10-Q 1 e-7738.txt QUARTERLY REPORT FOR THE QTR ENDED 9/30/01 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549-1004 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-18605 SWIFT TRANSPORTATION CO., INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Nevada 86-0666860 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER) 2200 South 75th Avenue Phoenix, AZ 85043 (602) 269-9700 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days. YES [X] NO [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date (November 12, 2001) Common stock, $.001 par value: 85,206,884 shares PART I FINANCIAL INFORMATION PAGE NUMBER ------ Item 1. Financial Statements Condensed Consolidated Balance Sheets as of September 30, 2001 (unaudited) and December 31, 2000 3-4 Condensed Consolidated Statements of Earnings (unaudited) for the Three and Nine Month Periods Ended September 30, 2001 and 2000 5 Condensed Consolidated Statements of Stockholders' Equity (unaudited) for the Nine Month Period Ended September 30, 2001 6 Condensed Consolidated Statements of Cash Flows (unaudited) for the Nine Month Periods Ended September 30, 2001 and 2000 7-8 Notes to Condensed Consolidated Financial Statements 9-11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-16 Item 3. Quantitative and Qualitative Disclosures about Market Risk 16 PART II OTHER INFORMATION Items 1, 2, 3, 4 and 5. Not applicable Item 6. Exhibits and Reports on Form 8-K 17 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) SEPTEMBER 30, DECEMBER 31, 2001 2000 ---------- ---------- Assets (UNAUDITED) Current assets: Cash $ 11,894 $ 19,638 Accounts receivable, net 296,282 274,817 Account receivable, related party 11,892 Equipment sales receivable 1,959 5,799 Inventories and supplies 12,541 10,148 Prepaid taxes, licenses and insurance 20,880 34,600 Assets held for sale 3,169 Note receivable 3,200 Deferred income taxes 10,004 6,913 ---------- ---------- Total current assets 365,452 358,284 ---------- ---------- Property and equipment, at cost: Revenue and service equipment 1,367,235 1,306,998 Land 39,294 36,058 Facilities and improvements 191,627 171,536 Furniture and office equipment 64,447 56,938 ---------- ---------- Total property and equipment 1,662,603 1,571,530 Less accumulated depreciation and amortization 474,349 392,748 ---------- ---------- Net property and equipment 1,188,254 1,178,782 ---------- ---------- Other assets 21,304 26,061 Goodwill 9,259 10,336 ---------- ---------- $1,584,269 $1,573,463 ========== ========== CONTINUED See accompanying notes to condensed consolidated financial statements. 3 SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) SEPTEMBER 30, DECEMBER 31, 2001 2000 ---------- ---------- Liabilities and Stockholders' Equity (UNAUDITED) Current liabilities: Accounts payable $ 53,592 $ 61,057 Accrued liabilities 78,593 49,439 Current portion of claims accruals 42,401 35,417 Current portion of long-term debt 64,342 65,945 Securitization of accounts receivable 116,000 117,000 ---------- ---------- Total current liabilities 354,928 328,858 ---------- ---------- Borrowings under line of credit 148,000 154,000 Long-term debt, less current portion 143,227 223,056 Claims accruals, less current portion 50,616 42,570 Deferred income taxes 171,519 170,100 Fair value of interest rate swaps 5,639 Stockholders' equity: Preferred stock, par value $.001 per share Authorized 1,000,000 shares; none issued Common stock, par value $.001 per share Authorized 150,000,000 shares; 88,298,672 and 85,375,733 shares issued at September 30, 2001 and December 31, 2000, respectively 88 85 Additional paid-in capital 237,339 198,904 Retained earnings 510,848 496,671 ---------- ---------- 748,275 695,660 Less: Treasury stock, at cost (3,157,850 shares) 37,935 37,935 Other equity items 2,846 ---------- ---------- Total stockholders' equity 710,340 654,879 ---------- ---------- Commitments and contingencies $1,584,269 $1,573,463 ========== ========== See accompanying notes to condensed consolidated financial statements. 4 SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------------- -------------------------- 2001 2000 2001 2000 ----------- ----------- ----------- ----------- Operating revenue $ 536,379 $ 501,295 $ 1,581,528 $ 1,460,174 Operating expenses: Salaries, wages and employee benefits 193,990 170,150 584,786 494,676 Operating supplies and expenses 49,450 42,408 137,116 118,350 Fuel 70,188 67,854 214,386 188,437 Purchased transportation 92,141 98,535 276,462 300,458 Rental expense 24,850 18,178 74,029 50,097 Insurance and claims 24,161 12,491 66,075 39,564 Depreciation and amortization 36,123 33,431 105,430 99,562 Communication and utilities 7,360 6,466 21,348 18,325 Operating taxes and licenses 12,913 12,218 38,893 36,330 ----------- ----------- ----------- ----------- Total operating expenses 511,176 461,731 1,518,525 1,345,799 ----------- ----------- ----------- ----------- Operating income 25,203 39,564 63,003 114,375 Other (income) expenses: Interest expense 10,377 8,974 29,464 24,505 Interest income (388) (179) (939) (534) Other 8,983 (436) 9,568 (1,779) ----------- ----------- ----------- ----------- Other (income) expenses, net 18,972 8,359 38,093 22,192 ----------- ----------- ----------- ----------- Earnings before income taxes 6,231 31,205 24,910 92,183 Income taxes 3,444 11,802 10,733 34,773 ----------- ----------- ----------- ----------- Net earnings $ 2,787 $ 19,403 $ 14,177 $ 57,410 =========== =========== =========== =========== Basic earnings per share $ .03 $ .24 $ .17 $ .69 =========== =========== =========== =========== Diluted earnings per share $ .03 $ .23 $ .17 $ .69 =========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements. 5 SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK ADDITIONAL OTHER TOTAL -------------------- PAID-IN RETAINED TREASURY COMPREHENSIVE STOCKHOLDERS' SHARES PAR VALUE CAPITAL EARNINGS STOCK LOSS OTHER EQUITY ----------- --------- ---------- ---------- --------- -------- ------- --------- Balances, January 1, 2001 85,375,733 $ 85 $ 198,904 $ 496,671 $ (37,935) $ (1,994) $ (852) $ 654,879 Issuance of common stock under stock option and employee stock purchase plans 1,602,939 2 17,856 17,858 Amortization of deferred compensation 516 516 Foreign currency translation 1,994 1,994 Repayment of notes receivable from officers 852 852 Issuance of common stock upon public offering 1,320,000 1 20,063 20,064 Net earnings 14,177 14,177 ----------- ----- ---------- ---------- --------- -------- ------- --------- Balances, September 30, 2001 88,298,672 $ 88 $ 237,339 $ 510,848 $ (37,935) $ $ $ 710,340 =========== ===== ========== ========== ========= ======== ======= =========
See accompanying notes to condensed consolidated financial statements. 6 SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------- 2001 2000 --------- --------- Cash flows from operating activities: Net earnings $ 14,177 $ 57,410 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 106,027 99,523 Deferred income taxes 407 26,084 Provision for losses on accounts receivable 1,125 800 Amortization of deferred compensation 516 337 Fair market value of interest rate swaps 3,652 EASO impairment adjustment 10,447 Increase (decrease) in cash resulting from changes in: Accounts receivable (36,407) (55,046) Inventories and supplies (2,393) (890) Prepaid expenses 13,720 4,993 Other assets (2,039) (8,221) Accounts payable, accrued liabilities and claims accruals 38,915 718 --------- --------- Net cash provided by operating activities 148,147 125,708 --------- --------- Cash flows from investing activities: Proceeds from sale of property and equipment 41,050 138,146 Capital expenditures (156,281) (284,374) Equity investment (10,000) Repayment of note receivable 3,200 Notes receivable from officer 851 (851) Payments received on equipment sale receivables 5,799 5,966 --------- --------- Net cash used in investing activities (105,381) (151,113) --------- ---------
See accompanying notes to condensed consolidated financial statements. 7 CONTINUED SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------- 2001 2000 --------- --------- Cash flows from financing activities: Repayments of long-term debt (81,432) (29,289) Borrowings under line of credit 125,000 (3,867) Repayments of borrowings under line of credit (131,000) Change in borrowings under accounts receivable securitization (1,000) 99,000 Purchases of treasury stock (40,703) Proceeds from public offering 20,064 Proceeds from issuance of common stock under stock option and stock purchase plans 17,858 3,640 --------- --------- Net cash (used in) provided by financing activities (50,510) 28,781 --------- --------- Net increase (decrease) in cash (7,744) 3,376 Cash at beginning of period 19,638 10,212 --------- --------- Cash at end of period $ 11,894 $ 13,588 ========= ========= Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 26,137 $ 27,859 Income taxes $ 2,318 $ 2,240 Supplemental schedule of noncash investing and financing activities: Equipment sales receivables $ 1,959 $ 8,448 Note receivable from property sale $ 1,715 $ 5,063
