SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-18605
SWIFT TRANSPORTATION CO., INC.
(Exact name of registrant as specified in its charter)
Nevada 86-0666860
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
2200 South 75th Avenue
Phoenix, AZ 85043
(602) 269-9700
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive office)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for at least the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date (November 3, 1998)
Common stock, $.001 par value: 42,345,481 shares
EXHIBIT INDEX AT PAGE 16
TOTAL PAGES 27
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PART I
FINANCIAL INFORMATION
Page
Number
Item 1. Financial statements
Condensed consolidated balance sheets
as of September 30, 1998 (unaudited) and
December 31, 1997 3-4
Condensed consolidated statements of
earnings (unaudited) for the three and nine month
periods ended September 30, 1998 and 1997 5
Condensed consolidated statements of cash
flows (unaudited) for the nine month
periods ended September 30, 1998 and 1997 6-7
Notes to condensed consolidated financial statements 8-9
Item 2. Management's discussion and analysis of financial
condition and results of operations 10-15
PART II
OTHER INFORMATION
Items 1, 2,
3, 4 and 5. Not applicable
Item 6. Exhibits and Reports on Form 8-K 16
2
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SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share data)
September 30, December 31,
1998 1997
---- ----
(unaudited)
ASSETS
Current assets:
Cash $ 4,308 $ 5,726
Accounts receivable, net 112,306 92,587
Equipment sales receivable 2,936 3,284
Inventories and supplies 2,975 4,509
Prepaid taxes, licenses and insurance 6,746 5,090
Assets held for sale 5,468 5,468
Deferred income taxes 7,472 5,280
-------- --------
Total current assets 142,211 121,944
-------- --------
Property and equipment, at cost:
Revenue and service equipment 441,595 366,223
Land 8,756 7,520
Facilities and improvements 76,254 62,760
Furniture and office equipment 15,476 13,949
-------- --------
Total property and equipment 542,081 450,452
Less accumulated depreciation and amortization 125,339 111,917
-------- --------
Net property and equipment 416,742 338,535
-------- --------
Other assets 1,897 1,976
Goodwill 8,111 8,679
-------- --------
$568,961 $471,134
======== ========
See accompanying notes to condensed consolidated financial statements.
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SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share data)
September 30, December 31,
1998 1997
---- ----
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 31,490 $ 14,469
Accrued liabilities 32,738 20,177
Current portion of claims accruals 24,156 16,281
Current portion of long-term debt 1,198 6,849
-------- --------
Total current liabilities 89,582 57,776
-------- --------
Borrowings under line of credit 79,000 56,500
Long-term debt, less current portion 15,227 16,920
Claims accruals, less current portion 26,148 21,343
Deferred income taxes 53,273 44,420
Stockholders' equity:
Preferred stock, par value $.001 per share
Authorized 1,000,000 shares; none issued
Common stock, par value $.001 per share
Authorized 75,000,000 shares; issued
43,167,441 and 42,793,557 shares at
September 30,1998 and December 31, 1997,
respectively 43 43
Additional paid-in capital 118,187 116,141
Retained earnings 200,499 161,407
-------- --------
318,729 277,591
Less treasury stock, at cost (881,050 and
331,050 shares at September 30,1998 and
December 31, 1997, respectively.) 12,998 3,416
-------- --------
Total stockholders' equity 305,731 274,175
-------- --------
Commitments and contingencies
$568,961 $471,134
======== ========
See accompanying notes to condensed consolidated financial statements.
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SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(unaudited)
(In thousands, except share data)
Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
Operating revenue $227,184 $188,071 $634,624 $524,999
Operating expenses:
Salaries, wages and employee
benefits 84,307 64,677 229,906 183,718
Operating supplies and expenses 20,602 17,652 59,010 46,807
Fuel 23,213 22,118 69,080 67,584
Purchased transportation 33,948 25,638 97,817 69,224
Rental expense 11,039 11,809 30,215 35,198
Insurance and claims 6,648 4,721 19,201 15,863
Depreciation and amortization 11,127 9,858 33,071 27,748
Communication and utilities 3,001 2,848 8,387 7,915
Operating taxes and licenses 5,990 5,921 18,606 18,036
-------- -------- -------- --------
Total operating expenses 199,875 165,242 565,293 472,093
-------- -------- -------- --------
Operating income 27,309 22,829 69,331 52,906
Other (income) expenses:
Interest expense 1,306 1,330 4,320 3,470
Interest income (90) (52) (213) (138)
Other (206) (101) (483) (271)
-------- -------- -------- --------
Other (income) expenses, net 1,010 1,177 3,624 3,061
-------- -------- -------- --------
Earnings before income taxes 26,299 21,652 65,707 49,845
Income taxes 10,655 8,770 26,615 20,200
-------- -------- -------- --------
Net earnings $ 15,644 $ 12,882 $ 39,092 $ 29,645
======== ======== ======== ========
Basic earnings per share $ .37 $ .30 $ .92 $ .70
======== ======== ======== ========
Diluted earnings per share $ .36 $ .30 $ .90 $ .69
======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements.
