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 September 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 (November 12, 2001)
Common stock, $.001 par value: 85,206,884 shares
PART I
FINANCIAL INFORMATION
PAGE
NUMBER
------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
September 30, 2001 (unaudited) and December 31, 2000 3-4
Condensed Consolidated Statements of Earnings (unaudited)
for the Three and Nine Month Periods Ended September 30,
2001 and 2000 5
Condensed Consolidated Statements of Stockholders' Equity
(unaudited) for the Nine Month Period Ended September 30, 2001 6
Condensed Consolidated Statements of Cash Flows (unaudited) for
the Nine Month Periods Ended September 30, 2001 and 2000 7-8
Notes to Condensed Consolidated Financial Statements 9-11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 12-16
Item 3. Quantitative and Qualitative Disclosures about Market Risk 16
PART II
OTHER INFORMATION
Items 1, 2,
3, 4 and 5. Not applicable
Item 6. Exhibits and Reports on Form 8-K 17
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, DECEMBER 31,
2001 2000
---------- ----------
Assets (UNAUDITED)
Current assets:
Cash $ 11,894 $ 19,638
Accounts receivable, net 296,282 274,817
Account receivable, related party 11,892
Equipment sales receivable 1,959 5,799
Inventories and supplies 12,541 10,148
Prepaid taxes, licenses and insurance 20,880 34,600
Assets held for sale 3,169
Note receivable 3,200
Deferred income taxes 10,004 6,913
---------- ----------
Total current assets 365,452 358,284
---------- ----------
Property and equipment, at cost:
Revenue and service equipment 1,367,235 1,306,998
Land 39,294 36,058
Facilities and improvements 191,627 171,536
Furniture and office equipment 64,447 56,938
---------- ----------
Total property and equipment 1,662,603 1,571,530
Less accumulated depreciation and amortization 474,349 392,748
---------- ----------
Net property and equipment 1,188,254 1,178,782
---------- ----------
Other assets 21,304 26,061
Goodwill 9,259 10,336
---------- ----------
$1,584,269 $1,573,463
========== ==========
CONTINUED
See accompanying notes to condensed consolidated financial statements.
3
SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, DECEMBER 31,
2001 2000
---------- ----------
Liabilities and Stockholders' Equity (UNAUDITED)
Current liabilities:
Accounts payable $ 53,592 $ 61,057
Accrued liabilities 78,593 49,439
Current portion of claims accruals 42,401 35,417
Current portion of long-term debt 64,342 65,945
Securitization of accounts receivable 116,000 117,000
---------- ----------
Total current liabilities 354,928 328,858
---------- ----------
Borrowings under line of credit 148,000 154,000
Long-term debt, less current portion 143,227 223,056
Claims accruals, less current portion 50,616 42,570
Deferred income taxes 171,519 170,100
Fair value of interest rate swaps 5,639
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; 88,298,672 and 85,375,733
shares issued at September 30, 2001 and December
31, 2000, respectively 88 85
Additional paid-in capital 237,339 198,904
Retained earnings 510,848 496,671
---------- ----------
748,275 695,660
Less:
Treasury stock, at cost (3,157,850 shares) 37,935 37,935
Other equity items 2,846
---------- ----------
Total stockholders' equity 710,340 654,879
---------- ----------
Commitments and contingencies
$1,584,269 $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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Operating revenue $ 536,379 $ 501,295 $ 1,581,528 $ 1,460,174
Operating expenses:
Salaries, wages and employee benefits 193,990 170,150 584,786 494,676
Operating supplies and expenses 49,450 42,408 137,116 118,350
Fuel 70,188 67,854 214,386 188,437
Purchased transportation 92,141 98,535 276,462 300,458
Rental expense 24,850 18,178 74,029 50,097
Insurance and claims 24,161 12,491 66,075 39,564
Depreciation and amortization 36,123 33,431 105,430 99,562
Communication and utilities 7,360 6,466 21,348 18,325
Operating taxes and licenses 12,913 12,218 38,893 36,330
----------- ----------- ----------- -----------
Total operating expenses 511,176 461,731 1,518,525 1,345,799
----------- ----------- ----------- -----------
Operating income 25,203 39,564 63,003 114,375
Other (income) expenses:
Interest expense 10,377 8,974 29,464 24,505
Interest income (388) (179) (939) (534)
Other 8,983 (436) 9,568 (1,779)
----------- ----------- ----------- -----------
Other (income) expenses, net 18,972 8,359 38,093 22,192
----------- ----------- ----------- -----------
Earnings before income taxes 6,231 31,205 24,910 92,183
Income taxes 3,444 11,802 10,733 34,773
----------- ----------- ----------- -----------
Net earnings $ 2,787 $ 19,403 $ 14,177 $ 57,410
=========== =========== =========== ===========
Basic earnings per share $ .03 $ .24 $ .17 $ .69
=========== =========== =========== ===========
Diluted earnings per share $ .03 $ .23 $ .17 $ .69
=========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements.
