Swift Transportation 10-Q 2003 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2003

or

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

Commission File Number 0–18605

SWIFT TRANSPORTATION CO., INC.

(Exact name of registrant as specified in its charter)

Nevada	86-0666860
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

2200 South 75th Avenue
Phoenix, AZ 85043
(602) 269-9700
(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)

          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 the filing requirements for at least the past 90 days. YESx  NOo

          Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
                     Yesx  Noo

          Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date (August 11, 2003)

Common stock, $.001 par value: 83,428,612 shares

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS
		Condensed Consolidated Balance Sheets
		Condensed Consolidated Statements of Earnings
		Consolidated Statements of Comprehensive Income
		Condensed Consolidated Statements of Stockholders' Equity
		Condensed Consolidated Statements of Cash Flows
		Notes to Condensed Consolidated Financial Statements
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
Exhibit 10.22
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
Exhibit 99.1

		Page
		Number
	PART I FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of June 30, 2003 (unaudited) and December 31, 2002	3-4
	Condensed Consolidated Statements of Earnings (unaudited) for the Three and Six Month Periods Ended June 30, 2003 and 2002	5
	Consolidated Statements of Comprehensive Income (unaudited) for the Three and Six Month Periods Ended June 30, 2003 and 2002	6
	Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the Six Month Period Ended June 30, 2003	7
	Condensed Consolidated Statements of Cash Flows (unaudited) for the Six Month Periods Ended June 30, 2003 and 2002	8-9
	Notes to Condensed Consolidated Financial Statements	10-12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13-20
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	20
Item 4.	Controls and Procedures	20
	PART II OTHER INFORMATION
Items 1, 2, 3 and 5.	Not applicable
Item 4.	Submission of Matters to a Vote of Security Holders	21
Item 6.	Exhibits and Reports on Form 8-K	21

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES

Condensed Consolidated Balance Sheets
(In thousands, except share data)

			June 30,		December 31,
			2003		2002
			(unaudited)
Assets
Current assets:
	Cash		$	49,649	$	7,930
	Accounts receivable, net			277,302		272,545
	Equipment sales receivable			676		11,100
	Inventories and supplies			11,805		16,031
	Prepaid taxes, licenses and insurance			21,392		19,021
	Assets held for sale			4,872		8,274
	Deferred income taxes			3,262		2,262
		Total current assets		368,958		337,163
Property and equipment, at cost:
	Revenue and service equipment			1,523,936		1,476,183
	Land			48,594		47,855
	Facilities and improvements			256,587		213,421
	Furniture and office equipment			71,628		70,315
		Total property and equipment		1,900,745		1,807,774
	Less accumulated depreciation and amortization			605,095		548,937
		Net property and equipment		1,295,650		1,258,837
Investment in Transplace				3,705		4,282
Notes receivable from Trans-Mex				12,949		11,649
Deferred legal fees				12,654		16,892
Other assets				20,194		16,759
Goodwill				8,900		8,900
			$	1,723,010	$	1,654,482

See accompanying notes to condensed consolidated financial statements.

Continued

3

SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES

Condensed Consolidated Balance Sheets
(In thousands, except share data)

				June 30,			December 31,
				2003			2002
				(unaudited)
Liabilities and Stockholders’ Equity
Current liabilities:
	Accounts payable			$	48,556		$	53,192
	Accrued liabilities				63,656			52,161
	Current portion of claims accruals				76,666			83,188
	Current portion of long-term debt				3,432			3,389
	Current portion of obligations under capital leases				23,941			45,832
	Securitization of accounts receivable				27,000			169,000
			Total current liabilities		243,251			406,762
Borrowings under revolving credit agreement					135,800			136,400
Senior Notes					200,000
Long-term debt, less current portion					6,151			9,387
Obligations under capital leases					30,857			37,683
Claims accruals, less current portion					78,476			65,011
Deferred income taxes					237,010			223,514
Fair value of interest rate swaps					11,029			9,947
Stockholders’ equity:
	Preferred stock, par value $.001 per share
		Authorized 1,000,000 shares; none issued
	Common stock, par value $.001 per share
		Authorized 200,000,000 shares; 90,734,414 and 90,182,273 shares issued at June 30, 2003 and December 31, 2002, respectively			91			90
	Additional paid-in capital				278,705			272,099
	Retained earnings				611,538			583,480
	Treasury stock, at cost (7,438,077 and 6,237,077 shares at June 30, 2003 and December 31, 2002, respectively)				(108,760	)		(89,891	)
	Accumulated other comprehensive loss				(1,138	)
		Total stockholders’ equity			780,436			765,778
		Commitments and contingencies
				$	1,723,010		$	1,654,482

See accompanying notes to condensed consolidated financial statements.