5
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SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)
(In thousands)
Nine Months
Ended September 30,
1998 1997
---- ----
Cash flows from operating activities:
Net earnings $ 39,092 $ 29,645
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 30,396 27,815
Deferred income taxes 6,661 3,600
Provision for losses on accounts receivable 770 180
Amortization of deferred compensation 152 90
Change in assets and liabilities:
Increase in accounts receivable (20,489) (16,835)
Decrease in inventories and supplies 1,534 417
Increase in prepaid expenses (1,656) (3,667)
Increase in other assets (17) (689)
Increase in accounts payable, accrued
liabilities and claims accruals 42,262 17,169
--------- --------
Net cash provided by operating activities 98,705 57,725
--------- --------
Cash flows from investing activities:
Proceeds from sale of property and equipment 48,117 17,727
Capital expenditures (158,556) (97,351)
Cash expended for purchase of DTI assets (3,749)
Treasury stock purchases (9,582)
Payments received on equipment sale receivables 3,284 390
--------- --------
Net cash used in investing activities (116,737) (82,983)
--------- --------
See accompanying notes to condensed consolidated financial statements.
6
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SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)
(In thousands)
Nine Months
Ended September 30,
1998 1997
---- ----
Cash flows from financing activities:
Repayments of long-term debt $ (7,780) $(23,510)
Increase in borrowings under line of credit 22,500 56,000
Payment of stock split fractional shares (21)
Proceeds from issuance of common stock
under stock option and stock purchase plans 1,915 1,645
-------- --------
Net cash provided by financing activities 16,614 34,135
-------- --------
Net increase (decrease) in cash (1,418) 8,877
Cash at beginning of period 5,726 1,210
-------- --------
Cash at end of period $ 4,308 $ 10,087
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 4,147 $ 3,391
Income taxes $ 15,718 $ 13,079
Supplemental schedule of noncash investing and
Financing activities:
Equipment sales receivables $ 2,936 $ 5,324
Direct financing for purchase of equipment $ 436
See accompanying notes to condensed consolidated financial statements.
7
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SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
Note 1. Basis of Presentation
The condensed consolidated financial statements include the accounts of
Swift Transportation Co., Inc., a Nevada holding company, and its
wholly-owned subsidiaries (the Company). All significant intercompany
balances and transactions have been eliminated.
The financial statements have been prepared in accordance with generally
accepted accounting principles, pursuant to rules and regulations of the
Securities and Exchange Commission. In the opinion of management, the
accompanying financial statements include all adjustments which are
necessary for a fair presentation of the results for the interim periods
presented. Certain information and footnote disclosures have been
condensed or omitted pursuant to such rules and regulations. These
condensed consolidated financial statements and notes thereto should be
read in conjunction with the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1997. Results of operations in interim periods
are not necessarily indicative of results to be expected for a full
year.
Note 2. Contingencies
The Company is involved in certain claims and pending litigation arising
from the normal course of business. Based on the knowledge of the facts
and, in certain cases, opinions of outside counsel, management believes
the resolution of claims and pending litigation will not have a material
adverse effect on the financial condition of the Company.
Note 3. Stock Split
On February 20, 1998, the Company's Board of Directors approved a
3-for-2 stock split effected in the form of a stock dividend and payable
on March 12, 1998 to the stockholders of record at the close of business
on March 2, 1998. All share amounts, share prices and earnings per share
have been retroactively adjusted to reflect this 3-for-2 stock split.
Note 4. Line of Credit
In August 1998, the Company modified its unsecured line of credit
agreement to increase the maximum available borrowings from $110 million
to $170 million and extend the maturity to January 16, 2003.
8
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SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
Note 5. Stock Repurchase
The Company purchased 550,000 shares of its common stock during the
three months ended September 30, 1998 for a total cost of $9,582,000.
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.
9
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SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Report on Form 10-Q contains forward-looking statements. The words
"believe," "expect," "anticipate," and "project," and similar expressions
identify forward-looking statements, which speak only as of the date the
statement was made. Such forward-looking statements are within the meaning of
that term in Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Such statements may
include, but are not limited to, projections of revenues, income, or loss,
capital expenditures, plans for future operations, financing needs or plans, the
impact of inflation and plans relating to the foregoing.
Statements in Exhibit 99 to this Quarterly Report on Form 10-Q and in the
Company's Annual Report on Form 10-K, including Notes to the Consolidated
Financial Statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations," describe factors, among others, that could
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 the Company's Annual Report on Form
10-K.
YEAR 2000 ISSUE
The Company is in the process of performing a comprehensive review of its Year
2000 issues and has completed its initial review of internal systems
(information technology ("IT") and non-IT). The majority of the Company's
application software programs are purchased from and maintained by vendors.
Therefore, the Company is working with these software vendors to verify these
applications become Year 2000 compliant. The Company estimates the status of
progress of these internal systems as follows:
Vendor Modifications Testing Commenced
Being Performed
IT Systems 85% 20%
Non-IT Systems 70% 15%
The Company presently believes that with modifications and updates to existing
software, the cost of which is not expected to be material, the Year 2000
problem will not pose significant operational problems for the Company's
internal systems.
