-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UEMiYbrGWJfERElQmgSzVGeythYDXGYqMqstQy8yOMgU4undPVx48Uxe9GUznkSY hrKz9FXwc0Zzs1H3sX7qVA== 0000950147-02-000997.txt : 20020814 0000950147-02-000997.hdr.sgml : 20020814 20020814112713 ACCESSION NUMBER: 0000950147-02-000997 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SWIFT TRANSPORTATION CO INC CENTRAL INDEX KEY: 0000863557 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 860666860 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-18605 FILM NUMBER: 02732612 BUSINESS ADDRESS: STREET 1: 2200 SOUTH 75TH AVENUE CITY: PHOENIX STATE: AZ ZIP: 85043 BUSINESS PHONE: 6022699700 MAIL ADDRESS: STREET 1: 2200 SOUTH 75TH AVENUE CITY: PHOENIX STATE: AZ ZIP: 85043 10-Q 1 e-8828.txt QUARTERLY REPORT FOR THE QTR ENDED 6/30/2002 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549-1004 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2002 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-18605 SWIFT TRANSPORTATION CO., INC. (Exact Name of Registrant as Specified in Its Charter) Nevada 86-0666860 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification Number) 2200 South 75th Avenue Phoenix, AZ 85043 (602) 269-9700 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Office) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days. YES [X] NO [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date (August 12, 2002) Common stock, $.001 par value: 85,670,874 shares PART I PAGE FINANCIAL INFORMATION NUMBER ------ Item 1. Financial Statements Condensed Consolidated Balance Sheets as of June 30, 2002 (unaudited) and December 31, 2001 3-4 Condensed Consolidated Statements of Earnings (unaudited) for the Three and Six Month Periods Ended June 30, 2002 and 2001 5 Condensed Consolidated Statements of Cash Flows (unaudited) for the Six Month Periods Ended June 30, 2002 and 2001 6-7 Notes to Condensed Consolidated Financial Statements 8-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11-16 Item 3. Quantitative and Qualitative Disclosures about Market Risk 17 PART II OTHER INFORMATION Items 1, 2, 3 and 5. Not applicable Item 4. Submission of Matters to a Vote of Security Holders 18 Item 6. Exhibits and Reports on Form 8-K 19 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) JUNE 30, DECEMBER 31, 2002 2001 ---------- ---------- Assets (UNAUDITED) Current assets: Cash $ 2,122 $ 14,151 Accounts receivable, net 289,882 248,725 Equipment sales receivable 22,947 2,107 Inventories and supplies 11,451 11,682 Prepaid taxes, licenses and insurance 21,165 26,881 Deferred income taxes 13,932 13,932 ---------- ---------- Total current assets 361,499 317,478 ---------- ---------- Property and equipment, at cost: Revenue and service equipment 1,411,343 1,401,646 Land 42,758 42,852 Facilities and improvements 212,329 197,681 Furniture and office equipment 68,041 66,319 ---------- ---------- Total property and equipment 1,734,471 1,708,498 Less accumulated depreciation and amortization 513,700 501,853 ---------- ---------- Net property and equipment 1,220,771 1,206,645 ---------- ---------- Investment in Transplace 5,769 7,517 Notes receivable from Trans-Mex 6,082 3,475 Deferred legal fees 21,130 Other assets 16,214 12,081 Goodwill 8,900 8,900 ---------- ---------- $1,640,365 $1,556,096 ========== ========== See accompanying notes to condensed consolidated financial statements. CONTINUED 3 SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) JUNE 30, DECEMBER 31, 2002 2001 ---------- ---------- Liabilities and Stockholders' Equity (UNAUDITED) Current liabilities: Accounts payable $ 75,977 $ 57,229 Accrued liabilities 72,690 58,925 Current portion of claims accruals 51,568 48,416 Current portion of long-term debt 3,416 3,546 Current portion of obligations under capital leases 69,220 57,661 Borrowings under line of credit 128,000 Securitization of accounts receivable 118,000 116,000 ---------- ---------- Total current liabilities 518,871 341,777 ---------- ---------- Borrowings under line of credit 117,000 Long-term debt, less current portion 9,616 16,340 Obligations under capital leases 55,729 90,146 Claims accruals, less current portion 67,390 55,975 Deferred income taxes 211,433 195,605 Fair value of interest rate swaps 5,422 4,050 Stockholders' equity: Preferred stock, par value $.001 per share Authorized 1,000,000 shares; none issued Common stock, par value $.001 per share Authorized 200,000,000 shares; 89,801,583 and 89,049,519 shares issued at June 30, 2002 and December 31, 2001, respectively 90 89 Additional paid-in capital 258,765 249,410 Retained earnings 550,984 523,892 ---------- ---------- 809,839 773,391 Less: Treasury stock, at cost (3,157,850 shares) 37,935 37,935 Other equity items 253 ---------- ---------- Total stockholders' equity 771,904 735,203 ---------- ---------- Commitments and contingencies $1,640,365 $1,556,096 ========== ========== See accompanying notes to condensed consolidated financial statements. 