Fair Value Measurement

ASC Topic 820, Fair Value Measurements and Disclosures, requires that the Company disclose estimated fair values for its financial instruments. The estimated fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or most advantageous market for the asset or liability. Fair value estimates are made at a specific point in time and are based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Changes in assumptions could significantly affect these estimates. Because the fair value is estimated as of December 31, 2015 and 2014, the amounts that will actually be realized or paid at settlement or maturity of the instruments in the future could be significantly different.

The tables below exclude certain financial instruments. The excluded financial instruments are as follows: cash and cash equivalents, restricted cash, net accounts receivable, income tax refund receivable and accounts payable. The estimated fair value of these financial instruments approximate carrying value as they are short-term in nature. Additionally, for notes payable under revolving lines of credit, fair value approximates the carrying value due to the variable interest rate. For capital leases, the carrying value approximates the fair value. The table below also excludes financial instruments reported at estimated fair value on a recurring basis. See "Recurring Fair Value Measurements." All remaining balance sheet amounts excluded from the table below are not considered financial instruments subject to this disclosure.

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



	As of December 31,
	2015				2014
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial Assets:
Restricted investments ⁽¹⁾	$	23,215	$	23,190	$	24,510	$	24,502
Financial Liabilities:
2015 Agreement: New Term Loan A, due July 2020 ⁽²⁾	669,750		669,750		—		—
2014 Agreement: Old Term Loan A, due June 2019 ⁽²⁾	—		—		500,000		500,000
2014 Agreement: Term Loan B, due June 2021, net of $920 OID ⁽²⁾	—		—		396,080		390,436
Accounts receivable securitization	225,000		225,000		334,000		334,000
Revolving line of credit ⁽³⁾	200,000		200,000		57,000		57,000

____________

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


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


(2)	The New Term Loan A, Old Term Loan A and Term Loan B are included in "Current portion of long-term debt" and "Long-term debt, less current portion."


(3)	The New Revolver (due July 2020) and Old Revolver (due June 2019) are included in "Revolving line of credit."

The estimated fair values of the financial instruments shown in the above table as of December 31, 2015 and 2014, represent management’s best estimates of the amounts that would be received to sell those assets or that would be paid to transfer those liabilities in an orderly transaction between market participants at that date. The estimated fair value measurements maximize the use of observable inputs. However, in situations where there is little, if any, market activity for the asset or liability at the measurement date, the estimated fair value measurement reflects the Company’s own judgments about the assumptions that market participants would use in pricing the asset or liability. These judgments are developed by the Company based on the best information available under the circumstances.

The following summary presents a description of the methods and assumptions used to estimate the fair value of each class of financial instrument.

Restricted Investments — The estimated fair value of the Company’s restricted investments is based on quoted prices in active markets that are readily and regularly obtainable.

Term Loans — The estimated fair value of the Term Loan B was determined by bid prices in trades between qualified institutional buyers.

Securitization of Accounts Receivable — The Company’s securitization of accounts receivable consists of borrowings outstanding pursuant to the Company’s 2015 RSA and 2013 RSA as of December 31, 2015 and 2014, respectively, as discussed in Note 11. Its fair value is estimated by discounting future cash flows using a discount rate commensurate with the uncertainty involved.

Derivative Financial Instruments — As of December 31, 2014, interest rate swaps represent the only major category of assets or liabilities included in the consolidated balance sheets that are measured by estimating fair value on a recurring basis. The fair values of the interest rate swaps was based on valuations provided by third parties, derivative pricing models, and credit spreads derived from the trading levels of the Company’s first lien term loan as of December 31, 2014. The Company’s interest rate swaps were not actively traded, but are valued using valuation models and credit valuation adjustments, both of which used significant inputs that were observable in active markets over the terms of the instruments the Company held, and accordingly, the Company classified these valuation techniques as Level 2 in the hierarchy. Interest rate yield curves and credit spreads derived from trading levels of the Company’s first lien term loan 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.

Fair Value Hierarchy — ASC Topic 820 establishes a framework for measuring fair value in accordance with US-GAAP and expands financial statement disclosure requirements for fair value measurements. ASC Topic 820 further specifies a hierarchy of valuation techniques, which is based on whether the inputs into the valuation technique are observable or unobservable. The hierarchy is as follows:


•	Level 1 — Valuation techniques in which all significant inputs are quoted prices from active markets for assets or liabilities that are identical to the assets or liabilities being measured.

•

Level 2 — Valuation techniques in which significant inputs include quoted prices from active markets for assets or liabilities that are similar to the assets or liabilities being measured and/or quoted prices from markets that are not active for assets or liabilities that are identical or similar to the assets or liabilities being measured. Also, model-derived valuations in which all significant inputs and significant value drivers are observable in active markets are Level 2 valuation techniques.


•	Level 3 — Valuation techniques in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are valuation technique inputs that reflect the Company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

When available, the Company uses quoted market prices to determine the estimated fair value of an asset or liability. If quoted market prices are not available, the Company measures 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 value measurement in its entirety falls is based on the lowest level input that is significant to the estimated fair value measurement in its entirety.

Recurring Fair Value Measurements — As of December 31, 2015 and 2014, no assets of the Company were measured at estimated fair value on a recurring basis. As of December 31, 2015, no liabilities of the Company were measured at estimated fair value on a recurring basis.

The following table presents information about inputs into the estimated fair value measurements of each major category of the Company’s liabilities that were measured at estimated fair value on a recurring basis in periods subsequent to their initial recognition as of December 31, 2014 (in thousands):



			Fair Value Measurements at Reporting Date Using
	Estimated Fair Value		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
As of December 31, 2014
Interest rate swaps	$	6,109	$	—	$	6,109	$	—

Nonrecurring Fair Value Measurements — As of December 31, 2015 and 2014, none of the Company's liabilities were measured at estimated fair value on a nonrecurring basis. The following table presents assets measured at estimated fair value on a nonrecurring basis, (in thousands):



			Fair Value Measurements at Reporting Date Using
	Estimated Fair Value		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Losses
As of December 31, 2015
Note receivable	$	—	$	—	$	—	$	—	$	(1,480	)
As of December 31, 2014
Other assets	$	—	$	—	$	—	$	—	$	(2,308	)

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

Fair value of assets measured on a nonrecurring basis as of December 31, 2014 represents certain operations software that was replaced, and for which the carrying value was determined to be fully impaired during the three months ended September 30, 2014.