Knight-Swift Transportation - 10-Q quarterly report FY2013 Q2

Knight-Swift Transportation - 10-Q quarterly report FY2013 Q2

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________________________________________

Form 10-Q

______________________________________________________________________

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2013

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-35007

______________________________________________________________________

Swift Transportation Company

(Exact name of registrant as specified in its charter)

______________________________________________________________________



Delaware		20-5589597
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2200 South 75th Avenue

Phoenix, AZ 85043

(Address of principal executive offices and zip code)

(602) 269-9700

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

______________________________________________________________________

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

The number of outstanding shares of the registrant’s Class A common stock as of July 29, 2013 was 87,663,429 and the number of outstanding shares of the registrant’s Class B common stock as of July 29, 2013 was 52,495,236.

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	Page
PART I FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets as of June 30, 2013 (Unaudited) and December 31, 2012	3

Consolidated Statements of Operations (Unaudited) for the Three and Six Month Periods Ended June 30, 2013 and 2012	4

Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Six Month Periods Ended June 30, 2013 and 2012	5

Consolidated Statement of Stockholders’ Equity (Unaudited) for the Six Month Period Ended June 30, 2013	6

Consolidated Statements of Cash Flows (Unaudited) for the Six Month Period Ended June 30, 2013 and 2012	7

Notes to Consolidated Financial Statements (Unaudited)	9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	34

Item 3. Quantitative and Qualitative Disclosures About Market Risk	53

Item 4. Controls and Procedures	53

PART II OTHER INFORMATION

Item 1. Legal Proceedings	53

Item 1A. Risk Factors	53

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	53

Item 3. Defaults Upon Senior Securities	53

Item 4. Mine Safety Disclosures	53

Item 5. Other Information	53

Item 6. Exhibits	54

Signatures	55

EX 10.1

EX 31.1

EX 31.2

EX 32.1

EX-101 INSTANCE DOCUMENT

EX-101 SCHEMA DOCUMENT

EX-101 CALCULATION LINKBASE DOCUMENT

EX-101 LABELS LINKSBASE DOCUMENT

EX-101 PRESENTATION LINKBASE DOCUMENT

EX-101 DEFINITION LINKBASE DOCUMENT

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PART I. FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

Swift Transportation Company and Subsidiaries

Consolidated Balance Sheets



	June 30, 2013			December 31, 2012
	(Unaudited)
	(In thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents	$	43,510		$	53,596
Restricted cash	42,694			51,678
Restricted investments, held to maturity, amortized cost	26,955			22,275
Accounts receivable, net	360,730			338,724
Equipment sales receivable	815			563
Income tax refund receivable	8,424			10,046
Inventories and supplies	15,744			15,678
Assets held for sale	16,752			31,544
Prepaid taxes, licenses, insurance and other	47,143			47,241
Deferred income taxes	45,688			98,235
Current portion of notes receivable	4,692			4,957
Total current assets	613,147			674,537
Property and equipment, at cost:
Revenue and service equipment	1,864,475			1,740,456
Land	115,672			112,587
Facilities and improvements	237,527			234,996
Furniture and office equipment	47,697			43,578
Total property and equipment	2,265,371			2,131,617
Less: accumulated depreciation and amortization	864,903			819,803
Net property and equipment	1,400,468			1,311,814
Other assets	50,700			59,010
Intangible assets, net	325,154			333,561
Goodwill	253,256			253,256
Total assets	$	2,642,725		$	2,632,178
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	122,582		$	103,070
Accrued liabilities	99,972			96,439
Current portion of claims accruals	80,567			74,070
Current portion of long-term debt and obligations under capital leases	62,810			47,495
Fair value of guarantees	366			366
Current portion of interest rate swaps	3,993			1,853
Total current liabilities	370,290			323,293
Long-term debt and obligations under capital leases, less current portion	1,263,682			1,323,539
Claims accruals, less current portion	105,232			98,919
Fair value of interest rate swaps, less current portion	8,804			11,159
Deferred income taxes	425,716			441,157
Securitization of accounts receivable	165,000			204,000
Total liabilities	2,338,724			2,402,067
Contingencies (note 14)
Stockholders’ equity:
Preferred stock, par value $0.01 per share; Authorized 1,000,000 shares; none issued	—			—
Class A common stock, par value $0.01 per share; Authorized 500,000,000 shares; 87,647,904 and 87,055,664 shares issued and outstanding as of June 30, 2013 and December 31, 2012, respectively	876			871
Class B common stock, par value $0.01 per share; Authorized 250,000,000 shares; 52,495,236 and 52,495,236 shares issued and outstanding as of June 30, 2013 and December 31, 2012, respectively	525			525
Additional paid-in capital	903,626			896,575
Accumulated deficit	(593,886		)	(660,168		)
Accumulated other comprehensive loss	(7,342		)	(7,894		)
Noncontrolling interest	202			202
Total stockholders’ equity	304,001			230,111
Total liabilities and stockholders’ equity	$	2,642,725		$	2,632,178

See accompanying notes to consolidated financial statements.

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Swift Transportation Company and Subsidiaries

Consolidated Statements of Operations



	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(Unaudited) (Amounts in thousands, except per share data)
Operating revenue	$	898,104		$	872,584		$	1,754,898		$	1,699,469
Operating expenses:
Salaries, wages and employee benefits	202,757			198,618			409,364			398,753
Operating supplies and expenses	68,136			63,379			128,801			118,421
Fuel	144,377			145,826			296,259			298,829
Purchased transportation	257,471			252,685			502,288			485,887
Rental expense	30,541			26,576			59,792			50,075
Insurance and claims	29,207			26,278			56,978			56,858
Depreciation and amortization of property and equipment	52,527			50,389			102,859			100,783
Amortization of intangibles	4,203			4,215			8,407			8,518
Impairments	—			—			—			1,065
Gain on disposal of property and equipment	(4,681		)	(3,478		)	(7,035		)	(7,868		)
Communication and utilities	5,433			5,975			11,525			12,221
Operating taxes and licenses	15,852			15,444			31,392			31,348
Total operating expenses	805,823			785,907			1,600,630			1,554,890
Operating income	92,281			86,677			154,268			144,579
Other (income) expenses:
Interest expense	23,760			29,553			49,334			62,329
Derivative interest expense	532			2,108			1,094			4,653
Interest income	(517		)	(439		)	(1,090		)	(836		)
Loss on debt extinguishment	—			1,279			5,044			22,219
Gain on sale of real property	—			—			(6,078		)	—
Other	(1,323		)	(1,299		)	(1,819		)	(1,901		)
Total other (income) expenses, net	22,452			31,202			46,485			86,464
Income before income taxes	69,829			55,475			107,783			58,115
Income tax expense	26,888			21,776			41,501			18,228
Net income	$	42,941		$	33,699		$	66,282		$	39,887
Basic earnings per share	$	0.31		$	0.24		$	0.47		$	0.29
Diluted earnings per share	$	0.30		$	0.24		$	0.47		$	0.29
Shares used in per share calculations
Basic	139,989			139,522			139,839			139,505
Diluted	141,838			139,640			141,652			139,652

See accompanying notes to consolidated financial statements.

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Swift Transportation Company and Subsidiaries

Consolidated Statements of Comprehensive Income



	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(Unaudited) (In thousands)
Net income	$	42,941		$	33,699		$	66,282		$	39,887
Other comprehensive income before income taxes:
Accumulated losses on derivatives reclassified to derivative interest expense	466			2,108			955			4,653
Change in fair value of interest rate swaps	—			(1,169		)	(189		)	(2,108		)
Other comprehensive income before income taxes	466			939			766			2,545
Income tax effect of items of other comprehensive income	(242		)	453			(214		)	817
Other comprehensive income, net of taxes	224			1,392			552			3,362
Total comprehensive income	$	43,165		$	35,091		$	66,834		$	43,249

See accompanying notes to consolidated financial statements.

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Swift Transportation Company and Subsidiaries

Consolidated Statement of Stockholders’ Equity



	Class A Common Stock			Class B Common Stock			Additional Paid in Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Noncontrolling Interest		Total Stockholders’ Equity
	Shares	Par Value		Shares	Par Value		Additional Paid in Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Noncontrolling Interest		Total Stockholders’ Equity
	(Unaudited) (In thousands, except per share data)
Balances, December 31, 2012	87,055,664	$	871	52,495,236	$	525	$	896,575		$	(660,168	)	$	(7,894	)	$	202	$	230,111
Exercise of stock options	535,394	5					5,686											5,691
Excess tax deficiency of stock options							(503		)									(503		)
Grant of restricted Class A common stock	10,480						39											39
Shares issued under employee stock purchase plan	46,366						490											490
Other comprehensive income													552					552
Non-cash equity compensation							1,339											1,339
Net income										66,282								66,282
Balances, June 30, 2013	87,647,904	$	876	52,495,236	$	525	$	903,626		$	(593,886	)	$	(7,342	)	$	202	$	304,001

See accompanying notes to consolidated financial statements.

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Swift Transportation Company and Subsidiaries

Consolidated Statements of Cash Flows



	Six Months Ended June 30,
	2013			2012
	(Unaudited) (In thousands)
Cash flows from operating activities:
Net income	$	66,282		$	39,887
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property, equipment and intangibles	111,266			109,301
Amortization of debt issuance costs, original issue discount, and losses on terminated swaps	1,868			7,645
Gain on disposal of property and equipment less write-off of totaled tractors	(6,629		)	(7,166		)
Gain on sale of real property	(6,078		)	—
Impairments	—			1,065
Equity losses of investee	655			358
Deferred income taxes	36,731			12,100
Provision for allowance for losses on accounts receivable	1,609			1,013
Loss on debt extinguishment	5,044			21,267
Non-cash equity compensation	1,378			2,725
Income effect of mark-to-market adjustment of interest rate swaps	82			—
Increase (decrease) in cash resulting from changes in:
Accounts receivable	(23,615		)	(25,869		)
Inventories and supplies	(67		)	(371		)
Prepaid expenses and other current assets	3,663			1,772
Other assets	4,799			(2,384		)
Accounts payable, accrued and other liabilities	23,355			4,507
Net cash provided by operating activities	220,343			165,850
Cash flows from investing activities:
Decrease in restricted cash	8,984			14,556
Change in restricted investments	(4,680		)	(14,612		)
Funding of note receivable	—			(7,500		)
Proceeds from sale of property and equipment	35,222			57,240
Capital expenditures	(150,383		)	(131,102		)
Payments received on notes receivable	2,074			3,202
Expenditures on assets held for sale	(1,614		)	(2,223		)
Payments received on assets held for sale	22,773			10,340
Payments received on equipment sale receivables	644			5,496
Other investing activities	—			(500		)
Net cash used in investing activities	(86,980		)	(65,103		)
Cash flows from financing activities:
Repayment of long-term debt and capital leases	(115,472		)	(171,433		)
Proceeds from long-term debt	7,528			10,000
Payment of deferred loan costs	(2,183		)	(9,009		)
Borrowings under accounts receivable securitization	80,000			174,000
Repayment of accounts receivable securitization	(119,000		)	(151,000		)
Other financing activities	5,678			126
Net cash used in financing activities	(143,449		)	(147,316		)
Net decrease in cash and cash equivalents	(10,086		)	(46,569		)
Cash and cash equivalents at beginning of period	53,596			82,084
Cash and cash equivalents at end of period	$	43,510		$	35,515

See accompanying notes to consolidated financial statements.

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Swift Transportation Company and Subsidiaries

Consolidated Statements of Cash Flows — (continued)



	Six Months Ended June 30,
	2013		2012
	(Unaudited) (In thousands)
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	47,192	$	64,608
Income taxes	$	4,794	$	6,917
Supplemental schedule of:
Non-cash investing activities:
Equipment sales receivables	$	896	$	1,751
Equipment purchase accrual	$	28,230	$	16,500
Notes receivable from sale of assets	$	1,577	$	1,319
Non-cash financing activities:
Accrued deferred loan costs	$	—	$	242
Capital lease additions	$	58,984	$	19,531

See accompanying notes to consolidated financial statements.

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Swift Transportation Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Note 1. Basis of Presentation

Swift Transportation Company is the holding company for Swift Transportation Co., LLC (a Delaware limited liability company, formerly Swift Transportation Co., Inc., a Nevada corporation) and its subsidiaries (collectively, “Swift Transportation Co.”), a truckload carrier headquartered in Phoenix, Arizona, and Interstate Equipment Leasing, LLC (“IEL”) (all the foregoing being, collectively, “Swift” or the “Company”). The Company’s three reportable operating segments consist of Truckload, Dedicated and Intermodal. As of June 30, 2013, the Company operated a national terminal network and a tractor fleet of approximately 16,300 units comprised of 12,200 tractors driven by company drivers and 4,100 owner-operator tractors, a fleet of 52,200 trailers, and 8,700 intermodal containers.

In the opinion of management, the accompanying financial statements prepared in accordance with United States generally accepted accounting principles (“GAAP”) include all adjustments necessary for the fair presentation of the interim periods presented. These interim financial statements should be read in conjunction with the Company’s annual financial statements for the year ended December 31, 2012. Management has evaluated the effect on the Company’s reported financial condition and results of operations of events subsequent to June 30, 2013 through the issuance of the financial statements.

Note 2. New Accounting Standards

In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. ASU 2013-02 requires entities to present information about the amounts reclassified out of accumulated other comprehensive income ("OCI") by component. In addition, an entity is required to present, either on the face of the financial statements or in the notes, significant amounts reclassified out of accumulated OCI by the respective line items of net income, but only if the amount reclassified is required to be reclassified in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional details about those amounts. The ASU is effective prospectively for reporting periods beginning after December 15, 2012. The adoption of this guidance impacted the Company's financial statement disclosures, but did not have an impact on Swift's financial position or results of operations.

Note 3. Income Taxes

The effective tax rate for the three and six months ended June 30, 2013 was 38.5%, as expected. The Company's effective tax rate for the three months ended June 30, 2012 was 39.3%. The Company's effective tax rate for the six months ended June 30, 2012 was 31.4%, which was approximately 8 percentage points lower than the expected effective tax rate primarily due to a deferred state tax benefit related to an internal corporate restructuring of our subsidiaries in January of 2012. Excluding the impact of discrete items in the first quarter of 2012, the effective tax rate for the six months ended June 30, 2012 would have been 38.5%.

The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. Accrued interest and penalties as of June 30, 2013 was $1.4 million. To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision. The Company anticipates that the total amount of unrecognized tax benefits may decrease by approximately $0.7 million during the next twelve months, which should not have a material impact on the Company’s consolidated financial statements.

Certain of the Company’s subsidiaries are currently under examination by the state of California for the 2005, 2006 and May 10, 2007 tax years. The Company anticipates concluding its California examination in 2013 for 2005, 2006 and short period ending May 10, 2007. Tax years 2008 through 2012 remain subject to examination. In addition, other state jurisdictions are conducting examinations for years ranging from 2007 to 2012. 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.

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Swift Transportation Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) – (continued)

Note 4. Investments

The following table presents the cost or amortized cost, gross unrealized gains and losses, and estimated fair value of the Company’s restricted investments as of June 30, 2013 and December 31, 2012 (in thousands):



	June 30, 2013
	Cost or		Gross Unrealized				Estimated
	Amortized Cost		Gains		Temporary Losses		Fair Value
U.S. corporate securities	$	19,306	$	—	$	12	$	19,294
Foreign corporate securities	5,045		—		3		5,042
Negotiable certificate of deposits	2,604		—		1		2,603
Total restricted investments	$	26,955	$	—	$	16	$	26,939

	December 31, 2012
	Cost or		Gross Unrealized				Estimated
	Amortized				Temporary		Fair
	Cost		Gains		Losses		Value
U.S. corporate securities	$	20,274	$	3	$	8	$	20,269
Foreign corporate securities	2,001		1		—		2,002
Total restricted investments	$	22,275	$	4	$	8	$	22,271

As of June 30, 2013, the contractual maturities of the restricted investments were 1 year or less. There were 23 securities and seven securities that were in an unrealized loss position for less than twelve months as of June 30, 2013 and December 31, 2012, respectively.

The Company 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.

The Company accounts for other-than-temporary impairments of debt securities using the provisions of Topic 320, Investments – Debt and Equity Securities, related to the recognition of other-than-temporary impairments of debt 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 is met, an impairment 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 this 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 accumulated OCI. The Company did not recognize any impairment losses for the three and six months ended June 30, 2013 and 2012, respectively.

Note 5. Intangible Assets

Intangible assets as of June 30, 2013 and December 31, 2012 were as follows (in thousands):



	June 30, 2013			December 31, 2012
Customer Relationship:
Gross carrying value	$	275,324		$	275,324
Accumulated amortization	(131,207		)	(122,800		)
Owner-Operator Relationship:
Gross carrying value	3,396			3,396
Accumulated amortization	(3,396		)	(3,396		)
Trade Name:
Gross carrying value	181,037			181,037
Intangible assets, net	$	325,154		$	333,561

For all periods ending on or after December 31, 2007, amortization of intangibles consists primarily of amortization of $261.2 million gross carrying value of definite-lived intangible assets recognized under purchase accounting in connection with Swift Transportation Co.’s 2007 going

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Swift Transportation Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) – (continued)

private transaction. Intangible assets acquired as a result of the 2007 going private transaction include trade name, customer relationships, and owner-operator relationships. Amortization of the customer relationship acquired in the going private transaction 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 using the straight-line method over 15 years. The trade name has an indefinite useful life and is not amortized, but rather 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.

The following tables presents amortization expense for the three and six months ended June 30, 2013 and 2012, related to intangible assets recognized in conjunction with the 2007 going private transaction and the previous intangible assets existing prior to the 2007 going private transaction (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Amortization of intangible assets related to 2007 going private transaction	$	3,912	$	3,923	$	7,824	$	7,934
Amortization of intangible assets related to intangible assets existing prior to the 2007 going private transaction	291		292		583		584
Amortization expense	$	4,203	$	4,215	$	8,407	$	8,518

Note 6. Assets Held for Sale

Assets held for sale as of June 30, 2013 and December 31, 2012 was as follows (in thousands):



	June 30, 2013		December 31, 2012
Land and facilities	$	10,141	$	25,148
Revenue equipment	6,611		6,396
Assets held for sale	$	16,752	$	31,544

As of June 30, 2013 and December 31, 2012, assets held for sale are carried at the lower of depreciated cost or estimated fair value less expected selling costs. The Company expects to sell these assets within the next 12 months.