5
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 1,602,939 2 17,856 17,858
Amortization of deferred
compensation 516 516
Foreign currency translation 1,994 1,994
Repayment of notes receivable
from officers 852 852
Issuance of common stock upon
public offering 1,320,000 1 20,063 20,064
Net earnings 14,177 14,177
----------- ----- ---------- ---------- --------- -------- ------- ---------
Balances, September 30, 2001 88,298,672 $ 88 $ 237,339 $ 510,848 $ (37,935) $ $ $ 710,340
=========== ===== ========== ========== ========= ======== ======= =========
See accompanying notes to condensed consolidated financial statements.
6
SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
2001 2000
--------- ---------
Cash flows from operating activities:
Net earnings $ 14,177 $ 57,410
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 106,027 99,523
Deferred income taxes 407 26,084
Provision for losses on accounts receivable 1,125 800
Amortization of deferred compensation 516 337
Fair market value of interest rate swaps 3,652
EASO impairment adjustment 10,447
Increase (decrease) in cash resulting from changes in:
Accounts receivable (36,407) (55,046)
Inventories and supplies (2,393) (890)
Prepaid expenses 13,720 4,993
Other assets (2,039) (8,221)
Accounts payable, accrued liabilities and claims accruals 38,915 718
--------- ---------
Net cash provided by operating activities 148,147 125,708
--------- ---------
Cash flows from investing activities:
Proceeds from sale of property and equipment 41,050 138,146
Capital expenditures (156,281) (284,374)
Equity investment (10,000)
Repayment of note receivable 3,200
Notes receivable from officer 851 (851)
Payments received on equipment sale receivables 5,799 5,966
--------- ---------
Net cash used in investing activities (105,381) (151,113)
--------- ---------
See accompanying notes to condensed consolidated financial statements.
7
CONTINUED
SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
2001 2000
--------- ---------
Cash flows from financing activities:
Repayments of long-term debt (81,432) (29,289)
Borrowings under line of credit 125,000 (3,867)
Repayments of borrowings under line of credit (131,000)
Change in borrowings under accounts receivable securitization (1,000) 99,000
Purchases of treasury stock (40,703)
Proceeds from public offering 20,064
Proceeds from issuance of common stock under stock option and stock
purchase plans 17,858 3,640
--------- ---------
Net cash (used in) provided by financing activities (50,510) 28,781
--------- ---------
Net increase (decrease) in cash (7,744) 3,376
Cash at beginning of period 19,638 10,212
--------- ---------
Cash at end of period $ 11,894 $ 13,588
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 26,137 $ 27,859
Income taxes $ 2,318 $ 2,240
Supplemental schedule of noncash investing and financing activities:
Equipment sales receivables $ 1,959 $ 8,448
Note receivable from property sale $ 1,715 $ 5,063
See accompanying notes to condensed consolidated financial statements.
8
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. Account Receivable - Related Party
This balance, owed by an entity controlled by the Company's Chairman, was
paid in full in October 2001.
Note 4. 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 5. 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.
9
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 nine months ended September 30, 2001, the Company
recognized a loss, net of tax, for the change in fair market value of the
interest rate swap agreements of $2,364,000 and $3,652,000 respectively.
Note 6. Segments
The Company's two reportable segments are Swift Transportation and M.S.
