10-Q 1 e-7185.txt QUARTERLY REPORT FOR THE QTR ENDED 06/30/2001 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549-1004 Form 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-18605 SWIFT TRANSPORTATION CO., INC. (Exact name of registrant as specified in its charter) Nevada 86-0666860 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification number) 2200 South 75th Avenue Phoenix, AZ 85043 (602) 269-9700 (Address, including zip code, and telephone number, including area code, of registrant's principal executive office) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days. YES [X] NO [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date (August 16, 2001) Common stock, $.001 par value: 84,854,846 shares EXHIBIT INDEX AT PAGE 19 TOTAL PAGES 22 PART I FINANCIAL INFORMATION Page Number ------ Item 1. Financial Statements Condensed Consolidated Balance Sheets as of June 30, 2001 (unaudited) and December 31, 2000 3-4 Condensed Consolidated Statements of Earnings (unaudited) for the Three and Six Month Periods Ended June 30, 2001 and 2000 5 Consolidated Statements of Comprehensive Income 6 (unaudited) for the Three and Six Month Periods Ended June 30, 2001 and 2000 Condensed Consolidated Statements of Stockholders' Equity (unaudited) for the Six Month Period Ended June 30, 2001 7 Condensed Consolidated Statements of Cash Flows (unaudited) for the Six Month Periods Ended June 30, 2001 and 2000 8-9 Notes to Condensed Consolidated Financial Statements 10-12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13-17 Item 3. Quantitative and Qualitative Disclosures about Market Risk 17 PART II OTHER INFORMATION Items 1, 2, 3 and 5. Not applicable Item 4. Submission of Matters to a Vote of Security Holders 18 Item 6. Exhibits and Reports on Form 8-K 19 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands, except share data) June 30, December 31, 2001 2000 ---------- ---------- (unaudited) Assets Current assets: Cash $ 19,940 $ 19,638 Accounts receivable, net 289,414 274,817 Equipment sales receivable 7,922 5,799 Inventories and supplies 10,521 10,148 Prepaid taxes, licenses and insurance 32,618 34,600 Assets held for sale 3,169 Note receivable 3,200 Deferred income taxes 9,837 6,913 ---------- ---------- Total current assets 370,252 358,284 ---------- ---------- Property and equipment, at cost: Revenue and service equipment 1,343,397 1,340,391 Land 36,188 36,058 Facilities and improvements 192,935 171,536 Furniture and office equipment 24,841 23,545 ---------- ---------- Total property and equipment 1,597,361 1,571,530 Less accumulated depreciation and amortization 445,147 392,748 ---------- ---------- Net property and equipment 1,152,214 1,178,782 ---------- ---------- Other assets 29,310 26,061 Goodwill 9,617 10,336 ---------- ---------- $1,561,393 $1,573,463 ========== ========== See accompanying notes to condensed consolidated financial statements. Continued 3 SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands, except share data) June 30, December 31, 2001 2000 ---------- ---------- (unaudited) Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 51,507 $ 61,057 Accrued liabilities 68,506 49,439 Current portion of claims accruals 43,841 35,417 Current portion of long-term debt 63,293 65,945 Securitization of accounts receivable 116,000 117,000 ---------- ---------- Total current liabilities 343,147 328,858 ---------- ---------- Borrowings under line of credit 126,000 154,000 Long-term debt, less current portion 172,285 223,056 Claims accruals, less current portion 48,832 42,570 Deferred income taxes 175,204 170,100 Fair value of interest rate swaps 1,988 Stockholders' equity: Preferred stock, par value $.001 per share Authorized 1,000,000 shares; none issued Common stock, par value $.001 per share Authorized 150,000,000 shares; 87,362,582 and 85,375,733 shares issued at June 30, 2001 and December 31, 2000, respectively. 87 85 Additional paid-in capital 225,502 198,904 Retained earnings 508,061 496,671 ---------- ---------- 733,650 695,660 Less: Treasury stock, at cost (3,157,850 shares) 37,935 37,935 Other equity items 1,778 2,846 ---------- ---------- Total stockholders' equity 693,937 654,879 ---------- ---------- Commitments and contingencies $1,561,393 $1,573,463 ========== ========== See accompanying notes to condensed consolidated financial statements. 4 SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES Condensed Consolidated Statements of Earnings (unaudited) (In thousands, except share data)