4

SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES

Condensed Consolidated Statements of Earnings
(unaudited)
(In thousands, except share data)

			Three months ended June 30,						Six months ended June 30,
			2003			2002			2003			2002
Operating revenue			$	584,909		$	528,595		$	1,136,212		$	1,004,375
Operating expenses:
	Salaries, wages and employee benefits			217,260			191,569			421,655			372,474
	Operating supplies and expenses			55,016			50,047			113,155			91,699
	Fuel			75,869			62,993			160,579			117,309
	Purchased transportation			100,083			89,337			191,337			173,075
	Rental expense			18,344			21,156			39,009			43,350
	Insurance and claims			25,551			19,714			48,041			39,094
	Depreciation and amortization			39,379			38,183			73,733			74,900
	Communication and utilities			6,797			6,566			13,737			13,737
	Operating taxes and licenses			11,908			13,264			21,919			25,219
		Total operating expenses		550,207			492,829			1,083,165			950,857
Operating income				34,702			35,766			53,047			53,518
Other (income) expenses:
	Interest expense			4,583			6,770			8,515			9,077
	Interest income			(138	)		(364	)		(296	)		(651	)
	Other			(644	)		563			(420	)		970
		Other (income) expenses, net		3,801			6,969			7,799			9,396
Earnings before income taxes				30,901			28,797			45,248			44,122
Income taxes				11,740			11,115			17,190			17,030
Net earnings			$	19,161		$	17,682		$	28,058		$	27,092
Basic earnings per share			$	.23		$	.20		$	.34		$	.31
Diluted earnings per share			$	.23		$	.20		$	.33		$	.31

See accompanying notes to condensed consolidated financial statements.

5

SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES

Consolidated Statements of Comprehensive Income
(unaudited)
(In thousands)

		Three months ended June 30,					Six months ended June 30,
		2003			2002		2003			2002
Net earnings		$	19,161		$	17,682	$	28,058		$	27,092
Other comprehensive loss:
	Net derivative loss on cash flow hedge, net of tax effect of $432		(706	)				(706	)
Comprehensive income		$	18,455		$	17,682	$	27,352		$	27,092

See accompanying notes to condensed consolidated financial statements.

6

SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity
(unaudited)
(In thousands, except share data)

	Common Stock				Additional							Other			Total
					Paid-in		Retained		Treasury			Comprehensive			Stockholders ’
	Shares		Par Value		Capital		Earnings		Stock			Loss			Equity
Balances, December 31, 2002		90,182,273	$	90	$	272,099	$	583,480	$	(89,891	)	$			$	765,778
Issuance of common stock under stock option and employee stock purchase plans		552,141		1		5,905										5,906
Amortization of deferred compensation						701										701
Cash flow hedge													(1,138	)		(1,138	)
Purchase of 1,201,000 shares of treasury stock										(18,869	)					(18,869	)
Net earnings								28,058								28,058
Balances, June 30, 2003		90,734,414	$	91	$	278,705	$	611,538	$	(108,760	)	$	(1,138	)	$	780,436

See accompanying notes to condensed consolidated financial statements.

7

SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows
(unaudited)
(In thousands)

					Six Months Ended June 30,
					2003			2002
Cash flows from operating activities:
	Net earnings				$	28,058		$	27,092
	Adjustments to reconcile net earnings to net cash provided by operating activities:
		Depreciation and amortization				73,627			70,197
		Deferred income taxes				12,496			15,828
		Provision for losses on accounts receivable				2,993			3,679
		Amortization of deferred compensation				701			475
		Fair market value of interest rate swaps				1,082			1,372
		Amortization of deferred legal fees				4,238
		Impairment of property							2,500
		Increase (decrease) in cash resulting from changes in:
			Accounts receivable			(7,615	)		(42,750	)
			Inventories and supplies			4,226			231
			Prepaid expenses			(2,371	)		5,716
			Other assets			(3,628	)		(15,707	)
			Accounts payable, accrued liabilities and claims accruals			13,802			45,269
				Net cash provided by operating activities		127,609			113,902
Cash flows from investing activities:
	Proceeds from sale of property and equipment					15,219			51,300
	Capital expenditures					(126,692	)		(161,441	)
	Proceeds from sale of assets held for sale					3,760
	Repayment of note receivable					770			1,000
	Notes receivable					(1,300	)		(11,065	)
	Payments received on equipment sale receivables					10,965			2,107
				Net cash used in investing activities		(97,278	)		(118,099	)

See accompanying notes to condensed consolidated financial statements.

Continued

8

SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows
(unaudited)
(In thousands)

				Six Months Ended June 30,
				2003			2002
Cash flows from financing activities:
	Issuance of Senior Notes				200,000
	Repayments of long-term debt and capital leases				(31,910	)		(29,713	)
	Borrowings under line of credit				120,800			127,500
	Repayments of borrowings under line of credit				(121,400	)		(116,500	)
	Change in borrowings under accounts receivable securitization				(142,000	)		2,000
	Purchases of treasury stock				(18,869	)
	Accumulated other comprehensive loss				(1,138	)
	Proceeds from issuance of common stock under stock option and stock purchase plans				5,905			8,881
			Net cash provided by (used in) financing activities		11,388			(7,832	)
Net increase (decrease) in cash					41,719			(12,029	)
Cash at beginning of period					7,930			14,151
Cash at end of period				$	49,649		$	2,122
Supplemental disclosure of cash flow information:
	Cash paid during the period for:
		Interest		$	6,793		$	6,256
		Income taxes		$	12,241		$	232
Supplemental schedule of noncash investing and financing activities:
	Equipment sales receivables			$	676		$	22,908

See accompanying notes to condensed consolidated financial statements.