See accompanying notes to condensed consolidated financial statements. 8 SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1. Basis of Presentation The condensed consolidated financial statements include the accounts of Swift Transportation Co., Inc., a Nevada holding company, and its wholly-owned subsidiaries (the Company). All significant intercompany balances and transactions have been eliminated. These consolidated financial statements include the accounts of M.S. Carriers, Inc. ("M.S. Carriers"), which merged with a subsidiary of the Company on June 29, 2001 (the "Merger"). Upon completion of the Merger, M.S. Carriers became a wholly owned subsidiary of the Company. The Merger was accounted for as a pooling of interests. Accordingly, the historical financial statements presented herein have been restated to include the financial position, results of operations, and cash flows of M.S. Carriers. The financial statements have been prepared in accordance with generally accepted accounting principles, pursuant to rules and regulations of the Securities and Exchange Commission. In the opinion of management, the accompanying financial statements include all adjustments which are necessary for a fair presentation of the results for the interim periods presented. Certain information and footnote disclosures have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. Results of operations in interim periods are not necessarily indicative of results to be expected for a full year. Note 2. Contingencies The Company is involved in certain claims and pending litigation arising from the normal course of business. Based on the knowledge of the facts and, in certain cases, opinions of outside counsel, management believes the resolution of claims and pending litigation will not have a material adverse effect on the financial condition of the Company. Note 3. Account Receivable - Related Party This balance, owed by an entity controlled by the Company's Chairman, was paid in full in October 2001. Note 4. Assets Held for Sale In January 2001, the Company sold the remainder of the assets held for sale. The Company received $1,000,000 and a non interest-bearing note for $1,900,000. Under the terms of the note, a $1,000,000 payment is due January 2002 and the balance is due January 2003. Note 5. Derivative Financial Instruments The Company adopted Statement of Financial Standards No. 133 (SFAS No. 133), "Accounting for Derivative Instruments and Hedging Activities," and its amendments, Statement 137 and 138, on January 1, 2001. SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at fair value. 9 SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The swap agreements are used to manage exposure to interest rate movement by effectively changing the variable rate to a fixed rate. Changes in fair value of the interest rate swap agreements will be recognized in net earnings until maturity, March 2009. For the three and nine months ended September 30, 2001, the Company recognized a loss, net of tax, for the change in fair market value of the interest rate swap agreements of $2,364,000 and $3,652,000 respectively. Note 6. Segments The Company's two reportable segments are Swift Transportation and M.S. Carriers. THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------------- -------------------------- 2001 2000 2001 2000 ----------- ----------- ----------- ----------- (IN THOUSANDS) Operating revenue: Swift $ 356,761 $ 320,586 $ 1,034,198 $ 928,663 M.S. Carriers 179,618 180,709 547,330 531,511 ----------- ----------- ----------- ----------- $ 536,379 $ 501,295 $ 1,581,528 $ 1,460,174 =========== =========== =========== =========== Net earning (loss): Swift $ 15,792 $ 15,316 $ 29,255 $ 42,532 M.S. Carriers (13,005) 4,087 (15,078) 14,878 ----------- ----------- ----------- ----------- $ 2,787 $ 19,403 $ 14,177 $ 57,410 =========== =========== =========== =========== Note 7. Transportes EASO The Company recorded a $10.5 million adjustment in the third quarter statement of earnings, of which $8.5 million relates to the impairment of its 50% equity investment held by M.S. Carriers in Transportes EASO, the largest intra-Mexico truckload carrier, and $2 million is associated with the write off of a cash advance made to EASO in the third quarter of 2001. Although the $10.5 million adjustment is included in the current quarter, the Company is evaluating whether previously reported quarters are affected. Note 8. Public Stock Offering The Company completed a public offering of 1,200,000 shares of its common stock on June 27, 2001. This offering generated proceeds of $18.2 million, net of expenses. An option by the underwriters to purchase an additional 120,000 shares was exercised on July 2, 2001 and generated additional proceeds of $1.8 million. 10 SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 9. Accounting Standards Not Yet Adopted by the Company The Financial Accounting Standards Board has issued Statements of Financial Accounting Standards ("SFAS") for which the required implementation date has not yet become effective. Those standards that may materially impact the Company are discussed below. In July 2001, SFAS No. 142 "Goodwill and Other Intangible Assets" was issued. This standard will be effective in the first quarter of 2002. This standard eliminates amortization of goodwill and replaces it with a test for impairment. The Company has $9.3 million of goodwill that is not expected to be impaired under the standard. The Company amortized $1.1 million of goodwill for the nine months ended September 30, 2001. Amortization will cease beginning January 1, 2002. 