Three months ended Six months ended June 30, June 30, -------------------------- -------------------------- 2001 2000 2001 2000 ----------- ----------- ----------- ----------- Operating revenue $ 535,555 $ 500,288 $ 1,045,149 $ 958,879 Operating expenses: Salaries, wages and employee benefits 198,072 167,877 390,796 324,526 Operating supplies and expenses 43,282 38,996 87,666 75,942 Fuel 73,168 61,478 144,198 120,583 Purchased transportation 92,539 103,797 184,321 201,923 Rental expense 25,317 17,513 49,179 31,919 Insurance and claims 24,721 13,164 41,914 27,073 Depreciation and amortization 34,301 34,292 69,307 66,131 Communication and utilities 7,098 5,934 13,988 11,859 Operating taxes and licenses 12,934 12,404 25,980 24,112 ----------- ----------- ----------- ----------- Total operating expenses 511,432 455,455 1,007,349 884,068 ----------- ----------- ----------- ----------- Operating income 24,123 44,833 37,800 74,811 Other (income) expenses: Interest expense 6,091 8,943 19,087 15,531 Interest income (261) (191) (551) (355) Other 76 (470) 585 (1,343) ----------- ----------- ----------- ----------- Other (income) expenses, net 5,906 8,282 19,121 13,833 ----------- ----------- ----------- ----------- Earnings before income taxes 18,217 36,551 18,679 60,978 Income taxes 7,086 13,813 7,289 22,971 ----------- ----------- ----------- ----------- Net earnings $ 11,131 $ 22,738 $ 11,390 $ 38,007 =========== =========== =========== =========== Basic earnings per share $ .13 $ .28 $ .14 $ .46 =========== =========== =========== =========== Diluted earnings per share $ .13 $ .27 $ .14 $ .45 =========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements. 5 SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES Consolidated Statements of Comprehensive Income (unaudited) (In thousands)
Three months ended Six months ended June 30, June 30, ------------------- ------------------- 2001 2000 2001 2000 ------- ------- ------- ------- Net earnings $11,131 $22,738 $11,390 $38,007 ------- ------- ------- ------- Other comprehensive income: Foreign currency translation adjustment 133 216 ------- ------- ------- ------- Other comprehensive income 133 216 ------- ------- ------- ------- Comprehensive income $11,264 $22,738 $11,606 $38,007 ======= ======= ======= =======
See accompanying notes to condensed consolidated financial statements. 6 SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES Condensed Consolidated Statements of Stockholders' Equity (unaudited) (In thousands, except share data)
COMMON STOCK ADDITIONAL OTHER TOTAL ----------------------- PAID-IN RETAINED TREASURY COMPREHENSIVE STOCKHOLDERS' SHARES PAR VALUE CAPITAL EARNINGS STOCK LOSS OTHER EQUITY ----------- --------- --------- --------- --------- -------- ------ --------- Balances, January 1, 2001 85,375,733 $ 85 $ 198,904 $ 496,671 $ (37,935) $ (1,994) $ (852) $ 654,879 Issuance of common stock under stock option and employee stock purchase plans 786,849 1 8,070 8,071 Amortization of deferred compensation 289 289 Foreign currency translation 216 216 Repayment of notes receivable from officers 852 852 Issuance of common stock upon public offering 1,200,000 1 18,239 18,240 Net earnings 11,390 11,390 ----------- ------ --------- --------- --------- -------- ------ --------- Balances, June 30, 2001 87,362,582 $ 87 $ 225,502 $ 508,061 $ (37,935) $ (1,778) $ $ 693,937 =========== ====== ========= ========= ========= ======== ====== =========
See accompanying notes to condensed consolidated financial statements. 7 SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (unaudited) (In thousands)
Six Months Ended June 30, ------------------------- 2001 2000 --------- --------- Cash flows from operating activities: Net earnings $ 11,390 $ 38,007 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 69,659 65,917 Deferred income taxes 266 11,584 Provision for losses on accounts receivable 750 500 Amortization of deferred compensation 289 194 Fair market value of interest rate swaps 1,282 Increase (decrease) in cash resulting from changes in: Accounts receivable (13,041) (45,903) Inventories and supplies (373) (444) Prepaid expenses 1,982 4,335 Other assets (3,903) (3,414) Accounts payable, accrued liabilities and claims accruals 27,224 (1,632) --------- --------- Net cash provided by operating activities 95,525 69,144 --------- --------- Cash flows from investing activities: Proceeds from sale of property and equipment 24,083 79,640 Capital expenditures (73,261) (184,763) Repayment of note receivable 4,052 Payments received on equipment sale receivables 5,799 5,966 --------- --------- Net cash used in investing activities (39,327) (99,157) --------- ---------
