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, 1998
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 16, 1999, the aggregate market value of common stock held by
non-affiliates of the Registrant was $504,386,574.
The number of shares outstanding of the Registrant's common stock on March 16,
1999 was 42,511,914.
DOCUMENTS INCORPORATED BY REFERENCE
Materials from the Registrant's Notice and Proxy Statement relating to the 1999
Annual Meeting of Stockholders have been incorporated by reference into Part
III, Items 10, 11, 12 and 13.
Exhibit Index at page 43
Total pages 52
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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... 21
Item 8. Financial Statements and Supplementary Data.................. 21
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure........................ 42
PART III
Item 10. Directors and Executive Officers of the Registrant........... 42
Item 11. Executive Compensation....................................... 42
Item 12. Security Ownership of Certain Beneficial Owners
and Management............................................. 42
Item 13. Certain Relationships and Related Transactions............... 42
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K................................................ 43
SIGNATURES............................................................... S-1
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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 25.8% from $277.0 million
in 1993 to $873.4 million in 1998. During that same period, net earnings have
grown at a compound annual growth rate of 35.2% from $12.3 million to $55.5
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 and plans relating to products or services of the
Company, 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 30 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,
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in-house equipment maintenance. With an average length of haul of 567 miles in
1998, Swift is able to limit its direct competition with railroads, intermodal
services and longer-haul, less specialized truckload carriers.
Swift seeks 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 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 1998 and 1997, Swift maintained an
operating ratio of 88.7% and 89.6%, 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 1996 increased by 50%
from 1996 to 1998. The largest 25, 10 and 5 customers, respectively,
accounted for 46%, 33% and 22% of revenues in 1998, with no customer
accounting for more than 7% 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 ten 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.
+ 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
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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.
OPERATIONS
In the Western United States, 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 Western population centers. In
addition to Phoenix, Swift's Western terminals are located in the areas of Los
Angeles and San Francisco, California; Portland, Oregon; Salt Lake City, Utah;
Lewiston, Idaho; Reno, Nevada; Pueblo and Denver, Colorado. In the Eastern
United States, Swift has terminals located in Auburn, New York; Carlisle,
Pennsylvania; Richmond, Virginia; Eden, North Carolina; Greer, South Carolina;
Ocala, Florida; Atlanta and Albany, Georgia.
Swift's Midwest terminals are located in Gary and Shoals, Indiana;
Monroe and Columbus, Ohio; Dallas, Corsicana and Laredo, Texas; Oklahoma City,
Oklahoma; Memphis, Tennessee; Kansas City, Kansas; Plymouth, Michigan; and Town
of Menasha, Wisconsin.
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 1998 and
1997, Swift's average length of haul was 567 and 571 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 terminal managers are better able to
match available equipment to available loads and schedule regular maintenance
and fueling at Company terminals, thereby improving 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 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.
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Swift's larger terminals are staffed with terminal managers, fleet
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 35 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.
ACQUISITIONS
The growth of the Company has been, and will continue to be, 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.
See "Factors That May Affect Future Results and Financial Condition"
under Item 7.
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.
The following table shows the type and age of Company-owned and leased
equipment at December 31, 1998:
57', 53' AND SETS OF FLATBED SPECIALIZED
MODEL YEAR TRACTORS (1) 48' VANS DOUBLE VANS TRAILERS TRAILERS
---------- ------------ -------- ----------- -------- --------
1999 .............. 1,302 1,720 51
1998 .............. 1,481 3,187 20 2
1997 .............. 1,518 3,385 164 308 97
1996 .............. 776 2,191 202
1995 .............. 245 765 94
1994 .............. 165 1,399 40
1993 and prior..... 86 3,914 475 161 173
------ ------ ------ ------ ------
Total ........ 5,573 16,561 639 825 323
====== ====== ====== ====== ======
- ----------
(1) Excludes 1,225 owner-operator tractors.