4 SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE DATA)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, --------------------------- -------------------------- 2002 2001 2002 2001 ----------- ----------- ----------- ----------- Operating revenue $ 528,595 $ 535,555 $ 1,004,375 $ 1,045,149 Operating expenses: Salaries, wages and employee benefits 191,569 198,072 372,474 390,796 Operating supplies and expenses 50,047 43,282 91,699 87,666 Fuel 62,993 73,168 117,309 144,198 Purchased transportation 89,337 92,539 173,075 184,321 Rental expense 21,156 25,317 43,350 49,179 Insurance and claims 19,714 24,721 39,094 41,914 Depreciation and amortization 38,183 34,301 74,900 69,307 Communication and utilities 6,566 7,098 13,737 13,988 Operating taxes and licenses 13,264 12,934 25,219 25,980 ----------- ----------- ----------- ----------- Total operating expenses 492,829 511,432 950,857 1,007,349 ----------- ----------- ----------- ----------- Operating income 35,766 24,123 53,518 37,800 Other (income) expenses: Interest expense 6,770 6,091 9,077 19,087 Interest income (364) (261) (651) (551) Other 563 76 970 585 ----------- ----------- ----------- ----------- Other (income) expenses, net 6,969 5,906 9,396 19,121 ----------- ----------- ----------- ----------- Earnings before income taxes 28,797 18,217 44,122 18,679 Income taxes 11,115 7,086 17,030 7,289 ----------- ----------- ----------- ----------- Net earnings $ 17,682 $ 11,131 $ 27,092 $ 11,390 =========== =========== =========== =========== Basic earnings per share $ .20 $ .13 $ .31 $ .14 =========== =========== =========== =========== Diluted earnings per share $ .20 $ .13 $ .31 $ .14 =========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements. 5 SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, ------------------------ 2002 2001 --------- --------- Cash flows from operating activities: Net earnings $ 27,092 $ 11,390 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 70,197 69,659 Deferred income taxes 15,828 266 Provision for losses on accounts receivable 3,679 750 Amortization of deferred compensation 475 289 Fair market value of interest rate swaps 1,372 1,282 Impairment of property 2,500 Increase (decrease) in cash resulting from changes in: Accounts receivable (42,750) (13,041) Inventories and supplies 231 (373) Prepaid expenses 5,716 1,982 Other assets (15,707) (3,903) Accounts payable, accrued liabilities and claims accruals 45,269 27,224 --------- --------- Net cash provided by operating activities 113,902 95,525 --------- --------- Cash flows from investing activities: Proceeds from sale of property and equipment 51,300 24,083 Capital expenditures (161,441) (73,261) Repayment of note receivable 1,000 4,052 Notes receivable (11,065) Payments received on equipment sale receivables 2,107 5,799 --------- --------- Net cash used in investing activities (118,099) (39,327) --------- ---------
See accompanying notes to condensed consolidated financial statements. CONTINUED 6 SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, ------------------------- 2002 2001 --------- --------- Cash flows from financing activities: Repayments of long-term debt (29,713) (53,423) Borrowings under line of credit 127,500 (28,000) Repayment of borrowings under line of credit (116,500) Change in borrowings under accounts receivable securitization 2,000 (1,000) Proceeds from public offering 18,240 Proceeds from issuance of common stock under stock option and stock purchase plans 8,881 8,071 --------- --------- Net cash used in financing activities (7,832) (56,112) --------- --------- Effect of exchange rate changes on cash 216 --------- --------- Net increase (decrease) in cash (12,029) 302 Cash at beginning of period 14,151 19,638 --------- --------- Cash at end of period $ 2,122 $ 19,940 ========= ========= Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 6,256 $ 13,288 Income taxes $ 232 $ 3,446 Supplemental schedule of noncash investing and financing activities: Equipment sales receivables $ 22,908 $ 7,922 Note receivable from property sale $ 1,715
See accompanying notes to condensed consolidated financial statements. 7 SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1. Basis of Presentation The condensed consolidated financial statements include the accounts of Swift Transportation Co., Inc., a Nevada holding company, and its wholly-owned subsidiaries (the Company). All significant intercompany balances and transactions have been eliminated. These consolidated financial statements include the accounts of M.S. Carriers, Inc. ("M.S. Carriers"), which merged with a subsidiary of the Company on June 29, 2001 (the "Merger"). Upon completion of the Merger, M.S. Carriers became a wholly owned subsidiary of the Company. The Merger was accounted for as a pooling of interests. The financial statements have been prepared in accordance with generally accepted accounting principles, pursuant to rules and regulations of the Securities and Exchange Commission. In the opinion of management, the accompanying financial statements include all adjustments which are necessary for a fair presentation of the results for the interim periods presented. Certain information and footnote disclosures have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. Results of operations in interim periods are not necessarily indicative of results to be expected for a full year. Note 2. Contingencies The Company is involved in certain claims and pending litigation arising from the normal course of business. Based on the knowledge of the facts and, in certain cases, opinions of outside counsel, management believes the resolution of claims and pending litigation will not have a material adverse effect on the financial condition of the Company. Note 3. Receivable - Trans-Mex The Company has advanced $6.1 million to Trans-Mex, Inc. S.A. de C. V., a Mexican corporation of which the Company owns 49%. These loans, which are secured by equipment, bear interest at prime plus 2% with monthly payments of interest plus amortization of the principal over five years. 