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As part of the Company's comprehensive review, it is continuing to verify the
Year 2000 readiness of third parties (vendors and customers) with whom the
Company has material relationships. At present, the Company is not able to
determine the effect on the Company's results of operations, liquidity, and
financial condition in the event the Company's material vendors and customers
are not Year 2000 compliant. The Company will continue to monitor the progress
of its material vendors and customers and formulate a contingency plan at that
point in time when the Company does not believe a material vendor or customer
will be compliant.
OVERVIEW
Although the trend in the truckload segment of the motor carrier industry over
the past several years has been towards consolidation, the truckload industry
remains highly fragmented. Management believes the industry trend towards
financially stable "core carriers" will continue and result in continued
industry consolidation. In response to this trend, the Company continues to
expand its fleet with an increase of 788 tractors to 6,578 tractors as of
September 30, 1998 up from 5,790 tractors as of September 30, 1997. The owner
operator portion of the Company's fleet increased to 1,166 as of September 30,
1998 from 848 as of September 30, 1997.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO
THREE MONTHS ENDED SEPTEMBER 30, 1997
Operating revenue increased $39.1 million or 20.8% to $227.2 million for the
three months ended September 30, 1998 from $188.1 million for the corresponding
period of 1997. The increase in operating revenue is primarily the result of the
expansion of the Company's fleet as a result of strong shipper demand. The
Company's freight rates increased by approximately 2% in the third quarter of
1998 compared to the third quarter of 1997.
The Company's operating ratio (operating expenses expressed as a percentage of
operating revenue) for the third quarter of 1998 was 88.0% compared to 87.9% in
the comparable period of 1997. The Company's operating ratio for the three
months ended September 30, 1998 increased as a result of increases in certain
components of operating expenses as a percentage of operating revenue as
discussed below. The Company's empty mile factor for linehaul operations was
13.2% and 13.1% and average loaded linehaul revenue per mile was $ 1.32 and
$1.30 in the third quarter of 1998 and 1997, respectively.
Salaries, wages and employee benefits represented 37.1% of operating revenue for
the three months ended September 30, 1998 compared with 34.4% in 1997. The
increase is primarily due to an increase in workmen's compensation, the accrual
for the Company's profit sharing contribution, normal wage increases and
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
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results of operations would be negatively impacted to the extent that
corresponding rate increases were not obtained.
Fuel as a percentage of operating revenue was 10.2% for the third quarter of
1998 versus 11.8% in 1997. The decrease is partially due to an increase in the
number of owner operators who are responsible for their own fuel. In addition,
actual fuel cost per gallon decreased by approximately 13 cents per gallon in
the third quarter of 1998 versus the third quarter of 1997.
Increases in fuel costs, to the extent not offset by rate increases or fuel
surcharges, could have an adverse effect on the operations and profitability of
the Company. Management believes the most effective protection against fuel cost
increases is to maintain a fuel efficient fleet and to implement fuel surcharges
when such option is necessary and available. The Company currently does not use
derivative-type hedging products but is currently evaluating the possible use of
these products.
Purchased transportation as a percentage of operating revenue was 14.9% for the
three months ended September 30, 1998 compared to 13.6% in 1997. The increase is
due to the growth of the owner operator fleet to 1,166 as of September 30, 1998
from 848 as of September 30, 1997.
Rental expense as a percentage of operating revenue was 4.9% for the third
quarter of 1998 versus 6.3% in 1997. At September 30, 1998 and 1997, leased
tractors represented 54% and 63%, respectively, of the total fleet of Company
tractors. 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 as well as a slight reduction in the average lease rate for
tractors in the third quarter of 1998 versus the third quarter of 1997. When it
is economically advantageous to do so, the Company will purchase then sell
tractors that it currently leases by exercising the purchase option contained in
the lease. Gains on these activities are recorded as a reduction of rent
expense. The Company recorded $223,000 in the third quarter of 1998 and no gain
during the third quarter of 1997 from the sale of leased tractors.
Depreciation and amortization expense as a percentage of operating revenue was
4.9% in the third quarter of 1998 versus 5.2% in 1997. The Company includes
gains and losses from the sale of owned revenue equipment in depreciation and
amortization expense. During the three month period ended September 30, 1998,
net gains from the sale of revenue equipment reduced depreciation and
amortization expense by approximately $2.1 million compared to approximately
$1.1 million in the third quarter of 1997. Exclusive of gains, which reduced
this expense, depreciation and amortization expense as a percentage of operating
revenue was 5.8% in the third quarter of 1998 and 1997.
Insurance and claims expense represented 2.9% and 2.5% of operating revenue in
the third quarter of 1998 and 1997, 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
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nature and severity of individual claims and an estimate of future claims
development based on historical claims development trends.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 1997
Operating revenue increased $109.6 million or 20.9% to $634.6 million for the
nine months ended September 30, 1998 from $525.0 million for the corresponding
period of 1997. The increase in operating revenue is primarily the result of the
expansion of the Company's fleet and rate increases.
