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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission File No. 0-18605
SWIFT TRANSPORTATION CO., INC.
(Exact name of registrant as specified in its charter)
Nevada 86-0666860
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
2200 South 75th Avenue Phoenix, AZ 85043
(Address of Principal Executive Offices) (Zip Code)
(602) 269-9700
(Registrant's Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value Nasdaq National Market
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
At March 19, 2001, the aggregate market value of common stock held by
non-affiliates of the Registrant was $254,025,441.
The number of shares outstanding of the Registrant's common stock on March 19,
2001 was 63,268,164.
DOCUMENTS INCORPORATED BY REFERENCE
Materials from the Registrant's Notice and Proxy Statement relating to the 2001
Annual Meeting of Stockholders have been incorporated by reference into Part
III, Items 10, 11, 12 and 13.
Exhibit Index at page 42
Total pages 45
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business......................................................... 3
Item 2. Properties....................................................... 10
Item 3. Legal Proceedings................................................ 11
Item 4. Submission of Matters to a Vote of Security Holders.............. 11
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters............................................. 11
Item 6. Selected Financial and Operating Data............................ 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 14
Item 7A. Quantitative and Qualitative Disclosures about Market Risk....... 20
Item 8. Financial Statements and Supplementary Data...................... 20
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................. 41
PART III
Item 10. Directors and Executive Officers of the Registrant............... 41
Item 11. Executive Compensation........................................... 41
Item 12. Security Ownership of Certain Beneficial Owners
and Management.................................................. 41
Item 13. Certain Relationships and Related Transactions................... 41
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K..................................................... 42
SIGNATURES.................................................................. S-1
2
PART I
ITEM 1. BUSINESS
GENERAL
Swift Transportation Co., Inc. (with its subsidiaries, "Swift" or the "Company")
is the third largest publicly-held, national truckload carrier in the United
States. Swift operates primarily throughout the continental United States,
combining strong regional operations with a transcontinental van operation. The
principal types of freight transported by Swift include retail and discount
department store merchandise, manufactured goods, paper products, non-perishable
food, beverages and beverage containers and building materials.
By meeting its customers' specific needs for both regional and transcontinental
service and through selective acquisitions, Swift has been able to achieve
significant growth in revenues over the past five years. Operating revenue has
grown at a compound annual growth rate of 22.4% from $458.2 million in 1995 to
$1.259 billion in 2000. During that same period, net earnings have grown at a
compound annual growth rate of 18% from $23.0 million to $52.6 million.
Swift Transportation Co., Inc., a Nevada corporation headquartered in Sparks,
Nevada, is a holding company for the operating corporations named Swift
Transportation Co., Inc. and Swift Transportation Corporation. These companies
are collectively referred to herein as the "Company." The Company's headquarters
are located at 2200 South 75th Avenue, Phoenix, Arizona 85043, and its telephone
number is (602) 269-9700.
This Annual Report on Form 10-K contains forward-looking statements. Additional
written or oral forward-looking statements may be made by the Company from time
to time in filings with the Securities and Exchange Commission or otherwise. The
words "believe," "expect," "anticipate," and "project," and similar expressions
identify forward-looking statements, which speak only as of the date the
statement was made. Such forward-looking statements are within the meaning of
that term in Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such statements may
include, but are not limited to, projections of revenues, income, or loss,
capital expenditures, plans for future operations, financing needs or plans, the
impact of inflation, plans relating to products or services of the Company, the
benefits of the Company's terminal network, the continued consolidation of the
truckload industry, the increase in the number of companies outsourcing their
transportation requirements, the Company's ability to sell its used trucks at
favorable prices, the Company's ability to attract and retain qualified drivers,
the Company's ability to pass on to its customers increased labor and fuel costs
and protect itself against increases in fuel costs through the use of fuel
efficient equipment, and pending or future acquisitions, as well as assumptions
relating to the foregoing. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events, or otherwise.
Forward-looking statements are inherently subject to risks and uncertainties,
some of which cannot be predicted or quantified. Future events and actual
results could differ materially from those set forth in, contemplated by, or
underlying the forward-looking statements. Statements in this Annual Report,
including the Notes to the Consolidated Financial Statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
describe factors, among others, that could contribute to or cause such
differences. Additional factors that could cause actual results to differ
materially from those expressed in such forward-looking statements are set forth
in "Business" and "Market for the Registrant's Common Stock and Related
Stockholder Matters" in this Annual Report.
OPERATING STRATEGY
Swift focuses on achieving high density for service-sensitive customers in
short-to-medium haul traffic lanes. Through its network of 35 terminals, Swift
is able to provide regional service on a nationwide basis. Swift's terminal
network establishes a local market presence in the regions Swift serves and
enables Swift to respond more rapidly to its customers' changing requirements.
This regional network also enables Swift to enhance driver recruitment and
retention by returning drivers to their homes regularly, reduce its purchases of
higher priced fuel at truck stops and expedite lower cost, in-house equipment
maintenance. With an average length of haul of 509 miles in 2000, Swift is able
to limit its direct competition with railroads, intermodal services and
longer-haul, less specialized truckload carriers. Swift seeks to provide premium
3
service with commensurate rates, rather than compete primarily on the basis of
price. The principal elements of Swift's premium service include: regional
terminals to facilitate single and multiple pick-ups and deliveries and maintain
local contact with customers; well-maintained, late model equipment; a
fully-integrated computer system to monitor shipment status and variations from
schedule; an onboard communications system that enables the Company to dispatch
and monitor traffic; timely deliveries; and extra equipment to respond promptly
to customers' varying requirements.
To manage the higher costs and greater logistical complexity inherent in
operating in short-to-medium haul traffic lanes, Swift employs sophisticated
computerized management control systems to monitor key aspects of its
operations, such as availability of equipment, truck productivity and fuel
consumption. Swift has a three-year replacement program for substantially all of
its tractors, which allows Swift to maximize equipment utilization and fuel
economy by capitalizing on improved engine efficiency and vehicle aerodynamics
and to minimize maintenance expense. For 2000 and 1999, Swift maintained an
operating ratio of 92.1% and 89.0%, respectively.
GROWTH STRATEGY
Major shippers continue to reduce the number of carriers they use for their
regular freight needs. This has resulted in a relatively small number of
financially stable "core carriers" and has contributed to consolidation in the
truckload industry in recent years. The truckload industry remains highly
fragmented, and management believes that overall growth in the truckload
industry and continued industry consolidation will present opportunities for
well managed, financially stable carriers such as Swift to expand. The Company
intends to take advantage of growth opportunities through a combination of
internal growth and selective acquisitions.
The key elements of Swift's growth strategy are:
* STRENGTHEN CORE CARRIER RELATIONSHIPS. Swift intends to continue to
strengthen its core carrier relationships, expand its services to its
existing customers and pursue new customer relationships. By
concentrating on expanding its services to its existing customers,
Swift's revenues from its top 25 customers of 1998 increased by 43%
from 1998 to 2000. The largest 25, 10 and 5 customers, respectively,
accounted for 53%, 35% and 23% of revenues in 2000, with no customer
accounting for more than 6% of Swift's revenues during that same
period. In addition to expanding its services to existing customers,
Swift actively pursues new traffic commitments from high volume,
financially stable shippers for whom it has not previously provided
services.
* PURSUE STRATEGIC ACQUISITIONS. Swift's revenue growth has been
attributable, in significant part, to eight acquisitions completed in
the last eleven years. These acquisitions have enabled Swift to expand
from its historical operations base in the Western United States and
develop a strong regional presence in the Midwestern, Eastern and
Southeastern United States. Swift generally limits its consideration
of acquisitions to those it believes will be accretive to earnings
within six months, and historically all of its acquisitions have met
this objective. In certain instances, such as the pending M.S.
Carriers acquisition, where a proposed acquisition has the potential
to significantly increase revenues, expand Swift's operations in
certain key geographic regions, or provide important synergistic
opportunities, such as increased efficiencies in equipment
utilization, Swift may consider going forward with such an acquisition
even though it is not likely to be accretive to earnings within a
period of six months.
* EXPLOIT PRIVATE FLEET OUTSOURCING. A number of large companies
maintain their own private trucking fleets to facilitate distribution
of their products. Swift believes that a high percentage of private
fleet traffic is short-to-medium haul in nature, traveling an average
of 500 miles or less per round trip. In order to reduce operating
costs associated with private fleets, a number of large companies have
begun to outsource their transportation and logistics requirements.
Swift believes that its strong regional operations and average length
of haul of less than 600 miles position it to take advantage of this
trend, and Swift already serves as a preferred supplier or "core
carrier" to many major shippers who are considering, or may in the
future consider, outsourcing their transportation and logistics
requirements.
4
OPERATIONS
Swift has developed a network of regional terminals and offices strategically
located in areas which have strong, diverse economies and provide access to
other key population centers. The terminals are located in close proximity to
major customers who tender significant traffic volume to Swift. To minimize
competition with long-haul truckload carriers and railroads, Swift operates
principally within short-to-medium-haul traffic lanes. Although the Company's
transcontinental division allows it to serve a broad spectrum of shipper needs,
the primary regions in which Swift operates are ideally suited to
short-to-medium-haul lanes because of the distribution of population and
economic centers. During 2000 and 1999, Swift's average length of haul was 509
and 541 miles, respectively.
Swift focuses the marketing of its services to large, service-sensitive
customers that regularly ship over established routes within Swift's regional
service areas. Swift's service includes the availability of specialized
equipment suitable for the requirements of certain industries; high cubic
capacity trailers; computerized tracking of and frequent reporting on customer
shipments; onboard communications that enable instant re-routing or modification
of traffic; well-maintained, late-model equipment that enhances on-time
deliveries; multiple drops, appointment pick-ups and deliveries; assistance in
loading and unloading; extra trailers that can be placed for the convenience of
customers; and sufficient equipment to respond promptly to customers' varying
requirements.
The achievement of significant regular freight volumes on high-density routes
and consistent shipment scheduling over these routes are key elements of Swift's
operations. As a result, Swift's operations personnel are better able to match
available equipment to available loads and schedule regular maintenance and
fueling at Company terminals, thereby enhancing productivity and asset
utilization and minimizing empty miles and expensive over-the-road fueling and
repair costs. Consistent scheduling also allows Swift to be more responsive to
its customers' needs. Swift's regular scheduling and relatively short length of
haul enable drivers to return to their homes regularly, which has helped Swift
improve driver recruitment.
In order to reduce the higher operating costs traditionally associated with
medium-length hauls and specialized equipment, Swift has installed sophisticated
computerized management control systems to monitor key aspects of its
operations. Swift has a significant investment in its computer hardware and
utilizes state-of-the-art software specially designed for the trucking industry.
The Company's fully integrated computer network allows its managers to
coordinate available equipment with the transportation needs of its customers,
monitor truck productivity and fuel consumption and schedule regular equipment
maintenance. Dispatchers monitor the location and delivery schedules of all
shipments and equipment to coordinate routes and increase equipment utilization.
The Company's computer system provides immediate access to current information
regarding driver and equipment status and location, special load and equipment
instructions, routing and dispatching.
Swift's larger terminals are staffed with terminal managers, driver managers and
customer service representatives. Terminal managers work with both the fleet
managers and the customer service representatives, as well as all other
operations personnel, to coordinate the needs of both customers and drivers.
Terminal managers are also responsible for soliciting new customers and serving
existing customers in their areas. Each driver manager is responsible for the
general operation of approximately 27 trucks and their drivers, including driver
retention, productivity per truck, routing, fuel consumption, safety and
scheduled maintenance. Customer service representatives are assigned specific
customers to ensure specialized, high-quality service and frequent customer
contact.
In addition to the domestic operations described above, Swift has a growing
cross border operation that primarily ships through commercial border crossings
from El Paso westward to California. In 2000, Swift augmented its cross border
operation by acquiring 49% of Trans-Mex, a carrier that focuses on shipments to
and from Mexico. For additional information regarding Swift's guarantee of
certain Trans-Mex obligations, see Note 9 to the Notes to Consolidated Financial
Statements.
In April 2000, Swift and five other publicly traded truckload carriers founded
Transplace.com, LLC, an Internet-based transportation logistics company. Swift
contributed its transportation logistics business and associated intangible
assets to Transplace.com upon its formation. Swift's equity interest in
Transplace.com is approximately 15%. Swift reports its equity interest in
Transplace.com and its share of the profits and losses of Transplace.com in its
consolidated financial statements. See Note 4 to the Notes to Consolidated
Financial Statements.
5
COMPLETED ACQUISITIONS
The growth of the Company has been dependent in part upon the acquisition of
trucking companies throughout the United States. In 1988, the Company acquired
Cooper Motor Lines ("Cooper"), which established the Company's operations in the
Eastern United States. In September 1991, Swift further expanded its eastern
operations by acquiring Arthur H. Fulton, Inc. ("Fulton"). In June 1993, the
Company strengthened its presence in the Northwestern United States with the
acquisition of West's Best Freight Systems, Inc. ("West's Best").
During 1994, the Company completed the acquisitions of both East-West
Transportation, Inc. ("East-West") and Missouri-Nebraska Express, Inc. ("MNX").