8 SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 4. Earnings Per Share The computation of basic and diluted earnings per share is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------- ----------------- 2002 2001 2002 2001 ------- ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net earnings .................................................. $17,682 $11,131 $27,092 $11,390 ======= ======= ======= ======= Weighted average shares: Common shares outstanding for basic earnings per share ........ 86,419 82,588 86,265 82,462 Equivalent shares issuable upon exercise of stock options...... 1,472 1,776 1,650 1,887 ------- ------- ------- ------- Diluted shares ................................................ 87,891 84,364 87,915 84,349 ======= ======= ======= ======= Basic earnings per share ...................................... $ .20 $ .13 $ .31 $ .14 ======= ======= ======= ======= Diluted earnings per share .................................... $ .20 $ .13 $ .31 $ .14 ======= ======= ======= =======
Note 5. Accounting Standards Adopted by the Company The Company adopted Statement of Financial Standards No. 142 "Goodwill and Other Intangible Assets" on January 1, 2002. This standard eliminates amortization of goodwill and replaces it with a test for impairment. The Company has $8.9 million of goodwill. The Company amortized $359,000 and $718,000 of goodwill for the three and six months ended June 30, 2001, respectively. Basic earnings per share would have been $.14 per share for both of the three months and six months ended June 30, 2001 and diluted earnings per share would have been $.13 and $.14 per share for the three months and six months ended June 30, 2001 without goodwill amortization. Note 6. Settlement of Litigation In June 2002, the Company entered into a settlement agreement with an insurance company. Pursuant to this settlement, the insurance company agreed to provide certain insurance coverage, at no cost to the Company, through December 2004 in exchange for the Company releasing all claims that were the subject of the litigation. The Company will recognize this settlement amount as a reduction of insurance expense as the insurance coverage is provided during the period from July 1, 2002 through December 31, 2004. In addition, the Company has deferred the $21.1 million of legal expenses, which were earned pursuant to a contingent fee arrangement based upon the Company's estimated valuation of the insurance provided of between $65 million and $74 million. These legal expenses will be amortized on a straight-line 9 SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) basis over the thirty-month period beginning July 1, 2002. In the event that the Company does not receive the future insurance coverage due to the liquidation, rehabilitation, bankruptcy or other similar insolvency of the insurers, the Company will receive a reimbursement of its legal expenses on a declining basis ranging from $15.8 million through December 15, 2002 to $3.9 million through July 1, 2004. Note 7. Fixed Asset Impairment In June 2002, the Company recorded a $2.5 million expense for the estimated excess of carrying value over the fair value of an office building in Memphis, Tennessee, which formerly was the corporate office of M.S. Carriers. Although the Company is currently utilizing some of the building, a sale of this property is anticipated in the near term. This expense, which was included in depreciation expense, was based upon a fair value determined by the Company using sale and asking prices of comparable properties. Note 8. Subsequent Event - Stock Repurchase Program In July 2002, the Company announced that its Board of Directors authorized the Company to repurchase up to 3,000,000 shares of its common stock. The stock may be purchased on the open market or in privately negotiated transactions at any time until December 31, 2002, unless the period is extended by the Board. Any purchases would be at management's discretion based upon prevailing prices, liquidity and other factors. 10 SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS This Report on Form 10-Q contains forward-looking statements. The words "believe," "expect," "anticipate," and "project," and similar expressions identify forward-looking statements, which speak only as of the date the statement was made. Such forward-looking statements are within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements may include, but are not limited to, projections of revenues, operating expenses (including insurance and claims expense), income or loss, capital expenditures, plans for future operations, financing needs or plans, the impact of inflation and plans relating to the foregoing. Statements in Exhibit 99.1 to this Quarterly Report on Form 10-Q and in the Company's Annual Report on Form 10-K, including Notes to the Consolidated Financial Statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations," describe factors, among others, that could cause actual results or events to differ materially from those expressed in forward-looking statements. Additional factors that could contribute to or cause such differences are set forth in "Business" and "Market for the Registrant's Common Stock and Related Stockholder Matters" in the Company's Annual Report on Form 10-K. OVERVIEW See Note 5 to the financial statements for discussion of accounting standards adopted by the Company. Although the trend in the truckload segment of the motor carrier industry over the past several years has been towards