When purchasing new revenue equipment, Swift acquires standardized
tractors and trailers manufactured to the Company's specifications. Since 1990,
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Swift has acquired predominantly 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 primary 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 communications
system links drivers to regional terminals and corporate headquarters, allowing
Swift to alter rapidly 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 to 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. By
concentrating on expanding its services to its existing customers, the Company's
revenues from its top 25 customers of 1996 increased 50% from 1996 to 1998.
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 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, ten and five customers accounted for approximately 46%,
33% and 22% respectively, of Swift's revenues during 1998, 47%, 33% and 23%,
respectively, of Swift's revenues during 1997 and 44%, 33% and 23%,
respectively, of Swift's revenues during 1996. 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
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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. 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. The Company
maintains a bonus system for its drivers based upon safety and driving
performance. 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, 1998, Swift employed approximately 9,600 full-time
persons, of whom approximately 7,300 were drivers (including driver trainees),
900 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. Safety supervisors engage in ongoing training of drivers
regarding safe vehicle operations and loading procedures. The Company has
adopted maximum speed limits and rewards drivers with bonuses for complying with
the Company's safety policies. The Company believes that its insurance and
claims expense as a percentage of operating revenue is one of the best in the
industry and attributable to its overall strong safety program. In December
1997, the Company received the highest safety rating given to motor carriers by
the United States Department of Transportation.
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FUEL
In order to reduce fuel costs, the Company purchases approximately 71%
of its fuel in bulk at 23 of its 30 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
Prior to December 29, 1995 the Company was regulated by the Interstate
Commerce Commission ("ICC"). On December 29, 1995, the ICC ceased operations.
However, substantially all of the jurisdiction over motor carriers was
transferred to the United States Department of Transportation, and most of the
regulatory requirements remain essentially unchanged. 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 also are 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.
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ITEM 2. PROPERTIES
The following table provides information regarding the Company's
regional terminals and/or offices:
COMPANY OWNED
LOCATION OR LEASED
-------- ---------
Albany, Georgia.................................... Leased
Atlanta, Georgia................................... Leased
Auburn, New York................................... Owned
Carlisle, Pennsylvania............................. Leased
Columbus, Ohio..................................... Leased
Corsicana, Texas................................... Leased
Denver, Colorado................................... Leased
Eden, North Carolina............................... Owned
Edwardsville, Kansas............................... Owned
Fontana, California................................ Owned
Gary, Indiana...................................... Owned
Greer, South Carolina.............................. Owned
Irving, Texas...................................... Leased
Laredo, Texas...................................... Leased
Lewiston, Idaho.................................... Leased
Memphis, Tennessee................................. Owned
Monroe, Ohio....................................... Leased
Ocala, Florida..................................... Leased
Oklahoma City, Oklahoma............................ Owned
Phoenix, Arizona................................... Owned
Plymouth, Michigan................................. Leased
Pueblo, Colorado................................... Owned
Richmond, Virginia................................. Owned
Salt Lake City, Utah............................... Owned
Shoals, Indiana.................................... Owned
Sparks, Nevada..................................... Owned
Stockton, California............................... Leased
Troutdale, Oregon.................................. Owned
Town of Menasha, Wisconsin......................... Owned
Willows, California................................ Owned
Wilmington, California............................. Leased
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, 1998, the Company's aggregate monthly rent for all leased
properties was $94,000.
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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, workers' compensation, 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 upon 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 1998.
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 closing sales prices of the common stock reported by Nasdaq for the
periods shown.
COMMON STOCK
-----------------
HIGH LOW
---- ---
1998
First Quarter.................... $17.83 $12.72
Second Quarter................... 17.17 12.00
Third Quarter.................... 15.33 10.59
Fourth Quarter................... 19.50 11.29
1997
First Quarter.................... $12.45 $10.78
Second Quarter................... 14.55 11.50
Third Quarter.................... 14.22 12.22
Fourth Quarter................... 14.78 12.22
On March 16, 1999, the last reported sales price of the Company's
common stock was $19.42 per share. At that date, the number of stockholder
accounts of record of the Company's common stock was 2,100. The Company
estimates there are approximately 4,800 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.
