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 March 31, 1997
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 identification
incorporation or organization) number)
2200 South 75th Avenue
Phoenix, AZ 85043
(602) 269-9700
Former Address:
1455 Hulda Way
Sparks, NV 89431
(702) 359-9031
(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 (May 5 , 1997)
Common stock, $.001 par value: 28,201,648 shares
Exhibit Index at page 15
Total pages 18
PART I
FINANCIAL INFORMATION
Page
Number
Item 1. Financial statements
Condensed consolidated balance sheets
as of March 31, 1997 (unaudited) and
December 31, 1996 3 - 4
Condensed consolidated statements of
earnings (unaudited) for the three month
periods ended March 31, 1997 and 1996 5
Condensed consolidated statements of cash
flows (unaudited) for the three month
periods ended March 31, 1997 and 1996 6 - 7
Notes to condensed consolidated financial
statements 8 - 9
Item 2. Management's discussion and analysis of
financial condition and results of
operations 10 - 14
PART II
OTHER INFORMATION
Items 1, 2,
3, 4 and 5. Not applicable
Item 6. Exhibits and Reports on Form 8-K 15
2
SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES
Condensed consolidated balance sheets
(dollars in thousands)
March 31, December 31,
1997 1996
---------- ------------
(unaudited)
Assets
------
Current assets:
Cash $ 5,042 $ 1,210
Accounts receivable, net 87,075 78,280
Inventories and supplies 3,575 3,997
Prepaid taxes, licenses and insurance 11,652 3,274
Assets held for sale 5,453 5,453
Deferred tax asset 4,214 3,690
-------- --------
Total current assets 117,011 95,904
-------- --------
Property and equipment, at cost:
Revenue and service equipment 307,830 297,744
Land 7,351 7,351
Facilities and improvements 53,922 53,109
Furniture and office equipment 12,970 12,242
-------- --------
Total property and equipment 382,073 370,446
Less accumulated depreciation and amortization 99,661 95,597
-------- --------
Net property and equipment 282,412 274,849
Other assets 1,073 417
Goodwill 9,246 9,435
-------- --------
$409,742 $380,605
======== ========
See accompanying notes to condensed consolidated financial statements.
3
SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES
Condensed consolidated balance sheets (continued)
(dollars in thousands, except share and per share amounts)
March 31, December 31,
1997 1996
----------- ------------
(unaudited)
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable $ 16,493 $ 16,779
Accrued liabilities 22,118 17,202
Claims accruals 16,072 14,668
Current portion of long-term debt 7,363 10,317
-------- --------
Total current liabilities 62,046 58,966
-------- --------
Borrowings under line of credit 35,500 16,500
Long-term debt, less current portion 21,982 23,784
Claims accruals 17,288 16,689
Deferred income taxes 39,278 38,000
Stockholders' equity:
Preferred stock, par value $.001 per share
Authorized 1,000,000 shares; none issued -- --
Common stock, par value $.001 per share
Authorized 75,000,000 shares; issued
28,394,984 and 28,134,684 shares at
March 31, 1997 and December 31, 1996, respectively 28 28
Additional paid-in capital 111,043 110,291
Retained earnings 125,993 119,763
-------- --------
237,064 230,082
Less treasury stock, at cost (220,700 shares) 3,416 3,416
-------- --------
Net stockholders' equity 233,648 226,666
-------- --------
Commitments, contingencies and subsequent events
-------- --------
$409,742 $380,605
======== ========
See accompanying notes to condensed consolidated financial statements.
4
SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES
Condensed consolidated statements of earnings
(unaudited)
(in thousands, except per share amounts)
Three months
ended March 31,
1997 1996
--------- ---------
Operating revenue $ 156,074 $ 124,524
Operating expenses:
Salaries, wages and employee
benefits 55,282 46,495
Operating supplies and expenses 14,271 12,220
Fuel and fuel taxes 22,368 17,723
Purchased transportation 20,346 14,857
Rental expense 11,550 8,066
Insurance and claims 5,063 4,525
Depreciation and amortization 8,507 8,251
Communication and utilities 2,393 1,979
Operating taxes and licenses 5,171 4,692
--------- ---------
Total operating expenses 144,951 118,808
--------- ---------
Operating income 11,123 5,716
--------- ---------
Other (income) expenses:
Interest expense 813 1,486
Interest income (65) (33)
Other (106) (198)
--------- ---------
Other (income) expenses, net 642 1,255
--------- ---------
Earnings before income taxes 10,481 4,461
Income taxes 4,250 1,890
--------- ---------
Net earnings $ 6,231 $ 2,571
========= =========
Net earnings per common and
equivalent share $ .22 $ .10
========= =========
Shares used in per share
calculations 28,653 25,409
========= =========
See accompanying notes to condensed consolidated financial statements.
