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, 2016 and 2015, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three‑year period ended December 31, 2016. These consolidated financial statements are the responsibility of the Company’s 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, 2016 and 2015, and the results of their operations and their cash flows for each of the years in the three‑year period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2016, based on criteria established in
Internal Control - Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 17, 2017 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
/s/ KPMG LLP
Phoenix, Arizona
February 17, 2017
SWIFT TRANSPORTATION COMPANY
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
ASSETS
|
(In thousands, except share data)
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
89,391
|
|
|
$
|
107,590
|
|
Cash and cash equivalents — restricted
|
57,046
|
|
|
55,241
|
|
Restricted investments, held to maturity, amortized cost
|
22,717
|
|
|
23,215
|
|
Accounts receivable, net
|
408,593
|
|
|
422,421
|
|
Income tax refund receivable
|
206
|
|
|
11,664
|
|
Inventories and supplies
|
16,630
|
|
|
18,426
|
|
Assets held for sale
|
6,969
|
|
|
9,084
|
|
Prepaid taxes, licenses, insurance, and other
|
47,038
|
|
|
48,149
|
|
Current portion of notes receivable
|
6,961
|
|
|
9,817
|
|
Total current assets
|
655,551
|
|
|
705,607
|
|
Property and equipment, at cost:
|
|
|
|
Revenue and service equipment
|
2,266,137
|
|
|
2,278,618
|
|
Land
|
132,084
|
|
|
131,693
|
|
Facilities and improvements
|
281,390
|
|
|
269,769
|
|
Furniture and office equipment
|
113,880
|
|
|
99,519
|
|
Total property and equipment
|
2,793,491
|
|
|
2,779,599
|
|
Less: accumulated depreciation and amortization
|
(1,244,890
|
)
|
|
(1,128,499
|
)
|
Net property and equipment
|
1,548,601
|
|
|
1,651,100
|
|
Other assets
|
21,953
|
|
|
26,585
|
|
Intangible assets, net
|
266,305
|
|
|
283,119
|
|
Goodwill
|
253,256
|
|
|
253,256
|
|
Total assets
|
$
|
2,745,666
|
|
|
$
|
2,919,667
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable
|
$
|
115,063
|
|
|
$
|
121,827
|
|
Accrued liabilities
|
132,712
|
|
|
97,313
|
|
Current portion of claims accruals
|
80,866
|
|
|
84,429
|
|
Current portion of long-term debt
|
8,459
|
|
|
35,514
|
|
Current portion of capital lease obligations
|
72,473
|
|
|
59,794
|
|
Total current liabilities
|
409,573
|
|
|
398,877
|
|
Revolving line of credit
|
130,000
|
|
|
200,000
|
|
Long-term debt, less current portion
|
493,346
|
|
|
643,663
|
|
Capital lease obligations, less current portion
|
161,463
|
|
|
222,001
|
|
Claims accruals, less current portion
|
165,726
|
|
|
149,281
|
|
Deferred income taxes
|
427,722
|
|
|
463,832
|
|
Accounts receivable securitization
|
279,285
|
|
|
223,927
|
|
Other liabilities
|
6,296
|
|
|
959
|
|
Total liabilities
|
2,073,411
|
|
|
2,302,540
|
|
Commitments and contingencies (notes 15, 16, and 17)
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
Preferred stock, par value $0.01 per share; Authorized 10,000,000 shares; none issued
|
—
|
|
|
—
|
|
Class A common stock, par value $0.01 per share; Authorized 500,000,000 shares; 83,299,118 and 87,808,801 shares issued and outstanding as of December 31, 2016 and December 31, 2015, respectively
|
833
|
|
|
878
|
|
Class B common stock, par value $0.01 per share; Authorized 250,000,000 shares; 49,741,938 and 50,991,938 shares issued and outstanding as of December 31, 2016 and December 31, 2015, respectively
|
497
|
|
|
510
|
|
Additional paid-in capital
|
701,065
|
|
|
754,589
|
|
Accumulated deficit
|
(30,242
|
)
|
|
(139,033
|
)
|
Accumulated other comprehensive income
|
—
|
|
|
81
|
|
Noncontrolling interest
|
102
|
|
|
102
|
|
Total stockholders’ equity
|
672,255
|
|
|
617,127
|
|
Total liabilities and stockholders’ equity
|
$
|
2,745,666
|
|
|
$
|
2,919,667
|
|
See accompanying notes to consolidated financial statements.
SWIFT TRANSPORTATION COMPANY
CONSOLIDATED INCOME STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
|
(In thousands, except per share data)
|
Operating revenue:
|
|
|
|
|
|
Revenue, excluding fuel surcharge revenue
|
$
|
3,722,863
|
|
|
$
|
3,781,976
|
|
|
$
|
3,535,391
|
|
Fuel surcharge revenue
|
308,654
|
|
|
447,346
|
|
|
763,333
|
|
Operating revenue
|
4,031,517
|
|
|
4,229,322
|
|
|
4,298,724
|
|
Operating expenses:
|
|
|
|
|
|
Salaries, wages, and employee benefits
|
1,148,610
|
|
|
1,111,946
|
|
|
970,683
|
|
Operating supplies and expenses
|
389,968
|
|
|
387,735
|
|
|
342,073
|
|
Fuel
|
345,281
|
|
|
416,782
|
|
|
591,855
|
|
Purchased transportation
|
1,116,709
|
|
|
1,180,403
|
|
|
1,321,268
|
|
Rental expense
|
226,258
|
|
|
240,501
|
|
|
229,290
|
|
Insurance and claims
|
192,733
|
|
|
179,545
|
|
|
159,246
|
|
Depreciation and amortization of property and equipment
|
267,134
|
|
|
251,735
|
|
|
221,122
|
|
Amortization of intangibles
|
16,814
|
|
|
16,814
|
|
|
16,814
|
|
Impairments
|
807
|
|
|
—
|
|
|
2,308
|
|
Gain on disposal of property and equipment
|
(18,285
|
)
|
|
(32,453
|
)
|
|
(27,682
|
)
|
Communication and utilities
|
28,723
|
|
|
31,606
|
|
|
29,871
|
|
Operating taxes and licenses
|
74,753
|
|
|
74,604
|
|
|
71,806
|
|
Total operating expenses
|
3,789,505
|
|
|
3,859,218
|
|
|
3,928,654
|
|
Operating income
|
242,012
|
|
|
370,104
|
|
|
370,070
|
|
Other expenses (income):
|
|
|
|
|
|
Interest expense
|
30,598
|
|
|
38,350
|
|
|
80,064
|
|
Derivative interest expense
|
—
|
|
|
3,972
|
|
|
6,495
|
|
Interest income
|
(2,634
|
)
|
|
(2,526
|
)
|
|
(2,909
|
)
|
Loss on debt extinguishment
|
—
|
|
|
9,567
|
|
|
39,909
|
|
Non-cash impairments of non-operating assets
|
—
|
|
|
1,480
|
|
|
—
|
|
Loss on sale of real property
|
—
|
|
|
133
|
|
|
—
|
|
Legal settlements and reserves
|
3,000
|
|
|
6,000
|
|
|
—
|
|
Other income, net
|
(3,921
|
)
|
|
(3,658
|
)
|
|
(4,115
|
)
|
Total other expenses (income), net
|
27,043
|
|
|
53,318
|
|
|
119,444
|
|
Income before income taxes
|
214,969
|
|
|
316,786
|
|
|
250,626
|
|
Income tax expense
|
65,702
|
|
|
119,209
|
|
|
89,474
|
|
Net income
|
$
|
149,267
|
|
|
$
|
197,577
|
|
|
$
|
161,152
|
|
Basic earnings per share
|
$
|
1.11
|
|
|
$
|
1.39
|
|
|
$
|
1.14
|
|
Diluted earnings per share
|
$
|
1.10
|
|
|
$
|
1.38
|
|
|
$
|
1.12
|
|
Shares used in per share calculations:
|
|
|
|
|
|
Basic
|
134,139
|
|
|
142,018
|
|
|
141,431
|
|
Diluted
|
135,494
|
|
|
143,668
|
|
|
143,475
|
|
See accompanying notes to consolidated financial statements.
SWIFT TRANSPORTATION COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
|
(In thousands)
|
Net income
|
$
|
149,267
|
|
|
$
|
197,577
|
|
|
$
|
161,152
|
|
Accumulated losses on derivatives reclassified to derivative interest expense
|
—
|
|
|
3,886
|
|
|
6,218
|
|
Other
|
(81
|
)
|
|
—
|
|
|
—
|
|
Other comprehensive (loss) income before income taxes
|
(81
|
)
|
|
3,886
|
|
|
6,218
|
|
Income tax effect of items within other comprehensive (loss) income
|
—
|
|
|
(1,469
|
)
|
|
(2,392
|
)
|
Other comprehensive (loss) income, net of income taxes
|
(81
|
)
|
|
2,417
|
|
|
3,826
|
|
Total comprehensive income
|
$
|
149,186
|
|
|
$
|
199,994
|
|
|
$
|
164,978
|
|
See accompanying notes to consolidated financial statements.
SWIFT TRANSPORTATION COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
Common Stock
|
|
Class B
Common Stock
|
|
Additional Paid-in Capital
|
|
Accumulated Deficit
|
|
Accumulated Other Comprehensive (Loss) Income
|
|
Noncontrolling Interest
|
|
Total Stockholders' Equity
|
|
Shares
|
|
Par Value
|
|
Shares
|
|
Par Value
|
|
|
|
|
|
|
(In thousands, except share data)
|
Balances, December 31, 2013
|
88,402,991
|
|
|
$
|
883
|
|
|
52,441,938
|
|
|
$
|
525
|
|
|
$
|
759,408
|
|
|
$
|
(471,169
|
)
|
|
$
|
(6,162
|
)
|
|
$
|
102
|
|
|
$
|
283,587
|
|
Exercise of stock options
|
1,100,998
|
|
|
11
|
|
|
|
|
|
|
11,477
|
|
|
|
|
|
|
|
|
11,488
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
5,080
|
|
|
|
|
|
|
|
|
5,080
|
|
Excess tax benefit from stock-based compensation
|
|
|
|
|
|
|
|
|
3,730
|
|
|
|
|
|
|
|
|
3,730
|
|
Grant of restricted Class A common stock
|
98,866
|
|
|
1
|
|
|
|
|
|
|
314
|
|
|
|
|
|
|
|
|
315
|
|
Shares issued under employee stock purchase plan
|
50,788
|
|
|
1
|
|
|
|
|
|
|
1,115
|
|
|
|
|
|
|
|
|
1,116
|
|
Conversion of Class B common stock to Class A common stock
|
1,450,000
|
|
|
15
|
|
|
(1,450,000
|
)
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
—
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
161,152
|
|
|
|
|
|
|
161,152
|
|
Other comprehensive income, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
3,826
|
|
|
|
|
3,826
|
|
Balances, December 31, 2014
|
91,103,643
|
|
|
$
|
911
|
|
|
50,991,938
|
|
|
$
|
510
|
|
|
$
|
781,124
|
|
|
$
|
(310,017
|
)
|
|
$
|
(2,336
|
)
|
|
$
|
102
|
|
|
$
|
470,294
|
|
Common stock issued under stock plans
|
821,412
|
|
|
8
|
|
|
|
|
|
|
6,945
|
|
|
|
|
|
|
|
|
6,953
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
6,525
|
|
|
|
|
|
|
|
|
6,525
|
|
Excess tax benefit from stock-based compensation
|
|
|
|
|
|
|
|
|
2,147
|
|
|
|
|
|
|
|
|
2,147
|
|
Shares issued under employee stock purchase plan
|
59,556
|
|
|
1
|
|
|
|
|
|
|
1,213
|
|
|
|
|
|
|
|
|
1,214
|
|
Repurchase and cancellation of Class A common stock
|
(4,175,810
|
)
|
|
(42
|
)
|
|
|
|
|
|
(43,365
|
)
|
|
(26,593
|
)
|
|
|
|
|
|
(70,000
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
197,577
|
|
|
|
|
|
|
197,577
|
|
Other comprehensive income, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
2,417
|
|
|
|
|
2,417
|
|
Balances, December 31, 2015
|
87,808,801
|
|
|
$
|
878
|
|
|
50,991,938
|
|
|
$
|
510
|
|
|
$
|
754,589
|
|
|
$
|
(139,033
|
)
|
|
$
|
81
|
|
|
$
|
102
|
|
|
$
|
617,127
|
|
Common stock issued under stock plans
|
1,546,132
|
|
|
15
|
|
|
|
|
|
|
13,222
|
|
|
|
|
|
|
|
|
13,237
|
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
6,017
|
|
|
|
|
|
|
|
|
6,017
|
|
Excess tax benefit from stock-based compensation
|
|
|
|
|
|
|
|
|
2,575
|
|
|
|
|
|
|
|
|
2,575
|
|
Shares issued under employee stock purchase plan
|
77,462
|
|
|
1
|
|
|
|
|
|
|
1,231
|
|
|
|
|
|
|
|
|
1,232
|
|
Repurchase and cancellation of Class A common stock
|
(7,383,277
|
)
|
|
(74
|
)
|
|
|
|
|
|
(76,569
|
)
|
|
(40,476
|
)
|
|
|
|
|
|
(117,119
|
)
|
Conversion of Class B common stock to Class A common stock
|
1,250,000
|
|
|
13
|
|
|
(1,250,000
|
)
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
—
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
149,267
|
|
|
|
|
|
|
149,267
|
|
Other comprehensive loss, net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
(81
|
)
|
|
|
|
(81
|
)
|
Balances, December 31, 2016
|
83,299,118
|
|
|
$
|
833
|
|
|
49,741,938
|
|
|
$
|
497
|
|
|
$
|
701,065
|
|
|
$
|
(30,242
|
)
|
|
$
|
—
|
|
|
$
|
102
|
|
|
$
|
672,255
|
|
See accompanying notes to consolidated financial statements.
SWIFT TRANSPORTATION COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
|
(In thousands)
|
Cash flows from operating activities:
|
|
|
|
|
|
Net income
|
$
|
149,267
|
|
|
$
|
197,577
|
|
|
$
|
161,152
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
Depreciation and amortization of property, equipment, and intangibles
|
283,948
|
|
|
268,549
|
|
|
237,936
|
|
Amortization of debt issuance costs, original issue discount, and other
|
1,333
|
|
|
5,937
|
|
|
10,407
|
|
Gain on disposal of property and equipment, less write-off of totaled tractors
|
(15,854
|
)
|
|
(30,195
|
)
|
|
(23,236
|
)
|
Gain on sale of real property
|
—
|
|
|
—
|
|
|
(3,018
|
)
|
Impairments
|
807
|
|
|
1,480
|
|
|
2,308
|
|
Deferred income taxes
|
(36,079
|
)
|
|
26,476
|
|
|
(3,980
|
)
|
Provision for (reduction of) losses on accounts receivable
|
(1,147
|
)
|
|
8,004
|
|
|
2,844
|
|
Non-cash loss on debt extinguishment and write-offs of deferred financing costs and original issue discount
|
—
|
|
|
9,567
|
|
|
11,994
|
|
Stock-based compensation expense
|
6,017
|
|
|
6,525
|
|
|
5,396
|
|
Excess tax benefit from stock-based compensation
|
(2,575
|
)
|
|
(2,147
|
)
|
|
(3,730
|
)
|
Income effect of mark-to-market adjustment of interest rate swaps
|
—
|
|
|
87
|
|
|
(155
|
)
|
Increase (decrease) in cash resulting from changes in:
|
|
|
|
|
|
Accounts receivable
|
14,975
|
|
|
48,574
|
|
|
(63,407
|
)
|
Inventories and supplies
|
1,796
|
|
|
566
|
|
|
(562
|
)
|
Prepaid expenses and other current assets
|
20,999
|
|
|
17,741
|
|
|
17,802
|
|
Other assets
|
1,171
|
|
|
7,785
|
|
|
14,745
|
|
Accounts payable, and accrued and other liabilities
|
41,654
|
|
|
2,972
|
|
|
29,285
|
|
Net cash provided by operating activities
|
466,312
|
|
|
569,498
|
|
|
395,781
|
|
Cash flows from investing activities:
|
|
|
|
|
|
(Increase) decrease in cash and cash equivalents — restricted
|
(1,805
|
)
|
|
(9,620
|
)
|
|
5,212
|
|
Proceeds from maturities of investments
|
30,269
|
|
|
33,015
|
|
|
29,783
|
|
Purchases of investments
|
(30,061
|
)
|
|
(31,930
|
)
|
|
(28,921
|
)
|
Proceeds from sale of property and equipment
|
113,410
|
|
|
116,330
|
|
|
133,020
|
|
Capital expenditures
|
(239,446
|
)
|
|
(342,615
|
)
|
|
(305,966
|
)
|
Payments received on notes receivable
|
10,114
|
|
|
4,252
|
|
|
5,481
|
|
Expenditures on assets held for sale
|
(31,027
|
)
|
|
(25,937
|
)
|
|
(4,053
|
)
|
Payments received on assets held for sale
|
25,939
|
|
|
14,410
|
|
|
25,326
|
|
Payments received on equipment sale receivables
|
—
|
|
|
288
|
|
|
368
|
|
Net cash used in investing activities
|
(122,607
|
)
|
|
(241,807
|
)
|
|
(139,750
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
Repayment of long-term debt and capital leases
|
(246,829
|
)
|
|
(979,816
|
)
|
|
(1,224,628
|
)
|
Proceeds from long-term debt
|
—
|
|
|
684,504
|
|
|
900,000
|
|
Net (repayments) borrowings on revolving line of credit
|
(70,000
|
)
|
|
143,000
|
|
|
40,000
|
|
Borrowings under accounts receivable securitization
|
105,000
|
|
|
75,000
|
|
|
119,000
|
|
Repayment of accounts receivable securitization
|
(50,000
|
)
|
|
(184,000
|
)
|
|
(49,000
|
)
|
Payment of deferred loan costs
|
—
|
|
|
(4,235
|
)
|
|
(11,783
|
)
|
Proceeds from common stock issued
|
14,469
|
|
|
8,167
|
|
|
12,604
|
|
Repurchases of Class A common stock
|
(117,119
|
)
|
|
(70,000
|
)
|
|
—
|
|
Excess tax benefit from stock-based compensation
|
2,575
|
|
|
2,147
|
|
|
3,730
|
|
Net cash used in financing activities
|
(361,904
|
)
|
|
(325,233
|
)
|
|
(210,077
|
)
|
Net (decrease) increase in cash and cash equivalents
|
(18,199
|
)
|
|
2,458
|
|
|
45,954
|
|
Cash and cash equivalents at beginning of period
|
107,590
|
|
|
105,132
|
|
|
59,178
|
|
Cash and cash equivalents at end of period
|
$
|
89,391
|
|
|
$
|
107,590
|
|
|
$
|
105,132
|
|
See accompanying notes to consolidated financial statements.
