10-K 1 e-6511.txt ANNUAL REPORT FOR THE YEAR ENDED 12/31/00 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ____________ Commission File No. 0-18605 SWIFT TRANSPORTATION CO., INC. (Exact name of registrant as specified in its charter) Nevada 86-0666860 (State or Other Jurisdiction of (IRS Employer Identification No.) Incorporation or Organization) 2200 South 75th Avenue Phoenix, AZ 85043 (Address of Principal Executive Offices) (Zip Code) (602) 269-9700 (Registrant's Telephone Number, Including Area Code) Securities Registered Pursuant to Section 12(b) of the Act: None Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, $.001 par value Nasdaq National Market 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 such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] At March 19, 2001, the aggregate market value of common stock held by non-affiliates of the Registrant was $254,025,441. The number of shares outstanding of the Registrant's common stock on March 19, 2001 was 63,268,164. DOCUMENTS INCORPORATED BY REFERENCE Materials from the Registrant's Notice and Proxy Statement relating to the 2001 Annual Meeting of Stockholders have been incorporated by reference into Part III, Items 10, 11, 12 and 13. Exhibit Index at page 42 Total pages 45 TABLE OF CONTENTS Page ---- PART I Item 1. Business......................................................... 3 Item 2. Properties....................................................... 10 Item 3. Legal Proceedings................................................ 11 Item 4. Submission of Matters to a Vote of Security Holders.............. 11 PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters............................................. 11 Item 6. Selected Financial and Operating Data............................ 13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............................. 14 Item 7A. Quantitative and Qualitative Disclosures about Market Risk....... 20 Item 8. Financial Statements and Supplementary Data...................... 20 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................. 41 PART III Item 10. Directors and Executive Officers of the Registrant............... 41 Item 11. Executive Compensation........................................... 41 Item 12. Security Ownership of Certain Beneficial Owners and Management.................................................. 41 Item 13. Certain Relationships and Related Transactions................... 41 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..................................................... 42 SIGNATURES.................................................................. S-1 2 PART I ITEM 1. BUSINESS GENERAL Swift Transportation Co., Inc. (with its subsidiaries, "Swift" or the "Company") is the third largest publicly-held, national truckload carrier in the United States. Swift operates primarily throughout the continental United States, combining strong regional operations with a transcontinental van operation. The principal types of freight transported by Swift include retail and discount department store merchandise, manufactured goods, paper products, non-perishable food, beverages and beverage containers and building materials. By meeting its customers' specific needs for both regional and transcontinental service and through selective acquisitions, Swift has been able to achieve significant growth in revenues over the past five years. Operating revenue has grown at a compound annual growth rate of 22.4% from $458.2 million in 1995 to $1.259 billion in 2000. During that same period, net earnings have grown at a compound annual growth rate of 18% from $23.0 million to $52.6 million. Swift Transportation Co., Inc., a Nevada corporation headquartered in Sparks, Nevada, is a holding company for the operating corporations named Swift Transportation Co., Inc. and Swift Transportation Corporation. These companies are collectively referred to herein as the "Company." The Company's headquarters are located at 2200 South 75th Avenue, Phoenix, Arizona 85043, and its telephone number is (602) 269-9700. This Annual Report on Form 10-K contains forward-looking statements. Additional written or oral forward-looking statements may be made by the Company from time to time in filings with the Securities and Exchange Commission or otherwise. 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, plans relating to products or services of the Company, the benefits of the Company's terminal network, the continued consolidation of the truckload industry, the increase in the number of companies outsourcing their transportation requirements, the Company's ability to sell its used trucks at favorable prices, the Company's ability to attract and retain qualified drivers, the Company's ability to pass on to its customers increased labor and fuel costs and protect itself against increases in fuel costs through the use of fuel efficient equipment, and pending or future acquisitions, as well as assumptions relating to the foregoing. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. Statements in this Annual Report, including the 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 this Annual Report. OPERATING STRATEGY Swift focuses on achieving high density for service-sensitive customers in short-to-medium haul traffic lanes. Through its network of 35 terminals, Swift is able to provide regional service on a nationwide basis. Swift's terminal network establishes a local market presence in the regions Swift serves and enables Swift to respond more rapidly to its customers' changing requirements. This regional network also enables Swift to enhance driver recruitment and retention by returning drivers to their homes regularly, reduce its purchases of higher priced fuel at truck stops and expedite lower cost, in-house equipment maintenance. With an average length of haul of 509 miles in 2000, Swift is able to limit its direct competition with railroads, intermodal services and longer-haul, less specialized truckload carriers. Swift seeks to provide premium 3 service with commensurate rates, rather than compete primarily on the basis of price. The principal elements of Swift's premium service include: regional terminals to facilitate single and multiple pick-ups and deliveries and maintain local contact with customers; well-maintained, late model equipment; a fully-integrated computer system to monitor shipment status and variations from schedule; an onboard communications system that enables the Company to dispatch and monitor traffic; timely deliveries; and extra equipment to respond promptly to customers' varying requirements. To manage the higher costs and greater logistical complexity inherent in operating in short-to-medium haul traffic lanes, Swift employs sophisticated computerized management control systems to monitor key aspects of its operations, such as availability of equipment, truck productivity and fuel consumption. Swift has a three-year replacement program for substantially all of its tractors, which allows Swift to maximize equipment utilization and fuel economy by capitalizing on improved engine efficiency and vehicle aerodynamics and to minimize maintenance expense. For 2000 and 1999, Swift maintained an operating ratio of 92.1% and 89.0%, respectively. GROWTH STRATEGY Major shippers continue to reduce the number of carriers they use for their regular freight needs. This has resulted in a relatively small number of financially stable "core carriers" and has contributed to consolidation in the truckload industry in recent years. The truckload industry remains highly fragmented, and management believes that overall growth in the truckload industry and continued industry consolidation will present opportunities for well managed, financially stable carriers such as Swift to expand. The Company intends to take advantage of growth opportunities through a combination of internal growth and selective acquisitions. The key elements of Swift's growth strategy are: * STRENGTHEN CORE CARRIER RELATIONSHIPS. Swift intends to continue to strengthen its core carrier relationships, expand its services to its existing customers and pursue new customer relationships. By concentrating on expanding its services to its existing customers, Swift's revenues from its top 25 customers of 1998 increased by 43% from 1998 to 2000. The largest 25, 10 and 5 customers, respectively, accounted for 53%, 35% and 23% of revenues in 2000, with no customer accounting for more than 6% of Swift's revenues during that same period. In addition to expanding its services to existing customers, Swift actively pursues new traffic commitments from high volume, financially stable shippers for whom it has not previously provided services. * PURSUE STRATEGIC ACQUISITIONS. Swift's revenue growth has been attributable, in significant part, to eight acquisitions completed in the last eleven years. These acquisitions have enabled Swift to expand from its historical operations base in the Western United States and develop a strong regional presence in the Midwestern, Eastern and Southeastern United States. Swift generally limits its consideration of acquisitions to those it believes will be accretive to earnings within six months, and historically all of its acquisitions have met this objective. In certain instances, such as the pending M.S. Carriers acquisition, where a proposed acquisition has the potential to significantly increase revenues, expand Swift's operations in certain key geographic regions, or provide important synergistic opportunities, such as increased efficiencies in equipment utilization, Swift may consider going forward with such an acquisition even though it is not likely to be accretive to earnings within a period of six months. * EXPLOIT PRIVATE FLEET OUTSOURCING. A number of large companies maintain their own private trucking fleets to facilitate distribution of their products. Swift believes that a high percentage of private fleet traffic is short-to-medium haul in nature, traveling an average of 500 miles or less per round trip. In order to reduce operating costs associated with private fleets, a number of large companies have begun to outsource their transportation and logistics requirements. Swift believes that its strong regional operations and average length of haul of less than 600 miles position it to take advantage of this trend, and Swift already serves as a preferred supplier or "core carrier" to many major shippers who are considering, or may in the future consider, outsourcing their transportation and logistics requirements. 4 OPERATIONS Swift has developed a network of regional terminals and offices strategically located in areas which have strong, diverse economies and provide access to other key population centers. The terminals are located in close proximity to major customers who tender significant traffic volume to Swift. To minimize competition with long-haul truckload carriers and railroads, Swift operates principally within short-to-medium-haul traffic lanes. Although the Company's transcontinental division allows it to serve a broad spectrum of shipper needs, the primary regions in which Swift operates are ideally suited to short-to-medium-haul lanes because of the distribution of population and economic centers. During 2000 and 1999, Swift's average length of haul was 509 and 541 miles, respectively. Swift focuses the marketing of its services to large, service-sensitive customers that regularly ship over established routes within Swift's regional service areas. Swift's service includes the availability of specialized equipment suitable for the requirements of certain industries; high cubic capacity trailers; computerized tracking of and frequent reporting on customer shipments; onboard communications that enable instant re-routing or modification of traffic; well-maintained, late-model equipment that enhances on-time deliveries; multiple drops, appointment pick-ups and deliveries; assistance in loading and unloading; extra trailers that can be placed for the convenience of customers; and sufficient equipment to respond promptly to customers' varying requirements. The achievement of significant regular freight volumes on high-density routes and consistent shipment scheduling over these routes are key elements of Swift's operations. As a result, Swift's operations personnel are better able to match available equipment to available loads and schedule regular maintenance and fueling at Company terminals, thereby enhancing productivity and asset utilization and minimizing empty miles and expensive over-the-road fueling and repair costs. Consistent scheduling also allows Swift to be more responsive to its customers' needs. Swift's regular scheduling and relatively short length of haul enable drivers to return to their homes regularly, which has helped Swift improve driver recruitment. In order to reduce the higher operating costs traditionally associated with medium-length hauls and specialized equipment, Swift has installed sophisticated computerized management control systems to monitor key aspects of its operations. Swift has a significant investment in its computer hardware and utilizes state-of-the-art software specially designed for the trucking industry. The Company's fully integrated computer network allows its managers to coordinate available equipment with the transportation needs of its customers, monitor truck productivity and fuel consumption and schedule regular equipment maintenance. Dispatchers monitor the location and delivery schedules of all shipments and equipment to coordinate routes and increase equipment utilization. The Company's computer system provides immediate access to current information regarding driver and equipment status and location, special load and equipment instructions, routing and dispatching. Swift's larger terminals are staffed with terminal managers, driver managers and customer service representatives. Terminal managers work with both the fleet managers and the customer service representatives, as well as all other operations personnel, to coordinate the needs of both customers and drivers. Terminal managers are also responsible for soliciting new customers and serving existing customers in their areas. Each driver manager is responsible for the general operation of approximately 27 trucks and their drivers, including driver retention, productivity per truck, routing, fuel consumption, safety and scheduled maintenance. Customer service representatives are assigned specific customers to ensure specialized, high-quality service and frequent customer contact. In addition to the domestic operations described above, Swift has a growing cross border operation that primarily ships through commercial border crossings from El Paso westward to California. In 2000, Swift augmented its cross border operation by acquiring 49% of Trans-Mex, a carrier that focuses on shipments to and from Mexico. For additional information regarding Swift's guarantee of certain Trans-Mex obligations, see Note 9 to the Notes to Consolidated Financial Statements. In April 2000, Swift and five other publicly traded truckload carriers founded Transplace.com, LLC, an Internet-based transportation logistics company. Swift contributed its transportation logistics business and associated intangible assets to Transplace.com upon its formation. Swift's equity interest in Transplace.com is approximately 15%. Swift reports its equity interest in Transplace.com and its share of the profits and losses of Transplace.com in its consolidated financial statements. See Note 4 to the Notes to Consolidated Financial Statements. 