See accompanying notes to condensed consolidated financial statements. Continued 8 SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (unaudited) (In thousands)
Six Months Ended June 30, ------------------------- 2001 2000 -------- -------- Cash flows from financing activities: Repayments of long-term debt (53,423) (14,754) Change in borrowings under line of credit (28,000) (17,545) Change in borrowings under accounts receivable securitization (1,000) 94,000 Purchases of treasury stock (40,703) Proceeds from public offering 18,240 Proceeds from issuance of common stock under stock option and stock purchase plans 8,071 2,725 -------- -------- Net cash (used in) provided by financing activities (56,112) 23,723 -------- -------- Effect of exchange rate changes on cash 216 -------- -------- Net increase (decrease) in cash 302 (6,290) Cash at beginning of period 19,638 10,212 -------- -------- Cash at end of period $ 19,940 $ 3,922 ======== ======== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 13,288 $ 14,171 Income taxes $ 3,446 $ 0 Supplemental schedule of noncash investing and financing activities: Equipment sales receivables $ 7,922 $ 14,239 Note receivable from property sale $ 1,715 $ 28,208
See accompanying notes to condensed consolidated financial statements. 9 SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (unaudited) Note 1. Basis of Presentation The condensed consolidated financial statements include the accounts of Swift Transportation Co., Inc., a Nevada holding company, and its wholly-owned subsidiaries (the Company). All significant intercompany balances and transactions have been eliminated. These consolidated financial statements include the accounts of M.S. Carriers, Inc. ("M.S. Carriers"), which merged with a subsidiary of the Company on June 29, 2001 (the "Merger"). Upon completion of the Merger, M.S. Carriers became a wholly owned subsidiary of the Company. The Merger was accounted for as a pooling of interests. Accordingly, the historical financial statements presented herein have been restated to include the financial position, results of operations, and cash flows of M.S. Carriers. The financial statements have been prepared in accordance with generally accepted accounting principles, pursuant to rules and regulations of the Securities and Exchange Commission. In the opinion of management, the accompanying financial statements include all adjustments which are necessary for a fair presentation of the results for the interim periods presented. Certain information and footnote disclosures have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. Results of operations in interim periods are not necessarily indicative of results to be expected for a full year. Note 2. Contingencies The Company is involved in certain claims and pending litigation arising from the normal course of business. Based on the knowledge of the facts and, in certain cases, opinions of outside counsel, management believes the resolution of claims and pending litigation will not have a material adverse effect on the financial condition of the Company. Note 3. Assets Held for Sale In January 2001, the Company sold the remainder of the assets held for sale. The Company received $1,000,000 and a non interest-bearing note for $1,900,000. Under the terms of the note, a $1,000,000 payment is due January 2002 and the balance is due January 2003. Note 4. Derivative Financial Instruments The Company adopted Statement of Financial Standards No. 133 (SFAS No. 133), "Accounting for Derivative Instruments and Hedging Activities," and its amendments, Statement 137 and 138, on January 1, 2001. SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at fair value. 10 SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (unaudited) The swap agreements are used to manage exposure to interest rate movement by effectively changing the variable rate to a fixed rate. Changes in fair value of the interest rate swap agreements will be recognized in net earnings until maturity, March 2009. For the three and six months ended June 30, 2001, the Company recognized a gain (loss), net of tax, for the change in fair market value of the interest rate swap agreements of $679,000 and $(1,282,000), respectively. Note 5. Segments The Company's two reportable segments are Swift Transportation and M.S. Carriers.