The Company's operating ratio (operating expenses expressed as a percentage of
operating revenue) for the first nine months of 1998 was 89.1% compared to 89.9%
in the comparable period of 1997. The Company's operating ratio for the nine
months ended September 30, 1998 improved as a result of the aforementioned
increase in operating revenue combined with decreases in certain components of
operating expenses as a percentage of operating revenue as discussed below. The
Company's empty mile factor for linehaul operations was 13.6% and 13.9% and
average loaded linehaul revenue per mile was $1.32 and $1.30 in the first nine
months of 1998 and 1997, respectively.
Salaries, wages and employee benefits represented 36.2% of operating revenue for
the nine months ended September 30, 1998 compared with 35.0% in 1997. The
increase is primarily due to an increase in the accrual for the Company's profit
sharing contribution and normal wage increases and associated benefits and
taxes.
Fuel as a percentage of operating revenue was 10.9% for the first nine months of
1998 versus 12.9% in 1997. The decrease is due to an increase in the number of
owner operators who are responsible for their own fuel and the reduction in fuel
prices as discussed above.
Purchased transportation as a percentage of operating revenue was 15.4% for the
nine months ended September 30, 1998 compared to 13.2% in 1997. The increase is
due to the growth of the owner operator fleet to 1,166 as of September 30, 1998
from 848 as of September 30, 1997.
Rental expense as a percentage of operating revenue was 4.8% for the first nine
months of 1998 versus 6.7% in 1997. When it is economically advantageous to do
so, the Company will purchase then sell tractors that it currently leases by
exercising the purchase option contained in the lease. Gains on these activities
are recorded as a reduction of rent expense. The Company recorded $2.7 million
in 1998 and no gain during the first nine months of 1997 from the sale of leased
tractors. As discussed above, rental expense decreased in the first nine months
of 1998 versus 1997 as a result of a reduction in the percentage of leased
tractors, number of leased trailers and the average lease rate for tractors.
Depreciation and amortization expense as a percentage of operating revenue was
5.2% in the first nine months of 1998 versus 5.3% in 1997. The Company includes
gains and losses from the sale of owned revenue equipment in depreciation and
amortization expense. During the nine month period ended September 30, 1998, net
gains from the sale of revenue equipment reduced depreciation and amortization
expense by approximately $4.6 million compared to approximately $2.9 million in
the first nine months of 1997. Exclusive of gains, which reduced this expense,
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depreciation and amortization expense as a percentage of operating revenue was
5.9% and 5.8% in the first nine months of 1998 and 1997, respectively.
Insurance and claims expense represented 3.0% of operating revenue in the first
nine months of 1998 and 1997. 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.
LIQUIDITY AND CAPITAL RESOURCES
The continued growth in the Company's business requires significant investment
in new revenue equipment, upgraded and expanded facilities, and enhanced
computer hardware and software. The funding for this expansion has been from
cash provided by operating activities, proceeds from the sale of revenue
equipment, long-term debt, borrowings on the Company's line of credit, the use
of operating leases to finance the acquisition of revenue equipment and from
periodic public offerings of common stock.
Net cash provided by operating activities was $98.7 million in the first nine
months of 1998 compared to $57.7 million in 1997. The increase is primarily
attributable to an increase in net earnings and accounts payable, accrued
liabilities and claims accruals.
Prepaid expenses increased by $1.7 million from December 31, 1997 to September
30, 1998. The increase is primarily due to significant annual license fees which
are prepaid in the first quarter of each year and amortized over the remainder
of the year.
Net cash used in investing activities increased to $116.7 million in the first
nine months of 1998 from $83.0 million in 1997. The increase is due primarily to
greater capital expenditures and treasury stock purchases in 1998 offset by
increased proceeds from the sale of property and equipment and payments received
on equipment sales receivable in 1998 along with a reduction in cash expended
for Direct Transit, Inc. assets in 1997.
As of September 30, 1998, the Company had commitments outstanding to acquire
replacement and additional revenue equipment for approximately $243 million. The
Company has the option to cancel such commitments upon 60 days notice. The
Company believes it has the ability to obtain debt and lease financing and
generate sufficient cash flows from operating activities to support these
acquisitions of revenue equipment.
During the first nine months of 1998, the Company incurred approximately $18.5
million of non-revenue equipment capital expenditures. These expenditures were
primarily for facilities and equipment.
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The Company anticipates that it will expend approximately $10 million during the
remainder of the year for various facilities upgrades and acquisition and
development of terminal facilities. Factors such as costs and opportunities for
future terminal expansions may change the amount of such expenditures.
The funding for capital expenditures has been and is anticipated to continue to
be from a combination of cash provided by operating activities, amounts
available under the Company's line of credit 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 amounted to $16.6 million in the first
nine months of 1998 compared to $34.1 million in 1997. This decrease is
primarily due to reduced borrowings under the line of credit.
Management believes it will be able to finance its needs for working capital,
facilities improvements and expansion, as well as anticipated fleet growth
through a combination of revenue equipment purchases and strategic acquisitions,
as opportunities become available, with cash flows from future operations,
borrowings available under the line of credit 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.