5 COMPLETED ACQUISITIONS The growth of the Company has been dependent in part upon the acquisition of trucking companies throughout the United States. In 1988, the Company acquired Cooper Motor Lines ("Cooper"), which established the Company's operations in the Eastern United States. In September 1991, Swift further expanded its eastern operations by acquiring Arthur H. Fulton, Inc. ("Fulton"). In June 1993, the Company strengthened its presence in the Northwestern United States with the acquisition of West's Best Freight Systems, Inc. ("West's Best"). During 1994, the Company completed the acquisitions of both East-West Transportation, Inc. ("East-West") and Missouri-Nebraska Express, Inc. ("MNX"). The MNX acquisition established a significant regional operation in the Midwestern United States. In September 1996, the Company acquired the dry freight van division of Navajo Shippers, Inc., Digby Leasing, Inc. and Digby-Ringsby Truck Line, Inc. (collectively, "Navajo Shippers"). In April 1997, the Company acquired 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. In January 2001, Swift further expanded its operations in the eastern United States through an agreement with Cardinal Freight Carriers Inc. ("Cardinal Freight"), a van and flatbed carrier based in Concord, North Carolina. Under this agreement, Swift has hired a number of Cardinal Freight's drivers and subleased a number of tractors from Cardinal Freight. See "Factors That May Affect Future Results and Financial Condition" under Item 7. PENDING ACQUISITION On December 11, 2000 Swift and M.S. Carriers, Inc. announced they have agreed to a merger in which M.S. Carriers will become a wholly owned subsidiary of Swift. In the merger, 1.7 shares of Swift's common stock will be exchanged for each share of M.S. Carrier's common stock. Following the merger, former stockholders of M.S. Carriers will hold approximately 22% of Swift's outstanding common stock. The merger is expected to be accounted for as a pooling of interests and to be tax-free to the stockholders of Swift and M.S. Carriers. In order to account for the merger as a pooling-of-interests, Swift expects to offer approximately 2,000,000 shares of its common stock and M.S. Carriers expects to offer approximately 300,000 shares of its common stock in public offerings prior to the merger. The definitive merger agreement has been approved by the boards of directors of both companies. The merger is subject to a number of conditions, including stockholder approval of both companies. There can be no assurance such approvals will be obtained. WITH RESPECT TO THE PENDING ACQUISITION OF M.S. CARRIERS, THE FOLLOWING FACTORS, AMONG OTHERS, COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE DESCRIBED IN THE FORWARD-LOOKING STATEMENTS RELATING THERETO: THE INABILITY TO OBTAIN, OR MEET CONDITIONS IMPOSED FOR, GOVERNMENTAL APPROVALS FOR THE MERGER ON THE PROPOSED TERMS AND SCHEDULE; THE FAILURE OF SWIFT'S AND M.S. CARRIERS' STOCKHOLDERS TO APPROVE THE MERGER; THE RISK THAT SWIFT'S AND M.S. CARRIERS' BUSINESSES WILL NOT BE INTEGRATED SUCCESSFULLY; THE RISK THAT THE REVENUE SYNERGIES AND COST SAVINGS FROM THE MERGER MAY NOT BE FULLY REALIZED OR MAY TAKE LONGER TO REALIZE THAN EXPECTED; FLUCTUATING STOCK MARKET LEVELS THAT COULD CAUSE SWIFT'S STOCK VALUE TO BE LESS THAN THE CURRENT SWIFT OR M.S. CARRIERS STOCK VALUE; THE DIFFICULTY THE STOCK MARKET MAY HAVE IN VALUING THE BUSINESS MODEL OF THE COMBINED COMPANY; AND DISRUPTION FROM THE MERGER THAT MAY MAKE IT MORE DIFFICULT TO MAINTAIN RELATIONSHIPS WITH CUSTOMERS, EMPLOYEES OR SUPPLIERS. REVENUE EQUIPMENT Swift acquires premium tractors to help attract and retain drivers, promote safe operations and minimize maintenance and repair costs. Management believes the higher initial investment is recovered through improved resale value. 6 The following table shows the type and age of Company-owned and leased equipment at December 31, 2000:
57', 53' AND SETS OF FLATBED SPECIALIZED MODEL YEAR TRACTORS (1) 48' VANS DOUBLE VANS TRAILERS TRAILERS ---------- ------------ -------- ----------- -------- -------- 2001 .................... 1,458 2,903 136 87 2000 .................... 2,671 8,068 85 142 1999 .................... 2,130 4,941 39 61 1998 .................... 964 3,187 20 2 1997 .................... 136 3,405 285 96 1996 .................... 86 2,218 236 1995 and prior........... 282 1,493 520 271 145 ------ ------- ----- ------ ------ Total......... 7,727 26,215 520 1,072 533 ===== ====== ===== ===== ======
(1) Excludes 1,987 owner-operator tractors. When purchasing new revenue equipment, Swift acquires standardized tractors and trailers manufactured to the Company's specifications. Since 1990, Swift has predominantly acquired tractors manufactured by Freightliner powered by Series 60 Detroit Diesel engines. Standardization of drive-line components allows Swift to operate with a minimum spare parts inventory, enhances Swift's maintenance program and simplifies driver training. Swift adheres to a comprehensive maintenance program that minimizes downtime and enhances the resale value of its equipment. In addition to its maintenance facility in Phoenix, Arizona, Swift performs routine servicing and maintenance of its equipment at most of its regional terminal facilities, thus avoiding costly on-road repairs and out-of-route trips. Swift has adopted a three-year replacement program on the majority of its line-haul tractors. This replacement policy enhances Swift's ability to attract drivers, maximize its fuel economy by capitalizing on improvement in both engine efficiency and vehicle aerodynamics, stabilize maintenance expense and maximize equipment utilization. Swift has installed Qualcomm onboard, two-way vehicle satellite communication systems in the majority of its tractors. This communication system links drivers to regional terminals and corporate headquarters, allowing Swift to rapidly alter its routes in response to customer requirements and to eliminate the need for driver stops to report problems or delays. This system allows drivers to inform dispatchers and driver managers of the status of routing, loading and unloading or the need for emergency repairs. Swift believes the communications system improves fleet control, the quality of customer service and driver retention. Swift intends to continue to install the communication system in substantially all tractors acquired in the future. In 1998, Swift adopted a speed limit of 60 miles per hour for Company tractors (62 miles per hour for team drivers) and 65 miles per hour for owner-operator tractors, below the speed limits of many states. Swift believes these measures reduce accidents, enhance fuel mileage and minimize maintenance expense. Substantially all of Swift's Company tractors are equipped with electronically controlled engines that are set to limit the speed of the vehicle. MARKETING AND CUSTOMERS Swift has targeted the service-sensitive segment of the truckload market, both common and contract, rather than that segment that uses price as its primary consideration. The Company has chosen to provide premium service with commensurate rates rather than compete primarily on the basis of price. The principal elements of Swift's premium service include: regional terminals to facilitate single and multiple pick-ups and deliveries and to maintain local contact with customers; a fully-integrated computer system to monitor shipment location and variations from schedule; an onboard communication system that enables the Company to reroute traffic; well-maintained, late model equipment; timely deliveries; extra equipment for the convenience of customers, which enables Swift to respond promptly to customers' varying requirements; assistance in loading and unloading; and Company control of revenue equipment. Swift concentrates its marketing efforts on expanding the amount of service it provides to existing customers. As a result, the Company's revenues from the group of customers which comprised the Company's top 25 customers in 1998 increased 43% over a two year period from 1998 to 2000. Swift maintains a strong commitment to marketing. Swift has assigned a member of senior management to each of its largest customers to ensure a high level of customer support. Swift solicits new customers from its Phoenix, Arizona 7 headquarters and each of its regional terminals through a marketing staff of approximately 30 persons. Once a customer relationship has been established, regional customer service representatives maintain contact and solicit additional business. Swift concentrates on attracting non-cyclical customers that regularly ship multiple loads from locations that complement existing traffic flows. Customer shipping point locations are regularly monitored and, as shipping patterns of existing customers expand or change, Swift attempts to obtain additional customers that will complement the new traffic flow. This strategy enables Swift to maximize equipment utilization. The largest 25, 10 and 5 customers accounted for approximately 53%, 35% and 23% respectively, of Swift's revenues during 2000, 52%, 35% and 24%, respectively, of Swift's revenues during 1999 and 46%, 33% and 22%, respectively, of Swift's revenues during 1998. No customer accounted for more than 7% of Swift's gross revenues during any of the three most recent fiscal years. Swift's largest customers include retail and discount department store chains, manufacturers, non-perishable food companies, beverage and beverage container producers and building materials companies. DRIVERS AND EMPLOYEES All Swift drivers must meet or exceed specific guidelines relating primarily to safety records, driving experience and personal evaluations, including a physical examination and mandatory drug testing. Upon being hired, a driver is trained in all phases of Swift's policies and operations, safety techniques, and fuel efficient operation of the equipment. All new drivers must pass a safety test and have a current Commercial Drivers License. In addition, Swift has ongoing driver efficiency and safety programs to ensure that its drivers comply with its safety procedures. Senior management is actively involved with the development and retention of drivers. Recognizing the need for qualified drivers, Swift established its own driver-training school in Phoenix, Arizona in 1987, which is certified by the Arizona Department of Transportation. Swift also has contracted with driver-training schools which are managed by outside organizations as well as local community colleges throughout the country. Candidates for the schools must be at least 23 years old (21 years old with military service), with a high school education or equivalent, pass a basic skills test and pass the U.S. Department of Transportation ("DOT") physical examination, which includes drug and alcohol screening. Students are required to complete three weeks of classroom study and driving range time and a six to eight week, on-the-road training program. Swift bases its drivers at the regional terminals and monitors each driver's location on its computer system. Swift uses this information to schedule the routing for its drivers so that they can return home frequently. In order to attract and retain highly qualified drivers and promote safe operations, the Company purchases premium quality tractors equipped with optional comfort and safety features, such as air ride suspension, air conditioning, high quality interiors, power steering, engine brakes and raised roof double sleeper cabs. The majority of company drivers are compensated on the basis of miles driven, loading/unloading and number of stops or deliveries, plus bonuses. Base pay for miles driven increases with a driver's length of service. Drivers employed by Swift participate in company-sponsored health, life and dental insurance plans and are eligible to participate in a 401(k) Profit Sharing Plan and an Employee Stock Purchase Plan. Swift believes its innovative driver-training programs, driver compensation, regionalized operations, driver tracking and late-model equipment provide important incentives to attract and retain qualified drivers. Although Swift has had no significant downtime due to inability to secure qualified drivers, no assurance can be given that a shortage of qualified drivers will not adversely affect the Company in the future. As of December 31, 2000, Swift employed approximately 13,000 full-time persons, of whom approximately 10,000 were drivers (including driver trainees), 1,000 were mechanics and other equipment maintenance personnel and the balance were support personnel, such as sales personnel, corporate managers and administration. None of Swift's drivers or other employees is represented by a collective bargaining unit. In the opinion of management, Swift's relationship with its drivers and employees is good. SAFETY The Company has an active safety and loss prevention program at each of its terminals. Supervisors engage in ongoing training of drivers regarding safe vehicle operations. The Company has adopted maximum speed limits. The Company 8 believes that its insurance and claims expense as a percentage of operating revenue is one of the best in the industry which is attributable to its overall strong safety program. The Company has received the highest safety rating given to motor carriers by the United States Department of Transportation. FUEL In order to reduce fuel costs, the Company purchases approximately 80% of its fuel in bulk at 28 of its 35 terminals. Swift stores fuel in underground storage tanks at two of its bulk fueling terminals and in above ground storage tanks at its other bulk fueling terminals. The Company believes that it is in substantial compliance with applicable environmental laws and regulations. Shortages of fuel, increases in fuel prices or rationing of petroleum products could have a material adverse effect on the operations and profitability of the Company. From time to time, the Company, in response to increases in fuel costs, has implemented fuel surcharges to pass on to its customers all or substantially all of such costs. However, there can be no assurance that such fuel surcharges could be used to offset future increases in fuel prices. The Company believes that its 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 has not used derivative-type products as a hedge against higher fuel costs in the past but continues to evaluate this possibility. COMPETITION The trucking industry is extremely competitive and fragmented. The Company competes primarily with regional, medium-haul truckload carriers. Management believes, because of its cost efficiencies, productive equipment utilization and financial resources, that the Company has a competitive advantage over most regional truckload carriers. The Company believes that competition for the freight transported by the Company is based, in the long term, as much upon service and efficiency as on freight rates. There are some trucking companies with which the Company competes that have greater financial resources, own more revenue equipment and carry a larger volume of freight than the Company. Long-haul truckload carriers and railroads also provide competition, but to a lesser degree. The Company also competes with other motor carriers for the services of drivers. REGULATION The Company is regulated by the United States Department of Transportation. This regulatory authority has broad powers, generally governing matters such as authority to engage in motor carrier operations, certain mergers, consolidations and acquisitions and periodic financial reporting. The trucking industry is subject to regulatory and legislative changes which can affect the economics of the industry. The Company is also regulated by various state agencies. The Company's operations are also subject to various federal, state and local environmental laws and regulations dealing with transportation, storage, presence, use, disposal and handling of hazardous materials, discharge of stormwater and underground fuel storage tanks. The Company believes that its operations are in substantial compliance with current laws and regulations and does not know of any existing condition that would cause compliance with applicable environmental regulations to have a material adverse effect on the Company's business or operating results. 