9

SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(unaudited)

Note 1. Basis of Presentation

The condensed consolidated financial statements include the accounts of Swift Transportation Co., Inc., a Nevada holding company, and its wholly-owned subsidiaries (the Company). All significant intercompany balances and transactions have been eliminated.

The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, pursuant to rules and regulations of the Securities and Exchange Commission. In the opinion of management, the accompanying financial statements include all adjustments, which are necessary for a fair presentation of the results for the interim periods presented. Certain information and footnote disclosures have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002. Results of operations in interim periods are not necessarily indicative of results to be expected for a full year.

Note 2. Stock Compensation Plans

The Company applies APB Opinion No. 25 and related interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for its Employee Stock Purchase Plan. The compensation cost that has been charged against income for its Fixed Stock Option Plans was $349,000 and $266,000 for the three months ended June 30, 2003 and 2002, respectively and $701,000 and $475,000 for the six months ended June 30, 2003 and 2002, respectively.

Had compensation cost for the Company’s four stock-based compensation plans been determined consistent with FASB Statement No. 123 (“SFAS No. 123”), the Company’s net earnings and earnings per share would have been reduced to the pro forma amounts indicated below:

		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2003			2002			2003			2002
Net earnings (in thousands)	As Reported	$	19,161		$	17,682		$	28,058		$	27,092
	Add: Compensation expense, using intrinsic method, net of tax		216			165			435			294
	Deduct: Compensation expense, using fair value method, net of tax		(1,564	)		(1,215	)		(2,507	)		(1,736	)
	Pro forma	$	17,813		$	16,632		$	25,986		$	25,650
Basic earnings per share	As Reported	$	.23		$	.20		$	.34		$	.31
	Pro forma	$	.21		$	.19		$	.31		$	.30
Diluted earnings per share	As Reported	$	.23		$	.20		$	.33		$	.31
	Pro forma	$	.21		$	.19		$	.31		$	.29

10

SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(unaudited)

Pro forma net earnings reflect only options granted in 1995 through June 30, 2003. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net earnings amounts presented above because compensation cost is reflected over the options’ vesting period and compensation cost for options granted prior to January 1, 1995 is not considered under SFAS No. 123.

Note 3. Contingencies

The Company is involved in certain claims and pending litigation arising from the normal course of business. Based on the knowledge of the facts and, in certain cases, opinions of outside counsel, management believes the resolution of claims and pending litigation will not have a materially adverse effect on the financial condition of the Company.

Note 4. Assets Held for Sale

In January 2003, the Company sold its Columbus facility, which was previously used by M.S. Carriers and classified as assets held for sale. The Company received $3.7 million, net of expenses, and recognized a gain of $345,000.

Note 5. Private Placement of Senior Notes

On June 27, 2003, the Company completed a private placement of Senior Notes. The notes were issued in two series of $100 million each with an interest rate of 3.73% for those notes maturing on June 27, 2008 and 4.33% for those notes maturing on June 27, 2010. The notes contain financial covenants relating to leverage, fixed charge coverage and tangible net worth.

Note 6. Accumulated Other Comprehensive Income

In conjunction with the June 2003 private placement of Senior Notes, the Company entered into a cash flow hedge to lock the benchmark interest rate used to set the coupon rate for $50 million of the notes. The Company terminated the hedge when the coupon rate was set and paid $1.1 million, which is recorded as accumulated other comprehensive loss in stockholders’ equity. This amount will be amortized as a yield adjustment of the interest rate on the seven-year series of notes. The Company expects $142,000 will be amortized into interest expense during the next twelve months.

11

SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(unaudited)

Note 7. Stock Repurchase Program

The Company repurchased a total of 1,201,000 shares of its stock in the first six months of 2003 at a cost of $18.9 million. The Board of Directors authorized the repurchase of 1,000,000 shares at price levels set by the Board of Directors and this purchase was completed in the first six months of 2003 at a cost of $15.7 million. The Board of Directors also approved the purchase of an additional 2,000,000 shares of the Company’s common stock at a total cost not to exceed $32 million. Of this amount, 201,000 shares were purchased in the first six months of 2003 at a cost of $3.2 million.