SWIFT TRANSPORTATION COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS — CONTINUED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
|
(In thousands)
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
Interest
|
$
|
29,150
|
|
|
$
|
45,390
|
|
|
$
|
89,341
|
|
Income taxes
|
79,250
|
|
|
78,522
|
|
|
82,776
|
|
Non-cash investing activities:
|
|
|
|
|
|
Equipment purchase accrual
|
$
|
11,103
|
|
|
$
|
447
|
|
|
$
|
35,831
|
|
Notes receivable from sale of assets
|
4,158
|
|
|
7,670
|
|
|
5,431
|
|
Equipment sales receivables
|
—
|
|
|
—
|
|
|
288
|
|
Non-cash financing activities:
|
|
|
|
|
|
Capital lease additions
|
$
|
12,811
|
|
|
$
|
145,338
|
|
|
$
|
101,581
|
|
Accrued deferred loan costs
|
—
|
|
|
105
|
|
|
177
|
|
Insurance premium notes payable
|
8,430
|
|
|
7,658
|
|
|
37
|
|
See accompanying notes to consolidated financial statements.
SWIFT TRANSPORTATION COMPANY
|
|
Notes to Consolidated Financial Statements
|
Note 1
—
Introduction and Basis of Presentation
Certain acronyms and terms used throughout this Annual Report on Form 10-K 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
December 31, 2016
, the Company's fleet of revenue equipment included
18,366
tractors (comprised of
13,937
company tractors and
4,429
owner-operator tractors),
64,066
trailers and
9,131
intermodal containers. The Company's
four
reportable segments are Truckload, Dedicated, Swift Refrigerated, and Intermodal.
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 preparing the consolidated financial statements. 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. In management's opinion, the accompanying financial statements were prepared in accordance with principles generally accepted in the United States and include all adjustments necessary for the fair presentation of the periods presented.
Change in Accounting Estimate
In August 2016,
the Company decreased the estimated residual values of a certain group of its tractors, as a result of recent trends in the used tractor market. Management prospectively accounted for this as a change in accounting estimate. This change increased "Depreciation and amortization of property and equipment" in the consolidated income statements
by approximately
$9.0 million
for the
year ended
December 31, 2016
. Without this change in estimate, basic and diluted earnings per share would have been
$0.05
higher for the year ended December 31, 2016.
In October 2016,
the Company changed its estimated residual values on certain trailers. This accelerated the depreciation on some trailers, while decelerating the depreciation on others. Management prospectively accounted for this as a change in accounting estimate. The impact on "Depreciation and amortization of property and equipment" was a decrease
of approximately
$0.6 million
. Without this change in estimate, basic and diluted earnings per share would have been unaffected for the year ended December 31, 2016.
Changes in Presentation
Beginning in 2016, the Company made the following changes in presentation:
In April 2015, FASB issued
ASU 2015-03,
Simplifying the Presentation of Debt Issuance Costs
, which amended ASC Subtopic 835-30,
Interest – Imputation of Interest.
The amendments in this ASU simplify the presentation of debt issuance costs and align the presentation with debt discounts. Entities are required to present debt issuance costs within liabilities as a direct deduction from the face amount of the related debt, rather than as a deferred charge within assets.
In August 2015, FASB issued
ASU 2015-15,
Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements – Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting (SEC Update)
, which also amended ASC Subtopic 835-30,
Interest – Imputation of Interest
. The SEC determined that ASU 2015-03 (discussed above) did not address costs related to line-of-credit arrangements. The amendments in ASU 2015-15 clarify that entities may defer and present debt issuance costs as an asset, and subsequently amortize the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement.
The amendments in these ASUs require
retrospective application, with related disclosures for a change in accounting principle. For public business entities, the amendments in these ASUs were effective for financial statements issued for fiscal years beginning after December 15, 2015, and the interim periods within those fiscal years, with early adoption permitted.
SWIFT TRANSPORTATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
The Company adopted this guidance at the beginning of 2016. Accordingly, DLCs, except for those associated with the Company's New Revolver, are presented as direct deductions from the face amount of the related debt. The Company retrospectively adjusted the December 31, 2015 consolidated balance sheet to align with the current period presentation, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
Financial Statement Caption
|
|
Unadjusted Consolidated Balance Sheet
|
|
Reclassification Adjustments
|
|
Adjusted Consolidated Balance Sheet
|
|
|
(In thousands)
|
ASSETS:
|
|
|
|
|
|
|
Other assets
|
|
$
|
29,353
|
|
|
$
|
(2,768
|
)
|
|
$
|
26,585
|
|
LIABILITIES:
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
35,582
|
|
|
$
|
(68
|
)
|
|
$
|
35,514
|
|
Long-term debt, less current portion
|
|
645,290
|
|
|
(1,627
|
)
|
|
643,663
|
|
Accounts receivable securitization
|
|
225,000
|
|
|
(1,073
|
)
|
|
223,927
|
|
Beginning in 2015, the Company made the following changes in presentation:
|
|
•
|
Excess tax benefits from stock-based compensation are separately presented within "Net cash provided by operating activities" in the consolidated statements of cash flows. The prior period presentation has been retrospectively adjusted to reclassify the amount out of "Accounts payable, accrued and other liabilities" and into the new line item "Excess tax benefits from stock-based compensation." The change in presentation has no net impact on "Net cash provided by operating activities."
|
|
|
•
|
Gross amounts of investment in securities activities are presented as "Proceeds from maturities of investments" and "Purchases of investments" in the consolidated statements of cash flows. The prior period presentation has been retrospectively adjusted to accommodate this gross presentation. The change in presentation has no net impact on "Net cash used in investing activities."
|
|
|
•
|
"Operating revenue" in the consolidated income statements is disaggregated into the line items "Revenue, excluding fuel surcharge revenue" and "Fuel surcharge revenue." The change in presentation has no net impact on "Operating revenue."
|
Note 2
—
Summary of Significant Accounting Policies
Use of Estimates —
The preparation of the consolidated financial statements, in accordance with US-GAAP, requires management to make estimates and assumptions about future events that affect the amounts reported in the Company's consolidated financial statements and accompanying notes. On an ongoing basis, management evaluates and periodically adjusts its estimates and assumptions, based on historical experience, the impact of the current economic environment, and other key factors. Volatile energy markets, as well as changes in consumer spending have increased the inherent uncertainty in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Significant items subject to such estimates and assumptions include:
|
|
•
|
carrying amount of property and equipment, intangibles, and goodwill;
|
|
|
•
|
valuation allowances for receivables, inventories, and deferred income tax assets;
|
|
|
•
|
valuation of financial instruments;
|
|
|
•
|
calculation of stock-based compensation;
|
|
|
•
|
estimates of claims accruals;
|
|
|
•
|
contingent obligations.
|
Segments —
The Company uses the "management approach" to determine its reportable segments, as well as to determine the basis of reporting the operating segment information. The management approach focuses on financial information that management uses to make operating decisions. Our CODMs use operating revenues, operating expense categories, operating ratios, operating income, and key operating statistics to evaluate performance and allocate resources to the Company's operations.
Operating income is the measure that management uses to evaluate segment performance and allocate resources, which is consistent with US-GAAP for segment reporting. Operating income should not be viewed as a substitute for US-GAAP net income (loss). Management believes the presentation of operating income enhances the understanding of the Company's performance
SWIFT TRANSPORTATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
by highlighting the results of operations and the underlying profitability drivers of the business segments. Operating income is defined as operating revenues less operating expenses, before income tax expense.
Based on the unique nature of the Company's operating structure, revenue-generating assets are interchangeable between segments. Therefore, the Company does not prepare separate balance sheets by segment, as assets are not separately identifiable by segment. The Company allocates depreciation and amortization expense of its property and equipment to the segments based on the actual utilization of the asset by the segment during the period.
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 Company's wholly-owned captive insurance companies, Red Rock and Mohave, maintain certain operating bank accounts, working trust accounts, and investment accounts. The cash and short-term investments within the accounts are restricted by insurance regulations to fund the insurance claim losses to be paid by the captive insurance companies. Therefore, these cash and short-term investments are classified as "Cash and cash equivalents
–
restricted" in the consolidated balance sheets.
Restricted Investments —
The Company's investments are restricted by insurance regulations to fund the insurance claim losses to be paid by the captive insurance companies. The Company accounts for its investments in accordance with ASC Topic 320,
Investments – Debt and Equity Securities
. Management determines the appropriate classification of its investments in debt securities at the time of purchase and re-evaluates the determination on a quarterly basis. As of
December 31, 2016
, all of the Company's investments in fixed-maturity securities were classified as held-to-maturity, as the Company has the positive intent and ability to hold these securities to maturity. Held-to-maturity securities are carried at amortized cost. The amortized cost of debt securities is adjusted using the effective interest rate method for amortization of premiums and accretion of discounts. Amortization and accretion is reported in "Other income, net" in the consolidated income statements.
Management periodically evaluates restricted investments for impairment. The assessment of whether impairments have occurred is based on management's case-by-case evaluation of the underlying reasons for the decline in estimated fair value. Management accounts for other-than-temporary impairments of debt securities in accordance with ASC Topic 320,
Investments – Debt and Equity Securities
. This guidance requires the Company to evaluate whether it intends to sell an impaired debt security or whether it is more likely than not that it will be required to sell an impaired debt security before recovery of the amortized cost basis. If either of these criteria are met, an impairment loss equal to the difference between the debt security's amortized cost and its estimated fair value is recognized in earnings. For impaired debt securities that do not meet these criteria, the Company determines if a credit loss exists with respect to the impaired security. If a credit loss exists, the credit loss component of the impairment (i.e., the difference between the security's amortized cost and the present value of projected future cash flows expected to be collected) is recognized in earnings and the remaining portion of the impairment is recognized as a component of AOCI.
Inventories and Supplies —
Inventories and supplies primarily consist 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 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 improvements are capitalized. Maintenance and repairs are expensed as incurred.
Depreciation of property and equipment is calculated on a straight-line basis over the following estimated useful lives:
|
|
|
|
|
|
Category
|
|
Range
|
Facilities and improvements
|
|
3
|
to
|
40 years
|
Revenue and service equipment
|
|
2
|
to
|
20 years
|
Furniture and office equipment
|
|
3
|
to
|
5 years
|
Net gains on the disposal of property and equipment are presented in the consolidated income statements within operating income.
Tires on purchased revenue equipment are capitalized along with 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 expensed when placed in service.
Management evaluates its property and equipment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with ASC Topic 360,
Property,
Plant and Equipment
. When such events or changes in circumstances occur, management performs a recoverability test that compares the carrying amount with the projected undiscounted cash flows from the use and eventual disposition of the asset or asset group. An impairment is recorded for any excess of the carrying amount over the estimated 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.
SWIFT TRANSPORTATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
Intangible Assets other than Goodwill —
The Company's intangible assets other than goodwill primarily consist of acquired customer relationships and trade names. Amortization of acquired customer relationships 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 over
15 years
on a straight-line basis. The trade name has an indefinite useful life and is not amortized, but 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.
Management reviews its intangible assets for impairment whenever events or circumstances indicate that the carrying amount of the asset may not be recoverable, in accordance with ASC Topic 350,
Intangibles – Goodwill and Other.
When such events or changes in circumstances occur, management performs a recoverability test that compares the carrying amount with the projected undiscounted cash flows from the use and eventual disposition of the asset or asset group. An impairment is recorded for any excess of the carrying amount over the estimated fair value, which is generally determined using discounted future cash flows.
Goodwill —
Management evaluates goodwill on an annual basis as of November 30
th
, or more frequently if indicators of impairment exist. The Company assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than the carrying amount. If the Company concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company conducts a
two
-step quantitative goodwill impairment test. The first step of the quantitative impairment test involves comparing the fair values of the applicable reporting units with their carrying values. Management estimates the fair values of its reporting units using a combination of the income and market approaches. If the carrying amount of a reporting unit exceeds the reporting unit's fair value, then management performs the second step of the quantitative impairment test. The second step of the quantitative impairment test involves comparing the implied fair value of the affected reporting unit's goodwill with the carrying value of that goodwill. Any amount by which the carrying value of the goodwill exceeds its implied fair value is recognized as an impairment loss. Refer to
Note 8
for discussion of the results of the Company's annual evaluation as of November 30,
2016
.
Claims Accruals —
The Company is self-insured for a portion of its risk related to auto liability, workers' compensation, property damage, and cargo damage. Prior to January 1, 2015, the Company was also self-insured for a portion of its employer medical expense. 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. The actual cost to settle self-insured claim liabilities may differ from our reserve estimates due to legal costs, claims that have been incurred but not reported and various other uncertainties, including the inherent difficulty in estimating the severity of the claims and the potential judgment or settlement amount to dispose of the claim.
Fair Value Measurements —
See
Note 21
for accounting policies and financial information relating to fair value measurements.
Contingencies —
See
Note 17
for accounting policies and financial information related to contingencies.
Revenue Recognition —
The Company recognizes operating revenues and the related direct costs of such revenue as of the date the freight is delivered, in accordance with ASC Topic 605-20-25-13,
Services for Freight-in-Transit at the End of a Reporting
Period.
The Company recognizes operating lease revenue from leasing tractors and related equipment to owner-operators. Operating lease revenue from rental operations is recognized as earned, which is straight-lined per the rent schedules in the lease agreements. Losses from lease defaults are recognized as offsets to revenue.
Stock-based Compensation —
The Company accounts for stock-based compensation expense in accordance with ASC Topic 718,
Compensation – Stock Compensation.
ASC Topic 718 requires that all share-based payments to employees and non-employee directors, including grants of employee stock options, be recognized in the financial statements based upon a grant-date fair value of an award. The Company calculates the number of awards expected to vest as awards granted, less expected forfeitures over the life of the award (estimated at grant date). Compensation expense is recorded based on amortization of the grant-date fair value over a graded vesting period. Unless a material deviation from the assumed forfeiture rate is observed during the term in which the awards are expensed, any adjustment necessary to reflect differences in actual experience is recognized in the period the award becomes payable or exercisable. See
Note 19
for additional information relating to the Company's stock compensation plan.
Income Taxes —
Management
accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to operating loss and tax credit carryforwards, as well as differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Net deferred incomes taxes are classified as noncurrent in the consolidated balance sheets. The effect on deferred tax assets and liabilities of changes in tax rates is recognized in income in the period that includes the enactment date.
SWIFT TRANSPORTATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
A valuation allowance is provided against deferred tax assets if the Company determines it is more likely than not that such assets will not ultimately be realized.
The Company does not recognize a tax benefit for uncertain tax positions unless it concludes that it is more likely than not that the benefit will be sustained on audit by the taxing authority based solely on the technical merits of the associated tax position. If the recognition threshold is met, the Company recognizes a tax benefit measured at the largest amount of the tax benefit that, in the management's judgment, is greater than
50%
likely to be realized. The Company records expected incurred interest and penalties related to unrecognized tax positions in "Income tax expense" in the consolidated income statements. To the extent that such interest and penalties are not ultimately incurred, previously accrued amounts are reduced and reflected as a reduction of the income tax provision.
