Filing summary
Entity and period: The supplied filing is Swift Transportation Company’s Form 10-K for the fiscal year ended December 31, 2011, filed February 27, 2012. It is not a Knight-Swift Transportation Holdings Inc. filing, and “2011 Q4” is not a separate quarterly reporting period here; the filing reports full-year results and includes quarterly data. The company operated as a single reportable transportation segment.
Business context and financial performance
Swift was a large North American truckload carrier with complementary intermodal, brokerage, logistics, dedicated, and cross-border services. At year-end it had approximately 15,900 tractors, 50,600 trailers, 6,200 intermodal containers, and 34 major terminals. Management attributed improved results to a recovering freight market, constrained industry capacity, and internal productivity and cost-control initiatives.
| Metric | 2011 | 2010 | Change or context |
|---|---|---|---|
| Operating revenue | $3.334 billion | $2.930 billion | Up 13.8% |
| Revenue excluding fuel surcharges | $2.680 billion | $2.501 billion | Up 7.2% |
| Operating income | $306.0 million | $243.1 million | Up $63.0 million; operating margin about 9.2% versus 8.3% |
| Net income (loss) | $90.6 million | $(125.4) million | Returned to GAAP profitability; 2010 included large refinancing and tax items |
| Diluted EPS | $0.65 | $(1.98) | 2011 Adjusted EPS was $0.79, a non-GAAP measure |
| Adjusted EBITDA | $537.2 million | $497.7 million | Up 7.9%; non-GAAP measure |
| Adjusted Operating Ratio | 87.9% | 88.3% | Improved 40 basis points; non-GAAP measure |
| Operating cash flow | $323.9 million | $58.4 million | Higher principally due to reduced cash interest and taxes and stronger operating income |
| Capital expenditures | $239.6 million | $164.6 million | Cash outlay increased as fleet investment rose |
Trucking revenue rose 7.5%, with a 4.1% increase in average trucking revenue per loaded mile (excluding fuel surcharge) and 3.2% growth in loaded trucking miles. Weekly trucking revenue per tractor increased to $2,997 from $2,879, while deadhead miles declined to 11.8% from 12.1%. Fuel surcharge revenue increased 52.4% to $654.1 million, mainly reflecting higher diesel prices and more loaded miles.
Operating costs rose in several categories: fuel expense increased to $631.6 million from $468.5 million, purchased transportation to $889.4 million from $771.3 million, and salaries and benefits to $789.9 million from $764.0 million. Net fuel expense, after company fuel surcharges, was $230.4 million, or 8.6% of revenue excluding fuel surcharges, compared with $195.2 million, or 7.8%, in 2010.
Liquidity, debt, and balance sheet
- At December 31, 2011, unrestricted liquidity was $384.4 million: $82.1 million cash, $232.5 million available on the revolving credit line, and $69.8 million available under the receivables facility. A further $71.7 million was restricted, primarily for insurance claims.
- Working capital surplus was $349.3 million, versus $186.1 million in 2010. Total assets were $2.639 billion and stockholders’ equity was $86.2 million, compared with a stockholders’ deficit of $83.2 million a year earlier.
- Total debt and capital lease obligations were $1.769 billion, down from $1.946 billion. The revolving credit line had no borrowings, but $167.5 million of letters of credit were outstanding. The term loan accrued interest at 6.00% at year-end and matures in December 2016; $500 million face amount of second-priority secured notes bears 10.00% and matures in 2018.
- The company reported compliance with debt covenants at year-end and a 3.90:1 fixed-charge coverage ratio, against a 2.00:1 threshold for certain additional debt incurrence. Management expected about $250 million of net cash capital expenditures in 2012 and stated it expected available cash flow, facilities, and lease financing to cover near-term needs.
- Operating lease commitments were approximately $240.9 million, with maximum residual-value guarantee exposure of $19.3 million. Equipment purchase commitments totaled approximately $869.6 million for 2012 and 2013; about 10% was non-cancelable at year-end.
Material changes, outlook, and risks
- 2011’s improvement followed the December 2010 IPO and refinancing. Management cited lower interest expense of approximately $105.2 million and lower derivative interest expense of approximately $55.3 million versus 2010. The 2010 comparison included a $95.5 million debt-extinguishment loss and a $22.6 million one-time non-cash IPO-related stock compensation charge. The 2009 loss included approximately $324.8 million of non-cash tax expense related to conversion to C-corporation tax status.
- Management’s stated objectives included continuing revenue growth, improving profitability and returns on capital, expanding intermodal, owner-operator and brokerage services, and improving asset productivity. It also expected driver hiring and wage costs and depreciation per tractor to rise. No specific revenue or earnings guidance was provided.
- Key operating exposures include economic and freight-market cycles, pricing competition, customer concentration (Wal-Mart represented about 10.8% of 2011 revenue), driver availability and compensation, fuel-price volatility and surcharge recovery lag, equipment costs and resale values, and tighter hours-of-service and safety regulations.
- Swift self-insured significant claims exposure, including a $10 million per-occurrence retention for certain liability claims. Management estimated that a 10% increase in claims-development factors could increase year-end claims accruals by $11.2 million.
- Several employment, driver-training, owner-operator classification, and wage-related class actions were pending. For the driving-academy litigation, management estimated a $1 million to $3 million loss range and had recorded a reserve within that range. Other cases’ outcomes or potential losses were not clearly estimable. Management did not expect pending claims and litigation, taken together with reserves, to materially adversely affect the company, while noting outcomes could affect results in a particular period.
- Control and governance considerations include the CEO and affiliates’ approximately 59% voting power through the dual-class share structure, pledged shares, related-party dealings, and substantial debt and covenant restrictions. The company did not anticipate cash dividends.
Most important facts for investors to verify
- Confirm the issuer and reporting period: this document identifies Swift Transportation Company and covers the year ended December 31, 2011, not Knight-Swift and not a standalone Q4 filing.
- Reconcile the 2011 return to profitability with the prior-year refinancing, tax, and non-cash items; assess GAAP results separately from Adjusted EBITDA, Adjusted EPS, and Adjusted Operating Ratio.
- Review debt maturities, variable-rate exposure, covenant headroom, receivables-facility availability, and whether the planned 2012 capital spending is funded without undue additional leverage.
- Monitor fuel surcharge recovery and driver, insurance, maintenance, and equipment costs against freight pricing and productivity trends.
- Assess customer concentration, pending litigation and claims accrual estimates, and the potential effect of regulatory changes on driver supply and fleet utilization.
- Note that KPMG issued unqualified opinions on the financial statements and internal control over financial reporting; management also reported effective disclosure controls.