Note 8. Earnings Per Share

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

	Three months ended				Six months ended
	June 30,				June 30,
	2003		2002		2003		2002
	(in thousands, except per share amounts)
Net earnings	$	19,161	$	17,682	$	28,058	$	27,092
Weighted average shares:
Common shares outstanding for basic earnings per share		83,031		86,419		83,403		86,265
Equivalent shares issuable upon exercise of stock options		1,117		1,472		1,056		1,650
Diluted shares		84,148		87,891		84,459		87,915
Basic earnings per share	$	.23	$	.20	$	.34	$	.31
Diluted earnings per share	$	.23	$	.20	$	.33	$	.31

Note 9. Subsequent Event – Acquisition of Merit Distribution Services, Inc.

In July 2003, the Company completed the acquisition of certain assets of Merit Distribution Services, Inc. for $76 million, including $26 million for additional revenue equipment and other assets not originally anticipated. Merit’s fleet consists of 825 tractors, including 140 owner operators, and 1,400 trailers of which 455 tractors and 1,100 trailers are leased. Merit’s primary business consists of a series of dedicated regional trucking fleets that serve Wal-Mart’s grocery distribution centers and retail outlets.

12

SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES

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

Forward-Looking Statements

          This Report on Form 10-Q contains forward-looking statements. The words “believe,” “expect,” “anticipate,” “project,” and similar expressions identify forward-looking statements, which speak only as of the date the statement was made. Such forward-looking statements are within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements may include, but are not limited to, projections of revenues, income, or loss, capital expenditures, plans for future operations, financing needs or plans, the impact of inflation and plans relating to the foregoing.

          Statements in Exhibit 99.1 to this Quarterly Report on Form 10-Q and in the Company’s Annual Report on Form 10-K, including Notes to the Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” describe factors, among others, that could cause actual results or events to differ materially from those expressed in forward-looking statements. Additional factors that could contribute to or cause such differences are set forth in “Business” and “Market for the Registrant’s Common Stock and Related Stockholder Matters” in the Company’s Annual Report on Form 10-K.

OVERVIEW

We operate the largest truckload fleet in the United States. As part of the truckload segment of the trucking industry, we transport freight for shippers in large quantities who generally pay for our services based upon miles of delivery. Our fleet of tractors and trailers is as follows:

			June 30,		December 31,		June 30,
			2003		2002		2002
Tractors:
	Company
		Owned		8,249		7,350		6,846
		Leased		4,790		5,589		5,817
		Total company		13,039		12,939		12,663
	Owner-operator			3,307		3,152		3,336
	Total			16,346		16,091		15,999
Trailers				48,698		48,233		46,561

The Company tractors are either owned by the Company or financed under leases. Our fleet has operated on a three -year cycle for many years. Generally, we traded a tractor for a new tractor every three years. We are currently evaluating our replacement policy in light of the changes to tractor engines due to new emissions standards mandated by the U.S. Environmental Protection Agency (EPA) that became effective on October 1, 2002. We extended the usage of our three year old tractors into the fourth year while evaluating the October 2002 EPA engine. We are continuing to evaluate the new engine but have begun purchasing some tractors with the EPA compliant engine to replace certain tractors that have completed a four-year cycle.

13

The owner-operators own their tractor and are responsible for operating costs. The owner-operators operate under the authority of the Company and are generally compensated based upon miles.

Trucking revenue is revenue from freight hauled on our fleet. There are three factors that significantly impact our trucking revenue. First, as mentioned above, the truckload industry in which we operate is generally compensated based upon miles. Therefore, an increase in miles will increase the revenue. We monitor utilization of our tractors in the form of miles per tractor per week. The second factor is revenue per mile. Increases in revenue per mile will increase revenue. We monitor our revenue per mile on a daily basis. Finally, the percentage of miles our tractors travel that do not generate revenue, known as deadhead, will adversely affect revenue. We monitor deadhead miles on a daily basis.

In addition to trucking revenue, our operating revenue includes fuel surcharge revenue and other revenue primarily for freight moved for our customers on rail or purchased transportation and work performed in our shops for owner operators.

We are also compensated, in some instances, for accessorial charges such as loading and unloading.

We view our operating cost structure as approximately one-half variable and one-half fixed. Therefore, an increase in revenue will generally improve our operating margin percentage.

RESULTS OF OPERATIONS FOR THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002

The following table sets forth for the periods indicated certain statement of earnings data as a percentage of operating revenue for the three and six months ended:

			Three months ended						Six months ended
			June 30,						June 30,
			2003			2002			2003			2002
Operating revenue				100.0	%		100.0	%		100.0	%		100.0	%
Operating expenses:
	Salaries, wages and employee benefits			37.1			36.2			37.1			37.1
	Operating supplies and expenses			9.4			9.5			10.0			9.1
	Fuel			13.0			11.9			14.1			11.7
	Purchased transportation			17.1			16.9			16.9			17.2
	Rental expense			3.2			4.0			3.4			4.3
	Insurance and claims			4.4			3.7			4.2			3.9
	Depreciation and amortization			6.7			7.2			6.5			7.5
	Communications and utilities			1.2			1.3			1.2			1.4
	Operating taxes and licenses			2.0			2.5			1.9			2.5
		Total operating expenses		94.1			93.2			95.3			94.7
Operating income				5.9			6.8			4.7			5.3
Net interest expense				.7			1.3			.7			.9
Other (income) expense, net				(.1	)		.1
Earnings before income taxes				5.3			5.4			4.0			4.4
Income taxes				2.0			2.1			1.5			1.7
Net earnings				3.3	%		3.3	%		2.5	%		2.7	%