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. 9 ITEM 2. PROPERTIES The following table provides information regarding the Company's regional terminals and/or offices: COMPANY OWNED LOCATION OR LEASED -------- --------- Albuquerque, New Mexico...................................... Leased Birmingham, Alabama.......................................... Leased Columbus, Ohio............................................... Owned Corsicana, Texas............................................. Owned Decatur, Georgia............................................. Owned Denver, Colorado............................................. Leased Eden, North Carolina......................................... Owned Edwardsville, Kansas......................................... Owned Fontana, California.......................................... Owned Gary, Indiana................................................ Owned Greer, South Carolina........................................ Owned Invergrove Heights (Minneapolis), Minnesota.................. Leased Irving, Texas................................................ Leased Jonestown, Pennsylvania...................................... Owned Laredo, Texas................................................ Leased Lathrop (Bay Area), California............................... Owned Lewiston, Idaho.............................................. Owned/Leased Manteno, Illinois............................................ Owned Memphis, Tennessee........................................... Owned Ocala, Florida............................................... Owned Oklahoma City, Oklahoma...................................... Owned Phoenix, Arizona............................................. Owned Pueblo, Colorado............................................. Owned Richmond, Virginia........................................... Owned Romulus, Michigan............................................ Leased Salt Lake City, Utah......................................... Owned Santa Fe Springs, California................................. Leased Seattle, Washington.......................................... Leased Shoals, Indiana.............................................. Owned South Plainfield, New Jersey................................. Owned Sparks, Nevada............................................... Owned Syracuse, New York........................................... Owned Town of Menasha, Wisconsin................................... Owned Troutdale (Portland), Oregon................................. Owned Willows, California.......................................... Owned Swift's headquarters is located on approximately 153 acres in Phoenix, Arizona and contains 83,000 square feet of office space, 106,000 square feet of shop and maintenance facilities, 27,000 square feet of a drivers' center, a recruiting and training center, a warehouse facility, a two-bay truck wash and an eight lane fueling center. The Company's prior headquarters is held for sale. As of December 31, 2000, the Company's aggregate monthly rent for all leased properties was $127,000. 10 ITEM 3. LEGAL PROCEEDINGS The Company is a party to routine litigation incidental to its business, primarily involving claims for personal injury or property damage incurred in the transportation of freight. 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 to be adequate. The Company is not aware of any claims or threatened claims that might have a material adverse effect on the Company's financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Company's security holders during the fourth quarter of 2000. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's common stock is publicly traded on the Nasdaq National Market ("Nasdaq") under the symbol "SWFT". The following table sets forth the high and low sales prices of the common stock reported by Nasdaq for the periods shown. COMMON STOCK ------------------- HIGH LOW ---- --- 2000 First Quarter...................................... $20.63 $11.81 Second Quarter..................................... 23.38 12.69 Third Quarter...................................... 17.94 12.25 Fourth Quarter..................................... 21.00 12.00 1999 First Quarter...................................... $22.50 $16.33 Second Quarter..................................... 22.63 14.00 Third Quarter...................................... 24.00 18.75 Fourth Quarter..................................... 19.81 12.69 On March 19, 2001, the last reported sales price of the Company's common stock was $15.94 per share. At that date, the number of stockholder accounts of record of the Company's common stock was 3,351. The Company estimates there are approximately 4,200 beneficial holders of the Company's common stock. The Company has not paid cash dividends on its common stock in either of the two preceding fiscal years and one of the Company's notes payable includes limitations on the payment of cash dividends. It is the current intention of management to retain earnings to finance the growth of the Company's business. Future payment of cash dividends will depend upon the financial condition, results of operations, and capital requirements of the Company, as well as other factors deemed relevant by the Board of Directors. 11 FACTORS THAT MAY AFFECT FUTURE STOCK PERFORMANCE The performance of the Company's common stock is dependent upon several factors, including those set forth below and in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Factors That May Affect Future Results and Financial Condition." INFLUENCE BY PRINCIPAL STOCKHOLDER. Trusts established for the benefit of Jerry C. Moyes and his family beneficially own approximately 45% of the Company's common stock. Accordingly, Mr. Moyes will have a significant influence upon the activities of the Company, as well as on all matters requiring approval of the stockholders, including electing members of the Company's Board of Directors and causing or restricting the sale or merger of the Company. This concentration of ownership, as well as the ability of the Board to establish the terms of and issue preferred stock of the Company without stockholder approval, may have the effect of delaying or preventing changes in control or management of the Company, including transactions in which stockholders might otherwise receive a premium for their shares over their current market prices. POSSIBLE VOLATILITY OF STOCK PRICE. The market price of the Company's common stock could be subject to significant fluctuations in response to certain factors, such as, among others, variations in the anticipated or actual results of operations of the Company or other companies in the transportation industry, changes in conditions affecting the economy generally, fluctuations in interest rates and diesel prices, increases in insurance premiums affecting the trucking industry generally, the depressed market for used tractors affecting the trucking industry generally, the timing of the merger between Swift and M.S. Carriers and market assessments as to whether the merger will be consummated, analysts' reports or general trends in the industry, as well as other factors unrelated to the Company's operating results. 12 ITEM 6. SELECTED FINANCIAL AND OPERATING DATA The selected consolidated financial data presented below for, and as of the end of, each of the years in the five-year period ended December 31, 2000 is derived from the Company's Consolidated Financial Statements. The Consolidated Financial Statements as of December 31, 2000 and 1999, and for each of the years in the three-year period ended December 31, 2000 and the independent auditors' report thereon, are included in Item 8 of this Form 10-K. This data should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in Item 8 of this Form 10-K. Information presented below under the caption, Operating Statistics, is unaudited.
YEARS ENDED DECEMBER 31, ------------------------------------------------------------ 2000 1999 1998 1997(1) 1996(2) ---- ---- ---- ------- ------- (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AND PER MILE AMOUNTS) CONSOLIDATED STATEMENTS OF EARNINGS DATA: Operating revenue...................................... $1,258,671 $1,061,234 $873,433 $713,638 $562,259 Earnings before income taxes........................... $84,856 $107,601 $93,306 $69,994 $47,212 Net earnings........................................... $52,601 $66,831 $55,511 $41,644 $27,422 Diluted earnings per share............................. $.82 $1.02 $.85 $.64 $.47 CONSOLIDATED BALANCE SHEET DATA (AT END OF YEAR): Working capital........................................ $9,008 $88,028 $81,048 $64,168 $36,938 Total assets........................................... $960,211 $794,574 $636,283 $471,134 $380,605 Long-term obligations, less current portion............ $169,240 $168,153 $143,208 $73,420 $40,284 Stockholders' equity................................... $436,724 $394,199 $327,353 $274,175 $226,666 OPERATING STATISTICS (AT END OF YEAR): Operating ratio........................................ 92.1% 89.0% 88.7% 89.6% 90.5% Pre-tax margin (3)..................................... 6.7% 10.1% 10.7% 9.8% 8.4% Average line haul revenue per mile(4) ................. $1.18 $1.15 $1.14 $1.13 $1.11 Empty mile percentage.................................. 14.3% 14.0% 13.5% 13.7% 14.0% Average length of haul (in miles)...................... 509 541 567 571 576 Total tractors at end of period: Company-operated..................................... 7,727 6,940 5,573 4,968 4,166 Owner-operator....................................... 1,987 1,748 1,225 910 665 Trailers at end of period.............................. 28,340 23,719 18,348 15,499 12,151
---------- (1) Includes the results of operations from the acquisition of certain assets of DTI beginning April 8, 1997. (2) Includes the results of operations from the asset acquisition of the dry freight van division of Navajo Shippers, Inc., Digby Leasing, Inc. and Digby-Ringsby Truck Line, Inc. beginning on September 12, 1996. (3) Pre-tax margin represents earnings before income taxes as a percentage of operating revenue. Because of the impact that equipment financing methods can have on the operating ratio (operating expenses as a percentage of operating revenue), the Company believes that the most meaningful comparative measure of its operating efficiency is its pre-tax margin, which takes into consideration both the Company's total operating expenses and net interest expense as a percentage of operating revenue. (4) Excludes fuel surcharge revenue. 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Swift's fleet has been predominantly comprised of Company-owned and leased tractors. The Company's decisions whether to buy or lease new and replacement revenue equipment are based upon the overall economic impact of the alternative financing methods, including market prices available and income tax considerations. Depending on whether revenue equipment is purchased or leased, several categories of the Company's operating expenses have varied, and will continue to vary, as a percentage of the Company's revenues. Because of the impact that equipment financing methods can have on the operating ratio (operating expenses as a percentage of operating revenue), the Company believes that the most meaningful comparative measure of its operating efficiency is its pre-tax margin (earnings before income taxes as a percentage of operating revenue), which takes into consideration both the Company's total operating expenses and net interest expense as a percentage of operating revenue. Accordingly, in the discussion and analysis below, the Company has focused on the factors contributing to operating revenue increases and to the increase or decrease in its pre-tax margin during the periods presented. In the "forward-looking statements" that may be included herein, important factors such as the financial position of the Company, its customers' needs, the cost of new equipment and new construction, the availability of buyers in the marketplace, fuel costs and other factors may cause actual results to vary. Although the trend of shippers 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 total fleet with 9,714 tractors as of December 31, 2000 compared to 5,878 tractors as of December 31, 1997. See "Business -- General." During this same period, the Company's owner operator fleet has expanded to 1,987 as of December 31, 2000 from 910 as of December 31, 1997. This fleet growth was accomplished through a combination of internal growth and through strategic acquisitions. See "Business--General". As discussed under "Business--Pending Acquisition," Swift has entered into an agreement to acquire M.S. Carriers. This acquisition, if consummated, would have a significant impact on Swift's financial conditions and results of operations. In particular, Swift's equity capitalization, revenues and other indicia of financial performance will change significantly due to the issuance of Swift common stock, the inclusion of M.S. Carriers operating results and the anticipated integration and other costs associated with the merger, among other factors. Accordingly, the results discussed below are not necessarily indicative of the results to be expected in any future periods in the event that the M.S. Carriers transaction is consummated. For additional information regarding the M.S. Carriers acquisition, see Note 16 of the Notes to Consolidated Financial Statements. RESULTS OF OPERATIONS The following table sets forth for the periods indicated certain statement of earnings data as a percentage of operating revenue: DECEMBER 31, ----------------------------- 2000 1999 1998 ---- ---- ---- Operating revenue ............................ 