parent, Swift or any of Parents
Restricted Subsidiaries;
(b) make loans or advances to Parent, Swift or any of
Parents Restricted Subsidiaries; or
(c) sell, lease or transfer any of its properties or assets
to Parent, Swift or any of Parents Restricted Subsidiaries.
However, the preceding restrictions will not apply to
encumbrances or restrictions existing under or by reason of:
(1) agreements outstanding on the Original Issue Date, the
Credit Agreement and Credit Facilities as in effect on the
Original Issue Date, the indenture governing the Other Second
Priority Secured Notes and any amendments, restatements,
modifications, supplements, renewals, refundings, replacements
or refinancings of those agreements; provided that such
amendments, restatements, modifications, supplements, renewals,
refundings, replacements or refinancings are not materially more
restrictive, taken as a whole, with respect to such dividend and
other payment restrictions than those contained in those
agreements on the Original Issue Date (as determined in good
faith by the Board of Directors of Parent or Swift);
(2) the indenture, the notes, the Note Guarantees, the
Restricted Notes, the Restricted Note Guarantees and the
Security Documents;
(3) applicable law, rule, regulation or order;
(4) any instrument of a Person acquired by Parent, Swift or
any of Parents Restricted Subsidiaries as in effect at the
time of such acquisition (except to the extent such instrument
was issued or such agreement was entered into in connection with
or in contemplation of such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties
or assets of any Person, other than the Person, or the property
or assets of the Person, so acquired; provided that, in
the case of Indebtedness, such Indebtedness was permitted by the
terms of the indenture to be incurred;
(5) customary non-assignment provisions or subletting
restrictions in contracts, leases and licenses entered into in
the ordinary course of business;
(6) purchase money obligations for property acquired in the
ordinary course of business and Capital Lease Obligations that
impose restrictions on the property purchased or leased of the
nature described in clause (c) of the preceding paragraph;
(7) any agreement for the sale or other disposition of a
Restricted Subsidiary of Parent that restricts distributions,
loans or transfers by that Restricted Subsidiary pending closing
of the sale or other disposition;
(8) Permitted Refinancing Indebtedness; provided
that the restrictions contained in the agreements governing
such Permitted Refinancing Indebtedness are not materially more
restrictive, taken as a whole, with respect to such encumbrance
or restriction set forth in clauses (a), (b) or (c) of
the preceding paragraph than those contained in the agreements
governing the Indebtedness being extended, renewed, refunded,
refinanced, replaced, defeased or discharged (as determined in
good faith by the Board of Directors of Parent or Swift);
(9) Liens permitted to be incurred under the provisions of
the covenant described above under the caption
Liens that limit the right of the debtor
to dispose of the assets securing such Indebtedness;
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(10) provisions limiting the disposition or distribution of
assets or property or transfer of Capital Stock in joint venture
agreements, asset sale agreements, sale-leaseback agreements,
stock sale agreements and other similar agreements entered into
(a) in the ordinary course of business or (b) with the
approval of Swifts Board of Directors, which limitation is
applicable only to the asset or property that are the subject of
such agreements;
(11) restrictions on cash, Cash Equivalents, Marketable
Securities or other deposits or net worth imposed by customers
or lessors under contracts or leases entered into in the
ordinary course of business;
(12) Indebtedness or other customary contractual
requirements of a Receivables Subsidiary incurred in connection
with a Qualified Receivables Transaction; provided that
such restrictions apply only to such Receivables
Subsidiary; and
(13) any encumbrances or restrictions imposed by any
amendments or refinancings of the contracts, instruments or
obligations referred to above in clauses (1) through (12);
provided that such amendments or refinancings are not
more restrictive, taken as a whole, with respect to encumbrances
or restrictions set forth in clauses (a), (b) or
(c) of the preceding paragraph than such encumbrances and
restrictions prior to such amendment or refinancing (as
determined in good faith by the Board of Directors of Parent or
Swift).
Merger,
Consolidation or Sale of Assets
Swift will not, directly or indirectly, consolidate or merge
with or into another Person (whether or not Swift is the
surviving corporation) or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its
properties or assets (determined on a consolidated basis for
Swift and its Subsidiaries), in one or more related transactions
to another Person, unless:
(1) either (a) Swift is the surviving entity; or
(b) the Person formed by or surviving any such
consolidation or merger (if other than Swift) or to which such
sale, assignment, transfer, lease, conveyance or other
disposition has been made is a corporation, partnership or
limited liability company organized or existing under the laws
of the United States, any state of the United States or the
District of Columbia;
(2) the Person formed by or surviving any such
consolidation or merger (if other than Swift) or the Person to
which such sale, assignment, transfer, lease, conveyance or
other disposition has been made assumes all the obligations of
Swift under the notes, the indenture, the Registration Rights
Agreement and the Security Documents, in each case pursuant to a
supplemental indenture and other agreements reasonably
satisfactory to the trustee;
(3) immediately after such transaction, no Default or Event
of Default exists;
(4) Swift or the Person formed by or surviving any such
consolidation or merger (if other than Swift), or to which such
sale, assignment, transfer, lease, conveyance or other
disposition has been made would, on the date of such transaction
after giving pro forma effect thereto and to any related
financing transactions as if the same had occurred at the
beginning of the applicable four-quarter period, either
(a) be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test
set forth in the first paragraph of the covenant described above
under the caption Incurrence of Indebtedness
and Issuance of Preferred Equity or (b) have a pro
forma Fixed Charge Coverage Ratio that is at least equal to the
actual Fixed Charge Coverage Ratio for Parent as of such
date; and
(5) Swift delivers to the trustee an Officers
Certificate and an opinion of counsel, each stating that such
consolidation, merger or transfer and such supplemental
indenture (if any) complies with the indenture.
Clause (4) of the covenant described above will not apply
to:
(1) a merger of Swift with an Affiliate solely for the
purpose of reincorporating Swift in another jurisdiction; or
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(2) any consolidation or merger, or any sale, assignment,
transfer, conveyance, lease or other disposition of assets
between or among Swift and any of the Restricted Subsidiaries.
Parent will not, directly or indirectly, consolidate or merge
with or into another Person (whether or not Parent is the
surviving corporation) or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its
properties or assets (determined on a consolidated basis for
Parent and its Subsidiaries), in one or more related
transactions to another Person, unless:
(1) either (a) Parent is the surviving entity; or
(b) the Person formed by or surviving any such
consolidation or merger (if other than Parent) or to which such
sale, assignment, transfer, lease, conveyance or other
disposition has been made is a corporation, partnership or
limited liability company organized or existing under the laws
of the United States, any state of the United States or the
District of Columbia;
(2) the Person formed by or surviving any such
consolidation or merger (if other than Parent) or the Person to
which such sale, assignment, transfer, lease, conveyance or
other disposition has been made assumes all the obligations of
Parent under Parents Note Guarantee, the indenture, the
Registration Rights Agreement and the Security Documents, in
each case pursuant to a supplemental indenture and other
agreements reasonably satisfactory to the trustee;
(3) immediately after such transaction, no Default or Event
of Default exists;
(4) Parent or the Person formed by or surviving any such
consolidation or merger (if other than Parent), or to which such
sale, assignment, transfer, lease, conveyance or other
disposition has been made would, on the date of such transaction
after giving pro forma effect thereto and to any related
financing transactions as if the same had occurred at the
beginning of the applicable four-quarter period, either
(a) be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test
set forth in the first paragraph of the covenant described above
under the caption Incurrence of Indebtedness
and Issuance of Preferred Equity or (b) have a pro
forma Fixed Charge Coverage Ratio that is at least equal to the
actual Fixed Charge Coverage Ratio for Parent as of such
date; and
(5) Swift delivers to the trustee an Officers
Certificate and an opinion of counsel, each stating that such
consolidation, merger or transfer and such supplemental
indenture (if any) complies with the indenture.
Clause (4) of the covenant described above will not apply
to:
(1) a merger of Parent with an Affiliate solely for the
purpose of reincorporating Parent in another
jurisdiction; or
(2) any consolidation or merger, or any sale, assignment,
transfer, conveyance, lease or other disposition of assets
between or among Parent and any of the Restricted Subsidiaries.
Subject to certain provisions of the indenture governing the
release of a Note Guarantee upon the sale or disposition of a
Subsidiary Guarantor, Swift and Parent will not permit any
Subsidiary Guarantor to consolidate or merge with or into
another Person (whether or not such Subsidiary Guarantor is the
surviving corporation) or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its
properties or assets, in one or more related transactions to
another Person, unless:
(1) immediately after such transaction, no Default or Event
of Default exists;
(2) either:
(a) (i) such Subsidiary Guarantor is the surviving
entity or the Person formed by or surviving any such
consolidation or merger (if other than such Subsidiary
Guarantor) or to which such sale, assignment, transfer,
conveyance or other disposition has been made is a corporation,
partnership or limited liability company organized or existing
under the laws of the jurisdiction under which such Subsidiary
Guarantor was organized or under the laws the United States, any
state of the United States or the District of Columbia and
(ii) the Person formed by or surviving any such
consolidation
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or merger (if other than such Subsidiary Guarantor) or the
Person to which such sale, assignment, transfer, conveyance or
other disposition has been made assumes all the obligations of
such Subsidiary Guarantor under such Subsidiary Guarantors
Note Guarantee, the indenture, the Registration Rights Agreement
and the Security Documents, in each case pursuant to a
supplemental indenture and other agreements reasonably
satisfactory to the trustee; or
(b) in the case of a Subsidiary Guarantor that has been
disposed of in its entirety to another Person (other than to
Swift or any Affiliate of Swift), whether through a merger,
consolidation or sale of Capital Stock or assets, Swift delivers
an Officers Certificate to the trustee to the effect that
Swift will comply with its obligations under the covenant
described above under Repurchase at the Option
of Holders Asset Sales in respect of such sale
or other disposition; and
(3) Swift delivers to the trustee an Officers
Certificate and an opinion of counsel, each stating that such
consolidation, merger or transfer and such supplemental
indenture (if any) complies with the indenture.
The issuer, Parent and Subsidiary Guarantors, as the case may
be, will be released from its obligations under the indenture,
the notes, its Note Guarantee, the Registration Rights Agreement
and the Security Documents, as the case may be, and the
successor Person will succeed to, and be substituted for, and
may exercise every right and power of, the issuer, Parent or
Subsidiary Guarantor, as the case may be, under the indenture,
the notes, the Note Guarantee, the Registration Rights Agreement
and the Security Documents; provided that, in the case of
a lease of all or substantially all its assets, Swift will not
be released from the obligation to pay the principal of and
interest on the notes and none of Parent or the Subsidiary
Guarantors will be released from its obligations under its Note
Guarantee.
Transactions
with Affiliates
Parent and Swift will not, and will not permit any of
Parents Restricted Subsidiaries to, make any payment to,
or sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets
from, or enter into or make or amend any transaction, contract,
agreement, loan, advance or guarantee with, or for the benefit
of, any Affiliate of Parent or Swift or of any of Parents
Restricted Subsidiaries (each, an Affiliate
Transaction), unless:
(1) the Affiliate Transaction is on terms that are not
materially less favorable to Parent, Swift or the relevant
Restricted Subsidiary (as determined by in good faith by the
Board of Directors of Parent or Swift) than those that would
have been obtained in a comparable transaction by Parent, Swift
or such Restricted Subsidiary with an unrelated Person; and
(2) Swift delivers to the trustee:
(a) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration
in excess of $10.0 million, a resolution of the Board of
Directors of Swift set forth in an Officers Certificate
certifying that such Affiliate Transaction complies with this
covenant and that such Affiliate Transaction has been approved
by a majority (including a majority of the disinterested
members, if any) of the Board of Directors of Swift; and
(b) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration
in excess of $25.0 million, an opinion as to the fairness
to Parent, Swift or such Restricted Subsidiary of such Affiliate
Transaction from a financial point of view issued by an
accounting, appraisal or investment banking firm of national
standing.
The following items will not be deemed to be Affiliate
Transactions and, therefore, will not be subject to the
provisions of the prior paragraph:
(1) any employment or consulting agreement, employee
benefit plan, officer or director indemnification agreement or
any similar arrangement entered into by Parent, Swift or any of
Parents Restricted Subsidiaries in the ordinary course of
business and payments pursuant thereto;
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(2) transactions between or among Parent, Swift
and/or any
of Parents Restricted Subsidiaries;
(3) transactions with a Person (other than an Unrestricted
Subsidiary) that is an Affiliate of Parent, Swift or a
Restricted Subsidiary of Parent solely because Parent, Swift or
such Restricted Subsidiary owns an Equity Interest in, or
controls, such Person;
(4) payment of reasonable fees to, and indemnity provided
on behalf of, officers, directors, employees or consultants of
Parent, Swift or any of Parents Restricted Subsidiaries;
(5) any issuance of Equity Interests (other than
Disqualified Stock) of Parent to Affiliates of Parent;
(6) Restricted Payments and Investments that do not violate
the provisions of the indenture described above under the
caption Restricted Payments;
(7) transactions effected pursuant to agreements in effect
on the Original Issue Date and, to the extent the amount
involved exceeds $120,000, described in this prospectus and any
amendment, modification or replacement of such agreement (so
long as such amendment or replacement is not less favorable to
Parent, Swift, any Restricted Subsidiary of Parent or the
Holders, taken as a whole, than the original agreement as in
effect on the Original Issue Date as determined in good faith by
the Board of Directors of Parent or Swift);
(8) any agreement between any Person and an Affiliate of
such Person existing at the time such Person is acquired by or
merged into the Parent, Swift or any of Parents Restricted
Subsidiaries; provided, that such agreement was not
entered into contemplation of such acquisition or merger, or any
amendment thereto (so long as any such amendment is not
disadvantageous to the Holders of the notes when taken as a
whole as compared to the applicable agreement as in effect on
the date of such acquisition or merger); and
(9) any transactions in connection with the 2010
Transactions; and
(10) any Qualified Receivables Transaction.
Business
Activities
Parent and Swift will not, and will not permit any of
Parents Restricted Subsidiaries to, engage in any business
other than Permitted Businesses, except to such extent as would
not be material to Parent, Swift and Parents Restricted
Subsidiaries taken as a whole.
Additional
Note Guarantees
Parent and the issuer will not permit any of Parents
Restricted Subsidiaries, directly or indirectly, to guarantee
the payment of any other Indebtedness of Parent, Swift or any of
Parents Restricted Subsidiaries unless such Restricted
Subsidiary (other than a Restricted Subsidiary that is already a
guarantor) simultaneously executes and delivers a supplemental
indenture and Note Guarantee providing for the guarantee of the
payment of the notes by such Restricted Subsidiary, which
guarantee will be senior to or pari passu in right of
payment with such Restricted Subsidiarys guarantee of such
other Indebtedness, and simultaneously executes and delivers the
applicable Security Documents pursuant to which its assets (of
the same type as the assets of Parent, Swift and the other
Subsidiary Guarantors constituting Collateral) will become part
of the Collateral and will secure the notes and Note Guarantees
in the manner specified in the indenture and the Security
Documents.
Designation
of Restricted and Unrestricted Subsidiaries
The Board of Directors of Swift may designate any Subsidiary
(including any newly acquired or newly formed Subsidiary or
Person becoming a Subsidiary through merger or consolidation or
Investment therein) to be an Unrestricted Subsidiary if that
designation would not cause a Default. If a Restricted
Subsidiary is designated as an Unrestricted Subsidiary, the
aggregate Fair Market Value of all outstanding Investments owned
by Parent, Swift and Parents Restricted Subsidiaries in
the Subsidiary designated as an Unrestricted
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Subsidiary shall be deemed to be an Investment made as of the
time of the designation and will reduce the amount available for
Restricted Payments under the covenant described above under the
caption Restricted Payments or under one
or more clauses of the definition of Permitted Investments, as
determined by Swift. That designation will only be permitted if
such Investment would be permitted at that time and if the
Restricted Subsidiary otherwise meets the definition of an
Unrestricted Subsidiary.
Any designation of a Subsidiary of Parent as an Unrestricted
Subsidiary will be evidenced to the trustee by filing with the
trustee a certified copy of a resolution of the Board of
Directors of Swift giving effect to such designation and an
Officers Certificate certifying that such designation
complied with the conditions specified in clauses (1) to
(4) of the definition of Unrestricted
Subsidiary and was permitted by the covenant described
above under the caption Restricted
Payments. If, at any time, any Unrestricted Subsidiary
would fail to meet the preceding requirements specified in
clauses (1) to (4) of the definition of
Unrestricted Subsidiary, it will thereafter cease to
be an Unrestricted Subsidiary for purposes of the indenture and
any Indebtedness of such Subsidiary will be deemed to be
incurred by a Restricted Subsidiary of Parent as of such date
and, if such Indebtedness is not permitted to be incurred as of
such date under the covenant described under the caption
Incurrence of Indebtedness and Issuance of
Preferred Equity, Swift will be in default of such
covenant. The Board of Directors of Swift may at any time
designate any Unrestricted Subsidiary to be a Restricted
Subsidiary of Parent; provided that such designation will
be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of Parent of any outstanding Indebtedness of such
Unrestricted Subsidiary, and such designation will only be
permitted if (1) such Indebtedness is permitted under the
covenant described under the caption
Incurrence of Indebtedness and Issuance of
Preferred Stock, calculated on a pro forma basis as if
such designation had occurred at the beginning of the
four-quarter reference period; and (2) no Event of Default
would be in existence following such designation.
Payments
for Consent
Parent and the issuer will not, and will not permit any of
Parents Restricted Subsidiaries to, directly or
indirectly, pay or cause to be paid any consideration to or for
the benefit of any Holder for or as an inducement to any
consent, waiver or amendment of any of the terms or provisions
of the indenture or the notes unless such consideration is
offered to be paid and is paid to all Holders that consent,
waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or
agreement.
Reports
Notwithstanding that Parent may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, or
otherwise report on an annual and quarterly basis on forms
provided for such annual and quarterly reporting pursuant to
rules and regulations promulgated by the SEC, Parent will
(x) file with the SEC and (y) provide the trustee and
Holders with copies thereof, without cost to each Holder, the
following information within the time periods specified in the
SECs rules and regulations applicable to a non-accelerated
filer:
(1) annual financial information that would be required to
be contained in a filing with the SEC on
Form 10-K
if Parent were required to file such a form, including
(i) a Managements Discussion and Analysis of
Financial Condition and Results of Operations and
(ii) a report on the annual financial statements by
Parents certified independent accountants, and
(2) all quarterly information that would be required to be
contained in a filing with the SEC on
Form 10-Q
if Parent were required to file such a form, including
Managements Discussion and Analysis of Financial
Condition and Results of Operations;
provided, however, that Parent will not be so
obligated to file such reports with the SEC if the SEC does not
permit such filing, in which event the issuer will make
available such information to securities analysts and
prospective investors upon request, in addition to providing
such information to the trustee and the Holders.
If Swift has designated any Subsidiary as an Unrestricted
Subsidiary and any such Unrestricted Subsidiary, either
individually or collectively, would otherwise have been a
Significant Subsidiary, then the
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quarterly and annual financial information required by the
preceding paragraph shall include a reasonably detailed
presentation, as determined in good faith by senior management
of Parent, either on the face of the financial statements or in
the footnotes to the financial statements and in
managements discussion and analysis of financial condition
and results of operations, of the financial condition and
results of operations of the issuer, Parent and Parents
Restricted Subsidiaries separate from the financial condition
and results of operations of the Unrestricted Subsidiaries.
Parent will also furnish to Holders, securities analysts and
prospective investors upon request the information required to
be delivered pursuant Rule 144A(d)(4) under the Securities
Act.
Notwithstanding the foregoing, Parents delivery
obligations to the trustee and Holders described herein will be
deemed to be satisfied by posting of the information and reports
referred to in clauses (1) and (2) above on
Parents website or one maintained on its behalf for such
purpose; provided that Parent will use reasonable efforts
to inform Holders and the trustee of the availability of such
information and reports, which may be satisfied by, among other
things, a press release on any national business press release
wire service. In addition, availability of the foregoing
materials on the SECs EDGAR service or any successor
service will be deemed to satisfy Parents delivery
obligations to the Holders and the trustee.
The filing requirements set forth above for the applicable
period may be satisfied by the Parent prior to the commencement
of the exchange offer or the effectiveness of the registration
statement of which this prospectus forms a part (1) by the
filing with the SEC of the registration statement of which this
prospectus forms a part, and any amendments thereto, with such
financial information that satisfies
Regulation S-X
of the Securities Act; provided that this paragraph shall
not supersede or in any manner suspend or delay the
Parents reporting obligations set forth in the first four
paragraphs of this covenant, or (2) by posting reports that
would be required to be filed substantially in the form required
by the SEC on Parents website (or one maintained on its
behalf) or providing such reports to the trustee within the
times specified above.
Amendment
of Security Documents
The issuer shall not amend, modify or supplement, or permit or
consent to any amendment, modification or supplement of, the
Security Documents in any way that would be adverse to the
Holders of the notes in any material respect, except as
described above under Security or as
permitted under Amendment, Supplement and
Waiver.
After-Acquired
Property
If Parent, the issuer or any Subsidiary Guarantor shall acquire
any First Priority After-Acquired Property, Parent, the issuer
or such Subsidiary Guarantor shall execute and deliver such
mortgages, deeds of trust, security instruments, financing
statements and certificates and opinions of counsel as shall be
reasonably necessary to vest in the trustee on behalf of the
Holders of the notes a perfected security interest, subject only
to Permitted Liens, in such First Priority After-Acquired
Property and to have such First Priority After-Acquired Property
(but subject to certain limitations, if applicable, including as
described under Security) added to the
Collateral, and thereupon all provisions of the indenture
relating to the Collateral shall be deemed to relate to such
First Priority After-Acquired Property to the same extent and
with the same force and effect; provided, however, that
if granting such second priority security interest in such First
Priority After-Acquired Property requires the consent of a third
party, the issuer will use commercially reasonable efforts to
obtain such consent with respect to the second priority interest
for the benefit of the trustee on behalf of the Holders of the
notes; provided further, however, that if such third
party does not consent to the granting of such second priority
security interest after the use of such commercially reasonable
efforts, Parent, the issuer or such Subsidiary Guarantor, as the
case may be, will not be required to provide such security
interest.
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Events of
Default and Remedies
Each of the following is an Event of Default under
the indenture:
(1) default for 30 days in the payment when due of
interest or additional interest (as required by the Registration
Rights Agreement) on the notes;
(2) default in the payment when due (at maturity, upon
redemption or otherwise) of the principal of, or premium, if
any, on, the notes;
(3) failure by Parent, the issuer or any of Parents
Restricted Subsidiaries to comply with the provisions described
under the captions Repurchase at the Option of
Holders Change of Control or
Certain Covenants Merger,
Consolidation or Sale of Assets;
(4) failure by Parent, the issuer or any of Parents
Restricted Subsidiaries to comply for 60 days after notice
to Swift by the trustee or the Holders of at least 25% in
aggregate principal amount of notes with its other agreements
contained in the notes or the indenture or the Security
Documents;
(5) default under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured
or evidenced any Indebtedness for money borrowed by Parent, the
issuer or any of Parents Restricted Subsidiaries (or the
payment of which is guaranteed by Parent, the issuer or any of
Parents Restricted Subsidiaries), whether such
Indebtedness or guarantee now exists or is created after the
Original Issue Date, if that default:
(a) is caused by a failure to pay any portion of the
principal of such Indebtedness when due and payable after the
expiration of the grace period provided in such Indebtedness (a
Payment Default); or
(b) results in the acceleration of such Indebtedness prior
to its Stated Maturity,
and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other
such Indebtedness under which there has been a Payment Default
or the maturity of which has been so accelerated, aggregates
$30.0 million or more;
(6) failure by Parent, the issuer or any of Parents
Restricted Subsidiaries to pay final and nonappealable judgments
entered by a court or courts of competent jurisdiction
aggregating in excess of $30.0 million (net of any amounts
which are covered by insurance or bonded), which judgments are
not paid, waived, satisfied, discharged or stayed for a period
of 60 days;
(7) except as permitted by such indenture, any Note
Guarantee is held in any judicial proceeding to be unenforceable
or invalid or ceases for any reason to be in full force and
effect (other than in accordance with the terms of such Note
Guarantee, the indenture or the Intercreditor Agreement), or
Parent or any Subsidiary Guarantor, or any Person acting on
behalf of Parent or any Subsidiary Guarantor, denies or
disaffirms its obligations under its Note Guarantee with respect
to such series of notes;
(8) unless all the Collateral has been released from the
applicable Liens in accordance with the provisions of the
Security Documents or Intercreditor Agreement, as applicable,
default by Parent, the issuer or any Subsidiary Guarantor of
Parent in the performance of the Security Documents, or the
occurrence of any other event, in each case that adversely
affects the enforceability, validity, perfection or priority of
such Liens on a material portion of the Collateral granted to
the trustee and the Holders of the notes, the repudiation or
disaffirmation by Parent, the issuer or any Subsidiary Guarantor
of its material obligations under the Security Documents or the
determination in a judicial proceeding that the Security
Documents are unenforceable or invalid against Parent, the
issuer or any Subsidiary Guarantor party thereto for any reason
with respect to a material portion of the Collateral (which
default, occurrence, repudiation, disaffirmation or
determination is not rescinded, stayed or waived by the Persons
having such authority pursuant to the Security Documents or
otherwise cured within 60 days after Swift receives notice
thereof specifying such occurrence from the trustee or the
Holders of at least 25% of the outstanding principal amount of
Notes and demanding that such default, occurrence, repudiation,
disaffirmation or determination be remedied); and
175
(9) certain events of bankruptcy or insolvency described in
such indenture with respect to Parent, the issuer or any of
Parents Restricted Subsidiaries that is a Significant
Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary.
In the case of an Event of Default arising from certain events
of bankruptcy or insolvency, with respect to Parent, the issuer,
any Restricted Subsidiary of Parent that is a Significant
Subsidiary or any group of Restricted Subsidiaries of Parent
that, taken together, would constitute a Significant Subsidiary,
all outstanding notes will become due and payable immediately
without further action or notice. If any other Event of Default
occurs and is continuing, the trustee or the Holders of at least
25% in aggregate principal amount of the then outstanding notes
of such series may declare all the notes of such series to be
due and payable immediately.
Subject to certain limitations, Holders of a majority in
aggregate principal amount of the then outstanding notes of a
series of notes may direct the trustee in its exercise of any
trust or power in respect of the notes. The trustee may withhold
from Holders notice of any continuing Default or Event of
Default if it determines that withholding notice is in their
interest, except a Default or Event of Default relating to the
payment of principal, interest or premium, if any.
Subject to the provisions of the indenture relating to the
duties of the trustee, in case an Event of Default occurs and is
continuing, the trustee will be under no obligation to exercise
any of the rights or powers under such indenture at the request
or direction of any Holders unless such Holders have offered to
the trustee indemnity or security satisfactory to the trustee
against any loss, liability or expense. Except to enforce the
right to receive payment of principal, premium, if any, or
interest when due, no Holder may pursue any remedy with respect
to such indenture or the notes unless:
(1) such Holder has previously given the trustee notice
that an Event of Default is continuing;
(2) Holders of at least 25% in aggregate principal amount
of the then outstanding notes have requested the trustee to
pursue the remedy;
(3) such Holders have offered the trustee security or
indemnity satisfactory to the trustee against any loss,
liability or expense;
(4) the trustee has not complied with such request within
60 days after the receipt of the request and the offer of
security or indemnity; and
(5) Holders of a majority in aggregate principal amount of
the then outstanding notes have not given the trustee a
direction inconsistent with such request within such
60-day
period.
The Holders of a majority in aggregate principal amount of the
then outstanding notes by notice to the trustee may, on behalf
of the Holders of all of the notes, rescind an acceleration or
waive any existing Default or Event of Default in respect of
such series and its consequences under the indenture except a
continuing Default or Event of Default in the payment of
interest or premium, if any, on, or the principal of, the notes.
Swift is required to deliver to the trustee annually a statement
regarding compliance with the indenture. Upon becoming aware of
any Default or Event of Default that has not been cured, Swift
is required to deliver to the trustee a statement specifying
such Default or Event of Default.
No
Personal Liability of Directors, Officers, Employees and
Stockholders
No director, officer, employee, incorporator or stockholder of
Parent, the issuer or any Subsidiary Guarantor, as such, will
have any liability for any obligations of Parent, the issuer or
the Subsidiary Guarantors under the notes, the indenture, the
Note Guarantees or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder by
accepting a note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of
the notes. The waiver may not be effective to waive liabilities
under the federal securities laws.
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Legal
Defeasance and Covenant Defeasance
The issuer may at any time, at the option of Swifts Board
of Directors evidenced by a resolution set forth in an
Officers Certificate, elect to have all of their
obligations discharged with respect to the outstanding notes of
a series and under the indenture and all obligations of Parent
and the Subsidiary Guarantors discharged with respect to their
Note Guarantees in respect of such series and under the
indenture (Legal Defeasance) except for:
(1) the rights of Holders of outstanding notes to receive
payments in respect of the principal of, or interest or premium,
if any, on, such notes when such payments are due from the trust
referred to below;
(2) the issuers obligations with respect to the notes
concerning issuing temporary notes, registration of notes,
mutilated, destroyed, lost or stolen notes and the maintenance
of an office or agency for payment and money for security
payments held in trust;
(3) the rights, powers, trusts, duties and immunities of
the trustee, and Parents, issuers and the Subsidiary
Guarantors obligations in connection therewith; and
(4) the Legal Defeasance provisions of the indenture.
In addition, the issuer may, at its option and at any time,
elect to have the obligations of Parent, the issuer and the
Subsidiary Guarantors released with respect to certain covenants
(including the obligation to make Change of Control Offers,
Asset Sale Offers and Designated Asset Sale Offers) that are
described in the indenture (Covenant
Defeasance) and thereafter any omission to comply with
those covenants will not constitute a Default or Event of
Default with respect to the notes.
In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, rehabilitation
and insolvency events) described under Events
of Default and Remedies will no longer constitute an Event
of Default with respect to the notes.
In order to exercise either Legal Defeasance or Covenant
Defeasance:
(1) the issuer must irrevocably deposit with the trustee,
in trust, for the benefit of the Holders, cash in
U.S. dollars, non-callable Government Securities, or a
combination of cash in U.S. dollars and non-callable
Government Securities, in amounts as will be sufficient, in the
opinion of a nationally recognized investment bank, appraisal
firm or firm of independent public accountants, to pay the
principal of, or interest and premium, if any, on, the
outstanding notes on the stated date for payment thereof or on
the applicable redemption date, as the case may be, and the
issuer must specify whether the notes are being defeased to such
stated date for payment or to a particular redemption date
provided that, upon any redemption that requires the
payment of the Applicable Premium, the amount deposited shall be
sufficient for the purposes of the indenture to the extent that
an amount is deposited with the Trustee equal to the Applicable
Premium calculated as of the date of the notice of redemption,
with any deficit on the date of redemption (any such amount, the
Applicable Premium Deficit) only required to
be deposited with the trustee on or prior to the date of
redemption. Any Applicable Premium Deficit shall be set forth in
an Officers Certificate delivered to the trustee
simultaneously with the deposit of such Applicable Premium
Deficit that confirms that such Applicable Premium Deficit shall
be applied toward such redemption;
(2) in the case of Legal Defeasance, the issuer must
deliver to the trustee an opinion of counsel reasonably
acceptable to the trustee (subject to customary exceptions and
exclusions) confirming that:
(a) Parent and the issuer have received from, or there has
been published by, the Internal Revenue Service a ruling; or
(b) since the date of the indenture, there has been a
change in the applicable federal income tax law,
in either case to the effect that, and based thereon such
opinion of counsel shall confirm that, the Holders of the
outstanding notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance
and will be subject to federal income tax on the same
177
amounts, in the same manner and at the same times as would have
been the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the issuer must
deliver to the trustee an opinion of counsel reasonably
acceptable to the trustee (subject to customary exceptions and
exclusions) confirming that the Holders of the outstanding notes
will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such
Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and
be continuing on the date of such deposit (other than a Default
or Event of Default resulting from, or arising in connection
with, the borrowing of funds to be applied to such deposit and
the grant of any Lien securing such borrowing);
(5) such Legal Defeasance or Covenant Defeasance will not
result in a breach or violation of, or constitute a default
under, any material agreement or instrument (other than the
indenture) to which Parent, the issuer or any of their
respective Subsidiaries is a party or by which Parent, the
issuer or any of their respective Subsidiaries is bound,
including the Credit Agreement;
(6) Parent and the issuer must deliver to the trustee an
Officers Certificate stating that the deposit was not made
by Parent and Swift with the intent of preferring the Holders
over the other creditors of Parent or Swift or with the intent
of defeating, hindering, delaying or defrauding any creditors of
Parent or Swift or others; and
(7) Parent and the issuer must deliver to the trustee an
Officers Certificate and an opinion of counsel, each
stating that all conditions precedent relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.
Amendment,
Supplement and Waiver
Except as provided in the next three succeeding paragraphs, the
indenture, the notes of the applicable series, the Note
Guarantees or the Security Documents may be amended or
supplemented with respect to each series of notes with the
consent of the issuer and Holders of at least a majority in
aggregate principal amount of the notes of such series then
outstanding (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer
for, notes), and any existing Default or Event of Default or
compliance with any provision of the indenture, the notes of the
applicable series, the Note Guarantees or the Security Documents
may be waived with the consent of the Holders of a majority in
aggregate principal amount of the then outstanding notes of the
applicable series of notes (including, without limitation,
consents obtained in connection with a purchase of, or tender
offer or exchange offer for, notes).
Without the consent of the issuer and each Holder affected, an
amendment, supplement or waiver may not (with respect to any
notes held by a non-consenting Holder):
(1) reduce the principal amount of notes whose Holders must
consent to an amendment, supplement or waiver;
(2) reduce the principal of or extend the fixed maturity of
any note or alter the provisions with respect to the redemption
of the notes (other than the covenants described above under the
caption Repurchase at the Option of
Holders);
(3) reduce the rate of or extend the time for payment of
interest, including default interest, on any note;
(4) waive a Default or Event of Default in the payment of
principal of, or interest or premium, if any, on, the notes
(except a rescission of acceleration of the notes by the Holders
of at least a majority in aggregate principal amount of the then
outstanding notes and a waiver of the payment default that
resulted from such acceleration);
(5) make any note payable in money other than that stated
in the notes;
178
(6) make any change in the provisions of the indenture
relating to waivers of past Defaults or impair the rights of
Holders to receive payments of principal of, or interest or
premium, if any, on, the notes;
(7) waive a redemption payment with respect to any note
(other than the covenants described above under the caption
Repurchase at the Option of Holders);
(8) release Parent or any Subsidiary Guarantor from any of
its obligations under its Note Guarantee or the indenture,
except as otherwise specifically provided in the indenture, the
Intercreditor Agreement or in the Security Documents;
(9) impair the right to institute suit for the enforcement
of any payment on or with respect to the notes or any Note
Guarantees;
(10) make any change in the provisions in the Intercreditor
Agreement or the indenture dealing with the application of
proceeds of Collateral that would materially adversely affect
the Holders of the notes; or
(11) make any change in the preceding amendment and waiver
provisions.
Any amendment to, or waiver of, the provisions of the indenture
or any Security Document that has the effect of releasing all or
substantially all of the Collateral from the Liens securing the
notes will require the consent of the Holders of at least
662/3%
in aggregate principal amount of the notes then outstanding. Any
other amendment to, or waiver of, the provisions of any Security
Document (including, except to the extent covered in the
immediately preceding sentence, with respect to the release of
Collateral) will be deemed to have been agreed to by the
aggregate principal amount of the notes then outstanding if
consented to by Holders of at least a majority in aggregate
principal amount of the notes then outstanding or to the extent
specifically provided in the Intercreditor Agreement or any
Security Document.
Notwithstanding the preceding, without the consent of any
Holder, Parent, the issuer, the Subsidiary Guarantors and the
trustee may amend or supplement the indenture, the notes of the
applicable series, the Note Guarantees, the Security Documents
or the Intercreditor Agreement:
(1) to cure any ambiguity, omission, defect or
inconsistency;
(2) to provide for uncertificated notes in addition to or
in place of certificated Notes;
(3) to provide for the assumption of Parents, the
issuers or a Subsidiary Guarantors obligations to
Holders of notes and Note Guarantees in the case of a merger or
consolidation or sale of all or substantially all of
Parents, the issuers or such Subsidiary
Guarantors assets, as applicable;
(4) to make any change that would provide any additional
rights or benefits to the Holders or that does not adversely
affect the legal rights under the indenture of any such Holder;
(5) to comply with requirements of the SEC in order to
effect or maintain the qualification of the indenture under the
Trust Indenture Act;
(6) to conform the text of the indenture, the Note
Guarantees or the notes to any provision of this
Description of the Exchange Notes to the extent that
such provision in this Description of the Exchange
Notes was intended to be a verbatim recitation of a
provision of such indenture, the Note Guarantees or the notes;
(7) to provide for the issuance of additional Notes in
accordance with the limitations set forth in the indenture;
(8) to allow any Subsidiary Guarantor to execute a
supplemental indenture
and/or a
Note Guarantee with respect to the notes and to release
Subsidiary Guarantors from the Note Guarantee in accordance with
the terms of the indenture or the Intercreditor Agreement, as
applicable, as of the date of the indenture;
179
(9) to make, complete or confirm any grant of Collateral
permitted or required by the indenture, the Intercreditor
Agreement or any of the Security Documents or any release of
Collateral that becomes effective as set forth in the indenture,
the Intercreditor Agreement or any of the Security
Documents; or
(10) to provide for the issuance of the notes.
The consent of the Holders is not necessary under the indenture
to approve the particular form of any proposed amendment, waiver
or consent. It is sufficient if such consent approves the
substance of the proposed amendment, waiver or consent.
Satisfaction
and Discharge
The indenture will be discharged and will cease to be of further
effect as to all notes issued thereunder, when:
(1) either:
(a) all notes that have been authenticated and, except
lost, stolen or destroyed notes that have been replaced or paid
and notes for whose payment money has been deposited in trust or
segregated and held in trust by the issuer and thereafter repaid
to the issuer, have been delivered to the trustee for
cancellation; or
(b) all notes that have not been delivered to the trustee
for cancellation have become due and payable by reason of the
mailing of a notice of redemption or otherwise or will become
due and payable within one year and Parent, the issuer or any
Subsidiary Guarantor has irrevocably deposited or caused to be
deposited with the trustee as trust funds in trust solely for
the benefit of the Holders, cash in U.S. dollars,
non-callable Government Securities, or a combination of cash in
U.S. dollars and non-callable Government Securities, in
amounts as will be sufficient, without consideration of any
reinvestment of interest, to pay and discharge the entire
Indebtedness (including all principal and interest) on the notes
not delivered to the trustee for cancellation;
(2) Parent, the issuer or any Subsidiary Guarantor has paid
or caused to be paid all other sums payable by it under such
indenture; and
(3) the issuer have delivered irrevocable instructions to
the trustee under such indenture to apply the deposited money
toward the payment of the notes at maturity or on the redemption
date, as the case may be.
In addition, the issuer must deliver an Officers
Certificate to the trustee stating that all conditions precedent
to satisfaction and discharge have been satisfied.
Concerning
the Trustee
If the trustee becomes a creditor of Parent, the issuer or any
Subsidiary Guarantor, the indenture limits the right of the
trustee to obtain payment of claims in certain cases, or to
realize on certain property received in respect of any such
claim as security or otherwise. The trustee will be permitted to
engage in other transactions; however, if it acquires any
conflicting interest it must (i) eliminate such conflict
within 90 days, (ii) apply to the SEC for permission
to continue as trustee (if the indenture has been qualified
under the Trust Indenture Act) or (iii) resign. The
Holders of a majority in aggregate principal amount of the then
outstanding notes will have the right to direct the time, method
and place of conducting any proceeding for exercising any remedy
available to the trustee, subject to certain exceptions. The
indenture provides that in case an Event of Default occurs and
is continuing, the trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the
trustee will be under no obligation to exercise any of its
rights or powers under the indenture at the request of any
Holder, unless such Holder has offered to the trustee security
and indemnity satisfactory to it against any loss, liability or
expense.
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Additional
Information
The indenture, the Security Documents and the Intercreditor
Agreement have either been filed as exhibits to the registration
statement of which this prospectus forms a part or incorporated
by reference therein, and are available without charge in the
manner described in this prospectus under the caption
Where You Can Find Additional Information.
Certain
definitions
Set forth below are certain defined terms used in the indenture.
Reference is made to the indenture for a full disclosure of all
defined terms used therein, as well as any other capitalized
terms used herein for which no definition is provided.
2010 Transactions shall have the meaning set
forth under Summary 2010 Transactions.
Acquired Debt means, with respect to any
specified Person:
(1) Indebtedness of any other Person existing at the time
such other Person is merged with or into such specified Person
or at such time such other Person became a Restricted Subsidiary
of Parent, whether or not such Indebtedness is incurred in
connection with, or in contemplation of, such other Person
merging with or into such specified Person or becoming a
Restricted Subsidiary of Parent; and
(2) Indebtedness secured by a Lien encumbering any asset
acquired by such specified Person.
Affiliate of any specified Person means any
other Person directly or indirectly controlling or controlled by
or under direct or indirect common control with such specified
Person. For purposes of this definition, control, as
used with respect to any Person, means the possession, directly
or indirectly, of the power to direct or cause the direction of
the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise. For
purposes of this definition, the terms controlling,
controlled by and under common control
with have correlative meanings.