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SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES
PART II OTHER INFORMATION
Items 1, 2, 3, 4 and 5. Not applicable
Item 6. Exhibits and reports on Form 8-K
(a) Exhibit 10.13 - First Modification Agreement to Note Agreement
dated January 16, 1997 by and between Swift Transportation Co.,
Inc. and Wells Fargo Bank, N.A., ABN Amro Bank N.V., The Chase
Manhattan Bank and The First National Bank of Chicago.
Exhibit 10.14 - Second Modification Agreement to Note Agreement
dated January 16, 1997 by and between Swift Transportation Co.,
Inc. and Wells Fargo Bank, N.A., 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.
Exhibit 11 - Schedule of Computation of Net Earnings Per Share
Exhibit 27 - Financial Data Schedule
Exhibit 99 - Private Securities Litigation Reform Act of 1995
Safe Harbor Compliance Statement for Forward-Looking Statements
(b) No Current Reports on Form 8-K were filed during the three
months ended September 30, 1998.
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SWIFT TRANSPORTATION CO., INC.
Date: November 9, 1998 /s/ William F. Riley III
--------------------------------
(Signature)
William F. Riley III
Chief Financial Officer
16
MODIFICATION AGREEMENT
BY THIS MODIFICATION AGREEMENT (the "Agreement"), made and entered into
as of the 25th day of September, 1997, WELLS FARGO BANK, N.A., as administrative
agent for the Banks listed in the hereinafter defined Credit Agreement (the
"Banks") and as Issuing Bank, and SWIFT TRANSPORTATION CO., INC., an Arizona
corporation (the "Borrower"), in consideration of the mutual covenants herein
contained and other good and valuable consideration. the receipt and sufficiency
of which is hereby acknowledged, hereby confirm and agree as follows:
SECTION 1. RECITALS.
1.1 Borrower and the Administrative Agent, ABN AMRO Bank N.V. as
Co-Agent, and the Banks entered into that Credit Agreement dated January 16,
1997 (the "Credit Agreement") to provide financial accommodations to the
Borrower as provided therein.
1.2 Borrower and the Administrative Agent, with the consent of the
Banks, desire to modify the Credit Agreement as set forth herein.
1.3 All undefined capitalized terms used herein shall have the meaning
given them in the Credit Agreement.
SECTION 2. CREDIT AGREEMENT.
2.1 Section 2.3(a)(i) of the Credit Agreement is hereby amended to read
as follows:
(i) the Borrower shall not be entitled to request any
Borrowing which, if made, would result in an aggregate of more than
twenty separate Borrowings being outstanding collectively under the
Revolving Loan at any one time and
SECTION 3. OTHER MODIFICATIONS, RATIFICATIONS AND AGREEMENTS.
3.1 All references to the Credit Agreement in the other Loan Documents
are hereby amended to refer to the Credit Agreement as hereby amended.
3.2 Borrower hereby reaffirms to the Banks each of the representations,
warranties covenants and agreements of Borrower set forth in the Credit
Agreement, with the same force and effect as if each were separately stated
herein and made as of the date hereof.
3.3 Borrower hereby ratifies, reaffirms, acknowledges, and agrees that
the Notes and the Credit Agreement represent valid, enforceable and collectible
obligations of Borrower, and that there are no existing claims, defenses,
personal or otherwise, or rights of setoff whatsoever with respect to any of
these documents or instruments. Borrower further acknowledges and
<PAGE>
represents that no event has occurred and no condition exists that, after notice
or lapse of time, or both, would constitute a default under this Agreement, the
Notes or the Credit Agreement.
3.4 All terms, conditions and provisions of the Credit Agreement are
continued in full force and effect and shall remain unaffected and unchanged
except as specifically amended hereby. The Credit Agreement, as amended hereby,
is hereby ratified and reaffirmed by Borrower, and Borrower specifically
acknowledges the validity and enforceability thereof.
SECTION 4. GENERAL.
4.1 This Agreement in no way acts as a release or relinquishment of
those rights securing Payment of the Loans. Such rights are hereby ratified,
confirmed, renewed and extended by Borrower in all respects.
4.2 The modifications contained herein shall not be binding upon the
Banks until the Administrative Agent shall have received all of the following:
(a) An original of this Agreement fully executed by the
Borrower.
(b) An original of the Consent and Agreement of Guarantor
fully executed by the Guarantor and Swift Leasing.
(c) Such resolutions or authorizations and such other
documents as the Administrative Agent may require relating to the
existence and good standing of the Borrower and the authority of any
person executing this Agreement or other documents on behalf of the
Borrower.
4.3 Borrower shall execute and deliver such additional documents and do
such other acts as the Banks may reasonably require to fully implement the
intent of this Agreement.
4.4 Borrower shall pay all costs and expenses, including, but not
limited to, reasonable attorneys' fees incurred by the Administrative Agent in
connection herewith, whether or not all of the conditions described in Paragraph
4.2 above are satisfied. Banks, at their option, but without any obligation to
do so, may advance funds to pay any such costs and expenses that are the
obligation of the Borrower, and all such funds advanced shall bear interest at
the highest rate provided in the Notes and shall be due and payable upon demand.