100.0% 100.0% 100.0% Operating expenses: Salaries, wages and employee benefits ...... 34.8 35.9 36.5 Operating supplies and expenses ............ 8.1 8.5 9.1 Fuel ....................................... 13.8 11.2 10.7 Purchased transportation ................... 18.8 17.2 15.5 Rental expense ............................. 5.1 4.2 4.7 Insurance and claims ....................... 2.4 2.6 2.8 Depreciation and amortization .............. 5.2 5.4 5.3 Communications and utilities ............... 1.3 1.3 1.3 Operating taxes and licenses ............... 2.6 2.7 2.8 ----- ----- ----- Total operating expenses ................ 92.1 89.0 88.7 ----- ----- ----- Operating income ............................. 7.9 11.0 11.3 Net interest expense ......................... 1.3 1.0 .7 Other (income) expense, net .................. (0.1) (0.1) (0.1) ----- ----- ----- Earnings before income taxes ................. 6.7 10.1 10.7 Income taxes ................................. 2.5 3.8 4.3 ----- ----- ----- Net earnings ................................. 4.2% 6.3% 6.4% ===== ===== ===== 14 YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999 Operating revenue increased $197.4 million, or 18.6%, to $1.259 billion for the year ended December 31, 2000 from $1.061 billion for the previous year. The increase in operating revenue is due primarily to the expansion of the Company's total fleet to 9,714 tractors at December 31, 2000 from 8,688 at December 31, 1999, an increase of 1,026 tractors, rate increases of approximately 2.5% and a fuel surcharge revenue increase of approximately $46 million. The Company's operating ratio was 92.1% and 89.0% in 2000 and 1999, respectively. The Company's operating ratio for 2000 increased as a result of changes in certain components of operating expenses as a percentage of operating revenue as discussed below. The Company's empty mile factor was 14.3% and 14.0% and the average loaded linehaul revenue per mile was $1.38 and $1.34 (excluding fuel surcharge) for the years ended December 31, 2000 and 1999, respectively. Salaries, wages and employee benefits represented 34.8% of operating revenue for the year ended December 31, 2000 compared with 35.9% for 1999. The decrease is due primarily to a decrease in the accrual for the Company's 401(k) profit sharing contribution and an increase in the portion of revenues generated by owner operators offset by normal wage increases with associated benefits and taxes. 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 expenses represented 13.8% and 11.2% of operating revenue in 2000 and 1999, respectively. The increase in fuel as a percentage of revenue is due primarily to increased fuel prices and offset by the impact of an increase in the miles generated by the owner operator fleet. Actual fuel cost per gallon increased by approximately 36 cents per gallon (34%) in 2000 versus 1999. 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 that the most effective protection against fuel cost increases is to maintain a fuel efficient fleet and to implement fuel surcharges when such an option is necessary and available. The Company did not use derivative-type hedging products, but periodically evaluates their possible use. Purchased transportation represented 18.8% and 17.2% of operating revenue for the years ended December 31, 2000 and 1999, respectively. This increase is due to the growth of the Company's owner operator fleet from 1,748 at December 31, 1999 to 1,987 at December 31, 2000. Rental expense as a percentage of operating revenue was 5.1% and 4.2% for the years ended December 31, 2000 and 1999, respectively. During 2000 and 1999, leased tractors represented approximately 57% and 50%, respectively of the fleet (exclusive of owner operators). When it is economically feasible to do so, the Company will purchase then sell tractors it leases by exercising the purchase option contained in the lease. Gains on these activities are recorded as a reduction of rent expense. During the years ended December 31, 2000 and 1999, respectively, the Company recorded gains of approximately $1.1 million and $3.6 million from the sale of leased tractors. Exclusive of gains, which reduced rental expense, the percentage of rental expense to operating revenue in 2000 and 1999 was 5.2% and 4.6%, respectively. Depreciation and amortization expense was 5.2% and 5.4% of operating revenue for the years ended December 31, 2000 and 1999, respectively. During the year ended December 31, 2000 the Company recorded gains on the sale of revenue equipment of approximately $7.7 million compared with approximately $4.0 million in 1999. Exclusive of gains, which reduced depreciation and amortization expense, the percentage of depreciation and amortization to operating revenue in 2000 and 1999 was 5.8%. 15 Insurance and claims expense represented 2.4% and 2.6% of operating revenue in the years ended December 31, 2000 and 1999, 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. 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 $15.9 million in 2000 from $9.6 million in 1999. This increase was due to increased borrowings under the Company's line of credit and increased proceeds from the accounts receivable securitization program. YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998 Operating revenue increased $187.8 million, or 21.5%, to $1.1 billion for the year ended December 31, 1999 from $873.4 million for the previous year. The increase in operating revenue is due primarily to the expansion of the Company's total fleet to 8,688 tractors at December 31, 1999 from 6,798 at December 31, 1998, an increase of 1,890 tractors. The Company's operating ratio was 89.0% and 88.7% in 1999 and 1998, respectively. The Company's operating ratio for 1999 increased as a result of changes in certain components of operating expenses as a percentage of operating revenue as discussed below. The Company's empty mile factor was 14.0% and 13.5% and the average loaded linehaul revenue per mile was $1.34 and $1.32 (excluding fuel surcharge) for the years ended December 31, 1999 and 1998, respectively. Salaries, wages and employee benefits represented 35.9% of operating revenue for the year ended December 31, 1999 compared with 36.5% for 1998. The decrease is due primarily to the reversal of a $5.4 million accrual related to an EEOC action as a result of the Company agreeing to pay an amount significantly below the amount of the original settlement offer. This reversal of accrual was offset by an increase in the accrual for the Company's 401(k) profit sharing contribution and normal wage increases with associated benefits and taxes. In February 2000, the Company announced an increase in certain driver wage rates effective April 1, 2000. The Company expects this increase to be substantially offset by an increase in operating revenue as a result of increases in rates charged to customers. Fuel expenses represented 11.2% and 10.7% of operating revenue in 1999 and 1998, respectively. The increase in fuel as a percentage of revenue is due primarily to increased fuel prices and offset by the impact of an increase in the revenue generated by the owner operator fleet. Actual fuel cost per gallon increased by approximately 10 cents per gallon in 1999 versus 1998. Fuel costs for the first sixty days of 2000 increased forty-five cents per gallon compared to the same period in 1999, an increase of 53%. Purchased transportation represented 17.2% and 15.5% of operating revenue for the years ended December 31, 1999 and 1998, respectively. This increase is due to the growth of the Company's owner operator fleet from 1,225 at December 31, 1998 to 1,748 at December 31, 1999 and an increase in logistics and intermodal operations. Rental expense as a percentage of operating revenue was 4.2% and 4.7% for the years ended December 31, 1999 and 1998, respectively. During 1999 and 1998, leased tractors represented approximately 50% and 54%, respectively of the fleet (exclusive of owner operators). In addition to the reduction in the percentage of tractors which were leased, rental expense was positively impacted by a reduction in the number of leased trailers in 1999 versus 1998. When it is economically feasible to do so, the Company will purchase then sell tractors it leases by exercising the purchase option contained in the lease. Gains on these 16 activities are recorded as a reduction of rent expense. During the years ended December 31,1999 and 1998, respectively, the Company recorded gains of approximately $3.6 million and $3.8 million from the sale of leased tractors. Depreciation and amortization expense was 5.4% and 5.3% of operating revenue for the years ended December 31, 1999 and 1998, respectively. During the year ended December 31, 1999 the Company recorded gains on the sale of revenue equipment of approximately $4.0 million compared with approximately $6.1 million in 1998. Exclusive of gains, which reduced depreciation and amortization expense, the percentage of depreciation and amortization to operating revenue in 1999 and 1998 was 5.8% and 6.0%, respectively. Insurance and claims expense represented 2.6% and 2.8% of operating revenue in the years ended December 31,1999 and 1998, 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. 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 $9.6 million in 1999 from $6.3 million in 1998. This increase was due to increased borrowings under the Company's line of credit. The effective tax rate was 37.9% and 40.5% in 1999 and 1998, respectively. This rate was positively impacted in 1999 by the finalization of certain tax strategies and an enterprise zone credit. 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 revolving 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. The Company's current liabilities increased significantly as a result of the receipt of $117 million of proceeds under the accounts receivable securitization. As discussed in the Notes to Consolidated Financial Statements, the receipts under the securitization are required to be shown as a current liability because the committed term, subject to annual renewals, is 364 days. Net cash provided by operating activities was $96.1 million for the year ended December 31, 2000 compared to $150.7 million for 1999. The decrease is primarily attributable to decreases in net earnings, deferred taxes and accounts payable, accrued liabilities and claims accruals offset by a increase in depreciation and amortization and a smaller increase in accounts receivable. Net cash used in investing activities increased to $183.0 million for the year ended December 31, 2000 from $167.4 million for 1999. The increase is due primarily to an increase in capital expenditures and the investment in Transplace.com offset by increased proceeds from the sale of property and equipment. As of December 31, 2000, the Company had commitments outstanding to acquire replacement and additional revenue equipment for approximately $141 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 year ended December 31, 2000, the Company incurred approximately $38 million of non-revenue equipment capital expenditures. These expenditures were primarily for facilities and equipment. 17 The Company anticipates that it will expend approximately $62 million in 2001 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 will 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 provided by financing activities was $96.1 million in 2000 compared to $20.1 million in 1999. The increase in cash provided by financing activities is primarily due to increased proceeds from the accounts receivable securitization offset by treasury stock purchases. Management believes that 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 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. FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION The Company's future operating results and financial condition are dependent on the Company's ability to successfully provide truckload carrier services to meet dynamic customer demand patterns. Inherent in this process are a number of factors that the Company must successfully manage in order to achieve favorable future operating results and financial condition. Potential risks and uncertainties that could affect the Company's future operating results and financial condition include, without limitation, the factors discussed below. GENERAL ECONOMIC AND BUSINESS FACTORS. The Company's business is dependent upon a number of factors that may have a material adverse effect on its results of operations, many of which are beyond the Company's control. These factors include excess capacity in the trucking industry, significant increases or rapid fluctuations in fuel prices, interest rates, fuel taxes, tolls, license and registration fees and insurance and claims costs, to the extent not offset by increases in freight rates or fuel surcharges, and difficulty in attracting and retaining qualified drivers and owner operators. The Company's results of operations also are affected by recessionary economic cycles and downturns in customers' business cycles, particularly in market segments and industries (such as retail, manufacturing and paper products) in which the Company has a concentration of customers. In addition, the Company's results of operations are affected by seasonal factors. Customers tend to reduce shipments after the winter holiday 18 season and the Company's operating expenses tend to be higher in the winter months primarily due to colder weather which causes higher fuel consumption from increased idle time. COMPETITION. The trucking industry is extremely competitive and fragmented. The Company competes with many other truckload carriers of varying sizes and, to a lesser extent, with railroads. Competition has created downward pressure on the truckload industry's pricing structure. There are some trucking companies with which the Company competes that have greater financial resources than the Company, own more revenue equipment and carry a larger volume of freight than the Company. CAPITAL REQUIREMENTS. The trucking industry is very capital intensive. The Company depends on cash from operations, operating leases and debt financing for funds to expand the size of its fleet and maintain modern revenue equipment. If the Company were unable in the future to enter into acceptable financing arrangements, it would have to limit its growth and might be required to operate its revenue equipment for longer periods, which could have a material adverse effect on the Company's