Three months ended Six months ended June 30, June 30, -------------------------- -------------------------- 2001 2000 2001 2000 ----------- ----------- ----------- ----------- (in thousands) Operating revenue: Swift $ 350,026 $ 316,555 $ 677,437 $ 608,077 MS Carriers 185,529 183,733 367,712 350,802 ----------- ----------- ----------- ----------- $ 535,555 $ 500,288 $ 1,045,149 $ 958,879 ----------- ----------- ----------- ----------- Net earnings: Swift $ 12,307 $ 16,561 $ 13,463 $ 27,216 MS Carriers (1,176) 6,177 (2,073) 10,791 ----------- ----------- ----------- ----------- $ 11,131 $ 22,738 $ 11,390 $ 38,007 ----------- ----------- ----------- -----------
11 SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (unaudited) Note 6. Public Stock Offering The Company completed a public offering of 1,200,000 shares of its common stock on June 27, 2001. This offering generated proceeds of $18.2 million, net of expenses. An option by the underwriters to purchase an additional 120,000 shares was exercised on July 2, 2001. 12 SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS This Report on Form 10-Q contains forward-looking statements. The words "believe," "expect," "anticipate," and "project," and similar expressions identify forward-looking statements, which speak only as of the date the statement was made. Such forward-looking statements are within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements may include, but are not limited to, projections of revenues, income, or loss, capital expenditures, plans for future operations, financing needs or plans, the impact of inflation and plans relating to the foregoing. Statements in Exhibit 99 to this Quarterly Report on Form 10-Q and in the Company's Annual Report on Form 10-K, including Notes to the Consolidated Financial Statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations," describe factors, among others, that could cause actual results or events to differ materially from those expressed in forward-looking statements. Additional factors that could contribute to or cause such differences are set forth in "Business" and "Market for the Registrant's Common Stock and Related Stockholder Matters" in the Company's Annual Report on Form 10-K. BUSINESS ACQUISITION On June 29, 2001, the Company acquired M.S. Carriers, Inc. ("M.S. Carriers") through the merger of a wholly owned subsidiary of the Company with and into M.S. Carriers (the "Merger"). Upon completion of the Merger, M.S. Carriers became a wholly owned subsidiary of the Company. The Merger has been accounted for as a pooling of interests. Accordingly, all historical financial data discussed below has been restated to include the financial position, results of operations, and cash flows of M.S. Carriers. In addition, the results for the six months of 2001 include: * A $7 million adjustment to MS Carriers insurance and claims reserves in the second quarter of this year; and * a correction of previously reported numbers, to adjust MS Carriers hedge accounting to conform to SFAS No. 133. The correction had no effect on stockholders' equity, but did increase net earnings for the three months ended June 30, 2001 (by $679,000 or $.01 per diluted share) and decrease net earnings for the six months ended June 30, 2001 (by $1,282,000 or $.01 per diluted share). OVERVIEW Although the trend in the truckload segment of the motor carrier industry over the past several years has been towards consolidation, the truckload industry remains highly fragmented. Management believes the industry trend towards financially stable "core carriers" will continue and result in continued industry consolidation. In response to this trend, the Company continues to expand its fleet with an increase of 1,202 tractors to 15,394 tractors as of June 30, 2001 up from 14,192 tractors as of June 30, 2000. The owner operator portion of the Company's fleet decreased to 3,386 as of June 30, 2001 from 3,394 as of June 30, 2000. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THREE MONTHS ENDED JUNE 30, 2000 Operating revenue increased $35.3 million or 7.0% to $535.6 million for the three months ended June 30, 2001 from $500.3 million for the corresponding period of 2000. Effective July 1, 2000, we transferred our logistics operation to Transplace.com, an Internet-based logistics company that we commonly own with four other truckload carriers. Excluding approximately $22 million of second quarter 2000 revenues that were derived from our logistics operation, the increase in revenues would have been 12.0%. The increase in operating revenue is primarily the result of the expansion of the Company's fleet. The Company's operating ratio (operating expenses expressed as a percentage of operating revenue) for the second quarter of 2001 was 95.5% compared to 91.0% in the comparable period of 2000. The Company's operating ratio for the three 13 months ended June 30, 2001 increased as a result of increases in certain components of operating expenses as a percentage of operating revenue as discussed below. The Company's empty mile factor for linehaul operations was 15.10% and 13.91% and average loaded linehaul revenue per mile (excluding fuel surcharge) was $1.4150 and $1.3810 in the second quarter of 2001 and 2000, respectively. Salaries, wages and employee benefits represented 37.0% of operating revenue for the three months ended June 30, 2001 compared with 33.6% in 2000. The