SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
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, 2001
or
[ ] 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 (I.R.S. employer
incorporation or organization) identification number)
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 office)
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. YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date (August 16, 2001)
Common stock, $.001 par value: 84,854,846 shares
EXHIBIT INDEX AT PAGE 19
TOTAL PAGES 22
PART I
FINANCIAL INFORMATION
Page
Number
------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
as of June 30, 2001 (unaudited) and December 31, 2000
3-4
Condensed Consolidated Statements of
Earnings (unaudited) for the Three and Six
Month Periods Ended June 30, 2001 and 2000 5
Consolidated Statements of Comprehensive Income 6
(unaudited) for the Three and Six Month Periods Ended
June 30, 2001 and 2000
Condensed Consolidated Statements of Stockholders' Equity
(unaudited) for the Six Month Period Ended June 30, 2001 7
Condensed Consolidated Statements of Cash Flows
(unaudited) for the Six Month Periods Ended
June 30, 2001 and 2000 8-9
Notes to Condensed Consolidated Financial Statements 10-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-17
Item 3. Quantitative and Qualitative Disclosures about Market Risk 17
PART II
OTHER INFORMATION
Items 1, 2,
3 and 5. Not applicable
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 19
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,
2001 2000
---------- ----------
(unaudited)
Assets
Current assets:
Cash $ 19,940 $ 19,638
Accounts receivable, net 289,414 274,817
Equipment sales receivable 7,922 5,799
Inventories and supplies 10,521 10,148
Prepaid taxes, licenses and insurance 32,618 34,600
Assets held for sale 3,169
Note receivable 3,200
Deferred income taxes 9,837 6,913
---------- ----------
Total current assets 370,252 358,284
---------- ----------
Property and equipment, at cost:
Revenue and service equipment 1,343,397 1,340,391
Land 36,188 36,058
Facilities and improvements 192,935 171,536
Furniture and office equipment 24,841 23,545
---------- ----------
Total property and equipment 1,597,361 1,571,530
Less accumulated depreciation and amortization 445,147 392,748
---------- ----------
Net property and equipment 1,152,214 1,178,782
---------- ----------
Other assets 29,310 26,061
Goodwill 9,617 10,336
---------- ----------
$1,561,393 $1,573,463
========== ==========
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,
2001 2000
---------- ----------
(unaudited)
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 51,507 $ 61,057
Accrued liabilities 68,506 49,439
Current portion of claims accruals 43,841 35,417
Current portion of long-term debt 63,293 65,945
Securitization of accounts receivable 116,000 117,000
---------- ----------
Total current liabilities 343,147 328,858
---------- ----------
Borrowings under line of credit 126,000 154,000
Long-term debt, less current portion 172,285 223,056
Claims accruals, less current portion 48,832 42,570
Deferred income taxes 175,204 170,100
Fair value of interest rate swaps 1,988
Stockholders' equity:
Preferred stock, par value $.001 per share
Authorized 1,000,000 shares; none issued
Common stock, par value $.001 per share
Authorized 150,000,000 shares; 87,362,582 and
85,375,733 shares issued at June 30, 2001
and December 31, 2000, respectively. 87 85
Additional paid-in capital 225,502 198,904
Retained earnings 508,061 496,671
---------- ----------
733,650 695,660
Less:
Treasury stock, at cost (3,157,850 shares) 37,935 37,935
Other equity items 1,778 2,846
---------- ----------
Total stockholders' equity 693,937 654,879
---------- ----------
Commitments and contingencies $1,561,393 $1,573,463
========== ==========
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 Six months ended
June 30, June 30,
-------------------------- --------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Operating revenue $ 535,555 $ 500,288 $ 1,045,149 $ 958,879
Operating expenses:
Salaries, wages and employee benefits 198,072 167,877 390,796 324,526
Operating supplies and expenses 43,282 38,996 87,666 75,942
Fuel 73,168 61,478 144,198 120,583
Purchased transportation 92,539 103,797 184,321 201,923
Rental expense 25,317 17,513 49,179 31,919
Insurance and claims 24,721 13,164 41,914 27,073
Depreciation and amortization 34,301 34,292 69,307 66,131
Communication and utilities 7,098 5,934 13,988 11,859
Operating taxes and licenses 12,934 12,404 25,980 24,112