consolidation, the truckload industry remains highly fragmented. Management believes the industry trend towards financially stable "core carriers" will continue and result in continued industry consolidation. The Company expanded its fleet with an increase of 605 tractors to 15,999 tractors as of June 30, 2002 up from 15,394 tractors as of June 30, 2001. The owner operator portion of the Company's fleet decreased to 3,336 as of June 30, 2002 from 3,386 as of June 30, 2001. The Company accelerated its new truck order and took delivery of 424 tractors at the end of June 2002. APPLICATION OF CRITICAL ACCOUNTING POLICIES The Company is self-insured for some portion of its liability, property damage and cargo damage risk. This self-insurance results from the Company buying insurance coverage with deductible amounts. Each reporting period the Company accrues the cost of the uninsured portion of pending claims. These accruals are estimated based on management's evaluation of the nature and severity of individual claims and an estimate of future claims development based upon historical claims development trends. Insurance and claims expense will vary as a percentage of operating revenue from period to period based on the frequency and severity of claims incurred in a given period as well as changes in claims development trends. Management has discussed the development and selection of this accounting estimate with the audit committee of the Board of Directors and the audit committee has reviewed the company's disclosure relating to it in this Quarterly Report on Form 10-Q. 11 RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30, 2001 Operating revenue decreased $7.0 million or 1.3% to $528.6 million for the three months ended June 30, 2002 from $535.6 million for the corresponding period of 2001. The second quarter of 2002 includes $8.1 million of fuel surcharge revenue versus $16.1 million in 2001. Excluding this fuel surcharge revenue, operating revenue increased $1.0 million. The Company's operating ratio (operating expenses expressed as a percentage of operating revenue) for the second quarter of 2002 was 93.2% compared to 95.5% in the comparable period of 2001. The Company's operating ratio for the three months ended June 30, 2002 improved as a result of decreases in certain components of operating expenses as a percentage of operating revenue as discussed below. The Company's empty mile factor for linehaul operations was 14.22% and 15.10%, and average loaded linehaul revenue per mile (excluding fuel surcharge) was $1.4079 and $1.4150, in the second quarter of 2002 and 2001, respectively. Salaries, wages and employee benefits represented 36.2% of operating revenue for the three months ended June 30, 2002 compared with 37.0% in 2001. The decrease is due to a reduction in certain administrative positions, and an increase in the portion of Company drivers on the Swift pay scale versus the higher M.S. Carriers pay scale, offset by a reduction in the owner operator portion of the fleet. From time to time the industry has experienced shortages of qualified drivers. If such a shortage were to occur over a prolonged period and increases in driver pay rates were needed in order to attract and retain drivers, the Company's results of operations would be negatively impacted to the extent that corresponding freight rate increases were not obtained. Operating supplies and expenses increased to 9.5% of operating revenue in the second quarter of 2002 from 8.1% in the second quarter of 2001. This increase was primarily caused by increased maintenance costs related to the ongoing conversion of M.S. Carriers equipment to Swift standards and increased maintenance of tractors being prepared for sale resulting from a stricter enforcement of minimum maintenance condition. Fuel as a percentage of operating revenue was 11.9% for the second quarter of 2002 versus 13.7% in 2001. The decrease is primarily due to actual fuel cost per gallon decreasing by approximately 19 cents per gallon (13.7%) in the second quarter of 2002 versus the second quarter of 2001. Increases in fuel costs, to the extent not offset by rate increases or fuel surcharges, would have an adverse effect on the operations and profitability of the Company. Management believes the most effective protection against fuel cost increases is to maintain a fuel efficient fleet and to implement fuel surcharges when such option is necessary and available. The Company currently does not use derivative-type hedging products as a means to limit exposure to fuel price volatility. Purchased transportation as a percentage of operating revenue was 16.9% for the three months ended June 30, 2002 compared to 17.3% in 2001. The decrease is primarily due to a reduction in the owner operator portion of the fleet. Rental expense as a percentage of operating revenue was 4.0% for the second quarter of 2002 versus 4.7% in 2001. At June 30, 2002 and 2001, leased tractors represented 46% and 55%, respectively, of the total fleet of Company tractors. When it is economically advantageous to do so, the Company will purchase then sell tractors that it currently leases by exercising the purchase option contained in the lease. Gains on these activities are recorded as a reduction of 12 rental expense. The Company recorded gains of $566,000 in the second quarter of 2002 and $232,000 during the second quarter of 2001 from the sale of leased tractors. Depreciation and amortization expense as a percentage of operating revenue was 7.2% in the