Applicable Premium means, with respect to any
note on any applicable redemption date, the greater of:
(1) 1.0% of the principal amount of such note; and
(2) the excess, if any, of (a) the present value at
such redemption date of (i) the redemption price of such
note at November 15, 2014 (such redemption price being set
forth in the tables appearing above under the caption
Optional Redemption), plus (ii) all
required interest payments due on such note through
November 15, 2014 (excluding accrued but unpaid interest to
the redemption date), computed using a discount rate equal to
the Treasury Rate as of such redemption date plus 50 basis
points; over (b) the principal amount of such note.
Asset Sale means:
(1) the sale, lease (other than operating leases entered
into in the ordinary course of business), conveyance or other
disposition of any assets or rights provided that, the
sale, lease, conveyance or other disposition of all or
substantially all of the assets of Parent, Swift and
Parents Restricted Subsidiaries taken as a whole will be
governed by the provisions of the indenture described above
under the caption Repurchase at the Option of
Holders Change of Control
and/or the
provisions described above under the caption
Certain Covenants Merger,
Consolidation or Sale of Assets and not by the provisions
described above under the caption Repurchase
at the Option of Holders Asset Sales; and
(2) the issuance or sale of Equity Interests in Swift or
any of Parents Restricted Subsidiaries.
Notwithstanding the preceding, none of the following items will
be deemed to be an Asset Sale:
(1) any single transaction or series of related
transactions that involves assets having a Fair Market Value of
less than $5.0 million;
(2) a transfer of assets between or among Parent, Swift and
any of Parents Restricted Subsidiaries;
181
(3) an issuance or sale of Equity Interests by Swift or a
Restricted Subsidiary of Parent to Parent, Swift or to another
Restricted Subsidiary of Parent;
(4) the sale or lease of inventory, equipment, products or
services or the licensing or lease, assignment or
sub-lease of
any real or personal property in the ordinary course of business
and the sale of real property that constitutes Excluded Assets;
(5) the sale or disposition or discounting of accounts
receivable in the ordinary course of business;
(6) any sale or other disposition of damaged, worn-out,
obsolete or no longer useful assets in the ordinary course of
business, including Motor Vehicles;
(7) any sale or disposition of assets received by Parent,
Swift or any of Parents Restricted Subsidiaries upon the
foreclosure on a Lien;
(8) the sale or other disposition of cash, Cash Equivalents
or Marketable Securities;
(9) a Restricted Payment that does not violate the covenant
described above under the caption Certain
Covenants Restricted Payments or any Permitted
Investment;
(10) the granting of Liens not otherwise prohibited by the
indenture;
(11) the surrender or waiver of contract rights or
settlement, release or surrender of contract, tort or other
claims;
(12) the forgiveness of Indebtedness; and
(13) the disposition of an asset for a similar asset in a
transaction or series of transactions intended to qualify as a
like-kind exchange under Section 1031 of the
Internal Revenue Code (or any successor or replacement
provision), provided that:
(a) in the event such transaction or series of transactions
involves the transfer by Parent, Swift or any of Parents
Restricted Subsidiaries of assets having an aggregate fair
market value, as determined by the Board of Directors of Swift
in good faith, in excess of $20.0 million, the terms of
such transaction have been approved by a majority of the members
of the Board of Directors of Swift;
(b) in the event such transaction involves the transfer by
Parent, Swift or any of Parents Restricted Subsidiaries of
Collateral, the acquired assets shall be pledged as Collateral
as soon as practicable or otherwise permissible under
Certain Covenants After-Acquired
Property, with the Lien on such Collateral securing the
notes being of the same priority with respect to the notes or
Indebtedness as the Lien on the assets disposed of; and
(c) any Net Proceeds received by Parent, Swift or any of
Parents Restricted Subsidiaries shall be subject to the
restrictions governing receipt of Net Proceeds as set forth
under Assets Sales.
Attributable Debt in respect of a sale and
leaseback transaction means, at the time of determination, the
present value of the obligation of the lessee for net rental
payments during the remaining term of the lease included in such
sale and leaseback transaction including any period for which
such lease has been extended or may, at the option of the
lessor, be extended. Such present value shall be calculated
using a discount rate equal to the rate of interest implicit in
such transaction, determined in accordance with GAAP;
provided, however, that if such sale and leaseback
transaction results in a Capital Lease Obligation, the amount of
Indebtedness represented thereby will be determined in
accordance with the definition of Capital Lease
Obligation.
Bankruptcy Code means Title 11 of the
United States Code, as amended.
Bankruptcy Law means the Bankruptcy Code and
any similar federal, state or foreign law for the relief of
debtors.
182
Beneficial Owner has the meaning assigned to
such term in
Rule 13d-3
and
Rule 13d-5
under the Exchange Act, except that in calculating the
beneficial ownership of any particular person (as
that term is used in Section 13(d)(3) of the Exchange Act),
such person shall be deemed to have beneficial
ownership of all securities that such person has the
right to acquire by conversion or exercise of other securities,
whether such right is currently exercisable or is exercisable
only after the passage of time. The terms Beneficially
Owns and Beneficially Owned have a
corresponding meaning.
Board of Directors means:
(1) with respect to a corporation, the board of directors
of the corporation or any committee thereof duly authorized to
act on behalf of such board;
(2) with respect to a partnership, the Board of Directors
or other governing body of the general partner of the
partnership;
(3) with respect to a limited liability company, the Board
of Directors or other governing body, and in the absence of
same, the manager or board of managers or the managing member or
members or any controlling committee thereof; and
(4) with respect to any other Person, the board or
committee of such Person serving a similar function.
Business Day means a day other than a
Saturday, Sunday or other day on which banking institutions are
authorized or required by law to close in New York State.
Capital Lease Obligation means, at the time
any determination thereof is to be made, the amount of the
liability in respect of a capital lease that would at that time
be required to be capitalized on a balance sheet (excluding the
footnotes thereto) prepared in accordance with GAAP.
Capital Stock means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity that
is not a corporation, any and all shares, interests,
participations, rights or other equivalents (however designated)
of corporate stock;
(3) in the case of a partnership or limited liability
company, partnership interests (whether general or limited) or
membership interests; and
(4) any other interest or participation that confers on a
Person the right to receive a share of the profits and losses
of, or distributions of assets of, the issuing Person,
but excluding from all of the foregoing any debt securities
convertible into Capital Stock, whether or not such debt
securities include any right of participation with Capital Stock.
Captive Insurance Companies means Mohave
Transportation Insurance Company, an Arizona corporation, and
Red Rock Risk Retention Group Inc., an Arizona corporation, and
their respective Subsidiaries.
Cash Equivalents means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or
insured by the United States government or any agency or
instrumentality of the United States government (provided
that the full faith and credit of the United States is
pledged in support of those securities) having maturities of not
more than one year from the date of acquisition;
(3) certificates of deposit, time deposits and eurodollar
time deposits with maturities of one year or less from the date
of acquisition, bankers acceptances with maturities not
exceeding one year and overnight bank deposits, in each case,
with any lender party to the Credit Agreement or with any
domestic commercial bank having capital and surplus in excess of
$500.0 million and a rating at the time of acquisition
thereof of
P-1 or
better from Moodys or
A-1 or
better from S&P;
183
(4) repurchase obligations for underlying securities of the
types described in clauses (2) and (3) above entered
into with any financial institution meeting the qualifications
specified in clause (3) above;
(5) commercial paper having, at the time of acquisition,
one of the two highest ratings obtainable from Moodys or
S&P and, in each case, maturing within one year after the
date of acquisition;
(6) securities issued or fully guaranteed by any state or
commonwealth of the United States, or by any political
subdivision or taxing authority thereof having, at the time of
acquisition, one of the two highest ratings obtainable from
Moodys or S&P, and, in each case, maturing within one
year after the date of acquisition; and
(7) money market funds at least 95% of the assets of which
constitute Cash Equivalents of the kinds described in
clauses (1) through (6) of this definition.
Cash Management Obligations means any
agreement with a Person who is, or was at the time such Cash
Management Obligations were incurred, a lender or an affiliate
of a lender under the Credit Agreement to provide cash
management services, including treasury, depository, overdraft,
credit, purchase or debit card, electronic funds transfer and
other cash management arrangements including obligations for the
payment of fees, interest, charges, expenses, attorneys
fees and disbursements in connection therewith to the extent
provided for in the documents evidencing such cash management
services.
Change of Control means the occurrence of any
of the following:
(1) the direct or indirect sale, transfer, conveyance or
other disposition (other than by way of merger or
consolidation), in one or a series of related transactions, of
all or substantially all of the properties or assets of Parent,
Swift and Parents Restricted Subsidiaries, in each case,
taken as a whole, to any person (as that term is
used in Section 13(d)(3) of the Exchange Act) other than
the Permitted Holders;
(2) the adoption of a plan relating to the liquidation or
dissolution of Parent or Swift;
(3) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is
that any person or group (as such terms
are used in Sections 13(d) of the Exchange Act), other than
the Permitted Holders, becomes the Beneficial Owner of more than
35% of the voting power of the Voting Stock of Parent unless the
Permitted Holders are the Beneficial Owners of more of the
voting power of the Voting Stock of Parent than such other
person or group;
(4) the first day on which a majority of the members of the
Board of Directors of Parent or Swift are not Continuing
Directors; or
(5) Parent ceases to be the owner, directly or indirectly,
of 100% of the total voting power of the Voting Stock of the
issuer.
Collateral means all property subject or
purported to be subject, from time to time, to a Lien under any
Security Documents, but, in any event, excluding Excluded Assets.
Consolidated Cash Flow means, for any period,
the Consolidated Net Income of Parent for such period plus,
without duplication:
(1) an amount equal to any extraordinary loss plus any net
loss realized by Parent, Swift or any of Parents
Restricted Subsidiaries in connection with an Asset Sale, to the
extent such losses were deducted in computing such Consolidated
Net Income; plus
(2) provision for taxes based on income or profits of
Parent, Swift and Parents Restricted Subsidiaries for such
period, to the extent that such provision for taxes was deducted
in computing such Consolidated Net Income; plus
(3) the Fixed Charges of Parent, Swift and Parents
Restricted Subsidiaries for such period, to the extent that such
Fixed Charges were deducted in computing such Consolidated Net
Income; plus
184
(4) non-cash interest accruals attributable to the movement
in the mark to market valuation of Hedging Obligations pursuant
to GAAP to the extent such losses were deducted in computing
such Consolidated Net Income; plus
(5) depreciation, amortization (including amortization of
intangibles and amortization in relation to Hedging Obligations
terminated on the Original Issue Date but excluding amortization
of prepaid cash expenses or debt issuance costs), non-cash
impairment charges and other non-cash expenses (excluding any
such non-cash expense to the extent that it represents an
accrual of or reserve for cash expenses in any future period or
amortization of a prepaid cash expense) of Parent, Swift and
Parents Restricted Subsidiaries for such period to the
extent that such depreciation, amortization, non-cash impairment
charges and other non-cash expenses were deducted in computing
such Consolidated Net Income; minus
(6) non-cash items increasing such Consolidated Net Income
for such period, other than (x) the accrual of revenue in
the ordinary course of business and (y) any items that
represent the reversal in such period of any accrual of, or cash
reserve for, anticipated charges made in any prior period,
in each case, on a consolidated basis and determined in
accordance with GAAP.
Consolidated Interest Expense means, for any
period, the sum, without duplication of:
(1) the consolidated interest expense of Parent, the issuer
and Parents Restricted Subsidiaries for such period,
whether paid or accrued, including, without limitation,
amortization, expensing or write-off of original issue discount,
non-cash interest payments, the interest component of any
deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligations, imputed
interest with respect to Attributable Debt, commissions,
discounts and other fees and charges incurred in respect of
letter of credit or bankers acceptance financings, and net
of the effect of all payments made or received pursuant to
Hedging Obligations in respect of interest rates, but excluding
(A) debt issuance costs and (B) non-cash interest
accruals associated with Hedging Obligations in respect of
interest rates, except in each case as set forth in
clauses (2) and (3) below; plus
(2) non-cash interest accruals associated with Hedging
Obligations, provided that any non-cash interest income
or expense attributable to the movement in the mark to market
valuation of Hedging Obligations pursuant to GAAP shall be
excluded from the calculation of Consolidated Interest Expense;
plus
(3) amortization of debt issuance cost, provided
that any debt issuance cost associated with the 2010
Transactions shall be excluded from the calculation of
Consolidated Interest Expense; plus
(4) the consolidated interest expense of Parent, the issuer
and Parents Restricted Subsidiaries that was capitalized
during such period; plus
(5) any interest expense on Indebtedness of another Person
that is guaranteed by Parent, Swift or one of Parents
Restricted Subsidiaries or secured by a Lien on assets of
Parent, Swift or one of Parents Restricted Subsidiaries,
whether or not such guarantee or Lien is called upon.
Consolidated Net Income means, for any
period, the aggregate of the Net Income of Parent, Swift and
Parents Restricted Subsidiaries for such period, on a
consolidated basis, determined in accordance with GAAP;
provided that:
(1) the Net Income (but not loss) of any Person that is not
a Restricted Subsidiary of Parent or that is accounted for by
the equity method of accounting will be included only to the
extent that (x) such Net Income is actually dividended or
distributed in cash to Parent, Swift or a Restricted Subsidiary
of Parent or (y) any of Parent, Swift or a Restricted
Subsidiary has the present ability to require such Unrestricted
Subsidiary to dividend or distribute such Net Income to Parent,
Swift or such Restricted Subsidiary;
(2) the Net Income of any Restricted Subsidiary of Parent
will be excluded to the extent that the declaration or payment
of dividends or similar distributions by that Restricted
Subsidiary of that Net Income is not at the date of
determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, by
operation of the terms of its charter or any agreement,
185
instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary
or its stockholders, except to the extent that any dividend or
distribution is actually made in cash and not otherwise included
therein;
(3) the cumulative effect of a change in accounting
principles will be excluded;
(4) any net gain (but not loss) resulting from an Asset
Sale by Parent, Swift or any of Parents Restricted
Subsidiaries other than in the ordinary course of business will
be excluded; and
(5) income or loss attributable to discontinued operations
(including, without limitation, operations disposed of during
such period whether or not such operations were classified as
discontinued) will be excluded.
Continuing Directors means, as of any date of
determination, any member of the Board of Directors of Swift or
Parent, as the case may be, who:
(1) was a member of such Board of Directors on the Original
Issue Date, or
(2) was nominated for election or elected to such Board of
Directors by the Permitted Holders or with the approval of a
majority of the Continuing Directors who were members of such
Board at the time of such nomination or election.
Credit Agreement means that certain credit
agreement, dated as of the Original Issue Date, by and among
Swift Transportation, the guarantors party thereto, the lenders
specified therein, Morgan Stanley Senior Funding, Inc., as the
syndication agent, Wells Fargo Bank, National Association,
Citigroup Global Markets Inc. and PNC Capital Markets LLC as the
documentation agents, Bank of America, N.A., as the
administrative agent and Morgan Stanley Senior Funding, Inc., as
collateral agent, including any related notes, guarantees,
collateral documents, instruments and agreements executed in
connection therewith, and, in each case, as amended, restated,
modified, renewed, refunded, replaced (whether upon or after
termination or otherwise) or refinanced (including by means of
sales of debt securities to institutional investors) in whole or
in part from time to time.
Credit Facilities means, one or more debt
facilities (including, without limitation, the Credit Agreement)
or commercial paper facilities, in each case, with banks or
other institutional lenders providing for revolving credit
loans, term loans, receivables financing (including through the
sale of receivables to such lenders or to special purpose
entities formed to borrow from such lenders against such
receivables) or letters of credit or issuances of debt
securities evidenced by notes, debentures, bonds or similar
instruments, in each case, as amended, restated, modified,
renewed, refunded, replaced (whether upon or after termination
or otherwise) or refinanced (including by means of sales of debt
securities to institutional investors) in whole or in part from
time to time.
Default means any event that is, or with the
passage of time or the giving of notice or both would be, an
Event of Default.
Disqualified Stock means any Capital Stock
that, by its terms (or by the terms of any security into which
it is convertible, or for which it is exchangeable, in each
case, at the option of the holder of the Capital Stock), or upon
the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise,
or redeemable at the option of the holder of the Capital Stock,
in whole or in part, on or prior to the date that is
91 days after the date on which the notes mature.
Notwithstanding the preceding sentence, any Capital Stock that
would constitute Disqualified Stock solely because the holders
of the Capital Stock have the right to require Swift to
repurchase such Capital Stock upon the occurrence of a change of
control or an asset sale will not constitute Disqualified Stock
if the terms of such Capital Stock provide that Swift may not
repurchase or redeem any such Capital Stock pursuant to such
provisions unless such repurchase or redemption complies with
the covenant described above under the caption
Certain Covenants Restricted
Payments. The amount of Disqualified Stock deemed to be
outstanding at any time for purposes of the indenture will be
the maximum amount that Parent, Swift and Parents
Restricted Subsidiaries may become obligated to pay upon the
maturity of, or pursuant to any mandatory redemption provisions
of, such Disqualified Stock, exclusive of accrued dividends.
186
Equity Interests means Capital Stock and all
warrants, options or other rights to acquire Capital Stock (but
excluding any debt security that is convertible into, or
exchangeable for, Capital Stock).
Equity Offering means an offer and sale of
Capital Stock (other than Disqualified Stock) of Parent (to the
extent the net proceeds therefrom are contributed to the equity
capital of Swift) pursuant to a registration statement that has
been declared effective by the SEC pursuant to the Securities
Act (other than a registration statement on
Form S-8
or otherwise relating to equity securities issuable under any
employee benefit plan of Parent).
Excluded Assets means:
(i) accounts receivable and related assets included in any
Qualified Receivables Transaction;
(ii) certain parcels of owned real property that are not
material to the operations of Parent on a consolidated basis
and, if owned on the Original Issue Date, shall be set forth on
a schedule to the indenture;
(iii) shares of capital stock of (or other ownership or
profit interests in) Swift Academy LLC, any captive insurance
subsidiaries (including Mohave Transportation Insurance Company
and Red Rock Risk Retention Group, Inc.), any receivables
financing subsidiary (provided that, to the extent the
shares of capital stock of such subsidiary are permitted to be
pledged pursuant to the terms of the applicable Qualified
Receivables Transaction, they shall not constitute an Excluded
Asset) or other special purpose entities;
(iv) assets (including proceeds thereof) subject to Liens
under permitted purchase money indebtedness or permitted capital
leases to the extent such indebtedness or capital lease contains
a valid prohibition on using such assets to secure other
indebtedness;
(v) deposit or securities accounts the balance of which
consists exclusively of amounts in connection with equipment and
other asset dispositions and acquisitions intended to qualify
for like-kind exchange tax treatment;
(vi) deposit accounts used solely for payroll, payroll
taxes, and other employee wage and benefit payments;
(vii) deposit and securities accounts to the extent the
aggregate value of assets therein does not exceed a certain
threshold;
(viii) capital stock of a Foreign Subsidiary owned by the
issuer or a guarantor in excess of 65% of the total combined
voting power of all capital stock of each such Foreign
Subsidiary;
(ix) any asset, the granting of a security interest in
which would be void or illegal under any applicable governmental
law, rule or regulation, or pursuant thereto would result in, or
permit the termination of, such asset;
(x) any contracts, instruments, licenses or other
documents, any rights thereunder or any assets subject thereto,
as to which the grant of a security interest therein would
(i) constitute a violation of a valid and enforceable
restriction in favor of a third party on such grant, unless and
until any required consents shall have been obtained, or
(ii) give any other party to such contract, instrument,
license or other document the right to terminate its obligations
thereunder, except to the extent that applicable terms in such
contract, instrument, license or other document is ineffective
under applicable law;
(xi) any application for Trademarks filed in the United
States Patent and Trademark Office on the basis of the issuer or
any guarantors
intent-to-use
such Trademark pursuant to 15 U.S.C. § 1051
Section (b)(1) and for which a form evidencing use of the mark
in interstate commerce has not been filed pursuant to
15 U.S.C. § 1051(c) or (d) to the extent
such Trademarks would be rendered invalidated, canceled or
abandoned due to the granting or enforcement of such security
interest.
(xii) any Motor Vehicle acquired by Parent, Swift or any of
Parents Restricted Subsidiaries that such acquirer
reasonably anticipates will become subject to a financing
(including a sale and leaseback)
187
within 180 days of the acquisition of such Motor Vehicle;
provided that (i) if at any time within such
180-day
period the acquirer no longer reasonably anticipates such Motor
Vehicle will become subject to a financing within such
180-day
period, (ii) if such Motor Vehicle does not become subject
to a financing within such
180-day
period or (iii) if at any time after becoming subject to a
financing, such Motor Vehicle is longer subject to a financing
(or any refinancing thereof), such Motor Vehicle shall, in each
case, no longer qualify as an Excluded Asset; and
(xiii) the assets excluded pursuant to the fourth and fifth
paragraphs under Security.
Fair Market Value means the value that would
be paid by a willing buyer to an unaffiliated willing seller in
a transaction not involving distress or necessity of either
party, and, in the case of any transaction involving aggregate
consideration in excess of $10.0 million, determined in
good faith by the Board of Directors of Swift (unless otherwise
provided in the indenture).
First Lien Agent has the meaning given to
such term in the Intercreditor Agreement.
First Priority After-Acquired Property means
any property (other than the initial collateral) of Parent,
Swift or any Subsidiary Guarantor that secures any Secured Bank
Indebtedness.
First Priority Lien Obligations means
(i) all Secured Bank Indebtedness, (ii) all other
Obligations (not constituting Indebtedness) of Parent, the
issuer and Parents Restricted Subsidiaries under the
agreements governing Secured Bank Indebtedness and
(iii) all other Obligations of Parent, the issuer or any of
Parents Restricted Subsidiaries in respect of Hedging
Obligations or Cash Management Obligations, in each case owing
to a Person that is, or was at the time such obligations were
incurred, a holder of Indebtedness described in clause (i)
or Obligations described in clause (ii) or an Affiliate of
such holder at the time of entry into such Hedging Obligations
or Cash Management Obligations, as applicable, to the extent
such Hedging Obligations or Cash Management Obligations, as
applicable, are secured by Liens on assets also securing the
Secured Bank Indebtedness (including all Obligations in respect
thereof).
Fixed Charge Coverage Ratio means, for any
period, the ratio of the Consolidated Cash Flow of Parent for
such period to the Fixed Charges of Parent for such period. In
the event that Parent, Swift or any of Parents Restricted
Subsidiaries incurs, assumes, guarantees, repays, repurchases,
redeems, defeases or otherwise discharges any Indebtedness
(other than ordinary working capital borrowings) or issues,
repurchases or redeems preferred stock subsequent to the
commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated and on or prior to the date on which
the event for which the calculation of the Fixed Charge Coverage
Ratio is made (the Calculation Date), then
the Fixed Charge Coverage Ratio will be calculated giving pro
forma effect to such incurrence, assumption, guarantee,
repayment, repurchase, redemption, defeasance or other discharge
of Indebtedness, or such issuance, repurchase or redemption of
preferred stock, and the use of the proceeds therefrom, as if
the same had occurred at the beginning of the applicable
four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge
Coverage Ratio:
(1) acquisitions that have been made by Parent, Swift or
any of Parents Restricted Subsidiaries, including through
mergers or consolidations, or any Person acquired by Parent,
Swift or any of Parents Restricted Subsidiaries, and
including any related financing transactions and including
increases in ownership of Restricted Subsidiaries, during the
four-quarter reference period or subsequent to such reference
period and on or prior to the Calculation Date will be given pro
forma effect (in accordance with Regulation S-X under the
Securities Act) as if they had occurred on the first day of the
four-quarter reference period;
(2) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, and
operations or businesses (and ownership interests therein)
disposed of prior to the Calculation Date will be excluded;
(3) the Fixed Charges attributable to discontinued
operations, as determined in accordance with GAAP, and
operations or businesses (and ownership interests therein)
disposed of prior to the Calculation Date will be excluded, but
only to the extent that the obligations giving rise to such
Fixed Charges will
188
not be obligations of Parent, Swift or any of Parents
Restricted Subsidiaries following the Calculation Date;
(4) any Person that is a Restricted Subsidiary of Parent on
the Calculation Date will be deemed to have been a Restricted
Subsidiary at all times during such four-quarter period;
(5) any Person that is not a Restricted Subsidiary of
Parent on the Calculation Date will be deemed not to have been a
Restricted Subsidiary at any time during such four-quarter
period; and
(6) if any Indebtedness bears a floating rate of interest,
the interest expense on such Indebtedness will be calculated as
if the rate in effect on the Calculation Date had been the
applicable rate for the entire period (taking into account any
Hedging Obligation applicable to such Indebtedness if such
Hedging Obligation has a remaining term as at the Calculation
Date in excess of 12 months).
Fixed Charges means, for any period, the sum,
without duplication, of:
(1) the Consolidated Interest Expense of Parent for such
period; plus
(2) the product of (a) all dividends, whether paid or
accrued and whether or not in cash, on any series of preferred
stock of Parent, Swift or any of Parents Restricted
Subsidiaries, other than dividends on Equity Interests payable
solely in Equity Interests of Parent (other than Disqualified
Stock) or to Parent, Swift or a Restricted Subsidiary of Parent,
times (b) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined
federal, state and local statutory tax rate of such Person,
expressed as a decimal, in each case, determined on a
consolidated basis in accordance with GAAP.
Foreign Subsidiary means any direct or
indirect Subsidiary of Parent that is not organized under the
laws of the United States or any state of the United States or
the District of Columbia (which term shall include any
Subsidiary organized under the laws of Puerto Rico).
GAAP means generally accepted accounting
principles set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements
of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a
significant segment of the accounting profession, which are in
effect on the date of the indenture.
Government Securities means securities that
are direct non-callable obligations of, or guaranteed by, the
United States of America for the timely payment of which its
full faith and credit is pledged.
guarantee means a guarantee, other than by
endorsement of negotiable instruments for collection in the
ordinary course of business, direct or indirect, in any manner,
including, without limitation, by way of a pledge of assets or
through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness (whether arising
by virtue of partnership arrangements, or by agreements to
keep-well, to purchase assets, goods, securities or services, to
take or pay or to maintain financial statement conditions or
otherwise).
guarantors means each of (i) the Parent
and its successors and assigns until the Note Guarantee of the
Parent has been released in accordance with the provisions of
the indenture and (ii) the Subsidiary Guarantors.
Hedging Obligations means, with respect to
any specified Person, the obligations of such Person under:
(1) interest rate swap agreements (whether from fixed to
floating or from floating to fixed), interest rate cap
agreements and interest rate collar agreements;
(2) other agreements or arrangements designed to manage
interest rates or interest rate risk; and
(3) other agreements or arrangements designed to protect
such Person against fluctuations in currency exchange rates or
commodity prices.
Holder means a Person in whose name a note is
registered.
189
Indebtedness means, with respect to any
specified Person, any indebtedness of such Person (excluding
accrued expenses and trade payables), whether or not contingent,
without duplication:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar
instruments or letters of credit (or reimbursement agreements in
respect thereof);
(3) in respect of bankers acceptances;
(4) representing Capital Lease Obligations or Attributable
Debt in respect of sale and leaseback transactions;
(5) representing the balance deferred and unpaid of the
purchase price of any property or services due more than six
months after such property is acquired or such services are
completed; or
(6) representing any Hedging Obligations,
if and to the extent any of the preceding items (other than
letters of credit, Attributable Debt and Hedging Obligations)
would appear as a liability upon a balance sheet of the
specified Person prepared in accordance with GAAP. In addition,
the term Indebtedness includes all Indebtedness of
others secured by a Lien on any asset of the specified Person
(whether or not such Indebtedness is assumed by the specified
Person) and, to the extent not otherwise included, the guarantee
by the specified Person of any Indebtedness of any other Person.
Internal Revenue Code means the Internal
Revenue Code of 1986, as amended.
Investments means, with respect to any
Person, all direct or indirect investments by such Person in
other Persons (including Affiliates) in the forms of loans
(including guarantees or other obligations), advances or capital
contributions (excluding (A) advances to customers in the
ordinary course of business that are recorded as accounts
receivable on the consolidated balance sheet of such Person and
(B) commission, travel and similar advances to officers and
employees made in the ordinary course of business), purchases or
other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are
or would be classified as investments on a balance sheet of such
Person prepared in accordance with GAAP. If Parent, Swift or any
Restricted Subsidiary of Parent sells or otherwise disposes of
any Equity Interests of any direct or indirect Subsidiary of
Parent such that, after giving effect to any such sale or
disposition, such Person is no longer a Subsidiary of Parent,
Parent will be deemed to have made an Investment on the date of
any such sale or disposition equal to the Fair Market Value of
Parents Investments in such Subsidiary that were not sold
or disposed of in an amount determined as provided in the final
paragraph of the covenant described above under the caption
Certain Covenants Restricted
Payments. The acquisition by Parent, Swift or any
Restricted Subsidiary of Parent of a Person that holds an
Investment in a third Person will be deemed to be an Investment
by Parent, Swift or such Restricted Subsidiary in such third
Person in an amount equal to the Fair Market Value of the
Investments held by the acquired Person in such third Person in
an amount determined as provided in the final paragraph of the
covenant described above under the caption
Certain Covenants Restricted
Payments. Except as otherwise provided in the indenture,
the amount, or Fair Market Value, of an Investment will be
determined at the time the Investment is made and without giving
effect to subsequent changes in value.
Investment Grade Rating means a rating equal
to or higher than Baa3 (or the equivalent) by Moodys
Investors Service, Inc. and BBB- (or the equivalent) by
Standard & Poors Ratings Group, Inc., in each
case, with a stable or better outlook.
Issue Date means the date on which the notes
are originally issued.
Lien means, with respect to any asset, any
mortgage, lien, pledge, charge, security interest or encumbrance
of any kind in respect of such asset, whether or not filed,
recorded or otherwise perfected under applicable law, including
any conditional sale or other title retention agreement, any
lease in the nature thereof, any option or other agreement to
sell or give a security interest in and any filing of or
agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction.
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Marketable Securities means any equity
securities that are (i) not subject to any transfer
restrictions arising under contract or applicable laws
(including under federal and state securities laws); and
(ii) traded on the New York Stock Exchange, the American
Stock Exchange or the Nasdaq National Market; and
(iii) issued by a corporation having a total equity market
capitalization of not less than $250.0 million;
provided that the excess of (A) the aggregate amount
of securities of any one such corporation held by Parent, Swift
and any Restricted Subsidiary over (B) ten times the
average daily trading volume of such securities during the 20
immediately preceding trading days shall be deemed not to be
Marketable Securities.
Moodys means Moodys Investors
Service, Inc. and its successors and assigns.
Motor Vehicles means motor vehicles,
trailers, and related equipment owned or leased by Parent or any
of its Restricted Subsidiaries.
Net Income means, with respect to any
specified Person, the net income (loss) of such Person,
determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however:
(1) any gain (or loss), together with any related provision
for taxes on such gain (or loss), realized in connection with:
(a) any Asset Sale; or (b) the disposition of any
securities by such Person or any of its Restricted Subsidiaries
or the extinguishment of any Indebtedness of such Person or any
of its Restricted Subsidiaries; and
(2) any extraordinary or nonrecurring gain (or loss),
together with any related provision for taxes on such
extraordinary or nonrecurring gain (or loss).
Net Proceeds means the aggregate cash
proceeds received by Parent, Swift or any of Parents
Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset
Sale), net of (i) the direct costs relating to such Asset
Sale, including, without limitation, legal, accounting and
investment banking fees, and sales commissions, and any
relocation expenses incurred as a result of the Asset Sale,
taxes paid or payable as a result of the Asset Sale, in each
case, after taking into account any available tax credits or
deductions and any tax sharing arrangements, (ii) amounts
required to be applied to the repayment of Indebtedness, other
than the repayment of First Priority Lien Obligations, secured
by a Lien on the asset or assets that were the subject of such
Asset Sale and (iii) any reserve for adjustment in respect
of the sale price of such asset or assets established in
accordance with GAAP or amount placed in an escrow established
for purposes of such an adjustment.
Non-Recourse Debt means Indebtedness:
(1) as to which neither Parent, the issuer nor any of
Parents Restricted Subsidiaries (a) provides credit
support of any kind (including any undertaking, agreement or
instrument that would constitute Indebtedness), other than a
pledge of the Equity Interests of Unrestricted Subsidiaries,
(b) is directly or indirectly liable (as a guarantor or
otherwise), other than by virtue of a pledge of the Equity
Interests of Unrestricted Subsidiaries, or (c) constitutes
the lender; and
(2) no default with respect to which (including any rights
that the holders of the Indebtedness may have to take
enforcement action against an Unrestricted Subsidiary) would
permit, upon notice, lapse of time or both, any holder of any
other Indebtedness (other than the notes) of Parent, the issuer
or any of Parents Restricted Subsidiaries to declare a
default on such other Indebtedness or cause the payment of the
Indebtedness to be accelerated or payable prior to its Stated
Maturity.
Note Guarantee means the guarantee by Parent
and each Subsidiary Guarantor of Swifts obligations under
the indenture and the notes pursuant to the indenture and any
supplemental indenture thereto.
Obligations means any principal, interest,
penalties, fees, indemnifications, reimbursements, damages,
costs, expenses and other liabilities payable under the
documentation governing any Indebtedness.
Officer means, with respect to any Person,
the Chairman of the Board, the Chief Executive Officer, the
President, the Chief Operating Officer, the Chief Financial
Officer, the Treasurer, any Assistant Treasurer, the
191
Controller, the Secretary, any Senior Vice President, any Vice
President or any Assistant Vice President of such Person.
Officers Certificate means a
certificate signed on behalf of Swift by at least two Officers
of Swift, one of whom must be the principal executive officer,
the principal financial officer, the treasurer or the principal
accounting officer of Swift that meets the requirements of the
indenture.
Original Issue Date means December 21,
2010.
Other Second Priority Lien Obligations means
the Other Second Priority Secured Notes and any other
Indebtedness of Parent, Swift or any Subsidiary Guarantor that
is equally and ratably secured with the notes.
Other Second Priority Secured Notes means
(i) the outstanding Second-Priority Senior Secured Floating
Rate Notes due 2015, issued by the Company pursuant to that
certain indenture, dated as of May 10, 2007, among Swift
Corporation, the guarantors and U.S. Bank National
Association, as trustee, and (ii) the outstanding
121/2%
Second-Priority Senior Secured Fixed Rate Notes due 2017, issued
by the Company pursuant to that certain indenture, dated as of
May 10, 2007, among Swift Corporation, the guarantors and
U.S. Bank National Association, as trustee, and any
refinancings thereof permitted pursuant to the terms of the
indentures.
Pari Passu Indebtedness means:
(1) with respect to the issuer, the notes and any
Indebtedness that ranks pari passu in right of payment to
the notes (without regard to lien priority); and
(2) with respect to Parent and any Subsidiary Guarantor,
its Note Guarantee and any Indebtedness that ranks pari passu
in right of payment to Parents or such Subsidiary
Guarantors Note Guarantee (without regard to lien
priority).
Permitted Business means the businesses of
Swift and its Subsidiaries engaged in on the Original Issue Date
and any other activities that are similar, ancillary, reasonably
related or complementary to, or a reasonable extension,
expansion or development of, such businesses or ancillary
thereto.
Permitted Holders means Jerry Moyes and the
Related Parties. Any person or group whose acquisition of
beneficial ownership constitutes a Change of Control in respect
of which a Change of Control Offer is made in accordance with
the requirements of the indenture will thereafter, together with
its Affiliates, constitute an additional Permitted Holder.
Permitted Investments means:
(1) any Investment in Swift or in a Subsidiary Guarantor;
(2) any Investment in cash, Cash Equivalents or Marketable
Securities;
(3) any Investment by Parent, Swift or any Subsidiary
Guarantor in a Person, if as a result of such Investment:
(a) such Person becomes a Subsidiary Guarantor; or
(b) such Person, in one transaction or a series of related
transactions, is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets
to, or is liquidated into, Parent, Swift or a Subsidiary
Guarantor;
(4) any Investment made as a result of the receipt of
non-cash consideration from an Asset Sale that was made pursuant
to and in compliance with the covenant described above under the
caption Repurchase at the Option of
Holders Asset Sales;
(5) any Investment the payment for which consists of Equity
Interests (other than Disqualified Stock) of Parent;
(6) any Investments received in compromise or resolution of
(A) obligations of trade creditors or customers that were
incurred in the ordinary course of business of Parent, Swift or
any of Parents Restricted
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Subsidiaries, including pursuant to any plan of reorganization
or similar arrangement upon the bankruptcy or insolvency of any
trade creditor or customer; or (B) litigation, arbitration
or other disputes with Persons who are not Affiliates;
(7) Investments represented by Hedging Obligations;
(8) loans or advances to officers, directors, consultants
and employees of Parent, Swift or any Restricted Subsidiary of
Parent made in the ordinary course of business in an aggregate
principal amount not to exceed $5.0 million at any one time
outstanding;
(9) repurchases of the Restricted Notes and the notes;
(10) guarantees issued in accordance with the covenants
described under Certain Covenants
Incurrence of Indebtedness and Issuance of Preferred
Equity and Certain Covenants
Additional Note Guarantees;
(11) any Investment existing on the Original Issue Date and
any Investment that replaces, refinances or refunds an existing
Investment; provided, that the new Investment is in an
amount that does not exceed the amount replaced, refinanced or
refunded, and is made in the same Person as the Investment
replaced, refinanced or refunded;
(12) receivables owing to Parent, Swift or any Restricted
Subsidiary of Parent created or acquired in the ordinary course
of business and payable or dischargeable in accordance with
customary trade terms;
(13) (A) payroll and similar advances to cover matters
that are expected at the time of such advances ultimately to be
treated as expenses for accounting purposes, (B) loans or
advances for driver education or training or (C) loans or
advances to owner operators, that, in each case, are made in the
ordinary course of business;
(14) lease, utilities, workers compensation,
performance and similar deposits made in the ordinary course of
business;
(15) Investments in the Captive Insurance Companies to the
extent that such Investments shall not exceed the minimum amount
of capitalization required pursuant to applicable regulatory
capital requirements;
(16) advances in the ordinary course of business to any
owner operator or similar individual performing services for
Parent or any of its Restricted Subsidiaries to finance the
purchase or lease of Motor Vehicles or other equipment, provided
that the Parent or such Restricted Subsidiary has a Lien on the
Motor Vehicles or other equipment purchased or leased;
(17) Investments in a Receivables Subsidiary or in any
Person by a Receivables Subsidiary in connection with a
Qualified Receivables Transaction;
(18) Investments in a Foreign Subsidiary in an aggregate
amount which, when taken together with all Investments made
pursuant to this clause (18) since the Original Issue Date
shall not exceed $50.0 million in the aggregate;
(19) Investments made in any other Restricted Subsidiary
that is not a Subsidiary Guarantor, which when taken together
with all other Investments that are at the time outstanding,
shall not exceed $50.0 million in aggregate amount at any
one time outstanding; and
(20) additional Investments, when taken together with all
other Investments made pursuant to this clause (20) that
are at the time outstanding, not to exceed $40.0 million at
any one time outstanding;
provided, however, that with respect to any Investment,
Swift may, in its sole discretion, allocate all or any portion
of any Investment to one or more of the above clauses (1)
through (20) so that all or a portion of the Investment
would be a Permitted Investment.