11 SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS This Report on Form 10-Q contains forward-looking statements. The words "believe," "expect," "anticipate," and "project," and similar expressions identify forward-looking statements, which speak only as of the date the statement was made. Such forward-looking statements are within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements may include, but are not limited to, projections of revenues, income, or loss, capital expenditures, plans for future operations, financing needs or plans, the impact of inflation and plans relating to the foregoing. Statements in Exhibit 99 to this Quarterly Report on Form 10-Q and in the Company's Annual Report on Form 10-K, including Notes to the Consolidated Financial Statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations," describe factors, among others, that could cause actual results or events to differ materially from those expressed in forward-looking statements. Additional factors that could contribute to or cause such differences are set forth in "Business" and "Market for the Registrant's Common Stock and Related Stockholder Matters" in the Company's Annual Report on Form 10-K. BUSINESS ACQUISITION On June 29, 2001, the Company acquired M.S. Carriers, Inc. ("M.S. Carriers") through the merger of a wholly owned subsidiary of the Company with and into M.S. Carriers (the "Merger"). Upon completion of the Merger, M.S. Carriers became a wholly owned subsidiary of the Company. The Merger has been accounted for as a pooling of interests. Accordingly, all historical financial data discussed below has been restated to include the financial position, results of operations, and cash flows of M.S. Carriers. In addition, the results for the nine months of 2001 include: * a $7 million increase to M.S. Carriers insurance and claims reserves in the second quarter of this year; * a $10.5 million adjustment in the third quarter, of which $8.5 million relates to the impairment of its 50% equity investment held by M.S. Carriers in Transportes EASO, the largest intra-Mexico truckload carrier, and $2 million is associated with the write off of a cash advance made to EASO in the third quarter of 2001. Although the $10.5 million adjustment is included in the current quarter, the Company is evaluating whether previously reported quarters are affected; and * a $5.6 million adjustment ($3.6 million in the third quarter of this year) for the change in market value of the interest rate derivative agreements of M.S. Carriers. OVERVIEW See Note 7 to the financial statements for discussion of accounting standards not yet adopted by the Company. Although the trend in the truckload segment of the motor carrier industry over the past several years has been towards consolidation, the truckload industry remains highly fragmented. Management believes the industry trend towards financially stable "core carriers" will continue and result in continued industry consolidation. In response to this trend, the Company continues to expand its fleet with an increase of 1,083 tractors to 15,728 tractors as of September 30, 2001 up from 14,645 tractors as of September 30, 2000. The owner operator portion of the Company's fleet decreased to 3,290 as of September 30, 2001 from 3,411 as of September 30, 2000. 12 RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2000 Operating revenue increased $35.1 million or 7.0% to $536.4 million for the three months ended September 30, 2001 from $501.3 million for the corresponding period of 2000. The increase in operating revenue is primarily the result of the expansion of the Company's fleet. The Company's operating ratio (operating expenses expressed as a percentage of operating revenue) for the third quarter of 2001 was 95.3% compared to 92.1% in the comparable period of 2000. The Company's operating ratio for the three months ended September 30, 2001 increased as a result of increases in certain components of operating expenses as a percentage of operating revenue as discussed below. The Company's empty mile factor for linehaul operations was 14.58% and 13.89% and average loaded linehaul revenue per mile (excluding fuel surcharge) was $1.4038 and $1.3889 in the third quarter of 2001 and 2000, respectively. Salaries, wages and employee benefits represented 36.2% of operating revenue for the three months ended September 30, 2001 compared with 33.9% in 2000. The increase is primarily due to a larger percentage of company trucks in the total fleet, a greater number of empty miles and the impact of reduced utilization on an increased dedicated business with fixed pay driver wages. From time to time the industry has experienced shortages of qualified drivers. If