The MNX acquisition established a significant regional operation in the
Midwestern United States. In September 1996, the Company acquired the dry
freight van division of Navajo Shippers, Inc., Digby Leasing, Inc. and
Digby-Ringsby Truck Line, Inc. (collectively, "Navajo Shippers"). In April 1997,
the Company acquired certain assets of Direct Transit, Inc. ("DTI"), a
Debtor-In-Possession in United States Bankruptcy Court. DTI was a dry van
carrier based in North Sioux City, South Dakota and operated predominantly in
the eastern two-thirds of the United States.
In January 2001, Swift further expanded its operations in the eastern United
States through an agreement with Cardinal Freight Carriers Inc. ("Cardinal
Freight"), a van and flatbed carrier based in Concord, North Carolina. Under
this agreement, Swift has hired a number of Cardinal Freight's drivers and
subleased a number of tractors from Cardinal Freight.
See "Factors That May Affect Future Results and Financial Condition" under Item
7.
PENDING ACQUISITION
On December 11, 2000 Swift and M.S. Carriers, Inc. announced they have agreed to
a merger in which M.S. Carriers will become a wholly owned subsidiary of Swift.
In the merger, 1.7 shares of Swift's common stock will be exchanged for each
share of M.S. Carrier's common stock. Following the merger, former stockholders
of M.S. Carriers will hold approximately 22% of Swift's outstanding common
stock. The merger is expected to be accounted for as a pooling of interests and
to be tax-free to the stockholders of Swift and M.S. Carriers. In order to
account for the merger as a pooling-of-interests, Swift expects to offer
approximately 2,000,000 shares of its common stock and M.S. Carriers expects to
offer approximately 300,000 shares of its common stock in public offerings prior
to the merger. The definitive merger agreement has been approved by the boards
of directors of both companies. The merger is subject to a number of conditions,
including stockholder approval of both companies. There can be no assurance such
approvals will be obtained.
WITH RESPECT TO THE PENDING ACQUISITION OF M.S. CARRIERS, THE FOLLOWING FACTORS,
AMONG OTHERS, COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
DESCRIBED IN THE FORWARD-LOOKING STATEMENTS RELATING THERETO: THE INABILITY TO
OBTAIN, OR MEET CONDITIONS IMPOSED FOR, GOVERNMENTAL APPROVALS FOR THE MERGER ON
THE PROPOSED TERMS AND SCHEDULE; THE FAILURE OF SWIFT'S AND M.S. CARRIERS'
STOCKHOLDERS TO APPROVE THE MERGER; THE RISK THAT SWIFT'S AND M.S. CARRIERS'
BUSINESSES WILL NOT BE INTEGRATED SUCCESSFULLY; THE RISK THAT THE REVENUE
SYNERGIES AND COST SAVINGS FROM THE MERGER MAY NOT BE FULLY REALIZED OR MAY TAKE
LONGER TO REALIZE THAN EXPECTED; FLUCTUATING STOCK MARKET LEVELS THAT COULD
CAUSE SWIFT'S STOCK VALUE TO BE LESS THAN THE CURRENT SWIFT OR M.S. CARRIERS
STOCK VALUE; THE DIFFICULTY THE STOCK MARKET MAY HAVE IN VALUING THE BUSINESS
MODEL OF THE COMBINED COMPANY; AND DISRUPTION FROM THE MERGER THAT MAY MAKE IT
MORE DIFFICULT TO MAINTAIN RELATIONSHIPS WITH CUSTOMERS, EMPLOYEES OR SUPPLIERS.
REVENUE EQUIPMENT
Swift acquires premium tractors to help attract and retain drivers, promote safe
operations and minimize maintenance and repair costs. Management believes the
higher initial investment is recovered through improved resale value.
6
The following table shows the type and age of Company-owned and leased equipment
at December 31, 2000:
57', 53' AND SETS OF FLATBED SPECIALIZED
MODEL YEAR TRACTORS (1) 48' VANS DOUBLE VANS TRAILERS TRAILERS
---------- ------------ -------- ----------- -------- --------
2001 .................... 1,458 2,903 136 87
2000 .................... 2,671 8,068 85 142
1999 .................... 2,130 4,941 39 61
1998 .................... 964 3,187 20 2
1997 .................... 136 3,405 285 96
1996 .................... 86 2,218 236
1995 and prior........... 282 1,493 520 271 145
------ ------- ----- ------ ------
Total......... 7,727 26,215 520 1,072 533
===== ====== ===== ===== ======
(1) Excludes 1,987 owner-operator tractors.
When purchasing new revenue equipment, Swift acquires standardized tractors and
trailers manufactured to the Company's specifications. Since 1990, Swift has
predominantly acquired tractors manufactured by Freightliner powered by Series
60 Detroit Diesel engines. Standardization of drive-line components allows Swift
to operate with a minimum spare parts inventory, enhances Swift's maintenance
program and simplifies driver training. Swift adheres to a comprehensive
maintenance program that minimizes downtime and enhances the resale value of its
equipment. In addition to its maintenance facility in Phoenix, Arizona, Swift
performs routine servicing and maintenance of its equipment at most of its
regional terminal facilities, thus avoiding costly on-road repairs and
out-of-route trips. Swift has adopted a three-year replacement program on the
majority of its line-haul tractors. This replacement policy enhances Swift's
ability to attract drivers, maximize its fuel economy by capitalizing on
improvement in both engine efficiency and vehicle aerodynamics, stabilize
maintenance expense and maximize equipment utilization.
Swift has installed Qualcomm onboard, two-way vehicle satellite communication
systems in the majority of its tractors. This communication system links drivers
to regional terminals and corporate headquarters, allowing Swift to rapidly
alter its routes in response to customer requirements and to eliminate the need
for driver stops to report problems or delays. This system allows drivers to
inform dispatchers and driver managers of the status of routing, loading and
unloading or the need for emergency repairs. Swift believes the communications
system improves fleet control, the quality of customer service and driver
retention. Swift intends to continue to install the communication system in
substantially all tractors acquired in the future.
In 1998, Swift adopted a speed limit of 60 miles per hour for Company tractors
(62 miles per hour for team drivers) and 65 miles per hour for owner-operator
tractors, below the speed limits of many states. Swift believes these measures
reduce accidents, enhance fuel mileage and minimize maintenance expense.
Substantially all of Swift's Company tractors are equipped with electronically
controlled engines that are set to limit the speed of the vehicle.
MARKETING AND CUSTOMERS
Swift has targeted the service-sensitive segment of the truckload market, both
common and contract, rather than that segment that uses price as its primary
consideration. The Company has chosen to provide premium service with
commensurate rates rather than compete primarily on the basis of price. The
principal elements of Swift's premium service include: regional terminals to
facilitate single and multiple pick-ups and deliveries and to maintain local
contact with customers; a fully-integrated computer system to monitor shipment
location and variations from schedule; an onboard communication system that
enables the Company to reroute traffic; well-maintained, late model equipment;
timely deliveries; extra equipment for the convenience of customers, which
enables Swift to respond promptly to customers' varying requirements; assistance
in loading and unloading; and Company control of revenue equipment. Swift
concentrates its marketing efforts on expanding the amount of service it
provides to existing customers. As a result, the Company's revenues from the
group of customers which comprised the Company's top 25 customers in 1998
increased 43% over a two year period from 1998 to 2000.
Swift maintains a strong commitment to marketing. Swift has assigned a member of
senior management to each of its largest customers to ensure a high level of
customer support. Swift solicits new customers from its Phoenix, Arizona
7
headquarters and each of its regional terminals through a marketing staff of
approximately 30 persons. Once a customer relationship has been established,
regional customer service representatives maintain contact and solicit
additional business. Swift concentrates on attracting non-cyclical customers
that regularly ship multiple loads from locations that complement existing
traffic flows. Customer shipping point locations are regularly monitored and, as
shipping patterns of existing customers expand or change, Swift attempts to
obtain additional customers that will complement the new traffic flow. This
strategy enables Swift to maximize equipment utilization.
The largest 25, 10 and 5 customers accounted for approximately 53%, 35% and 23%
respectively, of Swift's revenues during 2000, 52%, 35% and 24%, respectively,
of Swift's revenues during 1999 and 46%, 33% and 22%, respectively, of Swift's
revenues during 1998. No customer accounted for more than 7% of Swift's gross
revenues during any of the three most recent fiscal years. Swift's largest
customers include retail and discount department store chains, manufacturers,
non-perishable food companies, beverage and beverage container producers and
building materials companies.
DRIVERS AND EMPLOYEES
All Swift drivers must meet or exceed specific guidelines relating primarily to
safety records, driving experience and personal evaluations, including a
physical examination and mandatory drug testing. Upon being hired, a driver is
trained in all phases of Swift's policies and operations, safety techniques, and
fuel efficient operation of the equipment. All new drivers must pass a safety
test and have a current Commercial Drivers License. In addition, Swift has
ongoing driver efficiency and safety programs to ensure that its drivers comply
with its safety procedures.
Senior management is actively involved with the development and retention of
drivers. Recognizing the need for qualified drivers, Swift established its own
driver-training school in Phoenix, Arizona in 1987, which is certified by the
Arizona Department of Transportation. Swift also has contracted with
driver-training schools which are managed by outside organizations as well as
local community colleges throughout the country. Candidates for the schools must
be at least 23 years old (21 years old with military service), with a high
school education or equivalent, pass a basic skills test and pass the U.S.
Department of Transportation ("DOT") physical examination, which includes drug
and alcohol screening. Students are required to complete three weeks of
classroom study and driving range time and a six to eight week, on-the-road
training program.
Swift bases its drivers at the regional terminals and monitors each driver's
location on its computer system. Swift uses this information to schedule the
routing for its drivers so that they can return home frequently. In order to
attract and retain highly qualified drivers and promote safe operations, the
Company purchases premium quality tractors equipped with optional comfort and
safety features, such as air ride suspension, air conditioning, high quality
interiors, power steering, engine brakes and raised roof double sleeper cabs.
The majority of company drivers are compensated on the basis of miles driven,
loading/unloading and number of stops or deliveries, plus bonuses. Base pay for
miles driven increases with a driver's length of service. Drivers employed by
Swift participate in company-sponsored health, life and dental insurance plans
and are eligible to participate in a 401(k) Profit Sharing Plan and an Employee
Stock Purchase Plan.
Swift believes its innovative driver-training programs, driver compensation,
regionalized operations, driver tracking and late-model equipment provide
important incentives to attract and retain qualified drivers. Although Swift has
had no significant downtime due to inability to secure qualified drivers, no
assurance can be given that a shortage of qualified drivers will not adversely
affect the Company in the future.
As of December 31, 2000, Swift employed approximately 13,000 full-time persons,
of whom approximately 10,000 were drivers (including driver trainees), 1,000
were mechanics and other equipment maintenance personnel and the balance were
support personnel, such as sales personnel, corporate managers and
administration. None of Swift's drivers or other employees is represented by a
collective bargaining unit. In the opinion of management, Swift's relationship
with its drivers and employees is good.
SAFETY
The Company has an active safety and loss prevention program at each of its
terminals. Supervisors engage in ongoing training of drivers regarding safe
vehicle operations. The Company has adopted maximum speed limits. The Company
8
believes that its insurance and claims expense as a percentage of operating
revenue is one of the best in the industry which is attributable to its overall
strong safety program. The Company has received the highest safety rating given
to motor carriers by the United States Department of Transportation.
FUEL
In order to reduce fuel costs, the Company purchases approximately 80% of its
fuel in bulk at 28 of its 35 terminals. Swift stores fuel in underground storage
tanks at two of its bulk fueling terminals and in above ground storage tanks at
its other bulk fueling terminals. The Company believes that it is in substantial
compliance with applicable environmental laws and regulations. Shortages of
fuel, increases in fuel prices or rationing of petroleum products could have a
material adverse effect on the operations and profitability of the Company. From
time to time, the Company, in response to increases in fuel costs, has
implemented fuel surcharges to pass on to its customers all or substantially all
of such costs. However, there can be no assurance that such fuel surcharges
could be used to offset future increases in fuel prices. The Company believes
that its most effective protection against fuel cost increases is to maintain a
fuel efficient fleet and to implement fuel surcharges when such option is
necessary and available. The Company has not used derivative-type products as a
hedge against higher fuel costs in the past but continues to evaluate this
possibility.
COMPETITION
The trucking industry is extremely competitive and fragmented. The Company
competes primarily with regional, medium-haul truckload carriers. Management
believes, because of its cost efficiencies, productive equipment utilization and
financial resources, that the Company has a competitive advantage over most
regional truckload carriers. The Company believes that competition for the
freight transported by the Company is based, in the long term, as much upon
service and efficiency as on freight rates. There are some trucking companies
with which the Company competes that have greater financial resources, own more
revenue equipment and carry a larger volume of freight than the Company.
Long-haul truckload carriers and railroads also provide competition, but to a
lesser degree. The Company also competes with other motor carriers for the
services of drivers.
REGULATION
The Company is regulated by the United States Department of Transportation. This
regulatory authority has broad powers, generally governing matters such as
authority to engage in motor carrier operations, certain mergers, consolidations
and acquisitions and periodic financial reporting. The trucking industry is
subject to regulatory and legislative changes which can affect the economics of
the industry. The Company is also regulated by various state agencies.
