Filing summary
Entity and period: The supplied filing is Swift Transportation Company’s unaudited Form 10-Q for the quarter ended June 30, 2013, filed August 2, 2013. It is not filed under the name Knight-Swift Transportation Holdings Inc.; verify that this is the intended filing.
Business context and reporting period
Swift operated truckload, dedicated, and intermodal transportation businesses, alongside brokerage and related services. At quarter-end it reported approximately 16,300 tractors, 52,200 trailers, and 8,700 intermodal containers. The filing compares the second quarter and first six months of 2013 with the corresponding 2012 periods.
Financial performance and liquidity
| Metric | Q2 2013 | Q2 2012 | First half 2013 | First half 2012 |
|---|---|---|---|---|
| Operating revenue | $898.1m | $872.6m | $1,754.9m | $1,699.5m |
| Operating income | $92.3m | $86.7m | $154.3m | $144.6m |
| Net income | $42.9m | $33.7m | $66.3m | $39.9m |
| Diluted EPS | $0.30 | $0.24 | $0.47 | $0.29 |
| Adjusted EBITDA (non-GAAP) | $151.2m | $144.0m | $274.8m | $259.6m |
Q2 revenue increased 2.9% year over year and net income increased 27.4%. Operating margin was approximately 10.3%, versus 9.9% a year earlier. The company’s non-GAAP adjusted operating ratio improved to 86.7% from 87.0% (lower is better); GAAP operating ratio was 89.7% versus 90.1%. First-half revenue grew 3.3%, operating income 6.7%, and net income 66.2%. First-half results included a $6.1m property-sale gain and a $5.0m debt-extinguishment loss; 2012 comparisons included larger debt-extinguishment losses and a tax benefit.
First-half operating cash flow was $220.3m, versus $165.9m. Capital expenditures were $150.4m, leaving operating cash flow less capital expenditures of approximately $70.0m, compared with $34.7m in 2012. Cash and cash equivalents were $43.5m at June 30. Unrestricted liquidity, including undrawn revolving-credit and receivables-facility availability, was $407.1m; an additional $69.6m of restricted cash and investments was primarily held for insurance claims.
Total debt and capital leases, including $165.0m outstanding under the receivables securitization, were $1,491.5m, versus $1,575.0m at year-end 2012. The $400m revolving credit line had no borrowings, but $138.1m of letters of credit reduced availability to $261.9m. Working capital was $242.9m. First-half capital expenditures were $150.4m; cash paid for interest was $47.2m.
Changes versus the prior comparable period
- Truckload revenue rose, but segment operating income fell: Q2 adjusted operating ratio worsened to 86.2% from 84.9%, reflecting higher driver and owner-operator pay, equipment costs, and deadhead miles.
- Dedicated segment operating income improved to $24.3m from $18.5m; its adjusted operating ratio improved to 83.7% from 87.4%, attributed to business mix and operational efficiency.
- Intermodal revenue grew 4.0% in Q2, and the segment recorded $0.8m operating income versus $0.1m. It remained loss-making for the first half, but the loss narrowed to $1.0m from $3.9m.
- Interest expense fell to $23.8m in Q2 from $29.6m, and to $49.3m for the first half from $62.3m, reflecting refinancing and voluntary debt repayments.
- Long-term debt and capital leases declined overall, while capital lease obligations increased to $171.6m from $134.7m at year-end 2012.
Outlook, risks, and unusual items
- No specific revenue or earnings guidance is provided. Management expected net cash capital expenditures of approximately $110m–$135m for the remainder of 2013. Tractor and trailer purchase commitments were $137.7m and $74.2m, respectively; approximately 80% of remaining tractor commitments were past the stated cancellation-notice date.
- Management described liquidity as sufficient for expected near-term needs, while noting significant ongoing capital requirements and possible reliance on additional borrowing, leasing, equity, or asset sales over the longer term.
- Key operating risks include driver recruitment, retention, and compensation costs; fuel-price volatility and the lag in fuel-surcharge recovery; freight demand and pricing; equipment costs; seasonality and severe weather; and insurance and claims exposure. A one-percentage-point rise in interest rates was estimated to increase annual interest expense by $5.1m at then-current borrowings.
- Pending litigation includes driver pay and classification class actions. Management said it could not meaningfully estimate possible losses in certain matters and did not expect the matters, based on available information, to materially harm financial condition; outcomes could affect individual-period results. A May 2013 vehicle accident caused a fuel and liquid release; estimated remediation costs were $0.3m–$0.5m.
- Other notable items include the March refinancing, a $5.0m extinguishment loss, a $6.1m gain on sale of two properties, and the de-designation of interest-rate swaps. Management expected $4.7m of deferred derivative losses to be reclassified to earnings within 12 months.
Most important facts to verify
- Confirm the intended issuer: this filing identifies Swift Transportation Company, not Knight-Swift Transportation Holdings Inc.
- Review the quality and sustainability of earnings, including the property-sale gain, refinancing charge, and non-GAAP adjustments.
- Check debt, capital-lease, and securitization obligations, covenant headroom, and actual liquidity available after restrictions and letters of credit.
- Track truckload margin pressure, driver costs and availability, deadhead miles, and whether dedicated and intermodal improvements persist.
- Review developments in litigation, insurance reserves, and the environmental remediation estimate.