During the six months ended June 30, 2013, the Company sold two non-operating properties classified as held for sale with a carrying value of $15.8 million. As a result, the Company recognized a pre-tax gain of $6.1 million in Gain on sale of real property in the Company’s consolidated statements of operations.

Note 7. Equity Investment and Note Receivable – Swift Power Services, LLC

In February 2012, the Company contributed approximately $500 thousand to Swift Power Services, LLC (“SPS”) in return for 49.95% ownership interest. SPS was formed in 2012 for the purpose of acquiring the assets and business of three trucking companies engaged in bulk transporting of water, oil, liquids and pipe to various oil companies drilling in the Bakken shale in northwestern North Dakota. The Company accounts for its interest in SPS using the equity method.

Additionally, in February 2012, the Company loaned $7.5 million to SPS pursuant to a secured promissory note, which is secured by substantially all of the assets of SPS. SPS failed to make its first scheduled principal payment and quarterly interest payment to the Company on December 31, 2012, which resulted in a $6.0 million pre-tax impairment charge in the fourth quarter of 2012. As a result, this note has been placed on nonaccrual status as of December 31, 2012. All outstanding interest and principal balances are due on April 30, 2015. During the three months ended June 30, 2013 and 2012, the Company recorded equity losses of $455 thousand and $280 thousand, respectively, and during the six months ended June 30, 2013 and 2012 recorded equity losses of $655 thousand and $358 thousand, respectively, in other expense in the Company’s consolidated statements of operations related to its note receivable and investment in SPS, respectively. As a result of the accumulated equity losses and the impairment recorded during the three months ended December 31, 2012, the net carrying value of the investment in SPS is zero as of June 30, 2013 and December 31, 2012, and the net carrying value of the note receivable is $345 thousand and $1.0 million as of June 30, 2013 and December 31, 2012, respectively.

Note 8. Debt and Financing Transactions

Other than the Company’s accounts receivable securitization as discussed in Note 9 and its outstanding capital lease obligations as discussed in Note 10, the Company had long-term debt outstanding as of June 30, 2013 and December 31, 2012 as follows (in thousands):

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Swift Transportation Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) – (continued)



	June 30, 2013		December 31, 2012
Senior secured first lien term loan B-1 tranche due December 2016	$	238,000	$	—
Senior secured first lien term loan B-2 tranche due December 2017	410,000		—
Senior secured first lien term loan B-1 tranche due December 2016, net of $405 OID as of December 31, 2012	—		157,095
Senior secured first lien term loan B-2 tranche due December 2017, net of $1,440 OID as of December 31, 2012	—		575,560
Senior second priority secured notes due November 15, 2018, net of $6,807 and $7,439 OID as of June 30, 2013 and December 31, 2012, respectively	493,193		492,561
Other	13,715		11,126
Total	1,154,908		1,236,342
Less: current portion	6,640		8,120
Long-term debt	$	1,148,268	$	1,228,222

The credit facility and senior notes are secured by substantially all of the assets of the Company and are guaranteed by Swift Transportation Company, IEL, Swift Transportation Co. and its domestic subsidiaries other than its captive insurance subsidiaries, driver training academy subsidiary, and its bankruptcy-remote special purpose subsidiary. As of June 30, 2013 and December 31, 2012, the balance of deferred loan costs was $10.4 million and $13.1 million, respectively, and is reported in Other assets in the Company’s consolidated balance sheets.

Senior Secured Credit Facility

On March 7, 2013, the Company entered into a Second Amended and Restated Credit Agreement (the “2013 Agreement”) replacing its previous Amended and Restated Credit Agreement dated March 6, 2012 (the “2012 Agreement”). The 2013 Agreement replaced the previous first lien term loan B-1 and B-2 tranches with outstanding principal balances of $152.0 million and $508.0 million, respectively, with new first lien term B-1 and B-2 tranches with balances of $250.0 million and $410.0 million, respectively. In addition, the 2013 Agreement reduced the interest rate applicable to the first lien term loan B-1 tranche to the LIBOR rate plus 2.75% with no LIBOR floor, down from the LIBOR rate plus 3.75% with no LIBOR floor, and reduced the interest rate applicable to the first lien term loan B-2 tranche to the LIBOR rate plus 3.00% with a 1.00% LIBOR floor, down from the LIBOR rate plus 3.75% with a 1.25% LIBOR floor. As of June 30, 2013, interest accrues at 2.94% and 4.00% on the Company’s first lien term loan B-1 and B-2 tranches, respectively. The replacement of the 2012 Agreement resulted in a loss on debt extinguishment of $5.0 million for the six months ended June 30, 2013, representing the write-off of the unamortized original issue discount and deferred financing fees associated with the 2012 Agreement.

In addition to the pricing changes described above, the 2013 Agreement increased the availability pursuant to the accordion feature up to $350.0 million in aggregate, subject to the satisfaction of certain conditions and the participation of lenders.

In the first quarter of 2012, the Company entered into the 2012 Agreement which replaced the then-existing, remaining $874.0 million face value first lien term loan, resulting in a loss on debt extinguishment of $20.9 million in the first quarter of 2012, representing the write-off of the unamortized original issue discount and deferred financing fees associated with the original term loan.

In the second quarter of 2012, the Company entered into the First Amendment to the then existing 2012 Agreement (“Amendment”). The Amendment reduced the applicable rate on the revolving credit facility from 4.50% to a range of 3.00% to 3.25% for LIBOR based borrowings and letters of credit from 3.50% to a range of 2.00% to 2.25% for Base Rate borrowings, depending on the Company’s consolidated leverage ratio as defined in the 2012 Agreement. Additionally, the commitment fee for the unused portion of the revolving credit facility was reduced from a range of 0.50% to 0.75% to a range of 0.25% to 0.50%, depending on the Company’s consolidated leverage ratio. In addition, the maturity date of the $400.0 million revolving credit facility was extended from December 21, 2015 to September 21, 2016. On April 17, 2012, the Company entered into the Incremental Facility Amendment to the Amended and Restated Credit Agreement (“Incremental Facility Amendment”). Pursuant to the Incremental Facility Amendment, the Company received $10.0 million in proceeds from a Specified Incremental Tranche B-1 Term Loan (“Incremental Term Loan”). The terms applicable to the Incremental Term Loan are the same as those applicable to the Company’s previous first lien term loan B-1tranche.

As of June 30, 2013, there were no borrowings under the $400.0 million revolving line of credit, while the Company had outstanding letters of credit under this facility primarily for workers’ compensation and self-insurance liability purposes totaling $138.1 million, leaving $261.9 million available under the revolving line of credit. As of June 30, 2013, interest accrues at 3.00% and 0.44% on the outstanding letters of credit and unused portion, respectively, on the revolving line of credit.

Senior Second Priority Secured Notes

In December 2010, Swift Services Holdings, Inc., a wholly owned subsidiary, completed a private placement of senior second priority secured notes totaling $500.0 million face value which mature in November 2018 and bear interest at 10.00% (the “senior notes”). The Company received proceeds of $490.0 million, net of a $10.0 million original issue discount. Interest on the senior notes is payable on May 15 and November 15 each year.

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Note 9. Accounts Receivable Securitization

In June 2013, Swift Receivables Company II, LLC, a Delaware limited liability company (“SRCII”), a wholly-owned bankruptcy-remote special purpose subsidiary, entered into an Amended and Restated Receivables Sale Agreement (the “2013 RSA”) with unrelated financial entities (the “Purchasers”) to replace the Company's prior accounts receivable sale facility ("2011 RSA") and to sell, on a revolving basis, undivided interests in the Company’s accounts receivable. Pursuant to the 2013 RSA, the Company’s receivable originator subsidiaries will sell all of their eligible accounts receivable to SRCII, which in turn sells a variable percentage ownership interest in its accounts receivable to the Purchasers. The 2013 RSA increases the borrowing capacity secured by the receivables from $275.0 million under the 2011 RSA to $325.0 million and extends the final maturity date from June 8, 2014 to July 13, 2016 and is subject to customary fees and contains various customary affirmative and negative covenants, representations and warranties, and default and termination provisions. Outstanding balances under the 2013 RSA accrue program fees generally at commercial paper rates plus 95 basis points, down from commercial paper rates plus 125 basis points, and unused capacity is subject to an unused commitment fee of 35 basis points, decreasing from 40 basis points. Pursuant to the 2013 RSA, collections on the underlying receivables by the Company are held for the benefit of SRCII and the Purchasers in the facility and are unavailable to satisfy claims of the Company and its subsidiaries. The facility qualifies for treatment as a secured borrowing under Topic 860, Transfers and Servicing, and as such, outstanding amounts are carried on the Company’s consolidated balance sheets as a liability.

For the three and six months ended June 30, 2013, the Company incurred program fees of $0.7 million and $1.5 million, respectively, associated with the 2013 RSA and 2011 RSA, which were recorded in interest expense in the Company's consolidated statements of operations. For the three and six months ended June 30, 2012, the Company incurred program fees of $0.8 million and $1.6 million associated with the 2011 RSA. As of June 30, 2013, the outstanding borrowing under the 2013 RSA was $165.0 million against a total available borrowing base of $266.7 million, leaving $101.7 million available. As of December 31, 2012, the outstanding borrowing under the 2011 RSA was $204.0 million against a total available borrowing base of $268.6 million.

Note 10. Capital Leases

The Company leases certain revenue equipment under capital leases. 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. The Company is obligated to pay the balloon payments at the end of the leased term whether or not it receives the proceeds of the contracted residual values from the respective manufacturers. Certain leases contain renewal or fixed price purchase options. As of June 30, 2013 and December 31, 2012, the present value of obligations under capital leases totaled $171.6 million and $134.7 million, of which the current portion was $56.2 million and $39.4 million, respectively. The leases are collateralized by revenue equipment with a cost of $332.2 million and accumulated amortization of $154.7 million as of June 30, 2013. The amortization of the equipment under capital leases is included in depreciation and amortization expense in the Company’s consolidated statements of operations.

Note 11. Derivative Financial Instruments

In April 2011, as contemplated by the credit facility, the Company entered into two forward-starting interest rate swap agreements with a notional amount of $350.0 million. These interest rate swaps were effective in January 2013 and have a maturity date of July 2015. On April 27, 2011 (“designation date”), the Company designated and qualified these interest rate swaps as cash flow hedges. Subsequent to the designation date, the effective portion of the changes in estimated fair value of the designated swaps was recorded in accumulated OCI and is thereafter recognized to derivative interest expense as the interest on the hedged debt affects earnings, which hedged interest accruals began in January 2013. As of June 30, 2013 and December 31, 2012, changes in estimated fair value of the designated interest rate swap agreements totaling $0.1 million and $1.8 million, net-of-tax, respectively, were reflected in accumulated OCI. Refer to Note 12 below for further discussion of the Company’s estimated fair value methodology.

As discussed in Note 8—Debt and Financing Transactions, on March 7, 2013, the Company entered into the 2013 Agreement replacing the 2012 Agreement dated March 6, 2012. Due to the incorporation of a new interest rate floor provision in the 2013 Agreement, the Company concluded as of February 28, 2013, the outstanding interest rate swaps would no longer be highly effective in achieving offsetting changes in cash flows related to the hedged interest payments. As a result, the Company de-designated the hedges as of February 28, 2013 (“de-designation date”). Beginning on March 1, 2013, the effective portion of the change in fair value of interest rate swaps prior to the change (i.e. amounts previously recorded in accumulated OCI) have been and will continue to be amortized as derivative interest expense over the period of the originally designated hedged interest payments through July 2015. Following the de-designation date, changes in fair value of the interest rate swaps are immediately recognized in the consolidated statements of operations as derivative interest expense.

The following table presents the changes in fair value, pre-tax of derivatives designated as cash flow hedges had on accumulated OCI and earnings (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Amount of loss recognized in OCI on derivatives (effective portion)	$	—		$	1,169		$	189		$	2,108
Amount of loss reclassified from accumulated OCI into income as “Derivative interest expense” (effective portion)	$	(466	)	$	(2,108	)	$	(955	)	$	(4,653	)

The following tables presents information about pre-tax gains and losses recognized in earnings on the Company’s interest rate derivative contracts that were de-designated on February 28, 2013 as hedging instruments under Topic 815 is as follows (in thousands):

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Notes to Consolidated Financial Statements (Unaudited) – (continued)



	Three Months Ended June 30,					Six Months Ended June 30,
	2013			2012		2013			2012
Amount of loss recognized in income as “Derivative interest expense”	$	(66	)	$	—	$	(139	)	$	—

As of June 30, 2013, $4.7 million of deferred losses on derivatives in accumulated OCI is expected to be reclassified to earnings within the next 12 months.

Note 12. Fair Value Measurement

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 June 30, 2013 and December 31, 2012, 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, accounts receivable, net, income tax refund receivable, accounts payable, and accrued liabilities. The estimated fair value of these financial instruments approximate carrying value as they are short-term in nature. 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.

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments as of June 30, 2013 and December 31, 2012 (in thousands):



	June 30, 2013				December 31, 2012
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial Assets:
Restricted investments	$	26,955	$	26,939	$	22,275	$	22,271
Financial Liabilities:
Senior secured first lien term loan B-1 tranche (2013 Agreement)	238,000		238,976		—		—
Senior secured first lien term loan B-2 tranche (2013 Agreement)	410,000		412,419		—		—
Senior secured first lien term loan B-1 tranche (2012 Agreement)	—		—		157,095		157,346
Senior secured first lien term loan B-2 tranche (2012 Agreement)	—		—		575,560		582,236
Senior second priority secured notes	493,193		544,978		492,561		541,817
Securitization of accounts receivable	165,000		165,000		204,000		204,000

The carrying amounts shown in the table (other than the restricted investments, and the securitization of accounts receivable) are included in the consolidated balance sheets in long-term debt and obligations under capital leases. The estimated fair values of the financial instruments shown in the above table as of June 30, 2013 and December 31, 2012, 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.

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Notes to Consolidated Financial Statements (Unaudited) – (continued)

First lien term loans and senior second priority secured notes

The estimated fair values of the first lien term loan and senior second priority secured notes were determined by bid prices in trades between qualified institutional buyers.

Securitization of Accounts Receivable

The Company’s securitization of accounts receivable consists of borrowings outstanding pursuant to the Company’s 2013 RSA and 2011 RSA as of June 30, 2013 and December 31, 2012, respectively, as discussed in Note 9. Its fair value is estimated by discounting future cash flows using a discount rate commensurate with the uncertainty involved.

Fair value hierarchy

Topic 820 establishes a framework for measuring fair value in accordance with GAAP and expands financial statement disclosure requirements for fair value measurements. 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 is as 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.

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 will measure 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 measurement in its entirety falls is based on the lowest level input that is significant to the estimated fair value measurement in its entirety. Following is a brief summary of the Company’s classification within the fair value hierarchy of each major category of assets and liabilities that it measures and reports on its consolidated balance sheets at estimated fair value on a recurring basis as of June 30, 2013:

•

Interest rate swaps. The Company’s interest rate swaps are not actively traded but are valued using valuation models and credit valuation adjustments, both of which use significant inputs that are observable in active markets over the terms of the instruments the Company holds, and accordingly, the Company classified these valuation techniques as Level 2 in the hierarchy. Interest rate yield curves and credit spreads derived from trading levels of the Company’s first lien term loan are the significant inputs into these valuation models. These inputs are observable in active markets over the terms of the instruments the Company holds. The Company considers the effect of its own credit standing and that of its counterparties in the valuations of its derivative financial instruments.

Recurring Fair Value Measurements

As of June 30, 2013 and December 31, 2012, no assets of the Company were measured at estimated fair value on a recurring basis. As of June 30, 2013 and December 31, 2012, information about inputs into the estimated fair value measurements of each major category of the Company’s liabilities that were measured at estimated fair value on a recurring basis in periods subsequent to their initial recognition was as follows (in thousands):



			Fair Value Measurements at Reporting Date Using
Description	Total Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
As of June 30, 2013
Interest rate swaps	$	12,797	$	—	$	12,797	$	—
As of December 31, 2012
Interest rate swaps	$	13,012	$	—	$	13,012	$	—

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Swift Transportation Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) – (continued)

Nonrecurring Fair Value Measurements

As of June 30, 2013, no assets of the Company were measured at estimated fair value on a nonrecurring basis. As of December 31, 2012, information about inputs into the estimated fair value measurements of the Company’s assets that were measured at estimated fair value on a nonrecurring basis in the period is as follows (in thousands):



			Fair Value Measurements at Reporting Date Using
	Total Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Gains (Losses)
Description	Total Estimated Fair Value				Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Gains (Losses)
As of December 31, 2012
Real property	$	665	$	—	$	—	$	665	$	(1,065	)
Other assets	$	—	$	—	$	—	$	—	$	(2,322	)
Note receivable	$	1,000	$	—	$	—	$	1,000	$	(5,979	)

As of December 31, 2012, a deposit related to the purchase of certain fuel technology equipment and a related asset were written off as the supplier ceased operations, resulting in a pre-tax impairment of $2.3 million. Swift Power Services, LLC (“SPS”), an entity in which the Company owns a minority interest, failed to make its first scheduled principal payment and quarterly interest payment to the Company on December 31, 2012 due to a decline in its financial performance resulting from, among other things, a legal dispute with the former owners and its primary customer. This caused the Company to re-evaluate the secured promissory note due from SPS for impairment, which resulted in a $6.0 million pre-tax adjustment that was recorded in Impairments of non-operating assets in the fourth quarter of 2012. In accordance with the provisions of ASC Topic 360, Property, Plant and Equipment, real property with a carrying amount of $1.7 million was written down to its estimated fair value of $0.6 million during the first quarter of 2012, resulting in an impairment charge of $1.1 million, which was included in Impairments in the Company’s consolidated statements of operations. The impairment of this asset was identified due to the Company’s decision to no longer use this property for its initial intended purpose. The Company estimated its fair value using significant unobservable inputs because there have been no recent sales of similar properties in the market place.

