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, 2002
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 12, 2002)
Common stock, $.001 par value: 85,670,874 shares
PART I
PAGE
FINANCIAL INFORMATION NUMBER
------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2002
(unaudited) and December 31, 2001 3-4
Condensed Consolidated Statements of Earnings (unaudited) for
the Three and Six Month Periods Ended June 30, 2002 and 2001 5
Condensed Consolidated Statements of Cash Flows (unaudited)
for the Six Month Periods Ended June 30, 2002 and 2001 6-7
Notes to Condensed Consolidated Financial Statements 8-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-16
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,
2002 2001
---------- ----------
Assets (UNAUDITED)
Current assets:
Cash $ 2,122 $ 14,151
Accounts receivable, net 289,882 248,725
Equipment sales receivable 22,947 2,107
Inventories and supplies 11,451 11,682
Prepaid taxes, licenses and insurance 21,165 26,881
Deferred income taxes 13,932 13,932
---------- ----------
Total current assets 361,499 317,478
---------- ----------
Property and equipment, at cost:
Revenue and service equipment 1,411,343 1,401,646
Land 42,758 42,852
Facilities and improvements 212,329 197,681
Furniture and office equipment 68,041 66,319
---------- ----------
Total property and equipment 1,734,471 1,708,498
Less accumulated depreciation and amortization 513,700 501,853
---------- ----------
Net property and equipment 1,220,771 1,206,645
---------- ----------
Investment in Transplace 5,769 7,517
Notes receivable from Trans-Mex 6,082 3,475
Deferred legal fees 21,130
Other assets 16,214 12,081
Goodwill 8,900 8,900
---------- ----------
$1,640,365 $1,556,096
========== ==========
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,
2002 2001
---------- ----------
Liabilities and Stockholders' Equity (UNAUDITED)
Current liabilities:
Accounts payable $ 75,977 $ 57,229
Accrued liabilities 72,690 58,925
Current portion of claims accruals 51,568 48,416
Current portion of long-term debt 3,416 3,546
Current portion of obligations under capital leases 69,220 57,661
Borrowings under line of credit 128,000
Securitization of accounts receivable 118,000 116,000
---------- ----------
Total current liabilities 518,871 341,777
---------- ----------
Borrowings under line of credit 117,000
Long-term debt, less current portion 9,616 16,340
Obligations under capital leases 55,729 90,146
Claims accruals, less current portion 67,390 55,975
Deferred income taxes 211,433 195,605
Fair value of interest rate swaps 5,422 4,050
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; 89,801,583
and 89,049,519 shares issued at June 30,
2002 and December 31, 2001, respectively 90 89
Additional paid-in capital 258,765 249,410
Retained earnings 550,984 523,892
---------- ----------
809,839 773,391
Less:
Treasury stock, at cost (3,157,850 shares) 37,935 37,935
Other equity items 253
---------- ----------
Total stockholders' equity 771,904 735,203
---------- ----------
Commitments and contingencies
$1,640,365 $1,556,096
========== ==========
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,
--------------------------- --------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Operating revenue $ 528,595 $ 535,555 $ 1,004,375 $ 1,045,149
Operating expenses:
Salaries, wages and employee benefits 191,569 198,072 372,474 390,796
Operating supplies and expenses 50,047 43,282 91,699 87,666
Fuel 62,993 73,168 117,309 144,198
Purchased transportation 89,337 92,539 173,075 184,321
Rental expense 21,156 25,317 43,350 49,179
Insurance and claims 19,714 24,721 39,094 41,914
Depreciation and amortization 38,183 34,301 74,900 69,307
Communication and utilities 6,566 7,098 13,737 13,988
Operating taxes and licenses 13,264 12,934 25,219 25,980
----------- ----------- ----------- -----------
Total operating expenses 492,829 511,432 950,857 1,007,349
----------- ----------- ----------- -----------
Operating income 35,766 24,123 53,518 37,800
Other (income) expenses:
Interest expense 6,770 6,091 9,077 19,087
Interest income (364) (261) (651) (551)
Other 563 76 970 585
----------- ----------- ----------- -----------
Other (income) expenses, net 6,969 5,906 9,396 19,121
----------- ----------- ----------- -----------
Earnings before income taxes 28,797 18,217 44,122 18,679
Income taxes 11,115 7,086 17,030 7,289
----------- ----------- ----------- -----------
Net earnings $ 17,682 $ 11,131 $ 27,092 $ 11,390
=========== =========== =========== ===========
Basic earnings per share $ .20 $ .13 $ .31 $ .14
=========== =========== =========== ===========
Diluted earnings per share $ .20 $ .13 $ .31 $ .14
=========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements.