5
SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES
Condensed consolidated statements of cash flows
(unaudited)
(in thousands)
Three months
ended March 31,
1997 1996
-------- --------
Cash flows from operating activities:
Net earnings $ 6,231 $ 2,571
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 8,507 8,251
Deferred income taxes 754 1,810
Provision for losses on accounts receivable 60 60
Amortization of deferred compensation 9 14
Change in assets and liabilities:
Increase in accounts receivable (4,543) (4,501)
(Increase) decrease in inventories and supplies 422 (359)
Increase in prepaid expenses (8,378) (7,377)
(Increase) decrease in other assets (712) 70
Increase in accounts payable, accrued liabilities
and claims accruals 6,633 13,403
-------- --------
Net cash provided by operating activities 8,983 13,942
-------- --------
Cash flows from investing activities:
Proceeds from sale of property and equipment 1,150 1,744
Capital expenditures (21,217) (35,246)
Payments received on contracts receivable 390 104
-------- --------
Net cash used in investing activities (19,677) (33,398)
-------- --------
See accompanying notes to condensed consolidated financial statements
6
SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES
Condensed consolidated statements of cash flows (continued)
(unaudited)
(in thousands)
Three months
ended March 31,
1997 1996
--------- ---------
Cash flows from financing activities:
Repayments of long-term debt $ (4,756) $ (5,445)
Proceeds from issuance of long-term debt 15,026
Increase in borrowings under
line of credit 19,000 8,500
Proceeds from issuance of common stock
under stock option plan 282 14
-------- --------
Net cash provided by
financing activities 14,526 18,095
-------- --------
Net increase (decrease) in cash 3,832 (1,361)
Cash at beginning of period 1,210 2,627
-------- --------
Cash at end of period $ 5,042 $ 1,266
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 826 $ 1,407
Income taxes $ 4,633 $ 5
Supplemental schedule of noncash investing and
financing activities:
Equipment sales receivables $ 4,213 $ 3,159
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.
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, 1996. 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. Line of Credit
On January 17, 1997, the Company entered into an agreement with
four major banks for an unsecured line of credit with maximum
borrowings of $110 million which matures on January 16, 2001 (the
Credit Agreement). Interest on outstanding borrowings is based
upon one of two options which the Company selects at the time of
borrowing: the bank's prime rate or the London Interbank Offered
Rate (LIBOR) plus applicable margins, as defined in the Credit
Agreement. The unused portion of the line of credit is subject to
a commitment fee. The Credit Agreement includes financing for
letters of credit. The Credit Agreement requires the Company to
meet certain covenants with respect to debt to equity and debt
coverage ratios. The Credit agreement also requires the Company to
maintain unencumbered assets of not less than 120% of unsecured
indebtedness (as defined).
8
SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES
Notes to condensed consolidated financial statements
(unaudited)
Note 4. Subsequent Event - Acquisition
On April 8, 1997, the Company completed its acquisition of certain
assets of Direct Transit, Inc. ("DTI"), a Debtor- In- Possession
in United States Bankruptcy Court. DTI was a dry van carrier based
in North Sioux City, South Dakota and operated predominantly in
the eastern two-thirds of the United States. Swift acquired
inventory, furniture and office equipment, computer equipment and
miscellaneous assets from DTI for $3 million. Also, Swift paid $1
million to the principal shareholder of DTI in exchange for a
covenant not to compete. Separately, Swift acquired 565 tractors
and 1,622 trailers from various lessors. Certain of the revenue
equipment was purchased for $28 million and new lease agreements
were negotiated on $11 million of revenue equipment. The Company
used working capital and borrowings under its existing line of
credit to acquire the assets described above and for payments
under the covenant not to compete. The purchase price was reduced
from the previously disclosed price of $54 million primarily due
to a reduction in the amount of revenue equipment acquired.