increase is primarily due to a greater number of empty miles, the impact of reduced utilization on an increased dedicated business with fixed pay driver wages, and a reduction in the owner operator portion of the fleet. From time to time the industry has experienced shortages of qualified drivers. If such a shortage were to occur over a prolonged period and increases in driver pay rates were needed in order to attract and retain drivers, the Company's results of operations would be negatively impacted to the extent that corresponding freight rate increases were not obtained. Fuel as a percentage of operating revenue was 13.7% for the second quarter of 2001 versus 12.3% in 2000. The increase is primarily due to actual fuel cost per gallon increasing by approximately five cents per gallon (3.9%) in the second quarter of 2001 versus the second quarter of 2000. Increases in fuel costs, to the extent not offset by rate increases or fuel surcharges, would have an adverse effect on the operations and profitability of the Company. Management believes the most effective protection against fuel cost increases is to maintain a fuel efficient fleet and to implement fuel surcharges when such option is necessary and available. The Company currently does not use derivative-type hedging products. Purchased transportation as a percentage of operating revenue was 17.3% for the three months ended June 30, 2001 compared to 20.7% in 2000. The decrease is primarily due to the transfer of our logistics business to Transplace.com and a reduction in the owner operator portion of the fleet. Rental expense as a percentage of operating revenue was 4.7% for the second quarter of 2001 versus 3.5% in 2000. At June 30, 2001 and 2000, leased tractors represented 55% and 52%, respectively, of the total fleet of Company tractors. When it is economically advantageous to do so, the Company will purchase then sell tractors that it currently leases by exercising the purchase option contained in the lease. Gains on these activities are recorded as a reduction of rent expense. The Company recorded gains of $232,000 in the second quarter of 2001 and $238,000 during the second quarter of 2000 from the sale of leased tractors. Depreciation and amortization expense as a percentage of operating revenue was 6.4% in the second quarter of 2001 versus 6.9% in 2000. The Company includes gains and losses from the sale of owned revenue equipment in depreciation and amortization expense. During the three month period ended June 30, 2001, net gains from the sale of revenue equipment reduced depreciation and amortization expense by approximately $1.1 million compared to approximately $2.5 million in the second quarter of 2000. Exclusive of gains, which reduced this expense, depreciation and amortization expense, as a percentage of operating revenue was 6.6% and 7.4% in the second quarter of 2001 and 2000, respectively. Insurance and claims expense represented 4.6% and 2.6% of operating revenue in the second quarter of 2001 and 2000, respectively. Included in the second quarter of 2001 is an adjustment of approximately $7 million to the M.S. Carriers insurance and claims reserves. The Company previously disclosed that it anticipated an adjustment between $9 million and $12 million. 14 The Company's insurance program for liability, physical damage and cargo damage involves self-insurance with varying risk retention levels. Claims in excess of these risk retention levels are covered by insurance in amounts which management considers adequate. The Company accrues the estimated cost of the uninsured portion of pending claims. These accruals are estimated based on management's evaluation of the nature and severity of individual claims and an estimate of future claims development based on historical claims development trends. Insurance and claims expense will vary as a percentage of operating revenue from period to period based on the frequency and severity of claims incurred in a given period as well as changes in claims development trends. SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO SIX MONTHS ENDED JUNE 30, 2000 Operating revenue increased $86.3 million or 9.0% to $1.045 billion for the six months ended June 30, 2001 from $958.9 million for the corresponding period of 2000. Excluding approximately $43 million of six months 2000 revenues that were derived from our logistics operation, the increase in revenues would have been 14.1%. The increase in operating revenue is primarily the result of the expansion of the Company's fleet. The Company's operating ratio (operating expenses expressed as a percentage of operating revenue) for the first six months of 2001 was 96.4% compared to 92.2% in the comparable period of 2000. The Company's operating ratio for the six months ended June 30, 2001 increased as a result of increases in certain components of operating expenses as a percentage of operating revenue as discussed below. The Company's empty mile factor for linehaul operations was 15.40% and 13.91% and average loaded linehaul revenue per mile was $1.4164 and $1.3700 in the first six months of 2001 and 2000, respectively. Salaries, wages and employee benefits represented 37.4% of operating revenue for the six months ended June 30, 2001 compared with 33.8% in 2000. The increase is primarily due to a greater number of empty miles, the impact of reduced utilization on an increased dedicated business with