The Company's operations are also subject to various federal, state and local
environmental laws and regulations dealing with transportation, storage,
presence, use, disposal and handling of hazardous materials, discharge of
stormwater and underground fuel storage tanks. The Company believes that its
operations are in substantial compliance with current laws and regulations and
does not know of any existing condition that would cause compliance with
applicable environmental regulations to have a material adverse effect on the
Company's business or operating results.
SEASONALITY
In the transportation industry, results of operations generally show a seasonal
pattern as customers reduce shipments after the winter holiday season. The
Company's operating expenses also tend to be higher in the winter months
primarily due to colder weather which causes higher fuel consumption from
increased idle time.
9
ITEM 2. PROPERTIES
The following table provides information regarding the Company's regional
terminals and/or offices:
COMPANY OWNED
LOCATION OR LEASED
-------- ---------
Albuquerque, New Mexico...................................... Leased
Birmingham, Alabama.......................................... Leased
Columbus, Ohio............................................... Owned
Corsicana, Texas............................................. Owned
Decatur, Georgia............................................. Owned
Denver, Colorado............................................. Leased
Eden, North Carolina......................................... Owned
Edwardsville, Kansas......................................... Owned
Fontana, California.......................................... Owned
Gary, Indiana................................................ Owned
Greer, South Carolina........................................ Owned
Invergrove Heights (Minneapolis), Minnesota.................. Leased
Irving, Texas................................................ Leased
Jonestown, Pennsylvania...................................... Owned
Laredo, Texas................................................ Leased
Lathrop (Bay Area), California............................... Owned
Lewiston, Idaho.............................................. Owned/Leased
Manteno, Illinois............................................ Owned
Memphis, Tennessee........................................... Owned
Ocala, Florida............................................... Owned
Oklahoma City, Oklahoma...................................... Owned
Phoenix, Arizona............................................. Owned
Pueblo, Colorado............................................. Owned
Richmond, Virginia........................................... Owned
Romulus, Michigan............................................ Leased
Salt Lake City, Utah......................................... Owned
Santa Fe Springs, California................................. Leased
Seattle, Washington.......................................... Leased
Shoals, Indiana.............................................. Owned
South Plainfield, New Jersey................................. Owned
Sparks, Nevada............................................... Owned
Syracuse, New York........................................... Owned
Town of Menasha, Wisconsin................................... Owned
Troutdale (Portland), Oregon................................. Owned
Willows, California.......................................... Owned
Swift's headquarters is located on approximately 153 acres in Phoenix, Arizona
and contains 83,000 square feet of office space, 106,000 square feet of shop and
maintenance facilities, 27,000 square feet of a drivers' center, a recruiting
and training center, a warehouse facility, a two-bay truck wash and an eight
lane fueling center. The Company's prior headquarters is held for sale. As of
December 31, 2000, the Company's aggregate monthly rent for all leased
properties was $127,000.
10
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to routine litigation incidental to its business,
primarily involving claims for personal injury or property damage incurred in
the transportation of freight. The Company's insurance program for liability,
physical damage and cargo damage involves self-insurance with varying risk
retention levels. Claims in excess of these risk retention levels are covered by
insurance in amounts which management considers to be adequate. The Company is
not aware of any claims or threatened claims that might have a material adverse
effect on the Company's financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during the
fourth quarter of 2000.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock is publicly traded on the Nasdaq National Market
("Nasdaq") under the symbol "SWFT". The following table sets forth the high and
low sales prices of the common stock reported by Nasdaq for the periods shown.
COMMON STOCK
-------------------
HIGH LOW
---- ---
2000
First Quarter...................................... $20.63 $11.81
Second Quarter..................................... 23.38 12.69
Third Quarter...................................... 17.94 12.25
Fourth Quarter..................................... 21.00 12.00
1999
First Quarter...................................... $22.50 $16.33
Second Quarter..................................... 22.63 14.00
Third Quarter...................................... 24.00 18.75
Fourth Quarter..................................... 19.81 12.69
On March 19, 2001, the last reported sales price of the Company's common stock
was $15.94 per share. At that date, the number of stockholder accounts of record
of the Company's common stock was 3,351. The Company estimates there are
approximately 4,200 beneficial holders of the Company's common stock.
The Company has not paid cash dividends on its common stock in either of the two
preceding fiscal years and one of the Company's notes payable includes
limitations on the payment of cash dividends. It is the current intention of
management to retain earnings to finance the growth of the Company's business.
Future payment of cash dividends will depend upon the financial condition,
results of operations, and capital requirements of the Company, as well as other
factors deemed relevant by the Board of Directors.
11
FACTORS THAT MAY AFFECT FUTURE STOCK PERFORMANCE
The performance of the Company's common stock is dependent upon several factors,
including those set forth below and in "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Factors That May Affect Future
Results and Financial Condition."
INFLUENCE BY PRINCIPAL STOCKHOLDER. Trusts established for the benefit of Jerry
C. Moyes and his family beneficially own approximately 45% of the Company's
common stock. Accordingly, Mr. Moyes will have a significant influence upon the
activities of the Company, as well as on all matters requiring approval of the
stockholders, including electing members of the Company's Board of Directors and
causing or restricting the sale or merger of the Company. This concentration of
ownership, as well as the ability of the Board to establish the terms of and
issue preferred stock of the Company without stockholder approval, may have the
effect of delaying or preventing changes in control or management of the
Company, including transactions in which stockholders might otherwise receive a
premium for their shares over their current market prices.
POSSIBLE VOLATILITY OF STOCK PRICE. The market price of the Company's common
stock could be subject to significant fluctuations in response to certain
factors, such as, among others, variations in the anticipated or actual results
of operations of the Company or other companies in the transportation industry,
changes in conditions affecting the economy generally, fluctuations in interest
rates and diesel prices, increases in insurance premiums affecting the trucking
industry generally, the depressed market for used tractors affecting the
trucking industry generally, the timing of the merger between Swift and M.S.
Carriers and market assessments as to whether the merger will be consummated,
analysts' reports or general trends in the industry, as well as other factors
unrelated to the Company's operating results.
12
ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
The selected consolidated financial data presented below for, and as of the end
of, each of the years in the five-year period ended December 31, 2000 is derived
from the Company's Consolidated Financial Statements. The Consolidated Financial
Statements as of December 31, 2000 and 1999, and for each of the years in the
three-year period ended December 31, 2000 and the independent auditors' report
thereon, are included in Item 8 of this Form 10-K. This data should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
included in Item 8 of this Form 10-K. Information presented below under the
caption, Operating Statistics, is unaudited.
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
2000 1999 1998 1997(1) 1996(2)
---- ---- ---- ------- -------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AND PER MILE AMOUNTS)
CONSOLIDATED STATEMENTS OF EARNINGS DATA:
Operating revenue...................................... $1,258,671 $1,061,234 $873,433 $713,638 $562,259
Earnings before income taxes........................... $84,856 $107,601 $93,306 $69,994 $47,212
Net earnings........................................... $52,601 $66,831 $55,511 $41,644 $27,422
Diluted earnings per share............................. $.82 $1.02 $.85 $.64 $.47
CONSOLIDATED BALANCE SHEET DATA (AT END OF YEAR):
Working capital........................................ $9,008 $88,028 $81,048 $64,168 $36,938
Total assets........................................... $960,211 $794,574 $636,283 $471,134 $380,605
Long-term obligations, less current portion............ $169,240 $168,153 $143,208 $73,420 $40,284
Stockholders' equity................................... $436,724 $394,199 $327,353 $274,175 $226,666
OPERATING STATISTICS (AT END OF YEAR):
Operating ratio........................................ 92.1% 89.0% 88.7% 89.6% 90.5%
Pre-tax margin (3)..................................... 6.7% 10.1% 10.7% 9.8% 8.4%
Average line haul revenue per mile(4) ................. $1.18 $1.15 $1.14 $1.13 $1.11
Empty mile percentage.................................. 14.3% 14.0% 13.5% 13.7% 14.0%
Average length of haul (in miles)...................... 509 541 567 571 576
Total tractors at end of period:
Company-operated..................................... 7,727 6,940 5,573 4,968 4,166
Owner-operator....................................... 1,987 1,748 1,225 910 665
Trailers at end of period.............................. 28,340 23,719 18,348 15,499 12,151
- ----------
(1) Includes the results of operations from the acquisition of certain assets
of DTI beginning April 8, 1997.
(2) Includes the results of operations from the asset acquisition of the dry
freight van division of Navajo Shippers, Inc., Digby Leasing, Inc. and
Digby-Ringsby Truck Line, Inc. beginning on September 12, 1996.
(3) Pre-tax margin represents earnings before income taxes as a percentage of
operating revenue. Because of the impact that equipment financing methods
can have on the operating ratio (operating expenses as a percentage of
operating revenue), the Company believes that the most meaningful
comparative measure of its operating efficiency is its pre-tax margin,
which takes into consideration both the Company's total operating expenses
and net interest expense as a percentage of operating revenue.
(4) Excludes fuel surcharge revenue.
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Swift's fleet has been predominantly comprised of Company-owned and leased
tractors. The Company's decisions whether to buy or lease new and replacement
revenue equipment are based upon the overall economic impact of the alternative
financing methods, including market prices available and income tax
considerations. Depending on whether revenue equipment is purchased or leased,
several categories of the Company's operating expenses have varied, and will
continue to vary, as a percentage of the Company's revenues. Because of the
impact that equipment financing methods can have on the operating ratio
(operating expenses as a percentage of operating revenue), the Company believes
that the most meaningful comparative measure of its operating efficiency is its
pre-tax margin (earnings before income taxes as a percentage of operating
revenue), which takes into consideration both the Company's total operating
expenses and net interest expense as a percentage of operating revenue.
Accordingly, in the discussion and analysis below, the Company has focused on
the factors contributing to operating revenue increases and to the increase or
decrease in its pre-tax margin during the periods presented. In the
"forward-looking statements" that may be included herein, important factors such
as the financial position of the Company, its customers' needs, the cost of new
equipment and new construction, the availability of buyers in the marketplace,
fuel costs and other factors may cause actual results to vary.
Although the trend of shippers in the truckload segment of the motor carrier
industry over the past several years has been towards consolidation, the
truckload industry remains highly fragmented. Management believes the industry
trend towards financially stable "core carriers" will continue and result in
continued industry consolidation. In response to this trend, the Company
continues to expand its total fleet with 9,714 tractors as of December 31, 2000
compared to 5,878 tractors as of December 31, 1997. See "Business -- General."
During this same period, the Company's owner operator fleet has expanded to
1,987 as of December 31, 2000 from 910 as of December 31, 1997.
This fleet growth was accomplished through a combination of internal growth and
through strategic acquisitions. See "Business--General". As discussed under
"Business--Pending Acquisition," Swift has entered into an agreement to acquire
M.S. Carriers. This acquisition, if consummated, would have a significant impact
on Swift's financial conditions and results of operations. In particular,
Swift's equity capitalization, revenues and other indicia of financial
performance will change significantly due to the issuance of Swift common stock,
the inclusion of M.S. Carriers operating results and the anticipated integration
and other costs associated with the merger, among other factors. Accordingly,
the results discussed below are not necessarily indicative of the results to be
expected in any future periods in the event that the M.S. Carriers transaction
is consummated. For additional information regarding the M.S. Carriers
acquisition, see Note 16 of the Notes to Consolidated Financial Statements.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain statement of
earnings data as a percentage of operating revenue:
DECEMBER 31,
-----------------------------
2000 1999 1998
---- ---- ----
Operating revenue ............................ 100.0% 100.0% 100.0%
Operating expenses:
Salaries, wages and employee benefits ...... 34.8 35.9 36.5
Operating supplies and expenses ............ 8.1 8.5 9.1
Fuel ....................................... 13.8 11.2 10.7
Purchased transportation ................... 18.8 17.2 15.5
Rental expense ............................. 5.1 4.2 4.7
Insurance and claims ....................... 2.4 2.6 2.8
Depreciation and amortization .............. 5.2 5.4 5.3
Communications and utilities ............... 1.3 1.3 1.3
Operating taxes and licenses ............... 2.6 2.7 2.8
----- ----- -----
Total operating expenses ................ 92.1 89.0 88.7
----- ----- -----
Operating income ............................. 7.9 11.0 11.3
Net interest expense ......................... 1.3 1.0 .7
Other (income) expense, net .................. (0.1) (0.1) (0.1)
----- ----- -----
Earnings before income taxes ................. 6.7 10.1 10.7
Income taxes ................................. 2.5 3.8 4.3
----- ----- -----
Net earnings ................................. 4.2% 6.3% 6.4%
===== ===== =====
14
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
Operating revenue increased $197.4 million, or 18.6%, to $1.259 billion for the
year ended December 31, 2000 from $1.061 billion for the previous year. The
increase in operating revenue is due primarily to the expansion of the Company's
total fleet to 9,714 tractors at December 31, 2000 from 8,688 at December 31,
1999, an increase of 1,026 tractors, rate increases of approximately 2.5% and a
fuel surcharge revenue increase of approximately $46 million.