193
Permitted Liens means:
(1) Liens securing an aggregate principal amount of First
Priority Lien Obligations not to exceed the aggregate amount of
Indebtedness permitted to be incurred pursuant to
clause (1) of the definition of Permitted Debt; provided
that second priority Liens are granted to secure the notes
and the Note Guarantees as set forth under
Certain Covenants Liens;
(2) Liens in favor of Parent, the issuer or any of
Parents Restricted Subsidiaries;
(3) Liens on property of a Person existing at the time such
Person is merged with or into or consolidated with Parent, Swift
or any Restricted Subsidiary of Parent; provided that
such Liens were not incurred in contemplation of such merger or
consolidation and do not extend to any assets other than those
of the Person merged into or consolidated with Parent, Swift or
the Restricted Subsidiary;
(4) Liens on property (including Capital Stock) of a Person
existing at the time of acquisition of the property (including
Capital Stock) by Parent, Swift or any Restricted Subsidiary of
Parent; provided that such Liens were in existence prior
to, such acquisition, and not incurred in contemplation of, such
acquisition and do not extend to any property other than the
property so acquired by Parent, Swift or such Restricted
Subsidiary;
(5) Liens or deposits to secure the performance of
statutory or regulatory obligations, or surety, appeal or
performance bonds or other obligations of a like nature or
deposits in connection with tenders, bids, leases, trade
contracts, governmental contracts, or other similar obligations
(other than for the payment of Indebtedness), in each case
incurred in the ordinary course of business;
(6) Liens securing reimbursement obligations with respect
to commercial letters of credit which encumber documents and
other assets relating to such letters of credit and products and
proceeds thereof;
(7) Liens to secure Indebtedness permitted to be incurred
pursuant to clause (3) of the definition of Permitted Debt
covering only the assets acquired with or financed by such
Indebtedness;
(8) Liens existing on the Original Issue Date (other than
Liens of the type specified in clause (1) above);
(9) Liens for taxes, assessments or governmental charges or
claims that are not yet delinquent or that are being contested
in good faith by appropriate proceedings promptly instituted and
diligently conducted; provided that any reserve or other
appropriate provision as is required in conformity with GAAP has
been made therefor;
(10) Liens created for the benefit of (or to secure) the
Restricted Notes (or the Restricted Note Guarantees) and the
notes (or the Note Guarantees);
(11) Liens imposed by law (including, without limitation,
Liens in favor of customers for equipment under order or in
respect of advances paid in connection therewith), such as
carriers, warehousemens, landlords,
lessors, suppliers, banks, repairmens and
mechanics Liens, in each case, incurred in the ordinary
course of business;
(12) Liens incurred or deposits made in the ordinary course
of business to secure payment of workers compensation or
to participate in any fund in connection with workmens
compensation, unemployment insurance, old-age pensions or other
social security programs;
(13) easements, rights of way, zoning and similar
restrictions, reservations (including severances, leases or
reservations of oil, gas, coal, minerals or water rights),
restrictions or encumbrances in respect of real property or
title defects that were not incurred in connection with
Indebtedness and that do not in the aggregate materially
adversely affect the value of said properties (as such
properties are used by Swift or its Subsidiaries) or materially
impair their use in the operation of the business of Swift and
its Subsidiaries;
194
(14) Liens to secure any Permitted Refinancing Indebtedness
permitted to be incurred under the indenture; provided,
however, that:
(a) the new Lien shall be limited to all or part of the
same property and assets that secured or, under the written
agreements pursuant to which the original Lien arose, could
secure the original Lien (plus improvements or accessions to
such property or proceeds or distributions thereof); and
(b) the Indebtedness secured by the new Lien is not
increased to any amount greater the sum of (x) the
outstanding principal amount, or, if greater, committed amount,
of the Permitted Refinancing Indebtedness and (y) an amount
necessary to pay any fees and expenses, including premiums,
related to such renewal, refunding, refinancing, replacement,
defeasance or discharge;
(15) Liens arising from precautionary Uniform Commercial
Code financing statement filings regarding operating leases
entered into by Parent, Swift or any of Parents Restricted
Subsidiaries in the ordinary course of business;
(16) judgment Liens not giving rise to an Event of Default
so long as such Lien is adequately bonded and any appropriate
legal proceedings that may have been duly initiated for the
review of such judgment shall not have been finally terminated
or the period within which such legal proceedings may be
initiated shall not have expired;
(17) Liens securing Hedging Obligations incurred pursuant
to clause (7) of the definition of Permitted
Debt;
(18) any extension, renewal or replacement, in whole or in
part, of any Lien described in clauses (3), (4), (7) or
(8) of the definition of Permitted Liens;
provided that any such extension, renewal or replacement
is no more restrictive in any material respect than the Lien so
extended, renewed or replaced and does not extend to any
additional property or assets;
(19) bankers liens and rights of set-off with respect to
customary depositary arrangements entered into in the ordinary
course of business of Parent and its Restricted Subsidiaries;
(20) Liens on accounts receivable, leases or other
financial assets incurred in connection with a Qualified
Receivables Transaction;
(21) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payment of customs duties
in connection with the importation of goods;
(22) Liens on insurance policies and the proceeds thereof
securing the financing of the premiums with respect thereto;
(23) Liens arising out of conditional sale, title
retention, consignment or similar arrangements for sale of goods
entered into by Parent and its Restricted Subsidiaries in the
ordinary course of business;
(24) Liens to secure Capital Lease Obligations incurred
pursuant to clause (14) of the definition of Permitted Debt
covering only the assets acquired with or financed by such
Capital Lease Obligations;
(25) Liens to secure Attributable Debt incurred pursuant to
the Fixed Charge Coverage Ratio test in the first paragraph of
the covenant described above under the caption
Incurrence of Indebtedness and Issuance of
Preferred Stock in respect of sale and leaseback
transactions that are otherwise permitted to be entered into by
Parent, Swift or any Restricted Subsidiary in accordance with
the covenant described above under the caption Limitation
on Sale and Leaseback Transactions in an aggregate amount
at any one time outstanding not to exceed $500.0 million;
(26) licenses or sublicenses granted to others in the
ordinary course of business;
(27) Liens securing First Priority Lien Obligations if, on
the date of such incurrence the Secured First Priority Leverage
Ratio for Parents most recently ended four full fiscal
quarters for which internal financial statements are available
immediately preceding the date on which such additional
Indebtedness is incurred would have less than 2.75 to 1.00,
determined on a pro forma basis (including a pro forma
application of the
195
net proceeds therefrom), as if the additional Indebtedness had
been incurred at the beginning of such four-quarter
period; and
(28) other Liens securing Indebtedness that is permitted by
the terms of the indenture to be outstanding having an aggregate
principal amount at any one time outstanding not to exceed
$25.0 million.
Permitted Refinancing Indebtedness means any
Indebtedness of Parent, Swift or any of Parents Restricted
Subsidiaries (other than Disqualified Stock) issued in exchange
for, or the net proceeds of which are used to renew, refund,
refinance, replace, exchange, defease or discharge other
Indebtedness of Parent, Swift or any of Parents Restricted
Subsidiaries (other than intercompany Indebtedness); provided
that:
(1) the principal amount (or accreted value, if applicable)
of such Permitted Refinancing Indebtedness does not exceed the
principal amount (or accreted value, if applicable) of the
Indebtedness renewed, refunded, refinanced, replaced, defeased
or discharged (plus any accrued interest and premium required to
be paid on the Indebtedness being so renewed, refunded,
refinanced, replaced, defeased or discharged, plus the amount of
all fees and expenses incurred in connection therewith);
(2) such Permitted Refinancing Indebtedness has a final
maturity date equal to or later than the final maturity date of,
and has a Weighted Average Life to Maturity equal to or greater
than the remaining Weighted Average Life to Maturity of, the
Indebtedness being renewed, refunded, refinanced, replaced,
defeased or discharged;
(3) if the Indebtedness being renewed, refunded,
refinanced, replaced, defeased or discharged is subordinated in
right of payment to the notes or the Note Guarantees, such
Permitted Refinancing Indebtedness is subordinated in right of
payment to the notes and the Note Guarantees on terms at least
as favorable to the holders of notes and Note Guarantees as
those contained in the documentation governing the Indebtedness
being renewed, refunded, refinanced, replaced, defeased or
discharged; and
(4) Permitted Refinancing Indebtedness shall not include
(x) Indebtedness of a Restricted Subsidiary of Parent that
is not a Subsidiary Guarantor that refinances Indebtedness of
Parent, Swift or a Restricted Subsidiary of Parent that is a
Subsidiary Guarantor, or (y) Indebtedness of Parent, Swift
or a Restricted Subsidiary of Parent that refinances
Indebtedness of an Unrestricted Subsidiary.
Person means any individual, corporation,
partnership, joint venture, association, joint-stock company,
trust, unincorporated organization, limited liability company or
government or other entity.
Qualified Receivables Transaction means any
Receivables Transaction of a Restricted Subsidiary that meets
the following conditions:
(1) the Board of Directors of Swift shall have determined
in good faith that such Qualified Receivables Transaction
(including financing terms, covenants, termination events and
other provisions) is in the aggregate economically fair and
reasonable to Swift and the Restricted Subsidiary;
(2) all sales of accounts receivable and related assets to
the Restricted Subsidiary are made at Fair Market Value (as
determined in good faith by Swift); and
(3) the financing terms, covenants, termination events and
other provisions thereof shall be market terms (as determined in
good faith by Swift) and may include Standard Securitization
Undertakings.
The grant of a security interest in any accounts receivable of
Swift or any of its Restricted Subsidiaries to secure
Indebtedness under the Credit Agreement shall not be deemed a
Qualified Receivables Transaction.
Rating Agencies means Standard &
Poors Ratings Group, Inc. and Moodys Investors
Service, Inc. or if Standard & Poors Ratings
Group, Inc. or Moodys Investors Service, Inc. or both
shall not make a rating on the notes publicly available, a
nationally recognized statistical rating agency or agencies, as
the case may be, selected by Swift (as certified by a resolution
of the Board of Directors) which shall be substituted for
Standard & Poors Ratings Group, Inc. or
Moodys Investors Service, Inc. or both, as the case may be.
Receivables Subsidiary means a wholly owned
Restricted Subsidiary of Parent (or another person formed for
the purposes of engaging in Qualified Receivables Transactions
with Parent in which Parent or any
196
Subsidiary of Parent makes an Investment and to which Parent or
any Subsidiary of Parent transfers accounts receivable and
related assets) which engages in no activities other than in
connection with the financing of accounts receivable of Parent
and its Subsidiaries, all proceeds thereof and all rights
(contractual or other), collateral and other assets relating
thereto, and any business or activities incidental or related to
such business, and which is designated by the Board of Directors
of Swift (as provided below) as a Receivables Subsidiary and:
(1) no portion of the Indebtedness or any other obligations
(contingent or otherwise) of which (i) is guaranteed by
Parent or any other Subsidiary of Parent (excluding guarantees
of obligations (other than the principal of and interest on,
Indebtedness) pursuant to Standard Securitization Undertakings),
(ii) is recourse to or obligates Parent or any other
Subsidiary of Parent in any way other than pursuant to Standard
Securitization Undertakings, or (iii) subjects any property
or asset of Parent or any other Subsidiary of Parent, directly
or indirectly, contingently or otherwise, to the satisfaction
thereof, other than pursuant to Standard Securitization
Undertakings;
(2) with which neither Parent nor any other Subsidiary of
Parent has any material contract, agreement, arrangement or
understanding other than on terms which Parent reasonably
believes to be no less favorable to Parent or such Subsidiary
than those that might be obtained at the time from Persons that
are not Affiliates of Parent; and
(3) to which neither Parent not any other Subsidiary of
Parent has any obligation to maintain or preserve such
entitys financial condition or cause such entity to
achieve certain levels of operating results.
Any such designation by the Board of Directors of Swift shall be
evidenced to the trustee by filing with the trustee a certified
copy of the resolution of the Board of Directors of Swift giving
effect to such designation and an Officers Certificate
certifying that such designation complies with the foregoing
conditions.
Receivables Transaction means any transaction
or series of transactions entered into by Parent or any of its
Restricted Subsidiaries pursuant to which any Person issues
interests, the proceeds of which are used to finance a discrete
pool (which may be fixed or revolving) of receivables, leases or
other financial assets (including, without limitation, financing
contracts), or a discrete portfolio of real property or
equipment (in each case whether now existing or arising in the
future), and which may include a grant of a security interest in
any such receivables, leases, other financial assets, real
property or equipment (whether now existing or arising in the
future) of Parent or any of its Restricted Subsidiaries, and any
assets related thereto, including, all collateral securing such
receivables, leases, other financial assets, real property or
equipment, all contracts and all guarantees or other obligations
in respect thereof, proceeds thereof and other assets that are
customarily transferred, or in respect of which security
interests are customarily granted, in connection with asset
securitization transactions involving receivables, leases, other
financial assets, real property or equipment.
Registration Rights Agreement means that
certain Registration Rights Agreement dated as of the Original
Issue Date by and among Parent, the issuer, the Subsidiary
Guarantors and the initial purchasers set forth therein and,
with respect to any additional notes, one or more substantially
similar Registration Rights Agreements among the issuer and the
other parties thereto, as such agreements may be amended from
time to time.
Related Party means:
(1) any immediate family member of Jerry Moyes;
(2) in the event of the death or permanent disability of
Jerry Moyes, any heir or devisee of Jerry Moyes, or any executor
or similar legal representative of Jerry Moyes pending final
disposition of his Equity Interests in Parent; and
(3) any trust, corporation, partnership, limited liability
company or other entity, the beneficiaries, stockholders,
partners, members, owners or Persons beneficially holding
(directly or through one or more Subsidiaries) a 51% or more
controlling interest of which consist of Jerry Moyes or any one
or more such other Persons referred to in clause (2).
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Restricted Investment means an Investment
other than a Permitted Investment.
Restricted Subsidiary of a Person means any
Subsidiary of the referent Person that is not an Unrestricted
Subsidiary.
S&P means Standard &
Poors Ratings Services and its successors and assigns.
SEC means the U.S. Securities and
Exchange Commission.
Secured First Priority Leverage Ratio means,
for any period, the ratio of the sum of the aggregate
outstanding First Priority Lien Obligations of Parent as of the
end of the most recent fiscal quarter for which internal
financial statements prepared on a consolidated basis in
accordance with GAAP are available to the Consolidated Cash Flow
of Parent for such period. In the event that Parent, Swift or
any Subsidiary Guarantor incurs, assumes, guarantees, repays,
repurchases, redeems, defeases or otherwise discharges any
Indebtedness (other than ordinary working capital borrowings) or
issues, repurchases or redeems preferred stock subsequent to the
commencement of the period for which the Secured First priority
Leverage Ratio is being calculated and on or prior to the date
on which the event for which the calculation of the Secured
First Priority Leverage Ratio is made (the Calculation
Date), then the Secured First priority Leverage Ratio
will be calculated giving pro forma effect to such incurrence,
assumption, guarantee, repayment, repurchase, redemption,
defeasance or other discharge of Indebtedness, or such issuance,
repurchase or redemption of preferred stock, and the use of the
proceeds therefrom, as if the same had occurred at the beginning
of the applicable four-quarter reference period. The Secured
First priority Leverage Ratio shall be calculated in a manner
consistent with the definition of Fixed Charge Coverage
Ratio, including any pro forma adjustments to Consolidated
Cash Flow and Indebtedness as set forth therein (including for
acquisitions).
Secured Bank Indebtedness means any
Indebtedness under the Credit Facilities that is secured by a
Permitted Lien incurred or deemed incurred pursuant to
clause (1) of the definition of Permitted Liens.
Security Documents means the security
agreements, pledge agreements, collateral assignments and
related agreements, as amended, supplemented, restated, renewed,
refunded, replaced, restructured, repaid, refinanced or
otherwise modified from time to time, creating the security
interests in the Collateral as contemplated by the indenture.
Senior Unsecured Pari Passu Indebtedness
means:
(1) with respect to the issuer, any Indebtedness that ranks
pari passu in right of payment to the notes but is
unsecured; and
(2) with respect to Parent and any Subsidiary Guarantor,
any Indebtedness that ranks pari passu in right of
payment to Parents or such Subsidiary Guarantors
Note Guarantee but is unsecured.
Significant Subsidiary means any Subsidiary
that would be a significant subsidiary as defined in
Article 1,
Rule 1-02
of
Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation
was in effect on the Original Issue Date.
Standard Securitization Undertakings means
representations, warranties, covenants and indemnities entered
into by Parent or any of its Restricted Subsidiaries that are
reasonably customary (as determined in good faith by Parent) in
an accounts receivable transaction.
Stated Maturity means, with respect to any
installment of interest or principal on any series of
Indebtedness, the date on which the final payment of interest or
principal was scheduled to be paid in the documentation
governing such Indebtedness as of the Original Issue Date or, if
such Indebtedness is incurred after the Original Issue Date, in
the original documentation governing such Indebtedness, and will
not include any contingent obligations to repay, redeem or
repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
Subsidiary means, with respect to any
specified Person:
(1) any corporation, association or other business entity
of which more than 50% of the total voting power of shares of
Capital Stock entitled (without regard to the occurrence of any
contingency and after giving effect to any voting agreement or
stockholders agreement that effectively transfers voting
power) to vote in
198
the election of directors, managers or trustees of the
corporation, association or other business entity is at the time
owned or controlled, directly or indirectly, by that Person or
one or more of the other Subsidiaries of that Person (or a
combination thereof); and
(2) any partnership (a) the sole general partner or
the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners
of which are that Person or one or more Subsidiaries of that
Person (or any combination thereof).
Subsidiary Guarantors means each of:
(1) the Subsidiaries of Parent (other than the issuer) that
executed the indenture on the Original Issue Date; and
(2) any other Subsidiary of Parent that thereafter
guarantees the notes pursuant to the provisions of the indenture,
and their respective successors and assigns, in each case, until
the Note Guarantee of such Person has been released in
accordance with the provisions of the indenture.
TIA or Trust Indenture
Act means the Trust Indenture Act of 1939, as in
effect on the date of the indenture.
Treasury Rate means, as of any redemption
date, the yield to maturity as of such Redemption Date of
United States Treasury securities with a constant maturity (as
compiled and published in the most recent Federal Reserve
Statistical Release H.15 (519) that has become publicly
available at least two Business Days prior to the redemption
date (or, if such Statistical Release is no longer published,
any publicly available source of similar market data)) most
nearly equal to the period from the redemption date to
November 15, 2014; provided, however, that if the
period from the redemption date to November 15, 2014 is
less than one year, the weekly average yield on actually traded
United States Treasury securities adjusted to a constant
maturity of one year will be used.
Unrestricted Subsidiary means any Subsidiary
of Parent (other than the issuer) that is designated by the
Board of Directors of Swift as an Unrestricted Subsidiary
pursuant to a resolution of the Board of Directors, but only to
the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) except as permitted by the covenant described above
under the caption Certain
Covenants Transactions with Affiliates, is not
party to any agreement, contract, arrangement or understanding
with Parent, the issuer or any Restricted Subsidiary of Parent
unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to Parent, the issuer or
such Restricted Subsidiary than those that might be obtained at
the time from Persons who are not Affiliates of Swift;
(3) is a Person with respect to which none of Parent, the
issuer or any of Parents Restricted Subsidiaries has any
direct or indirect obligation (a) to subscribe for
additional Equity Interests or (b) to maintain or preserve
such Persons financial condition or to cause such Person
to achieve any specified levels of operating results; and
(4) has not guaranteed or otherwise directly or indirectly
provided credit support for any Indebtedness of Parent, the
issuer or any of Parents Restricted Subsidiaries.
Voting Stock of any specified Person as of
any date means the Capital Stock of such Person that is at the
time entitled to vote in the election of the Board of Directors
of such Person.
Weighted Average Life to Maturity means, when
applied to any Indebtedness at any date, the number of years
obtained by dividing:
(1) the sum of the products obtained by multiplying
(a) the amount of each then remaining installment, sinking
fund, serial maturity or other required payments of principal,
including payment at final maturity, in respect of the
Indebtedness, by (b) the number of years (calculated to the
nearest one-twelfth) that will elapse between such date and the
making of such payment; by
(2) the then outstanding principal amount of such
Indebtedness.
199
MATERIAL
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the anticipated material United
States federal income tax consequences to a holder of Restricted
Notes relating to the exchange of Restricted Notes for Exchange
Notes. This summary is based upon existing United States federal
income tax law, which is subject to change, possibly with
retroactive effect. This summary does not discuss all aspects of
United States federal income taxation which may be important to
particular investors in light of their individual investment
circumstances, such as Restricted Notes held by investors
subject to special tax rules (e.g., financial institutions,
insurance companies, broker-dealers, tax-exempt organizations
(including private foundations), and partnerships and their
partners), or to persons that hold the Restricted Notes as part
of a straddle, hedge, conversion, constructive sale, or other
integrated security transaction for United States federal income
tax purposes or that have a functional currency other than the
United States dollar, all of whom may be subject to tax rules
that differ significantly from those summarized below. In
addition, this summary does not address any state, local, or
non-United
States tax considerations.
If a partnership or other entity treated as a partnership for
U.S. federal income tax purposes holds Restricted Notes and
participates in the exchange offer, the tax treatment of a
partner generally will depend upon the status of the partner and
the activities of the partnership. If you are a partner of a
partnership holding the Restricted Notes, you should consult
your tax advisor regarding the tax consequences of the exchange
of the Restricted Notes for Exchange Notes pursuant to this
exchange offer.
This summary is for general information only. Persons
considering the exchange of Restricted Notes for Exchange Notes
are urged to consult their independent tax advisors concerning
the U.S. federal income taxation and other tax consequences
to them of exchanging the Restricted Notes, as well as the
application of state, local and foreign income and other tax
laws.
Exchange
of Restricted Notes for Exchange Notes
An exchange of a Restricted Note for an Exchange Note pursuant
to the exchange offer will not constitute a significant
modification for United States federal income tax
purposes, and, accordingly, the Exchange Note received will be
treated as a continuation of the Restricted Note in the hands of
such holder. Consequently, a holder of Restricted Notes will not
recognize gain or loss, for United States federal income tax
purposes, as a result of exchanging Restricted Notes for
Exchange Notes pursuant to the exchange offer. A holders
holding period for the Exchange Notes will be the same as the
holders holding period for the Restricted Notes and such
holders tax basis in the Exchange Notes will be the same
as the holders adjusted tax basis in the Restricted Notes
as determined immediately before the exchange offer.
200
PLAN OF
DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own
account pursuant to the exchange offer must acknowledge that it
will deliver a prospectus in connection with any resale of such
Exchange. This prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for
Restricted Notes where such Restricted Notes were acquired as a
result of market-making activities or other trading activities.
We have agreed that, starting on the expiration date of the
exchange offer and continuing for a period of up to
180 days after the expiration date of the exchange offer,
we will make this prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any
such resale.
We will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for
their own account pursuant to the exchange offer may be sold
from time to time in one or more transactions in the
over-the-counter
market, in negotiated transactions, through the writing of
options on the Exchange Notes or a combination of such methods
of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or at negotiated
prices. Any such resale may be made directly to purchasers or to
or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such
broker-dealer or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by
it for its own account pursuant to the exchange offer and any
broker or dealer that participates in a distribution of such
Exchange Notes may be deemed to be an underwriter
within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commission or concessions
received by any such persons may be deemed to be underwriting
compensation under the Securities Act. By acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an
underwriter within the meaning of the Securities Act.
For a period up to 180 days after the expiration date, we
will promptly send additional copies of this prospectus and any
amendment or supplement to this prospectus to any broker-dealer
that requests such documents.
We have agreed to pay all expenses incidental to the exchange
offer other than commissions and concessions of any broker or
dealer and will indemnify holders of the Exchange Notes,
including any broker-dealers, against certain liabilities,
including liabilities under the Securities Act or contribute to
payments that they may be required to make in request thereof.
201
LEGAL
MATTERS
Certain legal matters with respect to the validity of the
Exchange Notes offered hereby will be passed upon for us by
Skadden, Arps, Slate, Meagher & Flom LLP, New York,
New York.
EXPERTS
The consolidated financial statements of Swift Transportation
Company and subsidiaries as of December 31, 2010 and 2009
and for each of the years in the three-year period ended
December 31, 2010 have been included herein in reliance
upon the report of KPMG LLP, independent registered public
accounting firm, appearing herein upon the authority of said
firm as experts in accounting and auditing.
The audit report covering the December 31, 2010
consolidated financial statements of Swift Transportation
Company refers to the adoption, on January 1, 2010, of the
provisions of Accounting Standards Update
No. 2009-16,
Accounting for Transfers of Financial Assets, included in
FASB ASC Topic 860, Transfers and Servicing.
AVAILABLE
INFORMATION
We have filed with the SEC a registration statement on
Form S-4
under the Securities Act with respect to the Exchange Notes
being offered hereby. This prospectus, which forms a part of the
registration statement, does not contain all of the information
set forth in the registration statement. For further information
with respect to us and the Exchange Notes, reference is made to
the registration statement. Statements contained in this
prospectus as to the contents of any contract or other document
are not necessarily complete. If a contract or document has been
filed as an exhibit to the registration statement, we refer you
to the copy of the contract or document that has been filed.
Each statement in this prospectus relating to a contract or
document filed as an exhibit is qualified in all respects by the
filed exhibit.
The issuer and the Subsidiary Guarantors are not currently
subject to the periodic reporting and other informational
requirements of the Exchange Act. Swift, the indirect parent
company of the issuer, is currently subject to the periodic
reporting and other informational requirements of the Exchange
Act and files annual, quarterly and current reports and other
information with the SEC. Following the exchange offer, Swift
will continue to file periodic reports and other information
with the SEC. The registration statement, of which this
prospectus forms a part, such reports and other information can
be inspected and copied at the Public Reference Room of the SEC
located at Room 1580, 100 F Street, N.E.,
Washington D.C. 20549. Copies of such materials, including
copies of all or any portion of the registration statement of
which this prospectus forms a part, can be obtained from the
Public Reference Room of the SEC at prescribed rates. You can
call the SEC at
1-800-SEC-0330
to obtain information on the operation of the Public Reference
Room. Such materials may also be accessed electronically by
means of the SECs home page on the Internet at
http://www.sec.gov.
The SEC filings of Swift are also available free of charge at
its Internet website at
http://www.swifttrans.com.
The foregoing Internet website is an inactive textual reference
only, meaning that the information contained on the website is
not a part of this prospectus and is not incorporated in this
prospectus by reference.
202
INDEX TO
FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
Unaudited Financial Statements of Swift Transportation
Company
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
|
|
|
|
|
Audited Financial Statements of Swift Transportation
Company
|
|
|
|
|
|
|
|
F-22
|
|
|
|
|
F-23
|
|
|
|
|
F-24
|
|
|
|
|
F-25
|
|
|
|
|
F-26
|
|
|
|
|
F-27
|
|
|
|
|
F-29
|
|
F-1
Swift
Transportation Company and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(In thousands,
|
|
|
|
except share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
21,549
|
|
|
$
|
47,494
|
|
Restricted cash
|
|
|
85,078
|
|
|
|
84,568
|
|
Accounts receivable, net
|
|
|
314,666
|
|
|
|
276,879
|
|
Income tax refund receivable
|
|
|
5,988
|
|
|
|
5,059
|
|
Inventories and supplies
|
|
|
11,731
|
|
|
|
9,882
|
|
Assets held for sale
|
|
|
12,234
|
|
|
|
8,862
|
|
Prepaid taxes, licenses, insurance and other
|
|
|
44,128
|
|
|
|
40,709
|
|
Deferred income taxes
|
|
|
28,721
|
|
|
|
30,741
|
|
Current portion of notes receivable
|
|
|
10,403
|
|
|
|
8,122
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
534,498
|
|
|
|
512,316
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, at cost:
|
|
|
|
|
|
|
|
|
Revenue and service equipment
|
|
|
1,616,782
|
|
|
|
1,600,025
|
|
Land
|
|
|
136,043
|
|
|
|
141,474
|
|
Facilities and improvements
|
|
|
227,473
|
|
|
|
224,976
|
|
Furniture and office equipment
|
|
|
34,443
|
|
|
|
33,660
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment
|
|
|
2,014,741
|
|
|
|
2,000,135
|
|
Less: accumulated depreciation and amortization
|
|
|
699,342
|
|
|
|
660,497
|
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
|
1,315,399
|
|
|
|
1,339,638
|
|
Insurance claims receivable
|
|
|
34,892
|
|
|
|
34,892
|
|
Other assets
|
|
|
53,618
|
|
|
|
59,049
|
|
Intangible assets, net
|
|
|
364,017
|
|
|
|
368,744
|
|
Goodwill
|
|
|
253,256
|
|
|
|
253,256
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,555,680
|
|
|
$
|
2,567,895
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIT
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
92,245
|
|
|
$
|
90,220
|
|
Accrued liabilities
|
|
|
111,872
|
|
|
|
80,455
|
|
Current portion of claims accruals
|
|
|
81,227
|
|
|
|
86,553
|
|
Current portion of long-term debt and obligations under capital
leases
|
|
|
41,714
|
|
|
|
66,070
|
|
Fair value of guarantees
|
|
|
2,886
|
|
|
|
2,886
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
329,944
|
|
|
|
326,184
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and obligations under capital leases
|
|
|
1,652,095
|
|
|
|
1,708,030
|
|
Claims accruals, less current portion
|
|
|
137,253
|
|
|
|
135,596
|
|
Deferred income taxes
|
|
|
303,955
|
|
|
|
303,549
|
|
Securitization of accounts receivable
|
|
|
136,000
|
|
|
|
171,500
|
|
Other liabilities
|
|
|
6,201
|
|
|
|
6,207
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,565,448
|
|
|
|
2,651,066
|
|
|
|
|
|
|
|
|
|
|
Contingencies (note 12)
|
|
|
|
|
|
|
|
|
Stockholders deficit:
|
|
|
|
|
|
|
|
|
Preferred stock, par value $0.01 per share; Authorized
1,000,000 shares; none issued
|
|
|
|
|
|
|
|
|
Class A common stock, par value $0.01 per share; Authorized
500,000,000 shares; 79,350,000 and 73,300,000 shares
issued and outstanding at March 31, 2011 and
December 31, 2010, respectively
|
|
|
794
|
|
|
|
733
|
|
Class B common stock, par value $0.01 per share; Authorized
250,000,000 shares; 60,116,713 shares issued and
outstanding at March 31, 2011 and December 31, 2010
|
|
|
601
|
|
|
|
601
|
|
Additional paid-in capital
|
|
|
887,497
|
|
|
|
822,140
|
|
Accumulated deficit
|
|
|
(883,466
|
)
|
|
|
(886,671
|
)
|
Accumulated other comprehensive loss
|
|
|
(15,396
|
)
|
|
|
(20,076
|
)
|
Noncontrolling interest
|
|
|
202
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
Total stockholders deficit
|
|
|
(9,768
|
)
|
|
|
(83,171
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders deficit
|
|
$
|
2,555,680
|
|
|
$
|
2,567,895
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-2
Swift
Transportation Company and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(Unaudited)
|
|
|
|
(Amounts in thousands,
|
|
|
|
except per share data)
|
|
|
Operating revenue
|
|
$
|
758,889
|
|
|
$
|
654,830
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Salaries, wages and employee benefits
|
|
|
195,476
|
|
|
|
177,803
|
|
Operating supplies and expenses
|
|
|
57,104
|
|
|
|
47,830
|
|
Fuel
|
|
|
150,281
|
|
|
|
106,082
|
|
Purchased transportation
|
|
|
194,037
|
|
|
|
175,702
|
|
Rental expense
|
|
|
17,989
|
|
|
|
18,903
|
|
Insurance and claims
|
|
|
22,725
|
|
|
|
20,207
|
|
Depreciation and amortization of property and equipment
|
|
|
50,358
|
|
|
|
60,019
|
|
Amortization of intangibles
|
|
|
4,727
|
|
|
|
5,478
|
|
Impairments
|
|
|
|
|
|
|
1,274
|
|
Gain on disposal of property and equipment
|
|
|
(2,255
|
)
|
|
|
(1,448
|
)
|
Communication and utilities
|
|
|
6,460
|
|
|
|
6,422
|
|
Operating taxes and licenses
|
|
|
15,258
|
|
|
|
13,365
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
712,160
|
|
|
|
631,637
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
46,729
|
|
|
|
23,193
|
|
|
|
|
|
|
|
|
|
|
Other (income) expenses:
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
37,501
|
|
|
|
62,596
|
|
Derivative interest expense
|
|
|
4,680
|
|
|
|
23,714
|
|
Interest income
|
|
|
(467
|
)
|
|
|
(220
|
)
|
Other
|
|
|
(511
|
)
|
|
|
(371
|
)
|
|
|
|
|
|
|
|
|
|
Total other (income) expenses, net
|
|
|
41,203
|
|
|
|
85,719
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
5,526
|
|
|
|
(62,526
|
)
|
Income tax expense (benefit)
|
|
|
2,321
|
|
|
|
(9,525
|
)
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
3,205
|
|
|
$
|
(53,001
|
)
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
0.02
|
|
|
$
|
(0.88
|
)
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
0.02
|
|
|
$
|
(0.88
|
)
|
|
|
|
|
|
|
|
|
|
Shares used in per share calculations
|
|
|
|
|
|
|
|
|
Basic
|
|
|
138,127
|
|
|
|
60,117
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
138,900
|
|
|
|
60,117
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-3
Swift
Transportation Company and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
Net income (loss)
|
|
$
|
3,205
|
|
|
$
|
(53,001
|
)
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
Change in unrealized losses on cash flow hedges
|
|
|
4,680
|
|
|
|
10,962
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
7,885
|
|
|
$
|
(42,039
|
)
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-4
Swift
Transportation Company and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
Class B
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Par
|
|
|
|
|
|
Par
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Noncontrolling
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Value
|
|
|
Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Deficit
|
|
|
Loss
|
|
|
Interest
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2010
|
|
|
73,300,000
|
|
|
$
|
733
|
|
|
|
60,116,713
|
|
|
$
|
601
|
|
|
$
|
822,140
|
|
|
$
|
(886,671
|
)
|
|
$
|
(20,076
|
)
|
|
$
|
102
|
|
|
$
|
(83,171
|
)
|
Issuance of Class A common stock for cash, net of fees and
expenses of issuance
|
|
|
6,050,000
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
62,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,994
|
|
Change in unrealized losses on cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,680
|
|
|
|
|
|
|
|
4,680
|
|
Non-cash equity compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,424
|
|
Sale of interest in captive insurance subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
|
|
|
100
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,205
|
|
|
|
|
|
|
|
|
|
|
|
3,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, March 31, 2011
|
|
|
79,350,000
|
|
|
$
|
794
|
|
|
|
60,116,713
|
|
|
$
|
601
|
|
|
$
|
887,497
|
|
|
$
|
(883,466
|
)
|
|
$
|
(15,396
|
)
|
|
$
|
202
|
|
|
$
|
(9,768
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
Swift
Transportation Company and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
3,205
|
|
|
$
|
(53,001
|
)
|
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization of property, equipment and
intangibles
|
|
|
55,085
|
|
|
|
65,497
|
|
Amortization of debt issuance costs, original issue discount,
and losses on terminated swaps
|
|
|
6,117
|
|
|
|
3,257
|
|
Gain on disposal of property and equipment less write-off of
totaled tractors
|
|
|
(1,998
|
)
|
|
|
(1,261
|
)
|
Impairment of property and equipment
|
|
|
|
|
|
|
1,274
|
|
Deferred income taxes
|
|
|
2,426
|
|
|
|
(23,259
|
)
|
Provision for (reduction of) allowance for losses on accounts
receivable
|
|
|
85
|
|
|
|
(1,171
|
)
|
Income effect of
mark-to-market
adjustment of interest rate swaps
|
|
|
|
|
|
|
11,127
|
|
Non-cash equity compensation
|
|
|
2,424
|
|
|
|
|
|
Increase (decrease) in cash resulting from changes in:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(37,872
|
)
|
|
|
(18,400
|
)
|
Inventories and supplies
|
|
|
(1,849
|
)
|
|
|
778
|
|
Prepaid expenses and other current assets
|
|
|
(4,348
|
)
|
|
|
(4,391
|
)
|
Other assets
|
|
|
5,360
|
|
|
|
2,699
|
|
Accounts payable, accrued and other liabilities
|
|
|
31,240
|
|
|
|
31,958
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
59,875
|
|
|
|
15,107
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Increase in restricted cash
|
|
|
(510
|
)
|
|
|
(24,002
|
)
|
Proceeds from sale of property and equipment
|
|
|
5,880
|
|
|
|
4,684
|
|
Capital expenditures
|
|
|
(39,534
|
)
|
|
|
(17,155
|
)
|
Payments received on notes receivable
|
|
|
1,647
|
|
|
|
1,345
|
|
Expenditures on assets held for sale
|
|
|
(3,085
|
)
|
|
|
(574
|
)
|
Payments received on assets held for sale
|
|
|
4,053
|
|
|
|
363
|
|
Payments received on equipment sale receivables
|
|
|
|
|
|
|
208
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(31,549
|
)
|
|
|
(35,131
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of Class A common stock, net of
issuance costs
|
|
|
62,994
|
|
|
|
|
|
Repayment of long-term debt and capital leases
|
|
|
(81,765
|
)
|
|
|
(10,625
|
)
|
Borrowings under accounts receivable securitization
|
|
|
22,000
|
|
|
|
40,000
|
|
Repayment of accounts receivable securitization
|
|
|
(57,500
|
)
|
|
|
(38,000
|
)
|
Payments received on shareholder loan from affiliate
|
|
|
|
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(54,271
|
)
|
|
|
(8,511
|
)
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(25,945
|
)
|
|
|
(28,535
|
)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
47,494
|
|
|
|
115,862
|
|
Cash and cash equivalents at end of period
|
|
$
|
21,549
|
|
|
$
|
87,327
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
7,391
|
|
|
$
|
58,748
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
842
|
|
|
$
|
13,214
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of:
|
|
|
|
|
|
|
|
|
Non-cash investing activities:
|
|
|
|
|
|
|
|
|
Equipment sales receivables
|
|
$
|
844
|
|
|
$
|
2,498
|
|
|
|
|
|
|
|
|
|
|
Equipment purchase accrual
|
|
$
|
9,840
|
|
|
$
|
17,120
|
|
|
|
|
|
|
|
|
|
|
Notes receivable from sale of assets
|
|
$
|
3,579
|
|
|
$
|
1,792
|
|
|
|
|
|
|
|
|
|
|
Non-cash financing activities:
|
|
|
|
|
|
|
|
|
Re-recognition of securitized accounts receivable
|
|
$
|
|
|
|
$
|
148,000
|
|
|
|
|
|
|
|
|
|
|
Capital lease additions
|
|
$
|
705
|
|
|
$
|
15,236
|
|
|
|
|
|
|
|
|
|
|
Cancellation of senior notes
|
|
$
|
|
|
|
$
|
89,352
|
|
|
|
|
|
|
|
|
|
|
Reduction in stockholder loan
|
|
$
|
|
|
|
$
|
231,000
|
|
|
|
|
|
|
|
|
|
|
Paid-in-kind
interest on stockholder loan
|
|
$
|
|
|
|
$
|
1,650
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-6
Swift
Transportation Company and Subsidiaries
|
|
Note 1.
|
Basis of
Presentation
|
Swift Transportation Company (formerly Swift Corporation) is the
holding company for Swift Transportation Co., LLC (a Delaware
limited liability company, formerly Swift Transportation Co.,
Inc., a Nevada corporation) and its subsidiaries (collectively,
Swift Transportation Co.), a truckload carrier
headquartered in Phoenix, Arizona, and Interstate Equipment
Leasing, LLC (IEL) (all the foregoing being,
collectively, Swift or the Company). The
Company operates predominantly in one industry, road
transportation, throughout the continental United States and
Mexico and has only one reportable segment. At March 31,
2011, the Company operated a national terminal network and a
tractor fleet of approximately 16,100 units comprised of
12,100 tractors driven by company drivers and 4,000
owner-operator tractors, a fleet of 49,400 trailers, and 5,000
intermodal containers.
In the opinion of management, the accompanying financial
statements prepared in accordance with United States
generally accepted accounting principles (GAAP)
include all adjustments necessary for the fair presentation of
the interim periods presented. These interim financial
statements should be read in conjunction with the Companys
annual financial statements for the year ended December 31,
2010. Management has evaluated the effect on the Companys
reported financial condition and results of operations of events
subsequent to March 31, 2011 through the issuance of the
financial statements.
|
|
Note 2.
|
Issuance
of Class A Common Stock
|
On January 20, 2011, the Company issued an additional
6,050,000 shares of its Class A common stock to the
underwriters of its initial public offering at the initial
public offering price of $11.00 per share, less the
underwriters discount, and received proceeds of
$63.2 million before expenses of such issuance, pursuant to
the over-allotment option in the underwriting agreement. Of
these proceeds, the Company used $60.0 million in January
2011 to pay down its first lien term loan and $3.2 million
in February 2011 to pay down its accounts receivable
securitization facility.
The effective tax rate for the three months ended March 31,
2011 was 42%, which was 3% higher than the expected effective
tax rate primarily due to the amortization of previous losses
from accumulated other comprehensive income (OCI) to
income (for book purposes) related to the Companys
previous interest rate swaps that were terminated in December
2010. The effective tax rate for the three months ended
March 31, 2010 was 15%, which was 15% less than the 2010
expected effective tax rate of 30% and is also primarily due to
the amortization of previous losses from accumulated OCI related
to the interest rate swaps. This item had a larger impact on the
effective tax rate in 2010 because the amortization was larger
in 2010, and because the magnitude of the estimated expected
full year pre-tax income (loss) was smaller for 2010.
As of March 31, 2011, the Company had unrecognized tax
benefits totaling approximately $5.7 million, all of which
would favorably impact its effective tax rate if subsequently
recognized. The Company recognizes potential accrued interest
and penalties related to unrecognized tax benefits as a
component of income tax expense. Accrued interest and penalties
as of March 31, 2011 were approximately $2.1 million.
To the extent interest and penalties are not assessed with
respect to uncertain tax positions, amounts accrued will be
reduced and reflected as a reduction of the overall income tax
provision. The Company anticipates that the total amount of
unrecognized tax benefits may decrease by approximately
$4.2 million during the next twelve months, which should
not have a material impact on the Companys financial
statements.
Certain of the Companys subsidiaries are currently under
examination by Federal and various state jurisdictions for years
ranging from 1997 to 2009. At the completion of these
examinations, management does not expect any adjustments that
would have a material impact on the Companys effective tax
rate. Periods subsequent to 2009 remain subject to examination.
F-7
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial statements
(unaudited) (Continued)
|
|
Note 4.
|
Intangible
Assets
|
Intangible assets as of March 31, 2011 and
December 31, 2010 were (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Customer Relationship:
|
|
|
|
|
|
|
|
|
Gross carrying value
|
|
$
|
275,324
|
|
|
$
|
275,324
|
|
Accumulated amortization
|
|
|
(92,344
|
)
|
|
|
(87,617
|
)
|
Trade Name:
|
|
|
|
|
|
|
|
|
Gross carrying value
|
|
|
181,037
|
|
|
|
181,037
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
$
|
364,017
|
|
|
$
|
368,744
|
|
|
|
|
|
|
|
|
|
|
For all periods ending on or after December 31, 2007,
amortization of intangibles consists primarily of amortization
of $261.2 million gross carrying value of definite-lived
intangible assets recognized under purchase accounting in
connection with Swift Transportation Co.s going private in
the 2007 transactions in which Swift Corporation acquired Swift
Transportation Co. Intangible assets acquired as a result of the
Swift Transportation Co. acquisition include trade name,
customer relationships, and owner-operator relationships.
Amortization of the customer relationship acquired in the going
private transaction is calculated on the 150% declining balance
method over the estimated useful life of 15 years. The
customer relationship contributed to the Company at May 9,
2007 is amortized using the straight-line method over
15 years. The trade name has an indefinite useful life and
is not amortized, but rather is tested for impairment at least
annually, unless events occur or circumstances change between
annual tests that would more likely than not reduce the fair
value.