Note 3
—
Recently Issued Accounting Pronouncements
|
|
|
|
|
|
|
|
|
|
Date Issued
|
|
Reference
|
|
Description
|
|
Expected Adoption Date and Method
|
|
Financial Statement Impact
|
January 2017
|
|
2017-04:
Intangibles – Goodwill and Other
(Topic 350)
Simplifying the Test for Goodwill Impairment
|
|
The amendments in this ASU are intended to simplify subsequent measurement of goodwill. The key amendment in the ASU eliminates Step 2 from the goodwill impairment test, in which entities measured a goodwill impairment loss by comparing the implied fair value to the carrying amount of a reporting unit's goodwill. Instead, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value with the carrying amount of a reporting unit and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value.
|
|
January 2020, prospective
|
|
Currently under evaluation; not expected to be material
|
January 2017
|
|
2017-03:
Accounting Changes and Error Corrections
(Topic 250) and
Investments – Equity Method and Joint Ventures
(Topic 323)
– Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings
|
|
The amendments in this ASU that are relevant to the Company pertain to disclosures around the impact that recently issued accounting standards will have on the financial statements of a registrant when such standards are adopted in a future period. The amendments in this ASU indicate that the SEC staff expects that if an entity cannot reasonably estimate the impact of an ASU on the financial statements, then the entity should consider additional qualitative disclosures to assist the reader in assessing the significance of the standard's impact on its financial statements.
|
|
Immediate
|
|
None - The Company's policy on disclosing recently issued accounting pronouncements is aligned with the amendments in this ASU.
|
November 2016
|
|
2016-18: S
tatement of Cash Flows –
(Topic 230)
Restricted Cash (a Consensus of the FASB Emerging Issues Task Force)
|
|
The amendments in this ASU require transfers between cash and equivalents and restricted cash and equivalents, as well as direct cash receipts into and cash payments made from restricted cash and equivalents to be explained in the statement of cash flows. Restricted cash and restricted cash equivalents are to be included in the beginning and ending cash and cash equivalent balance totals on the statement of cash flows.
|
|
January 2018; Retrospective
|
|
Material impact in cash flow presentation to reclassify restricted cash to "net increase/decrease in cash, restricted cash, and equivalents," and adjust the beginning and ending balances.
|
October 2016
|
|
2016-17:
Consolidation
(Topic 810)
–
Interests Held through Related Parties that are under Common Control
|
|
This ASU updates the consolidation guidance on how a reporting entity that is a single decision maker of a Variable Interest Entity ('VIE") should treat indirect interests in the entity held through related parties that are under common control when determining whether it is the primary beneficiary of the VIE. The primary beneficiary of a VIE is the reporting entity that has a controlling financial interest in a VIE and, therefore, consolidates the VIE. A reporting entity that has an indirect interest in a VIE if it has a direct interest in a related party that, in turn has a direct interest in the VIE.
|
|
January 2017, Modified Retrospective
|
|
No financial statement impact. The Company is not the primary beneficiary of any of its related parties.
|
SWIFT TRANSPORTATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
|
|
|
|
|
|
|
|
|
|
Date Issued
|
|
Reference
|
|
Description
|
|
Expected Adoption Date and Method
|
|
Financial Statement Impact
|
October 2016
|
|
2016-16:
Income Taxes
(Topic 740)
– Intra-entity Transfers of Assets Other than Inventory
|
|
This ASU states that entities should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs (as compared to current GAAP, which prohibits the recognition of current and deferred income taxes for intra-entity asset transfer until the asset has been sold to an outside party).
|
|
January 2018, Modified Retrospective
|
|
Currently under evaluation; not expected to be material since the Company's fixed assets are not typically transferred between legal entities for consideration.
|
August 2016
|
|
2016-15:
Statement of Cash Flows
(Topic 230)
– Classification of Certain Cash Receipts and Cash Payments
|
|
This ASU has several amendments, which are designed to reduce existing diversity in practice of how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The ASU addresses eight specific cash flow issues, of which the following are expected to be applicable to Swift: 1) debt prepayment and extinguishment costs, 2) proceeds from settlement of insurance claims, 3) proceeds from settlement of corporate-owned life insurance policies, 4) beneficial interests in securitization transactions, and 5) separately identifiable cash flows and application of the predominance principle.
|
|
January 2018, Retrospective
|
|
Currently under evaluation; not expected to be material.
|
June 2016
|
|
2016-13:
Financial Instruments – Credit Losses
(Topic 326) –
Measurement of Credit Losses on Financial Instruments
|
|
The purpose of this ASU is to amend the current incurred loss impairment methodology with a new methodology that reflects expected credit losses and requires a broader range of reasonable and supportable information to inform credit loss estimates. This is the final credit accounting standard, out of a series, with detailed guidance on the new loss reserve model, Current Expected Credit Loss ("CECL"). Among other provisions, the amendments in the ASU require a financial asset (or group of assets) measured at amortized cost basis to be presented at the net amount expected to be collected. Entities are no longer required to wait until a loss is probable to record it.
|
|
January 2020, Adoption method varies by amendment
|
|
Currently under evaluation; not expected to be material.
|
May 2016
|
|
2016-12:
Revenue from Contracts with Customers
(Topic 606) –
Narrow-scope Improvements and Practical Expedients
|
|
The amendments in this ASU clarify certain aspects regarding the collectibility criterion, sales taxes collected from customers, noncash consideration, contract modifications, and completed contracts at transition. It additionally clarifies that retrospective application only requires disclosure of the accounting change effect on prior periods presented, not on the period of adoption.
|
|
January 2018, Modified retrospective
|
|
Currently under evaluation
(1)
|
April 2016
|
|
2016-10:
Revenue from Contracts with Customers
(Topic 606) –
Identifying Performance Obligations and Licensing
|
|
The amendments in this ASU clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. The amendments do not change the core principle of the guidance.
|
|
January 2018, Modified retrospective
|
|
Currently under evaluation
(1)
|
March 2016
|
|
2016-08:
Revenue from Contracts with Customers
(Topic 606) –
Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
|
|
The amendments in this ASU are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations, but do not change the core principle of the guidance.
|
|
January 2018, Modified retrospective
|
|
Currently under evaluation
(1)
|
SWIFT TRANSPORTATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
|
|
|
|
|
|
|
|
|
|
Date Issued
|
|
Reference
|
|
Description
|
|
Expected Adoption Date and Method
|
|
Financial Statement Impact
|
March 2016
|
|
2016-09:
Compensation
–
Stock Compensation
(Topic 718) –
Improvements to Employee Share-based Payment Accounting
|
|
The amendments in this ASU are intended to simplify various aspects of accounting for stock-based compensation, including income tax consequences, classification of awards as equity or liability, as well as classification of activities within the statement of cash flows.
|
|
January 2017, Adoption method varies by amendment
|
|
Expected to be material
(2)
|
February 2016
|
|
2016-02:
Leases
(Topic 842)
|
|
The new standard requires lessees to recognize assets and liabilities arising from both operating and financing leases on the balance sheet. Lessor accounting for leases is largely unaffected by the new guidance.
|
|
January 2019, Modified retrospective
|
|
Currently under evaluation; expected to be material, but not yet quantifiable.
|
January 2016
|
|
2016-01:
Financial Instruments
–
Overall
(Subtopic 825-10) –
Recognition and Measurement of Financial Assets and Financial Liabilities
|
|
The amendments in this ASU address various aspects of recognition, measurement, presentation, and disclosure of financial instruments. They additionally establish ASC Topic 321 –
Investments – Equity Securities
, which applies to investments in equity securities and other ownership interests in an entity, including investments in partnerships, unincorporated joint ventures, and limited liability companies.
|
|
January 2018, Modified retrospective
|
|
Not expected to be material.
|
August 2015
|
|
2015-14:
Revenue from Contracts with Customers
(Topic 606) –
Deferral of the Effective Date
|
|
This ASU deferred the effective date of ASU 2014-09 (Topic 606) to annual reporting periods beginning after December 15, 2017.
|
|
January 2018, Modified retrospective
|
|
Currently under evaluation
(1)
|
July 2015
|
|
2015-11:
Inventory
(Topic 330) –
Simplifying the Measurement of Inventory
|
|
The amendments in this ASU simplify subsequent measurement of inventory for all inventory measurement methods, except for last-in-first-out. Entities will be required to measure inventory at the lower of cost and net realizable value, instead of the previously issued guidance of lower of cost or market.
|
|
January 2017, prospective
|
|
Not expected to be material. Due to the nature of the Company's inventory balances (spare parts, tires, fuel, and supplies), inventory is predominantly stated at cost.
|
____________
|
|
(1)
|
Management is in the diagnostic phase of assessing the financial and business impacts of implementing ASC Topic 606,
Revenue from Contracts with Customers
, including identifying revenue sources within the Company's lines of business, reviewing a sample of contracts, and developing a preliminary assessment. Based upon these preliminary procedures, management anticipates that the following key considerations will impact the Company's accounting and reporting under the new standard:
|
|
|
•
|
identification of what constitutes a contract in Swift's business practices,
|
|
|
•
|
variability in individual contracts, such as customer-specific terms that may vary from the master agreement,
|
|
|
•
|
principal versus agent determinations,
|
|
|
•
|
timing of revenue recognition (for example, point-in-time versus over time and/or accelerated versus deferred),
|
|
|
•
|
single versus multiple performance obligations,
|
|
|
•
|
new/changed estimates and management judgments (for example, system estimation of in-transit accruals versus manual estimation),
|
|
|
•
|
disaggregation of revenue by category within segments, and
|
Management expects that there will also be changes in sales, contracting, accounting, reporting, tax, debt covenants, and other business processes, policies, and controls, as a result of implementing ASC Topic 606. The Company is currently underway with implementing a new ERP system, which will also affect the implementation process.
SWIFT TRANSPORTATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
Based on the information currently available from the diagnostic phase, management cannot yet determine the quantitative impact on the financial statements; however, the impact is expected to be immaterial (potentially with changes only to the timing of revenue recognition between reportable periods, as well as changes in the requirements for accounting policy and other new disclosures). The financial impact is expected to be quantifiable by the time the Company files its first Quarterly Report on Form 10-Q in 2017, at which time the Company will be transitioning into the design and planning phase of implementing ASC Topic 606. Since we are continuing to evaluate the impact of ASC Topic 606, our disclosures around our preliminary assessments are subject to change.
|
|
(2)
|
The amendments to ASC Topic 718,
Compensation – Stock Compensation
, that are expected to affect the Company are discussed below.
|
|
|
•
|
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 will need to reclassify approximately
$16.8 million
in historical net tax benefit/deficiency amounts previously recorded within additional paid-in capital into retained earnings/accumulated deficit. Going forward, tax benefit/deficiency amounts will be recorded in net income.
|
|
•
|
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.
|
Current GAAP requires classification within cash flows from financing activities. The Company presents its statement of cash flows using the indirect method, which presents excess tax benefits within cash flows from financing activities and a corresponding offset within the net income reconciliation of cash flows from operating activities. As such, the Company will need to reclassify the excess tax benefit amounts out of cash flows from financing activities and into cash flows from operating activities, upon adoption. Management expects to apply these amendments retrospectively.
|
|
•
|
Forfeitures
:
An entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest (current 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 expects to transition to accounting for forfeitures when they occur. This would result in approximately a
$2.5 million
unfavorable cumulative-effect adjustment to retained earnings/accumulated deficit to catch-up the previously unrecognized stock-based compensation associated with historical assumed forfeiture rates. Going forward, forfeitures will be recorded as favorable 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.
|
Beginning 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 will need to present the amounts out of cash flows from operating activities and into cash flows from financing activities for the periods presented. For 2016, the amount was approximately
$0.5 million
.
SWIFT TRANSPORTATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
Note 4
—
Restricted Investments
The following table presents the cost or amortized cost, gross unrealized gains and temporary losses, and estimated fair value of the Company's restricted investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Gross Unrealized
|
|
|
|
Cost or Amortized Cost
|
|
Gains
|
|
Temporary
Losses
|
|
Estimated Fair Value
|
|
(In thousands)
|
United States corporate securities
|
$
|
16,432
|
|
|
$
|
—
|
|
|
$
|
(23
|
)
|
|
$
|
16,409
|
|
Municipal bonds
|
4,760
|
|
|
—
|
|
|
(6
|
)
|
|
4,754
|
|
Negotiable certificates of deposit
|
1,525
|
|
|
—
|
|
|
—
|
|
|
1,525
|
|
Restricted investments, held to maturity
|
$
|
22,717
|
|
|
$
|
—
|
|
|
$
|
(29
|
)
|
|
$
|
22,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
Gross Unrealized
|
|
|
|
Cost or Amortized Cost
|
|
Gains
|
|
Temporary
Losses
|
|
Estimated Fair Value
|
|
(In thousands)
|
United States corporate securities
|
$
|
16,686
|
|
|
$
|
2
|
|
|
$
|
(27
|
)
|
|
$
|
16,661
|
|
Municipal bonds
|
4,904
|
|
|
1
|
|
|
(1
|
)
|
|
4,904
|
|
Negotiable certificates of deposit
|
1,625
|
|
|
—
|
|
|
—
|
|
|
1,625
|
|
Restricted investments, held to maturity
|
$
|
23,215
|
|
|
$
|
3
|
|
|
$
|
(28
|
)
|
|
$
|
23,190
|
|
Refer to
Note 21
for additional information regarding fair value measurements of restricted investments.
As of
December 31, 2016
, the contractual maturities of the restricted investments were
one year
or less. There were
42
securities and
36
securities that were in an unrealized loss position for less than
twelve months
as of
December 31, 2016
and
2015
, respectively. The Company did not recognize any impairment losses for the years ended
December 31, 2016
,
2015
, or 2014.
Note 5
—
Accounts Receivable, net
Accounts receivable balances were as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
|
(In thousands)
|
Trade customers
|
$
|
404,556
|
|
|
$
|
415,219
|
|
Equipment manufacturers
|
4,755
|
|
|
6,801
|
|
Other
|
15,731
|
|
|
18,329
|
|
Accounts receivable
|
425,042
|
|
|
440,349
|
|
Less: Allowance for doubtful accounts
|
(16,449
|
)
|
|
(17,928
|
)
|
Accounts receivable, net
|
$
|
408,593
|
|
|
$
|
422,421
|
|
SWIFT TRANSPORTATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
The following is a rollforward of the allowance for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
|
2014
|
|
(In thousands)
|
Beginning balance
|
$
|
17,928
|
|
|
$
|
9,924
|
|
|
$
|
7,504
|
|
Provision (Reduction)
|
(1,147
|
)
|
|
8,004
|
|
|
2,844
|
|
Recoveries
|
(332
|
)
|
|
—
|
|
|
89
|
|
Write-offs
|
—
|
|
|
—
|
|
|
(513
|
)
|
Ending balance
|
$
|
16,449
|
|
|
$
|
17,928
|
|
|
$
|
9,924
|
|
See
Note 12
for a discussion of the Company's accounts receivable securitization program and the related accounting treatment.
Note 6
—
Assets Held for Sale
Assets held for sale balances were:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
|
(In thousands)
|
Land and facilities
|
$
|
288
|
|
|
$
|
288
|
|
Revenue equipment
|
6,681
|
|
|
8,796
|
|
Assets held for sale
|
$
|
6,969
|
|
|
$
|
9,084
|
|
As of
December 31, 2016
and
2015
, assets held for sale are carried at the lower of depreciated cost or estimated fair value, less expected selling costs when the required criteria, as defined by ASC Topic 360,
Property,
Plant, and Equipment,
are satisfied. Depreciation ceases on the date that the held for sale criteria are met. The Company expects to sell these assets within the next
12 months
. During 2016, management reassessed the fair value of certain IEL tractors, determining that there was an impairment. Further details are provided in Note 21.
The Company did not recognize any impairment losses for the years ended December 31
2015
or
2014
.
During the years ended
December 31, 2016
and
December 31, 2015
, the Company sold
no
operating properties classified as held for sale. Accordingly, there was
no
gain or loss on disposal of properties recognized. Gain on disposals of property and equipment recognized in the income statement for those years pertain to revenue equipment. During the year ended December 31, 2014, the Company sold
five
operating properties classified as held for sale with a carrying value of
$14.5 million
. As a result, the Company recognized
$3.0 million
in (pre-tax) gain on disposal of property and equipment in the consolidated income statements.
Note 7
—
Notes Receivable
Notes receivable are included in "Current portion of notes receivable" and "Other assets" in the consolidated balance sheets and were comprised of:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
|
(In thousands)
|
Notes receivable due from owner-operators, with interest rates at 15%, secured by revenue equipment. Terms range from several months to four years
|
$
|
10,253
|
|
|
$
|
15,725
|
|
Other
|
—
|
|
|
24
|
|
Notes receivable
|
10,253
|
|
|
15,749
|
|
Less: current portion of notes receivable
|
(6,961
|
)
|
|
(9,817
|
)
|
Notes receivable, less current portion
|
$
|
3,292
|
|
|
$
|
5,932
|
|
SWIFT TRANSPORTATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
Note 8
—
Goodwill and Other Intangible Assets
The following presents the components of goodwill by reportable segment as of
December 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying Amount
|
|
Accumulated Impairment Losses
|
|
Net Carrying Amount
|
|
(In thousands)
|
Truckload goodwill
|
$
|
376,998
|
|
|
$
|
(190,394
|
)
|
|
$
|
186,604
|
|
Dedicated goodwill
|
130,742
|
|
|
(64,090
|
)
|
|
66,652
|
|
Goodwill
|
$
|
507,740
|
|
|
$
|
(254,484
|
)
|
|
$
|
253,256
|
|
There were
no
impairments identified during annual goodwill impairment testing in
2016
,
2015
, or
2014
.
Intangible asset balances were as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
|
(In thousands)
|
Customer Relationships:
|
|
|
|
Gross carrying value
|
$
|
275,324
|
|
|
$
|
275,324
|
|
Accumulated amortization
|
(190,056
|
)
|
|
(173,242
|
)
|
Customer relationships, net
|
85,268
|
|
|
102,082
|
|
Trade Name:
|
|
|
|
Gross carrying value
|
181,037
|
|
|
181,037
|
|
Intangible assets, net
|
$
|
266,305
|
|
|
$
|
283,119
|
|
In conjunction with the 2007 Transactions, definite-lived intangible assets with a gross carrying value of
$261.2 million
were recorded. Amortization of intangibles consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
|
(In thousands)
|
Amortization of intangible assets related to the 2007 Transactions
|
$
|
15,648
|
|
|
$
|
15,648
|
|
|
$
|
15,648
|
|
Amortization related to intangible assets existing prior to the 2007 Transactions
|
1,166
|
|
|
1,166
|
|
|
1,166
|
|
Amortization of intangibles
|
$
|
16,814
|
|
|
$
|
16,814
|
|
|
$
|
16,814
|
|
As of
December 31, 2016
, management anticipates that the composition and amount of amortization associated with intangible assets will remain at
$16.8 million
in 2017, and will decrease to
$16.3 million
in 2018, of which
$0.7 million
will represent the final amortization of the intangible assets existing prior to the 2007 Transactions. Amortization of intangible assets is expected to be
$15.6 million
in 2019 through 2021. Actual amounts of amortization expense may differ from estimated amounts due to additional intangible asset acquisitions, impairment of intangible assets, accelerated amortization of intangible assets, and other events.