Note 13. Earnings per Share

The computation of basic and diluted earnings per share is as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(In thousands, except per share amounts)
Net income	$	42,941	$	33,699	$	66,282	$	39,887
Basic:
Weighted average common shares outstanding	139,989		139,522		139,839		139,505
Diluted:
Dilutive effect of stock options	1,849		118		1,813		147
Total weighted average diluted shares outstanding	141,838		139,640		141,652		139,652
Anti-dilutive shares excluded from the diluted earnings per share calculation ⁽¹⁾	171		4,257		171		4,277
Earnings per share:
Basic earnings per share	$	0.31	$	0.24	$	0.47	$	0.29
Diluted earnings per share	$	0.30	$	0.24	$	0.47	$	0.29


(1)	Impact of outstanding options to purchase shares of the Company’s Class A common stock were anti-dilutive because the options exercise price was greater than the average market price of the common shares and were excluded from the calculation of diluted earnings per share.

As of June 30, 2013 and 2012, there were 5,847,980 and 6,005,914 options outstanding, respectively.

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Swift Transportation Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) – (continued)

Note 14. Contingencies

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, and physical damage and cargo damage. The Company expenses legal fees as incurred and accrues for the uninsured portion of contingent losses from these and other pending claims when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Based on the knowledge of the facts and, in certain cases, advice of outside counsel, management believes the resolution of claims and pending litigation, taking into account existing reserves, will not have a material adverse effect on the Company. Moreover, the results of complex legal proceedings are difficult to predict and the Company’s view of these matters may change in the future as the litigation and events related thereto unfold.

For certain cases described below, management is unable to provide a meaningful estimate of the possible loss or range of loss because, among other reasons, (i) the proceedings are in various stages; (ii) damages have not been sought; (iii) damages are unsupported and/or exaggerated; (iv) there is uncertainty as to the outcome of pending appeals and/or (v) there are significant factual issues to be resolved. For these cases, however, management does not believe, based on currently available information, that the outcomes of these proceedings will have a material adverse effect on our financial condition, though the outcomes could be material to our operating results for any particular period, depending, in part, upon the operating results for such period.

2004 owner-operator class action litigation

On January 30, 2004, a class action lawsuit was filed by Leonel Garza on behalf of himself and all similarly situated persons against Swift Transportation: Garza vs. Swift Transportation Co., Inc., Case No. CV7-472, or the Garza Complaint. The putative class originally involved certain owner-operators who contracted with the Company under a 2001 Contractor Agreement that was in place for one year. The putative class is alleging that the Company should have reimbursed owner-operators for actual miles driven rather than the contracted and industry standard remuneration based upon dispatched miles. The trial court denied plaintiff’s petition for class certification, the plaintiff appealed and on August 6, 2008, the Arizona Court of Appeals issued an unpublished Memorandum Decision reversing the trial court’s denial of class certification and remanding the case back to the trial court. On November 14, 2008, the Company filed a petition for review to the Arizona Supreme Court regarding the issue of class certification as a consequence of the denial of the Motion for Reconsideration by the Court of Appeals. On March 17, 2009, the Arizona Supreme Court granted the Company’s petition for review, and on July 31, 2009, the Arizona Supreme Court vacated the decision of the Court of Appeals opining that the Court of Appeals lacked automatic appellate jurisdiction to reverse the trial court’s original denial of class certification and remanded the matter back to the trial court for further evaluation and determination. Thereafter, the plaintiff renewed the motion for class certification and expanded it to include all persons who were employed by Swift as employee drivers or who contracted with Swift as owner-operators on or after January 30, 1998, in each case who were compensated by reference to miles driven. On November 4, 2010, the Maricopa County trial court entered an order certifying a class of owner-operators and expanding the class to include employees. Upon certification, the Company filed a motion to compel arbitration as well as filing numerous motions in the trial court urging dismissal on several other grounds including, but not limited to the lack of an employee as a class representative, and because the named owner-operator class representative only contracted with the Company for a three month period under a one year contract that no longer exists. In addition to these trial court motions, the Company also filed a petition for special action with the Arizona Court of Appeals arguing that the trial court erred in certifying the class because the trial court relied upon the Court of Appeals ruling that was previously overturned by the Arizona Supreme Court. On April 7, 2011, the Arizona Court of Appeals declined jurisdiction to hear this petition for special action and the Company filed a petition for review to the Arizona Supreme Court. On August 31, 2011, the Arizona Supreme Court declined to review the decision of the Arizona Court of Appeals. In April 2012, the court issued the following rulings with respect to certain motions filed by Swift: (1) denied Swift’s motion to compel arbitration; (2) denied Swift’s request to decertify the class; (3) granted Swift’s motion that there is no breach of contract; and (4) granted Swift’s motion to limit class size based on statute of limitations. The Company intends to continue to pursue all available appellate relief supported by the record, which the Company believes demonstrates that the class is improperly certified and, further, that the claims raised have no merit. The Company retains all of its defenses against liability and damages. The final disposition of this case and the impact of such final disposition cannot be determined at this time.

Owner-operator misclassification class action litigation

On December 22, 2009, a class action lawsuit was filed against Swift Transportation and IEL: John Doe 1 and Joseph Sheer v. Swift Transportation Co., Inc., and Interstate Equipment Leasing, Inc ., Jerry Moyes, and Chad Killebrew, Case No. 9-CIV-10376 filed in the United States District Court for the Southern District of New York, or the Sheer Complaint. The putative class involves owner-operators alleging that Swift Transportation misclassified owner-operators as independent contractors in violation of the federal Fair Labor Standards Act, or FLSA, and various New York and California 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. At present, in addition to the named plaintiffs, approximately 200 other current or former owner-operators have joined this lawsuit. Upon Swift’s motion, the matter has been transferred from the United States District Court for the Southern District of New York to the United States District Court in Arizona. On May 10, 2010, the plaintiffs filed a motion to conditionally certify an FLSA collective action and authorize notice to the potential class members. On September 23, 2010, plaintiffs filed a motion for a preliminary injunction seeking to enjoin Swift and IEL from collecting payments from plaintiffs who are in default under their lease agreements and related relief. On September 30, 2010, the District Court granted Swift’s motion to compel arbitration and ordered that the class action be stayed pending the outcome of arbitration. The court further denied plaintiff’s motion for preliminary injunction and motion for conditional class certification. The Court also denied plaintiff’s request to arbitrate the matter as a class. The plaintiff filed a petition for a writ of mandamus asking that the District Court’s order be vacated. On July 27, 2011, the court denied the plaintiff’s petition for writ of mandamus and the plaintiff’s filed another request for interlocutory appeal. On December 9, 2011, the court permitted the plaintiffs to

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Swift Transportation Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) – (continued)

proceed with their interlocutory appeal. Swift intends to vigorously defend against any arbitration proceedings. The final disposition of this case and the impact of such final disposition cannot be determined at this time.

California wage, meal and rest employee class action

On March 22, 2010, a class action lawsuit was filed by John Burnell, individually and on behalf of all other similarly situated persons against Swift Transportation: John Burnell and all others similarly situated v. Swift Transportation Co., Inc. , Case No. CIVDS 1004377 filed in the Superior Court of the State of California, for the County of San Bernardino, or the Burnell Complaint. On September 3, 2010, upon motion by Swift, the matter was removed to the United States District Court for the Central District of California, Case No. EDCV10-809-VAP. The putative class includes drivers who worked for Swift during the four years preceding the date of filing alleging that Swift failed to pay the California minimum wage, failed to provide proper meal and rest periods, and failed to timely pay wages upon separation from employment. The Burnell Complaint was subject to a stay of proceedings pending determination of similar issues in a case unrelated to Swift, Brinker v Hohnbaum, which was then pending before the California Supreme Court. A ruling was entered in the Brinker matter and in August 2012 the stay in the Burnell Complaint was lifted. On April 9, 2013 the Company filed a motion for judgment on the pleadings requesting dismissal of plaintiff's claims related to alleged meal and rest break violations under the California Labor Code alleging that such claims are preempted by the Federal Aviation Administration Authorization Act. On May 29, 2013, the U.S. District Court for the Central District of California granted the Company's motion for judgment on the pleadings and dismissed plaintiff's claims that are based on alleged violations of meal and rest periods set forth in the California Labor Code.

On April 5, 2012, the Company was served with an additional class action complaint alleging facts similar to those as set forth in the Burnell Complaint. This new class action is James R. Rudsell, on behalf of himself and all others similarly situated v. Swift Transportation Co. of Arizona, LLC and Swift Transportation Company, Case No. CIVDS 1200255, in the Superior Court of California for the County of San Bernardino, or the Rudsell Complaint.

The Company intends to vigorously defend certification of the class in both matters as well as the merits of these matters should the classes be certified. The final disposition of both cases and the impact of such final dispositions of these cases cannot be determined at this time.

California and Oregon minimum wage class action

On July 12, 2011, a class action lawsuit was filed by Simona Montalvo on behalf of herself and all similarly situated persons against Swift Transportation: Montalvo et al. v. Swift Transportation Corporation d/b/a ST Swift Transportation Corporation in the Superior Court of California, County of San Diego, or the Montalvo Complaint. The Montalvo Complaint was removed to federal court on August 15, 2011, case number 3-11-CV-1827-L. Upon petition by plaintiffs, the matter was remanded to state court and the Company filed an appeal to this remand, which appeal has been denied. On July 29, 2013, the court certified the class.

The issue of class certification in the Montalvo Complaint remains subject to appeal and must first be resolved before the court will address the merits of the case, and we retain all of our defenses against liability and damages pending a determination of class certification. The Company intends to vigorously defend against certification of the class as well as the merits of this matter should the class be certified.

Washington overtime class action

On September 9, 2011, a class action lawsuit was filed by Troy Slack on behalf of himself and all similarly situated persons against Swift Transportation: Troy Slack, et al v. Swift Transportation Co. of Arizona, LLC and Swift Transportation Corporation in the State Court of Washington, Pierce County, or the Slack Compliant. The Slack Complaint was removed to federal court on October 12, 2011, case number 11-2-114380. The putative class includes all current and former Washington State based employee drivers during the three year statutory period alleging that they were not paid overtime in accordance with Washington State law and that they were not properly paid for meals and rest periods. The Company intends to viorously defend certification of the class as well as the merits of these matters should the class be certified. The final disposition of this case and the impact of such final disposition of this case cannot be determined at this time.

Environmental notice

On April 17, 2009, the Company received a notice from the Lower Willamette Group, or LWG, advising that there are a total of 250 potentially responsible parties, or PRPs, with respect to alleged environmental contamination of the Lower Willamette River in Portland, Oregon designated as the Portland Harbor Superfund site, or the Site, and that as a previous landowner at the Site the Company has been asked to join a group of 60 PRPs and proportionately contribute to (i) reimbursement of funds expended by LWG to investigate environmental contamination at the Site and (ii) remediation costs of the same, rather than be exposed to potential litigation. Although the Company does not believe it contributed any contaminants to the Site, the Company was at one time the owner of property at the Site and the Comprehensive Environmental Response, Compensation and Liability Act imposes a standard of strict liability on property owners with respect to environmental claims. Notwithstanding this standard of strict liability, the Company believes our potential proportionate exposure to be minimal and not material. No formal complaint has been filed in this matter. The Company’s pollution liability insurer has been notified of this potential claim. The Company does not believe the outcome of this matter is likely to have a material adverse effect on Swift. However, the final disposition of this matter and the impact of such final disposition cannot be determined at this time.

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Swift Transportation Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) – (continued)

2013 Environmental incident

On May 14, 2013 a Swift Transportation tractor and trailer was involved in an accident in Bridgeport, California that resulted in fuel and other liquid components being released into the ground and a nearby stream. Based on soil and water testing of the impacted area, the Company expects the range of cost to remediate this release is $300 thousand to $500 thousand.

Note 15. Segment information

The Company’s three reportable operating segments consist of Truckload, Dedicated 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 and offers tailored solutions under long-term contracts. This dedicated segment utilizes refrigerated, dry van, flatbed and other specialized trailing equipment.


•	Intermodal. The intermodal segment includes revenue generated by moving freight over the rail in our containers and other trailing equipment, combined with revenue for drayage to transport loads between the railheads and customer locations.


•	Other businesses. Nonreportable segments are comprised of the Company’s freight brokerage and logistics management services, as well as revenue generated by the Company’s subsidiaries offering support services to its customers and owner-operators, including shop maintenance, equipment leasing, and insurance.

The Company uses the “management approach” to determine its reportable operating segments, as well as to determine the basis of reporting the operating segment information. The management approach focuses on financial information that the Company’s management uses to make operating decisions. The chief operating decision makers 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 of segment profit or loss the Company uses to evaluate segment performance and allocate resources and, consistent with GAAP accounting guidance for segment reporting, it is the Company’s measure of segment performance and is reported below. Operating income should not be viewed as a substitute for GAAP net income (loss). The Company believes the presentation of operating income enhances the understanding of its performance 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 tax.

Based on the unique nature of the operating structure of the Company, 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 on its property and equipment to the segments based on the utilization of the asset by the segment during the period.

The Company’s foreign operations total revenue was less than 5.0% of the Company’s total revenue for the three and six months ended June 30, 2013 and 2012, respectively.

Set forth in the tables below is certain financial information with respect to the Company’s reportable segments (in thousands):



	Operating Revenues
	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Truckload	$	588,724		$	575,193		$	1,148,319		$	1,126,440
Dedicated	182,651			181,873			361,877			353,412
Intermodal	84,375			81,120			161,700			150,165
Subtotal	855,750			838,186			1,671,896			1,630,017
Nonreportable segments	55,131			49,162			110,423			101,493
Intersegment eliminations	(12,777		)	(14,764		)	(27,421		)	(32,041		)
Consolidated operating revenue	$	898,104		$	872,584		$	1,754,898		$	1,699,469

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Swift Transportation Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) – (continued)



	Operating Income (Loss)
	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013			2012
Truckload	$	64,614	$	67,994	$	107,017		$	114,548
Dedicated	24,263		18,515		43,217			33,022
Intermodal	753		123		(1,045		)	(3,904		)
Subtotal	89,630		86,632		149,189			143,666
Nonreportable segments	2,651		45		5,079			913
Consolidated operating income	$	92,281	$	86,677	$	154,268		$	144,579



	Depreciation and Amortization Expense
	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Truckload	$	32,388	$	30,346	$	63,380	$	61,484
Dedicated	11,223		11,439		21,728		22,358
Intermodal	2,254		2,187		4,622		4,194
Subtotal	45,865		43,972		89,730		88,036
Nonreportable segments	6,662		6,417		13,129		12,747
Consolidated depreciation and amortization expense	$	52,527	$	50,389	$	102,859	$	100,783

Other Intersegment Transactions

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.

Note 16. Accumulated Other Comprehensive Income

The following table is a reconciliation of accumulated other comprehensive income by component (in thousands):



	Derivative Financial Instruments			Foreign Currency Transactions		Accumulated Other Comprehensive Income
Balance as of December 31, 2012	$	(7,977	)	$	83	$	(7,894	)
Other comprehensive loss before reclassifications	(161		)	—		(161		)
Amounts reclassified from accumulated other comprehensive loss	713			—		713
Net current-period other comprehensive income	552			—		552
Balance as of June 30, 2013	$	(7,425	)	$	83	$	(7,342	)
All amounts are net-of-tax. Amounts in parenthesis indicate debits.

The following table presents details about reclassifications out of accumulated other comprehensive loss for the three and six months ended June 30, 2013 and 2012 are as follows (in thousands):

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Swift Transportation Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) – (continued)



	Amount Reclassified from Accumulated Other Comprehensive Loss
	Three Months Ended June 30,					Six Months Ended June 30,
	2013			2012		2013			2012		Statement of Operations Classifications
Gains and losses on cash flow hedging:
Interest rate swaps	$	466		$	2,108	$	955		$	4,653	Derivative interest expense
Income tax (benefit) expense	(242		)	828		(214		)	1,461		Income tax expense
	$	224		$	2,936	$	741		$	6,114	Consolidated net income

Note 17. Guarantor Condensed Consolidating Financial Statements

The payment of principal and interest on the Company’s senior second priority secured notes are guaranteed by the Company’s 100% owned domestic subsidiaries (the “Guarantor Subsidiaries”) other than its driver academy subsidiary, its captive insurance subsidiaries, its special-purpose receivables securitization subsidiary, and its foreign subsidiaries (the “Non-guarantor Subsidiaries”). The separate financial statements of the Guarantor Subsidiaries are not included herein because the Guarantor Subsidiaries are the Company’s 100% owned consolidated subsidiaries and are jointly, severally, fully and unconditionally liable for the obligations represented by the senior second priority secured notes.

The condensed financial statements present condensed financial data for (i) Swift Transportation Company (on a parent only basis), (ii) Swift Services Holdings, Inc. (on an issuer only basis), (iii) the combined Guarantor Subsidiaries, (iv) the combined Non-Guarantor Subsidiaries, (v) an elimination column for adjustments to arrive at the information for the parent company and subsidiaries on a consolidated basis and (vi) the parent company and subsidiaries on a consolidated basis as of June 30, 2013 and December 31, 2012 and for the three and six months ended June 30, 2013 and 2012.

Investments in subsidiaries are accounted for by the respective parent company using the equity method for purposes of this presentation. Results of operations of subsidiaries are therefore reflected in the parent company’s investment accounts and earnings. The principal elimination entries set forth below eliminate investments in subsidiaries and intercompany balances and transactions.