The Company's operating ratio was 92.1% and 89.0% in 2000 and 1999,
respectively. The Company's operating ratio for 2000 increased as a result of
changes in certain components of operating expenses as a percentage of operating
revenue as discussed below. The Company's empty mile factor was 14.3% and 14.0%
and the average loaded linehaul revenue per mile was $1.38 and $1.34 (excluding
fuel surcharge) for the years ended December 31, 2000 and 1999, respectively.
Salaries, wages and employee benefits represented 34.8% of operating revenue for
the year ended December 31, 2000 compared with 35.9% for 1999. The decrease is
due primarily to a decrease in the accrual for the Company's 401(k) profit
sharing contribution and an increase in the portion of revenues generated by
owner operators offset by normal wage increases with associated benefits and
taxes.
From time to time the industry has experienced shortages of qualified drivers.
If such a shortage were to occur over a prolonged period and increases in driver
pay rates were to occur in order to attract and retain drivers, the Company's
results of operations would be negatively impacted to the extent that
corresponding rate increases were not obtained.
Fuel expenses represented 13.8% and 11.2% of operating revenue in 2000 and 1999,
respectively. The increase in fuel as a percentage of revenue is due primarily
to increased fuel prices and offset by the impact of an increase in the miles
generated by the owner operator fleet. Actual fuel cost per gallon increased by
approximately 36 cents per gallon (34%) in 2000 versus 1999.
Increases in fuel costs, to the extent not offset by rate increases or fuel
surcharges, would have an adverse effect on the operations and profitability of
the Company. Management believes that the most effective protection against fuel
cost increases is to maintain a fuel efficient fleet and to implement fuel
surcharges when such an option is necessary and available. The Company did not
use derivative-type hedging products, but periodically evaluates their possible
use.
Purchased transportation represented 18.8% and 17.2% of operating revenue for
the years ended December 31, 2000 and 1999, respectively. This increase is due
to the growth of the Company's owner operator fleet from 1,748 at December 31,
1999 to 1,987 at December 31, 2000.
Rental expense as a percentage of operating revenue was 5.1% and 4.2% for the
years ended December 31, 2000 and 1999, respectively. During 2000 and 1999,
leased tractors represented approximately 57% and 50%, respectively of the fleet
(exclusive of owner operators). When it is economically feasible to do so, the
Company will purchase then sell tractors it leases by exercising the purchase
option contained in the lease. Gains on these activities are recorded as a
reduction of rent expense. During the years ended December 31, 2000 and 1999,
respectively, the Company recorded gains of approximately $1.1 million and $3.6
million from the sale of leased tractors. Exclusive of gains, which reduced
rental expense, the percentage of rental expense to operating revenue in 2000
and 1999 was 5.2% and 4.6%, respectively.
Depreciation and amortization expense was 5.2% and 5.4% of operating revenue for
the years ended December 31, 2000 and 1999, respectively. During the year ended
December 31, 2000 the Company recorded gains on the sale of revenue equipment of
approximately $7.7 million compared with approximately $4.0 million in 1999.
Exclusive of gains, which reduced depreciation and amortization expense, the
percentage of depreciation and amortization to operating revenue in 2000 and
1999 was 5.8%.
15
Insurance and claims expense represented 2.4% and 2.6% of operating revenue in
the years ended December 31, 2000 and 1999, respectively. The Company's
insurance program for liability, physical damage and cargo damage involves
self-insurance with varying risk retention levels. Claims in excess of these
risk retention levels are covered by insurance in amounts which management
considers adequate. The Company accrues the estimated cost of the uninsured
portion of pending claims. These accruals are estimated based on management's
evaluation of the nature and severity of individual claims and an estimate of
future claims development based on historical claims development trends.
Insurance and claims expense will vary as a percentage of operating revenue from
period to period based on the frequency and severity of claims incurred in a
given period as well as changes in claims development trends.
Interest expense increased to $15.9 million in 2000 from $9.6 million in 1999.
This increase was due to increased borrowings under the Company's line of credit
and increased proceeds from the accounts receivable securitization program.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Operating revenue increased $187.8 million, or 21.5%, to $1.1 billion for the
year ended December 31, 1999 from $873.4 million for the previous year. The
increase in operating revenue is due primarily to the expansion of the Company's
total fleet to 8,688 tractors at December 31, 1999 from 6,798 at December 31,
1998, an increase of 1,890 tractors.
The Company's operating ratio was 89.0% and 88.7% in 1999 and 1998,
respectively. The Company's operating ratio for 1999 increased as a result of
changes in certain components of operating expenses as a percentage of operating
revenue as discussed below. The Company's empty mile factor was 14.0% and 13.5%
and the average loaded linehaul revenue per mile was $1.34 and $1.32 (excluding
fuel surcharge) for the years ended December 31, 1999 and 1998, respectively.
Salaries, wages and employee benefits represented 35.9% of operating revenue for
the year ended December 31, 1999 compared with 36.5% for 1998. The decrease is
due primarily to the reversal of a $5.4 million accrual related to an EEOC
action as a result of the Company agreeing to pay an amount significantly below
the amount of the original settlement offer. This reversal of accrual was offset
by an increase in the accrual for the Company's 401(k) profit sharing
contribution and normal wage increases with associated benefits and taxes.
In February 2000, the Company announced an increase in certain driver wage rates
effective April 1, 2000. The Company expects this increase to be substantially
offset by an increase in operating revenue as a result of increases in rates
charged to customers.
Fuel expenses represented 11.2% and 10.7% of operating revenue in 1999 and 1998,
respectively. The increase in fuel as a percentage of revenue is due primarily
to increased fuel prices and offset by the impact of an increase in the revenue
generated by the owner operator fleet. Actual fuel cost per gallon increased by
approximately 10 cents per gallon in 1999 versus 1998.
Fuel costs for the first sixty days of 2000 increased forty-five cents per
gallon compared to the same period in 1999, an increase of 53%.
Purchased transportation represented 17.2% and 15.5% of operating revenue for
the years ended December 31, 1999 and 1998, respectively. This increase is due
to the growth of the Company's owner operator fleet from 1,225 at December 31,
1998 to 1,748 at December 31, 1999 and an increase in logistics and intermodal
operations.
Rental expense as a percentage of operating revenue was 4.2% and 4.7% for the
years ended December 31, 1999 and 1998, respectively. During 1999 and 1998,
leased tractors represented approximately 50% and 54%, respectively of the fleet
(exclusive of owner operators). In addition to the reduction in the percentage
of tractors which were leased, rental expense was positively impacted by a
reduction in the number of leased trailers in 1999 versus 1998. When it is
economically feasible to do so, the Company will purchase then sell tractors it
leases by exercising the purchase option contained in the lease. Gains on these
16
activities are recorded as a reduction of rent expense. During the years ended
December 31,1999 and 1998, respectively, the Company recorded gains of
approximately $3.6 million and $3.8 million from the sale of leased tractors.
Depreciation and amortization expense was 5.4% and 5.3% of operating revenue for
the years ended December 31, 1999 and 1998, respectively. During the year ended
December 31, 1999 the Company recorded gains on the sale of revenue equipment of
approximately $4.0 million compared with approximately $6.1 million in 1998.
Exclusive of gains, which reduced depreciation and amortization expense, the
percentage of depreciation and amortization to operating revenue in 1999 and
1998 was 5.8% and 6.0%, respectively.
Insurance and claims expense represented 2.6% and 2.8% of operating revenue in
the years ended December 31,1999 and 1998, respectively. The Company's insurance
program for liability, physical damage and cargo damage involves self-insurance
with varying risk retention levels. Claims in excess of these risk retention
levels are covered by insurance in amounts which management considers adequate.
The Company accrues the estimated cost of the uninsured portion of pending
claims. These accruals are estimated based on management's evaluation of the
nature and severity of individual claims and an estimate of future claims
development based on historical claims development trends. Insurance and claims
expense will vary as a percentage of operating revenue from period to period
based on the frequency and severity of claims incurred in a given period as well
as changes in claims development trends.
Interest expense increased to $9.6 million in 1999 from $6.3 million in 1998.
This increase was due to increased borrowings under the Company's line of
credit.
The effective tax rate was 37.9% and 40.5% in 1999 and 1998, respectively. This
rate was positively impacted in 1999 by the finalization of certain tax
strategies and an enterprise zone credit.
LIQUIDITY AND CAPITAL RESOURCES
The continued growth in the Company's business requires significant investment
in new revenue equipment, upgraded and expanded facilities, and enhanced
computer hardware and software. The funding for this expansion has been from
cash provided by operating activities, proceeds from the sale of revenue
equipment, long-term debt, borrowings on the Company's revolving line of credit,
proceeds from the accounts receivable securitization, the use of operating
leases to finance the acquisition of revenue equipment and from periodic public
offerings of common stock.
The Company's current liabilities increased significantly as a result of the
receipt of $117 million of proceeds under the accounts receivable
securitization. As discussed in the Notes to Consolidated Financial Statements,
the receipts under the securitization are required to be shown as a current
liability because the committed term, subject to annual renewals, is 364 days.
Net cash provided by operating activities was $96.1 million for the year ended
December 31, 2000 compared to $150.7 million for 1999. The decrease is primarily
attributable to decreases in net earnings, deferred taxes and accounts payable,
accrued liabilities and claims accruals offset by a increase in depreciation and
amortization and a smaller increase in accounts receivable.
Net cash used in investing activities increased to $183.0 million for the year
ended December 31, 2000 from $167.4 million for 1999. The increase is due
primarily to an increase in capital expenditures and the investment in
Transplace.com offset by increased proceeds from the sale of property and
equipment.
As of December 31, 2000, the Company had commitments outstanding to acquire
replacement and additional revenue equipment for approximately $141 million. The
Company has the option to cancel such commitments upon 60 days notice. The
Company believes it has the ability to obtain debt and lease financing and
generate sufficient cash flows from operating activities to support these
acquisitions of revenue equipment.
During the year ended December 31, 2000, the Company incurred approximately $38
million of non-revenue equipment capital expenditures. These expenditures were
primarily for facilities and equipment.
17
The Company anticipates that it will expend approximately $62 million in 2001
for various facilities upgrades and acquisition and development of terminal
facilities. Factors such as costs and opportunities for future terminal
expansions may change the amount of such expenditures.
The funding for capital expenditures has been and will be from a combination of
cash provided by operating activities, amounts available under the Company's
line of credit, accounts receivable securitization, and debt and lease
financing. The availability of capital for revenue equipment and other capital
expenditures will be affected by prevailing market conditions and the Company's
financial condition and results of operations.
Net cash provided by financing activities was $96.1 million in 2000 compared to
$20.1 million in 1999. The increase in cash provided by financing activities is
primarily due to increased proceeds from the accounts receivable securitization
offset by treasury stock purchases.
Management believes that it will be able to finance its needs for working
capital, facilities improvements and expansion, as well as anticipated fleet
growth, with cash flows from operations, borrowings available under the line of
credit, accounts receivable securitization and with long-term debt and operating
lease financing believed to be available to finance revenue equipment purchases.
Over the long term, the Company will continue to have significant capital
requirements, which may require the Company to seek additional borrowings or
equity capital. The availability of debt financing or equity capital will depend
upon the Company's financial condition and results of operations as well as
prevailing market conditions, the market price of the Company's common stock and
other factors over which the Company has little or no control.
INFLATION
Inflation can be expected to have an impact on the Company's operating costs. A
prolonged period of inflation would cause interest rates, fuel, wages and other
costs to increase and would adversely affect the Company's results of operations
unless freight rates could be increased correspondingly. However, the effect of
inflation has been minimal over the past three years.
SEASONALITY
In the transportation industry, results of operations generally show a seasonal
pattern as customers reduce shipments after the winter holiday season. The
Company's operating expenses also tend to be higher in the winter months
primarily due to colder weather, which causes higher fuel consumption from
increased idle time.
FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION
The Company's future operating results and financial condition are dependent on
the Company's ability to successfully provide truckload carrier services to meet
dynamic customer demand patterns. Inherent in this process are a number of
factors that the Company must successfully manage in order to achieve favorable
future operating results and financial condition. Potential risks and
uncertainties that could affect the Company's future operating results and
financial condition include, without limitation, the factors discussed below.
GENERAL ECONOMIC AND BUSINESS FACTORS. The Company's business is dependent upon
a number of factors that may have a material adverse effect on its results of
operations, many of which are beyond the Company's control. These factors
include excess capacity in the trucking industry, significant increases or rapid
fluctuations in fuel prices, interest rates, fuel taxes, tolls, license and
registration fees and insurance and claims costs, to the extent not offset by
increases in freight rates or fuel surcharges, and difficulty in attracting and
retaining qualified drivers and owner operators. The Company's results of
operations also are affected by recessionary economic cycles and downturns in
customers' business cycles, particularly in market segments and industries (such
as retail, manufacturing and paper products) in which the Company has a
concentration of customers. In addition, the Company's results of operations are
affected by seasonal factors. Customers tend to reduce shipments after the
winter holiday
18
season and the Company's operating expenses tend to be higher in the winter
months primarily due to colder weather which causes higher fuel consumption from
increased idle time.