Amortization of intangibles for three months ended
March 31, 2011 and 2010 is comprised of $4.4 million
and $5.2 million respectively, related to intangible assets
recognized in conjunction with the 2007 going private
transaction and $0.3 million in each period related to
previous intangible assets existing prior to the 2007 going
private transaction.
|
|
Note 5.
|
Assets
Held for Sale
|
Assets held for sale as of March 31, 2011 and
December 31, 2010 were (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Land and facilities
|
|
$
|
7,625
|
|
|
$
|
3,896
|
|
Revenue equipment
|
|
|
4,609
|
|
|
|
4,966
|
|
|
|
|
|
|
|
|
|
|
Assets held for sale
|
|
$
|
12,234
|
|
|
$
|
8,862
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2011 and December 31, 2010, assets
held for sale are stated at the lower of depreciated cost or
fair value less estimated selling expenses. The Company expects
to sell these assets within the next twelve months. The increase
in assets held for sale during the quarter ended March 31,
2011 was the result of the management identifying a property at
its Mira Loma, California facility as asset held for sale with a
carrying value of $4.9 million. This increase was offset by
the sale of a property located in Laredo, Texas previously
identified as asset held for sale with a carrying value of
$1.2 million.
In the first quarter of 2010, management undertook an evaluation
of the Companys revenue equipment and concluded that it
would be more cost effective to dispose of approximately 2,500
trailers through scrap or sale rather than to maintain them in
the operating fleet. These trailers met the requirements for
assets held for
F-8
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial statements
(unaudited) (Continued)
sale treatment and were reclassified as such, with a related
$1.3 million pre-tax impairment charge being recorded
during period as discussed in Note 10.
|
|
Note 6.
|
Debt and
Financing Transactions
|
Other than the Companys accounts receivable securitization
as discussed in Note 7 and its outstanding capital lease
obligations as discussed in Note 8, the Company had
long-term debt outstanding at March 31, 2011 and
December 31, 2010, respectively, as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Senior secured first lien term loan due December 2016, net of
$10,196 and $10,649 OID at March 31, 2011 and
December 31, 2010, respectively
|
|
$
|
999,193
|
|
|
$
|
1,059,351
|
|
Senior second priority secured notes due November 15, 2018,
net of $9,649 and $9,965 OID at March 31, 2011 and
December 31, 2010, respectively
|
|
|
490,351
|
|
|
|
490,035
|
|
Floating rate notes due May 15, 2015
|
|
|
11,000
|
|
|
|
11,000
|
|
12.50% fixed rate notes due May 15, 2017
|
|
|
15,638
|
|
|
|
15,638
|
|
Note payable, with principal and interest payable in five annual
payments of $514 plus interest at a fixed rate of 7.00% through
February 2013 secured by real property
|
|
|
1,028
|
|
|
|
1,542
|
|
Notes payable, with principal and interest payable in
24 monthly payments of $130 including interest at a fixed
rate of 7.5% through May 2011
|
|
|
130
|
|
|
|
512
|
|
Notes payable, with principal and interest payable in
36 monthly payments of $38 at a fixed rate of 4.25% through
December 2013
|
|
|
1,265
|
|
|
|
1,394
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
1,518,605
|
|
|
|
1,579,472
|
|
Less: current portion
|
|
|
1,099
|
|
|
|
10,304
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current portion
|
|
$
|
1,517,506
|
|
|
$
|
1,569,168
|
|
|
|
|
|
|
|
|
|
|
The majority of currently outstanding debt was issued in
December 2010 to refinance debt associated with the
Companys acquisition of Swift Transportation Co. in May
2007, a going private transaction under SEC rules. The debt
outstanding at March 31, 2011 primarily consists of
proceeds from a first lien term loan pursuant to a senior
secured credit facility with a group of lenders with a face
value of $1.01 billion at March 31, 2011, net of
unamortized original issue discount of $10.2 million, and
proceeds from the offering of $500 million face value of
senior second priority secured notes, net of unamortized
original issue discount of $9.6 million at March 31,
2011. The credit facility and senior notes are secured by
substantially all of the assets of the Company and are
guaranteed by Swift Transportation Company, IEL, Swift
Transportation Co. and its domestic subsidiaries other than its
captive insurance subsidiaries, driver training academy
subsidiary, and its bankruptcy-remote special purpose
subsidiary. As of March 31, 2011 and December 31,
2010, the balance of deferred loan costs was $22.5 million
and $23.1 million, respectively, and is reported in other
assets in the consolidated balance sheets.
In January 2011, the Company used $60.0 million of proceeds
from its issuance of an additional 6,050,000 shares of its
Class A common stock, as discussed in Note 2, to pay
down the first lien term loan. As a result of this prepayment,
the next scheduled principal payment on the first lien term loan
is due September 30, 2016.
F-9
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial statements
(unaudited) (Continued)
Senior
Secured Credit Facility
The credit facility was entered into on December 21, 2010
and consists of a first lien term loan with an original
aggregate principal amount of $1.07 billion due December
2016 and a $400 million revolving line of credit due
December 2015. As of March 31, 2011, interest on the first
lien term loan accrues at 6.00% (the LIBOR floor of 1.50% plus
the applicable margin of 4.50%). As of March 31, 2011,
there were no borrowings under the $400 million revolving
line of credit, while the Company had outstanding letters of
credit under the revolving line of credit primarily for
workers compensation and self-insurance liability purposes
totaling $165.2 million, leaving $234.8 million
available under the revolving line of credit. Outstanding
letters of credit incur fees of 4.50% per annum. The Company was
in compliance with the covenants in the secured credit agreement
at March 31, 2011.
Senior
Second Priority Secured Notes
On December 21, 2010, Swift Services Holdings, Inc., a
wholly owned subsidiary, completed a private placement of senior
second priority secured notes totaling $500 million face
value which mature in November 2018 and bear interest at 10.00%
(the senior notes). The Company received proceeds of
$490 million, net of a $10.0 million original issue
discount. Interest on the senior notes is payable on May 15 and
November 15 each year, beginning May 15, 2011. The Company
was in compliance with the covenants in the indenture governing
the senior notes at March 31, 2011.
On May 5, 2011, the Company filed a registration statement
on
Form S-4
to affect an exchange offer to exchange the notes issued in
December 2010, whose transfer is restricted, with notes
registered under the Securities Act of 1933.
Fixed
and Floating-Rate Notes
As of March 31, 2011, there was $11.0 million
outstanding of floating rate notes due May 15, 2015,
accruing at three-month LIBOR plus 7.75% (8.06% at
March 31, 2011), and $15.6 million outstanding of
12.50% fixed rate notes due May 15, 2017. The Company was
in compliance with the covenants in the indentures governing the
fixed and floating rate notes at March 31, 2011.
|
|
Note 7.
|
Accounts
Receivable Securitization
|
On July 30, 2008, the Company, through Swift Receivables
Company II, LLC, a Delaware limited liability company, formerly
Swift Receivables Corporation II, a Delaware corporation
(SRCII), a wholly-owned bankruptcy-remote special
purpose subsidiary, entered into a receivable sale agreement
with unrelated financial entities (the Purchasers)
to sell, on a revolving basis, undivided interests in the
Companys accounts receivable (the 2008 RSA).
The program limit under the 2008 RSA is $210 million and is
subject to eligible receivables and reserve requirements.
Outstanding balances under the 2008 RSA accrue interest at a
yield of LIBOR plus 300 basis points or Prime plus
200 basis points, at the Companys discretion. The
2008 RSA expires on July 30, 2013 and is subject to an
unused commitment fee ranging from 25 to 50 basis points,
depending on the aggregate unused commitment of the 2008 RSA.
Pursuant to the 2008 RSA, collections on the underlying
receivables by the Company are held for the benefit of SRCII and
the lenders in the facility and are unavailable to satisfy
claims of the Company and its subsidiaries.
For the three months ended March 31, 2011 and 2010, the
Company incurred program fee expense of $1.3 million and
$1.1 million, respectively, associated with the 2008 RSA
which was recorded in interest expense. As of March 31,
2011, the outstanding borrowing under the accounts receivable
securitization facility was $136.0 million against a total
available borrowing base of $192.0 million, leaving
$56.0 million available.
F-10
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial statements
(unaudited) (Continued)
The Company leases certain revenue equipment under capital
leases. The Companys capital leases are typically
structured with balloon payments at the end of the lease term
equal to the residual value the Company is contracted to receive
from certain equipment manufacturers upon sale or trade back to
the manufacturers. The Company is obligated to pay the balloon
payments at the end of the leased term whether or not it
receives the proceeds of the contracted residual values from the
respective manufacturers. Certain leases contain renewal or
fixed price purchase options. Obligations under capital leases
total $175.2 million at March 31, 2011, the current
portion of which is $40.6 million. The leases are
collateralized by revenue equipment with a cost of
$376.1 million and accumulated amortization of
$116.2 million at March 31, 2011. The amortization of
the equipment under capital leases is included in depreciation
and amortization expense.
|
|
Note 9.
|
Derivative
Financial Instruments
|
In December 2010, the Company terminated its last two remaining
interest rate swap agreements in conjunction with its IPO and
debt refinancing transactions and paid $66.4 million to its
counterparties to settle the outstanding liabilities. In
accordance with Topic 815, Derivatives and
Hedging, the balance of unrealized losses recorded in
accumulated OCI on the date of termination is required to remain
in accumulated OCI and be amortized to expense through the term
of the hedged interest payments, which extends to the original
maturity of the swaps in August 2012. At March 31, 2011 and
December 31, 2010, unrealized losses totaling
$15.5 million and $20.2 million after taxes,
respectively, were reflected in accumulated OCI. As of
March 31, 2011, the Company estimates that
$12.9 million of unrealized losses included in accumulated
OCI will be realized and reported in earnings within the next
twelve months.
For the three months ended March 31, 2011 and 2010,
information about amounts and classification of gains and losses
on the Companys interest rate derivative contracts that
were previously designated as hedging instruments under Topic
815 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2011
|
|
2010
|
|
Amount of loss reclassified from accumulated OCI into income as
Derivative interest expense (effective portion)
|
|
$
|
(4,680
|
)
|
|
$
|
(10,962
|
)
|
For the three months ended March 31, 2011 and 2010,
information about amounts and classification of gains and losses
on the Companys interest rate derivative contracts that
were not designated as hedging instruments under Topic 815 is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Amount of loss recognized in income on derivative as
Derivative interest expense
|
|
$
|
|
|
|
$
|
(12,752
|
)
|
|
|
Note 10.
|
Fair
Value Measurement
|
Topic 820, Fair Value Measurements and
Disclosures, requires that the Company disclose
estimated fair values for its financial instruments. The fair
value of a financial instrument is the amount that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the
measurement date in the principal or most advantageous market
for the asset or liability. Fair value estimates are made at a
specific point in time and are based on relevant market
information and information about the financial instrument.
These estimates do not reflect any premium or discount that
could result from offering for sale at one time the
Companys entire holdings of a particular financial
instrument. Changes in assumptions could significantly affect
these estimates. Because the fair value is estimated as of
March 31,
F-11
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial statements
(unaudited) (Continued)
2011 and December 31, 2010, the amounts that will actually
be realized or paid at settlement or maturity of the instruments
in the future could be significantly different.
The following table presents the carrying amounts and estimated
fair values of the Companys financial instruments at
March 31, 2011 and December 31, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
December 31, 2010
|
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
|
Value
|
|
Value
|
|
Value
|
|
Value
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior secured first lien term loan
|
|
$
|
999,193
|
|
|
$
|
1,004,189
|
|
|
$
|
1,059,351
|
|
|
$
|
1,062,497
|
|
Senior second priority secured notes
|
|
|
490,351
|
|
|
|
532,031
|
|
|
|
490,035
|
|
|
|
513,312
|
|
Fixed rate notes
|
|
|
15,638
|
|
|
|
16,850
|
|
|
|
15,638
|
|
|
|
17,202
|
|
Floating rate notes
|
|
|
11,000
|
|
|
|
10,959
|
|
|
|
11,000
|
|
|
|
10,973
|
|
Securitization of accounts receivable
|
|
|
136,000
|
|
|
|
138,704
|
|
|
|
171,500
|
|
|
|
174,715
|
|
The carrying amounts shown in the table (other than the
securitization of accounts receivable) are included in the
consolidated balance sheet in Long-term debt and obligations
under capital leases. The fair values of the financial
instruments shown in the above table as of March 31, 2011
and December 31, 2010 represent managements best
estimates of the amounts that would be received to sell those
assets or that would be paid to transfer those liabilities in an
orderly transaction between market participants at that date.
Those fair value measurements maximize the use of observable
inputs. However, in situations where there is little, if any,
market activity for the asset or liability at the measurement
date, the fair value measurement reflects the Companys own
judgments about the assumptions that market participants would
use in pricing the asset or liability. Those judgments are
developed by the Company based on the best information available
in the circumstances.
The following summary presents a description of the methods and
assumptions used to estimate the fair value of each class of
financial instrument.
First
lien term loans, senior second priority secured notes, and fixed
and floating rate notes
The fair values of the first lien term loan, senior second
priority secured notes, fixed rate notes, and floating rate
notes were determined by bid prices in trading between qualified
institutional buyers.
Securitization
of Accounts Receivable
The Companys securitization of accounts receivable
consists of borrowings outstanding pursuant to the
Companys 2008 RSA, as discussed in Note 7. Its fair
value is estimated by discounting future cash flows using a
discount rate commensurate with the uncertainty involved.
Fair
value hierarchy
Topic 820 establishes a framework for measuring fair value in
accordance with GAAP and expands financial statement disclosure
requirements for fair value measurements. Topic 820 further
specifies a hierarchy of valuation techniques, which is based on
whether the inputs into the valuation technique are observable
or unobservable. The hierarchy is as follows:
|
|
|
|
|
Level 1 Valuation techniques in which
all significant inputs are quoted prices from active markets for
assets or liabilities that are identical to the assets or
liabilities being measured.
|
|
|
|
|
|
Level 2 Valuation techniques in which
significant inputs include quoted prices from active markets for
assets or liabilities that are similar to the assets or
liabilities being measured
and/or
quoted prices
|
F-12
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial statements
(unaudited) (Continued)
|
|
|
|
|
from markets that are not active for assets or liabilities that
are identical or similar to the assets or liabilities being
measured. Also, model-derived valuations in which all
significant inputs and significant value drivers are observable
in active markets are Level 2 valuation techniques.
|
|
|
|
|
|
Level 3 Valuation techniques in which
one or more significant inputs or significant value drivers are
unobservable. Unobservable inputs are valuation technique inputs
that reflect the Companys own assumptions about the
assumptions that market participants would use in pricing an
asset or liability.
|
When available, the Company uses quoted market prices to
determine the fair value of an asset or liability. If quoted
market prices are not available, the Company will measure fair
value using valuation techniques that use, when possible,
current market-based or independently-sourced market parameters,
such as interest rates and currency rates. The level in the fair
value hierarchy within which a fair measurement in its entirety
falls is based on the lowest level input that is significant to
the fair value measurement in its entirety.
The following table sets forth a reconciliation of the changes
in fair value during the three month periods ended
March 31, 2010 of the Companys Level 3 retained
interest in receivables that was measured at fair value on a
recurring basis prior to the Companys adoption of
Financial Accounting Standards Board Accounting Standards
Codification Accounting Standards Update, or ASU,
No. 2009-16,
Accounting for Transfers of Financial Assets (Topic
860), on January 1, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales, Collections
|
|
|
|
|
|
Transfers in
|
|
|
|
|
|
|
Fair Value at
|
|
|
and
|
|
|
Total Realized
|
|
|
and/or Out of
|
|
|
Fair Value at
|
|
|
|
Beginning of Period
|
|
|
Settlements, Net
|
|
|
Gains (Losses)
|
|
|
Level 3
|
|
|
End of Period
|
|
|
Three Months Ended March 31, 2010
|
|
$
|
79,907
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(79,907
|
)(1)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Upon adoption of ASU
2009-16 on
January 1, 2010, the Companys retained interest in
receivables was de-recognized upon recording the previously
transferred receivables and recognizing the securitization
proceeds as a secured borrowing on the Companys balance
sheet. Thus the removal of the retained interest balance is
reflected here as a transfer out of Level 3. |
For the three month period ended March 31, 2010,
information about inputs into the fair value measurements of the
Companys assets that were measured at fair value on a
nonrecurring basis in the period is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Fair Value at
|
|
|
Identical Assets
|
|
|
Observable
|
|
|
Unobservable
|
|
|
Total Gains
|
|
Description
|
|
End of Period
|
|
|
(Level 1)
|
|
|
Inputs (Level 2)
|
|
|
Inputs (Level 3)
|
|
|
(Losses)
|
|
|
Three Months Ended March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets held for sale
|
|
|
2,277
|
|
|
|
|
|
|
|
|
|
|
|
2,277
|
|
|
|
(1,274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,277
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,277
|
|
|
$
|
(1,274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with the provisions of Topic 360,
Property, Plant and Equipment, trailers with
a carrying amount of $3.6 million were written down to
their fair value of $2.3 million during the first quarter
of 2010, resulting in an impairment charge of $1.3 million,
which was included in impairments in the consolidated statement
of operations for the three months ended March 31, 2010.
The impairment of these assets was identified due to the
Companys decision to remove them from the operating fleet
through sale or salvage. For these assets valued using
significant unobservable inputs, inputs utilized included the
Companys estimates and recent auction prices for similar
equipment and commodity prices for units expected to be salvaged.
F-13
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial statements
(unaudited) (Continued)
|
|
Note 11.
|
Earnings
(loss) per Share
|
The computation of basic and diluted earnings (loss) per share
is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Net income (loss)
|
|
$
|
3,205
|
|
|
$
|
(53,001
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares:
|
|
|
|
|
|
|
|
|
Common shares outstanding for basic earnings (loss) per share
|
|
|
138,127
|
|
|
|
60,117
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding for diluted earnings (loss) per share
|
|
|
138,900
|
|
|
|
60,117
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
0.02
|
|
|
$
|
(0.88
|
)
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
0.02
|
|
|
$
|
(0.88
|
)
|
|
|
|
|
|
|
|
|
|
As discussed in Note 2, the Company issued 6.1 million
shares of Class A common stock in January 2011, which did
not have a significant effect on the weighted average shares
outstanding for the three months ended March 31, 2011.
For the three months ended March 31, 2010, all potential
common shares issuable upon exercise of outstanding stock
options are excluded from diluted shares outstanding as their
effect is antidilutive. As of March 31, 2011 and 2010,
there were 6,100,480 and 6,348,400 options outstanding,
respectively.
The Company is involved in certain claims and pending litigation
primarily arising in the normal course of business. The majority
of these claims relate to workers compensation, auto collision
and liability, and physical damage and cargo damage. The Company
expenses legal fees as incurred and accrues for the uninsured
portion of contingent losses from these and other pending claims
when it is both probable that a liability has been incurred and
the amount of the loss can be reasonably estimated. Based on the
knowledge of the facts and, in certain cases, advice of outside
counsel, management believes the resolution of claims and
pending litigation, taking into account existing reserves, will
not have a material adverse effect on the Company. However, the
results of complex legal proceedings are difficult to predict
and the Companys view of these matters may change in the
future as the litigation and events related thereto unfold.
|
|
Note 13.
|
Change in
Estimate
|
In the first quarter of 2010, management undertook an evaluation
of the Companys revenue equipment and concluded that it
would be more cost effective to scrap approximately 7,000 dry
van trailers rather than to maintain them in the operating fleet
and is now in the process of scrapping them. These trailers did
not qualify for assets held for sale treatment and were thus
considered long-lived assets held and used. As a result,
management revised its previous estimates regarding remaining
useful lives and estimated residual values for these trailers,
resulting in incremental depreciation expense in the first
quarter of 2010 of $7.4 million. These trailers are in
addition to the approximately 2,500 trailers that were
reclassified to assets held for sale, as discussed in
Note 5.
|
|
Note 14.
|
Guarantor
Condensed Consolidating Financial Statements
|
The payment of principal and interest on the Companys
senior second priority secured notes are guaranteed by the
Companys wholly-owned domestic subsidiaries (the
Guarantor Subsidiaries) other than
F-14
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial statements
(unaudited) (Continued)
its driver academy subsidiary, its captive insurance
subsidiaries, its special-purpose receivables securitization
subsidiary, and it foreign subsidiaries (the Non-guarantor
Subsidiaries). The separate financial statements of the
Guarantor Subsidiaries are not included herein because the
Guarantor Subsidiaries are the Companys wholly-owned
consolidated subsidiaries and are jointly, severally, fully and
unconditionally liable for the obligations represented by the
senior second priority secured notes.
The consolidating financial statements present consolidating
financial data for (i) Swift Transportation Company (on a
parent only basis), (ii) Swift Services Holdings, Inc. (on
an issuer only basis), (iii) the combined Guarantor
Subsidiaries, (iv) the combined Non-Guarantor Subsidiaries,
(iv) an elimination column for adjustments to arrive at the
information for the parent company and subsidiaries on a
consolidated basis and (v) the parent company and
subsidiaries on a consolidated basis as of March 31, 2011
and for the three months ended March 31, 2011 and 2010.
Swift Services Holdings, Inc., was formed in November 2010 in
anticipation of the issuance of the senior second priority
secured notes, there is no financial activity for this entity
prior to this date.
Investments in subsidiaries are accounted for by the respective
parent company using the equity method for purposes of this
presentation. Results of operations of subsidiaries are
therefore reflected in the parent companys investment
accounts and earnings. The principal elimination entries set
forth below eliminate investments in subsidiaries and
intercompany balances and transactions.
F-15
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial statements
(unaudited) (Continued)
Condensed
consolidating balance sheet as of March 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swift
|
|
|
Swift
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation
|
|
|
Services
|
|
|
|
|
|
Non-
|
|
|
Eliminations
|
|
|
|
|
|
|
Company
|
|
|
Holdings,
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
for
|
|
|
|
|
|
|
(Parent)
|
|
|
Inc. (Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Consolidation
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
1,350
|
|
|
$
|
|
|
|
$
|
8,377
|
|
|
$
|
11,822
|
|
|
$
|
|
|
|
$
|
21,549
|
|
Restricted cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85,078
|
|
|
|
|
|
|
|
85,078
|
|
Accounts receivable, net
|
|
|
|
|
|
|
|
|
|
|
16,996
|
|
|
|
299,217
|
|
|
|
(1,547
|
)
|
|
|
314,666
|
|
Intercompany receivable (payable)
|
|
|
400,640
|
|
|
|
487,837
|
|
|
|
(931,163
|
)
|
|
|
42,686
|
|
|
|
|
|
|
|
|
|
Other current assets
|
|
|
11,225
|
|
|
|
377
|
|
|
|
90,812
|
|
|
|
10,791
|
|
|
|
|
|
|
|
113,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
413,215
|
|
|
|
488,214
|
|
|
|
(814,978
|
)
|
|
|
449,594
|
|
|
|
(1,547
|
)
|
|
|
534,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
|
|
|
|
|
|
|
|
|
1,283,232
|
|
|
|
32,167
|
|
|
|
|
|
|
|
1,315,399
|
|
Other assets
|
|
|
(585,265
|
)
|
|
|
704,601
|
|
|
|
1,057,679
|
|
|
|
7,072
|
|
|
|
(1,095,577
|
)
|
|
|
88,510
|
|
Intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
352,188
|
|
|
|
11,829
|
|
|
|
|
|
|
|
364,017
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
246,977
|
|
|
|
6,279
|
|
|
|
|
|
|
|
253,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
(172,050
|
)
|
|
$
|
1,192,815
|
|
|
$
|
2,125,098
|
|
|
$
|
506,941
|
|
|
$
|
(1,097,124
|
)
|
|
$
|
2,555,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt and obligations under capital
leases
|
|
$
|
|
|
|
$
|
|
|
|
$
|
41,316
|
|
|
$
|
68,112
|
|
|
$
|
(67,714
|
)
|
|
$
|
41,714
|
|
Other current liabilities
|
|
|
1,411
|
|
|
|
13,889
|
|
|
|
251,571
|
|
|
|
22,906
|
|
|
|
(1,547
|
)
|
|
|
288,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,411
|
|
|
|
13,889
|
|
|
|
292,887
|
|
|
|
91,018
|
|
|
|
(69,261
|
)
|
|
|
329,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and obligations under capital leases
|
|
|
|
|
|
|
490,351
|
|
|
|
1,161,046
|
|
|
|
2,136
|
|
|
|
(1,438
|
)
|
|
|
1,652,095
|
|
Deferred income taxes
|
|
|
(147,402
|
)
|
|
|
(4,880
|
)
|
|
|
452,530
|
|
|
|
3,707
|
|
|
|
|
|
|
|
303,955
|
|
Securitization of accounts receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136,000
|
|
|
|
|
|
|
|
136,000
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
85,349
|
|
|
|
58,105
|
|
|
|
|
|
|
|
143,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
(145,991
|
)
|
|
|
499,360
|
|
|
|
1,991,812
|
|
|
|
290,966
|
|
|
|
(70,699
|
)
|
|
|
2,565,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders (deficit) equity
|
|
|
(26,059
|
)
|
|
|
693,455
|
|
|
|
133,286
|
|
|
|
215,975
|
|
|
|
(1,026,425
|
)
|
|
|
(9,768
|
)
|
Total liabilities and stockholders (deficit) equity
|
|
$
|
(172,050
|
)
|
|
$
|
1,192,815
|
|
|
$
|
2,125,098
|
|
|
$
|
506,941
|
|
|
$
|
(1,097,124
|
)
|
|
$
|
2,555,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-16
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial statements
(unaudited) (Continued)
Condensed
consolidating balance sheet as of December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swift
|
|
|
Swift
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation
|
|
|
Services
|
|
|
|
|
|
Non-
|
|
|
Eliminations
|
|
|
|
|
|
|
Company
|
|
|
Holdings,
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
for
|
|
|
|
|
|
|
(Parent)
|
|
|
Inc. (Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Consolidation
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
1,561
|
|
|
$
|
|
|
|
$
|
35,844
|
|
|
$
|
10,089
|
|
|
$
|
|
|
|
$
|
47,494
|
|
Restricted cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84,568
|
|
|
|
|
|
|
|
84,568
|
|
Accounts receivable, net
|
|
|
|
|
|
|
|
|
|
|
16,398
|
|
|
|
261,175
|
|
|
|
(694
|
)
|
|
|
276,879
|
|
Intercompany receivable (payable)
|
|
|
324,359
|
|
|
|
487,942
|
|
|
|
(861,300
|
)
|
|
|
48,999
|
|
|
|
|
|
|
|
|
|
Other current assets
|
|
|
9,104
|
|
|
|
44
|
|
|
|
82,247
|
|
|
|
11,980
|
|
|
|
|
|
|
|
103,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
335,024
|
|
|
|
487,986
|
|
|
|
(726,811
|
)
|
|
|
416,811
|
|
|
|
(694
|
)
|
|
|
512,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
|
|
|
|
|
|
|
|
|
1,309,453
|
|
|
|
30,185
|
|
|
|
|
|
|
|
1,339,638
|
|
Other assets
|
|
|
(588,713
|
)
|
|
|
2,051
|
|
|
|
301,472
|
|
|
|
7,966
|
|
|
|
371,165
|
|
|
|
93,941
|
|
Intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
356,696
|
|
|
|
12,048
|
|
|
|
|
|
|
|
368,744
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
246,977
|
|
|
|
6,279
|
|
|
|
|
|
|
|
253,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
(253,689
|
)
|
|
$
|
490,037
|
|
|
$
|
1,487,787
|
|
|
$
|
473,289
|
|
|
$
|
370,471
|
|
|
$
|
2,567,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt and obligations under capital
leases
|
|
$
|
|
|
|
$
|
|
|
|
$
|
65,672
|
|
|
$
|
3,757
|
|
|
$
|
(3,359
|
)
|
|
$
|
66,070
|
|
Other current liabilities
|
|
|
3,848
|
|
|
|
1,389
|
|
|
|
226,623
|
|
|
|
28,948
|
|
|
|
(694
|
)
|
|
|
260,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
3,848
|
|
|
|
1,389
|
|
|
|
292,295
|
|
|
|
32,705
|
|
|
|
(4,053
|
)
|
|
|
326,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and obligations under capital leases
|
|
|
|
|
|
|
490,035
|
|
|
|
1,217,197
|
|
|
|
2,537
|
|
|
|
(1,739
|
)
|
|
|
1,708,030
|
|
Deferred income taxes
|
|
|
(162,856
|
)
|
|
|
(486
|
)
|
|
|
463,183
|
|
|
|
3,708
|
|
|
|
|
|
|
|
303,549
|
|
Securitization of accounts receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
171,500
|
|
|
|
|
|
|
|
171,500
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
91,565
|
|
|
|
50,238
|
|
|
|
|
|
|
|
141,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
(159,008
|
)
|
|
|
490,938
|
|
|
|
2,064,240
|
|
|
|
260,688
|
|
|
|
(5,792
|
)
|
|
|
2,651,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders (deficit) equity
|
|
|
(94,681
|
)
|
|
|
(901
|
)
|
|
|
(576,453
|
)
|
|
|
212,601
|
|
|
|
376,263
|
|
|
|
(83,171
|
)
|
Total liabilities and stockholders (deficit) equity
|
|
$
|
(253,689
|
)
|
|
$
|
490,037
|
|
|
$
|
1,487,787
|
|
|
$
|
473,289
|
|
|
$
|
370,471
|
|
|
$
|
2,567,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-17
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial statements
(unaudited) (Continued)
Condensed
consolidating statement of operations for the three months ended
March 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swift
|
|
|
Swift
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation
|
|
|
Services
|
|
|
|
|
|
Non-
|
|
|
Eliminations
|
|
|
|
|
|
|
Company
|
|
|
Holdings,
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
for
|
|
|
|
|
|
|
(Parent)
|
|
|
Inc. (Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Consolidation
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Operating revenue
|
|
$
|
|
|
|
$
|
|
|
|
$
|
744,534
|
|
|
$
|
41,259
|
|
|
$
|
(26,904
|
)
|
|
$
|
758,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and employee benefits
|
|
|
2,424
|
|
|
|
|
|
|
|
186,539
|
|
|
|
6,513
|
|
|
|
|
|
|
|
195,476
|
|
Operating supplies and expenses
|
|
|
878
|
|
|
|
|
|
|
|
48,714
|
|
|
|
8,897
|
|
|
|
(1,385
|
)
|
|
|
57,104
|
|
Fuel
|
|
|
|
|
|
|
|
|
|
|
145,420
|
|
|
|
4,861
|
|
|
|
|
|
|
|
150,281
|
|
Purchased transportation
|
|
|
|
|
|
|
|
|
|
|
203,437
|
|
|
|
2,177
|
|
|
|
(11,577
|
)
|
|
|
194,037
|
|
Rental expense
|
|
|
|
|
|
|
|
|
|
|
17,849
|
|
|
|
327
|
|
|
|
(187
|
)
|
|
|
17,989
|
|
Insurance and claims
|
|
|
|
|
|
|
|
|
|
|
18,407
|
|
|
|
18,073
|
|
|
|
(13,755
|
)
|
|
|
22,725
|
|
Depreciation and amortization of property and equipment
|
|
|
|
|
|
|
|
|
|
|
49,708
|
|
|
|
650
|
|
|
|
|
|
|
|
50,358
|
|
Amortization of intangibles
|
|
|
|
|
|
|
|
|
|
|
4,508
|
|
|
|
219
|
|
|
|
|
|
|
|
4,727
|
|
(Gain) loss on disposal of property and equipment
|
|
|
|
|
|
|
|
|
|
|
(2,286
|
)
|
|
|
31
|
|
|
|
|
|
|
|
(2,255
|
)
|
Communication and utilities
|
|
|
|
|
|
|
|
|
|
|
6,221
|
|
|
|
239
|
|
|
|
|
|
|
|
6,460
|
|
Operating taxes and licenses
|
|
|
|
|
|
|
|
|
|
|
13,002
|
|
|
|
2,256
|
|
|
|
|
|
|
|
15,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
3,302
|
|
|
|
|
|
|
|
691,519
|
|
|
|
44,243
|
|
|
|
(26,904
|
)
|
|
|
712,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(3,302
|
)
|
|
|
|
|
|
|
53,015
|
|
|
|
(2,984
|
)
|
|
|
|
|
|
|
46,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
12,882
|
|
|
|
27,028
|
|
|
|
1,804
|
|
|
|
|
|
|
|
41,714
|
|
Other (income) expenses
|
|
|
(3,449
|
)
|
|
|
(12,718
|
)
|
|
|
1,868
|
|
|
|
(10,215
|
)
|
|
|
24,003
|
|
|
|
(511
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
147
|
|
|
|
(164
|
)
|
|
|
24,119
|
|
|
|
5,427
|
|
|
|
(24,003
|
)
|
|
|
5,526
|
|
Income tax (benefit) expense
|
|
|
(3,058
|
)
|
|
|
(4,727
|
)
|
|
|
7,952
|
|
|
|
2,154
|
|
|
|
|
|
|
|
2,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
3,205
|
|
|
$
|
4,563
|
|
|
$
|
16,167
|
|
|
$
|
3,273
|
|
|
$
|
(24,003
|
)
|
|
$
|
3,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-18
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial statements
(unaudited) (Continued)
Condensed
consolidating statement of operations for the three months ended
March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swift
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation
|
|
|
Swift Services
|
|
|
|
|
|
Non-
|
|
|
Eliminations
|
|
|
|
|
|
|
Company
|
|
|
Holdings, Inc.
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
for
|
|
|
|
|
|
|
(Parent)
|
|
|
(Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Consolidation
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Operating revenue
|
|
$
|
|
|
|
$
|
|
|
|
$
|
642,497
|
|
|
$
|
40,889
|
|
|
$
|
(28,556
|
)
|
|
$
|
654,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits
|
|
|
|
|
|
|
|
|
|
|
171,880
|
|
|
|
5,923
|
|
|
|
|
|
|
|
177,803
|
|
Operating supplies and expenses
|
|
|
871
|
|
|
|
|
|
|
|
40,353
|
|
|
|
7,552
|
|
|
|
(946
|
)
|
|
|
47,830
|
|
Fuel
|
|
|
|
|
|
|
|
|
|
|
101,828
|
|
|
|
4,254
|
|
|
|
|
|
|
|
106,082
|
|
Purchased transportation
|
|
|
|
|
|
|
|
|
|
|
184,760
|
|
|
|
1,577
|
|
|
|
(10,635
|
)
|
|
|
175,702
|
|
Rental expense
|
|
|
|
|
|
|
|
|
|
|
18,774
|
|
|
|
325
|
|
|
|
(196
|
)
|
|
|
18,903
|
|
Insurance and claims
|
|
|
|
|
|
|
|
|
|
|
16,162
|
|
|
|
20,824
|
|
|
|
(16,779
|
)
|
|
|
20,207
|
|
Depreciation and amortization of property and equipment
|
|
|
|
|
|
|
|
|
|
|
59,294
|
|
|
|
725
|
|
|
|
|
|
|
|
60,019
|
|
Amortization of intangibles
|
|
|
|
|
|
|
|
|
|
|
5,236
|
|
|
|
242
|
|
|
|
|
|
|
|
5,478
|
|
Impairments
|
|
|
|
|
|
|
|
|
|
|
1,274
|
|
|
|
|
|
|
|
|
|
|
|
1,274
|
|
(Gain) loss on disposal of property and equipment
|
|
|
|
|
|
|
|
|
|
|
(1,448
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,448
|
)
|
Communication and utilities
|
|
|
|
|
|
|
|
|
|
|
6,212
|
|
|
|
210
|
|
|
|
|
|
|
|
6,422
|
|
Operating taxes and licenses
|
|
|
|
|
|
|
|
|
|
|
11,361
|
|
|
|
2,004
|
|
|
|
|
|
|
|
13,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
871
|
|
|
|
|
|
|
|
615,686
|
|
|
|
43,636
|
|
|
|
(28,556
|
)
|
|
|
631,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(871
|
)
|
|
|
|
|
|
|
26,811
|
|
|
|
(2,747
|
)
|
|
|
|
|
|
|
23,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
84,612
|
|
|
|
1,478
|
|
|
|
|
|
|
|
86,090
|
|
Other (income) expenses
|
|
|
52,429
|
|
|
|
|
|
|
|
5,704
|
|
|
|
(9,135
|
)
|
|
|
(49,369
|
)
|
|
|
(371
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(53,300
|
)
|
|
|
|
|
|
|
(63,505
|
)
|
|
|
4,910
|
|
|
|
49,369
|
|
|
|
(62,526
|
)
|
Income tax (benefit) expense
|
|
|
(299
|
)
|
|
|
|
|
|
|
(11,076
|
)
|
|
|
1,850
|
|
|
|
|
|
|
|
(9,525
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(53,001
|
)
|
|
$
|
|
|
|
$
|
(52,429
|
)
|
|
$
|
3,060
|
|
|
$
|
49,369
|
|
|
$
|
(53,001
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-19
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial statements
(unaudited) (Continued)
Condensed
consolidating statement of cash flows for the three months ended
March 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swift
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation
|
|
|
Swift Services
|
|
|
|
|
|
Non-
|
|
|
Eliminations
|
|
|
|
|
|
|
Company
|
|
|
Holdings, Inc.
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
for
|
|
|
|
|
|
|
(Parent)
|
|
|
(Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Consolidation
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
83,424
|
|
|
$
|
(23,549
|
)
|
|
$
|
|
|
|
$
|
59,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in restricted cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(510
|
)
|
|
|
|
|
|
|
(510
|
)
|
Proceeds from sale of property and equipment
|
|
|
|
|
|
|
|
|
|
|
5,866
|
|
|
|
14
|
|
|
|
|
|
|
|
5,880
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
|
|
(36,858
|
)
|
|
|
(2,676
|
)
|
|
|
|
|
|
|
(39,534
|
)
|
Payments received on notes receivable
|
|
|
|
|
|
|
|
|
|
|
1,647
|
|
|
|
|
|
|
|
|
|
|
|
1,647
|
|
Expenditures on assets held for sale
|
|
|
|
|
|
|
|
|
|
|
(3,085
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,085
|
)
|
Payments received on assets held for sale
|
|
|
|
|
|
|
|
|
|
|
4,053
|
|
|
|
|
|
|
|
|
|
|
|
4,053
|
|
Payments received on intercompany notes payable
|
|
|
|
|
|
|
|
|
|
|
1,653
|
|
|
|
|
|
|
|
(1,653
|
)
|
|
|
|
|
Funding of intercompany notes payable
|
|
|
|
|
|
|
|
|
|
|
(65,607
|
)
|
|
|
|
|
|
|
65,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
|
|
|
|
|
|
|
|
(92,331
|
)
|
|
|
(3,172
|
)
|
|
|
63,954
|
|
|
|
(31,549
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of class A common stock, net of
issuance costs
|
|
|
62,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,994
|
|
Borrowings under accounts receivable securitization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,000
|
|
|
|
|
|
|
|
22,000
|
|
Repayment of accounts receivable securitization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(57,500
|
)
|
|
|
|
|
|
|
(57,500
|
)
|
Repayment of long-term debt and capital leases
|
|
|
|
|
|
|
|
|
|
|
(81,765
|
)
|
|
|
|
|
|
|
|
|
|
|
(81,765
|
)
|
Proceeds from intercompany notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,607
|
|
|
|
(65,607
|
)
|
|
|
|
|
Repayment of intercompany notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,653
|
)
|
|
|
1,653
|
|
|
|
|
|
Net funding (to) from affiliates
|
|
|
(63,205
|
)
|
|
|
|
|
|
|
63,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(211
|
)
|
|
|
|
|
|
|
(18,560
|
)
|
|
|
28,454
|
|
|
|
(63,954
|
)
|
|
|
(54,271
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(211
|
)
|
|
|
|
|
|
|
(27,467
|
)
|
|
|
1,733
|
|
|
|
|
|
|
|
(25,945
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
1,561
|
|
|
|
|
|
|
|
35,844
|
|
|
|
10,089
|
|
|
|
|
|
|
|
47,494
|
|
Cash and cash equivalents at end of period
|
|
$
|
1,350
|
|
|
$
|
|
|
|
$
|
8,377
|
|
|
$
|
11,822
|
|
|
$
|
|
|
|
$
|
21,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-20
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial statements
(unaudited) (Continued)
Condensed
consolidating statement of cash flows for the three months ended
March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swift
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation
|
|
|
Swift Services
|
|
|
|
|
|
Non-
|
|
|
Eliminations
|
|
|
|
|
|
|
Company
|
|
|
Holdings, Inc.