----------- ----------- ----------- -----------
Total operating expenses 511,432 455,455 1,007,349 884,068
----------- ----------- ----------- -----------
Operating income 24,123 44,833 37,800 74,811
Other (income) expenses:
Interest expense 6,091 8,943 19,087 15,531
Interest income (261) (191) (551) (355)
Other 76 (470) 585 (1,343)
----------- ----------- ----------- -----------
Other (income) expenses, net 5,906 8,282 19,121 13,833
----------- ----------- ----------- -----------
Earnings before income taxes 18,217 36,551 18,679 60,978
Income taxes 7,086 13,813 7,289 22,971
----------- ----------- ----------- -----------
Net earnings $ 11,131 $ 22,738 $ 11,390 $ 38,007
=========== =========== =========== ===========
Basic earnings per share $ .13 $ .28 $ .14 $ .46
=========== =========== =========== ===========
Diluted earnings per share $ .13 $ .27 $ .14 $ .45
=========== =========== =========== ===========
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 Six months ended
June 30, June 30,
------------------- -------------------
2001 2000 2001 2000
------- ------- ------- -------
Net earnings $11,131 $22,738 $11,390 $38,007
------- ------- ------- -------
Other comprehensive income:
Foreign currency translation adjustment 133 216
------- ------- ------- -------
Other comprehensive income 133 216
------- ------- ------- -------
Comprehensive income $11,264 $22,738 $11,606 $38,007
======= ======= ======= =======
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 OTHER EQUITY
----------- --------- --------- --------- --------- -------- ------ ---------
Balances, January 1, 2001 85,375,733 $ 85 $ 198,904 $ 496,671 $ (37,935) $ (1,994) $ (852) $ 654,879
Issuance of common stock
under stock option and
employee stock purchase
plans 786,849 1 8,070 8,071
Amortization of deferred
compensation 289 289
Foreign currency translation 216 216
Repayment of notes receivable
from officers 852 852
Issuance of common stock
upon public offering 1,200,000 1 18,239 18,240
Net earnings 11,390 11,390
----------- ------ --------- --------- --------- -------- ------ ---------
Balances, June 30, 2001 87,362,582 $ 87 $ 225,502 $ 508,061 $ (37,935) $ (1,778) $ $ 693,937
=========== ====== ========= ========= ========= ======== ====== =========
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,
-------------------------
2001 2000
--------- ---------
Cash flows from operating activities:
Net earnings $ 11,390 $ 38,007
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 69,659 65,917
Deferred income taxes 266 11,584
Provision for losses on accounts receivable 750 500
Amortization of deferred compensation 289 194
Fair market value of interest rate swaps 1,282
Increase (decrease) in cash resulting from changes in:
Accounts receivable (13,041) (45,903)
Inventories and supplies (373) (444)
Prepaid expenses 1,982 4,335
Other assets (3,903) (3,414)
Accounts payable, accrued liabilities and claims accruals 27,224 (1,632)
--------- ---------
Net cash provided by operating activities 95,525 69,144
--------- ---------
Cash flows from investing activities:
Proceeds from sale of property and equipment 24,083 79,640
Capital expenditures (73,261) (184,763)
Repayment of note receivable 4,052
Payments received on equipment sale receivables 5,799 5,966
--------- ---------
Net cash used in investing activities (39,327) (99,157)
--------- ---------
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,
-------------------------
2001 2000
-------- --------
Cash flows from financing activities:
Repayments of long-term debt (53,423) (14,754)
Change in borrowings under line of credit (28,000) (17,545)
Change in borrowings under accounts receivable
securitization (1,000) 94,000
Purchases of treasury stock (40,703)
Proceeds from public offering 18,240
Proceeds from issuance of common stock
under stock option and stock purchase plans 8,071 2,725
-------- --------
Net cash (used in) provided by financing activities (56,112) 23,723
-------- --------
Effect of exchange rate changes on cash 216
-------- --------
Net increase (decrease) in cash 302 (6,290)
Cash at beginning of period 19,638 10,212
-------- --------
Cash at end of period $ 19,940 $ 3,922
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 13,288 $ 14,171
Income taxes $ 3,446 $ 0
Supplemental schedule of noncash investing and
financing activities:
Equipment sales receivables $ 7,922 $ 14,239
Note receivable from property sale $ 1,715 $ 28,208
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.