On March 15, 1999, the Company's Board of Directors approved a 3-for-2
stock split effected in the form of a stock dividend and payable on April 10,
1999 to the stockholders of record at the close of business on March 31, 1999.
All share amounts, share prices and earnings per share in this Annual Report on
Form 10-K have been retroactively adjusted to reflect this 3-for-2 stock split.
11
<PAGE>
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 44% 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, analysts' reports or
general trends in the industry, as well as other factors unrelated to the
Company's operating results.
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<PAGE>
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, 1998 is
derived from the Company's Consolidated Financial Statements. The Consolidated
Financial Statements as of December 31, 1998 and 1997, and for each of the years
in the three-year period ended December 31, 1998 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.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1998 1997(1) 1996(2) 1995 1994(3)
---- ------- ------- ---- -------
(DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE AND PER MILE AMOUNTS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
EARNINGS DATA:
Operating revenue .................... $873,433 $713,638 $562,259 $458,165 $365,889
Earnings before income taxes ......... $ 93,306 $ 69,994 $ 47,212 $ 40,070 $ 39,309
Net earnings ......................... $ 55,511 $ 41,644 $ 27,422 $ 23,040 $ 22,629
Diluted earnings per share(5)......... $ .85 $ .64 $ .47 $ .41 $ .40
CONSOLIDATED BALANCE SHEET DATA
(AT END OF YEAR):
Working capital ...................... $ 81,048 $ 64,168 $ 36,938 $ 6,735 $ 14,012
Total assets ......................... $636,283 $471,134 $380,605 $311,308 $275,991
Long-term obligations, less
current portion ..................... $143,208 $ 73,420 $ 40,284 $ 68,954 $ 77,715
Stockholders' equity ................. $327,353 $274,175 $226,666 $134,835 $111,342
OPERATING STATISTICS (AT END OF YEAR):
Operating ratio ...................... 88.7% 89.6% 90.5% 89.9% 88.8%
Pre-tax margin (4) ................... 10.7% 9.8% 8.4% 8.7% 10.7%
Average line haul revenue per mile ... $ 1.14 $ 1.13 $ 1.11 $ 1.11 $ 1.12
Empty mile percentage ................ 13.5% 13.7% 14.0% 13.9% 13.2%
Average length of haul (in miles) .... 567 571 576 591 590
Total tractors at end of period:
Company-operated.................... 5,573 4,968 4,166 3,472 3,286
Owner-operator...................... 1,225 910 665 477 188
Trailers at end of period ............ 18,348 15,499 12,151 8,788 8,957
</TABLE>
- ----------
(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) Includes the results of operations from the asset acquisitions of East-West
Transportation, Inc. beginning on July 1, 1994 and Missouri-Nebraska
Express, Inc. beginning October 2, 1994.
(4) 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.
(5) As adjusted to reflect the 3-for-2 stock split effected in the form of a
stock dividend and payable on April 10, 1999 to the stockholders of record
at the close of business on March 31, 1999. All share amounts, share prices
and earnings per share in this Annual Report on Form 10-K have been
retroactively adjusted to reflect this 3-for-2 stock split.
13
<PAGE>
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 is 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 fleet with 5,573 tractors as of December 31, 1998
compared to 3,472 tractors as of December 31, 1995. This fleet growth was
accomplished through a combination of internal growth and through strategic
acquisitions. See "Business -- General." During this same period, the Company's
owner operator fleet has expanded to 1,225 as of December 31, 1998 from 477 as
of December 31, 1995.
YEAR 2000 ISSUE
The Company has completed its comprehensive review of its Year 2000
issues and 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
BEING PERFORMED TESTING COMMENCED
--------------- -----------------
IT Systems 98% 90%
Non-IT Systems 90% 30%
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. The Company's contingency plan in the event of a Year 2000
problem is to perform tasks through telephonic communication, which the Company
believes will allow it to operate in the short term assuming power and telephone
services are functioning.