fixed pay driver wages and a reduction in the owner-operator portion of the fleet. Fuel as a percentage of operating revenue was 13.8% for the first six months of 2001 versus 12.6% in 2000. The increase is primarily due to actual fuel cost per gallon increasing by approximately four cents per gallon (2.7%) for the six months ended June 30, 2001 versus the six months ended June 30, 2000. Purchased transportation as a percentage of operating revenue was 17.6% for the six months ended June 30, 2001 compared to 21.1% in 2000. The decrease is primarily due to the transfer of our logistics business to Transplace.com and a reduction in the owner operator portion of the fleet. Rental expense as a percentage of operating revenue was 4.7% for the first six months of 2001 versus 3.3% in 2000. When it is economically advantageous to do so, the Company will purchase then sell tractors that it currently leases by exercising the purchase option contained in the lease. Gains on these activities are recorded as a reduction of rent expense. The Company recorded gains of $251,000 and $895,000 in the first six months of 2001 and 2000 respectively, from the sale of leased tractors. Depreciation and amortization expense as a percentage of operating revenue was 6.6% and 6.9% in the first six months of 2001 and 2000, respectively. The Company includes gains and losses from the sale of owned revenue equipment in 15 depreciation and amortization expense. During the six month period ended June 30, 2001, net gains from the sale of revenue equipment reduced depreciation and amortization expense by approximately $2.2 million compared to approximately $6.6 million in the first six months of 2000. Exclusive of gains, which reduced this expense, depreciation and amortization expense as a percentage of operating revenue was 6.8% and 7.6% in the first six months of 2001 and 2000, respectively. Insurance and claims expense represented 4.0% and 2.8% of operating revenue in the first six months of 2001 and 2000. The increase is partially due to the adjustment of approximately $7 million to the M.S. Carriers insurance and claims reserves discussed above. The Company's insurance program for liability, physical damage and cargo damage involves self-insurance with varying risk retention levels. Claims in excess of these risk retention levels are covered by insurance in amounts which management considers adequate. The Company accrues the estimated cost of the uninsured portion of pending claims. These accruals are estimated based on management's evaluation of the nature and severity of individual claims and an estimate of future claims development based on historical claims development trends. Insurance and claims expense will vary as a percentage of operating revenue from period to period based on the frequency and severity of claims incurred in a given period as well as changes in claims development trends. LIQUIDITY AND CAPITAL RESOURCES The continued growth in the Company's business requires significant investment in new revenue equipment, upgraded and expanded facilities, and enhanced computer hardware and software. The funding for this expansion has been from cash provided by operating activities, proceeds from the sale of revenue equipment, long-term debt, borrowings on the Company's line of credit, proceeds from the accounts receivable securitization, the use of operating leases to finance the acquisition of revenue equipment and from periodic public offerings of common stock. Net cash provided by operating activities was $95.5 million in the first six months of 2001 compared to $69.1 million in 2000. The increase is primarily attributable to an increase in depreciation and amortization, a smaller increase in accounts receivable and increase in accounts payable, accrued liabilities and claims accruals offset by a decrease in net earnings. Net cash used in investing activities decreased to $39.3 million in the first six months of 2001 from $99.2 million in 2000. The decrease is primarily due to reduced capital expenditures offset by reduced proceeds from the sale of property and equipment. As of June 30, 2001, the Company had commitments outstanding to acquire replacement and additional revenue equipment for approximately $84 million. The Company has the option to cancel such commitments upon 60 days notice. The Company believes it has the ability to obtain debt and lease financing and generate sufficient cash flows from operating activities to support these acquisitions of revenue equipment. During the first six months of 2001, the Company incurred approximately $25.3 million of non-revenue equipment capital expenditures. These expenditures were primarily for facilities and equipment. 