These consolidated financial statements include the accounts of M.S.
Carriers, Inc. ("M.S. Carriers"), which merged with a subsidiary of
the Company on June 29, 2001 (the "Merger"). Upon completion of the
Merger, M.S. Carriers became a wholly owned subsidiary of the Company.
The Merger was accounted for as a pooling of interests. Accordingly,
the historical financial statements presented herein have been
restated to include the financial position, results of operations, and
cash flows of M.S. Carriers.
The financial statements have been prepared in accordance with
generally accepted accounting principles, 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, 2000.
Results of operations in interim periods are not necessarily
indicative of results to be expected for a full year.
Note 2. 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 material adverse effect on the financial condition of
the Company.
Note 3. Assets Held for Sale
In January 2001, the Company sold the remainder of the assets held for
sale. The Company received $1,000,000 and a non interest-bearing note
for $1,900,000. Under the terms of the note, a $1,000,000 payment is
due January 2002 and the balance is due January 2003.
Note 4. Derivative Financial Instruments
The Company adopted Statement of Financial Standards No. 133 (SFAS No.
133), "Accounting for Derivative Instruments and Hedging Activities,"
and its amendments, Statement 137 and 138, on January 1, 2001. SFAS
No. 133 requires that all derivative instruments be recorded on the
balance sheet at fair value.
10
SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
The swap agreements are used to manage exposure to interest rate
movement by effectively changing the variable rate to a fixed rate.
Changes in fair value of the interest rate swap agreements will be
recognized in net earnings until maturity, March 2009.
For the three and six months ended June 30, 2001, the Company
recognized a gain (loss), net of tax, for the change in fair market
value of the interest rate swap agreements of $679,000 and
$(1,282,000), respectively.
Note 5. Segments
The Company's two reportable segments are Swift Transportation and
M.S. Carriers.
Three months ended Six months ended
June 30, June 30,
-------------------------- --------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
(in thousands)
Operating revenue:
Swift $ 350,026 $ 316,555 $ 677,437 $ 608,077
MS Carriers 185,529 183,733 367,712 350,802
----------- ----------- ----------- -----------
$ 535,555 $ 500,288 $ 1,045,149 $ 958,879
----------- ----------- ----------- -----------
Net earnings:
Swift $ 12,307 $ 16,561 $ 13,463 $ 27,216
MS Carriers (1,176) 6,177 (2,073) 10,791
----------- ----------- ----------- -----------
$ 11,131 $ 22,738 $ 11,390 $ 38,007
----------- ----------- ----------- -----------
11
SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
Note 6. Public Stock Offering
The Company completed a public offering of 1,200,000 shares of its
common stock on June 27, 2001. This offering generated proceeds of
$18.2 million, net of expenses. An option by the underwriters to
purchase an additional 120,000 shares was exercised on July 2, 2001.
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," and "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 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.
BUSINESS ACQUISITION
On June 29, 2001, the Company acquired M.S. Carriers, Inc. ("M.S. Carriers")
through the merger of a wholly owned subsidiary of the Company with and into
M.S. Carriers (the "Merger"). Upon completion of the Merger, M.S. Carriers
became a wholly owned subsidiary of the Company. The Merger has been accounted
for as a pooling of interests. Accordingly, all historical financial data
discussed below has been restated to include the financial position, results of
operations, and cash flows of M.S. Carriers.
In addition, the results for the six months of 2001 include:
* A $7 million adjustment to MS Carriers insurance and claims reserves
in the second quarter of this year; and
* a correction of previously reported numbers, to adjust MS Carriers
hedge accounting to conform to SFAS No. 133. The correction had no
effect on stockholders' equity, but did increase net earnings for the
three months ended June 30, 2001 (by $679,000 or $.01 per diluted
share) and decrease net earnings for the six months ended June 30,
2001 (by $1,282,000 or $.01 per diluted share).