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
for
|
|
|
|
|
|
|
(Parent)
|
|
|
(Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Consolidation
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
17,503
|
|
|
$
|
(2,396
|
)
|
|
$
|
|
|
|
$
|
15,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in restricted cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,002
|
)
|
|
|
|
|
|
|
(24,002
|
)
|
Proceeds from sale of property and equipment
|
|
|
|
|
|
|
|
|
|
|
4,684
|
|
|
|
|
|
|
|
|
|
|
|
4,684
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
|
|
(16,067
|
)
|
|
|
(1,088
|
)
|
|
|
|
|
|
|
(17,155
|
)
|
Payments received on notes receivable
|
|
|
|
|
|
|
|
|
|
|
1,345
|
|
|
|
|
|
|
|
|
|
|
|
1,345
|
|
Expenditures on assets held for sale
|
|
|
|
|
|
|
|
|
|
|
(574
|
)
|
|
|
|
|
|
|
|
|
|
|
(574
|
)
|
Payments received on assets held for sale
|
|
|
|
|
|
|
|
|
|
|
363
|
|
|
|
|
|
|
|
|
|
|
|
363
|
|
Payments received on equipment sale receivables
|
|
|
|
|
|
|
|
|
|
|
208
|
|
|
|
|
|
|
|
|
|
|
|
208
|
|
Payments received on intercompany notes payable
|
|
|
|
|
|
|
|
|
|
|
1,451
|
|
|
|
|
|
|
|
(1,451
|
)
|
|
|
|
|
Funding of intercompany notes payable
|
|
|
|
|
|
|
|
|
|
|
(7,954
|
)
|
|
|
|
|
|
|
7,954
|
|
|
|
|
|
Capital contribution to subsidiary
|
|
|
|
|
|
|
|
|
|
|
(2,000
|
)
|
|
|
|
|
|
|
2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
|
|
|
|
|
|
|
|
(18,544
|
)
|
|
|
(25,090
|
)
|
|
|
8,503
|
|
|
|
(35,131
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under accounts receivable securitization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
|
|
|
|
40,000
|
|
Repayment of accounts receivable securitization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38,000
|
)
|
|
|
|
|
|
|
(38,000
|
)
|
Repayment of long-term debt and capital leases
|
|
|
|
|
|
|
|
|
|
|
(10,625
|
)
|
|
|
|
|
|
|
|
|
|
|
(10,625
|
)
|
Payments received on stockholder loan from affiliate
|
|
|
|
|
|
|
|
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
114
|
|
Proceeds from intercompany notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,954
|
|
|
|
(7,954
|
)
|
|
|
|
|
Repayment of intercompany notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,451
|
)
|
|
|
1,451
|
|
|
|
|
|
Capital contribution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,000
|
|
|
|
(2,000
|
)
|
|
|
|
|
Net funding (to) from affiliates
|
|
|
(10,705
|
)
|
|
|
|
|
|
|
10,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(10,705
|
)
|
|
|
|
|
|
|
194
|
|
|
|
10,503
|
|
|
|
(8,503
|
)
|
|
|
(8,511
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(10,705
|
)
|
|
|
|
|
|
|
(847
|
)
|
|
|
(16,983
|
)
|
|
|
|
|
|
|
(28,535
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
21,114
|
|
|
|
|
|
|
|
70,438
|
|
|
|
24,310
|
|
|
|
|
|
|
|
115,862
|
|
Cash and cash equivalents at end of period
|
|
$
|
10,409
|
|
|
$
|
|
|
|
$
|
69,591
|
|
|
$
|
7,327
|
|
|
$
|
|
|
|
$
|
87,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-21
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Swift Transportation Company:
We have audited the accompanying consolidated balance sheets of
Swift Transportation Company and subsidiaries (the Company) as
of December 31, 2010 and 2009, and the related consolidated
statements of operations, stockholders deficit,
comprehensive loss, and cash flows for each of the years in the
three-year period ended December 31, 2010. These
consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Swift Transportation Company and subsidiaries as of
December 31, 2010 and 2009, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2010, in conformity
with U.S. generally accepted accounting principles.
As discussed in Note 10 to the consolidated financial
statements, the Company adopted on January 1, 2010 the
provisions of Accounting Standards Update
No. 2009-16,
Accounting for Transfers of Financial Assets, included in FASB
ASC Topic 860, Transfers and Servicing.
Phoenix, Arizona
March 29, 2011
F-22
FINANCIAL STATEMENTS
Swift
Transportation Company and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except share data)
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
47,494
|
|
|
$
|
115,862
|
|
Restricted cash
|
|
|
84,568
|
|
|
|
24,869
|
|
Accounts receivable, net
|
|
|
276,879
|
|
|
|
21,914
|
|
Retained interest in accounts receivable
|
|
|
|
|
|
|
79,907
|
|
Income tax refund receivable
|
|
|
5,059
|
|
|
|
1,436
|
|
Inventories and supplies
|
|
|
9,882
|
|
|
|
10,193
|
|
Assets held for sale
|
|
|
8,862
|
|
|
|
3,571
|
|
Prepaid taxes, licenses, insurance and other
|
|
|
40,709
|
|
|
|
42,365
|
|
Deferred income taxes
|
|
|
30,741
|
|
|
|
49,023
|
|
Current portion of notes receivable
|
|
|
8,122
|
|
|
|
4,731
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
512,316
|
|
|
|
353,871
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, at cost:
|
|
|
|
|
|
|
|
|
Revenue and service equipment
|
|
|
1,600,025
|
|
|
|
1,488,953
|
|
Land
|
|
|
141,474
|
|
|
|
142,126
|
|
Facilities and improvements
|
|
|
224,976
|
|
|
|
222,751
|
|
Furniture and office equipment
|
|
|
33,660
|
|
|
|
32,726
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment
|
|
|
2,000,135
|
|
|
|
1,886,556
|
|
Less: accumulated depreciation and amortization
|
|
|
660,497
|
|
|
|
522,011
|
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
|
1,339,638
|
|
|
|
1,364,545
|
|
Insurance claims receivable
|
|
|
34,892
|
|
|
|
45,775
|
|
Other assets
|
|
|
59,049
|
|
|
|
107,211
|
|
Intangible assets, net
|
|
|
368,744
|
|
|
|
389,216
|
|
Goodwill
|
|
|
253,256
|
|
|
|
253,256
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,567,895
|
|
|
$
|
2,513,874
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIT
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
90,220
|
|
|
$
|
70,934
|
|
Accrued liabilities
|
|
|
80,455
|
|
|
|
110,662
|
|
Current portion of claims accruals
|
|
|
86,553
|
|
|
|
92,280
|
|
Current portion of long-term debt and obligations under capital
leases
|
|
|
66,070
|
|
|
|
46,754
|
|
Fair value of guarantees
|
|
|
2,886
|
|
|
|
2,519
|
|
Current portion of fair value of interest rate swaps
|
|
|
|
|
|
|
47,244
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
326,184
|
|
|
|
370,393
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and obligations under capital leases
|
|
|
1,708,030
|
|
|
|
2,420,180
|
|
Claims accruals, less current portion
|
|
|
135,596
|
|
|
|
166,718
|
|
Fair value of interest rate swaps, less current portion
|
|
|
|
|
|
|
33,035
|
|
Deferred income taxes
|
|
|
303,549
|
|
|
|
383,795
|
|
Securitization of accounts receivable
|
|
|
171,500
|
|
|
|
|
|
Other liabilities
|
|
|
6,207
|
|
|
|
5,534
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,651,066
|
|
|
|
3,379,655
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (notes 15 and 16)
|
|
|
|
|
|
|
|
|
Stockholders deficit:
|
|
|
|
|
|
|
|
|
Preferred stock, par value $0.01 per share;
Authorized 1,000,000 shares; none issued
|
|
|
|
|
|
|
|
|
Pre-reorganization common stock, par value $0.001 par value
per share,
Authorized 160,000,000 shares, 60,116,713 shares
issued and outstanding at December 31, 2009
|
|
|
|
|
|
|
60
|
|
Class A common stock, par value $0.01 per share; Authorized
500,000,000 shares;
73,300,00 shares issued and outstanding at
December 31, 2010
|
|
|
733
|
|
|
|
|
|
Class B common stock, par value $0.01 per share; Authorized
250,000,000 shares;
60,116,713 shares issued and outstanding at
December 31, 2010
|
|
|
601
|
|
|
|
|
|
Additional paid-in capital
|
|
|
822,140
|
|
|
|
419,120
|
|
Accumulated deficit
|
|
|
(886,671
|
)
|
|
|
(759,936
|
)
|
Stockholder loans receivable
|
|
|
|
|
|
|
(471,113
|
)
|
Accumulated other comprehensive loss
|
|
|
(20,076
|
)
|
|
|
(54,014
|
)
|
Noncontrolling interest
|
|
|
102
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
Total stockholders deficit
|
|
|
(83,171
|
)
|
|
|
(865,781
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders deficit
|
|
$
|
2,567,895
|
|
|
$
|
2,513,874
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-23
Swift
Transportation Company and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except per share data)
|
|
|
Operating revenue
|
|
$
|
2,929,723
|
|
|
$
|
2,571,353
|
|
|
$
|
3,399,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and employee benefits
|
|
|
763,962
|
|
|
|
728,784
|
|
|
|
892,691
|
|
Operating supplies and expenses
|
|
|
217,965
|
|
|
|
209,945
|
|
|
|
271,951
|
|
Fuel
|
|
|
468,504
|
|
|
|
385,513
|
|
|
|
768,693
|
|
Purchased transportation
|
|
|
771,333
|
|
|
|
620,312
|
|
|
|
741,240
|
|
Rental expense
|
|
|
76,540
|
|
|
|
79,833
|
|
|
|
76,900
|
|
Insurance and claims
|
|
|
87,411
|
|
|
|
81,332
|
|
|
|
141,949
|
|
Depreciation and amortization of property and equipment
|
|
|
206,279
|
|
|
|
230,339
|
|
|
|
250,433
|
|
Amortization of intangibles
|
|
|
20,472
|
|
|
|
23,192
|
|
|
|
25,399
|
|
Impairments
|
|
|
1,274
|
|
|
|
515
|
|
|
|
24,529
|
|
Gain on disposal of property and equipment
|
|
|
(8,287
|
)
|
|
|
(2,244
|
)
|
|
|
(6,466
|
)
|
Communication and utilities
|
|
|
25,027
|
|
|
|
24,595
|
|
|
|
29,644
|
|
Operating taxes and licenses
|
|
|
56,188
|
|
|
|
57,236
|
|
|
|
67,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
2,686,668
|
|
|
|
2,439,352
|
|
|
|
3,284,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
243,055
|
|
|
|
132,001
|
|
|
|
114,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (income) expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
251,129
|
|
|
|
200,512
|
|
|
|
222,177
|
|
Derivative interest expense
|
|
|
70,399
|
|
|
|
55,634
|
|
|
|
18,699
|
|
Interest income
|
|
|
(1,379
|
)
|
|
|
(1,814
|
)
|
|
|
(3,506
|
)
|
Loss on debt extinguishment
|
|
|
95,461
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
(3,710
|
)
|
|
|
(13,336
|
)
|
|
|
12,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (income) expenses, net
|
|
|
411,900
|
|
|
|
240,996
|
|
|
|
250,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(168,845
|
)
|
|
|
(108,995
|
)
|
|
|
(135,187
|
)
|
Income tax (benefit) expense
|
|
|
(43,432
|
)
|
|
|
326,650
|
|
|
|
11,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(125,413
|
)
|
|
$
|
(435,645
|
)
|
|
$
|
(146,555
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$
|
(1.98
|
)
|
|
$
|
(7.25
|
)
|
|
$
|
(2.44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in per share calculation
|
|
|
63,339
|
|
|
|
60,117
|
|
|
|
60,117
|
|
Pro forma C corporation data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical loss before income taxes
|
|
|
N/A
|
|
|
$
|
(108,995
|
)
|
|
$
|
(135,187
|
)
|
Pro forma provision (benefit) for income taxes (unaudited)
|
|
|
N/A
|
|
|
|
5,693
|
|
|
|
(26,573
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss (unaudited)
|
|
|
N/A
|
|
|
$
|
(114,688
|
)
|
|
$
|
(108,614
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma basic and diluted loss per share (unaudited)
|
|
|
N/A
|
|
|
$
|
(1.91
|
)
|
|
$
|
(1.81
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-24
Swift
Transportation Company and Subsidiaries
Consolidated
statements of comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Net loss
|
|
$
|
(125,413
|
)
|
|
$
|
(435,645
|
)
|
|
$
|
(146,555
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
149
|
|
Change in unrealized losses on cash flow hedges (see
note 14)
|
|
|
33,938
|
|
|
|
(22,799
|
)
|
|
|
(744
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(91,475
|
)
|
|
$
|
(458,444
|
)
|
|
$
|
(147,150
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-25
Swift
Transportation Company and Subsidiaries
Consolidated
statements of stockholders deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
Class B
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
Stockholder
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Par
|
|
|
|
|
|
Par
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
Loans
|
|
|
Comprehensive
|
|
|
Noncontrolling
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Value
|
|
|
Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Deficit
|
|
|
Receivable
|
|
|
Loss
|
|
|
Interest
|
|
|
Deficit
|
|
|
|
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2007
|
|
|
|
|
|
$
|
|
|
|
|
60,116,713
|
|
|
$
|
60
|
|
|
$
|
422,878
|
|
|
$
|
(127,522
|
)
|
|
$
|
(562,343
|
)
|
|
$
|
(30,620
|
)
|
|
$
|
|
|
|
$
|
(297,547
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest accrued on stockholder loan and dividends distributed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,831
|
|
|
|
(33,831
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest accrued and proceeds from repayment of related party
note receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
153
|
|
|
|
|
|
|
|
289
|
|
|
|
|
|
|
|
|
|
|
|
442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
149
|
|
|
|
|
|
|
|
149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized losses on cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(744
|
)
|
|
|
|
|
|
|
(744
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entry into joint venture
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102
|
|
|
|
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(146,555
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(146,555
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
60,116,713
|
|
|
|
60
|
|
|
|
456,822
|
|
|
|
(307,908
|
)
|
|
|
(562,054
|
)
|
|
|
(31,215
|
)
|
|
|
102
|
|
|
|
(444,193
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest accrued on stockholder loan and dividends distributed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,768
|
|
|
|
(16,383
|
)
|
|
|
(3,385
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest accrued and proceeds from repayment of related party
note receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130
|
|
|
|
|
|
|
|
326
|
|
|
|
|
|
|
|
|
|
|
|
456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized losses on cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,799
|
)
|
|
|
|
|
|
|
(22,799
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction of stockholder loan (see Note 17)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(94,000
|
)
|
|
|
|
|
|
|
94,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation of floating rate notes (see Note 12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(435,645
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(435,645
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
60,116,713
|
|
|
|
60
|
|
|
|
419,120
|
|
|
|
(759,936
|
)
|
|
|
(471,113
|
)
|
|
|
(54,014
|
)
|
|
|
102
|
|
|
|
(865,781
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of predecessor common stock into Class B common
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
541
|
|
|
|
(541
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Class A common stock for cash, net of fees and
expenses of issuance
|
|
|
73,300,000
|
|
|
|
733
|
|
|
|
|
|
|
|
|
|
|
|
762,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
762,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest accrued on stockholder loan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,193
|
|
|
|
|
|
|
|
(6,193
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest accrued and proceeds from repayment of related party
note receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103
|
|
|
|
|
|
|
|
315
|
|
|
|
|
|
|
|
|
|
|
|
418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized losses on cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,938
|
|
|
|
|
|
|
|
33,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation of stockholder loan (see Note 17)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(475,578
|
)
|
|
|
|
|
|
|
475,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation of stockholder loan from affiliate (see
Note 17)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,413
|
)
|
|
|
|
|
|
|
1,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation of fixed rate notes (see Note 12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax distribution on behalf of stockholders (see Note 20)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,322
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,322
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash equity compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(125,413
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(125,413
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2010
|
|
|
73,300,000
|
|
|
$
|
733
|
|
|
|
60,116,713
|
|
|
$
|
601
|
|
|
$
|
822,140
|
|
|
$
|
(886,671
|
)
|
|
$
|
|
|
|
$
|
(20,076
|
)
|
|
$
|
102
|
|
|
$
|
(83,171
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-26
Swift
Transportation Company and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(125,413
|
)
|
|
$
|
(435,645
|
)
|
|
$
|
(146,555
|
)
|
Adjustments to reconcile net loss to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of property, equipment,
intangibles, and debt issuance costs
|
|
|
240,152
|
|
|
|
263,611
|
|
|
|
281,591
|
|
Gain on disposal of property and equipment less write-off of
totaled tractors
|
|
|
(7,310
|
)
|
|
|
(728
|
)
|
|
|
(2,956
|
)
|
Impairment of goodwill, property and equipment and note
receivable and write-off of investment
|
|
|
1,274
|
|
|
|
515
|
|
|
|
24,776
|
|
(Gain) loss on securitization
|
|
|
|
|
|
|
(507
|
)
|
|
|
1,137
|
|
Deferred income taxes
|
|
|
(61,964
|
)
|
|
|
310,269
|
|
|
|
2,919
|
|
(Reduction of) provision for allowance for losses on accounts
receivable
|
|
|
(491
|
)
|
|
|
4,477
|
|
|
|
1,065
|
|
Income effect of
mark-to-market
adjustment of interest rate swaps
|
|
|
24,502
|
|
|
|
7,933
|
|
|
|
(5,487
|
)
|
Non-cash equity compensation
|
|
|
22,883
|
|
|
|
|
|
|
|
|
|
Loss on debt extinguishment
|
|
|
95,461
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash resulting from changes in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(26,566
|
)
|
|
|
6,599
|
|
|
|
(6,401
|
)
|
Inventories and supplies
|
|
|
311
|
|
|
|
(26
|
)
|
|
|
1,370
|
|
Prepaid expenses and other current assets
|
|
|
(1,968
|
)
|
|
|
5,429
|
|
|
|
22,920
|
|
Other assets
|
|
|
18,593
|
|
|
|
1,400
|
|
|
|
(20,540
|
)
|
Interest rate swap liability
|
|
|
(66,350
|
)
|
|
|
|
|
|
|
|
|
Accounts payable, accrued and other liabilities
|
|
|
(54,675
|
)
|
|
|
(47,992
|
)
|
|
|
(34,099
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
58,439
|
|
|
|
115,335
|
|
|
|
119,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in restricted cash
|
|
|
(59,699
|
)
|
|
|
(6,430
|
)
|
|
|
3,588
|
|
Proceeds from sale of property and equipment
|
|
|
38,527
|
|
|
|
69,773
|
|
|
|
191,151
|
|
Capital expenditures
|
|
|
(164,634
|
)
|
|
|
(71,265
|
)
|
|
|
(327,725
|
)
|
Payments received on notes receivable
|
|
|
6,285
|
|
|
|
6,462
|
|
|
|
5,648
|
|
Expenditures on assets held for sale
|
|
|
(4,478
|
)
|
|
|
(9,060
|
)
|
|
|
(10,089
|
)
|
Payments received on assets held for sale
|
|
|
5,230
|
|
|
|
4,442
|
|
|
|
16,391
|
|
Payments received on equipment sale receivables
|
|
|
248
|
|
|
|
4,951
|
|
|
|
2,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(178,521
|
)
|
|
|
(1,127
|
)
|
|
|
(118,517
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of Class A common stock, net of
issuance costs
|
|
|
764,284
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt
|
|
|
1,059,300
|
|
|
|
|
|
|
|
2,570
|
|
Proceeds from issuance of senior notes
|
|
|
490,000
|
|
|
|
|
|
|
|
|
|
Payoff of term loan
|
|
|
(1,488,430
|
)
|
|
|
|
|
|
|
|
|
Repurchase of fixed rate notes
|
|
|
(490,010
|
)
|
|
|
|
|
|
|
|
|
Repurchase of floating rate notes
|
|
|
(192,600
|
)
|
|
|
|
|
|
|
|
|
Payment of fees and costs on note tender offer
|
|
|
(45,163
|
)
|
|
|
|
|
|
|
|
|
Payment of deferred loan costs
|
|
|
(18,497
|
)
|
|
|
(19,694
|
)
|
|
|
(8,669
|
)
|
Borrowings under accounts receivable securitization
|
|
|
213,000
|
|
|
|
|
|
|
|
|
|
F-27
Swift
Transportation Company and Subsidiaries
Consolidated
statements of cash flows (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Repayment of accounts receivable securitization
|
|
|
(189,500
|
)
|
|
|
|
|
|
|
|
|
Repayment of long-term debt and capital leases
|
|
|
(49,766
|
)
|
|
|
(30,820
|
)
|
|
|
(16,625
|
)
|
Payments received on stockholder loan from affiliate
|
|
|
418
|
|
|
|
456
|
|
|
|
442
|
|
Repayment of short-term notes payable
|
|
|
|
|
|
|
(6,204
|
)
|
|
|
|
|
Tax distributions on behalf of stockholders
|
|
|
(1,322
|
)
|
|
|
|
|
|
|
|
|
Distributions to stockholders
|
|
|
|
|
|
|
(16,383
|
)
|
|
|
(33,831
|
)
|
Interest payments received on stockholder loan receivable
|
|
|
|
|
|
|
16,383
|
|
|
|
33,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
51,714
|
|
|
|
(56,262
|
)
|
|
|
(22,282
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
149
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(68,368
|
)
|
|
|
57,946
|
|
|
|
(20,910
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
115,862
|
|
|
|
57,916
|
|
|
|
78,826
|
|
Cash and cash equivalents at end of period
|
|
$
|
47,494
|
|
|
$
|
115,862
|
|
|
$
|
57,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid (refunded) during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
326,660
|
|
|
$
|
216,248
|
|
|
$
|
248,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
32,429
|
|
|
$
|
6,001
|
|
|
$
|
(11,593
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment sales receivables
|
|
$
|
|
|
|
$
|
208
|
|
|
$
|
2,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment purchase accrual
|
|
$
|
11,494
|
|
|
$
|
7,963
|
|
|
$
|
37,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable from sale of assets
|
|
$
|
11,476
|
|
|
$
|
6,230
|
|
|
$
|
8,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Re-recognition of securitized accounts receivable
|
|
$
|
148,000
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of accounts receivable securitization facility, net of
retained interest in receivables
|
|
$
|
|
|
|
$
|
|
|
|
$
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease additions
|
|
$
|
66,551
|
|
|
$
|
36,819
|
|
|
$
|
81,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance premium notes payable
|
|
$
|
|
|
|
$
|
6,205
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred operating lease payment notes payable
|
|
$
|
|
|
|
$
|
2,877
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation of senior notes
|
|
$
|
89,352
|
|
|
$
|
36,400
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation of stockholder loan
|
|
$
|
475,578
|
|
|
$
|
94,000
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in-kind
interest on stockholder loan
|
|
$
|
6,193
|
|
|
$
|
3,385
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued deferred loan costs and stock issuance costs
|
|
$
|
4,185
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-28
Swift
Transportation Company and Subsidiaries
On May 20, 2010, in contemplation of its initial public
offering (IPO), Swift Corporation formed Swift
Transportation Company (formerly Swift Holdings Corp.), a
Delaware corporation. Prior to the IPO, Swift Transportation
Company did not engage in any business or other activities
except in connection with its formation and the IPO and held no
assets and had no subsidiaries.
Immediately prior to the IPO, Swift Corporation merged with and
into Swift Transportation Company, the registrant, with Swift
Transportation Company surviving as a Delaware corporation. In
the merger, all of the outstanding common stock of Swift
Corporation was converted into shares of Swift Transportation
Company Class B common stock on a
one-for-one
basis, and all outstanding stock options of Swift Corporation
were converted into options to purchase shares of Class A
common stock of Swift Transportation Company. All outstanding
Class B shares are held by Jerry Moyes, The Jerry and
Vickie Moyes Family Trust dated
12/11/87,
and various Moyes childrens trusts (collectively the
Moyes affiliates).
The holders of Class A common stock are entitled to one
vote per share and the holders of Class B common stock are
entitled to two votes per share on any matter to be voted on by
the stockholders. Holders of Class A and Class B
common stock vote together as a single class on all matters
submitted to a vote of stockholders, unless otherwise required
by law and except a separate vote of each class will be required
for: a) any merger or consolidation in which holders of
shares of Class A common stock receive consideration that
is not identical to holders of shares of Class B common
stock; b) any amendment of Swift Transportation
Companys amended and restated certificate of incorporation
or amended and restated bylaws that alters the relative rights
of its common stockholders; and c) any increase in the
authorized number of shares of Class B common stock or the
issuance of shares of Class B common stock, other than such
increase or issuance required to effect a stock split, stock
dividend, or recapitalization pro rata with any increase or
issuance of Class A common stock.
|
|
(2)
|
Summary
of significant accounting policies
|
Description
of business
Swift Transportation Company is the holding company for Swift
Transportation Co., LLC (a Delaware limited liability company
formerly Swift Transportation Co., Inc., a Nevada corporation)
and its subsidiaries (collectively, Swift Transportation
Co.), a truckload carrier headquartered in Phoenix,
Arizona, and Interstate Equipment Leasing, LLC (IEL)
(all the foregoing being, collectively, Swift or the
Company). The Company operates predominantly in one
industry, road transportation, throughout the continental United
States and Mexico and thus has only one reportable segment. At
December 31, 2010, the Company operated a national terminal
network and a tractor fleet of approximately 16,100 units
comprised of 12,200 tractors driven by company drivers and 3,900
owner-operator tractors, a fleet of 49,000 trailers, and 4,800
intermodal containers.
In the opinion of management, the accompanying financial
statements prepared in accordance with generally accepted
accounting principles in the United States of America
(GAAP) include all adjustments necessary for the
fair presentation of the periods presented. Management has
evaluated the effect on the Companys reported financial
condition and results of operations of events subsequent to
December 31, 2010 through the issuance of the financial
statements.
Basis
of presentation
The accompanying consolidated financial statements include the
accounts of Swift Transportation Company and its wholly-owned
subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. When the
Company does not have a controlling interest in an entity, but
exerts significant influence over the entity, the Company
applies the equity method of accounting.
F-29
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial
statements (Continued)
Special purpose entities are accounted for using the criteria of
Financial Accounting Standards Board (FASB)
Accounting Standards Codification Topic (Topic) 860,
Transfers and Servicing. This Statement
provides consistent accounting standards for distinguishing
transfers of financial assets that are sales from transfers that
are secured borrowings.
Cash
and cash equivalents
The Company considers all highly liquid debt instruments
purchased with original maturities of three months or less to be
cash equivalents.
Restricted
cash
The Companys wholly-owned captive insurance companies, Red
Rock Risk Retention Group, Inc. (Red Rock) and
Mohave Transportation Insurance Company (Mohave),
maintain certain operating bank accounts, working trust accounts
and certificates of deposit. The cash and cash equivalents
within the accounts will be used to reimburse the insurance
claim losses paid by the captive insurance companies and are
restricted by the insurance regulators. Therefore, these cash
and cash equivalents have been classified as restricted cash. As
of December 31, 2010 and 2009, cash and cash equivalents
held within the accounts was $84.6 million and
$24.9 million, respectively.
Inventories
and supplies
Inventories and supplies consist primarily of spare parts,
tires, fuel and supplies and are stated at lower of cost or
market. Cost is determined using the
first-in,
first-out (FIFO) method.
Property
and equipment
Property and equipment are stated at cost. Costs to construct
significant assets include capitalized interest incurred during
the construction and development period. Expenditures for
replacements and betterments are capitalized; maintenance and
repair expenditures are charged to expense as incurred.
Depreciation on property and equipment is calculated on the
straight-line method over the estimated useful lives of 5 to
40 years for facilities and improvements, 3 to
15 years for revenue and service equipment and 3 to
5 years for furniture and office equipment. For the year
ended December 31, 2010, net gains on the disposal of
property and equipment were $8.3 million.
Tires on revenue equipment purchased are capitalized as a
component of the related equipment cost when the vehicle is
placed in service and depreciated over the life of the vehicle.
Replacement tires are classified as inventory and charged to
expense when placed in service.
Goodwill
Goodwill represents the excess of the aggregate purchase price
over the fair value of the net assets acquired in a purchase
business combination. The Company reviews goodwill for
impairment at least annually as of November 30 in accordance
with the provisions of Topic 350,
Intangibles Goodwill and Other.
The goodwill impairment test is a two-step process. Under the
first step, the fair value of the reporting unit is compared
with its carrying value (including goodwill). If the fair value
of the reporting unit is less than its carrying value, an
indication of goodwill impairment exists for the reporting unit
and the enterprise must perform step two of the impairment test
(measurement). Under step two, an impairment loss is recognized
for any excess of the carrying value amount of the reporting
units goodwill over the implied fair value of that
goodwill. The implied fair value of goodwill is determined by
allocating the fair value of the reporting unit in a manner
similar to a purchase price allocation, in accordance with Topic
805, Business Combinations. The residual fair
value after this allocation is the implied fair value of the
reporting unit goodwill. The test of
F-30
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial
statements (Continued)
goodwill and indefinite-lived intangible assets requires
judgment, including the identification of reporting units,
assigning assets (including goodwill) and liabilities to
reporting units and determining the fair value of each reporting
unit. Fair value of the reporting unit is determined using a
combination of comparative valuation multiples of publicly
traded companies, internal transaction methods, and discounted
cash flow models to estimate the fair value of reporting units,
which included several significant assumptions, including
estimating future cash flows, determining appropriate discount
rates, and other assumptions the Company believed reasonable
under the circumstances. Changes in these estimates and
assumptions could materially affect the determination of fair
value and/or
goodwill impairment for each reporting unit. If the fair value
of the reporting unit exceeds its carrying value, step two does
not need to be performed. The Company has the following four
reporting units at December 31, 2010: U.S. freight
transportation, Mexico freight transportation, IEL, and captive
insurance. The U.S. and Mexico freight transportation
reporting units are the only ones to which goodwill has been
allocated, reflecting a balance of $247.0 million and
$6.3 million, respectively, as of December 31, 2010.
Refer to Note 26 for a discussion of the results of our
annual evaluations as of November 30, 2010, 2009 and 2008.
Claims
accruals
The Company is self-insured for a portion of its auto liability,
workers compensation, property damage, cargo damage, and
employee medical expense risk. This self-insurance results from
buying insurance coverage that applies in excess of a retained
portion of risk for each respective line of coverage. The
Company accrues for the cost of the uninsured portion of pending
claims by evaluating the nature and severity of individual
claims and by estimating future claims development based upon
historical claims development trends. Actual settlement of the
self-insured claim liabilities could differ from
managements estimates due to a number of uncertainties,
including evaluation of severity, legal costs, and claims that
have been incurred but not reported.
Fair
value measurements
On January 1, 2008, the Company adopted the provisions of
Topic 820, Fair Value Measurements and
Disclosures, for fair value measurements of financial
assets and financial liabilities and for fair value measurements
of nonfinancial items that are recognized or disclosed at fair
value in the financial statements on a recurring basis. Topic
820 defines fair value as the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
Topic 820 also establishes a framework for measuring fair value
and expands disclosures about fair value measurements
(Note 24). Topic 820 was not effective until fiscal years
beginning after November 15, 2008 for all nonfinancial
assets and nonfinancial liabilities that are recognized or
disclosed at fair value in the financial statements on a
nonrecurring basis.
Revenue
recognition
The Company recognizes operating revenues and related direct
costs to recognizing revenue as of the date the freight is
delivered, in accordance with Topic
605-20-25-13,
Services for
Freight-in-Transit
at the End of a Reporting Period.
The Company recognizes revenue from leasing tractors and related
equipment to owner-operators as operating leases. Therefore,
revenues from rental operations are recognized on the
straight-line basis as earned under the operating lease
agreements. Losses from lease defaults are recognized as an
offset to revenue in the amount of earned, but not collected
revenue.
Stock
compensation plans
The Company adopted Topic 718, Compensation
Stock Compensation, using the modified prospective
method. This Topic requires that all share-based payments to
employees, including grants of employee
F-31
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial
statements (Continued)
stock options, be recognized in the financial statements upon a
grant-date fair value of an award. See Note 19 for
additional information relating to the Companys stock
compensation plan.
Income
taxes
Prior to its acquisition of Swift Transportation Co. on
May 10, 2007, Swift Corporation had elected to be taxed
under the Internal Revenue Code as a subchapter
S corporation. Under subchapter S, the Company did not pay
corporate income taxes on its taxable income. Instead, its
stockholders were liable for federal and state income taxes on
the taxable income of the Company. Pursuant to the
Companys policy and subject to the terms of the credit
facility, the Company had been allowed to make distributions to
its stockholders in amounts equal to 39% of the Companys
taxable income. An income tax provision or benefit was recorded
for certain subsidiaries not eligible to be treated as an
S corporation. Additionally, the Company recorded a
provision for state income taxes applicable to taxable income
allocated to states that do not recognize the S corporation
election.
Following the completion of the acquisition on May 10,
2007, the Companys wholly-owned subsidiary, Swift
Transportation Co., elected to be treated as an
S corporation, which resulted in an income tax benefit of
approximately $230 million associated with the partial
reversal of previously recognized net deferred tax liabilities.
As discussed in Note 20, in conjunction with Consent and
Amendment No. 2 to Credit Agreement, dated October 7,
2009 (the Second Amendment), the Company revoked its
election to be taxed as a subchapter S corporation and,
beginning October 10, 2009, is being taxed as a subchapter
C corporation. Under subchapter C, the Company is liable for
federal and state corporate income taxes on its taxable income.
As a result of this conversion, the Company recorded
approximately $325 million of income tax expense on
October 10, 2009, primarily in recognition of its deferred
tax assets and liabilities as a subchapter C corporation.
In April 2010, substantially all of the Companys domestic
subsidiaries were converted from corporations to limited
liability companies. The subsidiaries not converted include the
Companys foreign subsidiaries, captive insurance companies
and certain dormant subsidiaries that were dissolved and
liquidated.
Pro
forma information (unaudited)
As discussed above, the Company was taxed under the Internal
Revenue Code as a subchapter S corporation until its
conversion to a subchapter C corporation effective
October 10, 2009. For comparative purposes, a pro forma
income tax provision for corporate income taxes has been
calculated and presented as if the Company had been taxed as a
subchapter C corporation for the years ended December 31,
2009 and 2008 when the Companys subchapter S election was
in effect.
Impairments
The Company evaluates its long-lived assets, including property
and equipment, and certain intangible assets subject to
amortization for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable in accordance with Topic 360,
Property, Plant and Equipment and Topic 350,
respectively. If circumstances required a long-lived asset be
tested for possible impairment, the Company compares
undiscounted cash flows expected to be generated by an asset to
the carrying value of the asset. If the carrying value of the
long-lived asset is not recoverable on an undiscounted cash flow
basis, impairment is recognized to the extent that the carrying
value exceeds its fair value. Fair value is determined through
various valuation techniques including discounted cash flow
models, quoted market values and third-party independent
appraisals, as considered necessary.
F-32
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial
statements (Continued)
Goodwill and indefinite-lived intangible assets are reviewed for
impairment at least annually in accordance with the provisions
of Topic 350.
Use of
estimates
The preparation of the consolidated financial statements, in
accordance with accounting principles generally accepted in the
United States of America, requires management to make estimates
and assumptions about future events that affect the amounts
reported in the consolidated financial statements and
accompanying notes. Significant items subject to such estimates
and assumptions include the carrying amount of property and
equipment, intangibles, and goodwill; valuation allowances for
receivables, inventories, and deferred income tax assets;
valuation of financial instruments; valuation of share-based
compensation; estimates of claims accruals; and contingent
obligations. Management evaluates its estimates and assumptions
on an ongoing basis using historical experience and other
factors, including but not limited to the current economic
environment, which management believes to be reasonable under
the circumstances. Management adjusts such estimates and
assumptions when facts and circumstances dictate. Illiquid
credit markets, volatile energy markets, and declines in
consumer spending have combined to increase the uncertainty
inherent in such estimates and assumptions. As future events and
their effects cannot be determined with precision, actual
results could differ significantly from these estimates.
Recent
accounting pronouncements
In January 2010, the FASB issued ASU
No. 2010-06,
Fair Value Measurements and Disclosures (Topic
820) Improving Disclosures about Fair Value
Measurements. This ASU amends Topic 820 to require
entities to provide new disclosures and clarify existing
disclosures relating to fair value measurements. New disclosures
include requiring an entity to disclose separately the amounts
of significant transfers in and out of Level 1 and 2 fair
value measurements and to describe the reasons for the
transfers, as well as to disclose separately gross purchases,
sales, issuances and settlements in the roll forward activity of
Level 3 measurements. Clarifications of existing
disclosures include requiring a greater level of disaggregation
of fair value measurements by class of assets and liabilities,
in addition to enhanced disclosures concerning the inputs and
valuation techniques used to determine Level 2 and
Level 3 fair value measurements. ASU
No. 2010-06
was effective for the Companys interim and annual periods
beginning January 1, 2010, except for the additional
disclosure of purchases, sales, issuances, and settlements in
Level 3 fair value measurements, which is effective for the
Companys fiscal year beginning January 1, 2011. The
Company does not expect the adoption of the remaining portion of
this statement to have a material impact on the disclosures in
its consolidated financial statements.
|
|
(3)
|
Initial
public offering
|
In December 2010, the Company completed an initial public
offering of 73.3 million shares of its Class A common
stock at $11.00 per share and received proceeds of
$766.0 million net of underwriting discounts and
commissions and before expenses of such issuance. The proceeds
were used, together with the $1.06 billion of proceeds from
the Companys issuance of a new senior secured term loan
and $490 million of proceeds from the private placement of
new senior second priority secured notes in December 2010 as
discussed in Note 12, to (a) repay all amounts
outstanding under the previous senior secured credit facility,
(b) purchase an aggregate amount of $490.0 million of
existing senior secured fixed-rate notes and $192.6 million
of existing senior secured floating rate notes, (c) pay
$66.4 million to the Companys interest rate swap
counterparties to terminate the interest rate swap agreements
related to our existing floating rate debt, and (d) pay
fees and expenses related to the debt issuance and stock
offering. See Note 30 for information relating to the
issuance of additional shares of Class A common stock
pursuant to the underwriters over-allotment option in
connection with the Companys IPO and the Companys
use of the proceeds from such issuance.
F-33
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial
statements (Continued)
Accounts receivable as of December 31, 2010 and 2009 were
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Trade customers
|
|
$
|
266,109
|
|
|
$
|
9,338
|
|
Equipment manufacturers
|
|
|
7,674
|
|
|
|
6,167
|
|
Other
|
|
|
9,710
|
|
|
|
6,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
283,493
|
|
|
|
22,463
|
|
Less allowance for doubtful accounts
|
|
|
6,614
|
|
|
|
549
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
276,879
|
|
|
$
|
21,914
|
|
|
|
|
|
|
|
|
|
|
The schedule of allowance for doubtful accounts for the years
ended December 31, 2010, 2009 and 2008 was as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Beginning balance
|
|
$
|
549
|
|
|
$
|
656
|
|
|
$
|
10,180
|
|
Provision (Reversal)
|
|
|
(491
|
)
|
|
|
4,477
|
|
|
|
1,065
|
|
Recoveries
|
|
|
140
|
|
|
|
11
|
|
|
|
39
|
|
Write-offs
|
|
|
(976
|
)
|
|
|
(4,464
|
)
|
|
|
(223
|
)
|
Retained interest adjustment
|
|
|
7,392
|
|
|
|
(131
|
)
|
|
|
(10,405
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
6,614
|
|
|
$
|
549
|
|
|
$
|
656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 10 for a discussion of the Companys accounts
receivable securitization program and the related accounting
treatment.
Assets held for sale as of December 31, 2010 and 2009 were
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Land and facilities
|
|
$
|
3,896
|
|
|
$
|
2,737
|
|
Revenue equipment
|
|
|
4,966
|
|
|
|
834
|
|
|
|
|
|
|
|
|
|
|
Assets held for sale
|
|
$
|
8,862
|
|
|
$
|
3,571
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010 and 2009, assets held for sale are
stated at the lower of depreciated cost or estimated fair value
less estimated selling expenses. The Company expects to sell
these assets within the next twelve months.
During the year ended December 31 2010, management undertook an
evaluation of the Companys revenue equipment and concluded
that it would be more cost effective to dispose of approximately
2,500 trailers through scrap or sale rather than to maintain
them in the operating fleet. These trailers met the requirements
for assets held for sale treatment and were reclassified as
such, with a related $1.3 million pre-tax impairment charge
being recorded during the first quarter of 2010 as discussed in
Note 24.
|
|
(6)
|
Equity
investment Transplace
|
In 2000, the Company invested $10.0 million in cash in
Transplace, Inc. (Transplace), a provider of
transportation management services, and further loaned
Transplace $6.3 million pursuant to a note receivable
during 2005. The Companys 29% interest in Transplace was
accounted for using the equity method. As a
F-34
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial
statements (Continued)
result of accumulated equity losses and purchase accounting
valuation adjustments, both the investment in Transplace and
note receivable were $0 by December 31, 2008. The Company
sold its entire investment in Transplace in December 2009 and
recorded a gain of $4.0 million before taxes in other
income representing the recovery of a note receivable from
Transplace which the Company had previously written off. During
the years ended December 31, 2010, 2009 and 2008, the
Company earned $0, $34.5 million, and $26.9 million,
respectively, in operating revenue from business brokered by
Transplace. At December 31, 2010 and 2009, $0 and
$4.3 million, respectively, was owed to the Company for
these services. The Company incurred no purchased transportation
expense from Transplace for the years ended December 31,
2010, 2009 and 2008. The Company recorded equity losses of $0,
$0, and $152 thousand, respectively, in other expense during the
years ended December 31, 2010, 2009 and 2008 for Transplace.