14
<PAGE>
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 believes
its material vendors and customers will be Year 2000 compliant and the effect on
the Company's results of operations, liquidity, and financial condition will not
be material. 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.
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,
----------------------
1998 1997 1996
----- ----- -----
Operating revenue .............................. 100.0% 100.0% 100.0%
Operating expenses:
Salaries, wages and employee benefits ........ 36.5 34.5 34.2
Operating supplies and expenses .............. 9.1 8.9 9.3
Fuel ......................................... 10.7 12.8 13.8
Purchased transportation ..................... 15.5 13.5 12.8
Rental expense ............................... 4.7 6.5 5.8
Insurance and claims ......................... 2.8 3.2 3.6
Depreciation and amortization ................ 5.3 5.3 6.0
Communications and utilities ................. 1.3 1.5 1.5
Operating taxes and licenses ................. 2.8 3.4 3.5
----- ----- -----
Total operating expenses ..................... 88.7 89.6 90.5
----- ----- -----
Operating income ............................... 11.3 10.4 9.5
Net interest expense ........................... .7 .7 1.2
Other (income) expense, net .................... (0.1) (0.1) (0.1)
----- ----- -----
Earnings before income taxes ................... 10.7 9.8 8.4
Income taxes ................................... 4.3 4.0 3.5
----- ----- -----
Net earnings ................................... 6.4% 5.8% 4.9%
===== ===== =====
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Operating revenue increased $159.8 million, or 22.4%, to $873.4 million
for the year ended December 31, 1998 from $713.6 million for the previous year.
The increase in operating revenue is due primarily to the expansion of the
Company's total fleet to 6,798 tractors at December 31, 1998 from 5,878 at
December 31, 1997, an increase of 920 tractors.
The Company's operating ratio was 88.7% and 89.6% in 1998 and 1997,
respectively. The Company's operating revenue and operating ratio for 1998
improved as a result of strong shipper demand which caused an increase in
operating revenue and the favorable impact in components of operating expenses
explained below. The Company's empty mile factor was 13.5% and 13.7% and the
average rate per mile was $1.143 and $1.118 (excluding fuel surcharge) for the
years ended December 31, 1998 and 1997, respectively.
Salaries, wages and employee benefits represented 36.5% of operating
revenue for the year ended December 31, 1998 compared with 34.5% for 1997. The
increase is due primarily to an increase in the accrual for the Company's 401(k)
profit sharing contribution and normal wage increases with associated benefits
and taxes.
15
<PAGE>
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 10.7% and 12.8% of operating revenue in 1998
and 1997, respectively. The decrease in fuel as a percentage of revenue is due
primarily to decreased fuel prices and an increase in the owner operator fleet.
Actual fuel cost per gallon decreased by approximately 16 cents per gallon in
1998 versus 1997.
Increases in fuel costs (including fuel taxes), 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 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 currently does not use derivative-type hedging products
but is currently evaluating the possible use of these products.
Purchased transportation represented 15.5% and 13.5% of operating
revenue for the years ended December 31, 1998 and 1997, respectively. This
increase is primarily the result of the growth of the Company's owner operator
fleet from 910 at December 31, 1997 to 1,225 at December 31, 1998.
Rental expense as a percentage of operating revenue was 4.7% and 6.5%
for the years ended December 31, 1998 and 1997, respectively. During 1998 and
1997, leased tractors represented approximately 54% and 61%, 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 as well as a slight reduction in
the average lease rate for tractors in 1998 versus 1997. 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 year ended December
31,1998 and 1997, respectively, the Company recorded gains of approximately $3.8
million and $770,000 from the sale of leased tractors.
Depreciation and amortization expense was 5.3% of operating revenue for
the years ended December 31, 1998 and 1997. During the year ended December 31,
1998 the Company recorded gains on the sale of revenue equipment of
approximately $6.1 million compared with approximately $3.6 million in 1997.
Exclusive of gains, which reduced depreciation and amortization expense, the
percentage of depreciation and amortization to operating revenue in 1998 and
1997 was 6.0% and 5.8%, respectively.