OVERVIEW
Although the trend in the truckload segment of the motor carrier industry over
the past several years has been towards consolidation, the truckload industry
remains highly fragmented. Management believes the industry trend towards
financially stable "core carriers" will continue and result in continued
industry consolidation. In response to this trend, the Company continues to
expand its fleet with an increase of 1,202 tractors to 15,394 tractors as of
June 30, 2001 up from 14,192 tractors as of June 30, 2000. The owner operator
portion of the Company's fleet decreased to 3,386 as of June 30, 2001 from 3,394
as of June 30, 2000.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THREE MONTHS ENDED JUNE 30, 2000
Operating revenue increased $35.3 million or 7.0% to $535.6 million for the
three months ended June 30, 2001 from $500.3 million for the corresponding
period of 2000. Effective July 1, 2000, we transferred our logistics operation
to Transplace.com, an Internet-based logistics company that we commonly own with
four other truckload carriers. Excluding approximately $22 million of second
quarter 2000 revenues that were derived from our logistics operation, the
increase in revenues would have been 12.0%. The increase in operating revenue is
primarily the result of the expansion of the Company's fleet.
The Company's operating ratio (operating expenses expressed as a percentage of
operating revenue) for the second quarter of 2001 was 95.5% compared to 91.0% in
the comparable period of 2000. The Company's operating ratio for the three
13
months ended June 30, 2001 increased as a result of increases in certain
components of operating expenses as a percentage of operating revenue as
discussed below. The Company's empty mile factor for linehaul operations was
15.10% and 13.91% and average loaded linehaul revenue per mile (excluding fuel
surcharge) was $1.4150 and $1.3810 in the second quarter of 2001 and 2000,
respectively.
Salaries, wages and employee benefits represented 37.0% of operating revenue for
the three months ended June 30, 2001 compared with 33.6% in 2000. The increase
is primarily due to a greater number of empty miles, the impact of reduced
utilization on an increased dedicated business with fixed pay driver wages, and
a reduction in the owner operator portion of the fleet.
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 needed in order to attract and retain drivers, the Company's
results of operations would be negatively impacted to the extent that
corresponding freight rate increases were not obtained.
Fuel as a percentage of operating revenue was 13.7% for the second quarter of
2001 versus 12.3% in 2000. The increase is primarily due to actual fuel cost per
gallon increasing by approximately five cents per gallon (3.9%) in the second
quarter of 2001 versus the second quarter of 2000.
Increases in fuel costs, to the extent not offset by rate increases or fuel
surcharges, would have an adverse effect on the operations and profitability of
the Company. Management believes the most effective protection against fuel cost
increases is to maintain a fuel efficient fleet and to implement fuel surcharges
when such option is necessary and available. The Company currently does not use
derivative-type hedging products.
Purchased transportation as a percentage of operating revenue was 17.3% for the
three months ended June 30, 2001 compared to 20.7% in 2000. The decrease is
primarily due to the transfer of our logistics business to Transplace.com and a
reduction in the owner operator portion of the fleet.
Rental expense as a percentage of operating revenue was 4.7% for the second
quarter of 2001 versus 3.5% in 2000. At June 30, 2001 and 2000, leased tractors
represented 55% and 52%, respectively, of the total fleet of Company tractors.
When it is economically advantageous to do so, the Company will purchase then
sell tractors that it currently leases by exercising the purchase option
contained in the lease. Gains on these activities are recorded as a reduction of
rent expense. The Company recorded gains of $232,000 in the second quarter of
2001 and $238,000 during the second quarter of 2000 from the sale of leased
tractors.
Depreciation and amortization expense as a percentage of operating revenue was
6.4% in the second quarter of 2001 versus 6.9% in 2000. The Company includes
gains and losses from the sale of owned revenue equipment in depreciation and
amortization expense. During the three month period ended June 30, 2001, net
gains from the sale of revenue equipment reduced depreciation and amortization
expense by approximately $1.1 million compared to approximately $2.5 million in
the second quarter of 2000. Exclusive of gains, which reduced this expense,
depreciation and amortization expense, as a percentage of operating revenue was
6.6% and 7.4% in the second quarter of 2001 and 2000, respectively.
Insurance and claims expense represented 4.6% and 2.6% of operating revenue in
the second quarter of 2001 and 2000, respectively. Included in the second
quarter of 2001 is an adjustment of approximately $7 million to the M.S.
Carriers insurance and claims reserves. The Company previously disclosed that it
anticipated an adjustment between $9 million and $12 million.
14
The Company's insurance program for liability, physical damage and cargo damage
involves self-insurance with varying risk retention levels. Claims in excess of
these risk retention levels are covered by insurance in amounts which management
considers adequate. The Company accrues the estimated cost of the uninsured
portion of pending claims. These accruals are estimated based on management's
evaluation of the nature and severity of individual claims and an estimate of
future claims development based on historical claims development trends.