5
SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
SIX MONTHS ENDED JUNE 30,
------------------------
2002 2001
--------- ---------
Cash flows from operating activities:
Net earnings $ 27,092 $ 11,390
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 70,197 69,659
Deferred income taxes 15,828 266
Provision for losses on accounts receivable 3,679 750
Amortization of deferred compensation 475 289
Fair market value of interest rate swaps 1,372 1,282
Impairment of property 2,500
Increase (decrease) in cash resulting from changes in:
Accounts receivable (42,750) (13,041)
Inventories and supplies 231 (373)
Prepaid expenses 5,716 1,982
Other assets (15,707) (3,903)
Accounts payable, accrued liabilities and claims accruals 45,269 27,224
--------- ---------
Net cash provided by operating activities 113,902 95,525
--------- ---------
Cash flows from investing activities:
Proceeds from sale of property and equipment 51,300 24,083
Capital expenditures (161,441) (73,261)
Repayment of note receivable 1,000 4,052
Notes receivable (11,065)
Payments received on equipment sale receivables 2,107 5,799
--------- ---------
Net cash used in investing activities (118,099) (39,327)
--------- ---------
See accompanying notes to condensed consolidated financial statements.
CONTINUED
6
SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
SIX MONTHS ENDED JUNE 30,
-------------------------
2002 2001
--------- ---------
Cash flows from financing activities:
Repayments of long-term debt (29,713) (53,423)
Borrowings under line of credit 127,500 (28,000)
Repayment of borrowings under line of credit (116,500)
Change in borrowings under accounts receivable
securitization 2,000 (1,000)
Proceeds from public offering 18,240
Proceeds from issuance of common stock under
stock option and stock purchase plans 8,881 8,071
--------- ---------
Net cash used in financing activities (7,832) (56,112)
--------- ---------
Effect of exchange rate changes on cash 216
--------- ---------
Net increase (decrease) in cash (12,029) 302
Cash at beginning of period 14,151 19,638
--------- ---------
Cash at end of period $ 2,122 $ 19,940
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 6,256 $ 13,288
Income taxes $ 232 $ 3,446
Supplemental schedule of noncash investing and financing activities:
Equipment sales receivables $ 22,908 $ 7,922
Note receivable from property sale $ 1,715
See accompanying notes to condensed consolidated financial statements.
7
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.
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, 2001.
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. Receivable - Trans-Mex
The Company has advanced $6.1 million to Trans-Mex, Inc. S.A. de C.
V., a Mexican corporation of which the Company owns 49%. These loans,
which are secured by equipment, bear interest at prime plus 2% with
monthly payments of interest plus amortization of the principal over
five years.