second quarter of 2002 versus 6.4% in 2001. The Company includes gains and losses from the sale of owned revenue equipment in depreciation and amortization expense. During the three month period ended June 30, 2002, net gains from the sale of revenue equipment reduced depreciation and amortization expense by approximately $2.1 million compared to approximately $1.1 million in the second quarter of 2001. Exclusive of gains, which reduced this expense, depreciation and amortization expense, as a percentage of operating revenue was 7.6% and 6.6% in the second quarter of 2002 and 2001, respectively. The increase in depreciation and amortization expense as a percentage of operating revenue is a result of an increase in the owned portion of the fleet as well as a $2.5 million adjustment to reduce the recorded value of the former corporate office building of M.S. Carriers to its estimated fair value. The Company has relocated the majority of employees from this building and expects to begin marketing this office building for sale in the near future. Insurance and claims expense represented 3.7% and 4.6% of operating revenue in the second quarter of 2002 and 2001, respectively. These expenses represent claims paid by the Company, reserves for claims within the Company's self insured retention limits and the cost of premiums for insurance coverage. Included in the second quarter of 2001 is an adjustment of approximately $7 million (1.3% of operating revenue) to the M.S. Carriers insurance and claims reserves. As described in Note 6 to the financial statements, the Company estimated the valuation of the insurance coverage provided as a result of the litigation settlement to be between $65 million and $74 million. This benefit will be reflected as a reduction of insurance and claims expense in the financial statements beginning July 1, 2002 through December 31, 2004. As a result, the insurance and claims expense will reflect no cost for certain insurance coverage which is being provided by the insurance company as part of this settlement. In connection with this settlement, the Company also will amortize $2.1 million of deferred legal fees into operating supplies and expenses in each of the next ten quarters ending December 31, 2004. As a result, the Company expects the insurance and claims percentage will range between 3.5% and 4% of operating revenue through December 31, 2002. The Company's insurance program for liability, physical damage and cargo damage involves self-insurance with varying risk retention levels. Claims in excess of these risk retention levels are covered by insurance in amounts which management considers adequate. The Company accrues the estimated cost of the uninsured portion of pending claims. Beginning in 2003, the Company's self insured retention for liability coverage will increase from $250,000 to $1,000,000. These accruals are estimated based on management's evaluation of the nature and severity of individual claims and an estimate of future claims development based on historical claims development trends. Insurance and claims expense will vary as a percentage of operating revenue from period to period based on the frequency and severity of claims incurred in a given period as well as changes in claims development trends. Interest expense increased to $6.8 million in 2002 from $6.1 million in 2001. Interest expense for the second quarter of 2002 includes a $2.7 million expense for the increase in the market value of the interest rate derivative agreements of M.S. Carriers, while interest expense for the second quarter of 2001 includes the benefit of a $1.1 million reduction in market value of such interest rate derivative agreements. Excluding the impact of the interest rate derivative agreements, interest expense would have decreased from $7.2 million to $4.1 million. The second quarter of 2002 benefited from lower interest rates, a shift in borrowings from more costly M.S. Carriers debt to less costly Swift debt, and decreased borrowings under long term debt and capital lease obligations. 13 SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS ENDED JUNE 30, 2001 Operating revenue decreased $40.8 million or 3.9% to $1.004 billion for the six months ended June 30, 2002 from $1.045 billion for the corresponding period of 2001. The six months ended June 30, 2002 includes $10.8 million of fuel surcharge revenue versus $34.6 million in 2001. Excluding this fuel surcharge revenue, the decrease in revenues would have been 1.7%. The Company's operating ratio (operating expenses expressed as a percentage of operating revenue) for the first six months of 2002 was 94.7% compared to 96.4% in the comparable period of 2001. The Company's operating ratio for the six months ended June 30, 2002 improved as a result of decreases in certain components of operating expenses as a percentage of operating revenue as discussed below. The Company's empty mile factor for linehaul operations was 14.57% and 15.40%, and average loaded linehaul revenue per mile (excluding fuel surcharge) was $1.4123 and $1.4164, in the first six months of 2002 and 2001, respectively. Salaries, wages and employee benefits represented 37.1% of operating revenue for the six months ended June 30, 2002 compared with 37.4% in 2001. The decrease is discussed within the three months results of operations above. Fuel as a percentage of operating revenue was 11.7% for the first six months of 2002 versus 13.8% in 2001. The decrease is primarily due to actual fuel cost per gallon