Insurance and claims 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.
SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000
Operating revenue increased $86.3 million or 9.0% to $1.045 billion for the six
months ended June 30, 2001 from $958.9 million for the corresponding period of
2000. Excluding approximately $43 million of six months 2000 revenues that were
derived from our logistics operation, the increase in revenues would have been
14.1%. The increase in operating revenue is primarily the result of the
expansion of the Company's fleet.
The Company's operating ratio (operating expenses expressed as a percentage of
operating revenue) for the first six months of 2001 was 96.4% compared to 92.2%
in the comparable period of 2000. The Company's operating ratio for the six
months ended June 30, 2001 increased as a result of increases in certain
components of operating expenses as a percentage of operating revenue as
discussed below. The Company's empty mile factor for linehaul operations was
15.40% and 13.91% and average loaded linehaul revenue per mile was $1.4164 and
$1.3700 in the first six months of 2001 and 2000, respectively.
Salaries, wages and employee benefits represented 37.4% of operating revenue for
the six months ended June 30, 2001 compared with 33.8% in 2000. The increase is
primarily due to a greater number of empty miles, the impact of reduced
utilization on an increased dedicated business with fixed pay driver wages and a
reduction in the owner-operator portion of the fleet.
Fuel as a percentage of operating revenue was 13.8% for the first six months of
2001 versus 12.6% in 2000. The increase is primarily due to actual fuel cost per
gallon increasing by approximately four cents per gallon (2.7%) for the six
months ended June 30, 2001 versus the six months ended June 30, 2000.
Purchased transportation as a percentage of operating revenue was 17.6% for the
six months ended June 30, 2001 compared to 21.1% in 2000. The decrease is
primarily due to the transfer of our logistics business to Transplace.com and a
reduction in the owner operator portion of the fleet.
Rental expense as a percentage of operating revenue was 4.7% for the first six
months of 2001 versus 3.3% in 2000. When it is economically advantageous to do
so, the Company will purchase then sell tractors that it currently leases by
exercising the purchase option contained in the lease. Gains on these activities
are recorded as a reduction of rent expense. The Company recorded gains of
$251,000 and $895,000 in the first six months of 2001 and 2000 respectively,
from the sale of leased tractors.
Depreciation and amortization expense as a percentage of operating revenue was
6.6% and 6.9% in the first six months of 2001 and 2000, respectively. The
Company includes gains and losses from the sale of owned revenue equipment in
15
depreciation and amortization expense. During the six month period ended June
30, 2001, net gains from the sale of revenue equipment reduced depreciation and
amortization expense by approximately $2.2 million compared to approximately
$6.6 million in the first six months of 2000. Exclusive of gains, which reduced
this expense, depreciation and amortization expense as a percentage of operating
revenue was 6.8% and 7.6% in the first six months of 2001 and 2000,
respectively.
Insurance and claims expense represented 4.0% and 2.8% of operating revenue in
the first six months of 2001 and 2000. The increase is partially due to the
adjustment of approximately $7 million to the M.S. Carriers insurance and claims
reserves discussed above.
The Company's insurance program for liability, physical damage and cargo damage
involves self-insurance with varying risk retention levels. Claims in excess of
these risk retention levels are covered by insurance in amounts which management
considers adequate. The Company accrues the estimated cost of the uninsured
portion of pending claims. These accruals are estimated based on management's
evaluation of the nature and severity of individual claims and an estimate of
future claims development based on historical claims development trends.
Insurance and claims 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.
LIQUIDITY AND CAPITAL RESOURCES
The continued growth in the Company's business requires significant investment
in new revenue equipment, upgraded and expanded facilities, and enhanced
computer hardware and software. The funding for this expansion has been from
cash provided by operating activities, proceeds from the sale of revenue
equipment, long-term debt, borrowings on the Company's line of credit, proceeds
from the accounts receivable securitization, the use of operating leases to
finance the acquisition of revenue equipment and from periodic public offerings
of common stock.
Net cash provided by operating activities was $95.5 million in the first six
months of 2001 compared to $69.1 million in 2000. The increase is primarily
attributable to an increase in depreciation and amortization, a smaller increase
in accounts receivable and increase in accounts payable, accrued liabilities and
claims accruals offset by a decrease in net earnings.