14

Our net earnings increased from $17.7 million in the second quarter of 2002 to $19.2 million in the second quarter of 2003 and from $27.1 million in the first six months of 2002 to $28.1 million in the first six months of 2003. This increase was mainly driven by a 7.9% and 9.7% increase in operating revenue, net of fuel surcharge revenue for the quarter and six months, respectively. The incremental profit from the increased volume was aided in the second quarter of 2003 by fuel surcharge revenue in excess of higher fuel costs, due to the timing of the contractual fuel surcharge adjustments, and decreased depreciation and rental expense as we purchased approximately 1,000 tractors at completion of their three year operating lease. Depreciation expense of our tractors decreases in the fourth year of use as the residual value declines at a lower rate in year four that in the first three years.

REVENUE

As discussed above, we believe there are three factors that have a significant impact on our trucking revenue. These three factors, along with operating revenue and its components (dollars in thousands) are shown in the table below:

	Three months ended June 30,						Six months ended June 30,
	2003			2002			2003			2002
Trucking revenue	$	540,735		$	497,877		$	1,049,582		$	956,027
Fuel surcharge revenue		23,391			8,056			46,517			10,797
Other revenue		20,783			22,662			40,113			37,551
Operating revenue	$	584,909		$	528,595		$	1,136,212		$	1,004,375
Miles per tractor per week		2,184			2,073			2,123			2,009
Trucking revenue per loaded mile	$	1.4439		$	1.4244		$	1.4344		$	1.4123
Deadhead percentage		14.68	%		14.22	%		14.24	%		14.57	%

Our trucking revenue increased 8.6% in the second quarter of 2003 compared to the second quarter of 2002 despite an increase in deadhead percentage as we improved our utilization and revenue per loaded mile. The trend was similar in the six months ended June 30, 2003 compared to the same period in 2002 as trucking revenue increased 9.8% and utilization, revenue per loaded mile and deadhead percentage all improved.

Other revenue decreased in the second quarter and increased in the first six months of 2003 compared to the second quarter and first six months of 2002 primarily due to the volume of freight moved for our customers on Mexican carriers and the level of work performed in our shops for owner-operators.

OPERATING EXPENSES

Our most significant operating costs are salaries, wages and employee benefits, fuel and purchased transportation. Our salaries, wages and employee benefits were 37.1% and 36.2% of operating revenue in the second quarter of 2003 and 2002, respectively. After adjusting for the increase in fuel surcharge revenue, this percentage increased to 38.7% in the second quarter of 2003 compared to 36.8% in the second quarter of 2002, primarily due to an increase in workers’ compensation costs and health care costs. As

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discussed in our 2002 Annual Report, our deductible amount for workers’ compensation rose from zero to $350,000 per incident in 2002. Beginning in 2003, this deductible amount for workers’ compensation increased from $350,000 to $500,000 per incident.

Salary, wages and employee benefits represent 37.1% of operating revenue for the six months ended June 30, 2003 and 2002. After adjusting for the increase in fuel surcharge revenue, this percentage increased to 38.7% for the six months ended June 30, 2003 compared to 37.5% for the same period in 2002 primarily due to an increase in workers’ compensation costs.

From time to time the industry has experienced shortages of qualified drivers. If such a shortage were to occur over a prolonged period and increases in driver pay rates were to occur in order to attract and retain drivers, our results of operations would be negatively impacted to the extent we did not obtain corresponding rate increases.

Fuel was 13.0% and 11.9% of operating revenue in the second quarter of 2003 and 2002, respectively and 14.1% and 11.7% of operating revenue in the first six months of 2003 and 2002, respectively. This percentage is primarily affected by fuel prices. Our average fuel cost per gallon was $1.33 and $1.18, in the second quarter of 2003 and 2002, respectively and $1.42 and $1.12, in the first six months of 2003 and 2002, respectively.

Increases in fuel costs, to the extent not offset by rate increases or fuel surcharges, would have an adverse effect on our operations and profitability. We believe that the most effective protection against fuel cost increases is to maintain a fuel-efficient fleet and to implement fuel surcharges when such an option is necessary and available. We do not use derivative-type hedging instruments, but periodically evaluate their possible use.

Purchased transportation was 17.1% and 16.9% of operating revenue in the second quarter of 2003 and 2002, respectively. This percentage increased as our owner operator fleet has remained fairly constant, with 3,307 at June 30, 2003 and 3,336 at June 30, 2002, as our operating revenue increased. After adjusting for the increase in fuel surcharge revenue, this percentage was 17.0% in 2003 and 16.8% in 2002, primarily due to an increase in volume and rates of freight carried by Mexican carriers.