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Swift Transportation Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) – (continued)

Condensed consolidating balance sheet as of June 30, 2013



	Swift Transportation Company (Parent)			Swift Services Holdings, Inc. (Issuer)			Guarantor Subsidiaries			Non- Guarantor Subsidiaries		Eliminations for Consolidation			Consolidated
	(In thousands)
Cash and cash equivalents	$	—		$	—		$	29,073		$	14,437	$	—		$	43,510
Restricted cash	—			—			—			42,694		—			42,694
Restricted investments, held to maturity, amortized cost	—			—			—			26,955		—			26,955
Accounts receivable, net	—			—			14,898			349,291		(3,459		)	360,730
Intercompany receivable (payable)	87,213			416,000			(559,390		)	56,177		—			—
Other current assets	22,344			(1,261		)	104,321			13,854		—			139,258
Total current assets	109,557			414,739			(411,098		)	503,408		(3,459		)	613,147
Property and equipment, net	—			—			1,365,137			35,331		—			1,400,468
Investment in subsidiaries	150,536			803,039			932,373			—		(1,885,948		)	—
Other assets	700			2,106			132,577			4,847		(89,530		)	50,700
Intangible assets, net	—			—			315,113			10,041		—			325,154
Goodwill	—			—			246,977			6,279		—			253,256
Total assets	$	260,793		$	1,219,884		2,581,079			$	559,906	$	(1,978,937	)	$	2,642,725
Current portion of long-term debt and obligations under capital leases	$	—		$	—		$	58,775		$	93,540	$	(89,505	)	$	62,810
Other current liabilities	2,040			6,389			271,900			30,610		(3,459		)	307,480
Total current liabilities	2,040			6,389			330,675			124,150		(92,964		)	370,290
Long-term debt and obligations under capital leases, less current portion	—			493,193			763,414			7,100		(25		)	1,263,682
Deferred income taxes	(20,899		)	(394		)	441,592			5,417		—			425,716
Securitization of accounts receivable	—			—			—			165,000		—			165,000
Other liabilities	—			—			67,726			46,310		—			114,036
Total liabilities	(18,859		)	499,188			1,603,407			347,977		(92,989		)	2,338,724
Total stockholders’ equity	279,652			720,696			977,672			211,929		(1,885,948		)	304,001
Total liabilities and stockholders’ equity	$	260,793		$	1,219,884		$	2,581,079		$	559,906	$	(1,978,937	)	$	2,642,725

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Swift Transportation Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) – (continued)

Condensed consolidating balance sheet as of December 31, 2012



	Swift Transportation Company (Parent)			Swift Services Holdings, Inc. (Issuer)			Guarantor Subsidiaries			Non- Guarantor Subsidiaries		Eliminations for Consolidation			Consolidated
	(In thousands)
Cash and cash equivalents	$	—		$	—		$	43,877		$	9,719	$	—		$	53,596
Restricted cash	—			—			—			51,678		—			51,678
Restricted investments, held to maturity, amortized cost	—			—			—			22,275		—			22,275
Accounts receivable, net	—			—			17,643			324,597		(3,516		)	338,724
Intercompany receivable (payable)	24,239			430,030			(507,934		)	53,665		—			—
Other current assets	57,914			181			136,582			13,587		—			208,264
Total current assets	82,153			430,211			(309,832		)	475,521		(3,516		)	674,537
Property and equipment, net	—			—			1,274,636			37,178		—			1,311,814
Investment in subsidiaries	106,194			757,590			904,312			—		(1,768,096		)	—
Other assets	250			2,301			81,104			4,974		(29,619		)	59,010
Intangible assets, net	—			—			323,134			10,427		—			333,561
Goodwill	—			—			246,977			6,279		—			253,256
Total assets	$	188,597		$	1,190,102		$	2,520,331		$	534,379	$	(1,801,231	)	$	2,632,178
Current portion of long-term debt and obligations under capital leases	$	—		$	—		$	45,703		$	28,301	$	(26,509	)	$	47,495
Other current liabilities	1,656			6,389			242,954			28,315		(3,516		)	275,798
Total current liabilities	1,656			6,389			288,657			56,616		(30,025		)	323,293
Long-term debt and obligations under capital leases, less current portion	—			492,561			827,972			6,116		(3,110		)	1,323,539
Deferred income taxes	(19,372		)	(346		)	455,874			5,001		—			441,157
Securitization of accounts receivable	—			—			—			204,000		—			204,000
Other liabilities	—			—			60,502			49,576		—			110,078
Total liabilities	(17,716		)	498,604			1,633,005			321,309		(33,135		)	2,402,067
Total stockholders’ equity	206,313			691,498			887,326			213,070		(1,768,096		)	230,111
Total liabilities and stockholders’ equity	$	188,597		$	1,190,102		$	2,520,331		$	534,379	$	(1,801,231	)	$	2,632,178

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Swift Transportation Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) – (continued)

Condensed consolidating statement of operations for the three months ended June 30, 2013



	Swift Transportation Company (Parent)			Swift Services Holdings, Inc. (Issuer)			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations for Consolidation			Consolidated
	(In thousands)
Operating revenue	$	—		$	—		$	878,932		$	40,813		$	(21,641	)	$	898,104
Operating expenses:
Salaries, wages and employee benefits	833			—			194,251			7,673			—			202,757
Operating supplies and expenses	631			4			64,335			5,041			(1,875		)	68,136
Fuel	—			—			137,550			6,827			—			144,377
Purchased transportation	—			—			267,284			3,641			(13,454		)	257,471
Rental expense	—			—			29,825			876			(160		)	30,541
Insurance and claims	—			—			24,983			10,376			(6,152		)	29,207
Depreciation and amortization of property and equipment	—			—			51,367			1,160			—			52,527
Amortization of intangibles	—			—			4,010			193			—			4,203
Gain on disposal of property and equipment	—			—			(4,716		)	35			—			(4,681		)
Communication and utilities	—			—			5,207			226			—			5,433
Operating taxes and licenses	—			—			13,051			2,801			—			15,852
Total operating expenses	1,464			4			787,147			38,849			(21,641		)	805,823
Operating income (loss)	(1,464		)	(4		)	91,785			1,964			—			92,281
Interest expense, net	—			12,914			9,432			1,429			—			23,775
Other (income) expenses, net	(20,844		)	(38,501		)	(30,738		)	(2,981		)	91,741			(1,323		)
Income before income taxes	19,380			25,583			113,091			3,516			(91,741		)	69,829
Income tax expense (benefit)	(23,561		)	(4,793		)	53,746			1,496			—			26,888
Net income	$	42,941		$	30,376		$	59,345		$	2,020		$	(91,741	)	$	42,941

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Swift Transportation Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) – (continued)

Condensed consolidating statement of operations for the three months ended June 30, 2012



	Swift Transportation Company (Parent)			Swift Services Holdings, Inc. (Issuer)			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations for Consolidation			Consolidated
	(In thousands)
Operating revenue	$	—		$	—		$	856,591		$	33,429		$	(17,436	)	$	872,584
Operating expenses:
Salaries, wages and employee benefits	1,463			—			190,587			6,568			—			198,618
Operating supplies and expenses	685			6			60,395			3,800			(1,507		)	63,379
Fuel	—			—			140,635			5,191			—			145,826
Purchased transportation	—			—			262,009			2,169			(11,493		)	252,685
Rental expense	—			—			26,443			305			(172		)	26,576
Insurance and claims	—			—			20,980			9,562			(4,264		)	26,278
Depreciation and amortization of property and equipment	—			—			49,463			926			—			50,389
Amortization of intangibles	—			—			4,022			193			—			4,215
Gain on disposal of property and equipment	—			—			(3,478		)	—			—			(3,478		)
Communication and utilities	—			—			5,743			232			—			5,975
Operating taxes and licenses	—			—			13,324			2,120			—			15,444
Total operating expenses	2,148			6			770,123			31,066			(17,436		)	785,907
Operating income (loss)	(2,148		)	(6		)	86,468			2,363			—			86,677
Interest expense, net	—			12,914			17,099			1,209			—			31,222
Other (income) expenses, net	(34,756		)	(26,941		)	(18,707		)	(2,654		)	83,038			(20		)
Income before income taxes	32,608			14,021			88,076			3,808			(83,038		)	55,475
Income tax expense (benefit)	(1,091		)	(4,820		)	26,382			1,305			—			21,776
Net income	$	33,699		$	18,841		$	61,694		$	2,503		$	(83,038	)	$	33,699

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Swift Transportation Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) – (continued)

Condensed consolidating statement of operations for the six months ended June 30, 2013



	Swift Transportation Company (Parent)			Swift Services Holdings, Inc. (Issuer)			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations for Consolidation			Consolidated
	(In thousands)
Operating revenue	$	—		$	—		$	1,717,464		$	79,439		$	(42,005	)	$	1,754,898
Operating expenses:
Salaries, wages and employee benefits	1,378			—			393,094			14,892			—			409,364
Operating supplies and expenses	1,130			4			123,270			8,029			(3,632		)	128,801
Fuel	—			—			283,174			13,085			—			296,259
Purchased transportation	—			—			521,410			6,619			(25,741		)	502,288
Rental expense	—			—			58,322			1,797			(327		)	59,792
Insurance and claims	—			—			47,758			21,525			(12,305		)	56,978
Depreciation and amortization of property and equipment	—			—			100,659			2,200			—			102,859
Amortization of intangibles	—			—			8,021			386			—			8,407
Gain on disposal of property and equipment	—			—			(7,055		)	20			—			(7,035		)
Communication and utilities	—			—			11,102			423			—			11,525
Operating taxes and licenses	—			—			25,927			5,465			—			31,392
Total operating expenses	2,508			4			1,565,682			74,441			(42,005		)	1,600,630
Operating income (loss)	(2,508		)	(4		)	151,782			4,998			—			154,268
Interest expense, net	—			25,827			21,010			2,501			—			49,338
Other (income) expenses, net	(44,343		)	(45,448		)	(31,206		)	(5,347		)	123,491			(2,853		)
Income before income taxes	41,835			19,617			161,978			7,844			(123,491		)	107,783
Income tax expense (benefit)	(24,447		)	(9,583		)	72,187			3,344			—			41,501
Net income	$	66,282		$	29,200		$	89,791		$	4,500		$	(123,491	)	$	66,282

Table of Contents

Swift Transportation Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) – (continued)

Condensed consolidating statement of operations for the six months ended June 30, 2012



	Swift Transportation Company (Parent)			Swift Services Holdings, Inc. (Issuer)			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations for Consolidation			Consolidated
	(In thousands)
Operating revenue	$	—		$	—		$	1,666,098		$	67,911		$	(34,540	)	$	1,699,469
Operating expenses:
Salaries, wages and employee benefits	2,730			—			382,542			13,481			—			398,753
Operating supplies and expenses	1,232			8			114,110			6,580			(3,509		)	118,421
Fuel	—			—			288,206			10,623			—			298,829
Purchased transportation	—			—			503,874			4,375			(22,362		)	485,887
Rental expense	—			—			49,819			609			(353		)	50,075
Insurance and claims	—			—			46,842			18,332			(8,316		)	56,858
Depreciation and amortization of property and equipment	—			—			98,980			1,803			—			100,783
Amortization of intangibles	—			—			8,127			391			—			8,518
Impairments	—			—			1,065			—			—			1,065
Gain on disposal of property and equipment	—			—			(7,868		)	—			—			(7,868		)
Communication and utilities	—			—			11,745			476			—			12,221
Operating taxes and licenses	—			—			26,859			4,489			—			31,348
Total operating expenses	3,962			8			1,524,301			61,159			(34,540		)	1,554,890
Operating income (loss), net	(3,962		)	(8		)	141,797			6,752			—			144,579
Interest expense, net	—			25,827			37,788			2,531			—			66,146
Other (income) expenses	(41,285		)	(55,940		)	(20,114		)	(5,045		)	142,702			20,318
Income before income taxes	37,323			30,105			124,123			9,266			(142,702		)	58,115
Income tax expense (benefit)	(2,564		)	(9,641		)	26,901			3,532			—			18,228
Net income	$	39,887		$	39,746		$	97,222		$	5,734		$	(142,702	)	$	39,887

Table of Contents

Swift Transportation Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) – (continued)

Condensed consolidating statement of comprehensive income for the three months ended June 30, 2013



	Swift Transportation Company (Parent)		Swift Services Holdings, Inc. (Issuer)		Guarantor Subsidiaries			Non- Guarantor Subsidiaries		Eliminations for Consolidation			Consolidated
	(In thousands)
Net income	$	42,941	$	30,376	$	59,345		$	2,020	$	(91,741	)	$	42,941
Other comprehensive income before income taxes:
Accumulated losses on derivatives reclassified to derivative interest expense	—		—		466			—		—			466
Change in fair value of interest rate swaps	—		—		—			—		—			—
Other comprehensive income before income taxes	—		—		466			—		—			466
Income tax effect of items of other comprehensive income	—		—		(242		)	—		—			(242		)
Total comprehensive income	$	42,941	$	30,376	$	59,569		$	2,020	$	(91,741	)	$	43,165

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Swift Transportation Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) – (continued)

Condensed consolidating statement of comprehensive income for the three months ended June 30, 2012



	Swift Transportation Company (Parent)		Swift Services Holdings, Inc. (Issuer)		Guarantor Subsidiaries			Non- Guarantor Subsidiaries		Eliminations for Consolidation			Consolidated
	(In thousands)
Net income	$	33,699	$	18,841	$	61,694		$	2,503	$	(83,038	)	$	33,699
Other comprehensive income before income taxes:
Accumulated losses on derivatives reclassified to derivative interest expense	—		—		2,108			—		—			2,108
Change in fair value of interest rate swaps	—		—		(1,169		)	—		—			(1,169		)
Other comprehensive income before income taxes	—		—		939			—		—			939
Income tax effect of items of other comprehensive income	—		—		453			—		—			453
Total comprehensive income	$	33,699	$	18,841	$	63,086		$	2,503	$	(83,038	)	$	35,091

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Swift Transportation Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) – (continued)

Condensed consolidating statement of comprehensive income for the six months ended June 30, 2013



	Swift Transportation Company (Parent)		Swift Services Holdings, Inc. (Issuer)		Guarantor Subsidiaries			Non- Guarantor Subsidiaries		Eliminations for Consolidation			Consolidated
	(In thousands)
Net income	$	66,282	$	29,200	$	89,791		$	4,500	$	(123,491	)	$	66,282
Other comprehensive income before income taxes:
Accumulated losses on derivatives reclassified to derivative interest expense	—		—		955			—		—			955
Change in fair value of interest rate swaps	—		—		(189		)	—		—			(189		)
Other comprehensive income before income taxes	—		—		766			—		—			766
Income tax effect of items of other comprehensive income	—		—		(214		)	—		—			(214		)
Total comprehensive income	$	66,282	$	29,200	$	90,343		$	4,500	$	(123,491	)	$	66,834

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Swift Transportation Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) – (continued)

Condensed consolidating statement of comprehensive income for the six months ended June 30, 2012



	Swift Transportation Company (Parent)		Swift Services Holdings, Inc. (Issuer)		Guarantor Subsidiaries			Non- Guarantor Subsidiaries		Eliminations for Consolidation			Consolidated
	(In thousands)
Net income	$	39,887	$	39,746	$	97,222		$	5,734	$	(142,702	)	$	39,887
Other comprehensive income before income taxes:
Accumulated losses on derivatives reclassified to derivative interest expense	—		—		4,653			—		—			4,653
Change in fair value of interest rate swaps	—		—		(2,108		)	—		—			(2,108		)
Other comprehensive income before income taxes	—		—		2,545			—		—			2,545
Income tax effect of items of other comprehensive income	—		—		817			—		—			817
Total comprehensive income	$	39,887	$	39,746	$	100,584		$	5,734	$	(142,702	)	$	43,249

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Swift Transportation Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) – (continued)

Condensed consolidating statement of cash flows for the six months ended June 30, 2013



	Swift Transportation Company (Parent)			Swift Services Holdings, Inc. (Issuer)			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations for Consolidation			Consolidated
	(In thousands)
Net cash provided by (used in) operating activities	$	57,295		$	(14,029	)	$	197,026		$	(19,949	)	$	—		$	220,343
Cash flows from investing activities:
Decrease in restricted cash	—			—			—			8,984			—			8,984
Change in restricted investments	—			—			—			(4,680		)	—			(4,680		)
Proceeds from sale of property and equipment	—			—			35,086			136			—			35,222
Capital expenditures	—			—			(149,878		)	(505		)	—			(150,383		)
Payments received on notes receivable	—			—			2,074			—			—			2,074
Expenditures on assets held for sale	—			—			(1,614		)	—			—			(1,614		)
Payments received on assets held for sale	—			—			22,773			—			—			22,773
Payments received on equipment sale receivables	—			—			644			—			—			644
Dividends from subsidiary	—			—			6,800			—			(6,800		)	—
Payments received on intercompany notes payable	—			—			3,399			—			(3,399		)	—
Capital contribution to subsidiary	—			—			(1,160		)	—			1,160			—
Net cash provided by (used in) investing activities	—			—			(81,876		)	3,935			(9,039		)	(86,980		)
Cash flows from financing activities:
Proceeds from long-term debt	—			—			—			7,528			—			7,528
Payment of deferred loan costs	—			—			(1,332		)	(851		)	—			(2,183		)
Borrowings under accounts receivable securitization	—			—			—			80,000			—			80,000
Repayment of accounts receivable securitization	—			—			—			(119,000		)	—			(119,000		)
Repayment of long-term debt and capital leases	—			—			(114,570		)	(902		)	—			(115,472		)
Repayment of intercompany notes payable	—			—			—			(3,399		)	3,399			—
Dividend to parent	—			—			—			(6,800		)	6,800			—
Capital contribution	—			—			—			1,160			(1,160		)	—
Net funding (to) from affiliates	(62,973		)	14,029			(14,052		)	62,996			—			—
Other financing activities	5,678			—			—			—			—			5,678
Net cash provided by (used in) financing activities	(57,295		)	14,029			(129,954		)	20,732			9,039			(143,449		)
Net (decrease) increase in cash and cash equivalents	—			—			(14,804		)	4,718			—			(10,086		)
Cash and cash equivalents at beginning of period	—			—			43,877			9,719			—			53,596
Cash and cash equivalents at end of period	$	—		$	—		$	29,073		$	14,437		$	—		$	43,510

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Swift Transportation Company and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited) – (continued)

Condensed consolidating statement of cash flows for the six months ended June 30, 2012



	Swift Transportation Company (Parent)			Swift Services Holdings, Inc. (Issuer)			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations for Consolidation			Consolidated
	(In thousands)
Net cash provided by (used in) operating activities	$	25,110		$	6,520		$	151,107		$	(16,887	)	$	—		$	165,850
Cash flows from investing activities:
Decrease in restricted cash	—			—			—			14,556			—			14,556
Change in restricted investments	—			—			—			(14,612		)	—			(14,612		)
Funding of notes receivable	—			—			(7,500		)	—			—			(7,500		)
Proceeds from sale of property and equipment	—			—			57,238			2			—			57,240
Capital expenditures	—			—			(130,012		)	(1,090		)	—			(131,102		)
Payments received on notes receivable	—			—			3,202			—			—			3,202
Expenditures on assets held for sale	—			—			(2,223		)	—			—			(2,223		)
Payments received on assets held for sale	—			—			10,340			—			—			10,340
Payments received on equipment sale receivables	—			—			5,496			—			—			5,496
Dividends from subsidiary	—			—			6,700			—			(6,700		)	—
Payments received on intercompany notes payable	—			—			604			—			(604		)	—
Funding of intercompany notes payable	—			—			(787		)	—			787			—
Other investing activities	—			—			(500		)	—			—			(500		)
Net cash used in investing activities	—			—			(57,442		)	(1,144		)	(6,517		)	(65,103		)
Cash flows from financing activities:
Payment of deferred loan costs	—			—			(9,009		)	—			—			(9,009		)
Borrowings under accounts receivable securitization	—			—			—			174,000			—			174,000
Repayment of accounts receivable securitization	—			—			—			(151,000		)	—			(151,000		)
Repayment of long-term debt and capital leases	—			—			(171,167		)	(266		)	—			(171,433		)
Dividend to parent	—			—			—			(6,700		)	6,700			—
Proceeds from long term notes	—			—			10,000			—			—			10,000
Proceeds from intercompany notes payable	—			—			—			787			(787		)	—
Repayment of intercompany notes payable	—			—			—			(604		)	604			—
Net funding (to) from affiliates	(9,122		)	(6,520		)	10,120			5,522			—			—
Other financing activities	126			—			—			—			—			126
Net cash provided by (used in) financing activities	(8,996		)	(6,520		)	(160,056		)	21,739			6,517			(147,316		)
Net increase (decrease) in cash and cash equivalents	16,114			—			(66,391		)	3,708			—			(46,569		)
Cash and cash equivalents at beginning of period	11,132			—			64,717			6,235			—			82,084
Cash and cash equivalents at end of period	$	27,246		$	—		$	(1,674	)	$	9,943		$	—		$	35,515

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ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes included elsewhere in this report and our Annual Report on Form 10-K for the year ended December 31, 2012.