9
SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES
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
contribute to or cause such differences. Additional factors that could cause
actual results to differ materially from those expressed in such forward-looking
statements 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
The trend in the truckload segment of the motor carrier industry over the past
several years has been towards shippers' use of a relatively small number of
financially stable "core carriers". This trend has resulted in consolidation of
the truckload industry. However, the truckload industry remains highly
fragmented. Management believes that this industry trend towards core carriers
will continue and will result in continued industry consolidation. In response
to this trend, the Company has expanded its fleet to 4,975 tractors as of March
31, 1997 from 4,077 tractors as of March 31, 1996. This net fleet growth was
accomplished through a combination of internal growth and the acquisition in
September 1996 of substantially all of the operating assets utilized in the dry
freight van division of Navajo Shippers, Inc., and two of its wholly-owned
subsidiaries, Digby Leasing and Digby- Ringsby Truck Line, Inc. (collectively,
"Navajo Shippers"). The acquisition added 287 tractors including 30 owner
operators. The Company's owner operator fleet increased to 721 as of March 31,
1997 from 574 as of March 31, 1996.
10
Results of Operations
Three Months Ended March 31, 1997 compared to Three Months Ended March 31, 1996
- -------------------------------------------------------------------------------
Operating revenue increased $31.6 million or 25.3% to $156.1 million for the
three months ended March 31, 1997 from $124.5 million for the corresponding
period of 1996. 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 quarter of 1997 was 92.9% compared to 95.4% in
the comparable period of 1996. The Company's operating revenue and operating
ratio for the three months ended March 31, 1997 improved as a result of improved
shipper demand. The Company's empty mile factor for linehaul operations was
14.3% and 13.8% and average linehaul revenue per mile was $1.30 and $1.27 in the
first quarter of 1997 and 1996, respectively. Significant differences in the
components of operating expenses as a percentage of operating revenue are
explained below.
Salaries, wages and employee benefits represented 35.4% of operating revenue for
the three months ended March 31, 1997 compared with 37.3% in 1996. The decrease
is due primarily to expansion of the Company's owner operator fleet (see
discussion of purchased transportation below) offset in part by drive retention
bonuses.
From time to time the industry has experienced shortages of qualified drivers.
If such a shortage were to occur over a prolonged period and increases in driver
pay rates were to occur in order to attract and retain drivers, the Company's
results of operations would be negatively impacted to the extent that
corresponding rate increases were not obtained.
Fuel as a percentage of operating revenue was 14.3% for the first quarter of
1997 versus 14.2% in 1996. Although the Company experienced an increase in fuel
costs during the first quarter, such increase was largely offset by an increase
in the number of owner operators who are responsible for their own fuel and by
fuel surcharges. Actual fuel cost per gallon increased by approximately nine
cents per gallon in the first quarter of 1997 versus the first quarter of 1996.
In the second quarter of 1996, the Company implemented a fuel surcharge program
which has recovered more than one-half of the increase in fuel cost.
Increases in fuel costs (including fuel taxes), to the extent not offset by rate
increases or fuel surcharges, could 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.
Therefore, the Company does not use derivative-type hedging products.
Purchased transportation as a percentage of operating revenue was 13.0% for the
three months ended March 31, 1997 compared to 11.9% in 1996. The increase is due
to the growth of the owner operator fleet to 721 as of March 31, 1997 from 574
as of March 31, 1996.
11
Rental expense as a percentage of operating revenue was 7.4% for the first
quarter of 1997 versus 6.5% in 1996. At March 31, 1997 and 1996, leased tractors
represented 62% 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
rent expense. The Company recorded no gain during the first quarter of 1997 and
$167,000 in 1996 from the sale of leased tractors.
Depreciation and amortization expense as a percentage of operating revenue was
5.5% in the first quarter of 1997 versus 6.6% in 1996. The Company includes
gains and losses from the sale of owned revenue equipment in depreciation and
amortization expense. During the three month period ended March 31, 1997, net
gains from the sale of revenue equipment reduced depreciation and amortization
expense by approximately $875,000 compared to approximately $262,000 in the
first quarter of 1996. Exclusive of gains, which reduced depreciation and
amortization expense, the percentage in the first quarter of 1997 and 1996 to
operating revenue was 6.0% and 6.8 %, respectively. The decrease in 1997 is due
to expansion of the owner operator fleet and the increase in the percentage of
leased equipment versus owned equipment as discussed above.
