Business context and reporting period
This is Swift Transportation Company’s unaudited Form 10-Q for the quarter ended March 31, 2013, comparing the three months ended March 31, 2013 and 2012. The filing describes a truckload carrier with Truckload, Dedicated, and Intermodal reportable segments. The request names Knight-Swift Transportation Holdings Inc., but the filing registrant is Swift Transportation Company; verify that this is the intended filing.
Financial performance and position
- Revenue: $856.8 million, up 3.6% year over year. Revenue excluding fuel surcharge revenue was $686.5 million, up 3.4%.
- Profit: Operating income was $62.0 million versus $57.9 million; net income was $23.3 million versus $6.2 million. Diluted EPS was $0.17 versus $0.04. GAAP operating margin was approximately 7.2% versus 7.0%; net margin was approximately 2.7% versus 0.7%.
- Adjusted measures: Adjusted Operating Ratio was 90.4% versus 90.5%; Adjusted EBITDA was $123.6 million versus $115.5 million; Adjusted EPS was $0.21 versus $0.14. These are non-GAAP measures defined by the company.
- Cash flow: Operating cash flow was $96.9 million versus $70.2 million. Investing cash use was $25.9 million versus $11.3 million, including $57.6 million of capital expenditures. Financing cash use was $85.8 million. Cash and cash equivalents declined by $14.9 million to $38.7 million.
- Liquidity: Unrestricted liquidity was $349.1 million, comprising cash, $251.9 million available on the revolver, and $58.4 million available under the receivables facility. Total liquidity including restricted cash and investments was $423.9 million. Working capital was $296.2 million.
- Debt: Total debt and capital leases were $1.506 billion, including $204.0 million of receivables securitization. Long-term debt and capital leases, net of current portion, were $1.447 billion. The $400 million revolver had no borrowings, but $148.1 million of letters of credit were outstanding.
Material changes versus prior period
- Revenue increased across the three reportable segments. Dedicated operating income rose to $19.0 million from $14.5 million; Intermodal’s operating loss narrowed to $1.8 million from $4.0 million. Truckload operating income fell to $42.4 million from $46.6 million, and its adjusted operating ratio worsened to 90.4% from 89.3%.
- Net income comparisons were materially affected by nonrecurring items. 2013 included a $6.1 million gain on property sales and a $5.0 million debt-extinguishment loss. 2012 included a $20.9 million debt-extinguishment loss, a roughly $5.2 million benefit from a City of Los Angeles contract settlement, a $4.6 million deferred tax benefit, and a $1.1 million impairment charge.
- In March 2013, the company refinanced its term loans and reduced stated spreads: B-1 to LIBOR plus 2.75% and B-2 to LIBOR plus 3.00%, with a 1.00% B-2 LIBOR floor. The refinancing generated the $5.0 million extinguishment loss. Interest rate swaps were de-designated in February after the loan terms changed.
- Cash generated from operations improved, while capital expenditures rose to $57.6 million from $44.2 million. Net debt and capital lease balances declined from year-end, alongside voluntary debt repayments.
Outlook, risks, contingencies, and unusual items
- Management expected approximately $200 million of net cash capital expenditures for the remainder of 2013. Outstanding purchase commitments included $289.0 million for replacement tractors through 2013 and 2014 and $79.7 million for trailers through the rest of 2013.
- Management stated it believed available operating cash flow, revolver capacity, receivables financing, and lease financing could fund expected near-term needs. The filing gives no earnings or revenue guidance.
- Risks highlighted include fuel-price volatility and surcharge billing lag, driver recruitment, retention and compensation costs, seasonal and severe-weather impacts, competition, customer concentration, intermodal partner dependence, substantial capital needs, and debt covenant and refinancing constraints. A one-percentage-point rise in interest rates was estimated to increase annual interest expense by $5.7 million at the then-current borrowing level.
- Legal matters include owner-operator and employee classification/wage class actions, other employment litigation, and a potential Portland Harbor environmental claim. Management said it could not estimate possible losses for certain cases; it did not expect the described matters to materially adversely affect financial condition, though outcomes could affect results in a particular period. A California/Oregon orientation-wage settlement was capped at $0.7 million.
- Swift Power Services, an investee and borrower, had missed a scheduled payment; the note was on nonaccrual and had been impaired in 2012. At March 31, 2013, the note’s net carrying value was $0.8 million and the investment carrying value was zero.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Key facts investors should verify
- Confirm the registrant and intended issuer: this filing is for Swift Transportation Company, not an entity named Knight-Swift Transportation Holdings Inc.
- Assess how much reported earnings growth reflects recurring operations versus property-sale gains, debt-extinguishment charges, and the unusual prior-year tax and settlement items.
- Track Truckload margin deterioration against revenue-per-tractor gains and higher equipment, weather, and driver-related costs; monitor progress toward Intermodal profitability.
- Reconcile debt, capital lease, and receivables-facility obligations with liquidity, upcoming capital commitments, covenant terms, and interest-rate exposure.
- Follow developments in the disclosed litigation, workers’ compensation and insurance reserves, environmental matter, and the impaired Swift Power Services note.