Non-GAAP Measures

In addition to disclosing financial results that are determined in accordance with United States generally accepted accounting principles, or GAAP, we also disclose certain non-GAAP financial information, such as, Adjusted Operating Ratio, Adjusted EBITDA, and Adjusted EPS, which are not recognized measures under GAAP and should not be considered alternatives to or superior to profitability and cash flow measures derived in accordance with GAAP. We use Adjusted Operating Ratio, Adjusted EBITDA, and Adjusted EPS as a supplement to our GAAP results in evaluating certain aspects of our business, as described below. We believe our presentation of Adjusted Operating Ratio, Adjusted EBITDA, and Adjusted EPS is useful because it provides investors and securities analysts the same information that we use internally for purposes of assessing our core operating performance. See below for more information on our use of Adjusted Operating Ratio, Adjusted EBITDA, and Adjusted EPS, as well as a description of the computation and reconciliation of our Operating Ratio to our Adjusted Operating Ratio, our net income to Adjusted EBITDA, and our diluted earnings per share to Adjusted EPS.

We define Adjusted Operating Ratio as (a) total operating expenses, less (i) fuel surcharges, (ii) amortization of intangibles from our 2007 going-private transaction, (iii) non-cash impairment charges, (iv) other special non-cash items, and (v) excludable transaction costs, as a percentage of (b) total revenue excluding fuel surcharge revenue (revenue xFSR). We believe fuel surcharge is sometimes volatile and eliminating the impact of this source of revenue (by netting fuel surcharge revenue against fuel expense) affords a more consistent basis for comparing our results of operations. We also believe excluding impairments, non-comparable nature of the intangibles from our going-private transaction and other special items enhances the comparability of our performance from period to period. A reconciliation of our Adjusted Operating Ratio for each of the periods indicated is as follows:



	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(Unaudited) (Dollars in thousands)
Total GAAP operating revenue	$	898,104		$	872,584		$	1,754,898		$	1,699,469
Less: Fuel surcharge revenue	172,723			176,017			343,009			338,731
Revenue xFSR	725,381			696,567			1,411,889			1,360,738
Total GAAP operating expense	805,823			785,907			1,600,630			1,554,890
Adjusted for:
Fuel surcharge revenue	(172,723		)	(176,017		)	(343,009		)	(338,731		)
Amortization of certain intangibles (a)	(3,912		)	(3,923		)	(7,824		)	(7,934		)
Non-cash impairments (b)	—			—			—			(1,065		)
Adjusted operating expense	629,188			605,967			1,249,797			1,207,160
Adjusted operating income	$	96,193		$	90,600		$	162,092		$	153,578
Adjusted Operating Ratio	86.7		%	87.0		%	88.5		%	88.7		%
Operating Ratio	89.7		%	90.1		%	91.2		%	91.5		%


(a)	Amortization of certain intangibles reflects the non-cash amortization expense relating to certain intangible assets identified in our 2007 going private transaction.


(b)	Real property with a carrying amount of $1.7 million was written down to its fair value of $0.6 million, resulting in a pre-tax impairment charge of $1.1 million in the first quarter of 2012.

We define Adjusted earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) as net income (loss) plus (i) depreciation and amortization, (ii) interest and derivative interest expense, including other fees and charges associated with indebtedness, net of interest income, (iii) income taxes, (iv) non-cash equity compensation expense, (v) non-cash impairments, (vi) other special non-cash items, and (vii) excludable transaction costs. We believe that Adjusted EBITDA is a relevant measure for estimating the cash generated by our operations that would be available to cover capital expenditures, taxes, interest and other investments and that it enhances an investor’s understanding of our financial performance. We use Adjusted EBITDA for business planning purposes and in measuring our performance relative to that of our competitors. Our method of computing Adjusted EBITDA is consistent with that used in our senior secured credit agreement for covenant compliance purposes and may differ from similarly titled measures of other companies. A reconciliation of GAAP net income to Adjusted EBITDA for each of the periods indicated is as follows:

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	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(Unaudited) (Dollars in thousands)
Net income	$	42,941		$	33,699		$	66,282		$	39,887
Adjusted for:
Depreciation and amortization of property and equipment	52,527			50,389			102,859			100,783
Amortization of intangibles	4,203			4,215			8,407			8,518
Interest expense	23,760			29,553			49,334			62,329
Derivative interest expense	532			2,108			1,094			4,653
Interest income	(517		)	(439		)	(1,090		)	(836		)
Income tax expense	26,888			21,776			41,501			18,228
EBITDA	150,334			141,301			268,387			233,562
Non-cash equity compensation (a)	833			1,466			1,378			2,733
Loss on debt extinguishment (b)	—			1,279			5,044			22,219
Non-cash impairments (c)	—			—			—			1,065
Adjusted EBITDA	$	151,167		$	144,046		$	274,809		$	259,579


(a)	Represents recurring non-cash equity compensation expense on a pre-tax basis. In accordance with the terms of our senior credit agreement, this expense is added back in the calculation of Adjusted EBITDA for covenant compliance purposes.

(b)

On March 7, 2013, we entered into a Second Amended and Restated Credit Agreement (“2013 Agreement”). The 2013 Agreement replaced the then-existing first lien term loan B-1 and B-2 tranches under the Amended and Restated Credit Agreement (“2012 Agreement”) entered into on March 6, 2012 with outstanding principal balances of $152.0 million and $508.0 million, respectively, with new first lien term loan B-1 and B-2 tranches with face values of $250.0 million and $410.0 million, respectively. The replacement of the 2012 Agreement resulted in a loss on debt extinguishment of $5.0 million in the first quarter of 2013, representing the write-off of the unamortized original issue discount and deferred financing fees associated with the then-existing first lien term loan B-1 and B-2 tranches. On May 21, 2012, we completed the call of our remaining $15.2 million face value 12.50% fixed rate notes due May 15, 2017, at a price of 106.25% of face value pursuant to the terms of the indenture governing the notes, resulting in a loss on debt extinguishment of $1.3 million, representing the call premium and write-off of the remaining unamortized deferred financing fees. We entered into the 2012 Agreement which replaced the then-existing, remaining $874 million face value first lien term loan, resulting in a loss on debt extinguishment of $20.9 million in the first quarter of 2012, representing the write-off of the unamortized original issue discount and deferred financing fees associated with the original term loan.


(c)	Includes the item discussed in note (b) to the Adjusted Operating Ratio table above.

We define Adjusted EPS as (1) income (loss) before income taxes plus (i) amortization of the intangibles from our 2007 going private transaction, (ii) non-cash impairments, (iii) other special non-cash items, (iv) excludable transaction costs, (v) the mark-to-market adjustment on our interest rate swaps that is recognized in the consolidated statement of operations in a given period, and (vi) the amortization of previous losses recorded in accumulated other comprehensive income (“OCI”) related to interest rate swaps we terminated upon our IPO and refinancing transactions in December 2010; (2) reduced by income taxes; (3) divided by weighted average diluted shares outstanding. For all periods through 2012, we used a normalized tax rate of 39% in our Adjusted EPS calculation due to the amortization of deferred tax assets related to our pre-IPO interest rate swap amortization and other items that we knew would cause fluctuations in our GAAP effective tax rate. Beginning in 2013, these items should no longer result in large variations. Therefore, we will use our GAAP effective tax rate for our Adjusted EPS calculation beginning in 2013. We believe the presentation of financial results excluding the impact of the items noted above provides a consistent basis for comparing our results from period to period and to those of our peers due to the non-comparable nature of the intangibles from our going-private transaction, the historical volatility of the interest rate derivative agreements and the non-operating nature of the impairment charges, transaction costs and other adjustment items. A reconciliation of GAAP diluted earnings per share to Adjusted EPS for each of the periods indicated is as follows (the numbers reflected in the below table are calculated on a per share basis and may not foot due to rounding):

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	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(Unaudited)
Diluted earnings per share	$	0.30	$	0.24	$	0.47	$	0.29
Adjusted for:
Income tax expense	0.19		0.16		0.29		0.13
Income before income taxes	0.49		0.40		0.76		0.42
Non-cash impairments (a)	—		—		—		0.01
Loss on debt extinguishment (b)	—		0.01		0.04		0.16
Amortization of certain intangibles (c)	0.03		0.03		0.06		0.06
Amortization of unrealized losses on interest rate swaps (d)	—		0.02		—		0.03
Adjusted income before income taxes	0.52		0.45		0.85		0.67
Provision for income tax expense at effective rate	0.20		0.18		0.33		0.26
Adjusted EPS	$	0.32	$	0.27	$	0.52	$	0.41


(a)	Includes the item discussed in note (b) to the Adjusted Operating Ratio table above.


(b)	Includes the items discussed in note (b) to the Adjusted EBITDA table above.


(c)	Includes the items discussed in note (a) to the Adjusted Operating Ratio table above.

(d)

Amortization of unrealized losses on interest rate swaps reflects the non-cash amortization expense of $2.1 million for the three months ended June 30, 2012, and $4.7 million for the six months ended June 30, 2012, respectively, comprised of previous losses recorded in accumulated OCI related to the interest rate swaps we terminated upon our IPO and concurrent refinancing transactions in December 2010. Such losses were incurred in prior periods when hedge accounting applied to the swaps and are expensed in relation to the hedged interest payments through the original maturity of the swaps in August 2012.

Overview

We are a multi-faceted transportation services company and the largest truckload carrier in North America. As of June 30, 2013, we operate a tractor fleet of approximately 16,300 units comprised of 12,200 tractors driven by company drivers and 4,100 owner-operator tractors, a fleet of 52,200 trailers, and 8,700 intermodal containers from 35 major terminals positioned near major freight centers and traffic lanes in the United States and Mexico. We offer customers the opportunity for “one-stop shopping” for their truckload transportation needs through a broad spectrum of services and equipment. Our extensive suite of services includes general, dedicated, and cross-border U.S./Mexico truckload services through dry van, temperature-controlled, flatbed, and specialized trailers, in addition to rail intermodal and non-asset based freight brokerage and logistics management services, making it an attractive choice for a broad array of customers.

We principally operate in short-to-medium-haul traffic lanes around our terminals or dedicated customer locations. We concentrate on this length of haul because the majority of domestic truckload freight (as measured by revenue) moves in these lanes and our extensive terminal network affords us marketing, equipment control, supply chain, customer service, and driver retention advantages in local markets. Our relatively short average length of haul also helps reduce competition from railroads and trucking companies that lack a regional presence.

The table below reflects our total operating revenue, revenue xFSR, net income, diluted earnings per common share, Operating Ratio, Adjusted Operating Ratio, Adjusted EBITDA, and Adjusted EPS for the periods indicated.



	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(Unaudited) (Dollars in thousands, except per share amounts)
Total operating revenue	$	898,104		$	872,584		$	1,754,898		$	1,699,469
Revenue xFSR	$	725,381		$	696,567		$	1,411,889		$	1,360,738
Net income	$	42,941		$	33,699		$	66,282		$	39,887
Diluted earnings per share	$	0.30		$	0.24		$	0.47		$	0.29
Operating Ratio	89.7		%	90.1		%	91.2		%	91.5		%
Adjusted Operating Ratio	86.7		%	87.0		%	88.5		%	88.7		%
Adjusted EBITDA	$	151,167		$	144,046		$	274,809		$	259,579
Adjusted EPS	$	0.32		$	0.27		$	0.52		$	0.41

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Revenue

We primarily generate revenue by transporting freight for our customers. Generally, we are paid a predetermined rate per mile for our services. We enhance our revenue by charging for fuel surcharges, stop-off pay, loading and unloading activities, tractor and trailer detention, and other ancillary services. The main factors that affect our revenue are the rate per mile we receive from our customers and the number of loaded miles we run.

Fuel surcharges are designed to compensate us for fuel costs above a certain cost per gallon base. Generally, we receive fuel surcharges on the miles for which we are compensated by customers. However, we continue to have exposure to increasing fuel costs related to deadhead miles, fuel inefficiency due to engine idle time, and other factors as well as the extent to which the surcharge paid by the customer is insufficient. The main factors that affect fuel surcharge revenue are the price of diesel fuel and the number of loaded miles. Although our surcharge programs vary by customer, we endeavor to negotiate an additional penny per mile charge for every five cent increase in the United States Department of Energy, or DOE, national average diesel fuel index over an agreed baseline price. In some instances, customers choose to incorporate the additional charge by splitting the impact between the basic rate per mile and the surcharge fee. In addition, we have moved much of our West Coast customer activity to a surcharge program that is indexed to the DOE’s West Coast average diesel fuel index as diesel fuel prices in the western United States generally are higher than the national average index. Our fuel surcharges are billed on a lagging basis, meaning we typically bill customers in the current week based on a previous week’s applicable index. Therefore, in times of increasing fuel prices, we do not recover as much as we are paying current day prices for fuel but billing based on a lagging index. In periods of declining prices, the opposite is true.

Revenue in our non-reportable segment is generated by our non-asset based freight brokerage and logistics management service, tractor leasing revenue of Interstate Equipment Leasing (“IEL”), premium revenue generated by our captive insurance companies, and other revenue generated by our repair and maintenance shops. The main factors that affect the revenue in our non-reportable segment are demand for brokerage and logistics services and the number of owner-operators leasing equipment from us.

Expenses

The most significant expenses in our business vary with miles traveled and include fuel, driver-related expenses (such as wages and benefits), and services purchased from owner-operators and other transportation providers, such as the railroads, drayage providers, and other trucking companies (which are recorded on the “Purchased transportation” line of our consolidated statements of operations). Expenses that have both fixed and variable components include maintenance and tire expense and our total cost of insurance and claims. These expenses generally vary with the miles we travel, but also have a controllable component based on safety improvements, fleet age, efficiency, and other factors. Our main fixed costs are depreciation of long-term assets, such as tractors, trailers, containers, and terminals, interest expense, and the compensation of non-driver personnel.

Because a significant portion of our expenses are either fully or partially variable based on the number of miles traveled, changes in weekly revenue per tractor, excluding fuel surcharge revenue (“weekly revenue xFSR per tractor”) caused by increases or decreases in deadhead miles percentage, rate per mile, and loaded miles have varying effects on our profitability. In general, changes in deadhead miles percentage have the largest proportionate effect on profitability because we still bear all of the expenses for each deadhead mile but do not earn any revenue to offset those expenses. Changes in rate per mile have the next largest proportionate effect on profitability because incremental improvements in rate per mile are not offset by any additional expenses. Changes in loaded miles generally have a smaller effect on profitability because variable expenses increase or decrease with changes in miles. However, items such as driver and owner-operator satisfaction and network efficiency are affected by changes in mileage and have significant indirect effects on expenses.

In general, our miles per tractor per week, rate per mile, and deadhead miles percentage are affected by industry-wide freight volumes, industry-wide trucking capacity, and the competitive environment, which factors are beyond our control, as well as by our service levels, planning, and discipline of our operations, over which we have significant control.

Results of Operations for the Three and Six Months Ended June 30, 2013 and 2012

Factors Affecting Comparability between Periods

Three months ended June 30, 2013 results of operations

Net income for the three months ended June 30, 2013 was $42.9 million. Items during the 2013 period impacting comparability between the second quarter of 2013 and the corresponding 2012 period include the following:


•	$5.8 million reduction in interest expense for the three months ended June 30, 2013 compared to the corresponding period in 2012 resulting from the replacement of our previous Amended and Restated Credit Agreement in the first quarter of 2013 and our voluntary debt repayments.

Six months ended June 30, 2013 results of operations

Net income for the six months ended June 30, 2013 was $66.3 million. Items during the 2013 period impacting comparability between the six months ended June 30, 2013 and the corresponding prior year period include the following:

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•	$13.0 million reduction in interest expense for the six months ended June 30, 2013 compared to the corresponding period in 2012 resulting from the replacement of our previous Amended and Restated Credit Agreement in the first quarter of 2013 and our voluntary debt repayments;


•	$6.1 million gain on the sale of two properties classified as held for sale in the first quarter of 2013; and


•	$5.0 million loss on debt extinguishment resulting from the replacement of our previous Amended and Restated Credit Agreement in the first quarter of 2013.

Three months ended June 30, 2012 results of operations

Net income for the three months ended June 30, 2012 was $33.7 million. Items during the 2012 period impacting comparability between the second quarter of 2012 and the corresponding 2013 period include the following:


•	$1.3 million loss on debt extinguishment resulting from the call of our remaining $15.2 million face value 12.50% fixed rate notes due May 15, 2017, at a price of 106.25% of face value and the write-off of the then existing unamortized deferred financing fees.