Purchased transportation was 16.9% and 17.2% of operating revenue for the six months ended June 30, 2003 and 2002, respectively. After adjusting for the increase in fuel surcharge revenue, this percentage was 16.7% and 17.1% in the first six months of 2003 and 2002, respectively. This percentage decreased as our operating revenue increased at a rate greater than the increase in owner operator miles.

Operating supplies and expenses was 9.4% and 9.5% of operating revenue in the second quarter of 2003 and 2002, respectively and 10.0% and 9.1% of operating revenue for the six months ended June 30, 2003 and 2002, respectively. After adjusting for the increase in fuel surcharge revenue, this percentage increased to 9.8% in the second quarter of 2003 compared to 9.6% in the second quarter of 2002 and 10.4% for the six months ended June 30, 2003 compared to 9.2% for the same period in 2002, as we experienced an increase in maintenance costs. We expected this increase as we extended the life of some of our tractors into the fourth year which increases maintenance costs. This increase is offset by a reduction in depreciation expense discussed below.

Insurance and claims was 4.4% and 3.7% of operating revenue in the second quarter of 2003 and 2002, respectively and 4.2% and 3.9% of operating revenue for the six months ended June 30, 2003 and 2002, respectively. As discussed in our 2002 Annual Report, we are self-insured for some portion of our liability, property damage and cargo damage risk. We buy insurance coverage with deductible amounts. Beginning in 2003, the deductible amount for general liability rose from $250,000 to $1,000,000 per incident. This

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expense will vary as a percentage of operating revenue from period to period based on the frequency and severity of claims incurred in a given period as well as changes in claims development trends.

As we discussed in our 2002 Annual Report, we entered into a settlement agreement with an insurance company. Pursuant to this settlement, the insurance company agreed to provide certain insurance coverage, at no cost to the Company, through December 2004, in exchange for our releasing all claims that were the subject of the litigation. We are recognizing this settlement amount as a reduction of insurance expense as the insurance coverage is provided during the period from July 1, 2002 through December 31, 2004. In addition, we deferred the $21.1 million of legal expenses, which were paid pursuant to a contingent fee arrangement based upon our estimate of the value of the insurance provided of between $65 million and $74 million. These legal expenses are being amortized on a straight-line basis over the thirty-month period beginning July 1, 2002. In the event that we do not receive the future insurance coverage due to the liquidation, rehabilitation, bankruptcy or other similar insolvency of the insurers, we will receive a reimbursement of our legal expenses on a declining basis ranging from $15.8 million through December 15, 2002 to $3.9 million through July 1, 2004.

Rental expense was 3.2% and 4.0% of operating revenue in the second quarter of 2003 and 2002, respectively and 3.4% and 4.3% of operating revenue for the six months ended June 30, 2003 and 2002, respectively. After adjusting for the increase in fuel surcharge revenue, this percentage decreased to 3.3% in the second quarter of 2003 compared to 4.1% in the second quarter of 2002 and 3.6% for the first six months of 2003 compared to 4.4% for the same period of 2002. This decrease is primarily due to a decrease in our average cost per leased tractor, a decrease in the number of tractors on lease, as well as a decrease in trailer rental costs.

Depreciation expense was 6.7% and 7.2% of operating revenue in the second quarter of 2003 and 2002, respectively and 6.5% and 7.5% of operating revenue for the six months ended June 30, 2003 and 2002, respectively. After adjusting for the increase in fuel surcharge revenue, this percentage decreased to 7.0% in the second quarter of 2003 compared to 7.3% in the second quarter of 2002 and 6.8% for the first six months ended June 30, 2003 compared to 7.5% for the same period in 2002. This decrease is primarily due to the extension of the life of some of our tractors into the fourth year.

When it is economically advantageous to do so, we will purchase and then resell tractors that we currently lease by exercising the purchase option contained in the lease. Gains on these activities are recorded as a reduction of rental expense. We also generate gains from the sale of tractors we own. These gains are recorded as a reduction of depreciation expense. These gains are summarized below for the three months ending:

	Three months ended June 30,					Six months ended June 30,
	2003			2002		2003			2002
Gain (loss) on sale of leased tractors	$	(59,000	)	$	566,000	$	(103,000	)	$	969,000
Gain (loss) on sale of owned tractors	$	(586,000	)	$	2,100,000	$	(1,168,000	)	$	3,500,000

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OTHER EXPENSES

Our largest pre-tax non-operating expense is interest. Our debt balance combining the operating line of credit, Senior Notes, accounts receivable securitization, capital leases and other debt was $427 million and $384 million at June 30, 2003 and 2002, respectively.

As shown below, our interest expense, in thousands, net of the impact of the derivative agreements, decreased in 2003 for the quarter and the six months ended June 30, 2003, although we increased debt by $43 million, as 2003 benefited from lower interest rates and a shift in borrowings from more costly debt related to capital leases, entered into under M.S. Carriers, to less costly Swift debt.