SWIFT TRANSPORTATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
Note 9
—
Accrued Liabilities
The following table presents the composition of accrued liabilities:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
|
(In thousands)
|
Employee compensation
(1)
|
$
|
51,217
|
|
|
$
|
55,750
|
|
Owner-operator lease purchase reserve
|
6,229
|
|
|
5,271
|
|
Income tax accrual
|
5,119
|
|
|
2,043
|
|
Accrued owner-operator expenses
|
6,333
|
|
|
6,711
|
|
Deferred revenue
|
2,111
|
|
|
1,740
|
|
Fuel and property taxes
|
6,160
|
|
|
4,076
|
|
Accrued interest expense
|
1,819
|
|
|
1,532
|
|
Accrued legal
(2)
|
28,778
|
|
|
2,701
|
|
Other
(2)(3)
|
24,946
|
|
|
17,489
|
|
Accrued liabilities
|
$
|
132,712
|
|
|
$
|
97,313
|
|
____________
|
|
(1)
|
The Company maintains a 401(k) benefit plan available to all employees who are
21 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 employee's compensation. Employees' rights to employer contributions vest after
five years
from their date of employment.
|
For the years ended
December 31, 2016
,
2015
, and
2014
, the Company's employee benefits expense for matching contributions, included in "Salaries, wages, and employee benefits" in the consolidated income statements, was approximately
$5.7 million
,
$5.6 million
, and
$4.7 million
, respectively. As of
December 31, 2016
and
2015
, the balance includes
$6.1 million
and
$5.9 million
in matching contributions, respectively, to the plan in respect of such matching contributions.
|
|
(2)
|
The Company has disaggregated "Accrued legal" from "Other" as of December 31, 2016, and retrospectively adjusted the presentation as of December 31, 2015 for comparative purposes. See
Note 17
for further details regarding the Company's legal accruals.
|
|
|
(3)
|
Includes the current portion of accrued consulting fees for Jerry Moyes. See
Note 23
for further details.
|
Note 10
—
Claims Accruals
Claims accruals represent the uninsured portion of outstanding claims at year-end. The current portion reflects the amount of claims expected to be paid in the following year. The Company's insurance program for workers' compensation, auto and collision liability, physical damage, and cargo damage involves self-insurance with varying risk retention levels.
Claims accruals were comprised of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
|
(In thousands)
|
Auto and collision liability
|
$
|
128,643
|
|
|
$
|
123,086
|
|
Workers’ compensation liability
|
101,232
|
|
|
92,608
|
|
Owner-operator claims liability
|
11,736
|
|
|
12,304
|
|
Cargo damage liability
|
4,695
|
|
|
5,348
|
|
Other liability
(1)
|
286
|
|
|
364
|
|
Claims accruals
|
246,592
|
|
|
233,710
|
|
Less: current portion of claims accruals
|
(80,866
|
)
|
|
(84,429
|
)
|
Claim accruals, less current portion
|
$
|
165,726
|
|
|
$
|
149,281
|
|
SWIFT TRANSPORTATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
____________
|
|
(1)
|
Includes group medical liability. Effective January 1, 2015, the Company is fully insured on its group medical benefits, subject to contributed premiums. Prior to January 1, 2015, the Company had a
$500 thousand
specific deductible with an aggregating individual deductible of
$150 thousand
of each employee health care claim, as well as commercial insurance for the balance.
|
The following table presents the Company's income tax expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
|
(In thousands)
|
Current expense:
|
|
|
|
|
|
Federal
|
$
|
88,689
|
|
|
$
|
76,737
|
|
|
$
|
81,117
|
|
State
|
10,610
|
|
|
8,826
|
|
|
8,861
|
|
Foreign
|
3,053
|
|
|
8,783
|
|
|
4,107
|
|
|
102,352
|
|
|
94,346
|
|
|
94,085
|
|
Deferred (benefit) expense:
|
|
|
|
|
|
Federal
|
(31,380
|
)
|
|
24,097
|
|
|
(4,189
|
)
|
State
|
(211
|
)
|
|
3,419
|
|
|
1,975
|
|
Foreign
|
(5,059
|
)
|
|
(2,653
|
)
|
|
(2,397
|
)
|
|
(36,650
|
)
|
|
24,863
|
|
|
(4,611
|
)
|
Income tax expense
|
$
|
65,702
|
|
|
$
|
119,209
|
|
|
$
|
89,474
|
|
Rate Reconciliation —
The Company's effective tax rate was
30.6%
,
37.6%
, and
35.7%
, for the years ended
December 31, 2016
,
2015
, and
2014
, respectively. Expected tax expense is computed by applying the United States federal corporate income tax rate of
35.0%
to earnings before income taxes. Actual tax expense differs from expected tax expense as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
|
(In thousands)
|
Computed "expected" tax expense
|
$
|
75,239
|
|
|
$
|
110,875
|
|
|
$
|
87,719
|
|
Increase (decrease) in income taxes resulting from:
|
|
|
|
|
|
State income taxes, net of federal income tax benefit
|
6,443
|
|
|
8,745
|
|
|
6,866
|
|
Domestic Production Activities Deduction
(1)
|
(7,777
|
)
|
|
—
|
|
|
—
|
|
Toll Roads income tax credit
(2)
|
(4,082
|
)
|
|
—
|
|
|
—
|
|
Other
|
(4,121
|
)
|
|
(411
|
)
|
|
(5,111
|
)
|
Income tax expense
|
$
|
65,702
|
|
|
$
|
119,209
|
|
|
$
|
89,474
|
|
____________
|
|
(1)
|
Domestic Production Activities Deduction —
Internal Revenue Code Section 199 permits taxpayers to claim a deduction from taxable income attributable to certain domestic production activities such as the development of computer software and the manufacturing of goods. Beginning in 2010 and thereafter, the deduction is equal to
9%
of the smaller of a taxpayer’s qualified production activities or taxable income. Due to its increased software development efforts, the Company has elected to take the deduction in the current year and preceding open tax years. The decrease in the effective tax rate for the year ended December 31, 2016 was partially attributable to a domestic production activities deduction on the Company's 2015 federal tax return. The Company also received tax benefits for years ending December 31, 2016, December 31, 2014, and December 31, 2013. The Company generated
$6.4 million
,
$6.2 million
,
$6.2 million
, and
$3.4 million
in domestic production activities deductions for the development of computer software in 2016, 2015, 2014, and 2013, respectively. This resulted in approximately
$2.2 million
,
$2.2 million
,
$2.2 million
, and
$1.2 million
in tax benefits in 2016, 2015, 2014, and 2013, respectively.
|
SWIFT TRANSPORTATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
|
|
(2)
|
Toll roads income tax credit —
Trans-Mex, our Mexico trucking subsidiary, qualified for an income tax credit equal to
50%
of the qualified tolls paid. The decrease in the effective tax rate for the year ended December 31, 2016 was partially attributable to the toll road income tax credit reported on the 2015 income tax return. Trans-Mex also will claim a toll road income tax credit for 2016. Trans-Mex paid
$5.6 million
and
$6.5 million
in qualifying tolls during 2016 and 2015, respectively. This resulted in approximately
$1.8 million
and
$2.3 million
in tax benefits in 2016 and 2015, respectively.
|
Deferred Income Taxes —
The components of the net deferred tax asset (liability) included in "Deferred income taxes" in the consolidated balance sheets were:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
|
(In thousands)
|
Deferred tax assets:
|
|
|
|
Self-insurance accruals
|
$
|
73,654
|
|
|
$
|
66,949
|
|
Allowance for doubtful accounts
|
8,036
|
|
|
11,448
|
|
Amortization of stock options
|
6,397
|
|
|
8,923
|
|
Accrued liabilities
|
15,366
|
|
|
1,773
|
|
Vacation accrual
|
5,358
|
|
|
4,990
|
|
Other
|
8,940
|
|
|
11,589
|
|
Total deferred tax assets
|
117,751
|
|
|
105,672
|
|
Valuation allowance
|
—
|
|
|
—
|
|
Total deferred tax assets, net
|
117,751
|
|
|
105,672
|
|
Deferred tax liabilities:
|
|
|
|
Property and equipment, principally due to differences in depreciation
|
(420,975
|
)
|
|
(434,802
|
)
|
Prepaid taxes, licenses, and permits deducted for tax purposes
|
(13,284
|
)
|
|
(14,083
|
)
|
Cancellation of debt
|
(3,747
|
)
|
|
(5,622
|
)
|
Intangible assets
|
(106,143
|
)
|
|
(110,546
|
)
|
Other
|
(1,324
|
)
|
|
(4,451
|
)
|
Deferred tax liabilities
|
(545,473
|
)
|
|
(569,504
|
)
|
Deferred income taxes
|
$
|
(427,722
|
)
|
|
$
|
(463,832
|
)
|
Valuation Allowance —
As of
December 31, 2016
, the Company had federal and state net operating loss carryforwards remaining, with estimated tax effects of
$0.5 million
and
$0.1 million
, respectively. The federal and state net operating losses will expire at various times between
2017
and
2030
. The Company has not established a valuation allowance as it has been determined that, based upon available evidence, a valuation allowance is not required. Management asserts that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets. All other deferred tax assets are expected to be realized and utilized by continued profitability in future periods.
Cumulative Undistributed Foreign Earnings —
United States income and foreign withholding taxes have not been provided on approximately
$36.3 million
of cumulative undistributed earnings of foreign subsidiaries as of December 31, 2016. The earnings are considered to be permanently reinvested outside the United States. As such, under current law, the Company is not required to provide United States income taxes on these earnings until they are repatriated in the form of dividends or otherwise.
SWIFT TRANSPORTATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
Unrecognized Tax Benefits —
The Company's unrecognized tax benefits as of
December 31, 2016
would favorably impact our effective tax rate if subsequently recognized. The following is a rollforward of our unrecognized tax benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
|
(In thousands)
|
Unrecognized tax benefits at beginning of year
|
$
|
1,739
|
|
|
$
|
1,739
|
|
|
$
|
2,385
|
|
Increases for tax positions taken prior to beginning of year
|
—
|
|
|
—
|
|
|
95
|
|
Decreases for tax positions taken prior to beginning of year
|
(975
|
)
|
|
—
|
|
|
(741
|
)
|
Unrecognized tax benefits at end of year
|
$
|
764
|
|
|
$
|
1,739
|
|
|
$
|
1,739
|
|
During the year the Company determined that certain state income tax positions were no longer uncertain due to statute of limitations, which represents the above decreases in unrecognized tax benefits. The Company does not anticipate a decrease of unrecognized tax benefits during the next twelve months.
Tax Examinations —
Certain of the Company's subsidiaries are currently under examination by various state jurisdictions for tax years ranging from
2012
to
2015
. At the completion of these examinations, management does not expect any adjustments that would have a material impact on the Company's effective tax rate. Years subsequent to
2012
remain subject to examination.
Interest and Penalties —
Accrued interest and penalties as of
December 31, 2016
and
2015
were approximately
$0.4 million
and
$1.4 million
, respectively.
Regulatory Developments
—
In December 2014, United States President, Barack Obama, signed the Tax Increase Prevention Act of 2014 ("TIPA"). Among other things, TIPA extended 50% bonus depreciation and the Work Opportunity Tax Credit ("WOTC"). During the first three quarters of 2014, the Company did not include 50% bonus depreciation or WOTC in its income tax provision, as these items were not allowed in 2014 prior to the passing of the TIPA Act. Income tax calculations performed for the year ended December 31, 2014 included the full year's adjustment for 50% bonus depreciation and WOTC, as TIPA allowed for retrospective inclusion.
In December 2015, President Obama signed the Protecting Americans from Tax Hikes ("PATH") Act of 2015. Among other things, PATH extended 50% bonus depreciation and WOTC. During the first three quarters of 2015, the Company did not include 50% bonus depreciation or WOTC in its income tax provision, as these items were not allowed in 2015 prior to the passing of the PATH Act. Income tax calculations performed for the year ended December 31, 2015 include the full year's adjustment for 50% bonus depreciation and WOTC, as PATH allowed for retrospective inclusion.
Note 12
—
Accounts Receivable Securitization
On December 10, 2015, SRCII, a wholly-owned subsidiary of the Company, entered into the 2015 RSA, which further amends the 2013 RSA. The parties to the 2015 RSA include SRCII as the seller, Swift Transportation Services, LLC as the servicer, the various conduit purchasers, the various related committed purchasers, the various purchaser agents, the various letters of credit participants, and PNC Bank, National Association as the issuing bank of letters of credit and as administrator. Pursuant to the 2015 RSA, the Company's receivable originator subsidiaries sell, on a revolving basis, undivided interests in all of their eligible accounts receivable to SRCII. In turn, SRCII sells a variable percentage ownership interest in the eligible accounts receivable to the various purchasers. The facility qualifies for treatment as a secured borrowing under ASC Topic 860,
Transfers and Servicing
. As such, outstanding amounts are classified as liabilities on the Company's consolidated balance sheets. Refer to
Note 21
for information regarding the fair value of the 2015 RSA.
SWIFT TRANSPORTATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
The following table summarizes the key attributes of the current and previous securitization programs:
|
|
|
|
|
|
2015 RSA
|
|
2013 RSA
|
|
(Dollars in thousands)
|
Effective
|
December 2015
|
|
June 2013
|
Borrowing capacity
(1)
|
$400,000
|
|
$375,000
|
Final maturity date
|
January 10, 2019
|
|
July 13, 2016
|
Unused commitment fee rate
|
35 basis points
|
|
35 basis points
|
Program fees on outstanding balances
|
one-month LIBOR + 90 basis points
|
|
one-month LIBOR + 95 basis points
|
____________
|
|
(1)
|
The 2015 RSA has an accordion option to increase the maximum borrowing capacity by up to an additional
$75.0 million
, subject to participation by the Purchasers. The 2013 RSA borrowing capacity included a
$50.0 million
accordion option, which was exercised in September 2014.
|
As of
December 31, 2016
and
2015
, interest accrued on the aggregate principal balance at a rate of
1.3%
and
1.0%
, respectively. Program fees and unused commitment fees are recorded in "Interest expense" in the consolidated income statements. The Company incurred program fees of
$4.4 million
,
$3.5 million
, and
$3.5 million
, during the years ended
December 31, 2016
,
2015
, and
2014
, respectively.
The 2015 RSA is subject to customary fees and contains various customary affirmative and negative covenants, representations and warranties, and default and termination provisions. Collections on the underlying receivables by the Company are held for the benefit of SRCII and the various purchasers and are unavailable to satisfy claims of the Company and its subsidiaries.
Note 13
—
Debt and Financing
Other than the Company's accounts receivable securitization as discussed in
Note 12
and its outstanding capital lease obligations as discussed in
Note 15
, the Company's long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
|
(In thousands)
|
2015 Agreement: New Term Loan A, due July 2020, net of $1,338 and $1,695 DLCs as of December 31, 2016 and 2015 respectively
(1)
|
$
|
492,912
|
|
|
$
|
668,055
|
|
Other
|
8,893
|
|
|
11,122
|
|
Long-term debt
|
501,805
|
|
|
679,177
|
|
Less: current portion of long-term debt, net of $0 and $68 DLCs as of December 31, 2016 and 2015 respectively
|
(8,459
|
)
|
|
(35,514
|
)
|
Long-term debt, less current portion
|
$
|
493,346
|
|
|
$
|
643,663
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
|
(In thousands)
|
Long-term debt
|
$
|
501,805
|
|
|
$
|
679,177
|
|
Revolving line of credit, due July 2020
(2)
|
130,000
|
|
|
200,000
|
|
Long-term debt, including revolving line of credit
|
$
|
631,805
|
|
|
$
|
879,177
|
|
____________
|
|
(1)
|
Refer to
Note 21
for information regarding the fair value of debt.
|
|
|
(2)
|
The Company also had outstanding letters of credit under the New Revolver, primarily related to workers' compensation and self-insurance liabilities of
$97.0 million
at
December 31, 2016
and
$95.0 million
at
December 31, 2015
.
|
SWIFT TRANSPORTATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
Credit Agreements
2015 Agreement —
On July 27, 2015, the Company entered into the 2015 Agreement, which replaced the 2014 Agreement, including the
$450.0 million
Old Revolver (
zero
outstanding at closing),
$500.0 million
Old Term Loan A (
$485.0 million
outstanding at closing), and
$400.0 million
Term Loan B (
$395.0 million
outstanding at closing). The 2015 Agreement includes a New Revolver and a New Term Loan A. Upon closing, the
$680.0 million
in proceeds from the New Term Loan A, a
$200.0 million
draw on the New Revolver and
$4.9 million
cash on hand were used to pay off the then-outstanding balances of the Old Term Loan A and Term Loan B, including accrued interest and fees under the 2014 Agreement, as well as certain transactional fees associated with the 2015 Agreement.