Six months ended June 30, 2012 results of operations

Net income for the six months ended June 30, 2012 was $39.9 million. Items during the 2012 period impacting comparability between the first six months of 2012 and the corresponding 2013 period include the following:


•	$22.2 million loss on debt extinguishment resulting from the call of its remaining $15.2 million face value 12.50% fixed rate notes due May 15, 2017 and the replacement of the first term loan;


•	$5.2 million gain relating to a contractual settlement with the City of Los Angeles recorded in Operating supplies and expenses;


•	$4.6 million benefit reflecting the deferred state tax benefit related to an internal corporate restructuring of our subsidiaries; and


•	$1.1 million pre-tax impairment charge for real property with a carrying value of $1.7 million written down to its estimated fair value of $0.6 million in the first quarter of 2012.

Results of Operations—Segment Review

During 2013, we operated three reportable segments: truckload, dedicated and intermodal. The descriptions of the operations of these reportable segments are described in Note 15 in our consolidated financial statements. The following tables reconcile our operating revenues and operating income by reportable segment to our consolidated operating revenue and operating income for the three and six months ended June 30, 2013 and 2012.



	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(Unaudited) (Dollars in thousands)
Operating revenue:
Truckload	$	588,724		$	575,193		$	1,148,319		$	1,126,440
Dedicated	182,651			181,873			361,877			353,412
Intermodal	84,375			81,120			161,700			150,165
Subtotal	855,750			838,186			1,671,896			1,630,017
Nonreportable segments	55,131			49,162			110,423			101,493
Intersegment eliminations	(12,777		)	(14,764		)	(27,421		)	(32,041		)
Consolidated operating revenue	$	898,104		$	872,584		$	1,754,898		$	1,699,469
Operating income (loss):
Truckload	$	64,614		$	67,994		$	107,017		$	114,548
Dedicated	24,263			18,515			43,217			33,022
Intermodal	753			123			(1,045		)	(3,904		)	⁽¹⁾
Subtotal	89,630			86,632			149,189			143,666
Nonreportable segments	2,651			45			5,079			913
Consolidated operating income	$	92,281		$	86,677		$	154,268		$	144,579


(1)	During the first quarter of 2012, our intermodal reportable segment incurred an increase in its insurance and claims expense primarily related to one claim associated with a drayage accident, which increased the intermodal operating ratio by approximately 210 basis points for the six months ended June 30, 2012, as compared to the first six months of 2013.

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The results and discussions that follow are reflective of how our chief operating decision makers monitors the performance of our reporting segments. We supplement the reporting of our financial information determined under generally accepted accounting principles (“GAAP”) with certain non-GAAP financial measures. Additionally, we use a number of primary indicators to monitor our revenue and expense performance and efficiency. We believe that these adjusted measures provide meaningful information to assist investors and analysts in understanding our financial results and assessing our prospects for future performance. We believe these adjusted financial measures are important indicators of our recurring results of operations because they exclude items that may not be indicative of, or are unrelated to, our core operating results, and provide a better baseline for analyzing trends in our underlying businesses.

Our main measure of productivity for our truckload and dedicated reportable segments is weekly revenue xFSR per tractor. Weekly revenue xFSR per tractor is affected by our loaded miles, which only include the miles driven when hauling freight, the size of our fleet (because available loads may be spread over fewer or more tractors), and the rates received for our services. We strive to increase our revenue per tractor by improving freight rates with our customers and hauling more loads with our existing equipment, effectively moving freight within our network, keeping tractors maintained, and recruiting and retaining drivers and owner-operators.

We also strive to reduce our number of deadhead miles within our truckload segment. We measure our performance in this area by monitoring our deadhead miles percentage, which is calculated by dividing the number of unpaid miles by the total number of miles driven. By balancing our freight flows and planning consecutive loads with shorter distances between the drop-off and pick-up locations, we are able to reduce the percentage of deadhead miles driven to allow for more revenue-generating miles during our drivers’ hours-of-service. This also enables us to reduce costs associated with deadhead miles, such as wages and fuel.

For our reportable segments, average tractors available measures the average number of tractors we have available during the period for dispatch and includes tractors driven by company drivers as well as owner-operator units. This measure changes based on our ability to increase or decrease our fleet size to respond to changes in demand.

We consider our Adjusted Operating Ratio to be an important measure of our operating profitability for each of our reportable segments. Operating Ratio is operating expenses as a percentage of revenue, or the inverse of operating margin, and produces a quick indication of operating efficiency. It is widely used in our industry as an assessment of management’s effectiveness in controlling all categories of operating expenses. We net fuel surcharge revenue against fuel expense in the calculation of our Adjusted Operating Ratio, therefore excluding fuel surcharge revenue from total revenue in the denominator. We exclude fuel surcharge revenue because fuel prices and fuel surcharge revenue are often volatile and changes in fuel surcharge revenue largely offset corresponding changes in our fuel expense. Eliminating the volatility (by netting fuel surcharge revenue against fuel expense) affords a more consistent basis for comparing our results of operations between periods. We also exclude impairments and other special or non-cash items in the calculation of our Adjusted Operating Ratio because we believe this enhances the comparability of our performance between periods. Accordingly, we believe Adjusted Operating Ratio is a better indicator of our core operating profitability than Operating Ratio and provides a better basis for comparing our results between periods and against others in our industry.

Within our Intermodal reportable segment, we monitor our load count and average container count. These metrics allow us to measure our utilization of our container fleet.

We monitor weekly revenue xFSR per tractor, deadhead miles percentage, average tractors available, load count and average container count on a daily basis, and we measure Adjusted Operating Ratio on a monthly basis.

Truckload



	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(Unaudited) (Dollars in thousands, except per tractor amounts)
Operating revenue	$	588,724		$	575,193		$	1,148,319		$	1,126,440
Operating income	$	64,614		$	67,994		$	107,017		$	114,548
Operating ratio	89.0		%	88.2		%	90.7		%	89.8		%
Adjusted operating ratio	86.2		%	84.9		%	88.2		%	87.1		%
Weekly revenue xFSR per tractor	$	3,270		$	3,169		$	3,227		$	3,098
Total loaded miles	274,830			268,905			536,680			531,454
Deadhead miles percentage	11.4		%	10.9		%	11.3		%	11.1		%
Average tractors available for dispatch:
Company	7,733			7,599			7,613			7,641
Owner-Operator	3,288			3,351			3,290			3,352
Total	11,021			10,950			10,903			10,993

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A reconciliation of our adjusted operating ratio for each of the periods indicated is as follows:



	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(Unaudited) (Dollars in thousands)
Total GAAP operating revenue	$	588,724		$	575,193		$	1,148,319		$	1,126,440
Less: Fuel surcharge revenue	120,144			124,059			238,483			240,925
Revenue xFSR	468,580			451,134			909,836			885,515
Total GAAP operating expense	524,110			507,199			1,041,302			1,011,892
Adjusted for:
Fuel surcharge revenue	(120,144		)	(124,059		)	(238,483		)	(240,925		)
Adjusted operating expense	403,966			383,140			802,819			770,967
Adjusted operating income	$	64,614		$	67,994		$	107,017		$	114,548
Adjusted operating ratio	86.2		%	84.9		%	88.2		%	87.1		%

Revenue

For the three months ended June 30, 2013, our truckload segment operating revenue increased by $13.5 million, or 2.4%, compared with the same period in 2012. During the second quarter of 2013, truckload revenue xFSR increased 3.9% as compared to the second quarter of 2012. This increase in revenue xFSR was driven by a 1.6% increase in our truckload revenue xFSR per loaded mile and a 2.2% increase in loaded miles. The increase in volume was achieved primarily through improved utilization, as measured by loaded truck miles per truck per week, of 1.5%.

For the six months ended June 30, 2013, our truckload revenue increased by $21.9 million, or 1.9%, compared with the same period in 2012. Despite the 1% reduction in our average operational fleet, our truckload revenue xFSR increased 2.7% during the six months ended June 30, 2013 as compared to the same period in 2012 with our truckload weekly revenue xFSR per tractor, which is a combination of revenue xFSR per loaded mile and loaded miles per truck per week (loaded utilization), increasing 4.2% year over year. For the six months ended June 30, 2013, our revenue xFSR per loaded mile increased 1.7% and our utilization increased 2.4%.

Operating income

Truckload operating income decreased $3.4 million from the second quarter of 2012 to the second quarter of 2013. This decrease in operating income caused our adjusted operating ratio to increase to 86.2% during the three months ended June 30, 2013 compared with 84.9% in the same period in 2012. The year over year increase was driven primarily by an increase in our deadhead percentage, higher driver and owner-operator pay due to the pay changes implemented in the third quarter of 2012, and higher equipment costs. Higher deadhead was a result of our repositioning of equipment to service overbooked markets.

Truckload operating income decreased $7.5 million from the six months ended June 30, 2013 compared with the same period in 2012. This decrease in operating income caused our adjusted operating ratio to increase to 88.2% during the six months ended June 30, 2013 compared with 87.1% in the same period in 2012, which benefited from a $5.2 million favorable contract resolution with the Port of Los Angeles in the first quarter of 2012.

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Dedicated



	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(Unaudited) (Dollars in thousands, except per tractor amounts)
Operating revenue	$	182,651		$	181,873		$	361,877		$	353,412
Operating income	$	24,263		$	18,515		$	43,217		$	33,022
Operating ratio	86.7		%	89.8		%	88.1		%	90.7		%
Adjusted operating ratio	83.7		%	87.4		%	85.3		%	88.5		%
Weekly revenue xFSR per tractor	$	3,396		$	3,355		$	3,391		$	3,363
Average tractors available for dispatch:
Company	2,735			2,717			2,709			2,627
Owner-Operator	632			664			638			666
Total	3,367			3,381			3,347			3,293

A reconciliation of our adjusted operating ratio for each of the periods indicated is as follows:



	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(Unaudited) (Dollars in thousands)
Total GAAP operating revenue	$	182,651		$	181,873		$	361,877		$	353,412
Less: Fuel surcharge revenue	33,998			34,415			68,431			65,546
Revenue xFSR	148,653			147,458			293,446			287,866
Total GAAP operating expense	158,388			163,358			318,660			320,390
Adjusted for:
Fuel surcharge revenue	(33,998		)	(34,415		)	(68,431		)	(65,546		)
Adjusted operating expenses	124,390			128,943			250,229			254,844
Adjusted operating income	$	24,263		$	18,515		$	43,217		$	33,022
Adjusted operating ratio	83.7		%	87.4		%	85.3		%	88.5		%

Revenue

For the three months ended June 30, 2013, our dedicated segment operating revenue increased by $0.8 million, or 0.4% compared with the same period in 2012 and dedicated revenue xFSR increased 0.8%.

For the six months ended June 30, 2013, our dedicated segment operating revenue increased by $8.5 million, or 2.4% compared with the same period in 2012 and dedicated revenue xFSR increased 1.9%. For both the three and six month periods ended 2013, the increase in revenue was primarily driven by growth with our existing customers and the addition of new customer accounts partially offset by the termination of a few underperforming customer contracts during the latter half of 2012 and the first half of 2013.

Operating income

Our dedicated operating income increased to $24.3 million for the three months ended June 30, 2013 compared to $18.5 million in the same period in 2012. Our dedicated adjusted operating ratio improved 370 basis points to 83.7% for the three months ended June 30, 2013 from 87.4% in the same period in 2012.

For the six months ended June 30, 2013, our dedicated operating income increased to $43.2 million from $33.0 million in the same period in 2012 and our dedicated adjusted operating ratio improved 320 basis points to 85.3% for the six months ended June 30, 2013 from 88.5% in the same period in 2012. The improvement in adjusted operating ratio for both the three and six month periods ended 2013 resulted from a change in business mix and improvement in our operational efficiencies.

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Intermodal



	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(Unaudited) (Dollars in thousands, except per tractor amounts)
Operating revenue	$	84,375		$	81,120		$	161,700		$	150,165
Operating income (loss)	$	753		$	123		$	(1,045	)	$	(3,904	)	⁽¹⁾
Operating ratio	99.1		%	99.8		%	100.6		%	102.6		%	⁽¹⁾
Adjusted operating ratio	98.9		%	99.8		%	100.8		%	103.3		%	⁽¹⁾
Average tractors available for dispatch:
Company	267			283			265			277
Owner-Operator	29			—			24			—
Total	296			283			289			277
Load count	36,912			35,694			70,607			66,404
Average container count	8,717			6,489			8,717			6,403

(1)

During the first quarter of 2012, our intermodal reportable segment incurred an increase in its insurance and claims expense primarily related to one claim associated with a drayage accident, which increased the intermodal operating ratio by approximately 210 basis points, and increased the intermodal adjusted operating ratio by approximately 270 basis points for six months ended June 30, 2012, respectively, as compared to the six months ended June 30_,2013.

A reconciliation of our adjusted operating ratio for each of the periods indicated is as follows:



	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(Unaudited) (Dollars in thousands)
Total GAAP operating revenue	$	84,375		$	81,120		$	161,700		$	150,165
Less: Fuel surcharge revenue	17,525			17,278			34,265			31,745
Revenue xFSR	66,850			63,842			127,435			118,420
Total GAAP operating expense	83,622			80,997			162,745			154,069
Adjusted for:
Fuel surcharge revenue	(17,525		)	(17,278		)	(34,265		)	(31,745		)
Adjusted operating expenses	66,097			63,719			128,480			122,324
Adjusted operating income (loss)	$	753		$	123		$	(1,045	)	$	(3,904	)
Adjusted operating ratio	98.9		%	99.8		%	100.8		%	103.3		%

Revenue

For the three months ended June 30, 2013, our intermodal operating revenue increased $3.3 million, or 4.0%, compared to the same period in 2012. During the second quarter of 2013, our intermodal revenue xFSR grew 4.7% over the same period of 2012. This increase in revenue xFSR was driven by a 1.3% increase in revenue xFSR per load and a 12.6% increase in Container on Flat Car (COFC) loads partially offset by a 47.6% reduction in Trailer on Flat Car (TOFC) loads.

For the six months ended June 30, 2013, our intermodal operating revenue increased $11.5 million, or 7.7%, as compared to the six months ended June 30, 2012. During the first half of 2013, our intermodal revenue xFSR grew 7.6% over the first half of 2012. This increase in revenue xFSR was driven by a 6.3% increase in the number of loads hauled, combined with a 1.2% increase in revenue xFSR per load. Loads in our Container on Flat Car (COFC) business grew 16.4% and our COFC revenue xFSR per load grew 2.4%. This growth in COFC was partially offset by a 53.5% reduction in Trailer on Flat Car (TOFC) loads.

Operating income (loss)

Our intermodal operating income increased from $0.1 million in the second quarter of 2012 to $0.8 million in the second quarter of 2013. Correspondingly, our intermodal adjusted operating ratio improved to 98.9% during the three months ended June 30, 2013 from 99.8% in the same period in 2012 due primarily to increased revenue xFSR per load, as well as improved dray efficiencies resulting in a lower drayage cost

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per load. These improvements were partially offset by increased equipment costs resulting from the larger container fleet and related chassis expenses as compared to the second quarter of 2012.

Our intermodal operating loss decreased from $3.9 million for the six months ended June 30, 2012 to $1.0 million for the six months ended June 30, 2013. Correspondingly, our intermodal adjusted operating ratio improved to 100.8% during the first half of 2013 from 103.3% in the same period in 2012. This improvement was primarily due to one claim associated with a dray truck accident in the first quarter of 2012. This claim increased the intermodal operating ratio by approximately 210 basis points, and the intermodal adjusted operating ratio by approximately 270 basis points in the first half of 2012 compared to the first half of 2013. The reduction of our adjusted operating ratio associated with improved insurance and claims expense, increases in our revenue xFSR per load and improved dray efficiencies in the first six months of 2013 were partially offset by higher expenses resulting from the larger container fleet and related chassis expense compared to the corresponding period in 2012.

Other non-reportable segments



	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(Unaudited) (Dollars in thousands)
Operating revenue	$	55,131	$	49,162	$	110,423	$	101,493
Operating income	$	2,651	$	45	$	5,079	$	913

Revenue

Our other non-reportable segment revenue is generated primarily by our logistics and brokerage services, and revenue generated by our subsidiaries offering support services to customers and owner-operators, including shop repair and maintenance services, equipment leasing, and insurance. The main factors that impact our other non-reportable segment revenue are the demand for our brokerage and logistics services and the number of owner-operators leasing equipment and purchasing insurance coverage from us.

For the three and six months ended June 30, 2013, combined revenue from these services increased 12.1% and 8.8%, respectively, compared to the corresponding periods in 2012. These increases were driven primarily by an increase in brokerage revenue and services provided to owner-operators compared to the same periods in 2012.

Consolidated Operating Expense

Salaries, Wages and Employee Benefits



	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(Unaudited) (Dollars in thousands)
Salaries, wages and employee benefits	$	202,757		$	198,618		$	409,364		$	398,753
% of revenue xFSR	28.0		%	28.5		%	29.0		%	29.3		%
% of operating revenue	22.6		%	22.8		%	23.3		%	23.5		%

For the three months ended June 30, 2013, salaries, wages, and employee benefits increased by $4.1 million, or 2.1%, compared with the same period in 2012. The dollar increase was primarily a result of increases in the driver pay implemented in the third quarter of 2012, a 2.7% increase in miles driven by company drivers and growth in our non-driver administrative staff to support our growing business, partially offset by a reduction in group health insurance and workers compensation expense.

For the six months ended June 30, 2013, salaries, wages, and employee benefits increased by $10.6 million, or 2.7%, compared with the same period in 2012. The dollar increase was primarily a result of increases in the driver pay implemented in the third quarter of 2012, growth in our non-driver administrative staff to support our growing business, and a 1.5% increase in miles driven by company drivers. As a percentage of revenue xFSR, salaries, wages, and employee benefits decreased 30 basis points from the six months ended June 30, 2012 to the six months ended June 30, 2013 as a result of a 4.3% increase in our average consolidated revenue xFSR per loaded mile.

The compensation paid to our drivers and other employees has increased and may increase further in future periods as the economy strengthens and other employment alternatives become more available. Furthermore, because we believe that the market for drivers has tightened, we expect hiring expenses, including recruiting and advertising, to increase in order to attract sufficient numbers of qualified drivers to operate our fleet.

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Operating Supplies and Expenses



	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(Unaudited) (Dollars in thousands)
Operating supplies and expenses	$	68,136		$	63,379		$	128,801		$	118,421
% of revenue xFSR	9.4		%	9.1		%	9.1		%	8.7		%
% of operating revenue	7.6		%	7.3		%	7.3		%	7.0		%

For the three months ended June 30, 2013, operating supplies and expenses increased by $4.8 million, or 7.5%, compared with the same period in 2012. As a percentage of revenue xFSR, operating supplies and expenses increased to 9.4% compared with 9.1% for the 2012 period. The increase was primarily due to increases in tolls, hiring expenses and uncollectible revenue which was driven by the bankruptcies of two customers.