Insurance and claims expense represented 2.8% and 3.2% of operating
revenue in the years ended December 31,1998 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 nature and severity of individual claims and an estimate of
future claims development based on historical claims development trends.
Insurance and claims expense will vary as a percentage of operating revenue from
period to period based on the frequency and severity of claims incurred in a
given period as well as changes in claims development trends.
Interest expense increased to $6.3 million in 1998 from $4.6 million in
1997. This increase was due to increased borrowings under the Company's line of
credit.
16
<PAGE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Operating revenue increased $151.3 million, or 26.9%, to $713.6 million
for the year ended December 31, 1997 from $562.3 million for the previous year.
The increase in operating revenue is due primarily to the expansion of the
Company's total fleet to 5,878 tractors at December 31, 1997 from 4,831 at
December 31, 1996, an increase of 1,047 tractors. The acquisition of tractors
from certain lessors of DTI in April 1997 accounted for 565 of this increase in
tractors. The Company's freight rates increased by approximately 1% in 1997.
The Company's operating ratio was 89.6% and 90.5% in 1997 and 1996,
respectively. The Company's operating revenue and operating ratio for 1997
improved as a result of strong shipper demand which caused an increase in
operating revenue and the favorable impact in components of operating expenses
explained below. The Company's empty mile factor was 13.7% and 14.0% and the
average rate per mile was $1.118 and $1.103 (excluding fuel surcharge) for the
years ended December 31, 1997 and 1996, respectively.
Salaries, wages and employee benefits represented 34.5% of operating
revenue for the year ended December 31, 1997 compared with 34.2% for 1996. The
increase is due primarily to driver pay including retention bonuses offset in
part by expansion of the Company's owner operator fleet. Effective January 1,
1997, the Company began paying its drivers a bonus of two cents per mile. For
the first three quarters this bonus was payable quarterly, provided the driver
was still employed at the end of the quarter.
Fuel expenses represented 12.8% and 13.8% of operating revenue in 1997
and 1996, respectively. The decrease in fuel as a percentage of revenue is due
primarily to decreased fuel prices and an increase in the owner operator fleet.
Purchased transportation represented 13.5% and 12.8% of operating
revenue for the years ended December 31, 1997 and 1996, respectively. This
increase is the result of the growth of the Company's owner operator fleet from
665 at December 31, 1996 to 910 at December 31, 1997.
Rental expense as a percentage of operating revenue was 6.5% and 5.8%
for the years ended December 31, 1997 and 1996, respectively. This increase is
partially due to an increase in trailers under lease. 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 year ended December
31,1997 and 1996, respectively, the Company recorded gains of approximately
$770,000 and $3.3 million from the sale of leased tractors. During 1997 and
1996, leased tractors represented approximately 61% and 55%, respectively of the
fleet (exclusive of owner operators).
Depreciation and amortization expense was 5.3% of operating revenue for
the year ended December 31, 1997 versus 6.0% for 1996. This decrease is
primarily due to expansion of the owner operator fleet. During the year ended
December 31, 1997 the Company recorded gains on the sale of revenue equipment of
approximately $3.6 million compared with approximately $2.2 million in 1996.
Exclusive of gains, which reduced depreciation and amortization expense, the
percentage of depreciation and amortization to operating revenue in 1997 and
1996 was 5.8% and 6.4%, respectively.
Insurance and claims expense represented 3.2% and 3.6% of operating
revenue in the year ended December 31, 1997 and 1996, 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
17
<PAGE>
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 decreased to $4.6 million in 1997 from $7.1 million in
1996. This decline is due to a lower effective borrowing rate and a lower debt
level throughout most of the year which resulted from utilizing the proceeds of
the December 1996 common stock offering to reduce outstanding debt.
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,
the use of operating leases to finance the acquisition of revenue equipment and
from public offerings of common stock.
Net cash provided by operating activities was $114.9 million for the
year ended December 31, 1998 compared to $75.9 million for 1997. The increase is
primarily attributable to an increase in net earnings and an increase in
accounts payable, accrued liabilities and claims accruals offset by an increase
in accounts receivable.