The following table presents the key terms of the 2015 Agreement:
|
|
|
|
|
|
2015 Agreement
|
|
New Term Loan A
|
|
New Revolver
(2)
|
|
|
(Dollars in thousands)
|
Maximum borrowing capacity
|
|
$680,000
|
|
$600,000
|
Final maturity date
|
|
July 27, 2020
|
|
July 27, 2020
|
Interest rate base
|
|
LIBOR
|
|
LIBOR
|
LIBOR floor
|
|
—%
|
|
—%
|
Interest rate minimum margin
(1)
|
|
1.50%
|
|
1.50%
|
Interest rate maximum margin
(1)
|
|
2.25%
|
|
2.25%
|
Minimum principal payment — amount
(3)
|
|
$6,625
|
|
$—
|
Minimum principal payment — frequency
|
|
Quarterly
|
|
Once
|
Minimum principal payment — commencement date
(3)
|
|
December 31,
2015
|
|
July 27,
2020
|
____________
|
|
(1)
|
The interest rate margin for the New Term Loan A and New Revolver is based on the Company's consolidated leverage ratio. As of
December 31, 2016
, interest accrued at
2.18%
on the New Term Loan A and
2.18%
on the New Revolver. As of
December 31, 2015
, interest accrued at
2.12%
on the New Term Loan A and
2.08%
on the New Revolver.
|
|
|
(2)
|
The commitment fee for the unused portion of the New Revolver is based on the Company's consolidated leverage ratio, and ranges from
0.25%
to
0.35%
. As of
December 31, 2016
, commitment fees on the unused portion of the New Revolver accrued at
0.25%
and outstanding letter of credit fees accrued at
1.50%
. As of
December 31, 2015
, commitment fees on the unused portion of the New Revolver accrued at
0.25%
and outstanding letter of credit fees accrued at
1.75%
.
|
|
|
(3)
|
Commencing in March 2017, the minimum required quarterly payment on the New Term Loan A is
$12.3 million
, at which it would remain until final maturity. However, as of January 2017, the Company voluntarily prepaid all minimum quarterly principal payments through final maturity.
|
The New Revolver and New Term Loan A of the 2015 Agreement contain certain financial covenants with respect to a maximum leverage ratio and a minimum consolidated interest coverage ratio. The 2015 Agreement provides flexibility regarding the use of proceeds from asset sales, payment of dividends, stock repurchases, and equipment financing. In addition to the financial covenants, the 2015 Agreement includes customary events of default, including a change in control default and certain affirmative and negative covenants, including, but not limited to, restrictions, subject to certain exceptions, on incremental indebtedness, asset sales, certain restricted payments (including dividends and stock repurchases), certain incremental investments or advances, transactions with affiliates, engagement in additional business activities, and prepayments of certain other indebtedness.
Borrowings under the 2015 Agreement are secured by substantially all of the assets of the Company and are guaranteed by Swift Transportation Company, IEL, Central Refrigerated Transportation, LLC and its subsidiaries, Swift Transportation Co., LLC and its domestic subsidiaries (other than its captive insurance subsidiaries, driver academy subsidiary, and its bankruptcy-remote special purpose subsidiary).
2014 Agreement —
The Company entered into the 2014 Agreement on June 9, 2014, which was subsequently replaced by the 2015 Agreement. The 2014 Agreement included the Old Term Loan A, a first lien Term Loan B tranche, and the Old Revolver. The 2014 Agreement replaced the then-existing revolving credit line, as well as the first lien term loan B-1 and B-2 tranches of the 2013 Agreement, which had outstanding principal balances at closing of
$229.0 million
and
$370.9 million
, respectively. Upon closing, the Company drew
$164.0 million
on the Old Revolver and
$50.0 million
on the Old Term Loan A. The Company subsequently drew the remaining
$450.0 million
available on the Old Term Loan A to facilitate redemption of the Senior Notes in November 2014.
SWIFT TRANSPORTATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
The following table presents the key terms of the 2014 Agreement:
Insert Title Here
|
|
|
|
|
|
|
|
2014 Agreement
|
|
Old Term Loan A
|
|
Term Loan B
|
|
Old Revolver
(2)
|
|
|
(Dollars in thousands)
|
Maximum borrowing capacity
|
|
$500,000
|
|
$400,000
|
|
$450,000
|
Final maturity date
|
|
June 9, 2019
|
|
June 9, 2021
|
|
June 9, 2019
|
Interest rate base
|
|
LIBOR
|
|
LIBOR
|
|
LIBOR
|
LIBOR floor
|
|
—%
|
|
0.75%
|
|
—%
|
Interest rate minimum margin
(1)
|
|
1.50%
|
|
3.00%
|
|
1.50%
|
Interest rate maximum margin
(1)
|
|
2.25%
|
|
3.00%
|
|
2.25%
|
Minimum principal payment — amount
(3)
|
|
$5,625
|
|
$1,000
|
|
$—
|
Minimum principal payment — frequency
|
|
Quarterly
|
|
Quarterly
|
|
Once
|
Minimum principal payment — commencement date
(3)
|
|
March 31, 2015
|
|
June 30, 2014
|
|
June 30, 2019
|
____________
|
|
(1)
|
Interest rate margins on the Old Term Loan A and Old Revolver were based on the Company's consolidated leverage ratio. Additionally, after December 31, 2014, interest rate margins on the Term Loan B were determined by the Company's consolidated leverage ratio, ranging from
2.75%
to
3.00%
.
|
|
|
(2)
|
The commitment fee for the unused portion of the Old Revolver was also based on the Company's consolidated leverage ratio, and ranged from
0.25%
to
0.35%
.
|
|
|
(3)
|
Commencing in March 2017, the minimum principal payment amount on the Old Term Loan A would have been
$11.3 million
.
|
Senior Notes
In November 2014, the Company redeemed, in full, the remaining
$428.1 million
face value of its Senior Notes. This was primarily funded with the proceeds from the Company's Old Term Loan A. The Company paid
105.0%
of face value, plus accrued and unpaid interest, to call the Senior Notes. While the redeemed Senior Notes incurred interest at
10.0%
, the source of funds from the Old Term Loan A incurred interest at LIBOR plus applicable margin of
1.50%
to
2.25%
. The November 2014 redemption followed a series of open market purchases that occurred in the first nine months of 2014, in which the Company used cash on hand to repurchase
$71.9 million
in principal of the Senior Notes. Including the November 2014 redemption, the Company repurchased the entire
$500.0 million
in principal of the Senior Notes during 2014, at an average price of
105.58%
of face value.
Payment of principal and interest on the Senior Notes was previously guaranteed by certain of the Company's
100%
owned domestic subsidiaries. Pursuant to the terms of the indenture governing the Senior Notes, the guarantees were subject to release at which time the subsidiaries no longer had indebtedness that would have required a guarantee. Thus, the Company's redemption of the Senior Notes on November 15, 2014, released the related guarantee.
Loss on Debt Extinguishment
The Company incurred
no
losses on debt extinguishment during the year ended
December 31, 2016
. For the year ended
December 31, 2015
, the Company incurred
$9.6 million
in losses on debt extinguishment, reflecting the write-off of the unamortized OID and deferred financing fees related to the 2014 Agreement, which was replaced by the 2015 Agreement. For the year ended
December 31, 2014
, the Company incurred
$39.9 million
in losses on debt extinguishment related to the Company's redemption of its Senior Notes and the replacement of the 2013 Agreement with the 2014 Agreement.
SWIFT TRANSPORTATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
Note 14
—
Deferred Loan Costs
As discussed in
Note 1
, DLCs related to the Company's New Term Loan A and accounts receivable securitization are now netted against the face amount of the debt, pursuant to the amendments to ASC 835-30 in ASU 2015-03. DLCs related to the New Revolver are reported in "Other assets." The following table presents the classification of DLCs in the Company's consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
|
(In thousands)
|
ASSETS:
|
|
|
|
Other assets
|
$
|
1,169
|
|
|
$
|
1,496
|
|
LIABILITIES:
|
|
|
|
Current portion of long-term debt
|
—
|
|
|
68
|
|
Long-term debt, less current portion
|
1,338
|
|
|
1,627
|
|
Accounts receivable securitization
|
715
|
|
|
1,073
|
|
Total DLCs
|
$
|
3,222
|
|
|
$
|
4,264
|
|
The Company finances a portion of its revenue equipment under capital and operating leases and certain terminals under operating leases.
Capital Leases (as Lessee)
—
The Company's capital leases are typically structured
with balloon payments at the end of the lease term equal to the residual value the Company is contracted to receive from certain equipment manufacturers upon sale or trade back to the manufacturers.
If the Company does not receive proceeds of the contracted residual value from the manufacturer, the Company is still obligated to make the balloon payment at the end of the lease term. Certain leases contain renewal or fixed price purchase options. The present value of obligations under capital leases is included under "Current portion of capital lease obligations" and "Capital lease obligations, less current portion" in the consolidated balance sheets. As of
December 31, 2016
, the leases were collateralized by revenue equipment with a cost of
$319.8 million
and accumulated amortization of
$97.0 million
. As of
December 31, 2015
, the leases were collateralized by revenue equipment with a cost of
$357.8 million
and accumulated amortization of
$90.1 million
. Amortization of the equipment under capital leases is included in "Depreciation and amortization of property and equipment" in the Company's consolidated income statements.
Operating Leases (as Lessee)
—
The revenue equipment leases generally include a purchase option exercisable at the completion of the lease. The Company does not currently guarantee residual values under its operating lease agreements for revenue equipment.
Rent expense related to operating leases was
$226.3 million
,
$240.5 million
, and
$229.3 million
for the years ended
December 31, 2016
,
2015
, and
2014
, respectively.
As of
December 31, 2016
, annual future minimum lease payments for all noncancelable leases were:
|
|
|
|
|
|
|
|
|
|
Operating
|
|
Capital
|
|
(In thousands)
|
2017
|
$
|
203,463
|
|
|
$
|
77,925
|
|
2018
|
144,205
|
|
|
49,965
|
|
2019
|
92,065
|
|
|
60,212
|
|
2020
|
44,592
|
|
|
13,669
|
|
2021
|
23,231
|
|
|
29,890
|
|
Thereafter
|
48,813
|
|
|
17,268
|
|
Future minimum lease payments
|
$
|
556,369
|
|
|
$
|
248,929
|
|
Less: amounts representing interest
|
|
|
(14,993
|
)
|
Present value of minimum lease payments
|
|
|
233,936
|
|
Less: current portion
|
|
|
(72,473
|
)
|
Capital lease obligations, less current portion
|
|
|
$
|
161,463
|
|
SWIFT TRANSPORTATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
Operating Leases (as Lessor)
—
The Company's wholly-owned financing subsidiaries lease revenue equipment to the Company's owner-operators under operating leases. Annual future minimum lease payments receivable under operating leases for the periods noted below were:
|
|
|
|
|
|
(In thousands)
|
2017
|
$
|
109,077
|
|
2018
|
64,615
|
|
2019
|
27,739
|
|
2020
|
9,752
|
|
2021
|
9
|
|
Thereafter
|
—
|
|
Future minimum lease payments receivable
|
$
|
211,192
|
|
Lease classification is determined based on minimum rental payments per the agreement, including residual value guarantees, when applicable, as well as receivables due to the Company upon default or cross-default. When owner-operators default on their leases, the Company typically re-leases the equipment to other owner-operators. As such, future minimum lease payments reflect original leases and re-leases.
Note 16
—
Purchase Commitments
As of
December 31, 2016
, the Company's outstanding commitments to acquire revenue equipment were as follows:
|
|
•
|
year-ended
December 31,
2017
:
$270.7 million
(
$265.3 million
of which were tractor commitments), and
|
The Company has the option to cancel tractor purchase orders with
60
to
90 days
' notice prior to the scheduled production, although the notice period has lapsed for approximately
28.6%
of the tractor commitments outstanding as of
December 31, 2016
. These purchases are expected to be financed by the combination of operating leases, capital leases, debt, proceeds from sales of existing equipment, and cash flows from operations.
As of
December 31, 2016
, the Company's outstanding purchase commitments to acquire facilities and non-revenue equipment were as follows:
|
|
•
|
year-ended
December 31,
2017
:
$13.6 million
,
|
|
|
•
|
years-ended
December 31,
2018
to
2019
:
$8.8 million
, and
|
|
|
•
|
thereafter:
$3.9 million
|
Factors such as costs and opportunities for future terminal expansions may change the amount of such expenditures.
SWIFT TRANSPORTATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
Note 17
—
Contingencies and Legal Proceedings
Accounting Policy
The Company is involved in certain claims and pending litigation primarily arising in the normal course of business. The majority of these claims relate to workers' compensation, auto collision and liability, physical damage, and cargo damage. The Company accrues for the uninsured portion of claims losses and the gross amount of other losses when the likelihood of the loss is probable and the amount of the loss is reasonably estimable. These accruals are based on management's best estimate within a possible range of loss. When there is no amount within the range of loss that appears to be a better estimate than any other amount, then management accrues to the low end of the range. Legal fees are expensed as incurred.
When it is reasonably possible that exposure exists in excess of the related accrual (which could be no accrual), management discloses an estimate of the possible loss or range of loss, unless an estimate cannot be determined.
If the likelihood of a loss is remote, the Company does not accrue for the loss. However if the likelihood of a loss is remote, but it is at least reasonably possible that one or more future confirming events may materially change management's estimate within twelve months from the date of the financial statements, management discloses an estimate of the possible loss or range of loss, unless an estimate cannot be determined.
Legal Proceedings
Information is provided below regarding the nature, status, and contingent loss amounts, if any, associated with the Company's pending legal matters. There are inherent uncertainties in these legal matters, some of which are beyond management's control, making the ultimate outcomes difficult to predict. Moreover, management's views and estimates related to these matters may change in the future, as new events and circumstances arise and the matters continue to develop.
For the matters below, an estimate of the possible loss or range of loss cannot be determined for certain cases because, among other reasons, (1) the proceedings are in various stages that do not allow for assessment; (2) damages have not been sought; (3) damages are unsupported and/or exaggerated; (4) there is uncertainty as to the outcome of pending appeals; and/or (5) there are significant factual issues to be resolved.
Based on currently available information, and in certain cases, advice of outside counsel, management does not believe that loss contingencies arising from pending matters will have a material adverse effect on the Company's overall financial position, after taking into consideration any existing accruals. However, actual outcomes could be material to the Company's operating results or liquidity for any particular period.
|
|
|
|
|
|
|
|
EMPLOYEE COMPENSATION AND PAY PRACTICES MATTERS
|
Aggregate information regarding accruals for the below employee compensation and pay practices matters:
|
Aggregate accrual
|
|
Aggregate range of loss in excess of accrual
|
|
Explanation if no accrual has been made
|
$1.0 million
|
|
$—
|
-
|
$0.3 million
|
|
For certain matters, it is not probable that a loss was incurred and/or the amount of loss cannot be reasonably estimated. For those matters, no accrual has been made.
|
|
|
|
|
|
|
|
California Private Attorneys General Act ("PAGA") Class Action
|
The plaintiff alleges that the Company violated California law by failing to timely pay wages and failing to reimburse employees for business expenses.
|
Plaintiff(s)
|
|
Defendant(s)
|
|
Date instituted
|
|
Court or agency currently pending in
|
Theron Christopher
(1)
|
|
Swift Transportation Co. of Arizona, LLC
|
|
July 8, 2016
|
|
Superior Court of California, County of Riverside
|
Recent Developments and Current Status
|
The PAGA matter is in its initial phases and is expected to move into discovery. The Company retains all of its defenses against liability and damages. Additionally, the Company intends to vigorously defend against the merits of the claims and to challenge certification. The final disposition of the matter and the impact on the Company cannot be determined at this time. The likelihood that a loss has been incurred is remote.
|
|
SWIFT TRANSPORTATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
|
|
|
|
|
|
|
|
California Wage, Meal, and Rest: Driver Class Actions
|
The plaintiffs generally allege one or more of the following: that the Company 1) failed to pay the California minimum wage; 2) failed to provide proper meal and rest periods; 3) failed to timely pay wages upon separation from employment; 4) failed to pay for all hours worked; 5) failed to pay overtime; 6) failed to properly reimburse work-related expenses; and 7) failed to provide accurate wage statements.
|
Plaintiff(s)
|
|
Defendant(s)
|
|
Date instituted
|
|
Court or agency currently pending in
|
John Burnell
(1)
|
|
Swift Transportation Co., Inc
|
|
March 22, 2010
|
|
United States District Court for the Central District of California
|
|
|
|
|
|
|
|
James R. Rudsell
(1)
|
|
Swift Transportation Co. of Arizona, LLC and Swift Transportation Company
|
|
April 5, 2012
|
|
United States District Court for the Central District of California
|
|
|
|
|
|
|
|
Lawrence Peck
(1)
|
|
Swift Transportation Co. of Arizona, LLC
|
|
September 25, 2014
|
|
United States District Court for the Central District of California
|
|
|
|
|
|
|
|
Lawrence Peck
(1)(2)
|
|
Swift Transportation Co. of Arizona, LLC, et al.
|
|
November 20, 2014
|
|
Superior Court of California, County of Riverside
|
|
|
|
|
|
|
|
Sadashiv Mares
(1)
|
|
Swift Transportation Co. of Arizona, LLC
|
|
February 27, 2015
|
|
United States District Court for the Central District of California
|
|
|
|
|
|
|
|
Rafael McKinsty
(1)
|
|
Swift Transportation Co. of Arizona, LLC, et al.
|
|
April 15, 2015
|
|
United States District Court for the Central District of California
|
|
|
|
|
|
|
|
Thor Nilsen
(1)
|
|
Swift Transportation Co. of Arizona, LLC
|
|
October 15, 2015
|
|
United States District Court for the Central District of California
|
Recent Developments and Current Status
|
Before and during 2016, the Rudsell, Peck, Peck PAGA, Mares, McKinsty, and Nilsen complaints were stayed, pending resolution of earlier-filed cases. In May 2016, the Burnell plaintiffs were denied class certification. Their subsequent petition to appeal the decertification order was also denied. Following the Burnell plaintiffs' failure to certify the class, the stays on certain cases were lifted. Those cases are now in discovery. Based on the current procedural nature of the cases, the final disposition of the matter and impact to the Company cannot be determined at this time. The likelihood that a loss has been incurred is remote.