operating results. ACQUISITIONS. The growth of the Company has been dependent in part upon the acquisition of trucking companies throughout the United States. To date, the Company has been successful in identifying trucking companies to acquire and in integrating such companies' operations into the Company's operations. The Company may face competition from transportation companies or other third parties for acquisition opportunities that become available. There can be no assurance that the Company will identify acquisition candidates that will result in successful combinations in the future. Any future acquisitions by the Company may result in the incurrence of additional debt and amortization of expenses related to goodwill and intangible assets, which could adversely affect the Company's profitability, or could involve the potentially dilutive issuance of additional equity securities. In addition, acquisitions involve numerous risks, including difficulties in assimilation of the acquired company's operations particularly in the period immediately following the consummation of such transactions, the diversion of the attention of the Company's management from other business, and the potential loss of customers, key employees and drivers of the acquired company, all of which could have a material adverse effect on the Company's business and operating results. MERGER WITH M.S. CARRIERS. The Company may be unable to successfully integrate its operations with the operations of M.S. Carriers and realize the full cost savings it anticipates to result from the acquisition of M.S. Carriers. Such inability could have a material adverse effect on the Company's business and operating results. Specifically, the Company may have difficulty maintaining customer service and equipment utilization standards while attempting to integrate its operations with the operations of M.S. Carriers, coordinating geographically separated organizations, integrating personnel with diverse business backgrounds, maintaining momentum in the activities of one or more of the combined companies' business segments, and retaining key personnel, all of which could have a material adverse effect on the Company's business. The acquisition of M.S. Carriers could divert management's attention, which could have a material adverse effect on the Company's business. Following the acquisition of M.S. Carriers, customers may decrease freight volumes with Swift because of the concentration of their businesses with the combined companies. If this occurs, it could have a material adverse effect on the business and operations of the Company. In addition, the Company will also incur significant expenses and restructuring charges in connection with the acquisition, some of which may be unanticipated. If such costs and charges are not offset by the elimination of duplicative costs and the realization of other efficiencies related to the integration of the two businesses, it would have a material adverse effect on the Company's business and operating results. The issuance of additional Swift shares in connection with the acquisition of M.S. Carriers may have a dilutive impact on the earnings per share of the Company. DEPENDENCE ON KEY PERSONNEL. The Company is highly dependent upon the services of Mr. Jerry Moyes, Chairman of the Board, President and Chief Executive Officer, Mr. William F. Riley, III, Senior Executive Vice President and Chief Financial Officer, Mr. Rodney K. Sartor, Executive Vice President, Mr. Patrick J. Farley, Executive Vice President, and Mr. Kevin H. Jensen, Executive Vice President. Mr. Moyes has other significant business interests to which he devotes his time and efforts, including serving as Chairman of Simon Transportation Services, Inc., a truckload carrier providing nationwide, predominately temperature-controlled transportation services for major shippers, and Central Freight Lines, Inc., a regional less-than-truckload carrier. Mr. Moyes is also the largest stockholder of Simon Transportation and Central Freight Lines. Although the Company believes it has an experienced and talented management group, the loss of the services of Mr. Moyes, Mr. Riley, Mr. Sartor, 19 Mr. Farley or Mr. Jensen could have a material adverse effect on the Company's operations and future profitability. The Company does not have employment agreements with nor does it maintain key man life insurance on Messrs. Riley, Sartor, Farley or Jensen. The Company does not have an employment agreement with but does maintain key man life insurance on Mr. Moyes. REGULATION. The Company is regulated by the United States Department of Transportation. This regulatory authority exercises broad powers, generally governing activities such as authorization to engage in motor carrier operations, safety, financial reporting, and certain mergers, consolidations and acquisitions. Swift may also become subject to new or more comprehensive or restrictive regulations relating to fuel emissions, ergonomics and limitations on hours of service. The increased cost of complying with such regulations could have a material adverse effect on Swift's business and operating results. In addition, the Company's operations are subject to various environmental laws and regulations dealing with the transportation, storage, presence, use, disposal and handling of hazardous materials, discharge of stormwater and underground fuel storage tanks. If the Company should be involved in a spill or other accident involving hazardous substances or if the Company were found to be in violation of applicable laws or regulations, it could have a material adverse effect on the Company's business and operating results. USED EQUIPMENT MARKET. Swift relies on the sale of used equipment to offset the cost of purchasing new equipment. In the past 18 months, used tractor values have deteriorated significantly. Should this trend continue, it could have a material adverse effect on Swift's business and operating results. CLAIMS EXPOSURE; INSURANCE. The Company currently self-insures for liability resulting from cargo loss, personal injury and property damage, and maintains insurance with licensed insurance companies above its limits on self-insurance. To the extent the Company were to experience an increase in the number of claims for which it is self-insured, the Company's operating results would be materially adversely affected. In addition, significant increases in insurance costs, to the extent not offset by freight rate increases, would reduce the Company's profitability. DEPENDENCE ON KEY CUSTOMERS. A significant portion of the Company's revenue is generated from key customers. During 2000, the Company's top 25, 10 and 5 customers accounted for 53%, 35% and 23% of revenues, respectively. The Company does not have long-term contractual relationships with many of its key customers, and there can be no assurance that the Company's relationships with its key customers will continue as presently in effect. A reduction in or termination of the Company's services by a key customer could have a material adverse effect on the Company's business and operating results. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has interest rate exposure arising from the Company's line of credit and accounts receivable securitization 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 conservative debt ratio target and its mix of fixed and variable rate debt and lease financing. At December 31, 2000, the fair value of the Company's long-term debt approximated carrying value. Assuming the current level of borrowings, a hypothetical one-percentage point increase in interest rates would increase the Company's annual interest expense by $2.7 million. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Consolidated Financial Statements of the Company as of December 31, 2000 and 1999 for each of the years in the three-year period ended December 31, 2000, together with related notes and the report of KPMG LLP, independent certified public accountants, are set forth on the following pages. Other required financial information set forth herein is more fully described in Item 14 of this Form 10-K. 20 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Swift Transportation Co., Inc.: We have audited the accompanying consolidated balance sheets of Swift Transportation Co., Inc. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Swift Transportation Co., Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP Phoenix, Arizona February 28, 2001 21 SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) DECEMBER 31, --------------------- ASSETS 2000 1999 -------- -------- Current assets: Cash ................................................. $ 19,196 $ 9,969 Accounts receivable, net ............................. 174,524 153,418 Equipment sales receivables .......................... 5,799 5,966 Inventories and supplies ............................. 8,966 7,410 Prepaid taxes, licenses and insurance ................ 27,191 17,010 Assets held for sale ................................. 3,169 5,468 Note receivable ...................................... 3,200 Deferred income taxes ................................ 4,200 -------- -------- Total current assets ........................... 242,045 203,441 -------- -------- Property and equipment, at cost: Revenue and service equipment ........................ 716,305 608,470 Land ................................................. 22,589 12,879 Facilities and improvements .......................... 128,654 112,659 Furniture and office equipment ....................... 23,545 20,260 -------- -------- Total property and equipment ................... 891,093 754,268 Less accumulated depreciation and amortization ......... 188,111 172,936 -------- -------- Net property and equipment ..................... 702,982 581,332 Other assets ........................................... 8,860 2,731 Goodwill ............................................... 6,324 7,070 -------- -------- $960,211 $794,574 ======== ======== See accompanying notes to consolidated financial statements. 22 SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, ------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999 -------- -------- Current liabilities: Accounts payable ............................................. $ 53,659 $ 53,917 Accrued liabilities .......................................... 31,688 34,493 Current portion of claims accruals ........................... 23,104 26,530 Current portion of long-term debt ............................ 386 473 Securitization of accounts receivable ........................ 117,000 Current portion of deferred income taxes ..................... 7,200 -------- -------- Total current liabilities .............................. 233,037 115,413 -------- -------- Borrowings under revolving line of credit ...................... 154,000 152,500 Long-term debt, less current portion ........................... 15,240 15,653 Claims accruals, less current portion .......................... 21,040 21,122 Deferred income taxes .......................................... 100,170 95,687 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; issued 66,389,281 and 65,818,166 shares in 2000 and 1999, respectively ........... 66 66 Additional paid-in capital ................................... 138,243 131,571 Retained earnings ............................................ 336,350 283,749 -------- -------- 474,659 415,386 Less treasury stock, at cost (3,157,850 and 1,862,550 shares in 2000 and 1999, respectively) ....................... 37,935 21,187 -------- -------- Total stockholders' equity ............................. 436,724 394,199 -------- -------- Commitments and contingencies $960,211 $794,574 ======== ========
See accompanying notes to consolidated financial statements. 23 SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (IN THOUSANDS, EXCEPT SHARE DATA)
YEARS ENDED DECEMBER 31, ------------------------------------------------- 2000 1999 1998 ----------- ----------- ----------- Operating revenue ............................. $1,258,671 $1,061,234 $873,433 ---------- ---------- -------- Operating expenses: Salaries, wages and employee benefits........ 438,210 381,238 318,992 Operating supplies and expenses ............. 102,400 88,921 79,556 Fuel ........................................ 173,446 119,143 93,023 Purchased transportation .................... 236,824 182,832 135,453 Rental expense .............................. 64,367 44,854 41,447 Insurance and claims ........................ 30,640 27,486 24,094 Depreciation and amortization ............... 64,837 57,659 46,033 Communications and utilities ................ 16,093 14,085 11,433 Operating taxes and licenses ................ 32,119 28,575 24,710 ---------- ---------- -------- Total operating expenses .............. 1,158,936 944,793 774,741 ---------- ---------- -------- Operating income ...................... 99,735 116,441 98,692 ---------- ---------- -------- Other (income) expenses: Interest expense ............................ 15,873 9,574 6,277 Interest income ............................. (742) (338) (269) Other ....................................... (252) (396) (622) ---------- ---------- -------- Other (income) expenses, net .......... 14,879 8,840 5,386 ---------- ---------- -------- Earnings before income taxes .......... 84,856 107,601 93,306 Income taxes ................................ 32,255 40,770 37,795 ---------- ---------- -------- Net earnings .......................... $ 52,601 $ 66,831 $ 55,511 ========== ========== ======== Basic earnings per share ...................... $ .83 $ 1.04 $ .87 ========== ========== ======== Diluted earnings per share .................... $ .82 $ 1.02 $ .85 ========== ========== ========
See accompanying notes to consolidated financial statements. 24 SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK ADDITIONAL TOTAL --------------------- PAID-IN RETAINED TREASURY STOCKHOLDERS' SHARES PAR VALUE CAPITAL EARNINGS STOCK EQUITY ------ --------- ------- -------- ----- ------ Balances, January 1, 1998 64,190,335 $ 64 $ 116,120 $ 161,407 $ (3,416) $ 274,175 Issuance of common stock under stock option and employee stock purchase plans 853,940 1 3,726 3,727 Income tax benefit arising from the exercise of stock options 3,349 3,349 Amortization of deferred compensation 212 212 Payment of stock split fractional share (21) (21) Purchase of 826,500 shares of treasury stock (9,600) (9,600) Net earnings 55,511 55,511 ----------- ---- --------- --------- --------- --------- Balances, December 31, 1998 65,044,275 65 123,386 216,918 (13,016) 327,353 Issuance of common stock under stock option and employee stock purchase plans 773,891 1 4,578 4,579 Income tax benefit arising from the exercise of stock options 3,311 3,311 Amortization of deferred compensation 305 305 Payment of stock split fractional share (9) (9) Purchase of 539,475 shares of treasury stock (8,171) (8,171) Net earnings 66,831 66,831 ----------- ---- --------- --------- --------- --------- Balances, December 31, 1999 65,818,166 66 131,571 283,749 (21,187) 394,199 Issuance of common stock under stock option and employee stock purchase plans 571,115 5,294 5,294 Income tax benefit arising from the exercise of stock options 900 900 Amortization of deferred compensation 478 478 Purchase of 1,295,300 shares of treasury stock (16,748) (16,748) Net earnings 52,601 52,601 ----------- ---- --------- --------- --------- --------- Balances, December 31, 2000 66,389,281 $ 66 $ 138,243 $ 336,350 $ (37,935) $ 436,724 =========== ==== ========= ========= ========= =========