decreasing by approximately 23 cents per gallon (17%) for the six months ended June 30, 2002 versus the six months ended June 30, 2001. Purchased transportation as a percentage of operating revenue was 17.2% for the six months ended June 30, 2002 compared to 17.6% in 2001. The decrease is primarily due to a reduction in the owner operator portion of the fleet. Rental expense as a percentage of operating revenue was 4.3% for the first six months of 2002 versus 4.7% in 2001. When it is economically advantageous to do so, the Company will purchase then sell tractors that it currently leases by exercising the purchase option contained in the lease. Gains on these activities are recorded as a reduction of rental expense. The Company recorded gains of $969,000 and $251,000 in the first six months of 2002 and 2001 respectively, from the sale of leased tractors. Depreciation and amortization expense as a percentage of operating revenue was 7.5% and 6.6% in the first six months of 2002 and 2001, respectively. The Company includes gains and losses from the sale of owned revenue equipment in depreciation and amortization expense. During the six month period ended June 30, 2002, net gains from the sale of revenue equipment reduced depreciation and amortization expense by approximately $3.5 million compared to approximately $2.2 million in the first six months of 2001. Exclusive of gains, which reduced this expense, depreciation and amortization expense as a percentage of operating revenue was 7.8% and 6.8% in the first six months of 2002 and 2001, respectively. The increase in depreciation and amortization expense as a percentage of operating revenue is a result of an increase in the owned portion of the fleet as well as a $2.5 million adjustment to reduce the recorded value of the former corporate office building of M.S. Carriers to its estimated fair value. Interest expense decreased to $9.1 million in first six months of 2002 from $19.1 million in 2001. Interest expense for the first six months of 2002 includes a $1.3 million expense for the increase in the market value of the interest rate derivative agreements of M.S. Carriers, while interest expense for the first six months of 2001 includes a $2.0 million expense for the increase in the market value of such interest rate derivative agreements. Excluding the impact of the interest rate derivative agreements, interest expense would have decreased from $17.1 million to $7.8 million. The first six months of 2002 benefited from lower interest rates, a shift in borrowings from more costly M.S. Carriers debt to less costly Swift debt, and decreased borrowings under long term debt and capital lease obligations. 14 LIQUIDITY AND CAPITAL RESOURCES The continued growth in the Company's business requires significant investment in new revenue equipment, upgraded and expanded facilities, and enhanced computer hardware and software. The funding for this expansion has been from cash provided by operating activities, proceeds from the sale of revenue equipment, long-term debt, borrowings on the Company's line of credit, proceeds from the accounts receivable securitization, the use of operating leases to finance the acquisition of revenue equipment and from periodic public offerings of common stock. Net cash provided by operating activities was $113.9 million in the first six months of 2002 compared to $95.5 million in 2001. The increase is primarily attributable to an increases in net earnings, deferred income taxes, accounts payable, accrued liabilities and claims accruals, offset by an increase in accounts receivable. Net cash used in investing activities increased to $118.1 million in the first six months of 2002 from $39.3 million in 2001. The increase is primarily due to increased capital expenditures and issuance of notes receivables, offset by increased proceeds from the sale of property and equipment. As of June 30, 2002, the Company had commitments outstanding to acquire replacement and additional revenue equipment for approximately $146 million. The Company has the option to cancel such commitments upon 60 days notice. Based upon its cancellation rights, the Company exercised its right to cancel truck orders scheduled for production in the fourth quarter of 2002, which were equipped with the 2002 EPA engine. The Company will continue to evaluate future purchases in 2003 after securing additional data regarding cost, reliability, fuel economy and durability of its new EPA engine. The Company expects to change from its current three year replacement cycle to either four or five years. The Company believes it has the ability to obtain debt and lease financing and generate sufficient cash flows from operating activities to support these acquisitions of revenue equipment. During the first six months of 2002, the Company incurred approximately $17.7 million of non-revenue equipment capital expenditures. These expenditures were primarily for facilities and equipment. The Company anticipates that it will expend approximately $48 million during the remainder of the year for various facilities upgrades and acquisition and development of terminal facilities. Factors such as costs and opportunities for future terminal expansions may change the amount of such expenditures. The funding for capital expenditures has been and is anticipated to continue to be from a combination of cash provided by operating activities, amounts available under the Company's line of credit, accounts receivable securitization and debt and lease financing. The availability of capital for revenue equipment and other capital expenditures will be affected by prevailing market conditions and the Company's financial condition and results of operations. Net cash used in financing activities amounted to $7.8 million in the first six months of 2002 compared to $56.1 million provided by financing activities in 2001. This decrease is primarily due to reduced repayments of long-term debt and an increase in borrowings under the line of credit, offset by proceeds from the Company's public stock offering in 2001. 