such a shortage were to occur over a prolonged period and increases in driver pay rates were needed in order to attract and retain drivers, the Company's results of operations would be negatively impacted to the extent that corresponding freight rate increases were not obtained. Fuel as a percentage of operating revenue was 13.1% for the third quarter of 2001 versus 13.5% in 2000. The decrease is primarily due to actual fuel cost per gallon decreasing by approximately 13 cents per gallon (9.4%) in the third quarter of 2001 versus the third quarter of 2000. Increases in fuel costs, to the extent not offset by rate increases or fuel surcharges, would have an adverse effect on the operations and profitability of the Company. Management believes the most effective protection against fuel cost increases is to maintain a fuel efficient fleet and to implement fuel surcharges when such option is necessary and available. The Company currently does not use derivative-type hedging products. Purchased transportation as a percentage of operating revenue was 17.2% for the three months ended September 30, 2001 compared to 19.7% in 2000. The decrease is primarily due to a reduction in the owner operator portion of the fleet. Rental expense as a percentage of operating revenue was 4.6% for the third quarter of 2001 versus 3.6% in 2000. At September 30, 2001 and 2000, leased tractors represented 50% and 51%, respectively, of the total fleet of Company tractors. When it is economically advantageous to do so, the Company will purchase then sell tractors that it currently leases by exercising the purchase option contained in the lease. Gains on these activities are recorded as a reduction of rent expense. The Company recorded gains of $15,000 in the third quarter of 2001 and $110,000 during the third quarter of 2000 from the sale of leased tractors. Depreciation and amortization expense as a percentage of operating revenue was 6.7% in the third quarter of 2001 and 2000. The Company includes gains and losses from the sale of owned revenue equipment in depreciation and amortization expense. During the three month period ended September 30, 2001, net gains from the sale of revenue equipment reduced depreciation and amortization expense by approximately $588,000 compared to approximately $1.4 million in the third quarter of 2000. Exclusive of gains, which reduced this expense, depreciation and amortization expense, as a percentage of operating revenue was 6.8% and 6.9% in the third quarter of 2001 and 2000, respectively. 13 Insurance and claims expense represented 4.5% and 2.5% of operating revenue in the third quarter of 2001 and 2000, respectively. Included in the third quarter of 2001 are $1.9 million of increased insurance premiums over the same quarter of the prior year, approximately 0.4% of operating revenue. The Company's insurance program for liability, physical damage and cargo damage involves self-insurance with varying risk retention levels. Claims in excess of these risk retention levels are covered by insurance in amounts which management considers adequate. The Company accrues the estimated cost of the uninsured portion of pending claims. These accruals are estimated based on management's evaluation of the nature and severity of individual claims and an estimate of future claims development based on historical claims development trends. Insurance and claims expense will vary as a percentage of operating revenue from period to period based on the frequency and severity of claims incurred in a given period as well as changes in claims development trends, and insurance premium rate increases which the Company experienced in 2001 and expects in 2002. NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2000 Operating revenue increased $121.4 million or 8.3% to $1.582 billion for the nine months ended September 30, 2001 from $1.460 billion for the corresponding period of 2000. Excluding approximately $43 million of nine months 2000 revenues that were derived from our logistics operation, the increase in revenues would have been 11.6%. The increase in operating revenue is primarily the result of the expansion of the Company's fleet. The Company's operating ratio (operating expenses expressed as a percentage of operating revenue) for the first nine months of 2001 was 96.0% compared to 92.2% in the comparable period of 2000. The Company's operating ratio for the nine months ended September 30, 2001 increased as a result of increases in certain components of operating expenses as a percentage of operating revenue as discussed below. The Company's empty mile factor for linehaul operations was 15.12% and 13.90% and average loaded linehaul revenue per mile was $1.4121 and $1.3765 in the first nine months of 2001 and 2000, respectively. Salaries, wages and employee benefits represented 37.0% of operating revenue for