8
SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 4. 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,
----------------- -----------------
2002 2001 2002 2001
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net earnings .................................................. $17,682 $11,131 $27,092 $11,390
======= ======= ======= =======
Weighted average shares:
Common shares outstanding for basic earnings per share ........ 86,419 82,588 86,265 82,462
Equivalent shares issuable upon exercise of stock options...... 1,472 1,776 1,650 1,887
------- ------- ------- -------
Diluted shares ................................................ 87,891 84,364 87,915 84,349
======= ======= ======= =======
Basic earnings per share ...................................... $ .20 $ .13 $ .31 $ .14
======= ======= ======= =======
Diluted earnings per share .................................... $ .20 $ .13 $ .31 $ .14
======= ======= ======= =======
Note 5. Accounting Standards Adopted by the Company
The Company adopted Statement of Financial Standards No. 142 "Goodwill
and Other Intangible Assets" on January 1, 2002. This standard
eliminates amortization of goodwill and replaces it with a test for
impairment. The Company has $8.9 million of goodwill. The Company
amortized $359,000 and $718,000 of goodwill for the three and six
months ended June 30, 2001, respectively. Basic earnings per share
would have been $.14 per share for both of the three months and six
months ended June 30, 2001 and diluted earnings per share would have
been $.13 and $.14 per share for the three months and six months ended
June 30, 2001 without goodwill amortization.
Note 6. Settlement of Litigation
In June 2002, the Company 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 the Company releasing
all claims that were the subject of the litigation. The Company will
recognize 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, the Company has deferred
the $21.1 million of legal expenses, which were earned pursuant to a
contingent fee arrangement based upon the Company's estimated
valuation of the insurance provided of between $65 million and $74
million. These legal expenses will be amortized on a straight-line
9
SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
basis over the thirty-month period beginning July 1, 2002. In the
event that the Company does not receive the future insurance coverage
due to the liquidation, rehabilitation, bankruptcy or other similar
insolvency of the insurers, the Company will receive a reimbursement
of its legal expenses on a declining basis ranging from $15.8 million
through December 15, 2002 to $3.9 million through July 1, 2004.
Note 7. Fixed Asset Impairment
In June 2002, the Company recorded a $2.5 million expense for the
estimated excess of carrying value over the fair value of an office
building in Memphis, Tennessee, which formerly was the corporate
office of M.S. Carriers. Although the Company is currently utilizing
some of the building, a sale of this property is anticipated in the
near term. This expense, which was included in depreciation expense,
was based upon a fair value determined by the Company using sale and
asking prices of comparable properties.
Note 8. Subsequent Event - Stock Repurchase Program
In July 2002, the Company announced that its Board of Directors
authorized the Company to repurchase up to 3,000,000 shares of its
common stock. The stock may be purchased on the open market or in
privately negotiated transactions at any time until December 31, 2002,
unless the period is extended by the Board. Any purchases would be at
management's discretion based upon prevailing prices, liquidity and
other factors.
10
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, operating expenses
(including insurance and claims expense), 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
See Note 5 to the financial statements for discussion of accounting
standards 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. The Company expanded its fleet with an increase of 605
tractors to 15,999 tractors as of June 30, 2002 up from 15,394 tractors as of
June 30, 2001. The owner operator portion of the Company's fleet decreased to
3,336 as of June 30, 2002 from 3,386 as of June 30, 2001. The Company
accelerated its new truck order and took delivery of 424 tractors at the end of
June 2002.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
The Company is self-insured for some portion of its liability, property
damage and cargo damage risk. This self-insurance results from the Company
buying insurance coverage with deductible amounts. Each reporting period the
Company accrues the 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
upon 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.
Management has discussed the development and selection of this accounting
estimate with the audit committee of the Board of Directors and the audit
committee has reviewed the company's disclosure relating to it in this Quarterly
Report on Form 10-Q.
11
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30, 2001
Operating revenue decreased $7.0 million or 1.3% to $528.6 million for the
three months ended June 30, 2002 from $535.6 million for the corresponding
period of 2001. The second quarter of 2002 includes $8.1 million of fuel
surcharge revenue versus $16.1 million in 2001. Excluding this fuel surcharge
revenue, operating revenue increased $1.0 million.