See accompanying notes to consolidated financial statements. 25 SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, ----------------------------------------- 2000 1999 1998 --------- --------- --------- Cash flows from operating activities: Net earnings ......................................................... $ 52,601 $ 66,831 $ 55,511 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization ....................................... 65,695 54,016 42,568 Deferred income taxes ............................................... 21,063 36,737 15,610 Income tax benefit arising from the exercise of stock options........ 900 3,311 3,349 Provision for losses on accounts receivable.......................... 2,332 1,200 1,110 Amortization of deferred compensation ............................... 478 305 212 Increase (decrease) in cash resulting from changes in: Accounts receivable ................................................ (28,601) (36,058) (27,056) Inventories and supplies ........................................... (1,556) (2,544) (357) Prepaid expenses and other current assets .......................... (10,181) (1,782) (10,138) Other assets ....................................................... (243) (1,089) 78 Accounts payable, accrued liabilities and claims accruals .......... (6,371) 29,810 33,982 --------- --------- --------- Net cash provided by operating activities ................... 96,117 150,737 114,869 --------- --------- --------- Cash flows from investing activities: Proceeds from sale of property and equipment ......................... 93,684 64,650 63,233 Capital expenditures ................................................. (273,263) (237,340) (238,002) Equity investment .................................................... (5,000) Loans to investment entities ......................................... (4,384) Payments received on equipment sales receivables ..................... 5,955 5,262 3,407 --------- --------- --------- Net cash used in investing activities ....................... (183,008) (167,428) (171,362) --------- --------- --------- Cash flows from financing activities: Repayments of long-term debt ......................................... (10,911) (765) (8,287) Increase in borrowings under revolving line of credit................. 1,500 24,500 71,500 Payment of stock split fractional shares ............................. (9) (21) Increase in borrowings under accounts receivable securitization....... 117,000 Proceeds from sale of common stock ................................... 5,277 4,575 3,705 Purchase of treasury stock ........................................... (16,748) (8,171) (9,600) --------- --------- --------- Net cash provided by financing activities ................... 96,118 20,130 57,297 --------- --------- --------- Net increase in cash .................................................. 9,227 3,439 804 Cash at beginning of year ............................................. 9,969 6,530 5,726 --------- --------- --------- Cash at end of year ................................................... $ 19,196 $ 9,969 $ 6,530 ========= ========= =========
See accompanying notes to consolidated financial statements. 26 SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED (IN THOUSANDS)
YEARS ENDED DECEMBER 31, --------------------------------- 2000 1999 1998 ------- ------- ------- Supplemental disclosure of cash flow information: Cash paid during the year for: Interest ..................................................... $15,160 $ 9,661 $ 5,842 ======= ======= ======= Income taxes ................................................. $ 6,405 $17,104 $27,404 ======= ======= ======= Supplemental schedule of noncash investing and financing activities: Equipment sales receivables .................................. $ 5,788 $ 5,966 $ 5,385 ======= ======= ======= Direct financing for purchase of equipment ................... $ 5,063 $ 973 $ 436 ======= ======= =======
See accompanying notes to consolidated financial statements. 27 SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS Swift Transportation Co., Inc., a Nevada holding company, together with its wholly-owned subsidiaries ("Company"), is a national truckload carrier operating throughout the continental United States. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. CASH AND CASH EQUIVALENTS The Company considers all highly liquid debt instruments purchased with original maturities of three months or less to be cash equivalents. INVENTORIES AND SUPPLIES Inventories and supplies consist primarily of spare parts, tires, fuel and supplies and are stated at cost. Cost is determined using the first-in, first-out (FIFO) method. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Gains and losses from the sale of revenue equipment are included as a component of depreciation expense. Net gains in 2000, 1999 and 1998 were $7,668,000, $4,000,000 and $6,105,000, respectively. To obtain certain tax incentives, the Company financed the construction of its Edwardsville, Kansas terminal with municipal bonds issued by the city. Subsequently, the Company purchased 100% of the bonds and intends to hold them to maturity, effectively financing the construction with internal cash flow. The Company has offset the investment in the bonds against the related liability and neither is reflected on the consolidated balance sheet. For the years ended December 31, 2000, 1999 and 1998, the Company capitalized interest related to self-constructed assets totaling $1,210,000, $1,140,000 and $894,000, respectively. Depreciation on property and equipment is calculated on the straight-line method over the estimated useful lives of 10 to 40 years for facilities and improvements, 5 to 12 years for revenue and service equipment and 3 to 5 years for furniture and office equipment. Tires on revenue equipment purchased are capitalized as a component of the related equipment cost when the vehicle is placed in service and depreciated over the life of the vehicle. Replacement tires are expensed when placed in service. 28 SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED GOODWILL Goodwill represents the excess of purchase price over fair value of net assets acquired. Such goodwill is being amortized on the straight-line method over periods ranging from 15 to 20 years. Accumulated amortization was $5,256,000 and $4,509,000 at December 31, 2000 and 1999, respectively. The Company continually evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of goodwill and other long lived assets may warrant revision or that the remaining balance may not be recoverable. When factors indicate that the asset should be evaluated for possible impairment, the Company uses an estimate of the undiscounted net cash flows over the remaining life of the asset in determining whether the asset is impaired. REVENUE RECOGNITION Operating revenues and related direct costs are recognized as of the date the freight is picked up for shipment. INCOME TAXES The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. EARNINGS PER SHARE Basic earnings per share is computed using the weighted average number of common shares outstanding during each period (63,204,000, 64,079,000 and 64,005,000 for 2000, 1999, and 1998, respectively). Diluted earnings per common share includes the impact of stock options assumed to be exercised using the treasury stock method. The denominator for diluted earnings per share is greater than the denominator used in the basic earnings per share by 858,000, 1,211,000, and 1,245,000 shares in 2000, 1999, and 1998, respectively. The numerator is the same for both basic and diluted earnings per share. USE OF ESTIMATES Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and revenues and expenses and the disclosure of contingent liabilities to prepare these consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. ACCOUNTING STANDARDS NOT YET ADOPTED BY THE COMPANY The Financial Accounting Standards Board has issued Statements of Financial Accounting Standards for which the required implementation date has not yet become effective. None of these accounting standards are expected to have a material impact on the Company's consolidated financial statements. 29 SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (2) ACCOUNTS RECEIVABLE Accounts receivable consists of: DECEMBER 31, ----------------------- 2000 1999 -------- -------- (IN THOUSANDS) Trade customers .................................. $162,651 $134,649 Equipment manufacturers .......................... 3,166 3,100 Income tax receivable ............................ 7,649 16,715 Other ............................................ 4,268 707 -------- -------- 177,734 155,171 Less allowance for doubtful accounts ............. 3,210 1,753 -------- -------- $174,524 $153,418 ======== ======== The schedule of allowance for doubtful accounts is as follows: BEGINNING ENDING BALANCE ADDITIONS DEDUCTIONS BALANCE ------- --------- ---------- ------- (IN THOUSANDS) Years ended December 31: 2000 ....................... $1,753 $2,332 $ (875) $3,210 ====== ====== ====== ====== 1999 ....................... $1,116 $1,200 $ (563) $1,753 ====== ====== ====== ====== 1998 ....................... $ 291 $1,110 $ (285) $1,116 ====== ====== ====== ====== (3) ASSETS HELD FOR SALE Assets held for sale consist of land, land improvements, building and equipment related to the Company's former corporate headquarters and terminal located in Phoenix, Arizona and is stated at the lower of depreciated cost or fair value less costs to sell. In February 2000, the Company sold a portion of the assets held for sale which relate to the Company's former corporate headquarters. There was no gain or loss on the sale of these assets. In December 2000, the Company recorded an adjustment to reduce the carrying value of these assets by $450,000 to reflect the effect of a pending sale of the remaining assets. (4) EQUITY INVESTMENT AND NOTE RECEIVABLE In April 2000, the Company and five other large transportation companies ("Members") entered into an (1) Operating Agreement and (2) Initial Subscription Agreement of Transplace.com, LLC ("Transplace.com"), an Internet-based global transportation logistics company. These agreements finalize the terms of the agreement in principal, signed in March 2000, to form Transplace.com. The Company has contributed its Transportation Logistics Business along with associated intangible assets and Transplace.com commenced operations on July 1, 2000. As of December 31, 2000 the Company also has contributed $5,000,000 to Transplace.com. The Company's interest in Transplace.com, which is accounted for using the equity method, is approximately 15% and is included in other assets. In addition, the Company has a note receivable from Transplace.com in the amount of $3,200,000 which bears interest at 8% and matures on September 29, 2001. This note was paid in full in February 2001. 30 SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (5) ACCRUED LIABILITIES Accrued liabilities consists of: DECEMBER 31, ------------------------- 2000 1999 ------- ------- (IN THOUSANDS) Employee compensation ...................... $21,059 $22,996 Fuel and mileage taxes ..................... 1,387 3,057 Other ...................................... 9,242 8,440 ------- ------- $31,688 $34,493 ======= ======= (6) ACCOUNTS RECEIVABLE SECURITIZATION In December 1999, the Company (through a wholly-owned bankruptcy-remote special purpose subsidiary) entered into an agreement to sell, on a revolving basis, interests in its accounts receivable to an unrelated financial entity. The bankruptcy-remote subsidiary has the right to repurchase the receivables from the unrelated entity. Therefore, the transaction does not meet the criteria for sale treatment under Financial Accounting Standard No. 125 and is reflected as a secured borrowing in the financial statements. Under the amended agreement, the Company can receive up to a maximum of $125 million of proceeds, subject to eligible receivables and will pay a program fee recorded as interest expense, as defined in the agreement. The Company will pay commercial paper interest rates on the proceeds received. The proceeds received will be reflected as a current liability on the consolidated financial statements because the committed term, subject to annual renewals, is 364 days. As of December 31, 2000 there were $117 million of proceeds received. (7) BORROWINGS UNDER REVOLVING LINE OF CREDIT The Company has a $170 million unsecured revolving line of credit (the line of credit) under an agreement with six major banks (the Credit Agreement) which matures on January 16, 2003. 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 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). The Credit Agreement includes financing for letters of credit. The Company has outstanding letters of credit primarily for workers' compensation and liability self-insurance purposes totaling $15 million at December 31, 2000. 31 SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (8) LONG-TERM DEBT Long-term debt consists of the following:
DECEMBER 31, --------------------- 2000 1999 ------- ------- (IN THOUSANDS) Notes payable to commercial lending institutions with varying payments through the year 2005: Fixed interest rates ranging from 4.0% to 4.77%.................................... $ 626 $ 1,126 Note payable to insurance company bearing interest at 6.78% payable monthly with principal payments of $3,000,000 due in 2002 through 2006 secured by deed of trust on Phoenix facilities. Covenant requirements include minimum debt to equity and debt coverage ratios and tangible net worth. The covenants include limitations on dividends and treasury stock purchases.......................................................................... 15,000 15,000 ------- ------- Total long-term debt ...................................................... 15,626 16,126 Less current portion ............................................................... 386 473 ------- ------- Long-term debt, less current portion ............................................... $15,240 $15,653 ======= =======