Notes receivable are included in current portion of notes
receivable and other assets in the accompanying consolidated
balance sheets and were comprised of the following as of
December 31, 2010 and 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Notes receivable due from owner-operators, with interest rates
at 15%, secured by revenue equipment. Terms range from several
months to three years
|
|
$
|
10,759
|
|
|
$
|
5,568
|
|
Note receivable for the credit of development fees from the City
of Lancaster, Texas payable May 2014, fully paid in July 2010
|
|
|
|
|
|
|
2,523
|
|
Other
|
|
|
63
|
|
|
|
310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,822
|
|
|
|
8,401
|
|
Less current portion
|
|
|
8,122
|
|
|
|
4,731
|
|
|
|
|
|
|
|
|
|
|
Notes receivable, less current portion
|
|
$
|
2,700
|
|
|
$
|
3,670
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities as of December 31, 2010 and 2009 were
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Employee compensation
|
|
$
|
37,345
|
|
|
$
|
25,262
|
|
Owner-operator lease purchase reserve
|
|
|
7,935
|
|
|
|
5,817
|
|
Income taxes accrual
|
|
|
6,214
|
|
|
|
16,742
|
|
Accrued owner-operator expenses
|
|
|
5,921
|
|
|
|
5,587
|
|
Deferred revenue
|
|
|
5,259
|
|
|
|
1,723
|
|
Fuel, mileage and property taxes
|
|
|
4,989
|
|
|
|
6,851
|
|
Accrued interest expense
|
|
|
2,653
|
|
|
|
40,693
|
|
Other
|
|
|
10,139
|
|
|
|
7,987
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
$
|
80,455
|
|
|
$
|
110,662
|
|
|
|
|
|
|
|
|
|
|
Claims accruals represent accruals for the uninsured portion of
pending claims at year end. The current portion reflects the
amounts of claims expected to be paid in the following year.
These accruals are estimated based on managements
evaluation of the nature and severity of individual claims and
an estimate of future claims development based on the
Companys historical claims development experience. The
Companys
F-35
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial
statements (Continued)
insurance program for workers compensation, group medical
liability, auto and collision liability, physical damage and
cargo damage involves self-insurance with varying risk retention
levels.
As of December 31, 2010 and 2009, claims accruals were (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Auto and collision liability
|
|
$
|
120,803
|
|
|
$
|
156,651
|
|
Workers compensation liability
|
|
|
72,767
|
|
|
|
76,522
|
|
Owner-operator claims liability
|
|
|
17,577
|
|
|
|
15,185
|
|
Group medical liability
|
|
|
8,852
|
|
|
|
9,896
|
|
Cargo damage liability
|
|
|
2,150
|
|
|
|
744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
222,149
|
|
|
|
258,998
|
|
Less: current portion of claims accrual
|
|
|
86,553
|
|
|
|
92,280
|
|
|
|
|
|
|
|
|
|
|
Claim accruals, less current portion
|
|
$
|
135,596
|
|
|
$
|
166,718
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010 and 2009, the Company recorded
current claims receivable of $520 thousand and $25 thousand,
respectively, which is included in accounts receivable, and the
Company recorded noncurrent claims receivable of
$34.9 million and $45.8 million, respectively, which
is reported as insurance claims receivable in the accompanying
consolidated balance sheets, representing amounts due from
insurance companies for coverage in excess of the Companys
self-insured liabilities. The Company has recorded a
corresponding claim liability as of December 31, 2010 and
2009 of $32.7 million and $42.9 million, respectively,
related to these same claims, which is included in amounts
reported in the table above.
|
|
(10)
|
Accounts
receivable securitization
|
On July 30, 2008, the Company, through Swift Receivables
Company II, LLC, a Delaware limited liability company, formerly
Swift Receivables Corporation II, a Delaware corporation
(SRCII), a wholly-owned bankruptcy-remote special
purpose subsidiary, entered into a receivable sale agreement
with unrelated financial entities (the Purchasers)
to replace the Companys prior accounts receivable sale
facility and to sell, on a revolving basis, undivided interests
in the Companys accounts receivable (the 2008
RSA). The program limit under the 2008 RSA is
$210 million and is subject to eligible receivables and
reserve requirements. Outstanding balances under the 2008 RSA
accrue interest at a yield of LIBOR plus 300 basis points
or Prime plus 200 basis points, at the Companys
discretion. The 2008 RSA expires on July 30, 2013 and is
subject to an unused commitment fee ranging from 25 to
50 basis points, depending on the aggregate unused
commitment of the 2008 RSA.
Following the adoption of ASU
No. 2009-16,
Accounting for Transfers of Financial Assets (Topic
860), which was effective for the Company on
January 1, 2010, the Companys accounts receivable
securitization facility no longer qualified for true sale
accounting treatment and is now instead treated as a secured
borrowing. As a result, the previously de-recognized accounts
receivable, and corresponding allowance for doubtful accounts,
were brought back onto the Companys balance sheet and the
related securitization proceeds were recognized as debt, while
the program fees for the facility were reported as interest
expense beginning January 1, 2010.
Pursuant to the 2008 RSA, collections on the underlying
receivables by the Company are held for the benefit of SRCII and
the lenders in the facility and are unavailable to satisfy
claims of the Company and its subsidiaries. The 2008 RSA
contains certain restrictions and provisions (including
cross-default provisions to the Companys other debt
agreements) which, if not met, could restrict the Companys
ability to borrow against future eligible receivables. The
inability to borrow against additional receivables would reduce
F-36
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial
statements (Continued)
liquidity as the daily proceeds from collections on the
receivables levered prior to termination are remitted to the
lenders, with no further reinvestment of these funds by the
lenders into the Company.
For the year ended December 31, 2010, the Company incurred
program fee expense of $5.2 million, associated with the
2008 RSA which was recorded in interest expense. For the years
ended December 31, 2009 and 2008, the Company incurred
program fee expense of $5.0 million and $7.3 million,
respectively, and recognized a gain of $0.5 million and a
loss of $1.1 million, respectively, excluding the closing
fees paid on the 2008 RSA, associated with the sale of trade
receivables through the above-described programs, all of which
was recorded in other (income) expenses.
As of December 31, 2010, the outstanding borrowing under
the accounts receivable securitization facility was
$171.5 million against a total available borrowing base of
$174.0 million, leaving $2.5 million available. As of
December 31, 2009, the amount of receivables sold through
the accounts receivable securitization facility was
$148.4 million. This amount excludes delinquencies, as
defined in the 2008 RSA, which totaled $15.2 million at
December 31, 2009, and the related allowance for doubtful
accounts, both of which were included in the Companys
retained interest in receivables. During the year ended
December 31, 2009, credit losses were $4.5 million,
which were charged against the allowance for doubtful accounts
included in the Companys retained interest in receivables.
As discussed above, the Company held an interest in the sold
receivables until December 31, 2009. As of
December 31, 2009, the Companys retained interest in
receivables was carried at its fair value of $79.9 million.
Any gain or loss on the sale was determined based on the
previous carrying value amounts of the transferred assets
allocated at fair value between the receivables sold and the
interests that continue to be held. Fair value was determined
based on the present value of expected future cash flows taking
into account the key assumptions of anticipated credit losses,
the speed of payments, and the discount rate commensurate with
the uncertainty involved.
|
|
(11)
|
Fair
value of operating lease guarantees
|
The Company guarantees certain residual values under its
operating lease agreements for revenue equipment. At the
termination of these operating leases, the Company would be
responsible for the excess, if any, of the guarantee amount
above the fair market value of the equipment. As of
December 31, 2010 and 2009, the Company has recorded a
liability for the estimated fair value of the guarantees in the
amount of $2.9 million and $2.5 million, respectively.
The maximum potential amount of future payments the Company
would be required to make under all of these guarantees as of
December 31, 2010 is $17.8 million.
F-37
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial
statements (Continued)
|
|
(12)
|
Debt and
financing transactions
|
Other than the Companys accounts receivable securitization
as discussed in Note 10 and its outstanding capital lease
obligations as discussed in Note 13, the Company had
long-term debt outstanding at December 31, 2010 and 2009,
respectively, as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
New senior secured first lien term loan due December 2016, net
of $10,649 OID
|
|
$
|
1,059,351
|
|
|
$
|
|
|
Previous senior secured first lien term loan due May 2014
|
|
|
|
|
|
|
1,511,400
|
|
Senior second priority secured notes due November 15, 2018,
net of $9,965 OID
|
|
|
490,035
|
|
|
|
|
|
Floating rate notes due May 15, 2015
|
|
|
11,000
|
|
|
|
203,600
|
|
12.50% fixed rate notes due May 15, 2017
|
|
|
15,638
|
|
|
|
595,000
|
|
Note payable, with principal and interest payable in five annual
payments of $514 plus interest at a fixed rate of 7.00% through
February 2013 secured by real property
|
|
|
1,542
|
|
|
|
2,056
|
|
Notes payable, with principal and interest payable in
24 monthly payments of $130 including interest at a fixed
rate of 7.5% through May 2011
|
|
|
512
|
|
|
|
1,993
|
|
Notes payable, with principal and interest payable in
36 monthly payments of $38 at a fixed rate of 4.25% through
December 2013
|
|
|
1,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
1,579,472
|
|
|
|
2,314,049
|
|
Less: current portion
|
|
|
10,304
|
|
|
|
19,054
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current portion
|
|
$
|
1,569,168
|
|
|
$
|
2,294,995
|
|
|
|
|
|
|
|
|
|
|
The aggregate annual maturities of long-term debt as of
December 31, 2010 were (in thousands):
|
|
|
|
|
Years Ending December 31,
|
|
|
|
|
2011
|
|
$
|
12,190
|
|
2012
|
|
|
11,679
|
|
2013
|
|
|
11,679
|
|
2014
|
|
|
10,700
|
|
2015
|
|
|
21,700
|
|
Thereafter
|
|
|
1,532,138
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
1,600,086
|
|
|
|
|
|
|
The majority of currently outstanding debt was issued in
December 2010 to refinance debt associated with the
Companys acquisition of Swift Transportation Co. in May
2007, a going private transaction under SEC rules. The debt
outstanding at December 31, 2010 primarily consists of
proceeds from a first lien term loan pursuant to a senior
secured credit facility with a group of lenders with a face
value of $1.07 billion at December 31, 2010, net of
unamortized original issue discount of $10.6 million, and
proceeds from the offering of $500 million face value of
senior second priority secured notes, net of unamortized
original issue discount of $10.0 million at
December 31, 2010. The proceeds were used, together with
the $766.0 million of proceeds from the Companys
stock offering in December 2010 as discussed in Note 3, to
(a) repay all amounts outstanding under the previous senior
secured credit facility, (b) purchase an aggregate amount
of $490.0 million of previous senior secured fixed-rate
notes and $192.6 million of previous senior secured
floating rate notes, (c) pay $66.4 million to our
interest rate swap counterparties to terminate the interest rate
F-38
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial
statements (Continued)
swap agreements related to our previous floating rate debt, and
(d) pay fees and expenses related to the debt issuance and
stock offering. The new credit facility and senior notes are
secured by substantially all of the assets of the Company and
are guaranteed by Swift Transportation Company, IEL, Swift
Transportation Co. and its domestic subsidiaries other than its
captive insurance subsidiaries, driver training academy
subsidiary, and its bankruptcy-remote special purpose
subsidiary. See Note 30 for information relating to the
issuance of additional shares of Class A common stock
pursuant to the underwriters over-allotment option in
connection with the Companys IPO and the Companys
use of the proceeds from such issuance.
New
Senior Secured Credit Facility
The credit facility was entered into on December 21, 2010
and consists of a first lien term loan with an original
aggregate principal amount of $1.07 billion due December
2016 and a $400 million revolving line of credit due
December 2015. As of December 31, 2010, the principal
outstanding under the first lien term loan was
$1.07 billion and the unamortized original issue discount
was $10.6 million.
Principal payments on the first lien term loan are due in equal
quarterly installments in annual aggregate amounts equal to 1.0%
of the initial aggregate principal amount, except that the final
installment will be equal to the remaining amount of the new
senior secured term loan facility. The Company will be permitted
to make voluntary prepayments at any time, without premium or
penalty (other than LIBOR breakage and redeployment costs, if
applicable). The Company will be required to make mandatory
prepayments under the senior secured credit agreement with
(1) a percentage of excess cash flow, as defined in the
credit agreement (which percentage may decrease over time based
on its leverage ratio), (2) net cash proceeds from
permitted, non-ordinary course asset sales and from insurance
and condemnation events (subject to a reinvestment period and
certain agreed exceptions), (3) net cash proceeds from
certain issuances of indebtedness (subject to certain agreed
exceptions), and (4) a percentage of net cash proceeds from
the issuance of additional equity interests in the Company or
any of its subsidiaries otherwise permitted under the new senior
secured credit facility (which percentage may decrease over time
based on its leverage ratio).
As of December 31, 2010, there were no borrowings under the
$400 million revolving line of credit. The unused portion
of the revolving line of credit is subject to a commitment fee
ranging from 0.50% to 0.75% depending on the Companys
consolidated leverage ratio as defined in the credit agreement.
The revolving line of credit also includes capacity for letters
of credit up to $300 million. As of December 31, 2010,
the Company had outstanding letters of credit under the
revolving line of credit primarily for workers
compensation and self-insurance liability purposes totaling
$153.2 million, leaving $246.8 million available under
the revolving line of credit. Outstanding letters of credit
incur fees of 4.50% per annum.
Borrowings under the new senior secured credit facility will
bear interest, at the Companys option, at (1) a rate
equal to the rate for LIBOR deposits for a period the Company
selects, appearing on LIBOR 01 Page published by Reuters, with a
minimum LIBOR rate of 1.50% with respect to the new senior
secured term loan facility (the LIBOR floor), plus
4.50%, or (2) a rate equal to the highest of (a) the
rate publicly announced by Bank of America, N.A. as its prime
rate in effect at its principal office in New York City,
(b) the federal funds effective rate plus 0.50%, and
(c) the LIBOR Rate applicable for an interest period of one
month plus 1.00%, or the Base Rate (with a minimum base rate of
2.50% with respect to the new senior secured term loan
facility), plus 3.50%. Interest on the term loan and outstanding
borrowings under the revolving line of credit is payable on the
last day of each interest period or on the date of principal
prepayment, if any, with respect to LIBOR rate loans, and on the
last day of each calendar quarter with respect to base rate
loans. As of December 31, 2010, interest accrues at 6.00%
(the LIBOR floor plus 4.50%).
The new senior secured credit agreement contains certain
financial covenants with respect to maximum leverage ratio,
minimum consolidated interest coverage ratio, and maximum
capital expenditures in addition to customary representations
and warranties and customary events of default, including a
change of control default. The senior secured credit agreement
also contains certain affirmative and negative covenants,
F-39
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial
statements (Continued)
including, but not limited to, restrictions, subject to certain
exceptions, on incremental indebtedness, asset sales, certain
restricted payments, certain incremental investments or
advances, transactions with affiliates, engaging in additional
business activities, and prepayments of certain other
indebtedness. The Company was in compliance with these covenants
at December 31, 2010.
New
Senior Second Priority Secured Notes
On December 21, 2010, Swift Services Holdings, Inc., a
wholly owned subsidiary, completed a private placement of senior
second priority secured notes totaling $500 million face
value which mature in November 2018 and bear interest at 10.00%
(the new senior notes). The Company received
proceeds of $490 million, net of a $10.0 million
original issue discount. Interest on the new senior notes is
payable on May 15 and November 15 each year, beginning
May 15, 2011.
The Company must pay additional interest to the holders of the
new senior notes if it fails to complete the exchange offer
described in the registration rights agreement within
180 days after the issuance of such notes or if certain
other conditions are not satisfied. The registration rights
agreement generally provides that the Company shall file and
cause to become effective a registration statement with the SEC
to facilitate the completion of a registered offer to exchange
the privately placed notes for registered notes with terms
substantially identical in all material respects to the notes
issued, except that the registered notes will not contain terms
with respect to transfer restrictions. Subject to certain
exceptions, if the Company has not completed such exchange offer
within 180 days after the original issuance of the new
senior notes, then additional interest will accrue on the
principal amount of the notes at 0.25% per annum, which rate
shall be increased by 0.25% per annum for each subsequent
90-day
period that such additional interest continues to accrue,
provided that the maximum rate for such additional interest
shall not exceed 1.0% per annum.
At any time prior to November 15, 2013, the Company may
redeem up to 35% of the new senior notes at a redemption price
of 110.00% of their principal amount plus accrued interest with
the net cash proceeds of one or more equity offerings, subject
to certain conditions. Other than in conjunction with an equity
offering, the Company may redeem all or a part of the new senior
notes at any time throughout the term of such notes at various
premiums provided for in the indenture governing the new senior
notes, which premium shall be not less than 105% of the
principal amount of such notes at any time prior to
November 15, 2014.
The indenture governing the new senior notes contains covenants
that, among other things, limit the Companys ability to
incur additional indebtedness or issue certain preferred shares,
to pay dividends on, repurchase, or make distributions in
respect of capital stock or make other restricted payments, to
make certain investments, to sell certain assets, to create
liens, enter into sale and leaseback transactions, prepay or
defease subordinated debt, to consolidate, merge, sell, or
otherwise dispose of all or substantially all assets, and to
enter into certain transactions with affiliates. These covenants
are subject to a number of limitations and exceptions. The
indenture governing the new senior notes includes certain events
of default including failure to pay principal and interest on
the new senior notes, failure to comply with covenants, certain
bankruptcy, insolvency, or reorganization events, the
unenforceability, invalidity, denial, or disaffirmation of the
guarantees and default in the performance of the security
agreements, or any other event that adversely affects the
enforceability, validity, perfection, or priority of such liens
on a material portion of the collateral underlying the new
senior notes. The Company was in compliance with these covenants
at December 31, 2010.
Fixed
and Floating-Rate Notes
On May 10, 2007, the Company completed a private placement
of second-priority senior secured notes associated with the
acquisition of Swift Transportation Co. totaling
$835.0 million, which consisted of: $240 million
aggregate principal amount second-priority senior secured
floating rate notes due May 15, 2015, and $595 million
aggregate principal amount of 12.50% second-priority senior
secured fixed rate notes due May 15, 2017.
F-40
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial
statements (Continued)
In October 2009, in conjunction with the second amendment to the
Companys previous senior secured credit facility,
Mr. Moyes agreed to cancel notes he had personally acquired
in open market transactions during the first half of 2009.
Mr. Moyes agreed to cancel the notes at the request of the
steering committee of lenders, comprised of a number of the
largest lenders (by holding size) and the administrative agent
of the previous senior secured credit facility, and in return
the lenders allowed the Company to cancel $325.0 million of
the stockholder loan due 2018 owed to the Company by the Moyes
affiliates. The amount of the stockholder loan cancelled in
exchange for the contribution of notes was negotiated by
Mr. Moyes with the steering committee of lenders. The
floating rate notes held by Mr. Moyes, totaling
$36.4 million in principal amount, were cancelled at
closing on October 13, 2009 and, correspondingly, the
stockholder loan was reduced by $94.0 million. The fixed
rate notes held by Mr. Moyes, totaling $89.4 million
in principal amount, were cancelled in January 2010 and the
stockholder loan was reduced further by an additional
$231.0 million. The cancellation of the notes increased
stockholders equity by $36.4 million in October 2009
and by $89.4 million in January 2010, and the reduction in
the stockholder loan did not reduce the Companys
stockholders equity.
In conjunction with the Companys IPO and refinancing
transactions in December 2010, the Company undertook a tender
offer and consent solicitation process which resulted in the
Company redeeming and cancelling $192.6 million aggregate
principal amount of the second-priority senior secured floating
rate notes (leaving $11.0 million remaining outstanding at
December 31, 2010) and $490.0 million aggregate
principal amount of the second-priority senior secured fixed
rate notes (leaving $15.6 million remaining outstanding at
December 31, 2010) and the elimination of
substantially all covenants, guarantees, and claims to
collateral from the indentures and related documents governing
the remaining notes. Consequently, the remaining fixed and
floating rate notes no longer carry a second-priority senior
secured status.
Interest on the floating rate notes is payable on
February 15, May 15, August 15, and
November 15, accruing at three-month LIBOR plus 7.75%
(8.04% at December 31, 2010). The Company may redeem any of
the remaining floating rate notes on any interest payment date
at a redemption price of 101% of their principal amount and
accrued interest through May 2011 and 100% thereafter.
Interest on the 12.50% fixed rate notes is payable on May 15 and
November 15. The Company may redeem any of the remaining
fixed rate notes on or after May 15, 2012 at an initial
redemption price of 106.25% of their principal amount and
accrued interest.
Previous
Senior Secured Credit Facility
On May 10, 2007, the Company entered into its previous
senior secured credit facility with a group of lenders
associated with the acquisition of Swift Transportation Co. The
credit facility consisted of a first lien term loan with an
original aggregate principal amount of $1.72 billion due
May 2014, a $300 million revolving line of credit due May
2012 and a $150 million synthetic letter of credit facility
due May 2014. At the time of the Companys IPO and
refinancing transactions in December 2010, $1.49 billion
was outstanding under the first lien term loan bearing interest
at 8.25% per annum and there was no outstanding borrowing under
the revolving line of credit. All amounts outstanding were paid
in full upon the closing of the Companys IPO and
refinancing transactions as discussed in Note 3, and the
previous senior secured credit facility was terminated on
December 21, 2010.
Debt
Issuance and Extinguishment Costs
The Company incurred $21.2 million of transaction costs
related to the issuance of the new senior secured credit
facility and new senior second priority secured notes in
December 2010 (all but $2.7 million of which was paid prior
to December 31, 2010), excluding the original issue
discounts on the new senior secured credit facility and new
senior second priority secured notes of $10.6 million and
$10.0 million, respectively.
F-41
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial
statements (Continued)
Such costs were capitalized as deferred loan costs and will be
amortized over the terms of the respective debt instruments.
The Company incurred a $95.5 million loss on debt
extinguishment in December 2010 related to the termination of
the previous senior secured credit facility and the tender offer
and consent solicitation process for the fixed and floating rate
notes comprised of the write-off of $50.3 million of
existing deferred loan costs related to the debt extinguished
and $45.2 million of legal and advisory costs, tender
premiums, and consent fees related to the cancelled fixed and
floating rate notes.
The Company incurred $23.9 million of transaction costs in
the third and fourth quarters of 2009 related to the second
amendment to the Companys previous senior secured credit
facility and related indenture amendments, $19.7 million of
which was capitalized as deferred loan costs and
$4.2 million of which was expensed to operating supplies
and expenses. The determination of the portions capitalized and
expensed was based upon the nature of the payment, such as
lender costs or third party advisor fees, and the accounting
classification for the modification of each agreement under
Topic
470-50,
Debt Modifications and
Extinguishments.
During the third quarter of 2009, the Company began making
preparations for an additional senior note offering in
anticipation of paying down a portion of the outstanding
principal under the first lien term loan. This note offering was
cancelled prior to entering into the second amendment to the
Companys previous senior secured credit facility and
related indenture amendments discussed above. The Company
incurred $2.3 million of legal and advisory costs related
to this cancelled note offering, which was expensed to operating
supplies and expenses during the third quarter of 2009.
The Company incurred $8.7 million of consent fees and other
costs in July 2008 related to the first amendment to its
previous senior secured credit facility fees, all of which was
recorded as deferred loan costs to be amortized to interest
expense over the remaining life of the previous senior secured
credit facility.
As of December 31, 2010 and 2009, the balance of deferred
loan costs was $23.1 million and $65.1 million,
respectively, and is reported in other assets in the
consolidated balance sheets.
The Company leases certain revenue equipment under capital
leases. The Companys capital leases are typically
structured with balloon payments at the end of the lease term
equal to the residual value the Company is contracted to receive
from certain equipment manufacturers upon sale or trade back to
the manufacturers. The Company is obligated to pay the balloon
payments at the end of the leased term whether or not it
receives the proceeds of the contracted residual values from the
respective manufacturers. Certain leases contain renewal or
fixed price purchase options. The leases are collateralized by
revenue equipment with a cost of $375.4 million and
accumulated amortization of $101.9 million at
December 31, 2010. The amortization of the revenue
equipment under capital leases is included in depreciation and
amortization expense.
F-42
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial
statements (Continued)
The following is a schedule of the future minimum lease payments
under capital leases together with the present value of the net
minimum lease payments as of December 31, 2010 (in
thousands):
|
|
|
|
|
Years Ending December 31,
|
|
|
|
|
2011
|
|
$
|
68,512
|
|
2012
|
|
|
60,577
|
|
2013
|
|
|
38,088
|
|
2014
|
|
|
55,632
|
|
2015
|
|
|
336
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
223,145
|
|
Less: amount representing interest
|
|
|
28,517
|
|
|
|
|
|
|
Present value of minimum lease payments
|
|
|
194,628
|
|
Less: current portion
|
|
|
55,766
|
|
|
|
|
|
|
Capital lease obligations, long-term
|
|
$
|
138,862
|
|
|
|
|
|
|
|
|
(14)
|
Derivative
financial instruments
|
The Company is exposed to certain risks relating to its ongoing
business operations. The primary risk managed by using
derivative instruments is interest rate risk. In 2007, the
Company entered into several interest rate swap agreements for
the purpose of hedging variability of interest expense and
interest payments on long-term variable rate debt and senior
notes. The strategy was to use pay-fixed/receive-variable
interest rate swaps to reduce the Companys aggregate
exposure to interest rate risk. These derivative instruments
were not entered into for speculative purposes.
In connection with its previous credit facility, the Company had
four interest rate swap agreements in effect at
December 31, 2009 with a total notional amount of
$1.14 billion. These interest rate swaps had varying
maturity dates through August 2012. At October 1, 2007
(designation date), the Company designated and
qualified these interest rate swaps as cash flow hedges.
Subsequent to the October 1, 2007 designation date, the
effective portion of the changes in fair value of the designated
swaps was recorded in accumulated OCI and is thereafter
recognized to derivative interest expense as the interest on the
variable debt affects earnings. The ineffective portions of the
changes in the fair value of designated interest rate swaps were
recognized directly to earnings as derivative interest expense
in the Companys statements of operations.
Prior to the Companys second amendment to its previous
credit facility in October 2009, these interest rate swap
agreements had been highly effective as a hedge of the
Companys variable rate debt. However, the implementation
of a 2.25% LIBOR floor for the Companys previous credit
facility pursuant to the second amendment effective
October 13, 2009, impacted the ongoing accounting treatment
for the Companys remaining interest rate swaps under Topic
815. The interest rate swaps no longer qualified as highly
effective in offsetting changes in the interest payments on
long-term variable rate debt. Consequently, the Company removed
the hedging designation and ceased cash flow hedge accounting
treatment under Topic 815 for the swaps effective
October 1, 2009. As a result, all of the ongoing changes in
fair value of the interest rate swaps were recorded as
derivative interest expense in earnings following this date
whereas the majority of changes in fair value had been recorded
in OCI under cash flow hedge accounting. The cumulative change
in fair value of the swaps which occurred prior to the cessation
in hedge accounting remains in accumulated OCI and is amortized
to earnings as derivative interest expense in current and future
periods as the hedged interest payments affect earnings.
In December 2010, the Company terminated its last two remaining
interest rate swap agreements in conjunction with its IPO and
debt refinancing transactions and paid $66.4 million to its
counterparties to settle
F-43
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial
statements (Continued)
the outstanding liabilities. In accordance with Topic 815, the
balance of unrealized losses recorded in accumulated OCI on the
date of termination is required to remain in accumulated OCI and
be amortized to expense through the term of the hedged interest
payments, which extends to the original maturity of the swaps in
August 2012. At December 31, 2010 and 2009, unrealized
losses totaling $20.2 million and $54.1 million after
taxes, respectively, were reflected in accumulated OCI. As of
December 31, 2010, the Company estimates that
$15.1 million of unrealized losses included in accumulated
OCI will be realized and reported in earnings within the next
twelve months, with the remaining $5.1 million to be
realized and reported in earnings in 2012.
The Company also assumed three interest rate swap agreements,
each for a notional amount of $20.0 million, in the
acquisition of Swift Transportation Co., the last of which
expired in March 2009. These instruments were not designated and
did not qualify for cash flow hedge accounting. The changes in
the fair value of these interest rate swap agreements were
recognized in net earnings as derivative interest expense in the
periods they occurred.
The fair value of the interest rate swap liability at
December 31, 2010 and 2009 was $0 and $80.3 million,
respectively. The fair values of the interest rate swaps are
based on valuations provided by third parties, derivative
pricing models, and credit spreads derived from the trading
levels of the Companys first lien term loan as of
December 31, 2010 and 2009. Refer to Note 24 for
further discussion of the Companys fair value methodology.
As of December 31, 2010 and 2009, information about
classification of fair value of the Companys interest rate
derivative contracts, which are no longer designated as hedging
instruments under Topic 815 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities Description
|
|
Balance Sheet Classification
|
|
2010
|
|
|
2009
|
|
|
Interest rate derivative contracts not designated as hedging
instruments under Topic 815:
|
|
Fair value of interest rate swaps (current and non-current)
|
|
$
|
|
|
|
$
|
80,279
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
$
|
|
|
|
$
|
80,279
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2010, 2009 and 2008,
information about amounts and classification of gains and losses
on the Companys interest rate derivative contracts that
were designated as hedging instruments under Topic 815 is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Amount of loss recognized in OCI on derivatives (effective
portion)
|
|
$
|
|
|
|
$
|
(70,500
|
)
|
|
$
|
(23,986
|
)
|
Amount of loss reclassified from accumulated OCI into income as
Derivative interest expense (effective portion)
|
|
$
|
(33,938
|
)
|
|
$
|
(47,701
|
)
|
|
$
|
(23,242
|
)
|
Amount of gain recognized in income on derivatives as
Derivative interest expense (ineffective portion)
|
|
$
|
|
|
|
$
|
3,437
|
|
|
$
|
5,045
|
|
For the year ended December 31, 2010, 2009 and 2008,
information about amounts and classification of gains and losses
on the Companys interest rate derivative contracts that
are not designated as hedging instruments under Topic 815 is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Amount of loss recognized in income on derivatives as
Derivative interest expense
|
|
$
|
(36,461
|
)
|
|
$
|
(11,370
|
)
|
|
$
|
(502
|
)
|
F-44
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial
statements (Continued)
Operating
leases (as lessee)
The Company leases various revenue equipment and terminal
facilities under operating leases. At December 31, 2010,
the future minimum lease payments under noncancelable operating
leases were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
|
Facilities
|
|
|
Total
|
|
|
Years Ending December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
$
|
59,164
|
|
|
$
|
940
|
|
|
$
|
60,104
|
|
2012
|
|
|
29,561
|
|
|
|
634
|
|
|
|
30,195
|
|
2013
|
|
|
11,733
|
|
|
|
151
|
|
|
|
11,884
|
|
2014
|
|
|
1,229
|
|
|
|
|
|
|
|
1,229
|
|
2015
|
|
|
923
|
|
|
|
|
|
|
|
923
|
|
Thereafter
|
|
|
231
|
|
|
|
|
|
|
|
231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
102,841
|
|
|
$
|
1,725
|
|
|
$
|
104,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The revenue equipment leases generally include purchase options
exercisable at the completion of the lease. For the years ended
December 31, 2010, 2009 and 2008, total rental expense was
$76.5 million, $79.8 million and $76.9 million,
respectively.
Operating
leases (as lessor)
The Companys wholly-owned subsidiary, IEL, leases revenue
equipment to the Companys owner-operators under operating
leases. As of December 31, 2010, the annual future minimum
lease payments receivable under operating leases were as follows
(in thousands):
|
|
|
|
|
Years Ending December 31,
|
|
|
|
|
2011
|
|
$
|
67,383
|
|
2012
|
|
|
50,047
|
|
2013
|
|
|
30,016
|
|
2014
|
|
|
9,335
|
|
2015
|
|
|
538
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
157,319
|
|
|
|
|
|
|
In the normal course of business, owner-operators default on
their leases with the Company. The Company normally re-leases
the equipment to other owner-operators, shortly thereafter. As a
result, the future lease payments are reflective of payments
from original leases as well as the subsequent re-leases.
Purchase
commitments
As of December 31, 2010, the Company had commitments
outstanding to acquire revenue equipment in 2011 for
approximately $558.8 million. The Company generally has the
option to cancel tractor purchase orders with 60 to 90 days
notice, although the notice period has lapsed for approximately
40% of the commitments outstanding at December 31, 2010.
These purchases are expected to be financed by the combination
of operating leases, capital leases, debt, proceeds from sales
of existing equipment and cash flows from operations.
F-45
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial
statements (Continued)
As of December 31, 2010, we have no outstanding purchase
commitments for fuel, facilities, and non-revenue equipment.
Factors such as costs and opportunities for future terminal
expansions may change the amount of such expenditures.
The Company is involved in certain claims and pending litigation
primarily arising in the normal course of business. The majority
of these claims relate to workers compensation, auto collision
and liability, and physical damage and cargo damage. The Company
expenses legal fees as incurred and accrues for the uninsured
portion of contingent losses from these and other pending claims
when it is both probable that a liability has been incurred and
the amount of the loss can be reasonably estimated. Based on the
knowledge of the facts and, in certain cases, advice of outside
counsel, management believes the resolution of claims and
pending litigation, taking into account existing reserves, will
not have a material adverse effect on the Company. Moreover, the
results of complex legal proceedings are difficult to predict
and the Companys view of these matters may change in the
future as the litigation and events related thereto unfold.
2004
owner-operator class action litigation
On January 30, 2004, a class action lawsuit was filed by
Leonel Garza on behalf of himself and all similarly situated
persons against Swift Transportation: Garza vs. Swift
Transportation Co., Inc., Case
No. CV07-0472.
The putative class now includes 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. The putative
class is alleging that the Company should have reimbursed class
members for actual miles driven rather than the contracted and
industry standard remuneration based upon dispatched miles. On
November 4, 2010, the Maricopa County trial court entered
an order certifying the class. The Company has filed a motion
for summary judgment to dismiss class certification, urging
dismissal on several grounds and intends to pursue all available
appellate relief supported by the record, which management
believes demonstrates that the class is improperly certified
and, further, that the claims raised have no merit or are
subject to mandatory arbitration. The Maricopa County trial
courts decision pertains only to the issue of class
certification, and the Company retains all of its defenses
against liability and damages. With respect to this matter,
management has determined that a potential loss is not probable
and accordingly, no amount has been accrued. Management has
determined that a potential loss is reasonably possible as it is
defined by Topic 450, Contingencies, however,
based on its current knowledge, management does not believe that
the amount of such possible loss or a range of possible loss is
reasonably estimable.
Driving
academy class action litigation
In the spring of 2009, five separate class action lawsuits were
filed against the Company in various jurisdictions which are
based on substantially the same facts and circumstances and
raise similar claims. These lawsuits are Michael Ham, Jemonia
Ham, Dennis Wolf and Francis Wolf v. Swift Transportation
Co., Inc., Case
No. 2:09-cv-02145-STA-dkv;
Michael Pascarella, et al. v. Swift Transportation Co.,
Inc., Sharon A. Harrington, Chief Administrator of the New
Jersey Motor Vehicle Commission, and David Mitchell,
Commissioner of the Tennessee Department of Safety, Case
No. 09-1921(JBS);
Shawn McAlarnen et al. v. Swift Transportation Co.,
Inc., Janet Dolan, Director of the Bureau of Driver Licensing of
The Pennsylvania Department of Transportation, and David
Mitchell, Commissioner of the Tennessee Department of
Safety, Case
No. 09-1737
(E.D. Pa.); Gerald L. Lott and Francisco Armenta on behalf of
themselves and all others similarly situated v. Swift
Transportation Co., Inc. and David Mitchell the Commissioner of
the Tennessee Department of Safety, Case
No. 2:09-cv-02287
and Marylene Broadnax on behalf of herself and all others
similarly situated v. Swift Transportation Corporation,
Case
No. 09-cv-6486-7.
The McAlarnen Complaint has since been dismissed without
prejudice because the McAlarnen plaintiff has elected to pursue
the Director of the Bureau of Driver Licensing of the
Pennsylvania Department of Transportation for damages. The
remaining
F-46
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial
statements (Continued)
complaints have been consolidated in the United States District
Court for the Western District of Tennessee and discovery is
ongoing.
The putative class in each complaint involves former students of
the Companys Tennessee driving academy who are seeking
relief against the Company, and in some cases the Tennessee
Department of Safety, or TDOS, and the state motor vehicle
agencies, for the suspension of their Commercial Drivers
Licenses, or CDLs, and any CDL retesting that may be required of
the former students by the relevant state department of motor
vehicles. The allegations arise from the TDOS having released a
general statement questioning the validity of CDLs issued by the
State of Tennessee in connection with the Swift Driving Academy
located in the State of Tennessee. The Company has filed an
answer to each complaint and has also filed a cross claim
against the Commissioner of the TDOS, or the Commissioner, for a
judicial declaration and judgment that the Company did not
engage in any wrongdoing as alleged in the complaint and a grant
of injunctive relief to compel the Commissioner to redact any
statements or publications that allege wrongdoing by the Company
and to issue corrective statements to any recipients of any such
publications.
Management intends to vigorously defend against certification of
the class for all of the foregoing class action lawsuits as well
as the allegations made by the plaintiffs should the class be
certified. For the consolidated case described above, the issue
of class certification must first be resolved before the court
will address the merits of the case, and the Company retains all
of its defenses against liability and damages pending a
determination of class certification. With respect to this
matter, management has determined that a potential loss is not
probable and accordingly, no amount has been accrued. Management
has determined that a potential loss is reasonably possible as
it is defined by Topic 450, however, based on its current
knowledge, management does not believe that the amount of such
possible loss or a range of possible loss is reasonably
estimable.
Owner-operator
misclassification class action litigation
On December 22, 2009, a class action lawsuit was filed
against Swift Transportation and IEL: John Doe 1 and Joseph
Sheer v. Swift Transportation Co., Inc., and Interstate
Equipment Leasing, Inc., Jerry Moyes, and Chad
Killebrew, Case
No. 09-CIV-10376
filed in the United States District Court for the Southern
District of New York, or the Sheer Complaint. The putative class
involves owner-operators alleging that Swift Transportation
misclassified owner-operators as independent contractors in
violation of the federal Fair Labor Standards Act, of 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, 160 other
current or former owner-operators have joined this lawsuit. On
September 30, 2010, the District Court granted Swifts
motion to compel arbitration and ordered that the class action
be stayed pending the outcome of arbitration. The court further
denied plaintiffs motion for preliminary injunction and
motion for conditional class certification. The Court also
denied plaintiffs request to arbitrate the matter as a
class. The plaintiff has filed a petition for a writ of mandamus
asking that District Courts order be vacated. The Company
intends to vigorously defend against any arbitration
proceedings. With respect to this matter, management has
determined that a potential loss is not probable and
accordingly, no amount has been accrued. Management has
determined that a potential loss is reasonably possible as it is
defined by Topic 450, however, based on its current knowledge,
management does not believe that the amount of such possible
loss or a range of possible loss is reasonably estimable.
California
employee class action
On March 22, 2010, a class action lawsuit was filed by John
Burnell, individually and on behalf of all other similarly
situated persons against Swift Transportation: John Burnell
and all others similarly situated v. Swift Transportation
Co., Inc., Case No. CIVDS 1004377 filed in the Superior
Court of the State of California,
F-47
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial
statements (Continued)
for the County of San Bernardino, or the Burnell Complaint.
On June 3, 2010, upon motion by Swift, the matter was
removed to the United States District Court for the central
District of California, Case
No. EDCV10-00809-VAP.
The putative class includes drivers who worked for the Company
during the four years preceding the date of filing alleging that
the Company failed to pay the California minimum wage, failed to
provide proper meal and rest periods, and failed to timely pay
wages upon separation from employment. The Burnell Complaint is
currently subject to a stay of proceedings pending determination
of similar issues in a case unrelated to Swift, Brinker v
Hohnbaum, which is currently pending before the California
Supreme Court. The Company intends to vigorously defend
certification of the class as well as the merits of these
matters should the class be certified. With respect to this
matter, management has determined that a potential loss is not
probable and accordingly, no amount has been accrued. Management
has determined that a potential loss is reasonably possible as
it is defined by Topic 450, however, based on its current
knowledge, management does not believe that the amount of such
possible loss or a range of possible loss is reasonably
estimable.
California
owner-operator and employee driver class action
On July 1, 2010, a class action lawsuit was filed by
Michael Sanders against Swift Transportation and IEL: Michael
Sanders individually and on behalf of others similarly
situated v. Swift Transportation Co., Inc. and Interstate
Equipment Leasing, Case No. 10523440 in the Superior
Court of California, County of Alameda, or the Sanders
Complaint. The putative class involves both owner-operators and
driver employees alleging differing claims against Swift and
IEL. Many of the claims alleged by both the putative class of
owner-operators and the putative class of employee drivers
overlap the same claims as alleged in the Sheer Complaint with
respect to owner-operators and the Burnell Complaint as it
relates to employee drivers. The Sanders Complaint also raises
separate owner-operator claims alleging that Swift failed to
provide accurate wage statements and failed to properly
compensate for waiting times, and it raises separate employee
driver claims alleging that Swift failed to reimburse business
expenses and coerced driver employees to patronize the employer.
The Sanders matter is currently subject to a stay of proceedings
pending determinations in other unrelated appellate cases that
seek to address similar issues.
The issue of class certification must first be resolved before
the court will address the merits of the case, and the Company
retains all of its defenses against liability and damages
pending a determination of class certification. Management
intends to vigorously defend against certification of the class
as well as the merits of this matter should the class be
certified. With respect to this matter, management has
determined that a potential loss is not probable and
accordingly, no amount has been accrued. Management has
determined that a potential loss is reasonably possible as it is
defined by Topic 450, however, based on its current knowledge,
management does not believe that the amount of such possible
loss or a range of possible loss is reasonably estimable.
|
|
(17)
|
Stockholder
loans receivable
|
On May 10, 2007, the Company entered into a Stockholder
Loan Agreement with its stockholders. Under the agreement, the
Company loaned the stockholders $560 million to be used to
satisfy their indebtedness owed to Morgan Stanley Senior
Funding, Inc. (Morgan Stanley). The proceeds of the
Morgan Stanley loan had been used to repay all indebtedness of
the stockholders secured by the common stock of Swift
Transportation Co. owned by the Moyes affiliates prior to the
contribution by them of that common stock to Swift Corporation
on May 9, 2007 in conjunction with the acquisition by Swift
Corporation of the outstanding stock of Swift Transportation Co.
not already held by the Moyes affiliates on May 10, 2007,
which was a going private transaction under applicable SEC rules.