16 The Company anticipates that it will expend approximately $21 million during the remainder of the year for various facilities upgrades and acquisition and development of terminal facilities. Factors such as costs and opportunities for future terminal expansions may change the amount of such expenditures. The funding for capital expenditures has been and is anticipated to continue to be from a combination of cash provided by operating activities, amounts available under the Company's line of credit, accounts receivable securitization and debt and lease financing. The availability of capital for revenue equipment and other capital expenditures will be affected by prevailing market conditions and the Company's financial condition and results of operations. Net cash used in financing activities amounted to $56.1 million in the first six months of 2001 compared to $23.7 million provided by financing activities in 2000. This decrease is primarily due to reduced proceeds under the accounts receivable securitization and increased repayments of long-term debt, offset by reduced treasury stock purchases and proceeds from the Company's public stock offering. Management believes it will be able to finance its needs for working capital, facilities improvements and expansion, as well as anticipated fleet growth, with cash flows from future operations, borrowings available under the line of credit, accounts receivable securitization and with long-term debt and operating lease financing believed to be available to finance revenue equipment purchases. Over the long term, the Company will continue to have significant capital requirements, which may require the Company to seek additional borrowings or equity capital. The availability of debt financing or equity capital will depend upon the Company's financial condition and results of operations as well as prevailing market conditions, the market price of the Company's common stock and other factors over which the Company has little or no control. INFLATION Inflation can be expected to have an impact on the Company's operating costs. A prolonged period of inflation would cause interest rates, fuel, wages and other costs to increase and would adversely affect the Company's results of operations unless freight rates could be increased correspondingly. However, the effect of inflation has been minimal over the past three years. SEASONALITY In the transportation industry, results of operations generally show a seasonal pattern as customers reduce shipments after the winter holiday season. The Company's operating expenses also tend to be higher in the winter months primarily due to colder weather, which causes higher fuel consumption from increased idle time. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has interest rate exposure arising from the Company's line of credit, revolving notes, equipment loan, approximately $108 million of capital lease obligations and accounts receivable securitization, all of which have variable interest rates. These variable interest rates are impacted by changes in short-term interest rates. The Company manages interest rate exposure through its mix of variable rate debt, fixed rate lease financing and $70 million notional amount of interest rate swaps. The fair value of the Company's long-term debt approximates carrying values. Assuming the current level of borrowings, a hypothetical one-percentage point increase in interest rates would increase the Company's interest expense by $3.1 million. 17 SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES PART II OTHER INFORMATION Items 1, 2, 3 and 5. Not applicable Item 4. Submission of Matters to a Vote of Security Holders The Company's Annual Meeting of Stockholders was held on June 15, 2001. At the Annual Meeting, the stockholders elected Jerry C. Moyes, Alphonse E. Frei and Michael S. Starnes to serve as Directors for three-year terms. Edward A. Labry III was elected to serve as a Director for a two-year term. William F. Riley III, Rodney K. Sartor, Earl H. Scudder, Jr. and Lou A. Edwards continued as Directors after the meeting. Additionally, the stockholders (i) approved the issuance of shares to M.S. Carriers stockholders in connection with the Merger, and (ii) an amendment to the Company's 1999 Stock Option Plan increasing the number of shares available for issuance thereunder from 2,250,000 to 4,250,000. Stockholders representing 56,522,849 shares or 89.2% of the outstanding shares were present in person or by proxy at the Annual Meeting. A tabulation with respect to each nominee and the other proposals follows:
Votes Against Broker Votes Cast Votes For or Withheld Non Votes ---------- ---------- ---------- --------- Election of Jerry C. Moyes 56,522,849 49,318,763 7,204,086 Election of Alphonse E. Frei 56,522,849 55,620,160 902,689 Election of Michael S. Starnes 56,522,849 51,397,882 5,124,967 Election of Edward A. Labry III 56,522,849 55,616,839 906,010 Issuance of common stock to M.S Carriers stockholders 56,522,849 55,613,534 909,315 Amendment to 1999 Stock Option Plan 56,522,849 37,055,122 19,467,727
18 Item 6: Exhibits and reports on Form 8-K (a) Exhibit 3.1 - Amended and Restated Articles of Incorporation of the Registrant (Incorporated by reference to Exhibit 4.1 of the Registrant's Registration Statement No. 333-85940 on Form S-8) Exhibit 3.2 - Bylaws of the Registrant (Incorporated by reference to Exhibit 3.2 of the Registrant's Registration Statement No. 33-66034 on Form S-3) Exhibit 11 - Schedule of Computation of Net Earnings Per Share Exhibit 99 - Private Securities Litigation Reform Act of 1995 Safe Harbor Compliance Statement for Forward-Looking Statements (b) Current Reports on Form 8-K were filed on June 8, 2001 to announce the Company's anticipated earnings for the second quarter of 2001, and July 6, 2001 to announce completion of the merger. SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SWIFT TRANSPORTATION CO., INC. Date: August 20, 2001 /s/ William F. Riley III ---------------------------------------- (Signature) William F. Riley III Senior Executive Vice President and Chief Financial Officer 19