4.5 Notwithstanding anything to the contrary contained herein or in any
other instrument executed by Borrower, the Administrative Agent or the Banks, or
in any other action or conduct undertaken by Borrower, the Administrative Agent
or the Banks on or before the date hereof, the agreements, covenants and
provisions contained herein shall constitute the only evidence of the Banks'
consent to modify the terms and provisions of the Credit Agreement. Accordingly,
no express or implied consent to any further modifications involving any of the
matters set forth in this Agreement or otherwise shall be inferred or implied by
2
<PAGE>
the Banks' consent to this Agreement. Further, the Banks' consent to this
Agreement shall not constitute a waiver (either express or implied) of the
requirement that any further modification of the Credit Agreement shall require
the express written consent of the Banks; no such consent (either express or
implied) has been given as of the date hereof.
4.6 Time is hereby declared to be of the essence hereof of the Credit
Agreement, and Banks require, and Borrower agrees to, strict performance of each
and every covenant, condition, provision and agreement hereof, of the Credit
Agreement.
4.7 This Agreement shall be binding upon, and shall inure to the
benefit of, the parties hereto and their heirs, personal representatives,
successors and assigns.
4.8 This Agreement is made for the sole protection and benefit of the
parties hereto, and no other person or entity shall have any right of action
hereon,
4.9 This Agreement shall be governed by and construed according to the
laws of the State of Arizona.
IN WITNESS WHEREOF, these presents are executed as of the date
indicated above.
WELLS FARGO BANK, N.A.
By: /s/ Stephanie Arnold
--------------------------------
Name: Stephanie Arnold
------------------------------
Its: Vice President
-------------------------------
ADMINISTRATIVE AGENT
SWIFT TRANSPORTATION, CO., INC.. an
Arizona corporation
By: /s/ William F. Riley III
--------------------------------
Name: William F. Riley III
------------------------------
Its: EVP - CFO
-------------------------------
BORROWER
3
SECOND MODIFICATION AGREEMENT
BY THIS SECOND MODIFICATION AGREEMENT (the "Agreement"), dated as of
the 3rd day of August, 1998, WELLS FARGO BANK, N.A., as administrative agent for
the Banks listed in the hereinafter defined Credit Agreement (the "Banks") and
as Issuing Bank, and SWIFT TRANSPORTATION CO., INC., an Arizona corporation (the
"Borrower"), in consideration of the mutual covenants herein contained and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, hereby confirm and agree as follows:
SECTION 1. RECITALS.
1.1 Borrower and the Administrative Agent, ABN AMRO Bank N.V. as
Co-Agent, and the Banks entered into that Credit Agreement dated January 16,
1997 (the "Credit Agreement") to provide financial accommodations to the
Borrower as provided therein, which Credit Agreement was previously amended by
that Modification Agreement dated September 25, 1997.
1.2 Borrower and the Administrative Agent, with the consent of the
Banks, desire to modify the Agreement as set forth herein.
1.3 All undefined capitalized terms used herein shall have the meaning
given them in the Credit Agreement.
1.4 The "Effective Date" means August 6, 1998,
SECTION 2. CREDIT AGREEMENT
2.1 The following definitions contained in Section 1.1 of the Credit
Agreement are hereby amended to read as follows:
"Maturity Date" shall mean January 16, 2003.
"Maximum Commitment" shall mean $170,000,000.00.
2.2 Schedule 2.1 to the Credit Agreement is hereby amended to read as
attached hereto.
2.3 Article V of the Credit Agreement is hereby amended by the addition
of the following Section 5.9:
Section 5.9 YEAR 2000 COMPLIANT. Perform all acts reasonably
necessary to ensure that Borrower and any business in which Borrower
holds a substantial interest become Year 2000 Compliant in a timely
manner. Such acts shall include, without limitation, performing a
comprehensive review and assessment of all of Borrower's systems and
<PAGE>
adopting a plan for the remediation, monitoring and testing of such
systems. As used in this paragraph, "Year 2000 Compliant" shall mean,
in regard to any entity, that all software, hardware, firmware,
equipment, goods or systems material to the business operations or
financial condition of such entity, will properly perform date
sensitive functions after December 31, 1999. Borrower shall,
immediately upon request, provide to the Administrative Agent such
certifications or other evidence of Borrower's compliance with the
terms of this paragraph as the Banks may from time to time require.
SECTION 3. OTHER MODIFICATIONS, RATIFICATIONS AND AGREEMENTS.
3.1 All references to the Credit Agreement in the other Loan Documents
are hereby amended to refer to the Credit Agreement as hereby amended.
3.2 Borrower hereby reaffirms to the Banks each of the representations,
warranties, covenants and agreements of Borrower set forth in the Credit
Agreement, with the same force and effect as if each were separately stated
herein and made as of the date hereof and hereby affirms that the
representations and warranties set forth in Article III of the Credit Agreement
remain true and correct in all material respects as of the Effective Date,
except to the extent such representations and warranties expressly relate and
are limited to a different date.