15 The Company expects to refinance its line of credit in the fourth quarter of 2002. Management believes it will be able to finance its needs for working capital, facilities improvements and expansion, as well as anticipated fleet growth, with cash flows from future operations, borrowings available under the line of credit, accounts receivable securitization and with long-term debt and operating lease financing believed to be available to finance revenue equipment purchases. Over the long term, the Company will continue to have significant capital requirements, which may require the Company to seek additional borrowings or equity capital. The availability of debt financing or equity capital will depend upon the Company's financial condition and results of operations, as well as prevailing market conditions, the market price of the Company's common stock and other factors over which the Company has little or no control. INFLATION Inflation can be expected to have an impact on the Company's operating costs. A prolonged period of inflation would cause interest rates, fuel, wages and other costs to increase and would adversely affect the Company's results of operations unless freight rates could be increased correspondingly. However, the effect of inflation has been minimal over the past three years. SEASONALITY In the transportation industry, results of operations generally show a seasonal pattern as customers reduce shipments after the winter holiday season. The Company's operating expenses also tend to be higher in the winter months primarily due to colder weather, which causes higher fuel consumption from increased idle time. 16 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has interest rate exposure arising from the Company's line of credit, revolving notes, equipment loan, approximately $72 million of capital lease obligations and accounts receivable securitization, all of which have variable interest rates. These variable interest rates are impacted by changes in short-term interest rates. The Company manages interest rate exposure through its mix of variable rate debt, fixed rate lease financing and $70 million notional amount of interest rate swaps. The fair value of the Company's long-term debt approximates carrying values. Assuming the current level of borrowings, a hypothetical one-percentage point increase in interest rates would increase the Company's interest expense by $2.5 million. 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 6, 2002. At the Annual Meeting, the stockholders elected William F. Riley III and Lou A. Edwards to serve as Directors for three-year terms. Jerry C. Moyes, Alphonse E. Frei, Edward A. Labry III, Rodney K. Sartor, Earl H. Scudder, Jr. and Michael S. Starnes continued as Directors after the meeting. Additionally, the stockholders approved (i) an amendment to the Company's Articles of Incorporation to increase the number of shares of Common Stock authorized for issuance from 150,000,000 to 200,000,000, (ii) an amendment to the Company's 1999 Stock Option Plan increasing the number of shares available for issuance thereunder from 4,250,000 to 8,250,000, and (iii) an amendment to the Company's 1999 Stock Option Plan to (a) permit the grant of options to Jerry Moyes, the Company's Chairman, President and Chief Executive Officer and (b) increase the maximum number of shares underlying options that may be granted to any one individual in a fiscal year from 100,000 to 1,000,000. Stockholders representing 81,932,692 shares or 94.85% of the outstanding shares were present in person or by proxy at the Annual Meeting. A tabulation with respect to each nominee and the other proposals follows:
VOTES AGAINST OR WITHHELD AND BROKER VOTES CAST VOTES FOR ABSTENTIONS NON VOTES ---------- ---------- ---------- --------- Election of William F. Riley III 81,932,692 67,597,353 14,335,339 Election of Lou A. Edwards 81,932,692 80,093,046 1,839,646 Increase authorized common stock to 200,000,000 shares 81,932,692 80,765,562 1,167,130 Amendment to 1999 Stock Option Plan to authorize an additional 4,000,000 shares 81,932,692 37,656,839 35,162,020 9,113,833 Amendment to 1999 Stock Option Plan to permit the grant of options to Jerry Moyes and increase annual grant limit from 100,000 to 1,000,000 81,932,692 39,827,469 32,991,390 9,113,833