COMPETITION. The trucking industry is extremely competitive and fragmented. The
Company competes with many other truckload carriers of varying sizes and, to a
lesser extent, with railroads. Competition has created downward pressure on the
truckload industry's pricing structure. There are some trucking companies with
which the Company competes that have greater financial resources than the
Company, own more revenue equipment and carry a larger volume of freight than
the Company.
CAPITAL REQUIREMENTS. The trucking industry is very capital intensive. The
Company depends on cash from operations, operating leases and debt financing for
funds to expand the size of its fleet and maintain modern revenue equipment. If
the Company were unable in the future to enter into acceptable financing
arrangements, it would have to limit its growth and might be required to operate
its revenue equipment for longer periods, which could have a material adverse
effect on the Company's operating results.
ACQUISITIONS. The growth of the Company has been dependent in part upon the
acquisition of trucking companies throughout the United States. To date, the
Company has been successful in identifying trucking companies to acquire and in
integrating such companies' operations into the Company's operations. The
Company may face competition from transportation companies or other third
parties for acquisition opportunities that become available. There can be no
assurance that the Company will identify acquisition candidates that will result
in successful combinations in the future. Any future acquisitions by the Company
may result in the incurrence of additional debt and amortization of expenses
related to goodwill and intangible assets, which could adversely affect the
Company's profitability, or could involve the potentially dilutive issuance of
additional equity securities. In addition, acquisitions involve numerous risks,
including difficulties in assimilation of the acquired company's operations
particularly in the period immediately following the consummation of such
transactions, the diversion of the attention of the Company's management from
other business, and the potential loss of customers, key employees and drivers
of the acquired company, all of which could have a material adverse effect on
the Company's business and operating results.
MERGER WITH M.S. CARRIERS. The Company may be unable to successfully integrate
its operations with the operations of M.S. Carriers and realize the full cost
savings it anticipates to result from the acquisition of M.S. Carriers. Such
inability could have a material adverse effect on the Company's business and
operating results. Specifically, the Company may have difficulty maintaining
customer service and equipment utilization standards while attempting to
integrate its operations with the operations of M.S. Carriers, coordinating
geographically separated organizations, integrating personnel with diverse
business backgrounds, maintaining momentum in the activities of one or more of
the combined companies' business segments, and retaining key personnel, all of
which could have a material adverse effect on the Company's business. The
acquisition of M.S. Carriers could divert management's attention, which could
have a material adverse effect on the Company's business. Following the
acquisition of M.S. Carriers, customers may decrease freight volumes with Swift
because of the concentration of their businesses with the combined companies. If
this occurs, it could have a material adverse effect on the business and
operations of the Company.
In addition, the Company will also incur significant expenses and restructuring
charges in connection with the acquisition, some of which may be unanticipated.
If such costs and charges are not offset by the elimination of duplicative costs
and the realization of other efficiencies related to the integration of the two
businesses, it would have a material adverse effect on the Company's business
and operating results.
The issuance of additional Swift shares in connection with the acquisition of
M.S. Carriers may have a dilutive impact on the earnings per share of the
Company.
DEPENDENCE ON KEY PERSONNEL. The Company is highly dependent upon the services
of Mr. Jerry Moyes, Chairman of the Board, President and Chief Executive
Officer, Mr. William F. Riley, III, Senior Executive Vice President and Chief
Financial Officer, Mr. Rodney K. Sartor, Executive Vice President, Mr. Patrick
J. Farley, Executive Vice President, and Mr. Kevin H. Jensen, Executive Vice
President. Mr. Moyes has other significant business interests to which he
devotes his time and efforts, including serving as Chairman of Simon
Transportation Services, Inc., a truckload carrier providing nationwide,
predominately temperature-controlled transportation services for major shippers,
and Central Freight Lines, Inc., a regional less-than-truckload carrier. Mr.
Moyes is also the largest stockholder of Simon Transportation and Central
Freight Lines. Although the Company believes it has an experienced and talented
management group, the loss of the services of Mr. Moyes, Mr. Riley, Mr. Sartor,
19
Mr. Farley or Mr. Jensen could have a material adverse effect on the Company's
operations and future profitability. The Company does not have employment
agreements with nor does it maintain key man life insurance on Messrs. Riley,
Sartor, Farley or Jensen. The Company does not have an employment agreement with
but does maintain key man life insurance on Mr. Moyes.
REGULATION. The Company is regulated by the United States Department of
Transportation. This regulatory authority exercises broad powers, generally
governing activities such as authorization to engage in motor carrier
operations, safety, financial reporting, and certain mergers, consolidations and
acquisitions. Swift may also become subject to new or more comprehensive or
restrictive regulations relating to fuel emissions, ergonomics and limitations
on hours of service. The increased cost of complying with such regulations could
have a material adverse effect on Swift's business and operating results.
In addition, the Company's operations are subject to various environmental laws
and regulations dealing with the transportation, storage, presence, use,
disposal and handling of hazardous materials, discharge of stormwater and
underground fuel storage tanks. If the Company should be involved in a spill or
other accident involving hazardous substances or if the Company were found to be
in violation of applicable laws or regulations, it could have a material adverse
effect on the Company's business and operating results.
USED EQUIPMENT MARKET. Swift relies on the sale of used equipment to offset the
cost of purchasing new equipment. In the past 18 months, used tractor values
have deteriorated significantly. Should this trend continue, it could have a
material adverse effect on Swift's business and operating results.
CLAIMS EXPOSURE; INSURANCE. The Company currently self-insures for liability
resulting from cargo loss, personal injury and property damage, and maintains
insurance with licensed insurance companies above its limits on self-insurance.
To the extent the Company were to experience an increase in the number of claims
for which it is self-insured, the Company's operating results would be
materially adversely affected. In addition, significant increases in insurance
costs, to the extent not offset by freight rate increases, would reduce the
Company's profitability.
DEPENDENCE ON KEY CUSTOMERS. A significant portion of the Company's revenue is
generated from key customers. During 2000, the Company's top 25, 10 and 5
customers accounted for 53%, 35% and 23% of revenues, respectively. The Company
does not have long-term contractual relationships with many of its key
customers, and there can be no assurance that the Company's relationships with
its key customers will continue as presently in effect. A reduction in or
termination of the Company's services by a key customer could have a material
adverse effect on the Company's business and operating results.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has interest rate exposure arising from the Company's line of credit
and accounts receivable securitization which have variable interest rates. These
variable interest rates are impacted by changes in short-term interest rates.
The Company manages interest rate exposure through its conservative debt ratio
target and its mix of fixed and variable rate debt and lease financing. At
December 31, 2000, the fair value of the Company's long-term debt approximated
carrying value. Assuming the current level of borrowings, a hypothetical
one-percentage point increase in interest rates would increase the Company's
annual interest expense by $2.7 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements of the Company as of December 31, 2000 and
1999 for each of the years in the three-year period ended December 31, 2000,
together with related notes and the report of KPMG LLP, independent certified
public accountants, are set forth on the following pages. Other required
financial information set forth herein is more fully described in Item 14 of
this Form 10-K.
20
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Swift Transportation Co., Inc.:
We have audited the accompanying consolidated balance sheets of Swift
Transportation Co., Inc. and subsidiaries as of December 31, 2000 and 1999, and
the related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 2000.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Swift Transportation
Co., Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States of America.
/s/ KPMG LLP
Phoenix, Arizona
February 28, 2001
21
SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
---------------------
ASSETS 2000 1999
-------- --------
Current assets:
Cash ................................................. $ 19,196 $ 9,969
Accounts receivable, net ............................. 174,524 153,418
Equipment sales receivables .......................... 5,799 5,966
Inventories and supplies ............................. 8,966 7,410
Prepaid taxes, licenses and insurance ................ 27,191 17,010
Assets held for sale ................................. 3,169 5,468
Note receivable ...................................... 3,200
Deferred income taxes ................................ 4,200
-------- --------
Total current assets ........................... 242,045 203,441
-------- --------
Property and equipment, at cost:
Revenue and service equipment ........................ 716,305 608,470
Land ................................................. 22,589 12,879
Facilities and improvements .......................... 128,654 112,659
Furniture and office equipment ....................... 23,545 20,260
-------- --------
Total property and equipment ................... 891,093 754,268
Less accumulated depreciation and amortization ......... 188,111 172,936
-------- --------
Net property and equipment ..................... 702,982 581,332
Other assets ........................................... 8,860 2,731
Goodwill ............................................... 6,324 7,070
-------- --------
$960,211 $794,574
======== ========
See accompanying notes to consolidated financial statements.
22
SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
-------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
-------- --------
Current liabilities:
Accounts payable ............................................. $ 53,659 $ 53,917
Accrued liabilities .......................................... 31,688 34,493
Current portion of claims accruals ........................... 23,104 26,530
Current portion of long-term debt ............................ 386 473
Securitization of accounts receivable ........................ 117,000
Current portion of deferred income taxes ..................... 7,200
-------- --------
Total current liabilities .............................. 233,037 115,413
-------- --------
Borrowings under revolving line of credit ...................... 154,000 152,500
Long-term debt, less current portion ........................... 15,240 15,653
Claims accruals, less current portion .......................... 21,040 21,122
Deferred income taxes .......................................... 100,170 95,687
Stockholders' equity:
Preferred stock, par value $.001 per share
authorized 1,000,000 shares; none issued
Common stock, par value $.001 per share
authorized 150,000,000 shares; issued 66,389,281 and
65,818,166 shares in 2000 and 1999, respectively ........... 66 66
Additional paid-in capital ................................... 138,243 131,571
Retained earnings ............................................ 336,350 283,749
-------- --------
474,659 415,386
Less treasury stock, at cost (3,157,850 and 1,862,550
shares in 2000 and 1999, respectively) ....................... 37,935 21,187
-------- --------
Total stockholders' equity ............................. 436,724 394,199
-------- --------
Commitments and contingencies $960,211 $794,574
======== ========
See accompanying notes to consolidated financial statements.
23
SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT SHARE DATA)
YEARS ENDED DECEMBER 31,
-------------------------------------------------
2000 1999 1998
----------- ----------- -----------
Operating revenue ............................. $1,258,671 $1,061,234 $873,433
---------- ---------- --------
Operating expenses:
Salaries, wages and employee benefits........ 438,210 381,238 318,992
Operating supplies and expenses ............. 102,400 88,921 79,556
Fuel ........................................ 173,446 119,143 93,023
Purchased transportation .................... 236,824 182,832 135,453
Rental expense .............................. 64,367 44,854 41,447
Insurance and claims ........................ 30,640 27,486 24,094
Depreciation and amortization ............... 64,837 57,659 46,033
Communications and utilities ................ 16,093 14,085 11,433
Operating taxes and licenses ................ 32,119 28,575 24,710
---------- ---------- --------
Total operating expenses .............. 1,158,936 944,793 774,741
---------- ---------- --------
Operating income ...................... 99,735 116,441 98,692
---------- ---------- --------
Other (income) expenses:
Interest expense ............................ 15,873 9,574 6,277
Interest income ............................. (742) (338) (269)
Other ....................................... (252) (396) (622)
---------- ---------- --------
Other (income) expenses, net .......... 14,879 8,840 5,386
---------- ---------- --------
Earnings before income taxes .......... 84,856 107,601 93,306
Income taxes ................................ 32,255 40,770 37,795
---------- ---------- --------
Net earnings .......................... $ 52,601 $ 66,831 $ 55,511
========== ========== ========
Basic earnings per share ...................... $ .83 $ 1.04 $ .87
========== ========== ========
Diluted earnings per share .................... $ .82 $ 1.02 $ .85
========== ========== ========
See accompanying notes to consolidated financial statements.
24
SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK ADDITIONAL TOTAL
--------------------- PAID-IN RETAINED TREASURY STOCKHOLDERS'
SHARES PAR VALUE CAPITAL EARNINGS STOCK EQUITY
------ --------- ------- -------- ----- ------
Balances, January 1, 1998 64,190,335 $ 64 $ 116,120 $ 161,407 $ (3,416) $ 274,175
Issuance of common stock under
stock option and employee stock purchase plans 853,940 1 3,726 3,727
Income tax benefit arising from the exercise
of stock options 3,349 3,349
Amortization of deferred compensation 212 212
Payment of stock split fractional share (21) (21)
Purchase of 826,500 shares of treasury stock (9,600) (9,600)
Net earnings 55,511 55,511
----------- ---- --------- --------- --------- ---------
Balances, December 31, 1998 65,044,275 65 123,386 216,918 (13,016) 327,353
Issuance of common stock under stock option
and employee stock purchase plans 773,891 1 4,578 4,579
Income tax benefit arising from the exercise
of stock options 3,311 3,311
Amortization of deferred compensation 305 305
Payment of stock split fractional share (9) (9)
Purchase of 539,475 shares of treasury stock (8,171) (8,171)
Net earnings 66,831 66,831
----------- ---- --------- --------- --------- ---------
Balances, December 31, 1999 65,818,166 66 131,571 283,749 (21,187) 394,199
Issuance of common stock under stock option
and employee stock purchase plans 571,115 5,294 5,294
Income tax benefit arising from the exercise
of stock options 900 900
Amortization of deferred compensation 478 478
Purchase of 1,295,300 shares of treasury stock (16,748) (16,748)
Net earnings 52,601 52,601
----------- ---- --------- --------- --------- ---------
Balances, December 31, 2000 66,389,281 $ 66 $ 138,243 $ 336,350 $ (37,935) $ 436,724
=========== ==== ========= ========= ========= =========
See accompanying notes to consolidated financial statements.