the nine months ended September 30, 2001 compared with 33.9% in 2000. The increase is primarily due to a larger percentage of company trucks in the total fleet, a greater number of empty miles and the impact of reduced utilization on an increased dedicated business with fixed pay driver wages. Fuel as a percentage of operating revenue was 13.6% for the first nine months of 2001 versus 12.9% in 2000. The increase is primarily due to a higher percentage of company tractors in the total fleet for the nine months ended September 30, 2001 versus the nine months ended September 30, 2000. Purchased transportation as a percentage of operating revenue was 17.5% for the nine months ended September 30, 2001 compared to 20.6% in 2000. The decrease is primarily due to the transfer of our logistics business to Transplace.com and a reduction in the owner operator portion of the fleet. Rental expense as a percentage of operating revenue was 4.7% for the first nine months of 2001 versus 3.4% in 2000. When it is economically advantageous to do so, the Company will purchase then sell tractors that it currently leases by exercising the purchase option contained in the lease. Gains on these activities are recorded as a reduction of rent expense. The Company recorded gains of $267,000 and $1.0 million in the first nine months of 2001 and 2000 respectively, from the sale of leased tractors. Depreciation and amortization expense as a percentage of operating revenue was 6.7% and 6.8% in the first nine months of 2001 and 2000, respectively. The Company includes gains and losses from the sale of owned revenue equipment in depreciation and amortization expense. During the nine month period ended September 30, 2001, net gains from the sale of revenue equipment reduced depreciation and amortization expense by approximately $2.6 million compared to approximately $7.6 million in the first nine months of 2000. Exclusive of gains, which reduced this expense, depreciation and amortization expense, as a percentage of operating revenue was 6.8% and 7.3% in the first nine months of 2001 and 2000, respectively. 14 Insurance and claims expense represented 4.2% and 2.7% of operating revenue in the first nine months of 2001 and 2000. The increase is partially due to the adjustment of approximately $7 million to the M.S. Carriers insurance and claims reserves and $3.7 million of increased insurance premiums noted above. These factors combined represent 0.7% of operating revenue. The Company's insurance program for liability, physical damage and cargo damage involves self-insurance with varying risk retention levels. Claims in excess of these risk retention levels are covered by insurance in amounts which management considers adequate. The Company accrues the estimated cost of the uninsured portion of pending claims. These accruals are estimated based on management's evaluation of the nature and severity of individual claims and an estimate of future claims development based on historical claims development trends. Insurance and claims expense will vary as a percentage of operating revenue from period to period based on the frequency and severity of claims incurred in a given period as well as changes in claims development trends, and insurance premium rate increases which the Company experienced in 2001 and expects in 2002. LIQUIDITY AND CAPITAL RESOURCES The continued growth in the Company's business requires significant investment in new revenue equipment, upgraded and expanded facilities, and enhanced computer hardware and software. The funding for this expansion has been from cash provided by operating activities, proceeds from the sale of revenue equipment, long-term debt, borrowings on the Company's line of credit, proceeds from the accounts receivable securitization, the use of operating leases to finance the acquisition of revenue equipment and from periodic public offerings of common stock. Net cash provided by operating activities was $148.1 million in the first nine months of 2001 compared to $125.7 million in 2000. The increase is primarily attributable to an increase in depreciation and amortization, a smaller increase in accounts receivable and an increase in accounts payable, accrued liabilities and claims accruals offset by a decrease in net earnings. Net cash used in investing activities decreased to $105.4 million in the first nine months of 2001 from $151.1 million in 2000. The decrease is primarily due to reduced capital expenditures offset by reduced proceeds from the sale of property and equipment. As of September 30, 2001, the Company had commitments outstanding to acquire replacement and additional revenue equipment for approximately $73 million. The Company has the option to cancel such commitments upon 60 days notice. The Company believes it has the ability to obtain debt and lease financing and generate sufficient