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 Annex A of the Registrant's Notice and Proxy Statement for its 2002 Annual Meeting of Stockholders filed with the Commission on April 30, 2002) Exhibit 3.2 - Bylaws of the Registrant (Incorporated by reference to Exhibit 3.2 of the Registrant's Registration Statement No. 33-66034 on Form S-3) Exhibit 99.1 - Private Securities Litigation Reform Act of 1995 Safe Harbor Compliance Statement for Forward-Looking Statements Exhibit 99.2 - Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Jerry Moyes Exhibit 99.3 - Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Gary Enzor (b) No Current Reports on Form 8-K were filed during the three months ended June 30, 2002. SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SWIFT TRANSPORTATION CO., INC. Date: August 12, 2002 /s/ William F. Riley III ---------------------------------------- (Signature) William F. Riley III Senior Executive Vice President Date: August 12, 2002 /s/ Gary Enzor ---------------------------------------- (Signature) Gary Enzor Chief Financial Officer 19 EX-99.1 3 ex99-1.txt SAFE HARBOR COMPLIANCE STATEMENT Exhibit 99.1 PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 SAFE HARBOR COMPLIANCE STATEMENT FOR FORWARD-LOOKING STATEMENTS In passing the Private Securities Litigation Reform Act of 1995 (the "PSLRA"), Congress encouraged public companies to make "forward-looking statements"1 by creating a safe-harbor to protect companies from securities law liability in connection with forward-looking statements. Swift Transportation Co., Inc. ("Swift") intends to qualify both its written and oral forward-looking statements for protection under the PSLRA. To qualify oral forward-looking statements for protection under the PSLRA, a readily available written document must identify important factors that could cause actual results to differ materially from those in the forward-looking statements. Swift provides the following information in connection with its continuing effort to qualify forward-looking statements for the safe harbor protection of the PSLRA. As to Swift's business and financial performance generally, important factors currently known to management that could cause actual results to differ materially from those in forward-looking statements include, but are not limited to, the following: (i) excess capacity in the trucking industry; (ii) significant increases or rapid fluctuations in fuel prices, interest rates, fuel taxes, tolls, license and registration fees and insurance premiums, to the extent not offset by increases in freight rates or fuel surcharges; (iii) difficulty in attracting and retaining qualified drivers and owner operators, especially in light of the current shortage of qualified drivers and owner operators; (iv) recessionary economic cycles and downturns in customers' business cycles, particularly in market segments and industries (such as retail and manufacturing) in which the Company has a significant concentration of customers; (v) seasonal factors such as harsh weather conditions that increase operating costs; (vi) increases in driver compensation to the extent not offset by increases in freight rates; (vii) the inability of the Company to continue to secure acceptable financing arrangements; (viii) the ability of the Company to continue to identify acquisition candidates that will result in successful combinations; (ix) an unanticipated increase in the number of claims for which the Company is self insured; (x) a significant reduction in or termination of the Company's trucking services by a key customer; (xi) the loss of key executives; (xii) new or more comprehensive regulations with respect to fuel emissions, hours in service, or ergonomics; (xiii) a spill or other accident involving hazardous substances; (xiv) the depressed market for used equipment, particularly tractors; and (xv) the possibility that the Company may not realize the expected benefits of its litigation settlement with an insurance carrier. With respect to Swift's merger with M.S. Carriers in the second quarter of 2001, these factors include, but are not limited to, the following: (i) the risk that the revenue and other synergies and cost savings anticipated to result from the merger may not be fully realized or may take longer to realize than expected; (ii) the difficulty the stock market may have in valuing the business model of the combined company; and (iii) disruption from the merger making it more difficult to maintain relationships with customers, employees, or suppliers. Forward-looking statements express expectations of future events. All forward-looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties which could cause actual events or results to differ materially from those projected. Due to these inherent uncertainties, the investment community is urged not to place undue reliance on forward-looking statements. In addition, Swift undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to projections over time. - ---------- 1. "Forward-looking statements" can be identified by use of words such as "expect," "believe," "estimate," "project," "forecast," "anticipate," "plan," and similar expressions. EX-99.2 4 ex99-2.txt CERTIFICATION PURSUANT TO SARBANES-OXLEY ACT Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES - OXLEY ACT OF 2002 In connection with the Quarterly Report of Swift Transportation Co., Inc. (the "Company") on Form 10-Q for the period ended June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jerry Moyes, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Jerry Moyes Jerry Moyes Chairman and Chief Executive Officer August 12, 2002 EX-99.3 5 ex99-3.txt CERTIFICATION PURSUANT TO SARBANES-OXLEY ACT Exhibit 99.3 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES - OXLEY ACT OF 2002 In connection with the Quarterly Report of Swift Transportation Co., Inc. (the "Company") on Form 10-Q for the period ended June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Gary Enzor, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Gary R. Enzor Gary R. Enzor Chief Financial Officer August 12, 2002 -----END PRIVACY-ENHANCED MESSAGE-----