In connection with the second amendment of the Companys
previous credit facility on October 2009 and as discussed in
Note 12, Mr. Moyes agreed to cancel
$125.8 million of the Companys senior notes he held
in
F-48
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial
statements (Continued)
return for a $325.0 million reduction of the stockholder
loan. The floating rate notes held by Mr. Moyes, totaling
$36.4 million in principal amount, were cancelled at
closing on October 13, 2009 and, correspondingly, the
stockholder loan was reduced by $94.0 million. The fixed
rate notes held by Mr. Moyes, totaling $89.4 million
in principal amount, were cancelled in January 2010 and the
stockholder loan was reduced further by an additional
$231.0 million. The amount of the stockholder loan
cancelled in exchange for the contribution of notes was
negotiated by Mr. Moyes with the steering committee of
lenders, comprised of a number of the largest lenders (by
holding size) and the Administrative Agent of the Credit
Agreement.
The $244.6 million remaining balance of the stockholder
loan, $6.2 million of which was attributable to interest on
the principal amount, was cancelled by the Company prior to the
consummation of its IPO in December 2010. Due to the
classification of the stockholder loan as contra-equity, the
reductions in the stockholder loan did not reduce the
Companys stockholders equity.
The stockholders were required to make interest payments on the
stockholder loan in cash only to the extent that the
stockholders received a corresponding dividend from the Company.
As of December 31, 2009, this stockholder loan receivable
was recorded as contra-equity within stockholders equity.
Interest accrued under the stockholder loan receivable was
recorded as an increase to additional paid-in capital with a
corresponding reduction in retained earnings for the related
dividend. For the years ended December 31, 2010, 2009 and
2008, the total dividend paid to the stockholders and the
corresponding interest payment received from the stockholders
under the agreement was $0, $16.4 million, and
$33.8 million, respectively. Additionally, for the year
ended December 31, 2010 and during the fourth quarter of
2009, interest of $6.2 million and $3.4 million,
respectively, was accrued and added to the stockholder loan
balance as
paid-in-kind
interest as the stockholders did not elect to receive dividends
to fund the interest payments following the Companys
change in tax status to a subchapter C corporation effective
October 10, 2009 as discussed in Note 20.
An entity affiliated with the Moyes affiliates was obligor on a
$1.7 million obligation with our wholly-owned subsidiary,
IEL, at December 31, 2009, which obligation was cancelled
by the Company prior to the consummation of its IPO in December
2010. The obligation was guaranteed by Jerry Moyes. The
obligation accrued interest at 7.0% per annum with monthly
installments equal to $38 thousand through October 10, 2013
when the remaining balance was due. As of December 31,
2009, because of the affiliated status of the obligor, this
obligation was recorded as contra-equity within
stockholders deficit.
|
|
(18)
|
Stockholder
distributions
|
During the year ended December 31, 2010, the Company filed
various federal and state subchapter S corporation income
tax returns for its final subchapter S corporation period,
which reflected taxable income. Certain state tax jurisdictions
require the Company to withhold and remit tax payments on behalf
of the stockholders with the filing of these state
S corporation tax returns. During the year ended
December 31, 2010, the Company paid, on behalf of the
stockholders, $1.3 million of tax payments to certain of
these state tax jurisdictions. These tax payments are reflected
as tax distributions on behalf of stockholders in the statement
of stockholders deficit.
The Companys 2007 Omnibus Incentive Plan, as amended and
restated, is stockholder approved and permits the payment of
cash incentive compensation and authorizes the granting of
shares and share options to its employees and non-employee
directors for up to 12 million shares of Class A
common stock. On October 16, 2007, the Company granted
5.9 million stock options to employees at an exercise price
of $15.63 per share, which exceeded the estimated fair value of
the common stock on the date of grant. Additionally, on
August 27, 2008, the Company granted 0.8 million stock
options to employees and non-employee directors at an exercise
price of $16.79 per share, which equaled the estimated fair
value of the common stock on the date of grant. On
December 31, 2009, the Company granted 0.5 million
stock options to employees at an exercise
F-49
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial
statements (Continued)
price of $8.61, which equaled the estimated fair value on the
date of grant. On February 25, 2010, the Company granted
1.4 million stock options to certain employees at an
exercise price of $8.80 per share, which equaled the estimated
fair value of the common stock on the date of grant. The
estimated fair value in each case was determined by management
based upon a number of factors, including the Companys
discounted projected cash flows, comparative multiples of
similar companies, the lack of liquidity of the Companys
common stock and certain risks the Company faced at the time of
the valuation.
The options have ten year contractual terms and were granted to
two categories of employees. The options granted to the first
category of employees vest upon the occurrence of the earliest
of (i) a sale or a change in control of the Company or,
(ii) a five-year vesting period at a rate of
331/3%
following the third anniversary date of the grant. The options
granted to the second category of employees will vest upon the
later of (i) the occurrence of an initial public offering
of the Company or (ii) a five-year vesting period at a rate
of
331/3%
following the third anniversary date of the grant. To the extent
vested, both types of options become exercisable simultaneous
with the closing of the earlier of (i) an initial public
offering, (ii) a sale, or (iii) a change in control of
the Company. As of December 31, 2010, the Company is
authorized to grant an additional 5.9 million shares or
share options.
The fair value of each option award is estimated on the date of
grant using the Black-Scholes-Merton option-pricing model, which
uses a number of assumptions to determine the fair value of the
options on the date of grant. The weighted-average grant date
fair value of options granted at or above market value during
the years ended December 31, 2010, 2009 and 2008 was $4.19
per share, $4.24 per share and $7.76 per share ($3.88 per share
after repricing upon closing of the IPO in December 2010),
respectively.
The following weighted-average assumptions were used to
determine the weighted-average grant date fair value of the
stock options granted during the years ended December 31,
2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
43
|
%
|
|
|
45
|
%
|
|
|
41
|
%
|
Risk free interest rate
|
|
|
3.09
|
%
|
|
|
3.39
|
%
|
|
|
3.34
|
%
|
Expected lives (in years)
|
|
|
6.5
|
|
|
|
6.5
|
|
|
|
6.5
|
|
The expected volatility of the options are based on the daily
closing values of the similar market capitalized trucking group
participants within the Dow Jones Total U.S. Market
Index over the expected term of the options. As a result of
the inability to predict the expected future employee exercise
behavior, the Company estimated the expected lives of the
options using the simplified method based on the contractual and
vesting terms of the options. The risk-free interest rate is
based upon the U.S. Treasury yield curve at the date of
grant with maturity dates approximately equal to the expected
life at the grant date.
Once the Companys IPO was substantially complete in
December 2010, the satisfaction of this condition to vesting was
deemed probable and the Company recognized $22.6 million of
non-cash equity compensation expense related to the portion of
the outstanding options that vested upon the IPO. Thereafter,
the Company recorded an additional $0.3 million
representing ongoing equity compensation expense through the end
of 2010.
Additionally, upon closing the IPO, the Company repriced
approximately 4.3 million outstanding options whose
exercise price was above the IPO price to the IPO price of
$11.00 per share. These options were held by approximately
1,100 employees. This resulted in $5.6 million of
incremental equity compensation expense to be recognized over
the remaining service period of the repriced options through
August 2013.
As a result of the lack of exercisability prior to the
Companys IPO, the stock options outstanding were
considered to be variable awards with the measurement date to
only occur when the exercise of the options becomes probable.
Until the IPO was substantially complete in December 2010, the
exercisability of the
F-50
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial
statements (Continued)
Companys stock options had not yet been deemed probable
and as a result no compensation expense had been recorded
related to the outstanding options. Even though the options
became exercisable, to the extent vested, upon the IPO in
accordance with the terms of the option awards, they are subject
to a 180-day
lockup beginning on the closing of the IPO pursuant to a policy
imposed by the Company at the request of the underwriters.
A summary of the Companys stock option plan activity as of
and for the years ended December 31, 2010, 2009 and 2008 is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Outstanding at beginning of year
|
|
|
4,970,400
|
|
|
$
|
15.16
|
|
|
|
5,034,000
|
|
|
$
|
15.81
|
|
|
|
5,392,000
|
|
|
$
|
15.63
|
|
Granted
|
|
|
1,441,280
|
|
|
|
8.80
|
|
|
|
451,600
|
|
|
|
8.61
|
|
|
|
784,800
|
|
|
|
16.79
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(311,200
|
)
|
|
|
10.28
|
|
|
|
(515,200
|
)
|
|
|
15.69
|
|
|
|
(1,142,800
|
)
|
|
|
15.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
6,100,480
|
|
|
$
|
10.34
|
(1)
|
|
|
4,970,400
|
|
|
$
|
15.16
|
|
|
|
5,034,000
|
|
|
$
|
15.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year
|
|
|
1,187,867
|
|
|
$
|
11.00
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The weighted average exercise price reflects the repricing of
approximately 4.3 million outstanding options whose
exercise price was above the IPO price to the IPO price of
$11.00 per share. |
The options outstanding at December 31, 2010 had a weighted
average remaining contractual life of 7.6 years. As of
December 31, 2009 and 2008, no options outstanding were
exercisable. The total fair value of options vesting during the
year ended December 31, 2010 was $4.6 million. At
December 31, 2010, 1.2 million options were vested and
exercisable with a weighted average exercise price of $11.00 per
share, a remaining contractual term of 6.8 years, and an
aggregate intrinsic value of $1.8 million.
A summary of the status of the Companys nonvested shares
as of and for the year ended December 31, 2010 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Shares
|
|
|
Fair Value (1)
|
|
|
Nonvested at beginning of year
|
|
|
4,970,400
|
|
|
$
|
3.91
|
|
Granted
|
|
|
1,441,280
|
|
|
|
4.19
|
|
Vested
|
|
|
(1,187,867
|
)
|
|
|
3.88
|
|
Forfeited
|
|
|
(311,200
|
)
|
|
|
3.98
|
|
|
|
|
|
|
|
|
|
|
Nonvested at end of year
|
|
|
4,912,613
|
|
|
$
|
4.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The weighted average fair value reflects the repricing of
approximately 4.3 million outstanding options whose
exercise price was above the IPO price to the IPO price of
$11.00 per share. |
F-51
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial
statements (Continued)
As of December 31, 2010, there was $17.4 million of
total unrecognized compensation cost related to nonvested
options granted under the plan. That cost is expected to be
recognized over a weighted-average period of 2.2 years.
The following table summarizes information about stock options
outstanding at December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Contractual Years
|
|
|
Number Vested
|
|
Exercise Price
|
|
Outstanding
|
|
|
Remaining
|
|
|
and Exercisable
|
|
|
$11.00
|
|
|
3,563,600
|
|
|
|
6.8
|
|
|
|
1,187,867
|
|
$11.00
|
|
|
744,800
|
|
|
|
7.7
|
|
|
|
|
|
$8.61
|
|
|
438,400
|
|
|
|
9.0
|
|
|
|
|
|
$8.80
|
|
|
1,353,680
|
|
|
|
9.3
|
|
|
|
|
|
Income tax expense (benefit) was (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Current expense (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
16,190
|
|
|
$
|
11,509
|
|
|
$
|
5,790
|
|
State
|
|
|
1,113
|
|
|
|
1,170
|
|
|
|
631
|
|
Foreign
|
|
|
1,841
|
|
|
|
3,311
|
|
|
|
1,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,144
|
|
|
|
15,990
|
|
|
|
7,651
|
|
Deferred expense (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(61,059
|
)
|
|
|
292,113
|
|
|
|
1,035
|
|
State
|
|
|
(1,100
|
)
|
|
|
19,137
|
|
|
|
2,904
|
|
Foreign
|
|
|
(417
|
)
|
|
|
(590
|
)
|
|
|
(222
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(62,576
|
)
|
|
$
|
310,660
|
|
|
$
|
3,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
$
|
(43,432
|
)
|
|
$
|
326,650
|
|
|
$
|
11,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Until October 10, 2009, the Company had elected to be taxed
under the Internal Revenue Code as a subchapter
S Corporation. Under subchapter S provisions, the Company
did not pay corporate income taxes on its taxable income.
Instead, the stockholders were liable for federal and state
income taxes on the taxable income of the Company. An income tax
provision or benefit was recorded for certain of the
Companys subsidiaries, including its Mexico subsidiaries
and its domestic captive insurance company, which are not
eligible to be treated as a qualified subchapter
S Corporation. Additionally, the Company recorded a
provision for state income taxes applicable to taxable income
attributed to states that do not recognize the
S Corporation election.
The financial impacts of the amendments and related events
completed during the fourth quarter of 2009, as discussed in
Note 12, are expected to be considered a Significant
Modification for tax purposes and hence trigger a
Debt-for-Debt
Deemed Exchange. To protect against possible splitting of the
Cancellation of Debt (COD) income and Original Issue
Discount (OID) deductions in the future between the
S-Corp stockholders and the Company, the Company elected to
revoke its previous election to be taxed under the Internal
Revenue Code as a subchapter S Corporation and is now being
taxed as a subchapter C Corporation beginning October 10,
2009. Under subchapter C, the Company is liable for federal and
state corporate income taxes on its taxable income.
During the year ended December 31, 2010, the Company filed
various federal and state subchapter S corporation income
tax returns for its final subchapter S corporation period,
which reflected taxable income.
F-52
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial
statements (Continued)
Certain state tax jurisdictions require the Company to withhold
and remit tax payments on behalf of the stockholders with the
filing of these state S corporation tax returns. During the
year ended December 31, 2010, the Company paid, on behalf
of the stockholders, $1.3 million of tax payments to
certain of these state tax jurisdictions. These tax payments are
reflected as tax distributions on behalf of stockholders in the
statement of stockholders deficit.
The Companys effective tax rate was 25.7% in 2010, and
negative 299.7% and 8.4% in 2009 and 2008, respectively. From
January 1st through October 9, 2009, as well as
during all of 2008, actual tax expense differs from the
expected tax expense (computed by applying the
U.S. Federal corporate income tax rate for subchapter
S Corporations of 0% to earnings before income taxes) as
noted in the following table. Following the Companys
revocation of its subchapter S corporation election as
noted above, from October 10, 2009 through
December 31, 2010 actual tax expense differs from the
expected tax expense (computed by applying the
U.S. Federal corporate income tax rate for subchapter C
corporations of 35% to earnings before income taxes) as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Computed expected tax expense (benefit)
|
|
$
|
(59,095
|
)
|
|
$
|
(12,846
|
)
|
|
$
|
|
|
Increase (decrease) in income taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes, net of federal income tax benefit
|
|
|
(3,406
|
)
|
|
|
1,659
|
|
|
|
3,535
|
|
Conversion to a C Corporation for income tax purposes
|
|
|
|
|
|
|
324,829
|
|
|
|
|
|
Effect of tax rates different than statutory (Domestic)
|
|
|
|
|
|
|
2,816
|
|
|
|
4,181
|
|
Effect of tax rates different than statutory (Foreign)
|
|
|
(2,007
|
)
|
|
|
1,418
|
|
|
|
326
|
|
State tax rate change in deferred items
|
|
|
3,030
|
|
|
|
|
|
|
|
|
|
Effect of providing additional
Built-In-Gains
deferred taxes
|
|
|
|
|
|
|
684
|
|
|
|
1,411
|
|
Effect of providing deferred taxes on
mark-to-market
adjustment of derivatives recorded in accumulated OCI
|
|
|
11,885
|
|
|
|
6,294
|
|
|
|
|
|
Other
|
|
|
6,161
|
|
|
|
1,796
|
|
|
|
1,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(43,432
|
)
|
|
$
|
326,650
|
|
|
$
|
11,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-53
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial
statements (Continued)
The components of the net deferred tax asset (liability) as of
December 31, 2010 and 2009 were (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Claims accruals
|
|
$
|
50,541
|
|
|
$
|
67,249
|
|
Allowance for doubtful accounts
|
|
|
4,048
|
|
|
|
4,559
|
|
Derivative financial instruments
|
|
|
|
|
|
|
29,885
|
|
Vacation accrual
|
|
|
3,330
|
|
|
|
3,546
|
|
Original issue discount
|
|
|
1,174
|
|
|
|
69,312
|
|
Deferred freight revenue
|
|
|
4,449
|
|
|
|
658
|
|
Trac lease reserve
|
|
|
3,083
|
|
|
|
2,165
|
|
Net operating loss
|
|
|
172,370
|
|
|
|
5,777
|
|
Amortization of Stock Options
|
|
|
8,889
|
|
|
|
|
|
Other
|
|
|
3,336
|
|
|
|
3,411
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
251,220
|
|
|
|
186,562
|
|
Valuation allowance
|
|
|
(642
|
)
|
|
|
(2,043
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets, net
|
|
|
250,578
|
|
|
|
184,519
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property and equipment, principally due to differences in
depreciation
|
|
|
(360,801
|
)
|
|
|
(343,778
|
)
|
Prepaid taxes, licenses and permits deducted for tax purposes
|
|
|
(9,681
|
)
|
|
|
(8,898
|
)
|
Cancellation of debt
|
|
|
(9,472
|
)
|
|
|
(14,212
|
)
|
Intangible assets
|
|
|
(137,394
|
)
|
|
|
(139,749
|
)
|
Debt financing costs
|
|
|
(1,478
|
)
|
|
|
(8,529
|
)
|
Hybrid to Accrual Reserve
|
|
|
(3,123
|
)
|
|
|
(2,830
|
)
|
Other
|
|
|
(2,001
|
)
|
|
|
(2,471
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(523,950
|
)
|
|
|
(520,467
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(273,372
|
)
|
|
$
|
(335,948
|
)
|
|
|
|
|
|
|
|
|
|
These amounts are presented in the accompanying consolidated
balance sheets in the indicated captions, except the current
deferred tax liability which is included in accrued liabilities,
at December 31, 2010 and 2009 as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Current deferred tax asset
|
|
$
|
30,741
|
|
|
$
|
49,023
|
|
Current deferred tax liability
|
|
|
(564
|
)
|
|
|
(1,176
|
)
|
Noncurrent deferred tax liability
|
|
|
(303,549
|
)
|
|
|
(383,795
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(273,372
|
)
|
|
$
|
(335,948
|
)
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010, the Company had a federal net
operating loss carryforward of $443.2 million and a federal
capital loss carryforward of $1.0 million. Additionally,
the Company has state net operating loss carryforwards, with an
estimated tax effect of $17.2 million, available at
December 31, 2010. The state net operating losses will
expire at various times between 2011 and 2030. The Company has
established a valuation allowance of $0.6 million and
$2.0 million as of December 31, 2010 and 2009,
respectively, for the state loss carryforwards that are unlikely
to be used prior to expiration. The net $1.4 million
decrease in the
F-54
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial
statements (Continued)
valuation allowance in 2010 is due to prior year utilization of
losses and additional losses that are likely to be used prior to
expiration.
U.S. income and foreign withholding taxes have not been
provided on approximately $0.9 million of cumulative
undistributed earnings of foreign subsidiaries. The earnings are
considered to be permanently reinvested outside the U.S. As
the Company intends to reinvest these earnings indefinitely
outside the U.S., it is not required to provide U.S. income
taxes on them until they are repatriated in the form of
dividends or otherwise.
The reconciliation of our unrecognized tax benefits for the
years ending December 31, 2010 and 2009 is as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Unrecognized tax benefits at beginning of year
|
|
$
|
3,531
|
|
|
$
|
3,423
|
|
Increases for tax positions taken prior to beginning of year
|
|
|
2,227
|
|
|
|
610
|
|
Decreases for tax positions taken prior to beginning of year
|
|
|
|
|
|
|
(257
|
)
|
Increases for tax positions taken during the year
|
|
|
|
|
|
|
154
|
|
Settlements
|
|
|
|
|
|
|
(243
|
)
|
Lapse of statute of limitations
|
|
|
(56
|
)
|
|
|
(156
|
)
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits at end of year
|
|
$
|
5,702
|
|
|
$
|
3,531
|
|
|
|
|
|
|
|
|
|
|
Prior to the Companys merger with Swift Transportation
Co., the Company did not have any unrecognized tax benefits. As
of December 31, 2010, we had unrecognized tax benefits
totaling approximately $5.7 million, all of which would
favorably impact our effective tax rate if subsequently
recognized.
During the years ended December 31, 2010, 2009 and 2008,
the Company concluded examinations with federal and various
state jurisdictions for certain of its subsidiaries resulting in
no additional tax payments for 2010, and additional tax payments
of approximately $0.5 million each during 2009 and 2008.
Certain of the Companys subsidiaries are currently under
examination by federal and various state jurisdictions for years
ranging from 1997 to 2007. At the completion of these
examinations, management does not expect any adjustments that
would have a material impact on the Companys effective tax
rate. Years subsequent to 2007 remain subject to examination.
The Company recognizes potential accrued interest and penalties
related to unrecognized tax benefits as a component of income
tax expense. Accrued interest and penalties as of
December 31, 2010 and 2009 were approximately
$2.0 million and $1.2 million, respectively. To the
extent interest and penalties are not assessed with respect to
uncertain tax positions, amounts accrued will be reduced and
reflected as a reduction of the overall income tax provision.
The Company anticipates that the total amount of unrecognized
tax benefits may decrease by approximately $4.2 million
during the next twelve months, which will not have a material
impact on the financial statements.
|
|
(21)
|
Employee
benefit plan
|
The Company maintains a 401(k) benefit plan available to all
employees who are 19 years of age or older and have
completed six months of service. Under the plan, the Company has
the option to match employee discretionary contributions up to
3% of an employees compensation. Employees rights to
employer contributions vest after five years from their date of
employment.
For the years ended December 31, 2010, 2009 and 2008, the
Companys expense totaled approximately $5.3 million,
$0.6 million and $7.1 million, respectively. At
December 31, 2010, and 2009, $3.6 million and
F-55
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial
statements (Continued)
$0, respectively, was owed to the plan by the Company in respect
of such matching contributions. For the year ended
December 31, 2009, the Company decided not to match
employee contributions and as such no liability was recorded at
December 31, 2009.
Services provided to the Companys largest customer,
Wal-Mart and its subsidiaries, generated 10.3%, 10.2% and 11.5%
of operating revenue in 2010, 2009 and 2008, respectively. No
other customer accounted for 10% or more of operating revenue in
the reporting period.
|
|
(23)
|
Related
party transactions
|
The Company provided and received freight services, facility
leases, equipment leases and other services, including repair
and employee services to several companies controlled by
and/or
affiliated with Jerry Moyes, as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended December 31, 2010
|
|
|
|
Central
|
|
|
Central
|
|
|
Other
|
|
|
|
|
|
|
Freight Lines,
|
|
|
Refrigerated
|
|
|
Affiliated
|
|
|
|
|
|
|
Inc.
|
|
|
Services, Inc.
|
|
|
Entities
|
|
|
Total
|
|
|
Services Provided by Swift:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Services(1)
|
|
$
|
7,406
|
|
|
$
|
109
|
|
|
$
|
290
|
|
|
$
|
7,805
|
|
Facility Leases
|
|
$
|
521
|
|
|
$
|
|
|
|
$
|
20
|
|
|
$
|
541
|
|
Services Received by Swift:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Services(2)
|
|
$
|
74
|
|
|
$
|
1,807
|
|
|
$
|
|
|
|
$
|
1,881
|
|
Facility Leases
|
|
$
|
442
|
|
|
$
|
83
|
|
|
$
|
|
|
|
$
|
525
|
|
|
|
|
|
|
As of December 31,
2010
|
|
|
|
Receivable
|
|
$
|
306
|
|
|
$
|
3
|
|
|
$
|
65
|
|
|
$
|
374
|
|
Payable
|
|
$
|
1
|
|
|
$
|
31
|
|
|
$
|
|
|
|
$
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended December 31, 2009
|
|
|
|
Central
|
|
|
Central
|
|
|
Other
|
|
|
|
|
|
|
Freight Lines,
|
|
|
Refrigerated
|
|
|
Affiliated
|
|
|
|
|
|
|
Inc.
|
|
|
Services, Inc.
|
|
|
Entities
|
|
|
Total
|
|
|
Services Provided by Swift:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Services(1)
|
|
$
|
3,943
|
|
|
$
|
152
|
|
|
$
|
328
|
|
|
$
|
4,423
|
|
Facility Leases
|
|
$
|
661
|
|
|
$
|
|
|
|
$
|
20
|
|
|
$
|
681
|
|
Services Received by Swift:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Services(2)
|
|
$
|
117
|
|
|
$
|
1,920
|
|
|
$
|
|
|
|
$
|
2,037
|
|
Facility Leases
|
|
$
|
423
|
|
|
$
|
41
|
|
|
$
|
41
|
|
|
$
|
505
|
|
|
|
|
|
|
As of December 31,
2009
|
|
|
|
Receivable
|
|
$
|
1,206
|
|
|
$
|
7
|
|
|
$
|
12
|
|
|
$
|
1,225
|
|
Payable
|
|
$
|
4
|
|
|
$
|
14
|
|
|
$
|
|
|
|
$
|
18
|
|
F-56
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial
statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended December 31, 2008
|
|
|
|
Central
|
|
|
Central
|
|
|
Other
|
|
|
|
|
|
|
Freight Lines,
|
|
|
Refrigerated
|
|
|
Affiliated
|
|
|
|
|
|
|
Inc.
|
|
|
Services, Inc.
|
|
|
Entities
|
|
|
Total
|
|
|
Services Provided by Swift:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Services(1)
|
|
$
|
18,766
|
|
|
$
|
307
|
|
|
$
|
481
|
|
|
$
|
19,554
|
|
Facility Leases
|
|
$
|
761
|
|
|
$
|
|
|
|
$
|
20
|
|
|
$
|
781
|
|
Services Received by Swift:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Freight Services(2)
|
|
$
|
80
|
|
|
$
|
644
|
|
|
$
|
|
|
|
$
|
724
|
|
Facility Leases
|
|
$
|
479
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
479
|
|
|
|
|
(1) |
|
The rates the Company charges for freight services to each of
these companies for transportation services are market rates,
which are comparable to what it charges third-party customers.
These transportation services provided to affiliated entities
provide the Company with an additional source of operating
revenue at its normal freight rates. |
|
(2) |
|
Transportation services received from Central Freight represent
LTL
(less-than-truckload)
freight services rendered to haul parts and equipment to Company
shop locations. The rates paid to Central Freight for these
loads are comparable to market rates charged by other
non-affiliated LTL carriers. Transportation services received
from Central Refrigerated primarily represents brokered freight.
The loads are brokered out to the third party provider at rates
lower than the rate charged to the customer, therefore allowing
the Company to realize a profit. These brokered loads make it
possible for the Company to provide freight services to
customers even in areas that the Company does not serve,
providing the Company with an additional source of income. |
In addition to the transactions identified above, the Company
had the following related party activity as of and for the years
ended December 31, 2010, 2009 and 2008:
The Company has obtained legal services from Scudder Law Firm.
Earl Scudder, a former member of the board of directors, is a
member of Scudder Law Firm. The rates charged to the Company for
legal services reflect market rates charged by unrelated law
firms for comparable services. For the years ended
December 31, 2010, 2009 and 2008, Swift incurred fees for
legal services from Scudder Law Firm, a portion of which were
provided by Mr. Scudder, in the amount of
$1.4 million, $0.8 million, and $0.4 million,
respectively. As of December 31, 2010 and 2009, the Company
had $0.5 million and $0 outstanding balance owing to
Scudder Law Firm for these services.
IEL contracts its personnel from a third party, Transpay, Inc.
(Transpay), which is partially owned by
Mr. Moyes. Transpay is responsible for all payroll related
liabilities and employee benefits administration. For the years
ended December 31, 2010, 2009 and 2008, the Company paid
Transpay $0.8 million, $1.0 million, and
$1.0 million, respectively, for the employee services and
administration fees. As of December 31, 2010 and 2009, the
Company had no outstanding balance owing to Transpay for these
services.
In the second quarter of 2009, the Company entered into an
agreement with Central Refrigerated to purchase one hundred
2001-2002
Utility refrigerated trailers. Mr. Moyes is the principal
stockholder of Central Refrigerated. The purchase price paid for
the trailers was comparable to the market price of similar model
year Utility trailers according the most recent auction value
guide at the time of the sale. The total amount paid to Central
Refrigerated for the equipment was $1.2 million. There was
no further amount due to Central Refrigerated for this
transaction as of December 31, 2010 and 2009.
In addition to the above referenced transactions, in November
2010 Central Refrigerated acquired a membership interest in Red
Rock Risk Retention Group (Swifts subsidiary captive
insurance entity) for a $100,000 capital investment in order to
participate in a common interest motor carrier risk retention
group,
F-57
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial
statements (Continued)
which required the participation by a second carrier, through
which Central Refrigerated will also insure up to
$2 million in auto liability claims. Under this auto
liability insurance policy, Central Refrigerated will be
responsible for the first $1 million in claims and 25% of
any claims between $1 million and $2 million, with Red
Rock insuring 75% of any claims in this $1 million to
$2 million layer. Central Refrigerated will obtain
insurance from other third-party carriers for claims in excess
of $2 million. Red Rock will provide this coverage to
Central Refrigerated for an annual premium of approximately
$500,000. After reasonable investigation and market analysis,
the terms of Central Refrigerateds participation in Red
Rock and the pricing of the auto liability coverage provided
thereunder is comparable to the market price of similar
insurance coverage offered by third-party carriers in the
industry. The inclusion of the similar risk of this third party
supports the standing of the Companys risk retention group
with the insurance regulators. As of December 31, 2010, the
premium remained outstanding.
Concurrently with the Companys IPO in December 2010,
Mr. Moyes and the Moyes Affiliates completed a private
placement by a newly formed, unaffiliated trust, or the Trust,
of $250.0 million of its mandatory common exchange
securities (or $262.3 million of its mandatory common
exchange securities following the exercise by the initial
purchasers of their option to purchase additional securities in
January 2011), herein referred to as the Stockholder
Offering.
In connection with the Stockholder Offering, Mr, Moyes and the
Moyes Affiliates pledged to the Trust 23.8 million
shares of Class B common stock deliverable upon exchange of
the Trusts securities (or a number of shares of
Class B common stock representing $262.3 million in
value of shares of Class A common stock) three years
following December 15, 2010, the closing of the Stockholder
Offering, subject to Mr. Moyes and the Moyes
Affiliates option to settle their obligations to the Trust
in cash. Although Mr. Moyes and the Moyes Affiliates have
the option to settle their obligations to the Trust in cash
three years following the closing date of the Stockholder
Offering, any or all of the pledged shares could be converted
into shares of Class A common stock and delivered upon
exchange of the Trusts securities. Any such shares
delivered upon exchange will be freely tradable under the
Securities Act.
Refer to Notes 12, 17 and 18 which includes a discussion of
stockholder loans and stockholder distributions.
|
|
(24)
|
Fair
value measurements
|
Topic 820, Fair Value Measurements and
Disclosures, requires that the Company disclose
estimated fair values for its financial instruments. The fair
value of a financial instrument is the amount that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the
measurement date in the principal or most advantageous market
for the asset or liability. Fair value estimates are made at a
specific point in time and are based on relevant market
information and information about the financial instrument.
These estimates do not reflect any premium or discount that
could result from offering for sale at one time the
Companys entire holdings of a particular financial
instrument. Changes in assumptions could significantly affect
these estimates. Because the fair value is estimated as of
December 31, 2010 and 2009, the amounts that will actually
be realized or paid at settlement or maturity of the instruments
in the future could be significantly different. Further, as a
result of current economic and credit market conditions,
estimated fair values of financial instruments are subject to a
greater degree of uncertainty and it is reasonably possible that
an estimate will change in the near term.
F-58
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial
statements (Continued)
The following table presents the carrying amounts and estimated
fair values of the Companys financial instruments at
December 31, 2010 and 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained interest in receivables
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
79,907
|
|
|
$
|
79,907
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
80,279
|
|
|
$
|
80,279
|
|
New senior secured first lien term loan
|
|
|
1,059,351
|
|
|
|
1,062,497
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Previous senior secured first lien term loan
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
1,511,400
|
|
|
|
1,374,618
|
|
Senior second priority secured notes
|
|
|
490,035
|
|
|
|
513,312
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Fixed rate notes
|
|
|
15,638
|
|
|
|
17,202
|
|
|
|
595,000
|
|
|
|
500,544
|
|
Floating rate notes
|
|
|
11,000
|
|
|
|
10,973
|
|
|
|
203,600
|
|
|
|
152,955
|
|
Securitization of accounts receivable
|
|
|
171,500
|
|
|
|
174,715
|
|
|
|
N/A
|
|
|
|
N/A
|
|
The carrying amounts shown in the table are included in the
consolidated balance sheets under the indicated captions except
for the first lien term loan, senior second priority secured
notes, and the fixed and floating rate notes, which are included
in long term debt and obligations under capital leases. The fair
values of the financial instruments shown in the above table as
of December 31, 2010 and 2009 represent managements
best estimates of the amounts that would be received to sell
those assets or that would be paid to transfer those liabilities
in an orderly transaction between market participants at that
date. Those fair value measurements maximize the use of
observable inputs. However, in situations where there is little,
if any, market activity for the asset or liability at the
measurement date, the fair value measurement reflects the
Companys own judgments about the assumptions that market
participants would use in pricing the asset or liability. Those
judgments are developed by the Company based on the best
information available in the circumstances.
The following summary presents a description of the methods and
assumptions used to estimate the fair value of each class of
financial instrument.
Retained
interest in receivables
The Companys retained interest in receivables was carried
on the balance sheet at fair value at December 31, 2009 and
consisted of trade receivables generated through the normal
course of business. The retained interest was valued using the
Companys own assumptions about the inputs market
participants would use in determining the present value of
expected future cash flows taking into account anticipated
credit losses, the speed of the payments and a discount rate
commensurate with the uncertainty involved. Upon adoption of ASU
No. 2009-16
on January 1, 2010 as discussed in Note 10, the
Companys retained interest in receivables was
de-recognized upon recording the previously transferred
receivables and recognizing the securitization proceeds as a
secured borrowing on the Companys balance sheet.
Interest
rate swaps
The Companys interest rate swap agreements were carried on
the balance sheet at fair value at December 31, 2009 and
consisted of four interest rate swaps. These swaps were entered
into for the purpose of hedging the variability of interest
expense and interest payments on the Companys long-term
variable rate debt. Because the Companys interest rate
swaps were not actively traded, they were valued using valuation
models. Interest rate yield curves and credit spreads derived
from trading levels of the Companys first lien
F-59
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial
statements (Continued)
term loan were the significant inputs into these valuation
models. These inputs were observable in active markets over the
terms of the instruments the Company held. The Company
considered the effect of its own credit standing and that of its
counterparties in the valuations of its derivative financial
instruments. As of December 31, 2009, the Company had
recorded a credit valuation adjustment of $6.5 million,
based on the credit spread derived from trading levels of the
Companys first lien term loan, to reduce the interest rate
swap liability to its fair value.
First
lien term loans, senior second priority secured notes, and fixed
and floating rate notes
The fair values of the first lien term loans, the senior second
priority secured notes, the fixed rate notes, and the floating
rate notes were determined by bid prices in trading between
qualified institutional buyers.
Securitization
of Accounts Receivable
The Companys securitization of accounts receivable
consists of borrowings outstanding pursuant to the
Companys 2008 RSA, as discussed in Note 10. Its fair
value is estimated by discounting future cash flows using a
discount rate commensurate with the uncertainty involved.
Fair
value hierarchy
Topic 820 establishes a framework for measuring fair value in
accordance with GAAP and expands financial statement disclosure
requirements for fair value measurements. Topic 820 further
specifies a hierarchy of valuation techniques, which is based on
whether the inputs into the valuation technique are observable
or unobservable. The hierarchy is as follows:
|
|
|
|
|
Level 1 Valuation techniques in which
all significant inputs are quoted prices from active markets for
assets or liabilities that are identical to the assets or
liabilities being measured.
|
|
|
|
Level 2 Valuation techniques in which
significant inputs include quoted prices from active markets for
assets or liabilities that are similar to the assets or
liabilities being measured
and/or
quoted prices from markets that are not active for assets or
liabilities that are identical or similar to the assets or
liabilities being measured. Also, model-derived valuations in
which all significant inputs and significant value drivers are
observable in active markets are Level 2 valuation
techniques.
|
|
|
|
Level 3 Valuation techniques in which
one or more significant inputs or significant value drivers are
unobservable. Unobservable inputs are valuation technique inputs
that reflect the Companys own assumptions about the
assumptions that market participants would use in pricing an
asset or liability.
|
When available, the Company uses quoted market prices to
determine the fair value of an asset or liability. If quoted
market prices are not available, the Company will measure fair
value using valuation techniques that use, when possible,
current market-based or independently-sourced market parameters,
such as interest rates and currency rates. The level in the fair
value hierarchy within which a fair measurement in its entirety
falls is based on the lowest level input that is significant to
the fair value measurement in its entirety. Following is a brief
summary of the Companys classification within the fair
value hierarchy of each major category of assets and liabilities
that it measures and reports on its balance sheet at fair value
on a recurring basis as of December 31, 2010 and 2009:
|
|
|
|
|
Retained interest in receivables. The Companys
retained interest was valued using the Companys own
assumptions as discussed in Note 10, and accordingly, the
Company classifies the valuation techniques that use these
inputs as Level 3 in the hierarchy.
|
|
|
|
Interest rate swaps. The Companys interest rate
swaps were not actively traded but were valued using valuation
models and credit valuation adjustments, both of which use
significant inputs that are
|
F-60
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial
statements (Continued)
|
|
|
|
|
observable in active markets over the terms of the instruments
the Company holds, and accordingly, the Company classified these
valuation techniques as Level 2 in the hierarchy.
|
As of December 31, 2009, information about inputs into the
fair value measurements of each major category of the
Companys assets and liabilities that were measured at fair
value on a recurring basis in periods subsequent to their
initial recognition was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
|
Significant
|
|
|
|
|
|
|
Total Fair
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
Value and
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Carrying Value
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
Description
|
|
on Balance Sheet
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
As of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained interest in receivables
|
|
$
|
79,907
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
79,907
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
80,279
|
|
|
$
|
|
|
|
$
|
80,279
|
|
|
$
|
|
|
The following table sets forth a reconciliation of the changes
in fair value during the years ended December 31, 2010,
2009 and 2008 of our Level 3 retained interest in accounts
receivable that is measured at fair value on a recurring basis
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
|
|
Sales, Collections
|
|
|
|
|
|
Transfers in
|
|
|
|
|
|
|
Beginning of
|
|
|
and
|
|
|
Total Realized
|
|
|
and/or Out of
|
|
|
Fair Value at
|
|
|
|
Period
|
|
|
Settlements, Net
|
|
|
Gains (Losses)
|
|
|
Level 3
|
|
|
End of Period
|
|
|
Years Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
$
|
79,907
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(79,907
|
)(1)
|
|
$
|
|
|
December 31, 2009
|
|
$
|
80,401
|
|
|
$
|
(1,001
|
)
|
|
$
|
507
|
|
|
$
|
|
|
|
$
|
79,907
|
|
December 31, 2008
|
|
$
|
|
|
|
$
|
81,538
|
|
|
$
|
(1,137
|
)
|
|
$
|
|
|
|
$
|
80,401
|
|
|
|
|
(1) |
|
Upon adoption of ASU
No. 2009-16
on January 1, 2010 as discussed in Note 10, the
Companys retained interest in receivables was
de-recognized upon recording the previously transferred
receivables and recognizing the securitization proceeds as a
secured borrowing on the Companys balance sheet. Thus the
removal of the retained interest balance is reflected here as a
transfer out of Level 3. |
Realized gains and losses related to the retained interest were
included in earnings in the 2009 and 2008 period and reported in
other expenses.
F-61
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial
statements (Continued)
For the year ended December 31, 2010, and 2009 information
about inputs into the fair value measurements of the
Companys assets that were measured at fair value on a
nonrecurring basis in the period is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
|
|
|
Fair Value at end
|
|
|
for Identical
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
|
Total Gains
|
|
Description
|
|
of Period
|
|
|
Assets (Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
(Losses)
|
|
|
Year Ended December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets held for sale
|
|
$
|
2,277
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,277
|
|
|
$
|
(1,274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,277
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,277
|
|
|
$
|
(1,274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets held and used
|
|
$
|
1,600
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,600
|
|
|
$
|
(475
|
)
|
Long-lived assets held for sale
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
100
|
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,700
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,700
|
|
|
$
|
(515
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with the provisions of Topic 360, Property,
Plant and Equipment, trailers with a carrying amount of
$3.6 million were written down to their fair value of
$2.3 million in the first quarter of 2010, resulting in an
impairment charge of $1.3 million, which was included in
impairments in the consolidated statement of operations for the
year ended December 31, 2010. The impairment of these
assets was triggered by the Companys decision to remove
them from the operating fleet through sale or salvage. For these
assets valued using significant unobservable inputs, inputs
utilized included the Companys estimates and recent
auction prices for similar equipment and commodity prices for
units expected to be salvaged.