|
|
California Wage, Meal, and Rest: Yard Hostler Class Actions
|
The plaintiffs, representing yard hostlers employed by the Company in California, generally allege one or more of the following: that the Company 1) failed to pay minimum wage; 2) failed to pay overtime and doubletime wages required by California law; 3) failed to provide accurate, itemized wage statements; 4) failed to timely pay wages upon separation from employment; 5) failed to reimburse for business expenses; and 6) failed to provide proper meal and rest periods.
|
Plaintiff(s)
|
|
Defendant(s)
|
|
Date instituted
|
|
Court or agency currently pending in
|
Grant Fritsch
(1)
|
|
Swift Transportation Company of Arizona, LLC and Swift Transportation Company
|
|
January 28, 2016
|
|
Superior Court of California, County of San Bernardino
|
|
|
|
|
|
|
|
Bill Barker, Tab Bachman, and William Yingling
(1)
|
|
Swift Transportation Company of Arizona, LLC
|
|
April 1, 2016
|
|
United States District Court for the Eastern District of California
|
Recent Developments and Current Status
|
The Barker and Fritsch complaints are currently in discovery. The Company retains all of its defenses against liability and damages related to these lawsuits. Additionally, the Company intends to vigorously defend against the merits of the claims and to challenge certification. The final disposition of these matters and the impact on the Company cannot be determined at this time. The likelihood that a loss has been incurred is remote.
|
|
SWIFT TRANSPORTATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
|
|
|
|
|
|
|
|
National Customer Service Misclassification Class Action
|
The plaintiff, a former Customer Service Representative IV, alleges that the Company failed to pay overtime under the FLSA. Additionally, with respect to California state law, the plaintiff alleges that the Company: 1) failed to pay overtime; 2) failed to pay timely final wages; 3) failed to provide meal and rest periods; and 4) violated the unfair competition law.
|
Plaintiff(s)
|
|
Defendant(s)
|
|
Date instituted
|
|
Court or agency currently pending in
|
Salvador Castro
(1)
|
|
Swift Transportation Co. of Arizona, LLC
|
|
May 11, 2016
|
|
United States District Court for the Central District of California
|
Recent Developments and Current Status
|
Castro, along with five other former Customer Service Representative IV employees opted into this collective action lawsuit, which was being pursued under the FLSA. In addition to the Castro collective action, thirteen Customer Service Representative IV employees pursued similar claims in individual arbitrations. The parties conducted three arbitrations regarding the individual claimants. The parties agreed to mediation, which was held in January 2017. The parties are currently finalizing a global settlement of the collective action and the individual arbitrations.
|
|
Arizona Fair Labor Standards Act Class Action
|
The plaintiff alleges that the Company violated the FLSA by failing to pay its trainee drivers minimum wage for all work performed and by failing to pay overtime.
|
Plaintiff(s)
|
|
Defendant(s)
|
|
Date instituted
|
|
Court or agency currently pending in
|
Pamela Julian
(1)
|
|
Swift Transportation Inc., et al.
|
|
December 29, 2015
|
|
United States District Court for the District of Arizona
|
Recent Developments and Current Status
|
In March 2016, the Company filed a motion to dismiss the plaintiff's overtime claims, which was granted by the district court in May 2016. The plaintiff recently filed a Motion for Conditional Class Certification, which the Company intends to oppose. The Company retains all of its defenses against liability and damages for the remaining claims. Additionally, the Company intends to vigorously defend against the merits of the claims and to challenge certification. The final disposition of the matter and the impact on the Company cannot be determined at this time. The likelihood that a loss has been incurred is remote.
|
|
Washington Overtime Class Actions
|
The plaintiffs allege one or more of the following, pertaining to Washington state-based drivers: that the Company 1) failed to pay minimum wage; 2) failed to pay overtime; 3) failed to pay all wages due at established pay periods; 4) failed to provide proper meal and rest periods; 5) failed to provide accurate wage statements; and 6) unlawfully deducted from employee wages.
|
Plaintiff(s)
|
|
Defendant(s)
|
|
Date instituted
|
|
Court or agency currently pending in
|
Troy Slack
(1)
|
|
Swift Transportation Company of Arizona, LLC and Swift Transportation Corporation
|
|
September 9, 2011
|
|
United States District Court for the Western District of Washington
|
|
|
|
|
|
|
|
Julie Hedglin
(1)
|
|
Swift Transportation Company of Arizona, LLC and Swift Transportation Corporation
|
|
January 14, 2016
|
|
United States District Court for the Western District of Washington
|
Recent Developments and Current Status
|
The parties in the Slack matter are finishing discovery and the next step will be for the parties to file dispositive motions. The case is scheduled for trial in September 2017. The Hedglin matter is currently in discovery. The Company retains all of its defenses against liability and damages for both matters. Additionally, the Company intends to vigorously defend against the merits of the claims and to challenge certification. The final disposition of the matter and the impact on the Company cannot be determined at this time. The likelihood that a loss has been incurred is remote.
|
___________
|
|
(1)
|
Individually and on behalf of all others similarly situated.
|
SWIFT TRANSPORTATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
|
|
|
|
|
|
|
|
OWNER-OPERATOR MATTERS
|
Aggregate information regarding accruals for the below owner-operator matters:
|
Aggregate accrual
|
|
Aggregate range of loss in excess of accrual
|
|
Explanation if no accrual has been made
|
$25.0 million
|
|
$—
|
-
|
$44.0 million
|
|
For certain matters, it is not probable that a loss was incurred and/or the amount of loss cannot be reasonably estimated. For those matters, no accrual has been made.
|
|
|
|
|
|
|
|
Arizona Owner-operator Class Action
|
The putative class alleges that the Company improperly compensated owner-operators (later expanding the class to include employee drivers) using the contracted and industry standard remuneration based upon dispatched miles, instead of using a method of calculating mileage that the plaintiffs allege would be more accurate.
|
Plaintiff(s)
|
|
Defendant(s)
|
|
Date instituted
|
|
Court or agency currently pending in
|
Leonel Garza
(1)
|
|
Swift Transportation Co., Inc.
|
|
January 30, 2004
|
|
Arizona Supreme Court
|
Recent Developments and Current Status
|
The original trial court's decision was to deny class certification of the owner-operators, which was reversed and reinstated several times by various courts prior to 2016. The class is currently certified, based on an appellate court's decision from July 2016. The Company filed a petition for review with the Arizona Supreme Court in August 2016, which was denied in January 2017. The matter will now proceed in the Maricopa County Superior Court. The final disposition of the matter and impact to the Company cannot be determined at this time. The likelihood that a loss has been incurred is remote.
|
|
Ninth Circuit Owner-operator Misclassification Class Action
|
The putative class alleges that the Company misclassified owner-operators as independent contractors in violation of the FLSA and various 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.
|
Plaintiff(s)
|
|
Defendant(s)
|
|
Date instituted
|
|
Court or agency currently pending in
|
Joseph Sheer, Virginia Van Dusen, Jose Motolinia, Vickii Schwalm, Peter Wood
(1)
|
|
Swift Transportation Co., Inc., Interstate Equipment Leasing, Inc., Jerry Moyes, and Chad Killebrew
|
|
December 22, 2009
|
|
Unites States District Court of Arizona and Ninth Circuit Court of Appeals
|
Recent Developments and Current Status
|
For several years, the parties have been arguing over the proper venue in which to proceed. The plaintiffs argue that they signed contracts of employment, thus exempting them from arbitration under the Federal Arbitration Act, and claim that their case should be heard in court by a judge. The Company takes the position that these individuals signed independent contractor agreements and therefore can properly be required to submit their claims to arbitration. In January 2017, the district court issued an order finding that the plaintiffs had signed contracts of employment and thus the case could properly proceed in court. The Company has appealed this decision to the Ninth Circuit and will seek to stay the district court case, pending resolution of the appeal. The Company intends to vigorously defend against any proceedings. The final disposition of the matter and impact to the Company cannot be determined at this time. The likelihood that a loss has been incurred is remote.
|
|
SWIFT TRANSPORTATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
|
|
|
|
|
|
|
|
Utah Collective and Individual Arbitration
|
The plaintiffs allege that the Central Parties (defined below) misclassified owner-operator drivers as independent contractors and were therefore liable to these drivers for minimum wages and other employee benefits under the FLSA. The complaint also alleges a federal forced labor claim under U.S.C. §1589 and §1595, as well as fraud and other state-law claims.
|
Plaintiff(s)
|
|
Defendant(s)
|
|
Date instituted
|
|
Court or agency currently pending in
|
Gabriel Ciluffo, Kevin Shire, and Bryan Ratterree
(1)(2)
|
|
Central Refrigerated Service, Inc., Central Leasing, Inc., Jon Isaacson, and Jerry Moyes (the "Central Parties"), as well as Swift Transportation Company
|
|
June 1, 2012
|
|
American Arbitration Association
|
Recent Developments and Current Status
|
In June 2016, mediation commenced, but there was ultimately no settlement of the matter. In October 2016, the arbitrator ruled that approximately 1,300 Central Refrigerated Service, Inc. drivers were misclassified as independent contractors, and should have been compensated as employees. The arbitrator ruled that damages could be assessed in a collective proceeding and declined to decertify the collective proceeding. Based on the October 2016 arbitration ruling, the Company increased its accrual related to this matter. A damages trial is scheduled for April 2017. No trial date on the claimants' damages has been set by the arbitrator. The Company and the Central Parties dispute the arbitrator's rulings to date and intend to continue to vigorously defend against the plaintiffs' claims in both the collective action and individual proceedings. The likelihood that a loss has been incurred is probable.
|
___________
|
|
(1)
|
Individually and on behalf of all others similarly situated.
|
|
|
(2)
|
In addition to the collective arbitration that is pending before the American Arbitration Association ("AAA"), the named plaintiffs, along with approximately
325
other owner-operators, have initiated a series of individual, bilateral proceedings against the Central Parties with the AAA. Discovery is commencing in these individual cases, which are pending before various separate arbitrators. A sample of these cases will be litigated and proceed to hearing, while the remaining cases will be stayed. Trials for the sample cases are expected to occur in the second quarter of 2017.
|
|
|
|
|
|
|
|
|
EMPLOYEE HIRING PRACTICES MATTERS
|
Aggregate information regarding accruals for the below employee hiring practices matters:
|
Aggregate accrual
|
|
Aggregate range of loss in excess of accrual
|
|
Explanation if no accrual has been made
|
$—
|
|
$—
|
-
|
$—
|
|
It is not probable that a loss was incurred and/or the amount of loss cannot be reasonably estimated for these matters.
|
|
|
|
|
|
|
|
Indiana Fair Credit Reporting Act Class Action
|
The plaintiff alleges that Central Refrigerated Service, Inc. violated the Fair Credit Reporting Act by failing to provide job applicants with adverse action notices and copies of their consumer reports and statements of rights.
|
Plaintiff(s)
|
|
Defendant(s)
|
|
Date instituted
|
|
Court or agency currently pending in
|
Melvin Banks
(1)
|
|
Central Refrigerated Service, Inc.
|
|
March 18, 2015
|
|
United States District Court for the District of Arizona
|
Recent Developments and Current Status
|
The first phase of discovery, regarding potential for identifying and certifying a class of affected job applicants, has been completed. The parties are currently completing a class certification briefing and the Company filed a Motion for Summary Judgment. The Company retains all of its defenses against liability and damages. Additionally, the Company intends to vigorously defend against the merits of the claims and to challenge certification. The final disposition of the matter and the impact on the Company cannot be determined at this time. The likelihood that a loss has been incurred is remote.
|
|
SWIFT TRANSPORTATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
|
|
|
|
|
|
|
|
California Class and Collective Action for Pre-employment Physical Testing
|
The plaintiff alleges that pre-employment tests of physical strength administered by a third party on behalf of Central Refrigerated Service, Inc. had an unlawfully discriminatory impact on female applicants and applicants over the age of 40. The suit seeks damages under Title VII of the Civil Rights Act of 1964, the age Discrimination Act, and parallel California state law provisions, including the California Fair Employment and Housing Act.
|
Plaintiff(s)
|
|
Defendant(s)
|
|
Date instituted
|
|
Court or agency currently pending in
|
Robin Anderson
(1)
|
|
Central Refrigerated Service, Inc., Workwell Systems, Inc., and Swift Transportation Company
|
|
October 6, 2014
|
|
United States District Court for the Central District of California
|
Recent Developments and Current Status
|
Litigation is at a very preliminary stage and no trial date has been set. There is no information available regarding the number of potential members of the putative class or collective actions. The Company intends to vigorously defend against the merits of the plaintiff's claims and to oppose certification of any class of plaintiffs. The final disposition of this case and the financial impact cannot be determined at this time. The likelihood that a loss has been incurred is remote.
|
___________
|
|
(1)
|
Individually and on behalf of all others similarly situated.
|
Other Contingencies
Demand for Inspection of Books and Records and Stockholder Derivative Lawsuit
—
During
2016, the Company received several shareholder demands requesting to inspect the Company's books and records, pursuant to Section 220 of the Delaware General Corporation Law. The demands relate to the shareholders' alleged investigation pertaining to whether the Board and Jerry Moyes have breached their fiduciary duties with respect to matters that have been publicly disclosed concerning the Company's securities trading policy, limitations on the pledging of Company stock on margin, share repurchases, the status of Board members as independent directors and other related matters. The Company has responded to the shareholders' requests received thus far. On February 9, 2016, a civil lawsuit was filed in the Court of Chancery of the State of Delaware (captioned as:
Shiva Stein derivatively on behalf of Swift Transportation Company v. Jerry Moyes et al. and Swift Transportation Company as nominal defendant
(the "Complaint")). The Complaint, initially filed as a confidential filing, is a purported derivative action alleging that the individual members of the Company's Board breached their fiduciary duties related to the Company's administration of its Securities Trading Policy and certain compensation actions related to Mr. Moyes. Any future disposition or resolution of these matters cannot be determined at this time.
Environmental
— The Company's tractors and trailers are involved in motor vehicle accidents, and experience damage, mechanical failures, and cargo issues as an incidental part of its normal course of operations. From time to time, these matters result in the discharge of diesel fuel, motor oil, or other hazardous materials into the environment. Depending on local regulations and who is determined to be at fault, the Company is sometimes responsible for the clean-up costs associated with these discharges. As of December 31, 2016, the Company's estimate for its total legal liability for all such clean-up and remediation costs was approximately
$0.6 million
in the aggregate for all current and prior year claims.
Holders of Class A common stock are entitled to one vote per share
, while
holders of Class B common stock are entitled to two votes per share
on any matter to be voted on by our 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, except that a separate vote of each class would be required for:
|
|
•
|
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;
|
|
|
•
|
any amendment of Swift Transportation Company's amended and restated certificate of incorporation or amended and restated bylaws that alters the relative rights of its common stockholders; and
|
|
|
•
|
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.
|
SWIFT TRANSPORTATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
Share Repurchase Programs
The following table presents our repurchases of our Class A common stock under the respective share repurchase programs, net of advisory fees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
As of December 31,
|
Share Repurchase Program
|
|
2016
|
|
2015
|
|
2016
|
Authorized Amount
|
|
Board Approval Date
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Amount Remaining
|
(In thousands)
|
$100,000
|
|
September 24, 2015
|
|
2,221
|
|
|
$
|
30,000
|
|
|
4,176
|
|
|
$
|
70,000
|
|
|
$
|
—
|
|
$150,000
|
|
February 22, 2016
|
|
5,162
|
|
|
$
|
87,119
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
62,881
|
|
|
|
|
|
7,383
|
|
|
$
|
117,119
|
|
|
4,176
|
|
|
$
|
70,000
|
|
|
$
|
62,881
|
|
No
share repurchases were made during the year ended
December 31, 2014
.
Common Stock Transactions — Jerry Moyes and the Moyes Affiliates
Amended M Capital II VPF and Cactus VPF
—
On October 30, 2015, M Capital II and another Moyes Affiliate, Cactus Holding I, entered into the Amended M Capital II VPF and the Cactus VPF, respectively. The purposes of these two VPF contracts were to (i) extend the maturity date of M Capital II's then-existing VPF with Citibank N.A. entered into on October 29, 2013 and maturing on November 4, 2015 through November 6, 2015 and (ii) generate cash proceeds for the repayment of certain stock-secured obligations of Cactus Holding II, a Moyes Affiliate, and thereby effect the release of certain shares of Class B common stock pledged in connection with the same.
Cactus Holding I entered into the Cactus VPF contract in respect of
3.3 million
shares of the Company's Class B common stock, which were pledged by Cactus Holding I as security for its obligations under the Cactus VPF contract.
Under the Cactus VPF contract, Cactus Holding I was required to deliver to Citigroup Global Markets Inc. ("CGMI") a variable amount of stock or cash
during a
three
trading day period at the maturity of the contract on November 21, 2016 through November 24, 2016 (later extended to November 25, 2016, then extended to 2017 as described below). In connection with the Cactus VPF contract, Cactus Holding I received
$48.3 million
from CGMI (including the $18.5 million noted in the paragraph below).
In connection with the Amended M Capital II VPF, M Capital II paid Citibank N.A.
$18.5 million
. The source of these funds was a cash payment from CGMI in connection with the Cactus VPF Contract.
Under the Amended M Capital II VPF contract, M Capital II was required to deliver to Citibank N.A. a variable amount of stock or cash
during a
three
trading day period at the maturity of the contract on November 21, 2016 through November 24, 2016 (later extended to November 25, 2016, then extended to 2017 as described below). The number of shares of the Company's Class B common stock subject to the Amended M Capital II VPF remained unchanged at
13.7 million
.
On May 18, 2016, M Capital II terminated its VPF covering approximately
12.3 million
shares of Class A common stock, and entered into a new VPF covering approximately
12.3 million
shares of Class A common stock. The new VPF required M Capital II to deliver a variable amount of Class A common stock, up to a maximum of approximately
12.3 million
shares, or an equivalent amount of cash, upon maturity dates occurring on May 26, 2017 through May 31, 2017. The new VPF is collateralized by approximately
12.3 million
shares of Class B common stock.