	Three months ended June 30,						Six months ended June 30,
	2003			2002			2003			2002
Interest expense	$	4,583		$	6,770		$	8,515		$	9,077
Derivative agreements impact		(1,182	)		(2,729	)		(1,082	)		(1,372	)
Interest expense, net of derivative agreements	$	3,401		$	4,041		$	7,433		$	7,705

LIQUIDITY AND CAPITAL RESOURCES

Our cash flow sources and uses by operating, investing and financing activities are shown below:

	Six months			Six months
	ended June 30,			ended June 30,
	2003			2002
Net cash provided by operating activities	$	127,609		$	113,902
Net cash used in investing activities	$	(97,278	)	$	(118,099	)
Net cash provided by (used in) financing activities	$	11,388		$	(7,832	)

Our cash provided by operating activities increased to $127.6 million in the first six months of 2003 compared to $113.9 million in 2002. The primary matter affecting comparability was the payment in June 2002 of $21.1 million of legal expenses associated with settlement of litigation in which the Company received an agreement by an insurance company to provide certain insurance at no cost to the Company.

Our cash used in investing activities is mainly driven by our capital expenditures, net of sales proceeds. Our capital expenditures, net of cash sales proceeds were $111.5 million and $110.1 million in the first six months of 2003 and 2002, respectively. In addition, we received $14.7 million of payments on equipment sale receivables and sale of assets held for sale in 2003 and made loans to investment entities of $11.1 million in 2002.

Regarding our financing activities, in the first six months of 2003 we issued $200 million of Senior Notes and repaid $174 million of debt (including capital leases and securitization). Also, we repurchased $18.9 million of our common stock in 2003 with no purchases in 2002. We received $5.9 million and $8.9 million

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in stock option exercise and employee stock purchase plan proceeds in the first six months of 2003 and 2002, respectively.

As of June 30, 2003 and December 31, 2002 we had a working capital of $125.7 million and a working capital deficit of $69.6 million, respectively. In June 2003, we utilized the proceeds from the Senior Notes to return $150 million of proceeds received under the accounts receivable securitization program. This reduction in accounts receivable securitization proceeds and an increase in our cash balance of $41.7 million increased our working capital. The accounts receivable securitization is reflected as a current liability because the committed term, subject to annual renewals, is 364 days. The funds received under the accounts receivable securitization are generally used for capital expenditures or repurchases of our common stock. Therefore, our working capital will be reduced by the amount of the proceeds received under the accounts receivable securitization, but the increase in fixed assets or treasury stock is not included in working capital.

As of June 30, 2003, we had $135.8 million of borrowings and $79.1 million of letters of credit outstanding on our $255 million line of credit, leaving $40.1 million in borrowing capacity available. Interest on outstanding borrowings is based upon one of two options, which we select at the time of borrowing: the bank’s prime rate or the London Interbank Offered Rate (LIBOR) plus applicable margins ranging from 62.5 to 137.5 basis points, as defined in the Credit Agreement (currently 70 basis points). The unused portion of the line of credit is subject to a commitment fee ranging from 17.5 to 25 basis points (currently 20 basis points). The Credit Agreement requires us to meet certain covenants with respect to leverage and fixed charge coverage ratios and tangible net worth. The Credit Agreement also requires us to maintain unencumbered assets of not less than 120% of indebtedness (as defined).

Our accounts receivable securitization allows us to sell up to $200 million of our eligible trade accounts receivable to a financial institution. As of June 30, 2003, we had received sales proceeds of $27 million.

As of June 30, 2003, we had commitments outstanding to acquire replacement and additional revenue equipment for approximately $134 million. We have the option to cancel such commitments upon 60 days notice. We believe we will be able to support these acquisitions of revenue equipment through debt and lease financings and cash flows generated by operating activities.

During the six months ended June 30, 2003, we incurred approximately $46.1 million of non-revenue equipment capital expenditures. These expenditures were primarily for facilities and equipment.

We anticipate that we will expend approximately $25 million during the remainder of the year for various facilities upgrades and acquisition and development of terminal facilities. Factors such as costs and opportunities for future terminal expansions may change the amount of such expenditures.

We believe we will be able to finance needs for working capital, facilities improvements and expansion, as well as anticipated fleet growth, with cash flows from operations, borrowings available under the line of credit, accounts receivable securitization and with long-term debt and lease financing believed to be available to finance revenue equipment purchases. Over the long term, we will continue to have significant capital requirements, which may require us to seek additional borrowings or equity capital. The availability of debt financing or equity capital will depend upon our financial condition and results of operations as well as prevailing market conditions, the market price of our common stock and other factors over which we have little or no control.

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INFLATION

Inflation can be expected to have an impact on our operating costs. A prolonged period of inflation would cause interest rates, fuel, wages and other costs to increase and would adversely affect our results of operations unless freight rates could be increased correspondingly. However, the effect of inflation has been minimal over the past three years.