25
SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
-----------------------------------------
2000 1999 1998
--------- --------- ---------
Cash flows from operating activities:
Net earnings ......................................................... $ 52,601 $ 66,831 $ 55,511
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization ....................................... 65,695 54,016 42,568
Deferred income taxes ............................................... 21,063 36,737 15,610
Income tax benefit arising from the exercise of stock options........ 900 3,311 3,349
Provision for losses on accounts receivable.......................... 2,332 1,200 1,110
Amortization of deferred compensation ............................... 478 305 212
Increase (decrease) in cash resulting from changes in:
Accounts receivable ................................................ (28,601) (36,058) (27,056)
Inventories and supplies ........................................... (1,556) (2,544) (357)
Prepaid expenses and other current assets .......................... (10,181) (1,782) (10,138)
Other assets ....................................................... (243) (1,089) 78
Accounts payable, accrued liabilities and claims accruals .......... (6,371) 29,810 33,982
--------- --------- ---------
Net cash provided by operating activities ................... 96,117 150,737 114,869
--------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of property and equipment ......................... 93,684 64,650 63,233
Capital expenditures ................................................. (273,263) (237,340) (238,002)
Equity investment .................................................... (5,000)
Loans to investment entities ......................................... (4,384)
Payments received on equipment sales receivables ..................... 5,955 5,262 3,407
--------- --------- ---------
Net cash used in investing activities ....................... (183,008) (167,428) (171,362)
--------- --------- ---------
Cash flows from financing activities:
Repayments of long-term debt ......................................... (10,911) (765) (8,287)
Increase in borrowings under revolving line of credit................. 1,500 24,500 71,500
Payment of stock split fractional shares ............................. (9) (21)
Increase in borrowings under accounts receivable securitization....... 117,000
Proceeds from sale of common stock ................................... 5,277 4,575 3,705
Purchase of treasury stock ........................................... (16,748) (8,171) (9,600)
--------- --------- ---------
Net cash provided by financing activities ................... 96,118 20,130 57,297
--------- --------- ---------
Net increase in cash .................................................. 9,227 3,439 804
Cash at beginning of year ............................................. 9,969 6,530 5,726
--------- --------- ---------
Cash at end of year ................................................... $ 19,196 $ 9,969 $ 6,530
========= ========= =========
See accompanying notes to consolidated financial statements.
26
SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
---------------------------------
2000 1999 1998
------- ------- -------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest ..................................................... $15,160 $ 9,661 $ 5,842
======= ======= =======
Income taxes ................................................. $ 6,405 $17,104 $27,404
======= ======= =======
Supplemental schedule of noncash investing
and financing activities:
Equipment sales receivables .................................. $ 5,788 $ 5,966 $ 5,385
======= ======= =======
Direct financing for purchase of equipment ................... $ 5,063 $ 973 $ 436
======= ======= =======
See accompanying notes to consolidated financial statements.
27
SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Swift Transportation Co., Inc., a Nevada holding company, together with its
wholly-owned subsidiaries ("Company"), is a national truckload carrier operating
throughout the continental United States.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with original
maturities of three months or less to be cash equivalents.
INVENTORIES AND SUPPLIES
Inventories and supplies consist primarily of spare parts, tires, fuel and
supplies and are stated at cost. Cost is determined using the first-in,
first-out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Gains and losses from the sale of
revenue equipment are included as a component of depreciation expense. Net gains
in 2000, 1999 and 1998 were $7,668,000, $4,000,000 and $6,105,000, respectively.
To obtain certain tax incentives, the Company financed the construction of its
Edwardsville, Kansas terminal with municipal bonds issued by the city.
Subsequently, the Company purchased 100% of the bonds and intends to hold them
to maturity, effectively financing the construction with internal cash flow. The
Company has offset the investment in the bonds against the related liability and
neither is reflected on the consolidated balance sheet.
For the years ended December 31, 2000, 1999 and 1998, the Company capitalized
interest related to self-constructed assets totaling $1,210,000, $1,140,000 and
$894,000, respectively.
Depreciation on property and equipment is calculated on the straight-line method
over the estimated useful lives of 10 to 40 years for facilities and
improvements, 5 to 12 years for revenue and service equipment and 3 to 5 years
for furniture and office equipment.
Tires on revenue equipment purchased are capitalized as a component of the
related equipment cost when the vehicle is placed in service and depreciated
over the life of the vehicle. Replacement tires are expensed when placed in
service.
28
SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
GOODWILL
Goodwill represents the excess of purchase price over fair value of net assets
acquired. Such goodwill is being amortized on the straight-line method over
periods ranging from 15 to 20 years. Accumulated amortization was $5,256,000 and
$4,509,000 at December 31, 2000 and 1999, respectively. The Company continually
evaluates whether events and circumstances have occurred that indicate the
remaining estimated useful life of goodwill and other long lived assets may
warrant revision or that the remaining balance may not be recoverable. When
factors indicate that the asset should be evaluated for possible impairment, the
Company uses an estimate of the undiscounted net cash flows over the remaining
life of the asset in determining whether the asset is impaired.
REVENUE RECOGNITION
Operating revenues and related direct costs are recognized as of the date the
freight is picked up for shipment.
INCOME TAXES
The Company accounts for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amount of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the period that
includes the enactment date.
EARNINGS PER SHARE
Basic earnings per share is computed using the weighted average number of common
shares outstanding during each period (63,204,000, 64,079,000 and 64,005,000 for
2000, 1999, and 1998, respectively). Diluted earnings per common share includes
the impact of stock options assumed to be exercised using the treasury stock
method. The denominator for diluted earnings per share is greater than the
denominator used in the basic earnings per share by 858,000, 1,211,000, and
1,245,000 shares in 2000, 1999, and 1998, respectively. The numerator is the
same for both basic and diluted earnings per share.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and revenues and expenses
and the disclosure of contingent liabilities to prepare these consolidated
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
ACCOUNTING STANDARDS NOT YET ADOPTED BY THE COMPANY
The Financial Accounting Standards Board has issued Statements of Financial
Accounting Standards for which the required implementation date has not yet
become effective. None of these accounting standards are expected to have a
material impact on the Company's consolidated financial statements.
29
SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(2) ACCOUNTS RECEIVABLE
Accounts receivable consists of:
DECEMBER 31,
-----------------------
2000 1999
-------- --------
(IN THOUSANDS)
Trade customers .................................. $162,651 $134,649
Equipment manufacturers .......................... 3,166 3,100
Income tax receivable ............................ 7,649 16,715
Other ............................................ 4,268 707
-------- --------
177,734 155,171
Less allowance for doubtful accounts ............. 3,210 1,753
-------- --------
$174,524 $153,418
======== ========
The schedule of allowance for doubtful accounts is as follows:
BEGINNING ENDING
BALANCE ADDITIONS DEDUCTIONS BALANCE
------- --------- ---------- -------
(IN THOUSANDS)
Years ended December 31:
2000 ....................... $1,753 $2,332 $ (875) $3,210
====== ====== ====== ======
1999 ....................... $1,116 $1,200 $ (563) $1,753
====== ====== ====== ======
1998 ....................... $ 291 $1,110 $ (285) $1,116
====== ====== ====== ======
(3) ASSETS HELD FOR SALE
Assets held for sale consist of land, land improvements, building and equipment
related to the Company's former corporate headquarters and terminal located in
Phoenix, Arizona and is stated at the lower of depreciated cost or fair value
less costs to sell. In February 2000, the Company sold a portion of the assets
held for sale which relate to the Company's former corporate headquarters. There
was no gain or loss on the sale of these assets. In December 2000, the Company
recorded an adjustment to reduce the carrying value of these assets by $450,000
to reflect the effect of a pending sale of the remaining assets.
(4) EQUITY INVESTMENT AND NOTE RECEIVABLE
In April 2000, the Company and five other large transportation companies
("Members") entered into an (1) Operating Agreement and (2) Initial Subscription
Agreement of Transplace.com, LLC ("Transplace.com"), an Internet-based global
transportation logistics company. These agreements finalize the terms of the
agreement in principal, signed in March 2000, to form Transplace.com.
The Company has contributed its Transportation Logistics Business along with
associated intangible assets and Transplace.com commenced operations on July 1,
2000. As of December 31, 2000 the Company also has contributed $5,000,000 to
Transplace.com. The Company's interest in Transplace.com, which is accounted for
using the equity method, is approximately 15% and is included in other assets.
In addition, the Company has a note receivable from Transplace.com in the amount
of $3,200,000 which bears interest at 8% and matures on September 29, 2001. This
note was paid in full in February 2001.
30
SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(5) ACCRUED LIABILITIES
Accrued liabilities consists of:
DECEMBER 31,
-------------------------
2000 1999
------- -------
(IN THOUSANDS)
Employee compensation ...................... $21,059 $22,996
Fuel and mileage taxes ..................... 1,387 3,057
Other ...................................... 9,242 8,440
------- -------
$31,688 $34,493
======= =======
(6) ACCOUNTS RECEIVABLE SECURITIZATION
In December 1999, the Company (through a wholly-owned bankruptcy-remote special
purpose subsidiary) entered into an agreement to sell, on a revolving basis,
interests in its accounts receivable to an unrelated financial entity. The
bankruptcy-remote subsidiary has the right to repurchase the receivables from
the unrelated entity. Therefore, the transaction does not meet the criteria for
sale treatment under Financial Accounting Standard No. 125 and is reflected as a
secured borrowing in the financial statements.
Under the amended agreement, the Company can receive up to a maximum of $125
million of proceeds, subject to eligible receivables and will pay a program fee
recorded as interest expense, as defined in the agreement. The Company will pay
commercial paper interest rates on the proceeds received. The proceeds received
will be reflected as a current liability on the consolidated financial
statements because the committed term, subject to annual renewals, is 364 days.
As of December 31, 2000 there were $117 million of proceeds received.
(7) BORROWINGS UNDER REVOLVING LINE OF CREDIT
The Company has a $170 million unsecured revolving line of credit (the line of
credit) under an agreement with six major banks (the Credit Agreement) which
matures on January 16, 2003. Interest on outstanding borrowings is based upon
one of two options which the Company selects at the time of borrowing: the
bank's prime rate or the London Interbank Offered Rate (LIBOR) plus applicable
margins, as defined in the Credit Agreement. The unused portion of the line of
credit is subject to a commitment fee.
The Credit Agreement requires the Company to meet certain covenants with respect
to debt to equity and debt coverage ratios. The Credit Agreement also requires
the Company to maintain unencumbered assets of not less than 120% of unsecured
indebtedness (as defined).
The Credit Agreement includes financing for letters of credit. The Company has
outstanding letters of credit primarily for workers' compensation and liability
self-insurance purposes totaling $15 million at December 31, 2000.
31
SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(8) LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31,
---------------------
2000 1999
------- -------
(IN THOUSANDS)
Notes payable to commercial lending institutions with varying payments
through the year 2005:
Fixed interest rates ranging from 4.0% to 4.77%.................................... $ 626 $ 1,126
Note payable to insurance company bearing interest at 6.78% payable
monthly with principal payments of $3,000,000 due in 2002 through 2006
secured by deed of trust on Phoenix facilities. Covenant requirements
include minimum debt to equity and debt coverage ratios and tangible net
worth. The covenants include limitations on dividends and treasury stock
purchases.......................................................................... 15,000 15,000
------- -------
Total long-term debt ...................................................... 15,626 16,126
Less current portion ............................................................... 386 473
------- -------
Long-term debt, less current portion ............................................... $15,240 $15,653
======= =======
The aggregate annual maturities of long-term debt exclusive of amounts due under
the revolving line of credit (see note 7) as of December 31, 2000 are as
follows:
YEARS ENDING
DECEMBER 31 (IN THOUSANDS)
----------- --------------
2001....................................................... $ 386
2002....................................................... 3,176
2003....................................................... 3,031
2004....................................................... 3,032
2005....................................................... 3,001
Thereafter................................................. 3,000
--------
$ 15,626
========
32
SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(9) COMMITMENTS
LEASES
The Company leases various revenue equipment and terminal facilities under
operating leases. At December 31, 2000, the future minimum lease payments under
noncancelable operating leases are as follows:
YEARS ENDING REVENUE
DECEMBER 31, EQUIPMENT FACILITIES TOTAL
------------ --------- ---------- -----
(IN THOUSANDS)
2001 ................................. $ 63,700 $ 1,508 $ 65,208
2002 ................................. 45,718 979 46,697
2003 ................................. 17,316 371 17,687
2004 ................................. 3,979 240 4,219
2005 ................................. 3,282 103 3,385
Thereafter ........................... 474 474
-------- -------- --------
Total minimum lease payments ......... $133,995 $ 3,675 $137,670
======== ======== ========
The revenue equipment leases generally include purchase options exercisable at
the completion of the lease. The Company recorded gains of approximately $1.1
million, $3.6 million, and $3.8 million from the sale of leased tractors in
2000, 1999, and 1998, respectively.