For the six months ended June 30, 2013, operating supplies and expenses increased by $10.4 million, or 8.8%, compared with the same period in 2012. As a percentage of revenue xFSR, operating supplies and expenses increased to 9.1% compared with 8.7% for the 2012 period. This increase was primarily the result of a $5.2 million benefit from the favorable contract resolution with the Port of Los Angeles in the first quarter of 2012, which we recognized as a reduction of operating supplies and expenses during the second quarter of 2012.

Because we believe that the market for drivers has tightened, hiring expenses, including recruiting and advertising, which are included in operating supplies and expenses, have increased and we expect this will continue to increase in order to attract sufficient numbers of qualified drivers to operate our fleet.

Fuel Expense



	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(Unaudited) (Dollars in thousands)
Fuel expense	$	144,377		$	145,826		$	296,259		$	298,829
% of operating revenue	16.1		%	16.7		%	16.9		%	17.6		%

To measure the effectiveness of our fuel surcharge program, we subtract fuel surcharge revenue (other than the fuel surcharge revenue we reimburse to owner-operators, the railroads, and other third parties which is included in purchased transportation) from our fuel expense. The result is referred to as net fuel expense. Our net fuel expense as a percentage of revenue xFSR is affected by the cost of diesel fuel net of surcharge collection, the percentage of miles driven by company trucks, our fuel economy, and our percentage of deadhead miles, for which we do not receive fuel surcharge revenues. Net fuel expense as a percentage of revenue less fuel surcharge revenue is shown below:



	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(Unaudited) (Dollars in thousands)
Total fuel surcharge revenue	$	172,723		$	176,017		$	343,009		$	338,731
Less: Fuel surcharge revenue reimbursed to owner-operators and other third parties	72,217			72,716			143,761			139,825
Company fuel surcharge revenue	$	100,506		$	103,301		$	199,248		$	198,906
Total fuel expense	$	144,377		$	145,826		$	296,259		$	298,829
Less: Company fuel surcharge revenue	100,506			103,301			199,248			198,906
Net fuel expense	$	43,871		$	42,525		$	97,011		$	99,923
% of revenue xFSR	6.0		%	6.1		%	6.9		%	7.3		%

For the three months ended June 30, 2013, net fuel expense increased $1.3 million, or 3.2%, compared with the same period in 2012. As a percentage of revenue xFSR, net fuel expense remained flat at 6.0% during the second quarter of 2013 compared with 6.1% in the 2012 period. As previously disclosed, our fuel surcharges are billed on a lagging basis, meaning we typically bill customers in the current week based on a previous week's applicable index. Therefore, in times of increasing fuel prices, we do not recover as much as we are currently paying for fuel. In periods of declining prices, the opposite is true. Throughout the second quarter of 2012, there was a steep decrease in fuel prices as compared to a gradual decrease throughout the second quarter of 2013. The average DOE diesel fuel index decreased 11.1% within the second quarter of

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2012, from $4.14 to $3.68 and decreased 4.0% within the second quarter of 2013, from $3.98 to $3.82. This decrease in fuel price and the associated fuel surcharge lag increased our adjusted EPS approximately $0.03 - $0.035 during the second quarter of 2012, as compared to $0.015 to $0.02 in the same period in 2013.

For the six months ended June 30, 2013, net fuel expense decreased $2.9 million, or 2.9%, compared with the same period in 2012. As a percentage of revenue xFSR, net fuel expense decreased 40 basis points when compared to the first six months of2012. Although the average fuel price was relatively flat during the first six months of 2013 as compared to the first six months of 2012, the DOE diesel fuel index decreased slightly from $3.78 to $3.68, or 2.6%, within the first six months of 2012 but decreased by 9.0% within the corresponding six month period ended June 30, 2013. As described above, the lag effect associated with fuel surcharges in periods of declining prices enabled better fuel recovery in 2013 compared to 2012.

Purchased Transportation



	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(Unaudited) (Dollars in thousands)
Purchased transportation expense	$	257,471		$	252,685		$	502,288		$	485,887
% of operating revenue	28.7		%	29.0		%	28.6		%	28.6		%

Purchased transportation expense includes payments made to owner-operators, rail partners and other third parties for their services. Because we reimburse owner-operators and other third parties for fuel, we subtract fuel surcharge revenue reimbursed to third parties from our purchased transportation expense. The result, referred to as purchased transportation, net of fuel surcharge reimbursements, is evaluated as a percentage of revenue less fuel surcharge revenue, as shown below:



	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(Unaudited) (Dollars in thousands)
Purchased transportation	$	257,471		$	252,685		$	502,288		$	485,887
Less: Fuel surcharge revenue reimbursed to owner-operators and other third parties	72,217			72,716			143,761			139,825
Purchased transportation, net of fuel surcharge reimbursement	$	185,254		$	179,969		$	358,527		$	346,062
% of revenue xFSR	25.5		%	25.8		%	25.4		%	25.4		%

For the three months ended June 30, 2013, purchased transportation, net of fuel surcharge reimbursement, increased $5.3 million, or 2.9%, compared with the same period in 2012. As a percentage of revenue xFSR, purchased transportation, net of fuel surcharge reimbursement, decreased slightly to 25.5% compared with 25.8% in 2012. The dollar increase was due primarily to increased intermodal and brokerage volumes.

For the six months ended June 30, 2013, purchased transportation, net of fuel surcharge reimbursement, increased $12.5 million, or 3.6% compared with the same period in 2012. The increase in expense is primarily the result of an increase in intermodal volumes.

Insurance and Claims



	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(Unaudited) (Dollars in thousands)
Insurance and claims	$	29,207		$	26,278		$	56,978		$	56,858
% of revenue xFSR	4.0		%	3.8		%	4.0		%	4.2		%
% of operating revenue	3.3		%	3.0		%	3.2		%	3.3		%

For the three months ended June 30, 2013, insurance and claims expense increased by $2.9 million, or 11.1%, compared with the same period in 2012. As a percentage of revenue xFSR, insurance and claims increased to 4.0% compared with 3.8% in the 2012 period. The increase is primarily due to the increase in reserves associated with unfavorable developments of our prior year loss layers based on new information received on these claims during the period.

For the six months ended June 30, 2013, insurance and claims expense was flat when compared with the same period in 2012. As a percentage

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of revenue xFSR, insurance and claims decreased to 4.0%, compared with 4.2% for the same period in 2012.

Rental Expense and Depreciation and Amortization of Property and Equipment

Because the mix of our leased versus owned tractors varies, we believe it is appropriate to combine our rental expense with our depreciation and amortization of property and equipment when comparing results from period to period for analysis purposes.



	Three Months Ended June 30,								Six Months Ended June 30,
	2013				2012				2013				2012
	(Unaudited) (Dollars in thousands)
Rental expense	$	30,541			$	26,576			$	59,792			$	50,075
Depreciation and amortization of property and equipment	52,527			—	50,389			—	102,859			—	100,783
Rental expense and depreciation and amortization of property and equipment	$	83,068			$	76,965			$	162,651			$	150,858
% of revenue xFSR	11.5		%		11.0		%		11.5		%		11.1		%
% of operating revenue	9.2		%		8.8		%		9.3		%		8.9		%

Rental expense and depreciation and amortization of property and equipment were primarily driven by our fleet of tractors and trailers shown below:



	As of
	June 30, 2013	December 31, 2012	June 30, 2012
	(Unaudited)
Tractors:
Company
Owned	6,108	5,431	6,158
Leased — capital leases	2,463	2,328	2,248
Leased — operating leases	3,661	3,516	3,443
Total company tractors	12,232	11,275	11,849
Owner-operator
Financed through the Company	3,092	3,020	3,051
Other	960	936	975
Total owner-operator tractors	4,052	3,956	4,026
Total tractors	16,284	15,231	15,875
Trailers	52,182	52,841	51,641
Containers	8,717	8,717	6,783

For the three months ended June 30, 2013, rental expense and depreciation and amortization of property and equipment increased by $6.1 million, or 7.9%, compared with the same period in 2012. As a percentage of revenue xFSR, such expenses increased to 11.5% compared with 11.0% for same period in 2012. The increase was primarily due to the rising cost of new equipment, a higher percentage of leased assets, which increases rent expense due to the inclusion of financing costs, as well as the growth in trailers and intermodal containers in the second quarter of 2013 as compared to the second quarter of 2012.

For the six months ended June 30, 2013, rental expense and depreciation and amortization of property and equipment increased by $11.8 million, or 7.8%, compared with the same period in 2012. As a percentage of revenue xFSR, such expenses increased to 11.5% compared with 11.1% for the 2012 period. This increase was primarily due to the rising costs of new equipment, the growth in trailers and intermodal containers, and a higher percentage of leased assets, which increases rent expense due to the inclusion of financing costs.

Amortization of Intangibles

Amortization of intangibles consists primarily of amortization of $261.2 million gross carrying value of definite-lived intangible assets recognized under purchase accounting in connection with our 2007 going private transaction.

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	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(Unaudited) (Dollars in thousands)
Amortization of intangibles	$	4,203	$	4,215	$	8,407	$	8,518

Amortization of intangibles for the three months ended June 30, 2013 and 2012 is comprised of $3.9 million in each period related to intangible assets recognized in conjunction with the 2007 going private transaction and $0.3 million in each period related to previous intangible assets from smaller acquisitions by Swift Transportation Co. prior to the going private transaction. Amortization expense decreased slightly in the 2013 period compared to the same period in 2012 primarily due to the 150% declining balance amortization method applied to the customer relationship intangible recognized in conjunction with the 2007 going private transaction.

Amortization of intangibles for the six months ended June 30, 2013 and 2012 is comprised of $7.8 million and $7.9 million, respectively, related to intangible assets recognized in conjunction with the 2007 going private transaction and $0.6 million in each period related to previous intangible assets from smaller acquisitions by Swift Transportation Co. prior to the going private transaction.

Impairments



	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(Unaudited) (Dollars in thousands)
Impairments	$	—	$	—	$	—	$	1,065

In the first quarter of 2012, real property with a carrying amount of $1.7 million was written down to its estimated fair value of $0.6 million, resulting in a pre-tax impairment charge of $1.1 million.

Gain on disposal of property and equipment



	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
	(Unaudited) (Dollars in thousands)
Gain on disposal of property and equipment	$	(4,681	)	$	(3,478	)	$	(7,035	)	$	(7,868	)

Gain on disposal of property and equipment increased to $4.7 million in the second quarter of 2013 compared to $3.5 million in the second quarter of 2012 primarily due to an increase in the amount of trailer equipment disposed of during the quarter.

For the six months ended June 30, 2013, gain on disposal of property and equipment decreased $0.8 million, compared with the same period in 2012. The decrease was due to the reduction of equipment disposed of during the first quarter of 2013.

Interest Expense



	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(Unaudited) (Dollars in thousands)
Interest expense	$	23,760	$	29,553	$	49,334	$	62,329

Interest expense for the three months ended June 30, 2013 is primarily based on the end of period debt balances as of June 30, 2013 of $238.0 million and $410.0 million carrying value of the first lien term loan B-1 tranche and B-2 tranche, respectively, $493.2 million net carrying value of senior second priority secured notes, $165.0 million of our accounts receivable securitization obligation, and $171.6 million present value of capital lease obligations.

Interest expense decreased for the three and six months ended June 30, 2013 as compared to the prior year periods primarily due to our various voluntary prepayments of debt made from June 30, 2012 to June 30, 2013 and the refinancing of our term loan facilities completed in March of 2013 and March of 2012. On March 6, 2012, we entered into the Amended and Restated Credit Agreement (the “2012 Agreement”) that replaced

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the then-existing $874.0 million face value first lien term loan, which accrued interest at LIBOR plus 4.50%, including a minimum LIBOR rate of 1.50% with a $200.0 million face value first lien loan B-1 tranche, which accrued interest at LIBOR plus 3.75% with no minimum LIBOR rate, and a $674.0 million face value first lien loan B-2 tranche, which accrued interest at LIBOR plus 3.75%, including a minimum LIBOR rate of 1.25%. On March 7, 2013, we entered into the Second Amended and Restated Credit Agreement (the “2013 Agreement”). The 2013 Agreement replaced the then-existing first lien term loan B-1 and B-2 tranches under the 2012 Agreement with outstanding principal balances of $152.0 million and $508.0 million, respectively, with new first lien term loan B-1 and B-2 tranches with face values of $250.0 million and $410.0 million, respectively. In addition, the 2013 Agreement reduced the interest rates applicable to the first lien term loan B-1 tranche to LIBOR plus 2.75% with no minimum LIBOR rate and the first lien term loan B-2 tranche to LIBOR plus 3.00% with a minimum LIBOR rate of 1.00%.

Derivative Interest Expense

In December 2010, in conjunction with our IPO and refinancing transactions, we terminated all our remaining interest rate swaps and paid $66.4 million to our counterparties in full satisfaction of these interest rate swap agreements. In April 2011, in connection with our new senior secured credit facility, we entered into two forward-starting interest rate swap agreements with a total notional amount of $350.0 million. These interest rate swaps became effective in January 2013, mature in July 2015, and had been designated and qualified as cash flow hedges. As such, the effective portion of the changes in fair value of these designated swaps was recorded in accumulated OCI and is thereafter recognized to derivative interest expense as the interest on the hedged debt affects earnings, which hedged interest accruals started in January of 2013. Any ineffective portions of the changes in the fair value of designated interest rate swaps was recognized directly to earnings as derivative interest expense.

As noted above, on March 7, 2013, we entered into the 2013 Agreement replacing our 2012 Agreement. Due to the incorporation of a new interest rate floor provision in the 2013 Agreement, we concluded as of February 28, 2013, the outstanding interest rate swaps would no longer be highly effective in achieving offsetting changes in cash flows related to the hedged interest payments. As a result, we de-designated the hedges as of February 28, 2013 (“de-designation date”). Beginning on March 1, 2013, the effective portion of the interest rate swaps prior to the change (i.e., amounts previously recorded in accumulated OCI) have been and will continue to be amortized as derivative interest expense over the period of the originally designated hedged interest payments through July 2015. Following the de-designation date, changes in fair value of the interest rate swaps are immediately recognized in the consolidated statements of operations as derivative interest expense.

The following is a summary of our derivative interest expense for the three and six months ended June 30, 2013 and 2012:



	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(Unaudited) (Dollars in thousands)
Derivative interest expense	$	532	$	2,108	$	1,094	$	4,653

Derivative interest expense for the three and six months ended June 30, 2013 represents mark-to-market adjustments and settlement payments related to our interest rate swaps, which were de-designated as of February 28, 2013. Derivative interest expense for the three and six months ended June 30, 2012 is related to our terminated swaps and represents the previous losses recorded in accumulated OCI that are amortized to derivative interest expense over the original term of the swaps, which had a maturity of August 2012.

Loss on Debt Extinguishment



	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(Unaudited) (Dollars in thousands)
Loss on debt extinguishment	$	—	$	1,279	$	5,044	$	22,219

As noted above, on March 7, 2013, we entered into the 2013 Agreement replacing the 2012 Agreement. The 2013 Agreement replaced the then-existing first lien term loan B-1 and B-2 tranches under the 2012 Agreement. The replacement of the 2012 Agreement resulted in a loss on debt extinguishment of $5.0 million for the six months ended June 30, 2013, representing the write-off of the unamortized original issue discount and deferred financing fees associated with the 2012 Agreement. On May 21, 2012, the Company completed the call of its remaining $15.2 million face value 12.50% fixed rate notes due May 15, 2017, at a price of 106.25% of face value pursuant to the terms of the indenture governing the notes, resulting in a loss on debt extinguishment of $1.3 million, representing the call premium and write-off of the remaining unamortized deferred financing fees. Also, in the first quarter of 2012, we entered into the 2012 Agreement, which replaced the then-existing, remaining $874.0 million face value first lien term loan, resulting in a loss on debt extinguishment of $20.9 million, representing the write-off of the unamortized original issue discount and deferred financing fees associated with the original term loan.

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Gain on Sale of Real Property



	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013			2012
	(Unaudited) (Dollars in thousands)
Gain on sale of real property	$	—	$	—	$	(6,078	)	$	—

During the first quarter of 2013, we disposed of two non-operating properties in Wilmington, CA and Phoenix, AZ, resulting in a gain of $6.1 million.

Income Tax Expense



	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
	(Unaudited) (Dollars in thousands)
Income tax expense	$	26,888	$	21,776	$	41,501	$	18,228

Income tax expense for the three and six months ended June 30, 2013 reflects an effective tax rate of 38.5%, as expected. The effective tax rate for the three months ended June 30, 2012 was 39.3%. The effective tax rate for the six months ended June 30, 2012 was 31.4% which was 8.1 percentage points lower than the expected effective tax rate primarily due to the deferred state tax benefit related to an internal corporate restructuring of our subsidiaries in January of 2012. Excluding the impact of discrete items in the first quarter of 2012, the effective tax rate for the six months ended June 30, 2012 would have been 38.5%.

The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. Accrued interest and penalties as of June 30, 2013 was $1.4 million. To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision. The Company anticipates that the total amount of unrecognized tax benefits may decrease by $0.7 million during the next twelve months, which should not have a material impact on our financial statements.

Liquidity and Capital Resources

Cash Flow

Our summary statements of cash flows information for the six months ended June 30, 2013 and 2012, is set forth in the table below:



	Six Months Ended June 30,
	2013			2012
	(Unaudited) (Dollars in thousands)
Net cash provided by operating activities	$	220,343		$	165,850
Net cash used in investing activities	$	(86,980	)	$	(65,103	)
Net cash used in financing activities	$	(143,449	)	$	(147,316	)

The $54.5 million increase in net cash provided by operating activities during the six months ended June 30, 2013, compared to the same period in 2012, was primarily the result of the $19.5 million reduction in cash paid for interest and income taxes, $18.8 million increase in the change (increase) in accounts payable, accrued and other liabilities, a $9.7 million increase in operating income and $7.2 million increase in the change (decrease) in other assets during the six months ended June 30, 2013 as compared to the same period of 2012.

