Introduction and Basis of Presentation

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

Description of Business

Swift is a transportation solutions provider, headquartered in Phoenix, Arizona. As of March 31, 2017, the Company's fleet of revenue equipment included 18,656 tractors (comprised of 14,017 company tractors and 4,639 owner-operator tractors), 63,207 trailers, and 9,130 intermodal containers. The Company’s four reportable segments are Truckload, Dedicated, Refrigerated (formerly "Swift Refrigerated"), and Intermodal.

Subsequent Events

Merger

On April 10, 2017, Swift announced an all-stock merger agreement with Knight Transportation, Inc. ("Knight"), which was unanimously approved by the boards of directors of Swift and Knight and is expected to close during the quarter ended September 30, 2017. The combined company will be named Knight-Swift Transportation Holdings Inc. ("Knight-Swift"). Knight is expected to be the accounting acquirer. Under the terms of the definitive agreement each Swift share will convert into 0.72 shares of Knight-Swift by means of a reverse stock split. Each share of Knight will be exchanged for one Knight-Swift share. Based on the $30.65 closing price of Knight shares on April 7, 2017, the last trading day prior to the announcement, the implied value per share of Swift is $22.07. Upon closing of the transaction, Swift stockholders will own approximately 54.0% and Knight stockholders will own approximately 46.0% of the combined company. Based on Knight’s closing share price on April 7, 2017, the number of combined company shares expected to be outstanding after closing and the combined net debt of Swift and Knight as of December 31, 2016, the combined company would have an implied enterprise value of approximately $6.0 billion.

The merger agreement provides for certain termination rights for both Knight and the Company. Upon termination of the merger agreement under certain specified circumstances, the Company may be required to pay Knight a termination fee of $89.1 million and Knight may be required to pay the Company a termination fee of $75.3 million. In addition, if the merger agreement is terminated because of a failure of either Knight’s or the Company’s stockholders to approve the transactions contemplated by the merger agreement, the other party may be required to reimburse transaction expenses up to $10.0 million.

Legal Settlement

On April 13, 2017, the Company proposed a tentative settlement arrangement with regard to certain litigation in the Refrigerated segment, which was finalized on April 28, 2017, subject to final court approval. As such, the Company increased its legal accrual by $11.7 million for the quarter ended March 31, 2017.

Seasonality

In the truckload industry, results of operations generally show a seasonal pattern. As customers ramp up for the year-end holiday season, the late third quarter and fourth quarter have historically been the Company's strongest volume periods. As customers reduce shipments after the winter holiday season, the first quarter has historically been a lower-volume quarter than the other three quarters. In recent years, the macro consumer buying patterns combined with shippers’ supply chain management, which historically contributed to the fourth quarter "peak" season, continued to evolve. As a result, the Company's fourth quarter 2016, 2015, and 2014 volumes were more evenly distributed throughout the quarter, rather than peaking early in the quarter. In the eastern and mid-western United States, and to a lesser extent in the western United States, the Company's equipment utilization typically declines and operating expenses generally increase during the winter season. This tends to be attributed to declines in fuel efficiency from engine idling and increases in accident frequency, claims, and equipment repairs from severe weather. The Company's revenue is directly related to shippers' available working days. As such, curtailed operations and vacation shutdowns around the holidays may affect the Company's revenue. From time to time, the Company also suffers short-term impacts from severe weather and similar events, such as tornadoes, hurricanes, blizzards, ice storms, floods, fires, earthquakes, and explosions that could add volatility to, or harm, the Company's results of operations.

Basis of Presentation

The consolidated financial statements and footnotes included in this Quarterly Report on Form 10-Q should be read in conjunction with the consolidated financial statements and footnotes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016. The consolidated financial statements include the accounts of Swift Transportation Company and its wholly-owned subsidiaries. In management's opinion, these consolidated financial statements were prepared in accordance with GAAP and include all adjustments necessary for the fair presentation of the periods presented.

Changes in Presentation

Segment Reorganization — During the quarter ended March 31, 2017, the Company reorganized its reportable segments to reflect management’s revised reporting structure of its Dedicated and Refrigerated (formerly “Swift Refrigerated”) reportable segments. In association with the reorganization, the operations of the Company's dedicated grocery line of business, which were previously reported within the Company’s Dedicated segment, are now reported within the Company's Refrigerated segment. This resulted in all temperature-controlled lines of business reporting under the Refrigerated segment. Prior periods have been retrospectively adjusted to align with the current period presentation.

Recently Adopted Accounting Pronouncement — In March 2016, FASB issued ASU 2016-09, Improvements to Employee Share-based Payment Accounting, which amended ASC 718, Compensation – Stock Compensation. The amendments in this ASU are intended to simplify various aspects of accounting for stock-based compensation, including income tax consequences, classification of awards as equity or liability, as well as classification of activities within the statement of cash flows. For public business entities, the amendments in this ASU are effective for financial statements issued for fiscal years beginning after December 15, 2016, and the interim periods within those fiscal years.

The Company adopted this guidance during the quarter ended March 31, 2017. The amendments that affected the Company's financial statements are discussed below.

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Accounting for Income Tax Benefits/Deficiencies: All excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) should be recognized as income tax expense or benefit in the income statement. The tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity should also recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. Modified retrospective application is required, by means of a cumulative-effect adjustment to equity.

Upon adoption, the Company reclassified approximately$16.8 million in historical net tax benefit/deficiency amounts previously recorded within "Additional paid-in capital" into "Accumulated deficit." Starting January 1, 2017, tax benefit/deficiency amounts are recorded in "Income tax expense" in the consolidated income statements.


•	Classification of Excess Tax Benefits on the Statement of Cash Flows: Excess tax benefits should be classified along with other income tax cash flows as an operating activity. Application is permitted to be prospective or retrospective.

GAAP previously required classification within cash flows from financing activities. The Company retrospectively adjusted the statement of cash flows for the quarter ended March 31, 2016 to align with the current period presentation by increasing cash flows from operating activities by $0.1 million and correspondingly decreasing cash flows from financing activities by $0.1 million, reflecting the amount of excess tax benefits previously presented for that period.


•	Forfeitures: An entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest (prior GAAP) or account for forfeitures when they occur. Modified retrospective application is required, by means of a cumulative-effect adjustment to equity.

Upon adoption, the Company transitioned to accounting for forfeitures when they occur. This resulted in approximately a $0.4 million (net of income tax) cumulative-effect adjustment to retained earnings/accumulated deficit to catch-up the previously unrecognized stock-based compensation associated with historical assumed forfeiture rates. Starting January 1, 2017, forfeitures are recorded as adjustments to stock-based compensation as they occur.


•	Classification of Employee Taxes Paid on the Statement of Cash Flows When an Employer Withholds Shares for Tax-withholding purposes: Cash paid by an employer when directly withholding shares for tax-withholding purposes should be classified as a financing activity. Retrospective application is required.

In 2016, the Company began allowing certain members of management to have shares withheld for taxes when their restricted stock awards and performance units vest. As such, upon adopting the amendments in this ASU, the Company reclassified the amounts out of cash flows from operating activities and into cash flows from financing activities for the quarter ended March 31, 2016 to align with the current period presentation. For the quarter-ended March 31, 2016, the amount was approximately $0.3 million.