Also on May 18, 2016, Cactus Holding I entered into a new VPF covering approximately
7.0 million
shares of Class A common stock. The new VPF required Cactus Holding I to deliver a variable amount of Class A common stock, up to a maximum of approximately
7.0 million
shares, or an equivalent amount of cash, upon maturity dates occurring on May 26, 2017 through May 31, 2017. The new VPF is collateralized by an aggregate of approximately
7.0 million
shares of Class A common stock and Class B common stock which were previously pledged on margin.
On November 18, 2016, the maturity dates of the M Capital II VPFs were extended to December 5, 2017 through January 3, 2018, and the maturity dates of the Cactus Holding I VPFs were extended to December 5, 2017 through December 7, 2017.
No
additional shares were pledged in connection with these extensions.
The VPF contracts allow Mr. Moyes and the Moyes Affiliates to retain the same number of shares and voting percentage as they had prior to these VPF contracts. In addition, Mr. Moyes and the Moyes Affiliates are able to participate in price appreciation of the Company's common stock within certain levels.
In connection with the VPF transactions described above, an aggregate of approximately
34.3 million
shares of Class B common stock and approximately
2.0 million
shares of Class A common stock are collateralized to secure M Capital II's and Cactus Holding I's respective obligations under the VPF transactions.
SWIFT TRANSPORTATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
Mr. Moyes’ counter party to the VPFs hedges their position by borrowing shares of Class A common stock and subsequently selling such shares, creating a short position. This hedging activity will fluctuate from time to time, based on the current market price of the Class A common stock and the counter party's strategy for reducing risk in their position. This hedging activity may place additional pressure on the price of the Class A common stock as such short positions are being put in place and/or may create a perception that the market is questioning Swift’s performance given the large short position that can occur and be reported. Maintaining this short position may offset some of the risk associated with a full share settlement of the VPF transactions as any shares received by the counter party might be used to settle these short positions thus reducing the amount that would otherwise be introduced to the market.
Cactus II Pledging —
In July 2011 and December 2011, Cactus Holding Company II, LLC ("Cactus II"), an entity controlled by Mr. Moyes, pledged approximately
12.0 million
shares of Class B common stock on margin as collateral for loan arrangements entered into by Cactus II and relating to Mr. Moyes. In connection with these December 2011 transactions, Cactus II converted approximately
6.6 million
of the approximately
12.0 million
pledged shares of Class B common stock into shares of Class A common stock on a one-for-one basis. During 2012, the Moyes Affiliates converted an additional approximately
1.1 million
shares of Class B common stock to Class A common stock and sold approximately
4.8 million
of these pledged Class A shares to a counter-party pursuant to a sale and repurchase agreement with a full recourse obligation to repurchase the securities at the same price on the fourth anniversary of sale.
This sale and repurchase agreement was replaced in May 2014 with a similar sale and repurchase agreement covering approximately
6.8 million
shares. On May 18, 2016 the maturity of this agreement was extended to May 30, 2017, and was extended again on November 18, 2016 to November 30, 2017. On May 18, 2016,
2.0 million
shares of Class A common stock and
5.1 million
shares of Class B common stock previously pledged on margin for collateral for loan arrangements were transferred to a new VPF agreement as described above. On July 20, 2016, Cactus Holding II pledged an incremental approximately
1.9 million
shares as collateral for a new loan arrangement. As of August 2, 2016, the Moyes Affiliates had pledged on margin a total of approximately
4.1 million
shares, of which approximately
2.2 million
were Class B and approximately
1.9 million
were Class A common stock.
Other Obligations —
On April 20, 2016, Mr. Moyes entered into a settlement agreement with the National Hockey League ("NHL") relating to a previously disclosed lawsuit between the NHL and Mr. Moyes. As part of the settlement agreement, certain of Mr. Moyes’ adult children entered into a Non-Recourse Guaranty and Pledge Agreement with the NHL pursuant to which they guaranteed certain obligations of Mr. Moyes and certain Moyes Affiliates to the NHL. The guarantor’s obligations are collateralized by
2.0 million
shares of Class B common stock owned by the guarantors.
During
2016
and
2014
, the Moyes Affiliates converted shares of common stock on a
one-for-one
basis as follows:
|
|
|
|
|
|
|
|
Transaction Date
|
|
Converted from Class B
|
|
Converted to
Class A
|
|
|
(In thousands)
|
May 4, 2016
|
|
(1,250
|
)
|
|
1,250
|
|
May 30, 2014
|
|
(1,450
|
)
|
|
1,450
|
|
There were
no
shares converted in 2015.
Compensatory Stock Plans
On March 28, 2014, the Board adopted the 2014 Stock Plan, which replaced the 2007 Stock Plan. The 2014 Stock Plan became effective upon stockholder approval on May 8, 2014, after which date no new awards would be granted under the 2007 Stock Plan. The 2007 Stock Plan continues to govern all awards granted under the 2007 Stock Plan until such awards have been exercised, forfeited, canceled, or have otherwise expired or terminated.
The 2014 Stock Plan generally contains the same features, terms and conditions as the 2007 Stock Plan. Additionally, the 2014 Stock Plan did not increase the number of shares of stock available for grant, which means that the number of shares available for grant under the 2014 Stock Plan reflected the number of authorized but unissued (and not subject to outstanding awards) under the 2007 Stock Plan as of the date the 2014 Stock Plan became effective.
The 2014 Stock Plan permits the payment of cash incentive compensation and authorizes the granting of stock options, stock appreciation rights, restricted stock and RSUs, performance shares and performance units, cash-based awards, and stock-based awards to the Company's employees and non-employee directors for up to
12.0 million
shares of Class A common stock. As of
December 31, 2016
, the aggregate number of shares remaining available under the 2014 Stock Plan was
4.3 million
.
SWIFT TRANSPORTATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
Stock-based Compensation Expense
Stock-based compensation expense, which is included in "Salaries, wages, and employee benefits" in the consolidated income statements is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
|
(In thousands)
|
Stock options
|
$
|
1,550
|
|
|
$
|
1,333
|
|
|
$
|
3,007
|
|
RSUs and restricted stock
|
4,467
|
|
|
3,939
|
|
|
1,600
|
|
Performance units
(1)
|
—
|
|
|
1,253
|
|
|
789
|
|
Total stock-based compensation expense
|
$
|
6,017
|
|
|
$
|
6,525
|
|
|
$
|
5,396
|
|
Income tax benefit
|
$
|
1,841
|
|
|
$
|
2,453
|
|
|
$
|
1,926
|
|
____________
|
|
(1)
|
Targets for the performance units granted in 2014 and 2015 are not expected to be achieved.
|
The following table presents the total unrecognized stock-based compensation expense and the expected weighted average period over which these expenses will be recognized:
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Expense
|
|
Weighted Average Period
|
|
(In thousands)
|
|
(In years)
|
Stock options
|
$
|
682
|
|
|
1.35
|
RSUs and restricted stock
|
$
|
7,979
|
|
|
1.31
|
Performance units
|
$
|
478
|
|
|
2.00
|
Stock Options
Stock options are the contingent right of award holders to purchase shares of Swift Transportation Company Class A common stock at a stated price for a limited time. The exercise price of options granted equals the fair value of the Company's common stock determined by the closing price of the Company's Class A common stock quoted on the NYSE on the grant date. All options have a
ten
-year contractual term. Options granted in 2013 and later have a vesting period of
three
years at a rate of
33 1/3%
per year. Options granted prior to 2013 are fully vested.
A summary of the activity related to stock options for the year ended
December 31, 2016
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Under Option
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Term
|
|
Aggregate Intrinsic Value
(1)
|
|
|
|
|
|
(In years)
|
|
(In thousands)
|
Stock options outstanding at December 31, 2015
|
3,224,253
|
|
|
$
|
11.01
|
|
|
4.04
|
|
$
|
9,051
|
|
Granted
|
195,999
|
|
|
$
|
15.51
|
|
|
|
|
|
Exercised
|
(1,253,152
|
)
|
|
$
|
10.56
|
|
|
|
|
|
Expired
|
(11,119
|
)
|
|
$
|
13.46
|
|
|
|
|
|
Forfeited
|
(37,818
|
)
|
|
$
|
18.87
|
|
|
|
|
|
Stock options outstanding at December 31, 2016
|
2,118,163
|
|
|
$
|
13.42
|
|
|
4.19
|
|
$
|
23,175
|
|
Aggregate number of stock options expected to vest at a future date as of December 31, 2016
|
234,300
|
|
|
$
|
20.93
|
|
|
8.53
|
|
$
|
803
|
|
Exercisable at December 31, 2016
|
1,849,432
|
|
|
$
|
12.32
|
|
|
3.56
|
|
$
|
22,269
|
|
____________
|
|
(1)
|
The aggregate intrinsic value was computed using the closing share price on
December 31, 2016
of
$24.36
and on
December 31, 2015
of
$13.82
, as applicable.
|
SWIFT TRANSPORTATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
The fair value of each stock option grant is estimated on the grant date using the Black-Scholes-Merton option-pricing model, which uses a number of assumptions to determine the fair value of the options on the grant date. The following table presents the weighted average assumptions used to determine the fair value of stock options issued:
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Dividend yield
(1)
|
—%
|
|
—%
|
|
—%
|
Risk-free rate of return
(2)
|
1.23%
|
|
1.41%
|
|
1.28%
|
Expected volatility
(3)
|
40.33%
|
|
37.22%
|
|
40.00%
|
Expected term (in years)
(4)
|
4.9
|
|
5.8
|
|
5.8
|
Weighted average fair value of stock options granted
|
$6.39
|
|
$6.96
|
|
$6.79
|
____________
|
|
(1)
|
The dividend yield assumption is based on anticipated dividend payouts.
|
|
|
(2)
|
The risk-free interest rate assumption is based on the United States Treasury yield curve at the grant date with maturity dates approximately equal to the expected life at the grant date.
|
|
|
(3)
|
The Company estimates the expected volatility and expected option life assumption consistent with ASC Topic 718,
Compensation – Stock Compensation
. Beginning in 2016, we used our internal historical prices over the expected term of the options to determine our expected volatility. Prior to that, expected volatility was based upon an analysis of historical prices of similar market capitalized trucking group participants within the Dow Jones Total United States Market Index over the expected term of the options. The Company chose a daily measurement interval for historical volatility as it believes this better depicts the nature of employee option exercise decisions being based on shorter-term trends in the price of the underlying shares, rather than on monthly price movements.
|
|
|
(4)
|
As a result of the inability to predict the expected future employee exercise behavior, the Company estimated the expected term of the options using a simplified method based on contractual and vesting terms of the options. The Company uses historical data to estimate pre-vesting option forfeitures and records stock-based compensation expense only for those awards that are expected to vest.
|
The following table summarizes stock option exercise information for the years presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
|
(In thousands, except share data)
|
Number of stock options exercised
|
1,253,152
|
|
|
665,531
|
|
|
1,100,998
|
|
Intrinsic value of stock options exercised
|
$
|
14,266
|
|
|
$
|
9,695
|
|
|
$
|
15,830
|
|
Cash received upon exercise of stock options
|
$
|
13,237
|
|
|
$
|
6,953
|
|
|
$
|
11,488
|
|
Income tax benefit
|
$
|
2,575
|
|
|
$
|
2,147
|
|
|
$
|
3,730
|
|
The following table is a rollforward of the Company's nonvested stock options:
|
|
|
|
|
|
|
|
|
Stock Options
|
|
Shares
|
|
Weighted Average Fair Value
|
Nonvested stock options at December 31, 2015
|
503,740
|
|
|
$
|
6.92
|
|
Granted
|
195,999
|
|
|
$
|
6.39
|
|
Vested
|
(393,190
|
)
|
|
$
|
6.09
|
|
Forfeited
|
(37,818
|
)
|
|
$
|
6.82
|
|
Nonvested stock options at December 31, 2016
|
268,731
|
|
|
$
|
6.22
|
|
The total fair value of the shares vested during the years ended
December 31, 2016
,
2015
, and
2014
was
$2.4 million
,
$3.2 million
, and
$3.2 million
, respectively.
SWIFT TRANSPORTATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
Restricted Stock Awards
Restricted stock awards are shares of Swift's Class A common stock that are subject to forfeiture until the lapse of defined restrictions, including time-based restrictions. Restricted stock awards, which are granted in the form of restricted stock RSUs and shares, are accounted for as equity awards. Accordingly, the estimated fair value of restricted stock awards is based upon the closing price of the Company's Class A common stock on the grant date.
RSU
— This is typically the form of restricted stock award granted to Company employees. An RSU represents a right to receive a common share of stock when the unit vests. RSU recipients cannot vote during the vesting period. Employees forfeit their units if their employment terminates before the vesting date.
Restricted Stock Share
— This is typically the form of restricted stock award granted to the Board. Directors on the Board are entitled to vote during the vesting period. For awards granted in 2014 and thereafter, the forfeiture restrictions associated with restricted stock shares lapse on the first anniversary of the grant date with respect to an equal installment of shares. For awards granted prior to 2014, the forfeiture restrictions associated with restricted stock shares lapsed on each of the first
three
anniversaries of the grant date with respect to an equal installment of shares. Additionally, restricted stock shares are not transferable for a period of
four years
from the grant date, other than for applicable tax withholdings.
The following table presents restricted stock awards granted under the 2014 Stock Plan:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
RSUs granted to company employees
|
300,150
|
|
|
212,272
|
|
|
203,968
|
|
Restricted stock shares granted to the Board
|
32,235
|
|
|
16,601
|
|
|
17,102
|
|
Total restricted stock awards granted
|
332,385
|
|
|
228,873
|
|
|
221,070
|
|
The following table is a rollforward of nonvested restricted stock awards:
|
|
|
|
|
|
|
|
|
Restricted Stock Awards
|
|
Number of Awards
|
|
Weighted Average Fair Value
|
Nonvested restricted stock awards at December 31, 2015
|
418,281
|
|
|
$
|
22.54
|
|
Granted
|
332,385
|
|
|
$
|
15.54
|
|
Vested
(1)
|
(210,102
|
)
|
|
$
|
21.36
|
|
Forfeited
|
(27,242
|
)
|
|
$
|
21.14
|
|
Nonvested restricted stock awards at December 31, 2016
(2)
|
513,322
|
|
|
$
|
18.55
|
|
____________
|
|
(1)
|
Includes
19,221
shares of restricted stock previously issued to Board members, and vested during
2016
.
|
|
|
(2)
|
Includes
32,235
shares of restricted stock previously issued to Board members, but not yet vested as of
December 31, 2016
.
|
Performance Units
Beginning in 2013, the Company granted certain members of executive management performance units. These awards provide each grantee a number of shares of Swift's Class A common stock at the end of a
three
-year period, based on certain performance criteria established by the compensation committee of the Board. The performance criteria are designed to focus management's attention on the Company's key long-term financial goals, and are measured over the
three
-year period.
The following table is a rollforward of nonvested performance units:
|
|
|
|
|
|
|
|
|
Performance Units
|
|
Shares
|
|
Weighted Average Fair Value
|
Nonvested performance units at December 31, 2015
|
215,333
|
|
|
$
|
18.99
|
|
Granted
|
91,492
|
|
|
$
|
15.51
|
|
Vested
(1)
|
(96,650
|
)
|
|
$
|
13.36
|
|
Forfeited
|
(5,005
|
)
|
|
$
|
24.00
|
|
Nonvested performance units at December 31, 2016
|
205,170
|
|
|
$
|
19.97
|
|
____________
SWIFT TRANSPORTATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
|
|
(1)
|
The performance period for the performance units granted in May 2014 ended on
December 31, 2016
. The Board is not expected to approve the final vesting of these awards subsequent to
December 31, 2016
, based on the results of the
three
-year performance period, but final decision is still pending as of the filing date of this Annual Report on Form 10-K.
|
Non-compensatory Stock Plan: ESPP
In 2012, the Company's Board adopted and its stockholders approved the Swift Transportation Company 2012 ESPP. The 2012 ESPP is intended to qualify under Section 423 of the Internal Revenue Code and is considered noncompensatory. Pursuant to the 2012 ESPP, the Company is authorized to issue up to
2.0 million
shares of its Class A common stock to eligible employees who participate in the plan. Employees are eligible to participate in the 2012 ESPP following at least
90 days
of employment with the Company or any of its participating subsidiaries. Under the terms of the 2012 ESPP, eligible employees may elect to purchase common stock through payroll deductions, not to exceed
15%
of their gross cash compensation. The purchase price of the common stock is
95%
of the common stock's fair market value quoted on the NYSE on the last trading day of each offering period. There are
four
three
-month offering periods corresponding to the calendar quarters. Each eligible employee is restricted to purchasing a maximum of
$6,250
of common stock during an offering period, determined by the fair market value of the common stock as of the first day of the offering period, and
$25,000
of common stock during a calendar year. Employees who own
5%
or more of the total voting power or value of all classes of common stock are restricted from participating in the 2012 ESPP.
During the year ended
December 31, 2016
, the Company issued
77,462
shares, under the 2012 ESPP at an average price per share of
$17.29
. As of
December 31, 2016
, the Company is authorized to issue an additional
1.7 million
shares under the 2012 ESPP.
Note 20
—
Weighted Average Shares Outstanding
Basic and diluted earnings per share, as presented in the consolidated income statements, are calculated by dividing net income by the respective weighted average common shares outstanding during the period.