The aggregate annual maturities of long-term debt exclusive of amounts due under the revolving line of credit (see note 7) as of December 31, 2000 are as follows: YEARS ENDING DECEMBER 31 (IN THOUSANDS) ----------- -------------- 2001....................................................... $ 386 2002....................................................... 3,176 2003....................................................... 3,031 2004....................................................... 3,032 2005....................................................... 3,001 Thereafter................................................. 3,000 -------- $ 15,626 ======== 32 SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (9) COMMITMENTS LEASES The Company leases various revenue equipment and terminal facilities under operating leases. At December 31, 2000, the future minimum lease payments under noncancelable operating leases are as follows: YEARS ENDING REVENUE DECEMBER 31, EQUIPMENT FACILITIES TOTAL ------------ --------- ---------- ----- (IN THOUSANDS) 2001 ................................. $ 63,700 $ 1,508 $ 65,208 2002 ................................. 45,718 979 46,697 2003 ................................. 17,316 371 17,687 2004 ................................. 3,979 240 4,219 2005 ................................. 3,282 103 3,385 Thereafter ........................... 474 474 -------- -------- -------- Total minimum lease payments ......... $133,995 $ 3,675 $137,670 ======== ======== ======== The revenue equipment leases generally include purchase options exercisable at the completion of the lease. The Company recorded gains of approximately $1.1 million, $3.6 million, and $3.8 million from the sale of leased tractors in 2000, 1999, and 1998, respectively. PURCHASE COMMITMENTS The Company had commitments outstanding to acquire revenue equipment for approximately $141 million at December 31, 2000. These purchases are expected to be financed by operating leases, debt, proceeds from sales of existing equipment and cash flows from operations. The Company has the option to cancel such commitments with 60 days notice. GUARANTEE The Company has guaranteed approximately $7 million of debt of Trans-Mex, Inc. S. A. de C. V., a truckload carrier within the Republic of Mexico of which the Company owns 49%. (10) STOCKHOLDERS' EQUITY On April 10, 1999 and March 12, 1998 the Company completed three-for-two stock splits effected in the form of a dividend of one share of common stock for every two shares of common stock outstanding. The Company purchased 1,295,300 and 539,475 shares of its common stock during 2000 and 1999 for a total cost of $16.7 million and $8.2 million, respectively. These shares are being held as treasury stock and may be used for issuances under the Company's employee stock option and purchase plans or for other general corporate purposes. STOCK COMPENSATION PLANS The Company has four stock-based compensation plans, which are described below. The Company applies APB Opinion No. 25 and related interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for its Employee Stock Purchase Plan. The compensation cost that has been charged against income for its Fixed Stock Option Plans was $478,000, $305,000 and $212,000 for 2000, 1999 and 1998, respectively. 33 SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED Had compensation cost for the Company's four stock-based compensation plans been determined consistent with FASB Statement No. 123 ("SFAS No. 123"), the Company's net earnings and earnings per share would have been reduced to the pro forma amounts indicated below: 2000 1999 1998 -------- -------- -------- Net earnings .................. As Reported $ 52,601 $ 66,831 $ 55,511 ======== ======== ======== Pro forma $ 51,216 $ 65,928 $ 54,755 ======== ======== ======== Basic earnings per share ...... As Reported $ .83 $ 1.04 $ .87 ======== ======== ======== Pro forma $ .81 $ 1.03 $ .86 ======== ======== ======== Diluted earnings per share .... As Reported $ .82 $ 1.02 $ .85 ======== ======== ======== Pro forma $ .80 $ 1.01 $ .84 ======== ======== ======== Pro forma net earnings reflect only options granted in 1995 through 2000. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net earnings amounts presented above because compensation cost is reflected over the options' vesting period of 9 years and compensation cost for options granted prior to January 1, 1995 is not considered under SFAS No. 123. FIXED STOCK OPTION PLANS The Company has three fixed stock option plans. Under the 1990 Employee Stock Option Plan, the Company granted options to employees for 6.0 million shares of common stock. Under the 1999 Employee Stock Option Plan the Company may grant up to 2.25 million shares of common stock. Under the 1994 Non-Employee Directors Plan, the Company may grant options to non-employee directors for up to 135,000 shares of common stock. Under all plans, the exercise price of each option that has been granted equals 85 percent of the market price of the Company's stock on the date of the grant. Options under the Employee Stock Option Plans generally vest 20 percent after five years and 20 percent each succeeding year and the maximum term is ten years. Options under the Non-Employee Directors Plan vest on the grant date and the maximum term is six years. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1998 through 2000: 2000 1999 1998 ---- ---- ---- Dividend yield ................................. 0% 0% 0% Expected volatility ............................ 45% 45% 45% Risk free interest rate ........................ 6.5% 6.5% 5% Expected lives (days after vesting date) ....... 73 62 51 34 SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED A summary of the status of the Company's three fixed stock option plans as of December 31, 2000, 1999 and 1998, and changes during the years then ended on those dates is presented below:
2000 1999 1998 ---------------------- ----------------------- ----------------------- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE ---------- ------- --------- ------- --------- --------- Outstanding at beginning of year ........ 3,271,113 $ 7.80 3,825,825 $ 6.84 3,681,360 $ 5.27 Granted ................................. 1,997,450 $11.10 64,000 $15.69 812,400 $10.15 Exercised ............................... (181,149) $ 3.64 (538,533) $ 1.81 (615,262) $ 1.55 Forfeited ............................... (138,297) $10.03 (80,179) $ 8.88 (52,673) $ 9.82 ---------- --------- --------- Outstanding at end of year .............. 4,949,117 $ 9.22 3,271,113 $ 7.80 3,825,825 $ 6.84 ========== ========= ========= Options exercisable at year-end ......... 523,452 319,194 164,025 ========== ========== ========== Weighted-average fair value of options granted during the year ...... $ 7.11 $ 9.86 $ 7.71 ========== ========== ==========
The following table summarizes information about fixed stock options outstanding at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE --------------------------------------- ----------------------- WEIGHTED- AVERAGE WEIGHTED- WEIGHTED- REMAINING AVERAGE AVERAGE RANGE OF EXERCISE PRICES NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE ------------------------ OUTSTANDING LIFE PRICE EXERCISABLE PRICE ----------- ---- ----- ----------- ----- $1.54 to $5.62 .......................... 1,019,393 3.04 $ 4.18 447,673 $ 3.17 $5.63 to $10.01 ......................... 1,010,836 5.75 $ 9.34 68,029 $ 9.01 $10.02 to $10.81 ........................ 770,663 7.64 $10.07 $11.10 .................................. 1,956,600 9.40 $11.10 3,000 $11.10 $11.17 to $18.42 ........................ 191,625 7.17 $12.77 4,750 $13.02 --------- ------- 4,949,117 6.99 $ 9.22 523,452 $ 4.06 ========= =======
EMPLOYEE STOCK PURCHASE PLAN Under the 1994 Employee Stock Purchase Plan, the Company is authorized to issue up to 4.5 million shares of common stock to full-time employees, nearly all of whom are eligible to participate. Under the terms of the Plan, employees can choose each year to have up to 15 percent of their annual base earnings withheld to purchase the Company's common stock. The purchase price of the stock is 85 percent of the lower of the beginning-of-period or end-of-period (each period being the first and second six calendar months) market price. Each employee is restricted to purchasing during each period a maximum of $12,500 of stock determined by using the beginning-of-period price. Under the Plan, the Company issued 389,966, 235,971 and 240,135 shares to 2,243, 1,856 and 1,351 employees in 2000, 1999 and 1998, respectively. Compensation cost is calculated as the fair value of the employees' purchase rights, which was estimated using the Black-Scholes model with the following assumptions: 2000 1999 1998 ---- ---- ---- Dividend yield.............................. 0% 0% 0% Expected volatility......................... 45% 45% 45% Risk free interest rate..................... 6% 6% 4.5% 35 SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED The weighted-average fair value of those purchase rights granted in 2000, 1999 and 1998 was $4.19, $5.61 and $3.98 respectively. (11) INCOME TAXES Income tax expense consists of: 2000 1999 1998 ------- ------- ------- (IN THOUSANDS) Current expense: Federal ......................... $ 9,354 $ 5,944 $20,445 State ........................... 1,396 939 3,494 ------- ------- ------- 10,750 6,883 23,939 ------- ------- ------- Deferred expense: Federal ......................... 18,823 29,660 11,435 State ........................... 2,682 4,227 2,421 ------- ------- ------- 21,505 33,887 13,856 ------- ------- ------- $32,255 $40,770 $37,795 ======= ======= ======= The Company's effective tax rate was 38.0%, 37.9% and 40.5% in 2000, 1999 and 1998, respectively. The actual tax expense differs from the "expected" tax expense (computed by applying the U.S. Federal corporate income tax rate of 35% to earnings before income taxes) as follows: YEARS ENDED DECEMBER 31, ------------------------------ 2000 1999 1998 -------- -------- -------- (IN THOUSANDS) Computed "expected" tax expense ........... $ 29,700 $ 37,660 $ 32,657 Increase in income taxes resulting from: State income taxes, net of federal income tax benefit....................... 2,620 3,323 4,185 Enterprise tax credit..................... (443) (765) Other, net................................ 378 552 953 -------- -------- -------- $ 32,255 $ 40,770 $ 37,795 ======== ======== ======== 36 SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED The net effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:
DECEMBER 31, -------------------------- 2000 1999 --------- --------- (IN THOUSANDS) Deferred tax assets: Claims accruals .............................................................. $ 10,720 $ 18,140 Accounts receivable due to allowance for doubtful accounts.................... 1,223 1,130 Nondeductible accruals ....................................................... 2,823 2,820 Other ........................................................................ 833 500 --------- --------- Total deferred tax assets ............................................ 15,599 22,590 --------- --------- Deferred tax liabilities: Property and equipment, principally due to differences in depreciation........ (109,149) (104,170) Prepaid taxes, licenses and permits deducted for tax purposes............................................................. (10,357) (6,480) Other ........................................................................ (3,463) (3,427) --------- --------- Total deferred tax liabilities ....................................... (122,969) (114,077) --------- --------- Net deferred tax liability ........................................... $(107,370) $ (91,487) ========= =========
These amounts are presented in the accompanying consolidated balance sheets as follows: DECEMBER 31, ------------------------- 2000 1999 --------- --------- (IN THOUSANDS) Current deferred tax asset ................... $ $ 4,200 Current deferred tax liability ............... (7,200) Noncurrent deferred tax liability ............ (100,170) (95,687) --------- --------- Net deferred tax liability ................... $(107,370) $ (91,487) ========= ========= (12) CLAIMS ACCRUALS 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. Claims accruals represent accruals for the uninsured portion of pending claims at December 31, 2000 and 1999. The current portion reflects the amounts of claims expected to be paid in the following year. 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 the Company's past claims experience. Claims accruals also include accrued medical expenses under the Company's group medical insurance program. 37 SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (13) FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments," requires that the Company disclose estimated fair values for its financial instruments. The following summary presents a description of the methodologies and assumptions used to determine such amounts. CASH The carrying amount is assumed to be the fair value because of the liquidity of these instruments. ACCOUNTS RECEIVABLES AND PAYABLES Fair value is considered to be equal to the carrying value of the accounts receivable and accounts payable and accrued liabilities, as they are generally short-term in nature and the related amounts approximate fair value or are receivable or payable on demand. LONG-TERM DEBT AND BORROWINGS UNDER REVOLVING LINE OF CREDIT The fair value of all of these instruments is assumed to approximate their respective carrying values given the duration of the notes, their interest rates and underlying collateral. LIMITATIONS Fair value estimates are made at a specific point in time and are based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument. Changes in assumptions could significantly affect these estimates. Since the fair value is estimated as of December 31, 2000, the amounts that will actually be realized or paid at settlement or maturity of the instruments could be significantly different. (14) EMPLOYEE BENEFIT PLANS The Company maintains a 401(k) profit sharing plan for all employees who are 19 years of age or older and have completed one year of service. The Plan provides for a mandatory matching contribution equal to the amount of the employee's salary reduction, but not to exceed 1% of the employee's compensation. Also, the plan provides for a discretionary contribution not to exceed 4% of the employee's compensation, limited to the amount permitted under the Internal Revenue Code as deductible expenses. The Company may also make voluntary profit sharing contributions. Employees' rights to employer contributions vest after five years from their date of employment. The Company's contribution totaled approximately $4.1 million, $8.2 million and $7.1 million for 2000, 1999 and 1998, respectively. (15) RELATED PARTY TRANSACTIONS The Company leases various properties from entities owned by the principal stockholder. Rents paid under these leases totaled zero, $72,000 and $135,000 for the years ended December 31, 2000, 1999 and 1998, respectively. A company owned by the Company's principal stockholder leases tractors to some of the Company's owner operators. In connection with this program in 2000, 1999 and 1998, the Company acquired new tractors and sold them to this entity for $25.2 million, $37.2 million and $22.1 million, respectively, and recognized fee income of $1.4 million, $2.2 million and $1.3 million, respectively. During 