The Company's operating ratio (operating expenses expressed as a percentage
of operating revenue) for the second quarter of 2002 was 93.2% compared to 95.5%
in the comparable period of 2001. The Company's operating ratio for the three
months ended June 30, 2002 improved as a result of decreases 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
14.22% and 15.10%, and average loaded linehaul revenue per mile (excluding fuel
surcharge) was $1.4079 and $1.4150, in the second quarter of 2002 and 2001,
respectively.
Salaries, wages and employee benefits represented 36.2% of operating
revenue for the three months ended June 30, 2002 compared with 37.0% in 2001.
The decrease is due to a reduction in certain administrative positions, and an
increase in the portion of Company drivers on the Swift pay scale versus the
higher M.S. Carriers pay scale, offset by 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.
Operating supplies and expenses increased to 9.5% of operating revenue in
the second quarter of 2002 from 8.1% in the second quarter of 2001. This
increase was primarily caused by increased maintenance costs related to the
ongoing conversion of M.S. Carriers equipment to Swift standards and increased
maintenance of tractors being prepared for sale resulting from a stricter
enforcement of minimum maintenance condition.
Fuel as a percentage of operating revenue was 11.9% for the second quarter
of 2002 versus 13.7% in 2001. The decrease is primarily due to actual fuel cost
per gallon decreasing by approximately 19 cents per gallon (13.7%) in the second
quarter of 2002 versus the second quarter of 2001.
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 as a means to limit exposure to fuel price
volatility.
Purchased transportation as a percentage of operating revenue was 16.9% for
the three months ended June 30, 2002 compared to 17.3% in 2001. 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 4.0% for the second
quarter of 2002 versus 4.7% in 2001. At June 30, 2002 and 2001, leased tractors
represented 46% and 55%, 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
12
rental expense. The Company recorded gains of $566,000 in the second quarter of
2002 and $232,000 during the second quarter of 2001 from the sale of leased
tractors.
Depreciation and amortization expense as a percentage of operating revenue
was 7.2% in the second quarter of 2002 versus 6.4% in 2001. 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, 2002, net
gains from the sale of revenue equipment reduced depreciation and amortization
expense by approximately $2.1 million compared to approximately $1.1 million in
the second quarter of 2001. Exclusive of gains, which reduced this expense,
depreciation and amortization expense, as a percentage of operating revenue was
7.6% and 6.6% in the second quarter of 2002 and 2001, respectively. The increase
in depreciation and amortization expense as a percentage of operating revenue is
a result of an increase in the owned portion of the fleet as well as a $2.5
million adjustment to reduce the recorded value of the former corporate office
building of M.S. Carriers to its estimated fair value. The Company has relocated
the majority of employees from this building and expects to begin marketing this
office building for sale in the near future.
Insurance and claims expense represented 3.7% and 4.6% of operating revenue
in the second quarter of 2002 and 2001, respectively. These expenses represent
claims paid by the Company, reserves for claims within the Company's self
insured retention limits and the cost of premiums for insurance coverage.
Included in the second quarter of 2001 is an adjustment of approximately $7
million (1.3% of operating revenue) to the M.S. Carriers insurance and claims
reserves. As described in Note 6 to the financial statements, the Company
estimated the valuation of the insurance coverage provided as a result of the
litigation settlement to be between $65 million and $74 million. This benefit
will be reflected as a reduction of insurance and claims expense in the
financial statements beginning July 1, 2002 through December 31, 2004. As a
result, the insurance and claims expense will reflect no cost for certain
insurance coverage which is being provided by the insurance company as part of
this settlement. In connection with this settlement, the Company also will
amortize $2.1 million of deferred legal fees into operating supplies and
expenses in each of the next ten quarters ending December 31, 2004. As a result,
the Company expects the insurance and claims percentage will range between 3.5%
and 4% of operating revenue through December 31, 2002.
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. Beginning in 2003, the Company's self
insured retention for liability coverage will increase from $250,000 to
$1,000,000. 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.