Our net cash used in investing activities increased $21.9 million during the six months ended June 30, 2013 as compared to the same period in 2012. This increase was primarily related to the $19.3 million increase in our gross capital expenditures as well as the $22.0 million reduction in proceeds received on the sale of our property and equipment. This net outflow was partially offset by $12.4 million increase in proceeds received from the sale of property and equipment classified as assets held for sale during the six months ended June 30, 2013, which was primarily related to the sale of real property in Wilmington, CA and Phoenix, AZ. In addition, during the six months ended June 30, 2012, we loaned $7.5 million to Swift Power Services, LLC.

Cash used in financing activities decreased by $3.9 million during the six months ended June 30, 2013 as compared to the same period in 2012. This decrease in net outflows was primarily related to the $56.0 million reduction in repayments of our long term debt and capital leases from the six months ended June 30, 2013 as compared to the corresponding period in 2012. Additionally, cash used in financing activities included $7.5 million in proceeds received from the issuance of long-term debt and $5.7 million in proceeds from issuance of common stock from exercises

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of stock options and the employee stock purchase plan during the first half of 2013. The reduction in our long term debt and capital lease repayments and the proceeds received from issuance of debt and common stock were offset by a $62.0 million increase in net repayments on our accounts receivable securitization from the first six months of 2013 as compared to the first six months of 2012.

Sources

As of June 30, 2013 and December 31, 2012, we had the following sources of liquidity available to us:



	June 30, 2013		December 31, 2012
	(Unaudited) (Dollars in thousands)
Cash and cash equivalents, excluding restricted cash	$	43,510	$	53,596
Availability under revolving line of credit due September 2016	261,894		240,932
Availability under 2013 RSA and 2011 RSA, respectively	101,700		64,600
Total unrestricted liquidity	$	407,104	$	359,128
Restricted cash	42,694		51,678
Restricted investments, held to maturity, amortized cost	26,955		22,275
Total liquidity, including restricted cash and investments	$	476,753	$	433,081

As of June 30, 2013 and December 31, 2012, we had restricted cash and short-term investments of $69.6 million and $74.0 million, respectively, primarily held by our captive insurance companies for payment of claims. As of June 30, 2013, there were no outstanding borrowings on our $400.0 million revolving line of credit, although there were $138.1 million in letters of credit outstanding under this facility, leaving $261.9 million available. In addition, we had borrowed $165.0 million against a total borrowing base of $266.7 million of eligible receivables from our accounts receivable facility, leaving $101.7 million available as of June 30, 2013.

Uses

Our business requires substantial amounts of cash to cover operating expenses as well as to fund items such as cash capital expenditures, other assets, working capital changes, principal and interest payments on our obligations, letters of credit to support insurance requirements, and tax payments to fund our taxes in periods when we generate taxable income.

We make substantial net capital expenditures to maintain a modern company tractor fleet, refresh our trailer fleet, and potentially fund growth in our revenue equipment fleet if justified by customer demand and our ability to finance the equipment and generate acceptable returns. As of June 30, 2013, we expect our net cash capital expenditures to be in the range of approximately $110.0 million to $135.0 million for the remainder of 2013. In addition, we believe we have ample flexibility with our trade cycle and purchase agreements to alter our current plans if economic or other conditions warrant. Beyond 2013, we expect our net capital expenditures to remain substantial.

As of June 30, 2013, we had $137.7 million of purchase commitments outstanding to acquire replacement tractors through the rest of 2013 and 2014. We generally have the option to cancel tractor purchase orders with 60 to 90 day notice prior to scheduled production, although the notice date has lapsed for approximately 80.0% of the commitments remaining as of June 30, 2013. In addition, we had trailer purchase commitments outstanding at June 30, 2013 for $74.2 million through the rest of 2013. These purchases are expected to be financed by a combination of operating leases, capital leases, debt, proceeds from sales of existing equipment and cash flows from operations.

As of June 30, 2013, we did not have outstanding purchase commitments for intermodal containers, fuel, facilities, or non-revenue equipment. Factors such as costs and opportunities for future terminal expansions may change the amount of such expenditures.

As of June 30, 2013 and December 31, 2012, we had a working capital surplus of $242.9 million and $351.2 million, respectively. The decrease was primarily related to the use of cash on hand to voluntarily repay $86.5 million of the non-current portion of our B-1 and B-2 tranches of first lien term loans and the $21.8 million increase in our current portion of long-term debt and obligations under capital leases and claims accruals from December 31, 2012 to June 30, 2013.

Financing

We believe we can finance our expected cash needs, including debt repayment, in the short-term with cash flows from operations, borrowings available under our revolving line of credit, borrowings under our 2013 RSA, and lease financing believed to be available for at least the next twelve months. Over the long-term, we will continue to have significant capital requirements, which may require us to seek additional borrowings, lease financing, or equity capital. The availability of financing or equity capital will depend upon our financial condition and results of operations as well as prevailing market conditions. If such additional borrowings, lease financing, or equity capital is not available at the time we need to incur such indebtedness, then we may be required to utilize the revolving portion of our senior secured credit facility (if not then fully drawn), extend the maturity of then-outstanding indebtedness, rely on alternative financing arrangements, or engage in asset sales.

As of June 30, 2013, we had the following material debt agreements:

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•	senior secured credit facility consisting of a term loan B-1 tranche due December 2016 and term loan B-2 tranche due December 2017, and a revolving line of credit due September 2016 (none drawn);


•	senior second priority secured notes due November 2018;


•	2013 RSA due July 2016; and


•	other secured indebtedness and capital lease agreements.

The amounts outstanding under such agreements and other debt instruments as of June 30, 2013 and December 31, 2012 were as follows:



	June 30, 2013		December 31, 2012
	(In thousands)
	(Unaudited)
Senior secured first lien term loan B-1 tranche due December 2016	$	238,000	$	—
Senior secured first lien term loan B-2 tranche due December 2017	410,000		—
Senior secured first lien term loan B-1 tranche due December 2016, net of $405 OID as of December 31, 2012	—		157,095
Senior secured first lien term loan B-2 tranche due December 2017, net of $1,440 OID as of December 31, 2012	—		575,560
Senior second priority secured notes due November 15, 2018, net of $6,807 and $7,439 OID as of June 30, 2013 and December 31, 2012, respectively	493,193		492,561
2013 RSA and 2011 RSA, respectively	165,000		204,000
Other secured debt and capital leases	185,299		145,818
Total debt and capital leases	$	1,491,492	$	1,575,034
Less: current portion	62,810		47,495
Long-term debt and capital leases	$	1,428,682	$	1,527,539

The indenture for our senior secured notes provides that we may only incur additional indebtedness if, after giving effect to the new incurrence, we meet a minimum fixed charge coverage ratio of 2.00:1.00, as defined therein, or the indebtedness qualifies under certain specifically enumerated carve-outs and debt incurrence baskets, including a provision that permits us to incur capital lease obligations of up to $350.0 million outstanding at any one time. As of June 30, 2013, we had a fixed charge coverage ratio in excess of 4.00:1.00. However, there can be no assurance that we can maintain a fixed charge coverage ratio over 2.00:1.00, in which case our ability to incur additional indebtedness under our existing financial arrangements to satisfy our ongoing capital requirements would be limited as noted above, although we believe the combination of our expected cash flows, financing available through operating leases which are not subject to debt incurrence baskets, the capital lease basket, and the funds available to us through our accounts receivable sale facility and our revolving credit facility will be sufficient to fund our expected capital expenditures for 2013.

See Notes 8 and 9 of the notes to these consolidated financial statements included in Part I, Item 1, in this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2013 for further discussion of the senior secured credit facility, senior second priority secured notes and 2013 RSA.

Capital and Operating Leases

In addition to the net cash capital expenditures discussed above, we also acquired revenue equipment, including tractors and trailers, with capital and operating leases. During the six months ended June 30, 2013, we acquired revenue equipment through capital leases and operating leases with gross values of $59.0 million and $73.1 million, respectively, which were offset by capital lease and operating lease terminations with originating values of $10.7 million and $16.2 million, respectively. During the six months ended June 30, 2012, we acquired revenue equipment through capital leases and operating leases with gross values of $19.4 million and $170.1 million, respectively, which were offset by capital and operating lease terminations with originating values of $19.4 million and $30.3 million, respectively, for tractors.

Contractual Obligations

During the six months ended June 30, 2013, other than the voluntary prepayments of our long-term debt, entering into the 2013 Agreement and the 2013 RSA as discussed under the heading “Financing,” there have not been any material changes outside the ordinary course of business to the contractual obligations table contained in our Form 10-K for the fiscal year ended December 31, 2012.

Off-Balance Sheet Arrangements

We lease approximately 5,800 tractors under operating leases, which includes approximately 3,700 company tractors and 2,100 owner-operator tractors financed by the Company. Operating leases have been an important source of financing for our revenue equipment. Tractors held under operating leases are not carried on our consolidated balance sheets, and lease payments in respect of such tractors are reflected in our consolidated statements of operations in the line item “Rental expense.” Our revenue equipment rental expense was $57.5 million for the six months ended June 30, 2013, compared with $47.9 million in the six months ended June 30, 2012. In connection with various operating leases, we issued residual value guarantees, which provide that if we do not purchase the leased equipment from the lessor at the end of the lease term, we are liable to the lessor for an amount equal to the shortage (if any) between the proceeds from the sale of the equipment and an agreed residual value.

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As of June 30, 2013, the maximum possible payment under the residual value guarantees was approximately $10.0 million. To the extent the expected value at the lease termination date is lower than the residual value guarantee; we would accrue for the difference over the remaining lease term. We believe that proceeds from the sale of equipment under operating leases would exceed the payment obligation on substantially all operating leases.

Seasonality

In the transportation industry, results of operations generally show a seasonal pattern. As customers ramp up for the holiday season at year-end, the late third and fourth quarters have historically been our strongest volume quarters. As customers reduce shipments after the winter holiday season, the first quarter has historically been a lower volume quarter for us than the other three quarters. In the eastern and midwestern United States, and to a lesser extent in the western United States, during the winter season, our equipment utilization typically declines and our operating expenses generally increase, with fuel efficiency declining because of engine idling and harsh weather sometimes creating higher accident frequency, increased claims, and more equipment repairs. Our revenue also may be affected by holidays as a result of curtailed operations or vacation shutdowns, because our revenue is directly related to available working days of shippers. From time to time, we also suffer short-term impacts from weather-related events such as tornadoes, hurricanes, blizzards, ice storms, floods, fires, earthquakes, and explosions that could harm our results of operations or make our results of operations more volatile.

Inflation

Inflation can have an impact on our operating costs. A prolonged period of inflation could cause interest rates, fuel, wages, and other costs to increase, which would adversely affect our results of operations unless freight rates correspondingly increase. However, with the exception of fuel, the effect of inflation has been minor in recent years. Historically, the majority of the increase in fuel costs has been passed on to our customers through a corresponding increase in fuel surcharge revenue, making the impact of the increased fuel costs on our operating results less severe. If fuel costs escalate and we are unable to recover these costs timely with effective fuel surcharges, it would have an adverse effect on our operation and profitability.

Forward Looking Statements

This Quarterly Report contains statements that may constitute forward-looking statements, usually identified by words such as “anticipates,” “believes,” “estimates,” “plans,” “projects,” “expects,” “intends,” or similar expressions which speak only as of the date the statement was made. Forward-looking statements in this quarterly report include statements concerning: adjustments to income tax assessments as the result of ongoing and future examinations; anticipated changes in our unrecognized tax benefits during the next 12 months; the outcome of pending litigation and actions we intend to take in respect thereof; the amount and timing of the recognition of unrealized losses included in other comprehensive income; trends concerning supply, demand, pricing and costs in the trucking industry; our expectation of increasing driver wage and hiring expenses; the benefits of our fuel surcharge program and our ability to recover increasing fuel costs through surcharges; the impact of the lag effect relating to our fuel surcharges; our exposure to residual value guarantees relating to operating leases; the sources and sufficiency of our liquidity and financial resources; the consequences of a failure to maintain compliance with our debt covenants; the timing of our disposition of assets held for sale; our intentions concerning the use of derivative financial instruments to hedge fuel price exposure; and the timing and amount of future acquisitions of trucking equipment and other capital expenditures and the use and availability of cash, cash flow from operations, leases and debt to finance such acquisitions. Such statements are based upon the current beliefs and expectations of the Company’s management. Such forward-looking statements are subject to significant risks and uncertainties as set forth in the Risk Factor Section of our Annual Report Form 10-K for the year ended December 31, 2012. Actual events may differ materially from those set forth in the forward-looking statements. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

As to the Company’s business and financial performance, the following factors, among others, could cause actual results to differ materially from those in forward-looking statements: any future recessionary economic cycles and downturns in customers’ business cycles, particularly in market segments and industries in which we have a significant concentration of customers; increasing competition from trucking, rail, intermodal, and brokerage competitors; a significant reduction in, or termination of, our trucking services by a key customer; a significant reduction in, or termination of, our trucking services by a key customer; the amount and velocity of changes in fuel prices and our ability to recover fuel prices through our fuel surcharge program; volatility in the price or availability of fuel; increases in new equipment prices or replacement costs; the regulatory environment in which we operate, including existing regulations and changes in existing regulations, or violations by us of existing or future regulations; our Compliance Safety Accountability safety rating; increases in driver compensation to the extent not offset by increases in freight rates and difficulties in driver recruitment and retention; changes in rules or legislation by the National Labor Relations Board or Congress and/or union organizing efforts; potential volatility or decrease in the amount of earnings as a result of our claims exposure through our captive insurance companies; risks relating to our captive insurance companies; uncertainties associated with our operations in Mexico; our ability to attract and maintain relationships with owner-operators; the possible re-classification of our owner-operators as employees; our ability to retain or replace key personnel; conflicts of interest or potential litigation that may arise from other businesses owned by Jerry Moyes, including pledges of Swift stock and guarantees related to other businesses by Jerry Moyes; our dependence on fourth parties for intermodal and brokerage business; our ability to sustain cost savings realized as part of recent cost reduction initiatives; potential failure in computer or communications systems; our ability to execute or integrate any future acquisitions successfully; seasonal factors such as harsh weather conditions that increase operating costs; goodwill impairment; the potential impact of the significant number of shares of our common stock that is outstanding; our intention to not pay dividends; demand ; our significant ongoing capital requirements; our level of indebtedness and our ability to service our outstanding indebtedness, including compliance with our indebtedness covenants, and the impact such indebtedness may have on the way we operate our business; the significant amount of our stock and related control over the Company by Jerry Moyes; and restrictions contained in our debt agreements.

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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We have interest rate exposure arising from our senior secured credit facility, 2013 RSA, and other financing agreements, which have variable interest rates. These variable interest rates are impacted by changes in short-term interest rates, although the volatility related to the first lien term loan B-2 tranche is mitigated due to a minimum LIBOR rate of 1.00%. We manage interest rate exposure through a mix of variable rate debt, and fixed rate notes (weighted average rate of 3.2% before applicable margin). Assuming the current level of borrowings, a hypothetical one-percentage point increase in interest rates would increase our annual interest expense by $5.1 million considering the effect of the minimum LIBOR rate on the first lien term loan B-2 tranche.

We have commodity exposure with respect to fuel used in company tractors. Further increases in fuel prices will continue to raise our operating costs, even after applying fuel surcharge revenue. Historically, we have been able to recover a majority of fuel price increases from our customers in the form of fuel surcharges. The weekly average diesel price per gallon in the United States, as reported by the DOE, decreased slightly from an average of $3.960 per gallon for the six months ended June 30, 2012 to an average of $3.950 per gallon for the six months ended June 30, 2013. We cannot predict the extent or speed of potential changes in fuel price levels in the future, the degree to which the lag effect of our fuel surcharge programs will impact us as a result of the timing and magnitude of such changes, or the extent to which effective fuel surcharges can be maintained and collected to offset such increases. We generally have not used derivative financial instruments to hedge our fuel price exposure in the past, but continue to evaluate this possibility.

ITEM 4: CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures and determined that as of June 30, 2013 our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting during the quarter ended June 30, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

Information about our legal proceedings is included in Note 14 of the notes to these consolidated financial statements, included in Part I, Item 1, in this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2013 as well as Part I, Item 3, “Legal Proceedings”, in our Annual Report on Form 10-K for the year ended December 31, 2012.

ITEM 1A: RISK FACTORS

In addition to the other information set forth in this report, the factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2012 should be carefully considered as these risk factors could materially affect our business, financial condition, future results and/or our ability to maintain compliance with our debt covenants. The risks described in our Annual Report are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also adversely affect our business, financial condition, operating results and/or our ability to maintain compliance with our debt covenants.

ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3: DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4: MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5: OTHER INFORMATION

Not applicable.

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ITEM 6: EXHIBITS



Exhibit Number	Description	Page or Method of Filing

3.1	Amended and Restated Certificate of Incorporation of Swift Transportation Company	Incorporated by reference to Exhibit 3.1 of Form 10-K for the year ended December 31, 2010

3.2	Bylaws of Swift Transportation Company	Incorporated by reference to Exhibit 3.2 of Form 10-K for the year ended December 31, 2010

10.1	Amended and Restated Receivables Purchase Agreement ⁽¹⁾	Filed herewith


31.1	Certification by CEO pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith

31.2	Certification by CFO pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith

32.1	Certification by CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Furnished herewith

101	XBRL Instance Document	Filed herewith

101	XBRL Taxonomy Extension Schema Document	Filed herewith

101	XBRL Taxonomy Calculation Linkbase Document	Filed herewith

101	XBRL Taxonomy Label Linkbase Document	Filed herewith

101	XBRL Taxonomy Presentation Linkbase Document	Filed herewith

101	XBRL Taxonomy Extension Definition Document	Filed herewith

(1) Certain Confidential Information contained in this Exhibit was omitted by means of redacting a portion of the text and replacing it with an asterisk. This Exhibit has been filed separately with the Secretary of the Securities and Exchange Commission without the redaction pursuant to Confidential Treatment Request under Rule 24b-2 of the Securities Exchange Act of 1934.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.




		SWIFT TRANSPORTATION COMPANY

		/s/ Jerry Moyes
		(Signature)
		Jerry Moyes
		Chief Executive Officer

Date:	August 2, 2013

		/s/ Virginia Henkels
		(Signature)
		Virginia Henkels
		Executive Vice President and Chief Financial Officer

Date:	August 2, 2013

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