Carriers.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
(IN THOUSANDS)
Operating revenue:
Swift $ 356,761 $ 320,586 $ 1,034,198 $ 928,663
M.S. Carriers 179,618 180,709 547,330 531,511
----------- ----------- ----------- -----------
$ 536,379 $ 501,295 $ 1,581,528 $ 1,460,174
=========== =========== =========== ===========
Net earning (loss):
Swift $ 15,792 $ 15,316 $ 29,255 $ 42,532
M.S. Carriers (13,005) 4,087 (15,078) 14,878
----------- ----------- ----------- -----------
$ 2,787 $ 19,403 $ 14,177 $ 57,410
=========== =========== =========== ===========
Note 7. Transportes EASO
The Company recorded a $10.5 million adjustment in the third quarter
statement of earnings, of which $8.5 million relates to the impairment of
its 50% equity investment held by M.S. Carriers in Transportes EASO, the
largest intra-Mexico truckload carrier, and $2 million is associated with
the write off of a cash advance made to EASO in the third quarter of 2001.
Although the $10.5 million adjustment is included in the current quarter,
the Company is evaluating whether previously reported quarters are
affected.
Note 8. 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 and generated additional
proceeds of $1.8 million.
10
SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 9. Accounting Standards Not Yet Adopted by the Company
The Financial Accounting Standards Board has issued Statements of Financial
Accounting Standards ("SFAS") for which the required implementation date
has not yet become effective. Those standards that may materially impact
the Company are discussed below.
In July 2001, SFAS No. 142 "Goodwill and Other Intangible Assets" was
issued. This standard will be effective in the first quarter of 2002. This
standard eliminates amortization of goodwill and replaces it with a test
for impairment. The Company has $9.3 million of goodwill that is not
expected to be impaired under the standard. The Company amortized $1.1
million of goodwill for the nine months ended September 30, 2001.
Amortization will cease beginning January 1, 2002.
11
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 nine months of 2001 include:
* a $7 million increase to M.S. Carriers insurance and claims reserves
in the second quarter of this year;
* a $10.5 million adjustment in the third quarter, of which $8.5 million
relates to the impairment of its 50% equity investment held by M.S.
Carriers in Transportes EASO, the largest intra-Mexico truckload
carrier, and $2 million is associated with the write off of a cash
advance made to EASO in the third quarter of 2001. Although the $10.5
million adjustment is included in the current quarter, the Company is
evaluating whether previously reported quarters are affected; and
* a $5.6 million adjustment ($3.6 million in the third quarter of this
year) for the change in market value of the interest rate derivative
agreements of M.S. Carriers.
OVERVIEW
See Note 7 to the financial statements for discussion of accounting
standards not yet adopted by the Company.
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 1,083 tractors to 15,728 tractors as of
September 30, 2001 up from 14,645 tractors as of September 30, 2000. The owner
operator portion of the Company's fleet decreased to 3,290 as of September 30,
2001 from 3,411 as of September 30, 2000.
12
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2000
Operating revenue increased $35.1 million or 7.0% to $536.4 million for the
three months ended September 30, 2001 from $501.3 million for the corresponding
period of 2000. 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 third quarter of 2001 was 95.3% compared to 92.1%
in the comparable period of 2000. The Company's operating ratio for the three
months ended September 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
14.58% and 13.89% and average loaded linehaul revenue per mile (excluding fuel
surcharge) was $1.4038 and $1.3889 in the third quarter of 2001 and 2000,
respectively.
Salaries, wages and employee benefits represented 36.2% of operating
revenue for the three months ended September 30, 2001 compared with 33.9% in
2000. The increase is primarily due to a larger percentage of company trucks in
the total fleet, a greater number of empty miles and the impact of reduced
utilization on an increased dedicated business with fixed pay driver wages.
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 13.1% for the third quarter
of 2001 versus 13.5% in 2000. The decrease is primarily due to actual fuel cost
per gallon decreasing by approximately 13 cents per gallon (9.4%) in the third
quarter of 2001 versus the third 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 17.2% for
the three months ended September 30, 2001 compared to 19.7% in 2000. The
decrease is primarily due to a reduction in the owner operator portion of the
fleet.
Rental expense as a percentage of operating revenue was 4.6% for the third
quarter of 2001 versus 3.6% in 2000. At September 30, 2001 and 2000, leased
tractors represented 50% and 51%, 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 $15,000 in the third
quarter of 2001 and $110,000 during the third quarter of 2000 from the sale of
leased tractors.