The following table reconciles basic weighted average shares outstanding to diluted weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
|
2014
|
|
(In thousands)
|
Basic weighted average common shares outstanding
|
134,139
|
|
|
142,018
|
|
|
141,431
|
|
Dilutive effect of stock options
|
1,355
|
|
|
1,650
|
|
|
2,044
|
|
Diluted weighted average common shares outstanding
|
135,494
|
|
|
143,668
|
|
|
143,475
|
|
Anti-dilutive shares excluded from diluted earnings per share
(1)
|
156
|
|
|
354
|
|
|
162
|
|
____________
|
|
(1)
|
Shares were excluded from the dilutive-effect calculation because the outstanding options' exercise prices were greater than the average market price of the Company's common shares during the period.
|
SWIFT TRANSPORTATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
Note 21
—
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, 2016
and
2015
, 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.
SWIFT TRANSPORTATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
The following table presents the carrying amounts and estimated fair values of the Company's financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2016
|
|
2015
|
|
Carrying
Value
|
|
Estimated
Fair Value
|
|
Carrying
Value
|
|
Estimated
Fair Value
|
|
(In thousands)
|
Financial Assets:
|
|
|
|
|
|
|
|
Restricted investments
(1)
|
$
|
22,717
|
|
|
$
|
22,688
|
|
|
$
|
23,215
|
|
|
$
|
23,190
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
2015 Agreement: New Term Loan A, due July 2020
(2)
|
492,912
|
|
|
494,250
|
|
|
668,055
|
|
|
669,750
|
|
Accounts receivable securitization, due January 2019
(3)
|
279,285
|
|
|
280,000
|
|
|
223,927
|
|
|
225,000
|
|
Revolving line of credit, due July 2020
|
130,000
|
|
|
130,000
|
|
|
200,000
|
|
|
200,000
|
|
____________
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 is included in "Current portion of long-term debt" and "Long-term debt, less current portion." Carrying value is net of
$1.3 million
and
$1.7 million
DLCs as of December 31, 2016 and 2015, respectively.
|
|
|
(3)
|
Carrying value is net of
$0.7 million
and
$1.1 million
DLCs as of December 31, 2016 and 2015, respectively.
|
The estimated fair values of the financial instruments shown in the above table as of
December 31, 2016
and
2015
, 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 A approximates the face value.
SWIFT TRANSPORTATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
Securitization of Accounts Receivable —
The Company's securitization of accounts receivable consists of borrowings outstanding pursuant to the Company's 2015 RSA as of
December 31, 2016
and
2015
, as discussed in
Note 12
. Its fair value is estimated by discounting future cash flows using a discount rate commensurate with the uncertainty involved.
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 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.
|
SWIFT TRANSPORTATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
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, 2016
and
2015
,
no
major categories of assets or liabilities included in the Company's consolidated balance sheets at estimated fair value were measured on a recurring basis.
Nonrecurring Fair Value Measurements —
As of
December 31, 2016
and
2015
there were
no
liabilities included in the Company's consolidated balance sheets at estimated fair value that were measured on a nonrecurring basis.
The following table presents assets measured at estimated fair value on a nonrecurring basis as of
December 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
Estimated Fair Value
|
|
Level 1 Inputs
|
|
Level 2 Inputs
|
|
Level 3 Inputs
|
|
Total Losses
|
|
(In thousands)
|
As of December 31, 2016
|
|
|
|
|
|
|
|
|
|
Software
(1)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(520
|
)
|
Equipment
(2)
|
1,963
|
|
|
—
|
|
|
—
|
|
|
1,963
|
|
|
(250
|
)
|
As of December 31, 2015
|
|
|
|
|
|
|
|
|
|
Note receivable
(3)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,480
|
)
|
_____________
|
|
(1)
|
During the three months ended December 31, 2016, certain operations software related to the Company's logistics business was determined to be fully impaired based on a significant decrease in the expected useful life of the software. This resulted in a pre-tax impairment loss of
$0.5 million
, which was recorded in "Impairments" within operating income in the consolidated income statement.
|
|
|
(2)
|
During the three months ended December 31, 2016, management reassessed the fair value of certain IEL tractors, which had a total book value of
$2.2 million
, determining that there was a pre-tax impairment loss of
$0.3 million
. The impairment loss was recorded in "Impairments" within operating income in the consolidated income statement.
|
SWIFT TRANSPORTATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
|
|
(3)
|
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.
|
SWIFT TRANSPORTATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
Note 22
—
Related Party Transactions
The following table presents Swift's transactions with companies controlled by and/or affiliated with its related parties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
|
Provided by Swift
|
|
Received by Swift
|
|
Provided by Swift
|
|
Received by Swift
|
|
Provided by Swift
|
|
Received by Swift
|
|
(In thousands)
|
Freight Services:
|
|
|
|
|
|
|
|
|
|
|
|
Thermo King
(1)
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Central Freight Lines
(2)
|
83
|
|
|
26
|
|
|
237
|
|
|
25
|
|
|
25
|
|
|
24
|
|
SME Industries
(2)
|
830
|
|
|
—
|
|
|
978
|
|
|
—
|
|
|
185
|
|
|
—
|
|
Other Affiliates
(2)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14
|
|
|
—
|
|
Total
|
$
|
914
|
|
|
$
|
26
|
|
|
$
|
1,219
|
|
|
$
|
25
|
|
|
$
|
224
|
|
|
$
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility and Equipment Leases:
|
|
|
|
|
|
|
|
|
|
|
|
Thermo King
(1)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Central Freight Lines
(2)
|
1,154
|
|
|
372
|
|
|
1,090
|
|
|
435
|
|
|
843
|
|
|
400
|
|
Other Affiliates
(2)
|
19
|
|
|
—
|
|
|
20
|
|
|
1
|
|
|
20
|
|
|
228
|
|
Total
|
$
|
1,173
|
|
|
$
|
372
|
|
|
$
|
1,122
|
|
|
$
|
436
|
|
|
$
|
863
|
|
|
$
|
628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Services:
|
|
|
|
|
|
|
|
|
|
|
|
Thermo King
(1)
|
$
|
—
|
|
|
$
|
633
|
|
|
$
|
1
|
|
|
$
|
518
|
|
|
$
|
—
|
|
|
$
|
184
|
|
Central Freight Lines
(2)
|
24
|
|
|
—
|
|
|
142
|
|
|
—
|
|
|
388
|
|
|
—
|
|
Swift Aircraft Management
(2)
|
—
|
|
|
501
|
|
|
—
|
|
|
636
|
|
|
—
|
|
|
699
|
|
SME Industries
(2)
|
69
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other Affiliates
(2)
|
11
|
|
|
17
|
|
|
1
|
|
|
139
|
|
|
4
|
|
|
73
|
|
Total
|
$
|
104
|
|
|
$
|
1,151
|
|
|
$
|
144
|
|
|
$
|
1,293
|
|
|
$
|
392
|
|
|
$
|
956
|
|
____________
|
|
(1)
|
Thermo King West, Inc. and Thermo King Chesapeake, Inc. are owned by William Riley III, a member of Swift's Board. Transactions associated with the Thermo King affiliated entities primarily consist of parts and equipment purchases by Swift. Swift also provided freight services, equipment leasing, and other services to the Thermo King affiliated entities.
|
|
|
(2)
|
Entities affiliated with majority shareholder, Board member, and (prior to December 31, 2016) Chief Executive Officer, Jerry Moyes include Central Freight Lines, SME Industries, Swift Aircraft Management, Compensi Services, Common Market Trading, LLC, and Southwest Premier Properties. Transactions with these entities that are controlled by and/or are otherwise affiliated with Jerry Moyes, include freight services, facility leases, equipment leases, and other services.
|
|
|
•
|
Freight Services Provided by Swift —
The rates the Company charges for freight services to each of these companies for transportation services are market rates, which are comparable to rates charged to third-party customers. These transportation services provided to affiliates provide the Company with an additional source of operating revenue at its normal freight rates.
|
|
|
•
|
Freight Services Received by Swift —
Transportation services received from Central Freight represent LTL freight services rendered to haul parts and equipment to Company shop locations.
|
|
|
•
|
Other Services Provided by Swift
—
Other services provided by the Company to the identified related parties include equipment sales and miscellaneous services.
|
|
|
•
|
Other Services Received by Swift
—
Executive air transport, fuel storage, event fees, equipment purchases, miscellaneous repair services, and certain third-party payroll and employee benefits administration services from the identified related parties are included in other services received by the Company.
|
SWIFT TRANSPORTATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
In
2015
, the Company purchased bulk diesel fuel totaling
$63 thousand
, from Common Market Trading LLC, which is also included in other services received by Swift from other affiliates. Common Market Trading LLC was initially owned by both Jerry Moyes and his brother, Ronald Moyes, but wholly owned by Ronald Moyes as of October 20, 2015. The Company purchased
no
bulk diesel fuel from Common Market Trading LLC in 2016.
Receivables and payables pertaining to these related party transactions were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2016
|
|
2015
|
|
Receivable
|
|
Payable
|
|
Receivable
|
|
Payable
|
|
(In thousands)
|
Thermo King
|
$
|
—
|
|
|
$
|
22
|
|
|
$
|
4
|
|
|
$
|
46
|
|
Central Freight Lines
|
118
|
|
|
1
|
|
|
3
|
|
|
3
|
|
SME Industries
|
72
|
|
|
—
|
|
|
79
|
|
|
—
|
|
Other Affiliates
|
3
|
|
|
—
|
|
|
5
|
|
|
29
|
|
Total
|
$
|
193
|
|
|
$
|
23
|
|
|
$
|
91
|
|
|
$
|
78
|
|
See Note 18 for related party transactions pertaining to equity.
Note 23
—
Jerry Moyes' Retirement
In conjunction with the Company's
September 8, 2016
announcement that Jerry Moyes would retire from his position as Chief Executive Officer effective December 31, 2016, the Company entered into an agreement with Mr. Moyes to memorialize the terms of his retirement. The Company contracted with Mr. Moyes to serve as a non-employee consultant from January 1, 2017 through
December 31, 2019
, during which time the Company will pay Mr. Moyes a monthly consulting fee of
$0.2 million
in cash. Additionally, the Company modified the vesting terms and forfeiture conditions of Mr. Moyes' previously-granted equity awards. As a result of the terms of the agreement, the Company incurred a one-time expense in September 2016 of
$7.1 million
, consisting of
$6.8 million
in accrued consulting fees and
$0.3 million
for the impact of the equity award modifications. The amounts are included in "
Salaries, wages, and employee benefits
" within the non-reportable segments' income statement.
The following is a rollforward of the accrued liability for the consulting fees:
|
|
|
|
|
|
(In thousands)
|
Accrued consulting fees – Jerry Moyes, balance at December 31, 2015
|
$
|
—
|
|
Additions to accrual
|
6,837
|
|
Less: payments
|
(162
|
)
|
Accrued consulting fees – Jerry Moyes, balance at December 31, 2016
(1)
|
$
|
6,675
|
|
____________
|
|
(1)
|
The balance is included in "Other liabilities" (noncurrent) and "Accrued liabilities" (current) in the consolidated balance sheet, based on the timing of the expected payment. The
$0.3 million
impact of the equity award modification is excluded from the accrual balance because it is classified as "Additional paid-in capital" in the consolidated balance sheet.
|
Note 24
—
Information by Segment, Geography, and Customer Concentration
Segment Information
During
2016
, we operated
four
reportable segments: Truckload, Dedicated, Swift Refrigerated, and Intermodal.
Truckload
—
The truckload segment consists of one-way movements over irregular routes throughout the United States, Mexico, and Canada. This service utilizes both company and owner-operator tractors with dry van, flatbed, and other specialized trailing equipment.
Dedicated
—
Through the dedicated segment, the Company devotes use of equipment to specific customers and offers tailored solutions under long-term contracts. This dedicated segment utilizes refrigerated, dry van, flatbed, and other specialized trailing equipment.
Swift Refrigerated
—
This segment primarily consists of shipments for customers that require temperature-controlled trailers. These shipments include one-way movements over irregular routes, as well as dedicated truck operations.
SWIFT TRANSPORTATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
Intermodal
—
The intermodal segment includes revenue generated by moving freight over the rail in the Company's containers and other trailing equipment, combined with revenue for drayage to transport loads between the railheads and customer locations.
Non-reportable Segments
—
The other non-reportable segments include the Company's logistics and freight brokerage services, as well as support services that its subsidiaries provide to customers and owner-operators, including repair and maintenance shop services, equipment leasing, and insurance. Intangible asset amortization related to the 2007 Transactions, certain legal settlements and reserves, and certain other corporate expenses are also included in the other non-reportable segments.
Intersegment Eliminations
—
Certain operating segments provide transportation and related services for other affiliates outside their reportable segment. Revenues for such services are based on negotiated rates, which we believe approximate fair value, and are reflected as revenues of the billing segment. These rates are adjusted from time to time based on market conditions. Such intersegment revenues and expenses are eliminated in our consolidated results.
The following tables present the Company's financial information by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Operating revenue:
|
(In thousands)
|
Truckload
|
$
|
2,048,049
|
|
|
$
|
2,204,114
|
|
|
$
|
2,301,010
|
|
Dedicated
|
971,246
|
|
|
927,657
|
|
|
892,078
|
|
Swift Refrigerated
|
341,280
|
|
|
380,251
|
|
|
417,980
|
|
Intermodal
|
360,157
|
|
|
390,572
|
|
|
401,577
|
|
Subtotal
|
3,720,732
|
|
|
3,902,594
|
|
|
4,012,645
|
|
Non-reportable segments
|
386,349
|
|
|
407,781
|
|
|
342,969
|
|
Intersegment eliminations
|
(75,564
|
)
|
|
(81,053
|
)
|
|
(56,890
|
)
|
Consolidated operating revenue
|
$
|
4,031,517
|
|
|
$
|
4,229,322
|
|
|
$
|
4,298,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Operating income (loss):
|
(In thousands)
|
Truckload
|
$
|
181,781
|
|
|
$
|
257,007
|
|
|
$
|
258,072
|
|
Dedicated
|
108,481
|
|
|
82,735
|
|
|
75,794
|
|
Swift Refrigerated
|
(12,844
|
)
|
|
17,080
|
|
|
14,035
|
|
Intermodal
|
(547
|
)
|
|
4,128
|
|
|
8,298
|
|
Subtotal
|
276,871
|
|
|
360,950
|
|
|
356,199
|
|
Non-reportable segments
|
(34,859
|
)
|
|
9,154
|
|
|
13,871
|
|
Consolidated operating income
|
$
|
242,012
|
|
|
$
|
370,104
|
|
|
$
|
370,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Depreciation and amortization of property and equipment:
|
(In thousands)
|
Truckload
|
$
|
125,611
|
|
|
$
|
121,144
|
|
|
$
|
113,875
|
|
Dedicated
|
68,090
|
|
|
62,221
|
|
|
53,682
|
|
Swift Refrigerated
|
16,737
|
|
|
16,160
|
|
|
12,510
|
|
Intermodal
|
11,839
|
|
|
13,723
|
|
|
10,875
|
|
Subtotal
|
222,277
|
|
|
213,248
|
|
|
190,942
|
|
Non-reportable segments
|
44,857
|
|
|
38,487
|
|
|
30,180
|
|
Consolidated depreciation and amortization of property and equipment
|
$
|
267,134
|
|
|
$
|
251,735
|
|
|
$
|
221,122
|
|
SWIFT TRANSPORTATION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
Geographical Information
In aggregate, operating revenue from the Company's foreign operations was less than
5.0%
of consolidated operating revenue for each of the years ended
December 31, 2016
,
2015
, and
2014
. Additionally, long-lived assets on the balance sheets of the Company's foreign subsidiaries were less than
5.0%
of consolidated "Total assets" as of
December 31, 2016
and
2015
.
Customer Concentration
Services provided to the Company's largest customer, Wal-Mart, generated
14%
,
12%
, and
11%
of operating revenue in
2016
,
2015
, and
2014
, respectively. Operating revenue generated by Wal-Mart is reported in the Truckload, Dedicated, Swift Refrigerated, and Intermodal operating segments. No other customer accounted for
10%
or more of operating revenue in the reporting period.
Note 25
—
Quarterly Results of Operations (Unaudited)
In management's opinion, the following summarized financial information fairly presents the Company's results of operations for the quarters noted. These results are not necessarily indicative of future quarterly results.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
Second Quarter
|
|
Third Quarter
|
|
Fourth Quarter
|
|
(In thousands, except per share data)
|
2016
|
|
|
|
|
|
|
|
Operating revenue
|
$
|
967,823
|
|
|
$
|
1,011,854
|
|
|
$
|
1,013,226
|
|
|
$
|
1,038,614
|
|
Operating income
|
52,483
|
|
|
74,205
|
|
|
39,853
|
|
|
75,471
|
|
Net income
|
31,905
|
|
|
42,896
|
|
|
24,024
|
|
|
50,442
|
|
Basic earnings per share
|
0.23
|
|
|
0.32
|
|
|
0.18
|
|
|
0.38
|
|
Diluted earnings per share
|
0.23
|
|
|
0.32
|
|
|
0.18
|
|
|
0.38
|
|
2015
|
|
|
|
|
|
|
|
Operating revenue
|
$
|
1,015,144
|
|
|
$
|
1,059,404
|
|
|
$
|
1,064,973
|
|
|
$
|
1,089,801
|
|
Operating income
|
75,000
|
|
|
98,476
|
|
|
74,921
|
|
|
121,707
|
|
Net income
|
37,840
|
|
|
50,954
|
|
|
36,281
|
|
|
72,502
|
|
Basic earnings per share
|
0.27
|
|
|
0.36
|
|
|
0.25
|
|
|
0.52
|
|
Diluted earnings per share
|
0.26
|
|
|
0.35
|
|
|
0.25
|
|
|
0.51
|
|
SWIFT TRANSPORTATION COMPANY