3.3 Borrower hereby represents and warrants to the Administrative Agent
and the Banks that it has reviewed the areas within its business and operations
and that of its Subsidiaries which could be adversely affected by, and has
developed or is developing a program to address on a timely basis, the "Year
2000 Problem" (that is, the risk that computer applications used by the Borrower
and its Subsidiaries may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any date after
December 31, 1999), and has made related appropriate inquiry of material
suppliers and vendors. Based on such review and program, the Borrower believes
that the "Year 2000 Problem" will not result in a Material Adverse Change with
respect to the Borrower.
3.4 Borrower hereby ratifies, reaffirms, acknowledges, and agrees that
the Notes and the Credit Agreement represent valid, enforceable and collectible
obligations of Borrower, and that there are no existing claims, defenses,
personal or otherwise, or rights of setoff whatsoever with respect to any of
these documents or instruments. Borrower further acknowledges and represents
that no event has occurred and no condition exists that, after notice or lapse
of time, or both, would constitute a default under this Agreement, the Notes or
the Credit Agreement.
3.5 All terms, conditions and provisions of the Credit Agreement are
continued in full force and effect and shall remain unaffected and unchanged
except as specifically amended hereby. The Credit Agreement, as amended hereby,
is hereby ratified and reaffirmed by Borrower, and Borrower specifically
acknowledges the validity and enforceability thereof. The Credit Agreement is
hereby modified to provide that it shall be a default or an event of default
thereunder if Borrower shall fail to comply with any of the covenants of
2
<PAGE>
Borrower herein or if any representation or warranty by Borrower herein or by
any guarantor in the Consent and Agreement of Guarantors is materially
incomplete, incorrect, or misleading as of the date hereof.
3.6 Any Bank whose Commitment is changed to zero on the Effective Date
shall deliver one or more executed Assignments and Acceptances to the
Administrative Agent and shall upon the Effective Date cease to be a Bank party
to the Credit Agreement.
3. 7 Each Person listed on the revised Schedule 2.1 which is not a
party to the Credit Agreement shall, if required by the Administrative Agent,
deliver to the Administrative Agent an executed Administrative Details Reply
Form and shall become a Bank party to the Credit Agreement upon the Effective
Date.
SECTION 4. GENERAL.
4.1 This Agreement in no way acts as a release or relinquishment of
those rights securing payment of the Loans. Such rights are hereby ratified,
confirmed, renewed and extended by Borrower in all respects.
4.2 The modifications contained herein shall not be binding upon the
Banks until the later of the Effective Date or the date when the Administrative
Agent shall have received from each Bank an executed Consent of the Banks and
from the Borrower all of the following:
(a) An original of this Agreement fully executed by the
Borrower.
(b) An original of the Consent and Agreement of Guarantors
fully executed by the Guarantor and Swift Leasing.
(c) A duly executed Note for each Bank, dated as of August 3,
1998, in the amount shown on Schedule 2.1 hereto.
(d) An amended and restated Continuing Guarantee fully
executed by the Guarantor and Swift Leasing.
(e) Such resolutions or authorizations and such other
documents as the Administrative Agent may require relating to the
existence and good standing of the Borrower and Guarantor and the
authority of any person executing this Agreement or other documents on
behalf of the Borrower and Guarantor.
4.3 Borrower shall execute and deliver such additional documents and do
such other acts as the Banks may reasonably require to fully implement the
intent of this Agreement.
4.4 Borrower shall pay all costs and expenses, including, but not
limited to, reasonable attorney's fees incurred by the Administrative Agent in
connection herewith, whether or not all of the conditions described in Paragraph
4.2 above are satisfied. Banks, at their option, but without any obligation
3
<PAGE>
to do so, may advance funds to pay any such costs and expenses that are the
obligation of the Borrower, and all such funds advanced shall bear interest at
the highest rate provided in the Notes and shall be due and payable upon demand.
4.5 Notwithstanding anything to the contrary contained herein or in any
other instrument executed by Borrower, the Administrative Agent or the Banks, or
in any other action or conduct undertaken by Borrower, the Administrative Agent
or the Banks on or before the date hereof, the agreements, covenants and
provisions contained herein shall constitute the only evidence of the Banks'
consent to modify the terms and provisions of the Credit Agreement. Accordingly,
no express or implied consent to any further modifications involving any of the
matters set forth in this Agreement or otherwise shall be inferred or implied by
the Banks' consent to this Agreement. Further, the Banks' consent to this
Agreement shall not constitute a waiver (either express or implied) of the
requirement that any further modification of the Credit Agreement shall require
the express written consent of the Banks; no such consent (either express or
implied) has been given as of the date hereof.
4.6 Time is hereby declared to be of the essence hereof of the Credit
Agreement, and Banks require, and Borrower agrees to, strict performance of each
and every covenant, condition, provision and agreement hereof, of the Credit
Agreement.
4.7 This Agreement shall be binding upon, and shall inure to the
benefit of, the parties hereto and their heirs, personal representatives,
successors and assigns.
4.8 This Agreement is made for the sole protection and benefit of the
parties hereto, and no other person or entity shall have any right of action
hereon.