Depreciation and amortization expense as a percentage of operating revenue
was 6.7% in the third quarter of 2001 and 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 September 30, 2001, net gains from
the sale of revenue equipment reduced depreciation and amortization expense by
approximately $588,000 compared to approximately $1.4 million in the third
quarter of 2000. Exclusive of gains, which reduced this expense, depreciation
and amortization expense, as a percentage of operating revenue was 6.8% and 6.9%
in the third quarter of 2001 and 2000, respectively.
13
Insurance and claims expense represented 4.5% and 2.5% of operating revenue
in the third quarter of 2001 and 2000, respectively. Included in the third
quarter of 2001 are $1.9 million of increased insurance premiums over the same
quarter of the prior year, approximately 0.4% of operating revenue.
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, and
insurance premium rate increases which the Company experienced in 2001 and
expects in 2002.
NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2000
Operating revenue increased $121.4 million or 8.3% to $1.582 billion for
the nine months ended September 30, 2001 from $1.460 billion for the
corresponding period of 2000. Excluding approximately $43 million of nine months
2000 revenues that were derived from our logistics operation, the increase in
revenues would have been 11.6%. 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 nine months of 2001 was 96.0% compared to
92.2% in the comparable period of 2000. The Company's operating ratio for the
nine months ended September 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
15.12% and 13.90% and average loaded linehaul revenue per mile was $1.4121 and
$1.3765 in the first nine months of 2001 and 2000, respectively.
Salaries, wages and employee benefits represented 37.0% of operating
revenue for the nine months ended September 30, 2001 compared with 33.9% in
2000. The increase is primarily due to a larger percentage of company trucks in
the total fleet, a greater number of empty miles and the impact of reduced
utilization on an increased dedicated business with fixed pay driver wages.
Fuel as a percentage of operating revenue was 13.6% for the first nine
months of 2001 versus 12.9% in 2000. The increase is primarily due to a higher
percentage of company tractors in the total fleet for the nine months ended
September 30, 2001 versus the nine months ended September 30, 2000.
Purchased transportation as a percentage of operating revenue was 17.5% for
the nine months ended September 30, 2001 compared to 20.6% 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
nine months of 2001 versus 3.4% 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
$267,000 and $1.0 million in the first nine months of 2001 and 2000
respectively, from the sale of leased tractors.
Depreciation and amortization expense as a percentage of operating revenue
was 6.7% and 6.8% in the first nine months of 2001 and 2000, respectively. The
Company includes gains and losses from the sale of owned revenue equipment in
depreciation and amortization expense. During the nine month period ended
September 30, 2001, net gains from the sale of revenue equipment reduced
depreciation and amortization expense by approximately $2.6 million compared to
approximately $7.6 million in the first nine months of 2000. Exclusive of gains,
which reduced this expense, depreciation and amortization expense, as a
percentage of operating revenue was 6.8% and 7.3% in the first nine months of
2001 and 2000, respectively.
14
Insurance and claims expense represented 4.2% and 2.7% of operating revenue
in the first nine 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 and $3.7 million of increased insurance premiums noted above. These
factors combined represent 0.7% of operating revenue.
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, and
insurance premium rate increases which the Company experienced in 2001 and
expects in 2002.
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 $148.1 million in the first
nine months of 2001 compared to $125.7 million in 2000. The increase is
primarily attributable to an increase in depreciation and amortization, a
smaller increase in accounts receivable and an increase in accounts payable,
accrued liabilities and claims accruals offset by a decrease in net earnings.
Net cash used in investing activities decreased to $105.4 million in the
first nine months of 2001 from $151.1 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 September 30, 2001, the Company had commitments outstanding to
acquire replacement and additional revenue equipment for approximately $73
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 nine months of 2001, the Company incurred approximately
$31.2 million of non-revenue equipment capital expenditures. These expenditures
were primarily for facilities and equipment.
The Company anticipates that it will expend approximately $10 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 $50.5 million in the
first nine months of 2001 compared to $28.8 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.
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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 $96 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.
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SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES
PART II. OTHER INFORMATION
ITEMS 1, 2, 3, 4 AND 5. Not applicable
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) No Current Reports on Form 8-K were filed during the three months
ended September 30, 2001.
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: November 13, 2001 /s/ William F. Riley III
----------------------------------------
(Signature)
William F. Riley III
Senior Executive Vice President
and Chief Financial Officer
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