cash flows from operating activities to support these acquisitions of revenue equipment. During the first nine months of 2001, the Company incurred approximately $31.2 million of non-revenue equipment capital expenditures. These expenditures were primarily for facilities and equipment. The Company anticipates that it will expend approximately $10 million during the remainder of the year for various facilities upgrades and acquisition and development of terminal facilities. Factors such as costs and opportunities for future terminal expansions may change the amount of such expenditures. The funding for capital expenditures has been and is anticipated to continue to be from a combination of cash provided by operating activities, amounts available under the Company's line of credit, accounts receivable securitization and debt and lease financing. The availability of capital for revenue equipment and other capital expenditures will be affected by prevailing market conditions and the Company's financial condition and results of operations. Net cash used in financing activities amounted to $50.5 million in the first nine months of 2001 compared to $28.8 million provided by financing activities in 2000. This decrease is primarily due to reduced proceeds under the accounts receivable securitization and increased repayments of long-term debt, offset by reduced treasury stock purchases and proceeds from the Company's public stock offering. 15 Management believes it will be able to finance its needs for working capital, facilities improvements and expansion, as well as anticipated fleet growth, with cash flows from future operations, borrowings available under the line of credit, accounts receivable securitization and with long-term debt and operating lease financing believed to be available to finance revenue equipment purchases. Over the long term, the Company will continue to have significant capital requirements, which may require the Company to seek additional borrowings or equity capital. The availability of debt financing or equity capital will depend upon the Company's financial condition and results of operations as well as prevailing market conditions, the market price of the Company's common stock and other factors over which the Company has little or no control. INFLATION Inflation can be expected to have an impact on the Company's operating costs. A prolonged period of inflation would cause interest rates, fuel, wages and other costs to increase and would adversely affect the Company's results of operations unless freight rates could be increased correspondingly. However, the effect of inflation has been minimal over the past three years. SEASONALITY In the transportation industry, results of operations generally show a seasonal pattern as customers reduce shipments after the winter holiday season. The Company's operating expenses also tend to be higher in the winter months primarily due to colder weather, which causes higher fuel consumption from increased idle time. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has interest rate exposure arising from the Company's line of credit, revolving notes, equipment loan, approximately $96 million of capital lease obligations and accounts receivable securitization, all of which have variable interest rates. These variable interest rates are impacted by changes in short-term interest rates. The Company manages interest rate exposure through its mix of variable rate debt, fixed rate lease financing and $70 million notional amount of interest rate swaps. The fair value of the Company's long-term debt approximates carrying values. Assuming the current level of borrowings, a hypothetical one-percentage point increase in interest rates would increase the Company's interest expense by $3.1 million. 16 SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES PART II. OTHER INFORMATION ITEMS 1, 2, 3, 4 AND 5. Not applicable ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 3.1 - Amended and Restated Articles of Incorporation of the Registrant (Incorporated by reference to Exhibit 4.1 of the Registrant's Registration Statement No. 333-85940 on Form S-8) Exhibit 3.2 - Bylaws of the Registrant (Incorporated by reference to Exhibit 3.2 of the Registrant's Registration Statement No. 33-66034 on Form S-3) Exhibit 11 - Schedule of Computation of Net Earnings Per Share Exhibit 99 - Private Securities Litigation Reform Act of 1995 Safe Harbor Compliance Statement for Forward-Looking Statements (b) No Current Reports on Form 8-K were filed during the three months ended September 30, 2001. SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SWIFT TRANSPORTATION CO., INC. Date: November 13, 2001 /s/ William F. Riley III ---------------------------------------- (Signature) William F. Riley III Senior Executive Vice President and Chief Financial Officer 17