The Company has begun to replace substantially all of its fleet of double van
trailers with 13'-6" high 53 foot trailers to be used in the Eastern United
States and 14' high 53 foot trailers to be used in the Western United States. As
of March 31, 1997, the Company has replaced approximately 30% of the double van
trailer fleet. Management believes that this conversion to a standardized fleet
of 53' trailers will provide cost reductions such as lower licensing costs,
simplified driver training and increased equipment utilization. The conversion
to a standardized fleet of 53' trailers will result in the sale of substantially
all of the Company's fleet of double van trailers. While the Company believes
that the market value of its double van trailer fleet is currently greater than
the book value, there can be no assurance the market value of such equipment
will not decline or that the sale of such equipment will result in gains. The
sale of the Company's double van trailer fleet may result in significant
fluctuations in the amount of gains or losses recorded in any given quarter. The
amount of such gains or losses recorded in a particular quarter will be
dependent upon the quantity of trailers sold and the prevailing market prices
for used trailering equipment.
Insurance and claims expense represented 3.2% and 3.6% of operating revenue in
the first quarter of 1997 and 1996, respectively. 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.
Interest expense declined to $813,000 in the first quarter of 1997 from
$1,486,000 in 1996. This decline is due to a lower debt level which resulted
from utilizing the proceeds of the December 1996 common stock offering to reduce
outstanding debt.
12
Liquidity and Capital Resources
The growth in the Company's business has required 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, the use of operating
leases to finance the acquisition of revenue equipment and from public offerings
of common stock.
Net cash provided by operating activities was $9.0 million in the first three
months of 1997 compared to $13.9 million in 1996. The decrease is primarily
attributable to a smaller increase in accounts payable, accrued liabilities and
claims accruals.
Prepaid expenses increased by $8.4 million from December 31, 1996 to March 31,
1997. The increase is primarily due to significant annual license fees which are
prepaid in the first quarter of each year and amortized over the remainder of
the year.
Net cash used in investing activities decreased to $19.7 million in the first
three months of 1997 from $33.4 million in 1996. The decrease is due primarily
to fewer capital expenditures in 1997 as the Company was constructing its new
corporate facilities in 1996.
As of March 31, 1997, the Company had commitments outstanding to acquire
replacement and additional revenue equipment for approximately $110 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 quarter of 1997, the Company incurred approximately $1.3
million of non-revenue equipment capital expenditures. These expenditures were
primarily for facilities and equipment.
The Company anticipates that it will expend approximately $23 million through
December 1997 for various facilities upgrades and acquisitions of terminal
facilities. Factors such as costs and opportunities for future terminal
expansions may change the amount of such expenditures.
In April 1997, the Company expended approximately $33 million in line of credit
borrowings to fund the acquisition of Direct Transit, Inc.
The funding for capital expenditures has been and will be from a combination of
cash provided by operating activities, amounts available under the Company's
line of credit 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.
13
Net cash provided by financing activities amounted to $14.5 million in the first
quarter of 1997 compared to $18.1 million in 1996. This decrease is primarily
due to lower borrowings.
On January 17, 1997, the Company entered into an agreement with four major banks
for an unsecured line of credit with maximum borrowings of $110 million which
matures on January 16, 2001 (the Credit Agreement). Interest on outstanding
borrowings is based upon one of two options which the Company selects at the
time of borrowing: the bank's prime rate or the London Interbank Offered Rate
(LIBOR) plus applicable margins, as defined in the Credit Agreement. The unused
portion of the line of credit is subject to a commitment fee. The Credit
Agreement includes financing for letters of credit.
Management believes it will be able to finance its needs for working capital,
facilities improvements and expansion, as well as anticipated fleet growth by
additional revenue equipment acquisitions and additional strategic acquisitions
as opportunities become available through cash flows from future operations,
borrowings available under the line of credit and through long-term debt and
operating lease financing believed to be available to finance revenue equipment
acquisitions. 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 increased operating costs in colder weather and higher fuel
consumption due to increased idle time.
14
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 11 - Schedule of Computation of Net
Earnings Per Share
Exhibit 27 - Financial Data Schedule
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 March 31,
1997. A Form 8-K was filed on April 23,
1997, pertaining to the acquisition of
certain assets from Direct Transit, Inc.
and certain of its lessors.
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: May 13 , 1997 /s/ William F. Riley III
------------------------------
(Signature)
William F. Riley III
Chief Financial Officer
15