PURCHASE COMMITMENTS
The Company had commitments outstanding to acquire revenue equipment for
approximately $141 million at December 31, 2000. These purchases are expected to
be financed by operating leases, debt, proceeds from sales of existing equipment
and cash flows from operations. The Company has the option to cancel such
commitments with 60 days notice.
GUARANTEE
The Company has guaranteed approximately $7 million of debt of Trans-Mex, Inc.
S. A. de C. V., a truckload carrier within the Republic of Mexico of which the
Company owns 49%.
(10) STOCKHOLDERS' EQUITY
On April 10, 1999 and March 12, 1998 the Company completed three-for-two stock
splits effected in the form of a dividend of one share of common stock for every
two shares of common stock outstanding.
The Company purchased 1,295,300 and 539,475 shares of its common stock during
2000 and 1999 for a total cost of $16.7 million and $8.2 million, respectively.
These shares are being held as treasury stock and may be used for issuances
under the Company's employee stock option and purchase plans or for other
general corporate purposes.
STOCK COMPENSATION PLANS
The Company has four stock-based compensation plans, which are described below.
The Company applies APB Opinion No. 25 and related interpretations in accounting
for its plans. Accordingly, no compensation cost has been recognized for its
Employee Stock Purchase Plan. The compensation cost that has been charged
against income for its Fixed Stock Option Plans was $478,000, $305,000 and
$212,000 for 2000, 1999 and 1998, respectively.
33
SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Had compensation cost for the Company's four stock-based compensation plans been
determined consistent with FASB Statement No. 123 ("SFAS No. 123"), the
Company's net earnings and earnings per share would have been reduced to the pro
forma amounts indicated below:
2000 1999 1998
-------- -------- --------
Net earnings .................. As Reported $ 52,601 $ 66,831 $ 55,511
======== ======== ========
Pro forma $ 51,216 $ 65,928 $ 54,755
======== ======== ========
Basic earnings per share ...... As Reported $ .83 $ 1.04 $ .87
======== ======== ========
Pro forma $ .81 $ 1.03 $ .86
======== ======== ========
Diluted earnings per share .... As Reported $ .82 $ 1.02 $ .85
======== ======== ========
Pro forma $ .80 $ 1.01 $ .84
======== ======== ========
Pro forma net earnings reflect only options granted in 1995 through 2000.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net earnings amounts
presented above because compensation cost is reflected over the options' vesting
period of 9 years and compensation cost for options granted prior to January 1,
1995 is not considered under SFAS No. 123.
FIXED STOCK OPTION PLANS
The Company has three fixed stock option plans. Under the 1990 Employee Stock
Option Plan, the Company granted options to employees for 6.0 million shares of
common stock. Under the 1999 Employee Stock Option Plan the Company may grant up
to 2.25 million shares of common stock. Under the 1994 Non-Employee Directors
Plan, the Company may grant options to non-employee directors for up to 135,000
shares of common stock. Under all plans, the exercise price of each option that
has been granted equals 85 percent of the market price of the Company's stock on
the date of the grant. Options under the Employee Stock Option Plans generally
vest 20 percent after five years and 20 percent each succeeding year and the
maximum term is ten years. Options under the Non-Employee Directors Plan vest on
the grant date and the maximum term is six years.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1998 through 2000:
2000 1999 1998
---- ---- ----
Dividend yield ................................. 0% 0% 0%
Expected volatility ............................ 45% 45% 45%
Risk free interest rate ........................ 6.5% 6.5% 5%
Expected lives (days after vesting date) ....... 73 62 51
34
SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
A summary of the status of the Company's three fixed stock option plans as of
December 31, 2000, 1999 and 1998, and changes during the years then ended on
those dates is presented below:
2000 1999 1998
---------------------- ----------------------- -----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- ------- --------- ------- --------- ---------
Outstanding at beginning of year ........ 3,271,113 $ 7.80 3,825,825 $ 6.84 3,681,360 $ 5.27
Granted ................................. 1,997,450 $11.10 64,000 $15.69 812,400 $10.15
Exercised ............................... (181,149) $ 3.64 (538,533) $ 1.81 (615,262) $ 1.55
Forfeited ............................... (138,297) $10.03 (80,179) $ 8.88 (52,673) $ 9.82
---------- --------- ---------
Outstanding at end of year .............. 4,949,117 $ 9.22 3,271,113 $ 7.80 3,825,825 $ 6.84
========== ========= =========
Options exercisable at year-end ......... 523,452 319,194 164,025
========== ========== ==========
Weighted-average fair value of
options granted during the year ...... $ 7.11 $ 9.86 $ 7.71
========== ========== ==========
The following table summarizes information about fixed stock options outstanding
at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- -----------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF EXERCISE PRICES NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
------------------------ OUTSTANDING LIFE PRICE EXERCISABLE PRICE
----------- ---- ----- ----------- -----
$1.54 to $5.62 .......................... 1,019,393 3.04 $ 4.18 447,673 $ 3.17
$5.63 to $10.01 ......................... 1,010,836 5.75 $ 9.34 68,029 $ 9.01
$10.02 to $10.81 ........................ 770,663 7.64 $10.07
$11.10 .................................. 1,956,600 9.40 $11.10 3,000 $11.10
$11.17 to $18.42 ........................ 191,625 7.17 $12.77 4,750 $13.02
--------- -------
4,949,117 6.99 $ 9.22 523,452 $ 4.06
========= =======
EMPLOYEE STOCK PURCHASE PLAN
Under the 1994 Employee Stock Purchase Plan, the Company is authorized to issue
up to 4.5 million shares of common stock to full-time employees, nearly all of
whom are eligible to participate. Under the terms of the Plan, employees can
choose each year to have up to 15 percent of their annual base earnings withheld
to purchase the Company's common stock. The purchase price of the stock is 85
percent of the lower of the beginning-of-period or end-of-period (each period
being the first and second six calendar months) market price. Each employee is
restricted to purchasing during each period a maximum of $12,500 of stock
determined by using the beginning-of-period price. Under the Plan, the Company
issued 389,966, 235,971 and 240,135 shares to 2,243, 1,856 and 1,351 employees
in 2000, 1999 and 1998, respectively. Compensation cost is calculated as the
fair value of the employees' purchase rights, which was estimated using the
Black-Scholes model with the following assumptions:
2000 1999 1998
---- ---- ----
Dividend yield.............................. 0% 0% 0%
Expected volatility......................... 45% 45% 45%
Risk free interest rate..................... 6% 6% 4.5%
35
SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The weighted-average fair value of those purchase rights granted in 2000, 1999
and 1998 was $4.19, $5.61 and $3.98 respectively.
(11) INCOME TAXES
Income tax expense consists of:
2000 1999 1998
------- ------- -------
(IN THOUSANDS)
Current expense:
Federal ......................... $ 9,354 $ 5,944 $20,445
State ........................... 1,396 939 3,494
------- ------- -------
10,750 6,883 23,939
------- ------- -------
Deferred expense:
Federal ......................... 18,823 29,660 11,435
State ........................... 2,682 4,227 2,421
------- ------- -------
21,505 33,887 13,856
------- ------- -------
$32,255 $40,770 $37,795
======= ======= =======
The Company's effective tax rate was 38.0%, 37.9% and 40.5% in 2000, 1999 and
1998, respectively. The actual tax expense differs from the "expected" tax
expense (computed by applying the U.S. Federal corporate income tax rate of 35%
to earnings before income taxes) as follows:
YEARS ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
Computed "expected" tax expense ........... $ 29,700 $ 37,660 $ 32,657
Increase in income taxes resulting from:
State income taxes, net of federal
income tax benefit....................... 2,620 3,323 4,185
Enterprise tax credit..................... (443) (765)
Other, net................................ 378 552 953
-------- -------- --------
$ 32,255 $ 40,770 $ 37,795
======== ======== ========
36
SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The net effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below:
DECEMBER 31,
--------------------------
2000 1999
--------- ---------
(IN THOUSANDS)
Deferred tax assets:
Claims accruals .............................................................. $ 10,720 $ 18,140
Accounts receivable due to allowance for doubtful accounts.................... 1,223 1,130
Nondeductible accruals ....................................................... 2,823 2,820
Other ........................................................................ 833 500
--------- ---------
Total deferred tax assets ............................................ 15,599 22,590
--------- ---------
Deferred tax liabilities:
Property and equipment, principally due to differences in depreciation........ (109,149) (104,170)
Prepaid taxes, licenses and permits deducted
for tax purposes............................................................. (10,357) (6,480)
Other ........................................................................ (3,463) (3,427)
--------- ---------
Total deferred tax liabilities ....................................... (122,969) (114,077)
--------- ---------
Net deferred tax liability ........................................... $(107,370) $ (91,487)
========= =========
These amounts are presented in the accompanying consolidated balance sheets as
follows:
DECEMBER 31,
-------------------------
2000 1999
--------- ---------
(IN THOUSANDS)
Current deferred tax asset ................... $ $ 4,200
Current deferred tax liability ............... (7,200)
Noncurrent deferred tax liability ............ (100,170) (95,687)
--------- ---------
Net deferred tax liability ................... $(107,370) $ (91,487)
========= =========
(12) CLAIMS ACCRUALS
The Company's insurance program for liability, physical damage and cargo damage
involves self-insurance, with varying risk retention levels. Claims in excess of
these risk retention levels are covered by insurance in amounts which management
considers adequate.
Claims accruals represent accruals for the uninsured portion of pending claims
at December 31, 2000 and 1999. The current portion reflects the amounts of
claims expected to be paid in the following year. These accruals are estimated
based on management's evaluation of the nature and severity of individual claims
and an estimate of future claims development based on the Company's past claims
experience. Claims accruals also include accrued medical expenses under the
Company's group medical insurance program.
37
SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires that the Company disclose estimated
fair values for its financial instruments. The following summary presents a
description of the methodologies and assumptions used to determine such amounts.
CASH
The carrying amount is assumed to be the fair value because of the liquidity of
these instruments.
ACCOUNTS RECEIVABLES AND PAYABLES
Fair value is considered to be equal to the carrying value of the accounts
receivable and accounts payable and accrued liabilities, as they are generally
short-term in nature and the related amounts approximate fair value or are
receivable or payable on demand.
LONG-TERM DEBT AND BORROWINGS UNDER REVOLVING LINE OF CREDIT
The fair value of all of these instruments is assumed to approximate their
respective carrying values given the duration of the notes, their interest rates
and underlying collateral.
LIMITATIONS
Fair value estimates are made at a specific point in time and are based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
financial instrument. Changes in assumptions could significantly affect these
estimates. Since the fair value is estimated as of December 31, 2000, the
amounts that will actually be realized or paid at settlement or maturity of the
instruments could be significantly different.
(14) EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) profit sharing plan for all employees who are 19
years of age or older and have completed one year of service. The Plan provides
for a mandatory matching contribution equal to the amount of the employee's
salary reduction, but not to exceed 1% of the employee's compensation. Also, the
plan provides for a discretionary contribution not to exceed 4% of the
employee's compensation, limited to the amount permitted under the Internal
Revenue Code as deductible expenses. The Company may also make voluntary profit
sharing contributions. Employees' rights to employer contributions vest after
five years from their date of employment. The Company's contribution totaled
approximately $4.1 million, $8.2 million and $7.1 million for 2000, 1999 and
1998, respectively.
(15) RELATED PARTY TRANSACTIONS
The Company leases various properties from entities owned by the principal
stockholder. Rents paid under these leases totaled zero, $72,000 and $135,000
for the years ended December 31, 2000, 1999 and 1998, respectively.
A company owned by the Company's principal stockholder leases tractors to some
of the Company's owner operators. In connection with this program in 2000, 1999
and 1998, the Company acquired new tractors and sold them to this entity for
$25.2 million, $37.2 million and $22.1 million, respectively, and recognized fee
income of $1.4 million, $2.2 million and $1.3 million, respectively. During
38
SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2000, 1999, and 1998, the Company also sold used revenue equipment to this
entity totaling $160,000, $167,000 and $320,000 respectively, and recognized a
loss of $12,000 in 2000 and gains of $17,000 in 1999 and $69,000 in 1998. At
December 31, 2000 and 1999, nothing was owed to the Company for this equipment.
A Company owned by the principal stockholder provides aircraft services to the
Company. Such services totaled $718,000, $621,000 and $429,000 for the years
ended December 31, 2000, 1999 and 1998, respectively. At December 31, 2000 and
1999, $50,000 and $138,000, respectively, was owed to this entity for such
services.
The Company's principal stockholder acquired a significant ownership interest in
a less than truckload carrier during 1997. The Company provides transportation
services to this carrier and other entities owned by the principal stockholder
and recognized $9.7 million, $10.6 million and $6.1 million in operating revenue
in 2000, 1999 and 1998, respectively. At December 31, 2000 and 1999, $809,000
and $1.8 million, respectively, was owed to the Company for these services. In
addition, the Company sold used equipment to the carrier for $261,000 in 1998
and paid $547,000, $423,000 and $227,000 to the carrier for facilities rental in
2000, 1999 and 1998, respectively.
