Swift Transportation Company — Q1 2012 Form 10-Q
Entity note: The supplied filing is for Swift Transportation Company, not Knight-Swift Transportation Holdings Inc. It covers the three months ended March 31, 2012; financial statements are unaudited.
Business context and reporting period
Swift was a truckload transportation company operating primarily in the United States and Mexico, with one reportable segment. At quarter-end it operated approximately 15,600 tractors, 51,000 trailers, and 6,400 intermodal containers. Services included truckload, intermodal, brokerage, and logistics.
Financial results and liquidity
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Operating revenue | $826.9 million | $758.9 million |
| Operating income | $57.9 million | $46.7 million |
| Net income | $6.2 million | $3.2 million |
| Diluted EPS | $0.04 | $0.02 |
| Operating cash flow | $70.2 million | $59.9 million |
| Capital expenditures | $44.2 million | $39.5 million |
- Revenue rose 9.0% year over year; revenue excluding fuel surcharges increased 6.9%. GAAP operating margin was 7.0%, versus 6.2%; operating ratio improved to 93.0% from 93.8%. Adjusted operating ratio improved to 90.5% from 91.8%.
- Adjusted EBITDA, a non-GAAP measure, was $115.5 million versus $104.7 million. Adjusted EPS was $0.14 versus $0.06. These measures exclude specified items and should not be viewed as substitutes for GAAP results.
- At March 31, cash was $47.7 million, restricted cash was $61.0 million, and current assets were $646.0 million against current liabilities of $382.9 million. Working capital was $263.0 million, down from $349.3 million at year-end 2011.
- Unrestricted liquidity was $374.8 million, including $237.8 million available on the revolving facility and $89.3 million available under receivables securitization. Restricted cash and securities added $72.1 million but were primarily held for insurance claims.
- Total debt and capital leases, including receivables securitization, were $1.706 billion, down from $1.769 billion at December 31, 2011. The company reported $163.0 million outstanding under securitization and $158.6 million in capital lease obligations. No revolver borrowings were outstanding; $162.2 million of letters of credit reduced available capacity.
- Cash declined $34.4 million during the quarter to $47.7 million. Investing used $11.3 million and financing used $93.3 million, including a $60 million voluntary term-loan prepayment.
Material changes versus the prior comparable period
- Trucking revenue increased 4.1%, reflecting a 3.5% increase in revenue per loaded mile excluding fuel surcharge and 0.6% growth in loaded trucking miles. Weekly trucking revenue per tractor rose 6.7% to $3,055.
- Fuel-surcharge revenue grew 18.1%, while other revenue increased 30.4%, primarily due to intermodal growth; loaded intermodal miles rose 38.1%.
- Purchased transportation expense net of third-party fuel reimbursements increased 15.9% to $166.1 million, reflecting higher owner-operator miles and intermodal volumes. Insurance and claims expense rose 34.6% to $30.6 million, mainly due to unfavorable developments in prior-year claims.
- Operating income improved despite a $20.9 million pretax loss on extinguishment of debt. Interest expense fell to $32.8 million from $37.5 million.
- Operating cash flow increased $10.3 million year over year, while investing cash use declined by $20.3 million, largely because proceeds from equipment sales were higher.
Outlook, commentary, risks, and unusual items
- Management estimated net cash capital expenditures of $180 million to $240 million for the remainder of 2012, but said the amount could vary as it evaluated equipment purchases versus leasing. It cited $671 million of tractor purchase commitments through 2013, plus $71.8 million of trailer and $4.1 million of intermodal-container commitments through year-end 2012.
- Management said near-term cash needs could be funded through operating cash flow, available credit, receivables financing, and leasing. It cautioned that longer-term capital needs may require additional financing or asset sales. The company reported compliance with debt covenants and a 4.02:1.00 fixed-charge coverage ratio at quarter-end.
- In March, Swift replaced its existing first-lien term loan with B-1 and B-2 tranches at lower stated spreads; the refinancing generated the $20.9 million extinguishment loss. In April, the revolver pricing and commitment fees were reduced and its maturity extended. Swift also obtained a $10 million incremental term loan and made voluntary term-loan prepayments totaling $50.2 million, satisfying scheduled payments through June 2013 for B-1 and September 2015 for B-2.
- Other unusual items included a $5.2 million benefit from the Los Angeles settlement, recorded as a reduction of operating supplies expense, after Swift refunded the city $4.0 million; a deferred state tax benefit of approximately $4.6 million from an internal restructuring; and a $1.1 million real-property impairment.
- Key operating risks include fuel-price and surcharge timing, driver recruitment, wage and hiring costs, competition, seasonal and weather effects, substantial equipment spending, interest-rate exposure, and litigation. A hypothetical one-percentage-point rise in interest rates was estimated to increase annual interest expense by $5.2 million, excluding swaps that begin in 2013.
- The filing describes multiple employment, owner-operator, and other class-action matters. Swift estimated a $1 million to $3 million loss range for the driving-academy litigation and recorded a reserve within that range; it could not estimate meaningful losses for several other cases. Management said the resolution of claims, including the Portland Harbor environmental matter, could not be determined.
Important facts for investors to verify
- Confirm the issuer identity: this filing names Swift Transportation Company, whereas the request names Knight-Swift Transportation Holdings Inc.
- Assess whether operating improvement excluding fuel surcharges is durable, particularly given higher purchased transportation and insurance claims costs.
- Review the debt refinancing terms, post-quarter prepayments, scheduled maturities, covenant headroom, and access to revolver and receivables capacity.
- Evaluate whether the planned equipment commitments and 2012 capital-spending range are consistent with liquidity and debt-reduction priorities.
- Track the unresolved litigation and claims exposures, including the driving-academy reserve and cases for which no loss estimate was provided.