4
<PAGE>
4.9 This Agreement shall be governed by and construed according to the
laws of the State of Arizona.
IN WITNESS WHEREOF, these presents are executed as of the date
indicated above.
WELLS FARGO BANK, N.A.
By: /s/ Stephanie Arnold
--------------------------------
Name: Stephanie Arnold
------------------------------
Its: Vice President
-------------------------------
ADMINISTRATIVE AGENT
AND ISSUING BANK
SWIFT TRANSPORTATION, CO., INC., an
Arizona corporation
By: /s/ William F. Riley III
--------------------------------
Name: William F. Riley III
------------------------------
Its: EVP - CFO
-------------------------------
BORROWER
5
EXHIBIT 11
SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES
Schedule of Computation of Net Earnings Per Share
(in thousands, except per share amounts)
Three months ended Nine months ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
Net earnings $15,644 $12,822 $39,092 $29,645
======= ======= ======= =======
Weighted average shares:
Common shares outstanding 42,688 42,368 42,638 42,197
Common equivalent shares issuable
upon exercise of employee stock
options 718 931 824 1,008
------- ------- ------- -------
Diluted weighted average shares 43,406 43,299 43,462 43,205
======= ======= ======= =======
Basic earnings per share $ .37 $ .30 $ .92 $ .70
======= ======= ======= =======
Diluted earnings per share $ .36 $ .30 $ .90 $ .69
======= ======= ======= =======
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTACTED FROM THE FINANCIAL
STATEMENTS AS OF SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<CIK> 863557
<NAME> SWIFT TRANSPORTATION CO., INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 4,308
<SECURITIES> 0
<RECEIVABLES> 112,306
<ALLOWANCES> 0
<INVENTORY> 2,975
<CURRENT-ASSETS> 142,211
<PP&E> 542,081
<DEPRECIATION> 125,339
<TOTAL-ASSETS> 568,961
<CURRENT-LIABILITIES> 89,582
<BONDS> 0
0
0
<COMMON> 43
<OTHER-SE> 305,688
<TOTAL-LIABILITY-AND-EQUITY> 568,961
<SALES> 634,624
<TOTAL-REVENUES> 634,624
<CGS> 0
<TOTAL-COSTS> 565,293
<OTHER-EXPENSES> (696)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,320
<INCOME-PRETAX> 65,707
<INCOME-TAX> 26,615
<INCOME-CONTINUING> 39,092
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,092
<EPS-PRIMARY> .92
<EPS-DILUTED> .90
</TABLE>
EXHIBIT 99
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
SAFE HARBOR COMPLIANCE STATEMENT FOR FORWARD-LOOKING STATEMENTS
In passing the Private Securities Litigation Reform Act of 1995 (the
"PSLRA"), Congress encouraged public companies to make "forward-looking
statements" 1 by creating a safe-harbor to protect companies from securities law
liability in connection with forward-looking statements. Swift Transportation
Co., Inc. ("Swift") intends to qualify both its written and oral forward-looking
statements for protection under the PSLRA.
To qualify oral forward-looking statements for protection under the PSLRA,
a readily available written document must identify important factors that could
cause actual results to differ materially from those in the forward-looking
statements. Swift provides the following information in connection with its
continuing effort to qualify forward-looking statements for the safe harbor
protection of the PSLRA.
Important factors currently known to management that could cause actual
results to differ materially from those in forward-looking statements include,
but are not limited to, the following: (i) excess capacity in the trucking
industry; (ii) significant increases or rapid fluctuations in fuel prices,
interest rates, fuel taxes, tolls, license and registration fees and insurance
premiums, to the extent not offset by increases in freight rates or fuel
surcharges; (iii) difficulty in attracting and retaining qualified drivers and
owner operators, especially in light of the current shortage of qualified
drivers and owner operators; (iv) recessionary economic cycles and downturns in
customers' business cycles, particularly in market segments and industries (such
as retail and manufacturing) in which the Company has a significant
concentration of customers; (v) seasonal factors such as harsh weather
conditions that increase operating costs; (vi) increases in driver compensation
to the extent not offset by increases in freight rates; (vii) the inability of
the Company to continue to secure acceptable financing arrangements; (viii) the
ability of the Company to continue to identify acquisition candidates that will
result in successful combinations; (ix) an unanticipated increase in the number
of claims for which the Company is self insured; and (x) a significant reduction
in or termination of the Company's trucking services by a key customer.
Forward-looking statements express expectations of future events. All
forward-looking statements are inherently uncertain as they are based on various
expectations and assumptions concerning future events and they are subject to
numerous known and unknown risks and uncertainties which could cause actual
events or results to differ materially from those projected. Due to these
inherent uncertainties, the investment community is urged not to place undue
reliance on forward-looking statements. In addition, Swift undertakes no
obligation to update or revise forward-looking statements to reflect changed
assumptions, the occurrence of unanticipated events or changes to projections
over time.
1. "Forward-looking statements" can be identified by use of words as
"expect," "believe," "estimate," "project," "forecast," "anticipate,"
"plan," and similar expressions.