The Company's principal stockholder owns an entity with a fleet of tractors
which operates as a fleet operator for the Company. During 2000, 1999 and 1998,
the Company paid $33.6 million, $13.2 million and $17.2 million to this fleet
operator for purchased transportation services. At December 31, 2000 and 1999,
$483,000 and $512,000, respectively, was owed for these purchased transportation
services. Also, the Company was paid $1.9 million, $301,000 and $267,000 by this
fleet operator and paid $130,000, $43,000 and $450,000 to this fleet operator
for various services including training in 2000, 1999 and 1998, respectively. At
December 31, 2000 and 1999, $265,000 and $62,000 was owed to the Company and
zero and $23,000, respectively, was owed by the Company for these services.
The Company purchased $2.4 million of refrigeration units in 2000 from an entity
owned by one of the Company's officers.
All of the above related party arrangements were approved by the independent
members of the Company's Board of Directors.
(16) PENDING MERGER
On December 11, 2000, the Company and M.S. Carriers, Inc. (Nasdaq: MSCA)
announced that they have agreed to a merger in which M.S. Carriers will become a
wholly owned subsidiary of Swift. In the merger, 1.7 shares of the Company's
common stock will be exchanged for each share of M.S. Carriers common stock. The
definitive merger agreement has been approved by the boards of directors of both
companies. The merger is subject to a number of conditions, including
stockholder approval of both companies. The merger is expected to be accounted
for as a pooling of interests and to be tax-free to the stockholders of Swift
and M.S. Carriers. Prior to the merger, Swift expects to offer approximately
2,000,000 shares of its common stock and M.S. Carriers expects to offer
approximately 300,000 shares of its common stock in public offerings.
(17) CONTINGENCIES
The Company is involved in certain claims and pending litigation arising in the
normal course of business. Based on the knowledge of the facts and, in certain
cases, opinions of outside counsel, management believes the resolution of claims
and pending litigation will not have a material adverse effect on the Company.
39
SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(18) INDUSTRY SEGMENT INFORMATION
The Company operates predominantly in one industry, road transportation, as a
truckload motor carrier subject to regulation by the Department of
Transportation and various state regulatory authorities.
(19) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT SHARE DATA)
YEAR ENDED DECEMBER 31, 2000
Operating revenue ..................... $291,522 $316,555 $320,586 $330,008
Operating income ...................... 20,111 30,719 28,818 20,087
Net earnings .......................... 10,655 16,561 15,316 10,069
Basic earnings per share .............. .17 .26 .24 .16
Diluted earnings per share ............ .17 .26 .24 .16
YEAR ENDED DECEMBER 31, 1999
Operating revenue ..................... $234,944 $262,531 $279,423 $284,336
Operating income ...................... 21,832 30,740 33,150 30,719
Net earnings .......................... 12,103 17,504 18,732 18,492
Basic earnings per share .............. .19 .27 .29 .29
Diluted earnings per share ............ .19 .27 .29 .28
40
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company has never filed a Form 8-K to report a change in accountants because
of a disagreement over accounting principles or procedures, financial statement
disclosure, or otherwise.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to continuing directors and nominees of the Company is
set forth under the captions "Information Concerning Directors, Nominees and
Officers," "Meetings of the Board of Directors and its Committees," and
"Director Compensation" in the Registrant's Notice and Proxy Statement relating
to its 2001 Annual Meeting of Stockholders ("the 2001 Notice and Proxy
Statement") incorporated by reference into this Form 10-K Report. With the
exception of the foregoing information and other information specifically
incorporated by reference into this Form 10-K Report, the Registrant's 2001
Notice and Proxy Statement is not being filed as a part hereof.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation is set forth under the
captions "Executive Compensation," "Compensation Committee Interlocks and
Insider Participation," "Meetings and Compensation" and "Employment Agreements"
in the 2001 Notice and Proxy Statement and is incorporated herein by reference;
provided, however, that the information set forth under the captions
"Compensation Committee Report on Executive Compensation" and "Stock Price
Performance Graph" contained in the 2001 Notice and Proxy Statement are not
incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to security ownership of certain beneficial owners and
management is included under the caption "Security Ownership of Principal
Stockholders and Management" in the 2001 Notice and Proxy Statement and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and transactions of management
is set forth under the caption "Certain Transactions and Relationships" and
"Compensation Committee Interlocks and Insider Participation" in the 2001 Notice
and Proxy Statement and is incorporated herein by reference.
41
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules.
(i) Financial Statements
PAGE OR
METHOD OF FILING
----------------
(1) Report of KPMG LLP Page 21
(2) Consolidated Financial Statements and Page 22-40
Notes to Consolidated Financial
Statements of the Company, including
Consolidated Balance Sheets as of
December 31, 2000 and 1999 and related
Consolidated Statements of Earnings,
Stockholders' Equity and Cash Flows for
each of the years in the three-year
period ended December 31, 2000
(ii) Financial Statement Schedules
Schedules have been omitted because of the absence of conditions
under which they are required or because the required material
information is included in the Consolidated Financial Statements
or Notes to the Consolidated Financial Statements included
herein.
(b) Reports on Form 8-K
A report on Form 8-K was filed on December 26, 2000. This filing
described the announced merger agreement with M.S. Carriers dated
December 11, 2000.
(c) Exhibits.
EXHIBIT PAGE OR
NUMBER DESCRIPTION METHOD OF FILING
- ------ ----------- ----------------
2.1 Merger Agreement, dated as of December 11, 2000, among Swift Incorporated by reference to Exhibit 2.1 of the
Transportation Co., Inc., a Nevada corporation, Sun Merger, Registrant's Current Report on Form 8-K dated
Inc., a Tennessee corporation and wholly-owned subsidiary of December 11, 2000 (the "12/11/2000 8-K")
Swift Transportation Co., Inc., and M.S. Carriers, Inc., a
Tennessee corporation
3.1 Amended and Restated Articles of Incorporation of the Incorporated by reference to Exhibit 4.1 of the
Registrant Registrant's Registration Statement on Form S-8
(Registration No. 333-85940)
3.2 Bylaws of the Registrant Incorporated by reference to Exhibit 3.2 of the
Registrant's Registration Statement on Form S-3
(Registration No. 33-66034)
42
EXHIBIT PAGE OR
NUMBER DESCRIPTION METHOD OF FILING
- ------ ----------- ----------------
4.1 Specimen of Common Stock Certificate Incorporated by reference to Exhibit 4 of the
Company's Annual Report on Form 10-K for the year
ended December 31, 1992 (the "1992 Form 10-K")
4.2 Voting Agreement, dated as of December 11, 2000, between M. Incorporated by reference to Exhibit 4.1 of the
S. Carriers, Inc., a Tennessee corporation, the Jerry and 12/11/2000 8-K
Vickie Moyes Family Trust dated 12/11/87 and Jerry Moyes
4.3 Voting Agreement, dated as of December 11, 2000, among Swift Incorporated by reference to Exhibit 4.2 of the
Transportation Co., Inc., a Nevada corporation, Sun Merger, 12/11/2000 8-K
Inc., a Tennessee corporation and wholly-owned subsidiary of
Swift Transportation Co., Inc., and Michael S. Starnes
10.1 Stock Option Plan, as amended through November 18, 1994* Incorporated by Reference to Exhibit 10.7 of the
Company's Annual Report on Form 10-K for the year
ended December 31, 1994 (the "1994 Form 10-K")
10.2 Non-Employee Directors Stock Option Plan, as amended through Incorporated by reference to Exhibit 10.8 of the
November 18, 1994* 1994 Form 10-K
10.3 Employee Stock Purchase Plan, as amended through November Incorporated by reference to Exhibit 10.9 of the
18, 1994* 1994 Form 10-K
10.4 Swift Transportation Co., Inc. Retirement (401(k)) Plan Incorporated by reference to Exhibit 10.14 of the
dated January 1, 1992* Company's Form S-1 Registration Statement No.
#33-52454
10.5 Note agreement dated February 26, 1996 by and between Swift Incorporated by reference to Exhibit 10.12 of the
Transportation Co., Inc. and Great-West Life & Annuity Company's Annual Report on Company Form 10-K for
Insurance Company the year ended December 31,1995 (the "1995 Form
10-K")
10.6 Note agreement dated January 16, 1997 by and between Swift Incorporated by reference to Exhibit 10.11 of the
Transportation Co., Inc. and Wells Fargo Bank, N.A., ABN Company's Annual Report on Form 10-K for the year
Amro Bank N.V., The Chase Manhattan Bank and The First ended December 31,1996 (the "1996 Form 10-K")
National Bank of Chicago.
10.7 Asset Purchase Agreement Dated as of February 20, 1997 Among Incorporated by reference to Exhibit 1 of the
Swift Transportation Co., Inc. and Direct Transit, Inc. and Company's Current Report on Form 8-K dated April
Charles G. Peterson 8, 1997 (the "4/8/97 8-K")
10.8 First Modification Agreement to Note Agreement dated January Incorporated by Reference to Exhibit 10.13 of the
16, 1997 by and between Swift Transportation Co., Inc. and Company's Quarterly Report on Form 10-Q for the
Wells Fargo Bank, N.A., ABN Amro Bank N.V., The Chase quarter ended September 30, 1998 (the "1998 Third
Manhattan Bank and The First National Bank of Chicago Quarter Form 10-Q")
43
EXHIBIT PAGE OR
NUMBER DESCRIPTION METHOD OF FILING
- ------ ----------- ----------------
10.9 Second Modification Agreement to Note Agreement dated Incorporated by reference to Exhibit 10.14 of the
January 17, 1997 by and between Swift Transportation Co., 1998 Third Quarter Form 10-Q
Inc. and Wells Fargo Bank, N.V., ABN Amro Bank N.V., The
First National Bank of Chicago, Norwest Bank Arizona, N.A.,
Keybank National Association and Union Bank of California, N.A.
10.10 1999 Stock Option Plan, as amended* Incorporated by reference to Exhibit 4.3 of the
Registrant's Registration Statement on Form S-8
(Registration No. 333-53566)
10.11 Non-Employee Directors Stock Option Plan (Amended and Incorporated by reference to Notice and Proxy
Restated as of June 7, 2000)* Statement For Annual Meeting of Stockholders to be
held on June 7, 2000 ("the 2000 Proxy Statement")
10.12 Receivables Sales Agreement Dated As Of December 30, 1999 Incorporated by reference to Exhibit 10.16 of the
Among Swift Receivables Corporation, Swift Transportation Company's Annual Report on Form 10-K for the year
Corporation, ABN AMRO Bank N.V., and Amsterdam Funding ended December 31, 1999 (the "1999 Form 10-K")
Corporation
10.13 Purchase and Sale Agreement Dated December 30, 1999 between Incorporated by reference to Exhibit 10.17 of the
Swift Transportation Corporation and Swift Receivables 1999 Form 10-K
Corporation
10.14 Nonqualified Deferred Compensation Agreement* Incorporated by reference to Exhibit 10.18 of the
Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2000 (the "2000 First
Quarter Form 10-Q")
10.15 Operating Agreement of Transplace.com, LLC Incorporated by reference to Exhibit 10.19 of the
2000 First Quarter Form 10-Q
10.16 Initial Subscription Agreement of Transplace.com, LLC Incorporated by reference to Exhibit 10.20 of the
2000 First Quarter Form 10-Q
10.17 First Amendment Dated December 28, 2000 to Receivables Sale Filed herewith
Agreement Dated As Of December 30, 1999 Among Swift
Receivables Corporation, Swift Transportation Corporation,
ABN AMRO Bank N.V., and Amsterdam Funding Corporation
11 Schedule of computation of net earnings per share Filed herewith
21 Subsidiaries of Registrant Filed herewith
23 Consent of KPMG LLP Filed herewith
- ----------
* Indicates a compensation plan
44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized, this 20th
day of March, 2001.
SWIFT TRANSPORTATION CO., INC.,
a Nevada corporation
By /s/ Jerry C. Moyes
------------------------------------
Jerry C. Moyes
Chairman of the Board, President and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Jerry C. Moyes and William F. Riley III, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Form 10-K Annual
Report, and to file the same, with all exhibits thereto, and other documents in
connection therewith with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully and to all intents and purposes as he might
or could do in person hereby ratifying and confirming all that said
attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
on Form 10-K has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Jerry C. Moyes Chairman of the Board, March 20, 2001
- ------------------------ President and Chief Executive
Jerry C. Moyes Officer (Principal Executive
Officer)
/s/ William F. Riley III Senior Executive Vice President, March 20, 2001
- ------------------------ Secretary, Chief Financial Officer
William F. Riley III and Director
/s/ Stephen J. Lyding Chief Accounting Officer March 20, 2001
- ------------------------
Stephen J. Lyding
/s/ Rodney K. Sartor Executive Vice President and March 20, 2001
- ------------------------ Director
Rodney K. Sartor
/s/ Lou A. Edwards Director March 20, 2001
- ------------------------
Lou A. Edwards
/s/ Alphonse E. Frei Director March 20, 2001
- ------------------------
Alphonse E. Frei
/s/ Earl H. Scudder, Jr. Director March 20, 2001
- ------------------------
Earl H. Scudder, Jr.
S-1