Interest expense increased to $6.8 million in 2002 from $6.1 million in
2001. Interest expense for the second quarter of 2002 includes a $2.7 million
expense for the increase in the market value of the interest rate derivative
agreements of M.S. Carriers, while interest expense for the second quarter of
2001 includes the benefit of a $1.1 million reduction in market value of such
interest rate derivative agreements. Excluding the impact of the interest rate
derivative agreements, interest expense would have decreased from $7.2 million
to $4.1 million. The second quarter of 2002 benefited from lower interest rates,
a shift in borrowings from more costly M.S. Carriers debt to less costly Swift
debt, and decreased borrowings under long term debt and capital lease
obligations.
13
SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS ENDED JUNE 30, 2001
Operating revenue decreased $40.8 million or 3.9% to $1.004 billion for the
six months ended June 30, 2002 from $1.045 billion for the corresponding period
of 2001. The six months ended June 30, 2002 includes $10.8 million of fuel
surcharge revenue versus $34.6 million in 2001. Excluding this fuel surcharge
revenue, the decrease in revenues would have been 1.7%.
The Company's operating ratio (operating expenses expressed as a percentage
of operating revenue) for the first six months of 2002 was 94.7% compared to
96.4% in the comparable period of 2001. The Company's operating ratio for the
six months ended June 30, 2002 improved as a result of decreases 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
14.57% and 15.40%, and average loaded linehaul revenue per mile (excluding fuel
surcharge) was $1.4123 and $1.4164, in the first six months of 2002 and 2001,
respectively.
Salaries, wages and employee benefits represented 37.1% of operating
revenue for the six months ended June 30, 2002 compared with 37.4% in 2001. The
decrease is discussed within the three months results of operations above.
Fuel as a percentage of operating revenue was 11.7% for the first six
months of 2002 versus 13.8% in 2001. The decrease is primarily due to actual
fuel cost per gallon decreasing by approximately 23 cents per gallon (17%) for
the six months ended June 30, 2002 versus the six months ended June 30, 2001.
Purchased transportation as a percentage of operating revenue was 17.2% for
the six months ended June 30, 2002 compared to 17.6% in 2001. 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 4.3% for the first
six months of 2002 versus 4.7% in 2001. 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 rental expense. The Company recorded gains of
$969,000 and $251,000 in the first six months of 2002 and 2001 respectively,
from the sale of leased tractors.
Depreciation and amortization expense as a percentage of operating revenue
was 7.5% and 6.6% in the first six months of 2002 and 2001, respectively. The
Company includes gains and losses from the sale of owned revenue equipment in
depreciation and amortization expense. During the six month period ended June
30, 2002, net gains from the sale of revenue equipment reduced depreciation and
amortization expense by approximately $3.5 million compared to approximately
$2.2 million in the first six months of 2001. Exclusive of gains, which reduced
this expense, depreciation and amortization expense as a percentage of operating
revenue was 7.8% and 6.8% in the first six months of 2002 and 2001,
respectively. The increase in depreciation and amortization expense as a
percentage of operating revenue is a result of an increase in the owned portion
of the fleet as well as a $2.5 million adjustment to reduce the recorded value
of the former corporate office building of M.S. Carriers to its estimated fair
value.
Interest expense decreased to $9.1 million in first six months of 2002 from
$19.1 million in 2001. Interest expense for the first six months of 2002
includes a $1.3 million expense for the increase in the market value of the
interest rate derivative agreements of M.S. Carriers, while interest expense for
the first six months of 2001 includes a $2.0 million expense for the increase in
the market value of such interest rate derivative agreements. Excluding the
impact of the interest rate derivative agreements, interest expense would have
decreased from $17.1 million to $7.8 million. The first six months of 2002
benefited from lower interest rates, a shift in borrowings from more costly M.S.
Carriers debt to less costly Swift debt, and decreased borrowings under long
term debt and capital lease obligations.
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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 $113.9 million in the first
six months of 2002 compared to $95.5 million in 2001. The increase is primarily
attributable to an increases in net earnings, deferred income taxes, accounts
payable, accrued liabilities and claims accruals, offset by an increase in
accounts receivable.