38 SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 2000, 1999, and 1998, the Company also sold used revenue equipment to this entity totaling $160,000, $167,000 and $320,000 respectively, and recognized a loss of $12,000 in 2000 and gains of $17,000 in 1999 and $69,000 in 1998. At December 31, 2000 and 1999, nothing was owed to the Company for this equipment. A Company owned by the principal stockholder provides aircraft services to the Company. Such services totaled $718,000, $621,000 and $429,000 for the years ended December 31, 2000, 1999 and 1998, respectively. At December 31, 2000 and 1999, $50,000 and $138,000, respectively, was owed to this entity for such services. The Company's principal stockholder acquired a significant ownership interest in a less than truckload carrier during 1997. The Company provides transportation services to this carrier and other entities owned by the principal stockholder and recognized $9.7 million, $10.6 million and $6.1 million in operating revenue in 2000, 1999 and 1998, respectively. At December 31, 2000 and 1999, $809,000 and $1.8 million, respectively, was owed to the Company for these services. In addition, the Company sold used equipment to the carrier for $261,000 in 1998 and paid $547,000, $423,000 and $227,000 to the carrier for facilities rental in 2000, 1999 and 1998, respectively. The Company's principal stockholder owns an entity with a fleet of tractors which operates as a fleet operator for the Company. During 2000, 1999 and 1998, the Company paid $33.6 million, $13.2 million and $17.2 million to this fleet operator for purchased transportation services. At December 31, 2000 and 1999, $483,000 and $512,000, respectively, was owed for these purchased transportation services. Also, the Company was paid $1.9 million, $301,000 and $267,000 by this fleet operator and paid $130,000, $43,000 and $450,000 to this fleet operator for various services including training in 2000, 1999 and 1998, respectively. At December 31, 2000 and 1999, $265,000 and $62,000 was owed to the Company and zero and $23,000, respectively, was owed by the Company for these services. The Company purchased $2.4 million of refrigeration units in 2000 from an entity owned by one of the Company's officers. All of the above related party arrangements were approved by the independent members of the Company's Board of Directors. (16) PENDING MERGER On December 11, 2000, the Company and M.S. Carriers, Inc. (Nasdaq: MSCA) announced that they have agreed to a merger in which M.S. Carriers will become a wholly owned subsidiary of Swift. In the merger, 1.7 shares of the Company's common stock will be exchanged for each share of M.S. Carriers common stock. The definitive merger agreement has been approved by the boards of directors of both companies. The merger is subject to a number of conditions, including stockholder approval of both companies. The merger is expected to be accounted for as a pooling of interests and to be tax-free to the stockholders of Swift and M.S. Carriers. Prior to the merger, Swift expects to offer approximately 2,000,000 shares of its common stock and M.S. Carriers expects to offer approximately 300,000 shares of its common stock in public offerings. (17) CONTINGENCIES The Company is involved in certain claims and pending litigation arising in 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 Company. 39 SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED (18) INDUSTRY SEGMENT INFORMATION The Company operates predominantly in one industry, road transportation, as a truckload motor carrier subject to regulation by the Department of Transportation and various state regulatory authorities. (19) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------- -------- -------- -------- (IN THOUSANDS, EXCEPT SHARE DATA) YEAR ENDED DECEMBER 31, 2000 Operating revenue ..................... $291,522 $316,555 $320,586 $330,008 Operating income ...................... 20,111 30,719 28,818 20,087 Net earnings .......................... 10,655 16,561 15,316 10,069 Basic earnings per share .............. .17 .26 .24 .16 Diluted earnings per share ............ .17 .26 .24 .16 YEAR ENDED DECEMBER 31, 1999 Operating revenue ..................... $234,944 $262,531 $279,423 $284,336 Operating income ...................... 21,832 30,740 33,150 30,719 Net earnings .......................... 12,103 17,504 18,732 18,492 Basic earnings per share .............. .19 .27 .29 .29 Diluted earnings per share ............ .19 .27 .29 .28
40 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The Company has never filed a Form 8-K to report a change in accountants because of a disagreement over accounting principles or procedures, financial statement disclosure, or otherwise. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information with respect to continuing directors and nominees of the Company is set forth under the captions "Information Concerning Directors, Nominees and Officers," "Meetings of the Board of Directors and its Committees," and "Director Compensation" in the Registrant's Notice and Proxy Statement relating to its 2001 Annual Meeting of Stockholders ("the 2001 Notice and Proxy Statement") incorporated by reference into this Form 10-K Report. With the exception of the foregoing information and other information specifically incorporated by reference into this Form 10-K Report, the Registrant's 2001 Notice and Proxy Statement is not being filed as a part hereof. ITEM 11. EXECUTIVE COMPENSATION Information with respect to executive compensation is set forth under the captions "Executive Compensation," "Compensation Committee Interlocks and Insider Participation," "Meetings and Compensation" and "Employment Agreements" in the 2001 Notice and Proxy Statement and is incorporated herein by reference; provided, however, that the information set forth under the captions "Compensation Committee Report on Executive Compensation" and "Stock Price Performance Graph" contained in the 2001 Notice and Proxy Statement are not incorporated by reference herein. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information with respect to security ownership of certain beneficial owners and management is included under the caption "Security Ownership of Principal Stockholders and Management" in the 2001 Notice and Proxy Statement and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information with respect to certain relationships and transactions of management is set forth under the caption "Certain Transactions and Relationships" and "Compensation Committee Interlocks and Insider Participation" in the 2001 Notice and Proxy Statement and is incorporated herein by reference. 41 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements and Schedules. (i) Financial Statements PAGE OR METHOD OF FILING ---------------- (1) Report of KPMG LLP Page 21 (2) Consolidated Financial Statements and Page 22-40 Notes to Consolidated Financial Statements of the Company, including Consolidated Balance Sheets as of December 31, 2000 and 1999 and related Consolidated Statements of Earnings, Stockholders' Equity and Cash Flows for each of the years in the three-year period ended December 31, 2000 (ii) Financial Statement Schedules Schedules have been omitted because of the absence of conditions under which they are required or because the required material information is included in the Consolidated Financial Statements or Notes to the Consolidated Financial Statements included herein. (b) Reports on Form 8-K A report on Form 8-K was filed on December 26, 2000. This filing described the announced merger agreement with M.S. Carriers dated December 11, 2000. (c) Exhibits.
EXHIBIT PAGE OR NUMBER DESCRIPTION METHOD OF FILING ------ ----------- ---------------- 2.1 Merger Agreement, dated as of December 11, 2000, among Swift Incorporated by reference to Exhibit 2.1 of the Transportation Co., Inc., a Nevada corporation, Sun Merger, Registrant's Current Report on Form 8-K dated Inc., a Tennessee corporation and wholly-owned subsidiary of December 11, 2000 (the "12/11/2000 8-K") Swift Transportation Co., Inc., and M.S. Carriers, Inc., a Tennessee corporation 3.1 Amended and Restated Articles of Incorporation of the Incorporated by reference to Exhibit 4.1 of the Registrant Registrant's Registration Statement on Form S-8 (Registration No. 333-85940) 3.2 Bylaws of the Registrant Incorporated by reference to Exhibit 3.2 of the Registrant's Registration Statement on Form S-3 (Registration No. 33-66034)
42
EXHIBIT PAGE OR NUMBER DESCRIPTION METHOD OF FILING ------ ----------- ---------------- 4.1 Specimen of Common Stock Certificate Incorporated by reference to Exhibit 4 of the Company's Annual Report on Form 10-K for the year ended December 31, 1992 (the "1992 Form 10-K") 4.2 Voting Agreement, dated as of December 11, 2000, between M. Incorporated by reference to Exhibit 4.1 of the S. Carriers, Inc., a Tennessee corporation, the Jerry and 12/11/2000 8-K Vickie Moyes Family Trust dated 12/11/87 and Jerry Moyes 4.3 Voting Agreement, dated as of December 11, 2000, among Swift Incorporated by reference to Exhibit 4.2 of the Transportation Co., Inc., a Nevada corporation, Sun Merger, 12/11/2000 8-K Inc., a Tennessee corporation and wholly-owned subsidiary of Swift Transportation Co., Inc., and Michael S. Starnes 10.1 Stock Option Plan, as amended through November 18, 1994* Incorporated by Reference to Exhibit 10.7 of the Company's Annual Report on Form 10-K for the year ended December 31, 1994 (the "1994 Form 10-K") 10.2 Non-Employee Directors Stock Option Plan, as amended through Incorporated by reference to Exhibit 10.8 of the November 18, 1994* 1994 Form 10-K 10.3 Employee Stock Purchase Plan, as amended through November Incorporated by reference to Exhibit 10.9 of the 18, 1994* 1994 Form 10-K 10.4 Swift Transportation Co., Inc. Retirement (401(k)) Plan Incorporated by reference to Exhibit 10.14 of the dated January 1, 1992* Company's Form S-1 Registration Statement No. #33-52454 10.5 Note agreement dated February 26, 1996 by and between Swift Incorporated by reference to Exhibit 10.12 of the Transportation Co., Inc. and Great-West Life & Annuity Company's Annual Report on Company Form 10-K for Insurance Company the year ended December 31,1995 (the "1995 Form 10-K") 10.6 Note agreement dated January 16, 1997 by and between Swift Incorporated by reference to Exhibit 10.11 of the Transportation Co., Inc. and Wells Fargo Bank, N.A., ABN Company's Annual Report on Form 10-K for the year Amro Bank N.V., The Chase Manhattan Bank and The First ended December 31,1996 (the "1996 Form 10-K") National Bank of Chicago. 10.7 Asset Purchase Agreement Dated as of February 20, 1997 Among Incorporated by reference to Exhibit 1 of the Swift Transportation Co., Inc. and Direct Transit, Inc. and Company's Current Report on Form 8-K dated April Charles G. Peterson 8, 1997 (the "4/8/97 8-K") 10.8 First Modification Agreement to Note Agreement dated January Incorporated by Reference to Exhibit 10.13 of the 16, 1997 by and between Swift Transportation Co., Inc. and Company's Quarterly Report on Form 10-Q for the Wells Fargo Bank, N.A., ABN Amro Bank N.V., The Chase quarter ended September 30, 1998 (the "1998 Third Manhattan Bank and The First National Bank of Chicago Quarter Form 10-Q")
43
EXHIBIT PAGE OR NUMBER DESCRIPTION METHOD OF FILING ------ ----------- ---------------- 10.9 Second Modification Agreement to Note Agreement dated Incorporated by reference to Exhibit 10.14 of the January 17, 1997 by and between Swift Transportation Co., 1998 Third Quarter Form 10-Q Inc. and Wells Fargo Bank, N.V., ABN Amro Bank N.V., The First National Bank of Chicago, Norwest Bank Arizona, N.A., Keybank National Association and Union Bank of California, N.A. 10.10 1999 Stock Option Plan, as amended* Incorporated by reference to Exhibit 4.3 of the Registrant's Registration Statement on Form S-8 (Registration No. 333-53566) 10.11 Non-Employee Directors Stock Option Plan (Amended and Incorporated by reference to Notice and Proxy Restated as of June 7, 2000)* Statement For Annual Meeting of Stockholders to be held on June 7, 2000 ("the 2000 Proxy Statement") 10.12 Receivables Sales Agreement Dated As Of December 30, 1999 Incorporated by reference to Exhibit 10.16 of the Among Swift Receivables Corporation, Swift Transportation Company's Annual Report on Form 10-K for the year Corporation, ABN AMRO Bank N.V., and Amsterdam Funding ended December 31, 1999 (the "1999 Form 10-K") Corporation 10.13 Purchase and Sale Agreement Dated December 30, 1999 between Incorporated by reference to Exhibit 10.17 of the Swift Transportation Corporation and Swift Receivables 1999 Form 10-K Corporation 10.14 Nonqualified Deferred Compensation Agreement* Incorporated by reference to Exhibit 10.18 of the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000 (the "2000 First Quarter Form 10-Q") 10.15 Operating Agreement of Transplace.com, LLC Incorporated by reference to Exhibit 10.19 of the 2000 First Quarter Form 10-Q 10.16 Initial Subscription Agreement of Transplace.com, LLC Incorporated by reference to Exhibit 10.20 of the 2000 First Quarter Form 10-Q 10.17 First Amendment Dated December 28, 2000 to Receivables Sale Filed herewith Agreement Dated As Of December 30, 1999 Among Swift Receivables Corporation, Swift Transportation Corporation, ABN AMRO Bank N.V., and Amsterdam Funding Corporation 11 Schedule of computation of net earnings per share Filed herewith 21 Subsidiaries of Registrant Filed herewith 23 Consent of KPMG LLP Filed herewith
---------- * Indicates a compensation plan 44 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, this 20th day of March, 2001. SWIFT TRANSPORTATION CO., INC., a Nevada corporation By /s/ Jerry C. Moyes ------------------------------------ Jerry C. Moyes Chairman of the Board, President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Jerry C. Moyes and William F. Riley III, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Form 10-K Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully and to all intents and purposes as he might or could do in person hereby ratifying and confirming all that said attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: SIGNATURE TITLE DATE --------- ----- ---- /s/ Jerry C. Moyes Chairman of the Board, March 20, 2001 ------------------------ President and Chief Executive Jerry C. Moyes Officer (Principal Executive Officer) /s/ William F. Riley III Senior Executive Vice President, March 20, 2001 ------------------------ Secretary, Chief Financial Officer William F. Riley III and Director /s/ Stephen J. Lyding Chief Accounting Officer March 20, 2001 ------------------------ Stephen J. Lyding /s/ Rodney K. Sartor Executive Vice President and March 20, 2001 ------------------------ Director Rodney K. Sartor /s/ Lou A. Edwards Director March 20, 2001 ------------------------ Lou A. Edwards /s/ Alphonse E. Frei Director March 20, 2001 ------------------------ Alphonse E. Frei /s/ Earl H. Scudder, Jr. Director March 20, 2001 ------------------------ Earl H. Scudder, Jr. S-1