In accordance with the provisions of Topic 360, non-operating
real estate properties held and used with a carrying amount of
$2.1 million were written down to their fair value of
$1.6 million during the first quarter of 2009, resulting in
an impairment charge of $475 thousand, which was included in
impairments in the consolidated statement of operations for the
year ended December 31, 2009. Additionally, real estate
properties held for sale, with a carrying amount of $140
thousand were written down to their fair value of $100 thousand,
resulting in an impairment charge of $40 thousand during the
first quarter of 2009, which was also included in impairments in
the consolidated statement of operations for the year ended
December 31, 2009. The impairments of these long-lived
assets were identified due to the Companys failure to
receive any reasonable offers, due in part to reduced liquidity
in the credit market and the weak economic environment during
the period. For these long-lived assets valued using significant
unobservable inputs, inputs utilized included the Companys
estimates and listing prices due to the lack of sales for
similar properties.
F-62
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial
statements (Continued)
Intangible assets as of December 31, 2010 and 2009 were (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Customer Relationship:
|
|
|
|
|
|
|
|
|
Gross carrying value
|
|
$
|
275,324
|
|
|
$
|
275,324
|
|
Accumulated amortization
|
|
|
(87,617
|
)
|
|
|
(67,553
|
)
|
Owner-Operator Relationship:
|
|
|
|
|
|
|
|
|
Gross carrying value
|
|
|
3,396
|
|
|
|
3,396
|
|
Accumulated amortization
|
|
|
(3,396
|
)
|
|
|
(2,988
|
)
|
Trade Name:
|
|
|
|
|
|
|
|
|
Gross carrying value
|
|
|
181,037
|
|
|
|
181,037
|
|
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
$
|
368,744
|
|
|
$
|
389,216
|
|
|
|
|
|
|
|
|
|
|
For all periods ending on or after December 31, 2007,
amortization of intangibles consists primarily of amortization
of $261.2 million gross carrying value of definite-lived
intangible assets recognized under purchase accounting in
connection with Swift Transportation Co.s going private in
the 2007 transactions in which Swift Corporation acquired Swift
Transportation Co. Intangible assets acquired as a result of the
Swift Transportation Co. acquisition include trade name,
customer relationships, and owner-operator relationships.
Amortization of the customer relationship acquired in the
acquisition is calculated on the 150% declining balance method
over the estimated useful life of 15 years. The customer
relationship contributed to the Company at May 9, 2007 is
amortized using the straight-line method over 15 years. The
owner-operator relationship was amortized using the
straight-line method over three years and was fully amortized at
December 31, 2010. The trade name has an indefinite useful
life and is not amortized, but rather is tested for impairment
at least annually, unless events occur or circumstances change
between annual tests that would more likely than not reduce the
fair value.
Amortization of intangibles for 2010, 2009, and 2008 is
comprised of $19.3 million, $22.0 million, and
$24.2 million respectively, related to intangible assets
recognized in conjunction with the 2007 going private
transaction and $1.2 million in each year related to
previous intangible assets existing prior to the 2007 going
private transaction. Management estimates that non-cash
amortization expense associated with all of the intangibles on
the balance sheet at December 31, 2010 will be
$18.3 million in 2011, $16.9 million in 2012, and
$16.8 million in each of 2013, 2014, and 2015, all but
$1.2 million of which, in each period, represents
amortization of the intangible assets recognized in conjunction
with the 2007 going private transaction.
The changes in the carrying amount of goodwill for the years
ended December 31, 2010, 2009 and 2008 were (in thousands):
|
|
|
|
|
December 31, 2007
|
|
|
270,256
|
|
Impairment loss
|
|
|
(17,000
|
)
|
|
|
|
|
|
December 31, 2008, 2009 and 2010
|
|
$
|
253,256
|
|
|
|
|
|
|
Based on the results of the Companys annual evaluation as
of November 30, 2010 and 2009, there was no indication of
impairment of goodwill and indefinite-lived intangible assets.
Based on the results of the Companys evaluation as of
November 30, 2008, it recorded a non-cash impairment charge
of $17.0 million with no tax impact in the fourth quarter
of 2008 related to the decline in fair value of the
Companys Mexico freight transportation reporting unit
resulting from the deterioration in truckload industry
conditions as
F-63
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial
statements (Continued)
compared with the estimates and assumptions used in the original
valuation projections at the time of the partial acquisition of
Swift Transportation Co. The annual impairment test performed as
of November 30, 2008 indicated no additional impairments
for goodwill and indefinite-lived intangible assets at the
Companys other reporting units.
On November 29, 2010, Swift Corporation amended its
articles of incorporation reducing the authorized shares of its
pre-reorganization common stock from 200.0 million shares
to 160.0 million shares. Additionally, Swift
Corporations Board of Directors approved a
4-for-5
reverse stock split of its common stock, which reduced the
issued and outstanding shares from 75.1 million shares to
60.1 million. The capital stock accounts, all share data
and earnings (loss) per share, and stock options and
corresponding exercise price and fair value per share give
effect to the stock split, applied retrospectively, to all
periods presented. As discussed in Note 1, upon Swift
Corporations merger with and into Swift Transportation
Company, all outstanding common stock of Swift Corporation was
converted into shares of Swift Transportation Company
Class B common stock on a
one-for-one
basis, and all outstanding stock options of Swift Corporation
were converted into options to purchase shares of Class A
common stock of Swift Transportation Company.
The computation of basic and diluted loss per share for the
years ended December 31, 2010, 2009 and 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ending December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Net loss
|
|
$
|
(125,413
|
)
|
|
$
|
(435,645
|
)
|
|
$
|
(146,555
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding for basic and diluted loss per share
|
|
|
63,339
|
|
|
|
60,117
|
|
|
|
60,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share
|
|
$
|
(1.98
|
)
|
|
$
|
(7.25
|
)
|
|
$
|
(2.44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As discussed in Note 3, the Company issued
73.3 million shares of Class A common stock in
December 2010, which had a modest effect on the weighted average
shares outstanding for the year ended December 31, 2010.
Potential common shares issuable upon exercise of outstanding
stock options are excluded from diluted shares outstanding as
their effect is antidilutive. As of December 31, 2010,
2009, and 2008, there were 6,100,480, 4,970,400, and 5,034,000
options outstanding, respectively.
F-64
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial
statements (Continued)
|
|
(29)
|
Quarterly
results of operations (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
(In thousands, except per share data)
|
|
|
Year Ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
$
|
654,830
|
|
|
$
|
736,185
|
|
|
$
|
758,281
|
|
|
$
|
780,427
|
|
Operating income
|
|
$
|
23,193
|
|
|
$
|
61,189
|
|
|
$
|
82,100
|
|
|
$
|
76,573
|
|
Net loss
|
|
$
|
(53,001
|
)
|
|
$
|
(23,079
|
)
|
|
$
|
(1,019
|
)
|
|
$
|
(48,314
|
)
|
Basic and diluted loss per share
|
|
$
|
(0.88
|
)
|
|
$
|
(0.38
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.66
|
)
|
Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenue
|
|
$
|
614,756
|
|
|
$
|
628,572
|
|
|
$
|
659,723
|
|
|
$
|
668,302
|
|
Operating income
|
|
$
|
12,239
|
|
|
$
|
27,109
|
|
|
$
|
45,759
|
|
|
$
|
46,894
|
|
Net loss
|
|
$
|
(43,560
|
)
|
|
$
|
(30,926
|
)
|
|
$
|
(4,028
|
)
|
|
$
|
(357,131
|
)
|
Basic and diluted loss per share
|
|
$
|
(0.73
|
)
|
|
$
|
(0.51
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(5.94
|
)
|
Results for the first quarter of 2010 include $1.3 million
of pre-tax impairment charge for trailers reclassified to assets
held for sale during the first quarter and $7.4 million of
incremental pre-tax depreciation expense reflecting
managements decision in the first quarter to sell as scrap
approximately 7,000 dry van trailers over the course of the next
several years and the corresponding revision to estimates
regarding salvage and useful lives of such trailers. Results for
the fourth quarter of 2010 include a $22.6 million pre-tax
non-cash equity compensation charge related to certain stock
options that vested upon the Companys initial public
offering in December 2010 and $95.5 million of pre-tax loss
on debt extinguishment related to the premium and fees the
Company paid to tender for its old notes and the non-cash
write-off of the deferred financing costs associated with the
Companys previous indebtedness that was repaid in December
2010 as a result of its refinancing transactions.
Results for the third quarter of 2009 include $2.3 million
of pre-tax expense for professional fees incurred in connection
with the cancelled note offering and a benefit of
$12.5 million for net settlement proceeds received by the
Company during the quarter. Results for the fourth quarter of
2009 include approximately $325 million of income tax
expense related to the Companys subchapter C corporation
conversion as discussed in Note 1, $3.9 million of
transaction costs related to the Second Amendment, and
$4.0 million of other income related to the sale of the
Companys investment in Transplace.
On January 20, 2011, the Company issued an additional
6,050,000 shares of its Class A common stock to the
underwriters of its initial public offering at the initial
public offering price of $11.00 per share, less the
underwriters discount, and received proceeds of
$63.2 million in cash pursuant to the over-allotment option
in the underwriting agreement as described in the companys
registration statement on
Form S-1
as filed with the Securities and Exchange Commission. Of these
proceeds, $60.0 million were used in January 2011 to pay
down the first lien term loan and $3.2 million were used in
February 2011 to pay down the securitization facility.
|
|
(31)
|
Guarantor
condensed consolidating financial statements
|
The payment of principal and interest on the Companys new
senior second priority secured notes are guaranteed by the
Companys wholly-owned domestic subsidiaries (the
Guarantor Subsidiaries) other than its driver
academy subsidiary, its captive insurance subsidiaries, its
special-purpose receivables securitization subsidiary, and it
foreign subsidiaries (the Non-guarantor
Subsidiaries). The separate financial statements of the
Guarantor Subsidiaries are not included herein because the
Guarantor Subsidiaries are the Companys
F-65
Swift
Transportation Company and Subsidiaries
Notes to
consolidated financial
statements (Continued)
wholly-owned consolidated subsidiaries and are jointly,
severally, fully and unconditionally liable for the obligations
represented by the new senior second priority secured notes.
The consolidating financial statements present consolidating
financial data for (i) Swift Transportation Company (on a
parent only basis), (ii) Swift Services Holdings, Inc. (on
an issuer only basis), (iii) the combined Guarantor
Subsidiaries, (iv) the combined Non-Guarantor Subsidiaries,
(iv) an elimination column for adjustments to arrive at the
information for the parent company and subsidiaries on a
consolidated basis and (v) the parent company and
subsidiaries on a consolidated basis as of December 31,
2010 and 2009 and for each of the three years in the period
ended December 31, 2010. Note that as the issuer, Swift
Services Holdings, Inc., was formed in November 2010 in
anticipation of the issuance of the new senior second priority
secured notes, there is no financial activity for this entity
prior to this date.
Investments in subsidiaries are accounted for by the respective
parent company using the equity method for purposes of this
presentation. Results of operations of subsidiaries are
therefore reflected in the parent companys investment
accounts and earnings. The principal elimination entries set
forth below eliminate investments in subsidiaries and
intercompany balances and transactions.
F-66
Condensed consolidating balance sheet as of December 31,
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swift
|
|
|
Swift
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation
|
|
|
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Holdings,
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Eliminations for
|
|
|
|
|
|
|
(Parent)
|
|
|
Inc. (Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Consolidation
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
1,561
|
|
|
$
|
|
|
|
$
|
35,844
|
|
|
$
|
10,089
|
|
|
$
|
|
|
|
$
|
47,494
|
|
Restricted cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84,568
|
|
|
|
|
|
|
|
84,568
|
|
Accounts receivable, net
|
|
|
|
|
|
|
|
|
|
|
16,398
|
|
|
|
261,175
|
|
|
|
(694
|
)
|
|
|
276,879
|
|
Intercompany receivable (payable)
|
|
|
324,359
|
|
|
|
487,942
|
|
|
|
(861,300
|
)
|
|
|
48,999
|
|
|
|
|
|
|
|
|
|
Other current assets
|
|
|
9,104
|
|
|
|
44
|
|
|
|
82,247
|
|
|
|
11,980
|
|
|
|
|
|
|
|
103,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
335,024
|
|
|
|
487,986
|
|
|
|
(726,811
|
)
|
|
|
416,811
|
|
|
|
(694
|
)
|
|
|
512,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
|
|
|
|
|
|
|
|
1,309,453
|
|
|
|
30,185
|
|
|
|
|
|
|
|
1,339,638
|
|
Other assets
|
|
|
(588,713
|
)
|
|
|
2,051
|
|
|
|
301,472
|
|
|
|
7,966
|
|
|
|
371,165
|
|
|
|
93,941
|
|
Intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
356,696
|
|
|
|
12,048
|
|
|
|
|
|
|
|
368,744
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
246,977
|
|
|
|
6,279
|
|
|
|
|
|
|
|
253,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
(253,689
|
)
|
|
$
|
490,037
|
|
|
$
|
1,487,787
|
|
|
$
|
473,289
|
|
|
$
|
370,471
|
|
|
$
|
2,567,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt and obligations under capital
leases
|
|
$
|
|
|
|
$
|
|
|
|
$
|
65,672
|
|
|
$
|
3,757
|
|
|
$
|
(3,359
|
)
|
|
$
|
66,070
|
|
Other current liabilities
|
|
|
3,848
|
|
|
|
1,389
|
|
|
|
226,623
|
|
|
|
28,948
|
|
|
|
(694
|
)
|
|
|
260,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
3,848
|
|
|
|
1,389
|
|
|
|
292,295
|
|
|
|
32,705
|
|
|
|
(4,053
|
)
|
|
|
326,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and obligations under capital leases
|
|
|
|
|
|
|
490,035
|
|
|
|
1,217,197
|
|
|
|
2,537
|
|
|
|
(1,739
|
)
|
|
|
1,708,030
|
|
Deferred income taxes
|
|
|
(162,856
|
)
|
|
|
(486
|
)
|
|
|
463,183
|
|
|
|
3,708
|
|
|
|
|
|
|
|
303,549
|
|
Securitization of accounts receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
171,500
|
|
|
|
|
|
|
|
171,500
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
91,565
|
|
|
|
50,238
|
|
|
|
|
|
|
|
141,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
(159,008
|
)
|
|
|
490,938
|
|
|
|
2,064,240
|
|
|
|
260,688
|
|
|
|
(5,792
|
)
|
|
|
2,651,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders (deficit) equity
|
|
|
(94,681
|
)
|
|
|
(901
|
)
|
|
|
(576,453
|
)
|
|
|
212,601
|
|
|
|
376,263
|
|
|
|
(83,171
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders (deficit) equity
|
|
$
|
(253,689
|
)
|
|
$
|
490,037
|
|
|
$
|
1,487,787
|
|
|
$
|
473,289
|
|
|
$
|
370,471
|
|
|
$
|
2,567,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-67
Condensed consolidating balance sheet as of December 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swift
|
|
|
Swift
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation
|
|
|
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Holdings,
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
Eliminations for
|
|
|
|
|
|
|
(Parent)
|
|
|
Inc. (Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Consolidation
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
21,114
|
|
|
$
|
|
|
|
$
|
70,438
|
|
|
$
|
24,310
|
|
|
$
|
|
|
|
$
|
115,862
|
|
Restricted cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,869
|
|
|
|
|
|
|
|
24,869
|
|
Accounts receivable, net
|
|
|
|
|
|
|
|
|
|
|
13,014
|
|
|
|
10,593
|
|
|
|
(1,693
|
)
|
|
|
21,914
|
|
Intercompany receivable (payable)
|
|
|
(46,225
|
)
|
|
|
|
|
|
|
457
|
|
|
|
45,768
|
|
|
|
|
|
|
|
|
|
Other current assets
|
|
|
176
|
|
|
|
|
|
|
|
97,692
|
|
|
|
92,328
|
|
|
|
1,030
|
|
|
|
191,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
(24,935
|
)
|
|
|
|
|
|
|
181,601
|
|
|
|
197,868
|
|
|
|
(663
|
)
|
|
|
353,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
|
|
|
|
|
|
|
|
|
1,336,908
|
|
|
|
27,637
|
|
|
|
|
|
|
|
1,364,545
|
|
Other assets
|
|
|
(288,743
|
)
|
|
|
|
|
|
|
342,676
|
|
|
|
12,702
|
|
|
|
86,351
|
|
|
|
152,986
|
|
Intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
376,236
|
|
|
|
12,980
|
|
|
|
|
|
|
|
389,216
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
246,977
|
|
|
|
6,279
|
|
|
|
|
|
|
|
253,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
(313,678
|
)
|
|
$
|
|
|
|
$
|
2,484,398
|
|
|
$
|
257,466
|
|
|
$
|
85,688
|
|
|
$
|
2,513,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long term debt and obligations under capital
leases
|
|
$
|
|
|
|
$
|
|
|
|
$
|
46,754
|
|
|
$
|
5,198
|
|
|
$
|
(5,198
|
)
|
|
$
|
46,754
|
|
Other current liabilities
|
|
|
834
|
|
|
|
|
|
|
|
300,360
|
|
|
|
23,108
|
|
|
|
(663
|
)
|
|
|
323,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
834
|
|
|
|
|
|
|
|
347,114
|
|
|
|
28,306
|
|
|
|
(5,861
|
)
|
|
|
370,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term debt and obligations under capital leases
|
|
|
|
|
|
|
|
|
|
|
2,420,180
|
|
|
|
10,858
|
|
|
|
(10,858
|
)
|
|
|
2,420,180
|
|
Deferred income taxes
|
|
|
(954
|
)
|
|
|
|
|
|
|
380,697
|
|
|
|
4,052
|
|
|
|
|
|
|
|
383,795
|
|
Other liabilities
|
|
|
|
|
|
|
|
|
|
|
177,525
|
|
|
|
27,762
|
|
|
|
|
|
|
|
205,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
(120
|
)
|
|
|
|
|
|
|
3,325,516
|
|
|
|
70,978
|
|
|
|
(16,719
|
)
|
|
|
3,379,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
(313,558
|
)
|
|
|
|
|
|
|
(841,118
|
)
|
|
|
186,488
|
|
|
|
102,407
|
|
|
|
(865,781
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity (deficit)
|
|
$
|
(313,678
|
)
|
|
$
|
|
|
|
$
|
2,484,398
|
|
|
$
|
257,466
|
|
|
$
|
85,688
|
|
|
$
|
2,513,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-68
Condensed consolidating statement of operations for the year
ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swift
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation
|
|
|
Swift Services
|
|
|
|
|
|
Non-
|
|
|
Eliminations
|
|
|
|
|
|
|
Company
|
|
|
Holdings, Inc.
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
for
|
|
|
|
|
|
|
(Parent)
|
|
|
(Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Consolidation
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Operating revenue
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,881,441
|
|
|
$
|
155,301
|
|
|
$
|
(107,019
|
)
|
|
$
|
2,929,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and employee benefits
|
|
|
22,883
|
|
|
|
|
|
|
|
716,125
|
|
|
|
24,954
|
|
|
|
|
|
|
|
763,962
|
|
Operating supplies and expenses
|
|
|
6,919
|
|
|
|
|
|
|
|
180,815
|
|
|
|
36,203
|
|
|
|
(5,972
|
)
|
|
|
217,965
|
|
Fuel
|
|
|
|
|
|
|
|
|
|
|
452,092
|
|
|
|
16,412
|
|
|
|
|
|
|
|
468,504
|
|
Purchased transportation
|
|
|
|
|
|
|
|
|
|
|
807,822
|
|
|
|
8,694
|
|
|
|
(45,183
|
)
|
|
|
771,333
|
|
Rental expense
|
|
|
|
|
|
|
|
|
|
|
76,004
|
|
|
|
1,300
|
|
|
|
(764
|
)
|
|
|
76,540
|
|
Insurance and claims
|
|
|
|
|
|
|
|
|
|
|
85,323
|
|
|
|
57,188
|
|
|
|
(55,100
|
)
|
|
|
87,411
|
|
Depreciation and amortization of property and equipment
|
|
|
|
|
|
|
|
|
|
|
203,603
|
|
|
|
2,676
|
|
|
|
|
|
|
|
206,279
|
|
Amortization of intangibles
|
|
|
|
|
|
|
|
|
|
|
19,540
|
|
|
|
932
|
|
|
|
|
|
|
|
20,472
|
|
Impairments
|
|
|
|
|
|
|
|
|
|
|
1,274
|
|
|
|
|
|
|
|
|
|
|
|
1,274
|
|
(Gain) loss on disposal of property and equipment
|
|
|
|
|
|
|
|
|
|
|
(8,347
|
)
|
|
|
60
|
|
|
|
|
|
|
|
(8,287
|
)
|
Communication and utilities
|
|
|
|
|
|
|
|
|
|
|
24,149
|
|
|
|
878
|
|
|
|
|
|
|
|
25,027
|
|
Operating taxes and licenses
|
|
|
|
|
|
|
|
|
|
|
48,594
|
|
|
|
7,594
|
|
|
|
|
|
|
|
56,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
29,802
|
|
|
|
|
|
|
|
2,606,994
|
|
|
|
156,891
|
|
|
|
(107,019
|
)
|
|
|
2,686,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(29,802
|
)
|
|
|
|
|
|
|
274,447
|
|
|
|
(1,590
|
)
|
|
|
|
|
|
|
243,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
1,431
|
|
|
|
311,940
|
|
|
|
6,778
|
|
|
|
|
|
|
|
320,149
|
|
Loss on debt extinguishment
|
|
|
|
|
|
|
|
|
|
|
95,461
|
|
|
|
|
|
|
|
|
|
|
|
95,461
|
|
Other (income) expenses
|
|
|
105,654
|
|
|
|
|
|
|
|
12,606
|
|
|
|
(39,080
|
)
|
|
|
(82,890
|
)
|
|
|
(3,710
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(135,456
|
)
|
|
|
(1,431
|
)
|
|
|
(145,560
|
)
|
|
|
30,712
|
|
|
|
82,890
|
|
|
|
(168,845
|
)
|
Income tax (benefit) expense
|
|
|
(10,043
|
)
|
|
|
(530
|
)
|
|
|
(40,807
|
)
|
|
|
7,948
|
|
|
|
|
|
|
|
(43,432
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(125,413
|
)
|
|
$
|
(901
|
)
|
|
$
|
(104,753
|
)
|
|
$
|
22,764
|
|
|
$
|
82,890
|
|
|
$
|
(125,413
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-69
Condensed consolidating statement of operations for the year
ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swift
|
|
|
Swift
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation
|
|
|
Services
|
|
|
|
|
|
Non-
|
|
|
Eliminations
|
|
|
|
|
|
|
Company
|
|
|
Holdings,
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
for
|
|
|
|
|
|
|
(Parent)
|
|
|
Inc. (Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Consolidation
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Operating revenue
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,531,503
|
|
|
$
|
89,843
|
|
|
$
|
(49,993
|
)
|
|
$
|
2,571,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and employee benefits
|
|
|
|
|
|
|
|
|
|
|
707,522
|
|
|
|
21,262
|
|
|
|
|
|
|
|
728,784
|
|
Operating supplies and expenses
|
|
|
5,127
|
|
|
|
|
|
|
|
176,255
|
|
|
|
34,276
|
|
|
|
(5,713
|
)
|
|
|
209,945
|
|
Fuel
|
|
|
|
|
|
|
|
|
|
|
372,150
|
|
|
|
13,363
|
|
|
|
|
|
|
|
385,513
|
|
Purchased transportation
|
|
|
|
|
|
|
|
|
|
|
653,850
|
|
|
|
5,037
|
|
|
|
(38,575
|
)
|
|
|
620,312
|
|
Rental expense
|
|
|
|
|
|
|
|
|
|
|
79,227
|
|
|
|
5,311
|
|
|
|
(4,705
|
)
|
|
|
79,833
|
|
Insurance and claims
|
|
|
|
|
|
|
|
|
|
|
69,955
|
|
|
|
12,377
|
|
|
|
(1,000
|
)
|
|
|
81,332
|
|
Depreciation and amortization of property and equipment
|
|
|
|
|
|
|
|
|
|
|
226,096
|
|
|
|
4,243
|
|
|
|
|
|
|
|
230,339
|
|
Amortization of intangibles
|
|
|
|
|
|
|
|
|
|
|
22,161
|
|
|
|
1,031
|
|
|
|
|
|
|
|
23,192
|
|
Impairments
|
|
|
|
|
|
|
|
|
|
|
515
|
|
|
|
|
|
|
|
|
|
|
|
515
|
|
(Gain) loss on disposal of property and equipment
|
|
|
|
|
|
|
|
|
|
|
(2,385
|
)
|
|
|
141
|
|
|
|
|
|
|
|
(2,244
|
)
|
Communication and utilities
|
|
|
|
|
|
|
|
|
|
|
23,798
|
|
|
|
797
|
|
|
|
|
|
|
|
24,595
|
|
Operating taxes and licenses
|
|
|
|
|
|
|
|
|
|
|
50,706
|
|
|
|
6,530
|
|
|
|
|
|
|
|
57,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
5,127
|
|
|
|
|
|
|
|
2,379,850
|
|
|
|
104,368
|
|
|
|
(49,993
|
)
|
|
|
2,439,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(5,127
|
)
|
|
|
|
|
|
|
151,653
|
|
|
|
(14,525
|
)
|
|
|
|
|
|
|
132,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
252,836
|
|
|
|
1,496
|
|
|
|
|
|
|
|
254,332
|
|
Other (income) expenses
|
|
|
430,355
|
|
|
|
|
|
|
|
6,713
|
|
|
|
(30,251
|
)
|
|
|
(420,153
|
)
|
|
|
(13,336
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(435,482
|
)
|
|
|
|
|
|
|
(107,896
|
)
|
|
|
14,230
|
|
|
|
420,153
|
|
|
|
(108,995
|
)
|
Income tax expense
|
|
|
163
|
|
|
|
|
|
|
|
322,459
|
|
|
|
4,028
|
|
|
|
|
|
|
|
326,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(435,645
|
)
|
|
$
|
|
|
|
$
|
(430,355
|
)
|
|
$
|
10,202
|
|
|
$
|
420,153
|
|
|
$
|
(435,645
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-70
Condensed consolidating statement of operations for the year
ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swift
|
|
|
Swift
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation
|
|
|
Services
|
|
|
|
|
|
Non-
|
|
|
Eliminations
|
|
|
|
|
|
|
Company
|
|
|
Holdings,
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
for
|
|
|
|
|
|
|
(Parent)
|
|
|
Inc. (Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Consolidation
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Operating revenue
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,358,731
|
|
|
$
|
100,618
|
|
|
$
|
(59,539
|
)
|
|
$
|
3,399,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and employee benefits
|
|
|
|
|
|
|
|
|
|
|
868,189
|
|
|
|
24,502
|
|
|
|
|
|
|
|
892,691
|
|
Operating supplies and expenses
|
|
|
1,780
|
|
|
|
|
|
|
|
233,711
|
|
|
|
42,829
|
|
|
|
(6,369
|
)
|
|
|
271,951
|
|
Fuel
|
|
|
|
|
|
|
|
|
|
|
755,804
|
|
|
|
12,889
|
|
|
|
|
|
|
|
768,693
|
|
Purchased transportation
|
|
|
|
|
|
|
|
|
|
|
776,639
|
|
|
|
7,085
|
|
|
|
(42,484
|
)
|
|
|
741,240
|
|
Rental expense
|
|
|
|
|
|
|
|
|
|
|
76,346
|
|
|
|
1,240
|
|
|
|
(686
|
)
|
|
|
76,900
|
|
Insurance and claims
|
|
|
50
|
|
|
|
|
|
|
|
131,506
|
|
|
|
20,393
|
|
|
|
(10,000
|
)
|
|
|
141,949
|
|
Depreciation and amortization of property and equipment
|
|
|
|
|
|
|
|
|
|
|
244,807
|
|
|
|
5,626
|
|
|
|
|
|
|
|
250,433
|
|
Amortization of intangibles
|
|
|
|
|
|
|
|
|
|
|
24,260
|
|
|
|
1,139
|
|
|
|
|
|
|
|
25,399
|
|
Impairments
|
|
|
|
|
|
|
|
|
|
|
7,529
|
|
|
|
17,000
|
|
|
|
|
|
|
|
24,529
|
|
(Gain) loss on disposal of property and equipment
|
|
|
|
|
|
|
|
|
|
|
(6,496
|
)
|
|
|
30
|
|
|
|
|
|
|
|
(6,466
|
)
|
Communication and utilities
|
|
|
|
|
|
|
|
|
|
|
28,715
|
|
|
|
929
|
|
|
|
|
|
|
|
29,644
|
|
Operating taxes and licenses
|
|
|
|
|
|
|
|
|
|
|
62,122
|
|
|
|
5,789
|
|
|
|
|
|
|
|
67,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,830
|
|
|
|
|
|
|
|
3,203,132
|
|
|
|
139,451
|
|
|
|
(59,539
|
)
|
|
|
3,284,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(1,830
|
)
|
|
|
|
|
|
|
155,599
|
|
|
|
(38,833
|
)
|
|
|
|
|
|
|
114,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
|
|
|
|
|
|
|
|
229,894
|
|
|
|
7,476
|
|
|
|
|
|
|
|
237,370
|
|
Other (income) expenses
|
|
|
144,584
|
|
|
|
|
|
|
|
67,767
|
|
|
|
(29,866
|
)
|
|
|
(169,732
|
)
|
|
|
12,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(146,414
|
)
|
|
|
|
|
|
|
(142,062
|
)
|
|
|
(16,443
|
)
|
|
|
169,732
|
|
|
|
(135,187
|
)
|
Income tax expense
|
|
|
141
|
|
|
|
|
|
|
|
2,522
|
|
|
|
8,705
|
|
|
|
|
|
|
|
11,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(146,555
|
)
|
|
$
|
|
|
|
$
|
(144,584
|
)
|
|
$
|
(25,148
|
)
|
|
$
|
169,732
|
|
|
$
|
(146,555
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-71
Condensed
consolidating statement of cash flows for the year ended
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swift
|
|
|
Swift
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation
|
|
|
Services
|
|
|
|
|
|
Non-
|
|
|
Elimination
|
|
|
|
|
|
|
Company
|
|
|
Holdings,
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
for
|
|
|
|
|
|
|
(Parent)
|
|
|
Inc. (Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Consolidation
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Net cash provided by operating activities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
24,738
|
|
|
$
|
33,701
|
|
|
$
|
|
|
|
$
|
58,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in restricted cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(59,699
|
)
|
|
|
|
|
|
|
(59,699
|
)
|
Proceeds from sale of property and equipment
|
|
|
|
|
|
|
|
|
|
|
38,302
|
|
|
|
225
|
|
|
|
|
|
|
|
38,527
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
|
|
(160,293
|
)
|
|
|
(4,341
|
)
|
|
|
|
|
|
|
(164,634
|
)
|
Funding of intercompany notes payable
|
|
|
|
|
|
|
|
|
|
|
(1,341
|
)
|
|
|
|
|
|
|
1,341
|
|
|
|
|
|
Payments received on intercompany notes payable
|
|
|
|
|
|
|
|
|
|
|
12,298
|
|
|
|
|
|
|
|
(12,298
|
)
|
|
|
|
|
Dividend from subsidiary
|
|
|
|
|
|
|
|
|
|
|
10,500
|
|
|
|
|
|
|
|
(10,500
|
)
|
|
|
|
|
Capital contribution to subsidiary
|
|
|
|
|
|
|
|
|
|
|
(13,850
|
)
|
|
|
|
|
|
|
13,850
|
|
|
|
|
|
Other investing activities
|
|
|
|
|
|
|
|
|
|
|
7,285
|
|
|
|
|
|
|
|
|
|
|
|
7,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
|
|
|
|
|
|
(107,099
|
)
|
|
|
(63,815
|
)
|
|
|
(7,607
|
)
|
|
|
(178,521
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of Class A common stock, net of
issuance costs
|
|
|
764,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
764,284
|
|
Proceeds from long-term debt
|
|
|
|
|
|
|
|
|
|
|
1,059,300
|
|
|
|
|
|
|
|
|
|
|
|
1,059,300
|
|
Proceeds from issuance of senior notes
|
|
|
|
|
|
|
490,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
490,000
|
|
Payoff of term loan
|
|
|
|
|
|
|
|
|
|
|
(1,488,430
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,488,430
|
)
|
Repurchase of fixed rate notes
|
|
|
|
|
|
|
|
|
|
|
(490,010
|
)
|
|
|
|
|
|
|
|
|
|
|
(490,010
|
)
|
Repurchase of floating rate notes
|
|
|
|
|
|
|
|
|
|
|
(192,600
|
)
|
|
|
|
|
|
|
|
|
|
|
(192,600
|
)
|
Payment of fees and costs on note tender offer
|
|
|
|
|
|
|
|
|
|
|
(45,163
|
)
|
|
|
|
|
|
|
|
|
|
|
(45,163
|
)
|
Payment of deferred loan costs
|
|
|
|
|
|
|
|
|
|
|
(18,497
|
)
|
|
|
|
|
|
|
|
|
|
|
(18,497
|
)
|
Borrowings under accounts receivable securitization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
213,000
|
|
|
|
|
|
|
|
213,000
|
|
Repayment of accounts receivable securitization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(189,500
|
)
|
|
|
|
|
|
|
(189,500
|
)
|
Repayment of long-term debt and capital leases
|
|
|
|
|
|
|
|
|
|
|
(49,766
|
)
|
|
|
|
|
|
|
|
|
|
|
(49,766
|
)
|
Proceeds from intercompany notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,341
|
|
|
|
(1,341
|
)
|
|
|
|
|
Repayment of intercompany notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,298
|
)
|
|
|
12,298
|
|
|
|
|
|
Dividend to parent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,500
|
)
|
|
|
10,500
|
|
|
|
|
|
Capital contribution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,850
|
|
|
|
(13,850
|
)
|
|
|
|
|
Other financing activities
|
|
|
|
|
|
|
|
|
|
|
(904
|
)
|
|
|
|
|
|
|
|
|
|
|
(904
|
)
|
Net funding from (to) affiliates
|
|
|
(783,837
|
)
|
|
|
(490,000
|
)
|
|
|
1,273,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(19,553
|
)
|
|
|
|
|
|
|
47,767
|
|
|
|
15,893
|
|
|
|
7,607
|
|
|
|
51,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(19,553
|
)
|
|
|
|
|
|
|
(34,594
|
)
|
|
|
(14,221
|
)
|
|
|
|
|
|
|
(68,368
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
21,114
|
|
|
|
|
|
|
|
70,438
|
|
|
|
24,310
|
|
|
|
|
|
|
|
115,862
|
|
Cash and cash equivalents at end of period
|
|
$
|
1,561
|
|
|
$
|
|
|
|
$
|
35,844
|
|
|
$
|
10,089
|
|
|
$
|
|
|
|
$
|
47,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-72
Condensed
consolidating statement of cash flows for the year ended
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swift
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swift
|
|
|
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation
|
|
|
Holdings,
|
|
|
|
|
|
Non-
|
|
|
Eliminations
|
|
|
|
|
|
|
Company
|
|
|
Inc.
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
for
|
|
|
|
|
|
|
(Parent)
|
|
|
(Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Consolidation
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Net cash provided by operating activities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
98,478
|
|
|
$
|
16,857
|
|
|
$
|
|
|
|
$
|
115,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in restricted cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,430
|
)
|
|
|
|
|
|
|
(6,430
|
)
|
Proceeds from sale of property and equipment
|
|
|
|
|
|
|
|
|
|
|
69,755
|
|
|
|
18
|
|
|
|
|
|
|
|
69,773
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
|
|
(70,023
|
)
|
|
|
(1,242
|
)
|
|
|
|
|
|
|
(71,265
|
)
|
Funding of intercompany notes payable
|
|
|
|
|
|
|
|
|
|
|
(4,000
|
)
|
|
|
|
|
|
|
4,000
|
|
|
|
|
|
Payments received on intercompany notes payable
|
|
|
|
|
|
|
|
|
|
|
5,725
|
|
|
|
|
|
|
|
(5,725
|
)
|
|
|
|
|
Dividend from subsidiary
|
|
|
|
|
|
|
|
|
|
|
8,000
|
|
|
|
|
|
|
|
(8,000
|
)
|
|
|
|
|
Capital contribution to subsidiary
|
|
|
|
|
|
|
|
|
|
|
(500
|
)
|
|
|
|
|
|
|
500
|
|
|
|
|
|
Other investing activities
|
|
|
|
|
|
|
|
|
|
|
6,795
|
|
|
|
|
|
|
|
|
|
|
|
6,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
|
|
|
|
|
|
|
|
15,752
|
|
|
|
(7,654
|
)
|
|
|
(9,225
|
)
|
|
|
(1,127
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment of deferred loan costs
|
|
|
|
|
|
|
|
|
|
|
(19,694
|
)
|
|
|
|
|
|
|
|
|
|
|
(19,694
|
)
|
Repayment of long-term debt and capital leases
|
|
|
|
|
|
|
|
|
|
|
(30,820
|
)
|
|
|
|
|
|
|
|
|
|
|
(30,820
|
)
|
Distributions to stockholders
|
|
|
|
|
|
|
|
|
|
|
(16,383
|
)
|
|
|
|
|
|
|
|
|
|
|
(16,383
|
)
|
Interest payments received on stockholder loan receivable
|
|
|
|
|
|
|
|
|
|
|
16,383
|
|
|
|
|
|
|
|
|
|
|
|
16,383
|
|
Proceeds from intercompany notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
|
|
(4,000
|
)
|
|
|
|
|
Repayment of intercompany notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,725
|
)
|
|
|
5,725
|
|
|
|
|
|
Dividend to parent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,000
|
)
|
|
|
8,000
|
|
|
|
|
|
Capital contribution from parent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
500
|
|
|
|
(500
|
)
|
|
|
|
|
Other financing activities
|
|
|
|
|
|
|
|
|
|
|
(5,748
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,748
|
)
|
Net funding from (to) affiliates
|
|
|
21,114
|
|
|
|
|
|
|
|
(21,114
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
21,114
|
|
|
|
|
|
|
|
(77,376
|
)
|
|
|
(9,225
|
)
|
|
|
9,225
|
|
|
|
(56,262
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
21,114
|
|
|
|
|
|
|
|
36,854
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
57,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
|
|
|
|
33,584
|
|
|
|
24,332
|
|
|
|
|
|
|
|
57,916
|
|
Cash and cash equivalents at end of period
|
|
$
|
21,114
|
|
|
$
|
|
|
|
$
|
70,438
|
|
|
$
|
24,310
|
|
|
$
|
|
|
|
$
|
115,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-73
Condensed
consolidating statement of cash flows for the year ended
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swift
|
|
|
Swift
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation
|
|
|
Services
|
|
|
|
|
|
Non-
|
|
|
Eliminations
|
|
|
|
|
|
|
Company
|
|
|
Holdings,
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
for
|
|
|
|
|
|
|
(Parent)
|
|
|
Inc. (Issuer)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Consolidation
|
|
|
Consolidated
|
|
|
|
(In thousands)
|
|
|
Net cash provided by operating activities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
116,745
|
|
|
$
|
2,995
|
|
|
$
|
|
|
|
$
|
119,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in restricted cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,588
|
|
|
|
|
|
|
|
3,588
|
|
Proceeds from sale of property and equipment
|
|
|
|
|
|
|
|
|
|
|
190,975
|
|
|
|
176
|
|
|
|
|
|
|
|
191,151
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
|
|
(327,535
|
)
|
|
|
(190
|
)
|
|
|
|
|
|
|
(327,725
|
)
|
Payments received on assets held for sale
|
|
|
|
|
|
|
|
|
|
|
16,391
|
|
|
|
|
|
|
|
|
|
|
|
16,391
|
|
Other investing activities
|
|
|
|
|
|
|
|
|
|
|
(3,998
|
)
|
|
|
540
|
|
|
|
1,536
|
|
|
|
(1,922
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
|
|
|
|
|
|
|
|
(124,167
|
)
|
|
|
4,114
|
|
|
|
1,536
|
|
|
|
(118,517
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of long-term debt and capital leases
|
|
|
|
|
|
|
|
|
|
|
(16,625
|
)
|
|
|
|
|
|
|
|
|
|
|
(16,625
|
)
|
Distributions to stockholders
|
|
|
|
|
|
|
|
|
|
|
(33,831
|
)
|
|
|
|
|
|
|
|
|
|
|
(33,831
|
)
|
Interest payments received on stockholder loan receivable
|
|
|
|
|
|
|
|
|
|
|
33,831
|
|
|
|
|
|
|
|
|
|
|
|
33,831
|
|
Other financing activities
|
|
|
|
|
|
|
|
|
|
|
(5,657
|
)
|
|
|
1,536
|
|
|
|
(1,536
|
)
|
|
|
(5,657
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
|
|
|
|
|
|
|
|
(22,282
|
)
|
|
|
1,536
|
|
|
|
(1,536
|
)
|
|
|
(22,282
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
149
|
|
|
|
|
|
|
|
149
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
(29,704
|
)
|
|
|
8,794
|
|
|
|
|
|
|
|
(20,910
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
|
|
|
|
|
|
|
|
63,288
|
|
|
|
15,538
|
|
|
|
|
|
|
|
78,826
|
|
Cash and cash equivalents at end of period
|
|
$
|
|
|
|
$
|
|
|
|
$
|
33,584
|
|
|
$
|
24,332
|
|
|
$
|
|
|
|
$
|
57,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-74
SWIFT SERVICES HOLDINGS,
INC.
*AND THE GUARANTORS
OFFER
TO EXCHANGE
$500 million
aggregate principal amount of 10.000% Senior Second
Priority Secured Notes due 2018
CUSIP No. 870755 AA3, ISIN No. US870755AA35
for
$500 million
aggregate principal amount of 10.000% Senior Second
Priority Secured Notes due 2018
which have been registered under the Securities Act.
PROSPECTUS
Dated May
19, 2011