Net cash used in investing activities increased to $118.1 million in the
first six months of 2002 from $39.3 million in 2001. The increase is primarily
due to increased capital expenditures and issuance of notes receivables, offset
by increased proceeds from the sale of property and equipment.
As of June 30, 2002, the Company had commitments outstanding to acquire
replacement and additional revenue equipment for approximately $146 million. The
Company has the option to cancel such commitments upon 60 days notice. Based
upon its cancellation rights, the Company exercised its right to cancel truck
orders scheduled for production in the fourth quarter of 2002, which were
equipped with the 2002 EPA engine. The Company will continue to evaluate future
purchases in 2003 after securing additional data regarding cost, reliability,
fuel economy and durability of its new EPA engine. The Company expects to change
from its current three year replacement cycle to either four or five years. 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 2002, the Company incurred approximately
$17.7 million of non-revenue equipment capital expenditures. These expenditures
were primarily for facilities and equipment.
The Company anticipates that it will expend approximately $48 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 $7.8 million in the first
six months of 2002 compared to $56.1 million provided by financing activities in
2001. This decrease is primarily due to reduced repayments of long-term debt and
an increase in borrowings under the line of credit, offset by proceeds from the
Company's public stock offering in 2001.
15
The Company expects to refinance its line of credit in the fourth quarter
of 2002.
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.
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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 $72 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 $2.5 million.
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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 June 6, 2002. At
the Annual Meeting, the stockholders elected William F. Riley III and Lou A.
Edwards to serve as Directors for three-year terms. Jerry C. Moyes, Alphonse E.
Frei, Edward A. Labry III, Rodney K. Sartor, Earl H. Scudder, Jr. and Michael S.
Starnes continued as Directors after the meeting. Additionally, the stockholders
approved (i) an amendment to the Company's Articles of Incorporation to increase
the number of shares of Common Stock authorized for issuance from 150,000,000 to
200,000,000, (ii) an amendment to the Company's 1999 Stock Option Plan
increasing the number of shares available for issuance thereunder from 4,250,000
to 8,250,000, and (iii) an amendment to the Company's 1999 Stock Option Plan to
(a) permit the grant of options to Jerry Moyes, the Company's Chairman,
President and Chief Executive Officer and (b) increase the maximum number of
shares underlying options that may be granted to any one individual in a fiscal
year from 100,000 to 1,000,000.
Stockholders representing 81,932,692 shares or 94.85% 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 William F. Riley III 81,932,692 67,597,353 14,335,339
Election of Lou A. Edwards 81,932,692 80,093,046 1,839,646
Increase authorized common stock to
200,000,000 shares 81,932,692 80,765,562 1,167,130
Amendment to 1999 Stock Option Plan to
authorize an additional 4,000,000 shares 81,932,692 37,656,839 35,162,020 9,113,833
Amendment to 1999 Stock Option Plan to permit
the grant of options to Jerry Moyes and
increase annual grant limit from 100,000
to 1,000,000 81,932,692 39,827,469 32,991,390 9,113,833
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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 Annex A of the
Registrant's Notice and Proxy Statement for its 2002
Annual Meeting of Stockholders filed with the
Commission on April 30, 2002)
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 99.1 - Private Securities Litigation Reform Act of 1995 Safe
Harbor Compliance Statement for Forward-Looking
Statements
Exhibit 99.2 - Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 - Jerry Moyes
Exhibit 99.3 - Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 - Gary Enzor
(b) No Current Reports on Form 8-K were filed during the three months
ended June 30, 2002.
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 12, 2002 /s/ William F. Riley III
----------------------------------------
(Signature)
William F. Riley III
Senior Executive Vice President
Date: August 12, 2002 /s/ Gary Enzor
----------------------------------------
(Signature)
Gary Enzor
Chief Financial Officer
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