SEASONALITY

In the transportation industry, results of operations generally show a seasonal pattern as customers reduce shipments after the winter holiday season. Our operating expenses also tend to be higher in the winter months primarily due to colder weather, which causes higher fuel consumption from increased idle time.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

          We have interest rate exposure arising from our line of credit ($135.8 million), capital lease obligations ($30 million with variable interest rates) and accounts receivable securitization ($27 million), all of which have variable interest rates. These variable interest rates are impacted by changes in short-term interest rates. The Company manages interest rate exposure through its mix of variable rate debt, fixed rate lease financing and $70 million notional amount of interest rate swaps (weighted average rate of 5.88%). The fair value of the Company’s long-term debt approximates carrying values. Assuming the current level of borrowings, a hypothetical one-percentage point increase in interest rates would increase the Company’s interest expense by $1.2 million.

ITEM 4. CONTROLS AND PROCEDURES

          The Company has carried out an evaluation as of the end of the period covered by this Form 10-Q, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in enabling the Company to record, process, summarize, and report information required to be included in the Company’s periodic SEC filings within the required time period. There have been no significant changes in the Company’s internal control over financial reporting or in other factors that could significantly affect internal controls subsequent to the date the Company carried out its evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

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SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES

PART II. OTHER INFORMATION

ITEMS 1, 2, 3 and 5.Not applicable

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          The Company’s Annual Meeting of Stockholders was held on May 22, 2003. At the Annual Meeting, the stockholders elected Earl H. Scudder, David Goldman and Dale M. Jensen to serve as Directors for three-year terms. Jerry C. Moyes, Lou A. Edwards, Alphonse E. Frei, William F. Riley III, and Michael S. Starnes continued as Directors after the meeting. Edward A. Labry III and Rodney K. Sartor did not stand for reelection. Additionally, the stockholders approved the adoption of the new Swift Transportation Co., Inc 2003 Incentive Plan. Furthermore, the stockholders rejected a proposal regarding the separation of the positions of Chairman of the Board and Chief Executive Officer.

          Stockholders representing 79,643,887 shares or 96% of the outstanding shares were present in person or by proxy at the Annual Meeting. A tabulation with respect to each nominee and the other proposals follows:

					Votes
					Against
					or Withheld
					and		Broker
	Votes Cast		Votes For		Abstentions		Non Votes
Election of Earl H. Scudder		79,643,887		59,945,410		19,698,477
Election of David Goldman		79,643,887		78,804,466		839,421
Election of Dale M. Jensen		79,643,887		78,780,544		863,343
Approval of adoption of 2003 Stock Incentive Plan		79,643,887		39,857,854		28,503,306		11,282,727
Stockholder proposal regarding separation of the positions of Chairman of the Board and Chief Executive Officer		79,643,887		27,862,850		40,498,310		11,282,727

ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

(a)	Exhibit 3.1	–	Amended and Restated Articles of Incorporation of the Registrant (Incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement No. 333-85940 on Form S-8)
	Exhibit 3.2	–	Bylaws of the Registrant (Incorporated by reference to Exhibit 3.2 of the Registrant’s Registration Statement No. 33-66034 on Form S-3)

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Exhibit 10.22		Swift Transportation Co, Inc. $100,000,000 3.73% Senior Guaranteed Notes, Series A, Due June 27, 2008, and $100,000,000 4.33% Senior Guaranteed Notes, Series B, Due June 27, 2010 Note Purchase Agreement Dated as of June 27, 2003
Exhibit 31.1	–	Rule 13a-14(a)/15d-14(a) Certificate of Jerry Moyes, Chairman, President and Chief Executive Officer
Exhibit 31.2	–	Rule 13a-14(a)/15d-14(a) Certificate of Gary R. Enzor, Chief Financial Officer
Exhibit 32.1	–	Section 1350 Certification of Jerry Moyes, Chairman, President and Chief Executive Officer
Exhibit 32.2	–	Section 1350 Certification of Gary R. Enzor, Chief Financial Officer
Exhibit 99.1	–	Private Securities Litigation Reform Act of 1995 Safe Harbor Compliance Statement for Forward-Looking Statements

(b)	A Report on Form 8-K was filed on April 30, 2003, which furnished, under Item 12, a press release announcing financial results for the quarter ended March 31, 2003.
	A Report on Form 8-K was filed on July 23, 2003, which furnished, under Item 12, a press release announcing financial results for the quarter and six months ended June 30, 2003.

SIGNATURES

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

	SWIFT TRANSPORTATION CO., INC.
Date: August 12, 2003	/s/ Jerry Moyes
	(Signature)
	Jerry Moyes
	Chairman, President and Chief Executive Officer
Date: August 12, 2003	/s/ Gary R. Enzor
	(Signature)
	Gary R. Enzor
	Chief Financial Officer

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