Net cash used in investing activities decreased to $39.3 million in the first
six months of 2001 from $99.2 million in 2000. The decrease is primarily due to
reduced capital expenditures offset by reduced proceeds from the sale of
property and equipment.
As of June 30, 2001, the Company had commitments outstanding to acquire
replacement and additional revenue equipment for approximately $84 million. The
Company has the option to cancel such commitments upon 60 days notice. The
Company believes it has the ability to obtain debt and lease financing and
generate sufficient cash flows from operating activities to support these
acquisitions of revenue equipment.
During the first six months of 2001, the Company incurred approximately $25.3
million of non-revenue equipment capital expenditures. These expenditures were
primarily for facilities and equipment.
16
The Company anticipates that it will expend approximately $21 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.
The funding for capital expenditures has been and is anticipated to continue to
be from a combination of cash provided by operating activities, amounts
available under the Company's line of credit, accounts receivable securitization
and debt and lease financing. The availability of capital for revenue equipment
and other capital expenditures will be affected by prevailing market conditions
and the Company's financial condition and results of operations.
Net cash used in financing activities amounted to $56.1 million in the first six
months of 2001 compared to $23.7 million provided by financing activities in
2000. This decrease is primarily due to reduced proceeds under the accounts
receivable securitization and increased repayments of long-term debt, offset by
reduced treasury stock purchases and proceeds from the Company's public stock
offering.
Management believes it will be able to finance its needs for working capital,
facilities improvements and expansion, as well as anticipated fleet growth, with
cash flows from future operations, borrowings available under the line of
credit, accounts receivable securitization and with long-term debt and operating
lease financing believed to be available to finance revenue equipment purchases.
Over the long term, the Company will continue to have significant capital
requirements, which may require the Company to seek additional borrowings or
equity capital. The availability of debt financing or equity capital will depend
upon the Company's financial condition and results of operations as well as
prevailing market conditions, the market price of the Company's common stock and
other factors over which the Company has little or no control.
INFLATION
Inflation can be expected to have an impact on the Company's operating costs. A
prolonged period of inflation would cause interest rates, fuel, wages and other
costs to increase and would adversely affect the Company's 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. The
Company's 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
The Company has interest rate exposure arising from the Company's line of
credit, revolving notes, equipment loan, approximately $108 million of capital
lease obligations and accounts receivable securitization, 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. 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 $3.1 million.
17
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 June 15,
2001. At the Annual Meeting, the stockholders elected Jerry C.
Moyes, Alphonse E. Frei and Michael S. Starnes to serve as
Directors for three-year terms. Edward A. Labry III was elected
to serve as a Director for a two-year term. William F. Riley III,
Rodney K. Sartor, Earl H. Scudder, Jr. and Lou A. Edwards
continued as Directors after the meeting. Additionally, the
stockholders (i) approved the issuance of shares to M.S. Carriers
stockholders in connection with the Merger, and (ii) an amendment
to the Company's 1999 Stock Option Plan increasing the number of
shares available for issuance thereunder from 2,250,000 to
4,250,000.
Stockholders representing 56,522,849 shares or 89.2% 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 Broker
Votes Cast Votes For or Withheld Non Votes
---------- ---------- ---------- ---------
Election of Jerry C. Moyes 56,522,849 49,318,763 7,204,086
Election of Alphonse E. Frei 56,522,849 55,620,160 902,689
Election of Michael S. Starnes 56,522,849 51,397,882 5,124,967
Election of Edward A. Labry III 56,522,849 55,616,839 906,010
Issuance of common stock to M.S
Carriers stockholders 56,522,849 55,613,534 909,315
Amendment to 1999 Stock Option Plan 56,522,849 37,055,122 19,467,727
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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)
Exhibit 11 - Schedule of Computation of Net Earnings Per Share
Exhibit 99 - Private Securities Litigation Reform Act of 1995
Safe Harbor Compliance Statement for
Forward-Looking Statements
(b) Current Reports on Form 8-K were filed on June 8, 2001 to
announce the Company's anticipated earnings for the second
quarter of 2001, and July 6, 2001 to announce completion of the
merger.
SIGNATURE
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 20, 2001 /s/ William F. Riley III
----------------------------------------
(Signature)
William F. Riley III
Senior Executive Vice President and
Chief Financial Officer
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