Prepaid expenses increased by $10.1 million from December 31, 1997 to
December 31, 1998. The increase is primarily due to the payment of 1999 license
fees in December 1998.
Net cash used in investing activities increased to $171.4 million for
the year ended December 31, 1998 from $104.0 million for 1997. The increase is
due primarily to an increase in capital expenditures offset by increased
proceeds from the sale of property and equipment. Cash expended for investment
activities also includes $3.7 million expended for the purchase of certain
assets of DTI in 1997.
As of December 31, 1998, the Company had commitments outstanding to
acquire replacement and additional revenue equipment for approximately $247
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, 1998, the Company incurred
approximately $29 million of non-revenue equipment capital expenditures. These
expenditures were primarily for facilities and equipment.
The Company anticipates that it will expend approximately $51 million
in 1999 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 $170 million line of credit, lease and debt financing and equity
offerings. 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 $57.3 million in 1998
compared to $32.6 million in 1997. The increase in cash provided by financing
activities is primarily due to an increase in borrowings under the line of
credit 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 through a combination of revenue equipment purchases and strategic
acquisitions, as opportunities become available, with cash flows from
operations, borrowings available under the line of credit and with long-term
18
<PAGE>
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 increased operating costs in colder weather and higher fuel
consumption due to 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 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
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.
19
<PAGE>
ACQUISITIONS. The growth of the Company has been, and will continue to
be, 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.
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, 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. Although the Company believes it has an experienced and talented
management group, the loss of the services of Mr. Moyes, Mr. Riley, Mr. Sartor,
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. Moyes,
Riley, Sartor, Farley or Jensen.
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. 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.
CLAIMS EXPOSURE; INSURANCE. The Company currently self-insures for
liability resulting from cargo loss, personal injury and property damage and for
workers' compensation, 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 1998, the Company's top 25, 10
and 5 customers accounted for 46%, 33% and 22% 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.
20
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has interest rate exposure arising from the Company's line
of credit which has a variable interest rate. This variable interest rate is
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, 1998, the fair value
of the Company's long-term debt approximated carrying value.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements of the Company as of December 31,
1998 and for each of the years in the three-year period ended December 31, 1998,
together with related notes and the report of KPMG LLP, independent auditors,
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.
21
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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, 1998 and 1997, 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, 1998.
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 generally accepted auditing
standards. 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, 1998 and 1997, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1998 in conformity with generally
accepted accounting principles.
KPMG LLP
Phoenix, Arizona
February 12, 1999, except as to Note 18
which is as of March 15, 1999
22
<PAGE>
SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
---------------------
ASSETS 1998 1997
---- ----
Current assets:
Cash ............................................... $ 6,530 $ 5,726
Accounts receivable, net ........................... 118,555 92,587
Equipment sales receivables ........................ 5,262 3,284
Inventories and supplies ........................... 4,866 4,509
Prepaid taxes, licenses and insurance .............. 15,228 5,090
Assets held for sale ............................... 5,468 5,468
Deferred income taxes .............................. 4,010 5,280
-------- --------
Total current assets ............................ 159,919 121,944
-------- --------
Property and equipment, at cost:
Revenue and service equipment ...................... 487,928 366,223
Land ............................................... 8,409 7,520
Facilities and improvements ........................ 85,919 62,760
Furniture and office equipment ..................... 15,566 13,949
-------- --------
Total property and equipment .................... 597,822 450,452
Less accumulated depreciation and amortization ....... 131,045 111,917
-------- --------
Net property and equipment ....................... 466,777 338,535
Other assets ......................................... 1,770 1,976
Goodwill ............................................. 7,817 8,679
-------- --------
$636,283 $471,134
======== ========
See accompanying notes to consolidated financial statements.
23
<PAGE>
SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
---------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
---- ----
Current liabilities:
Accounts payable .................................... $ 27,100 $ 14,469
Accrued liabilities ................................. 27,273 20,177
Current portion of claims accruals .................. 23,788 16,281
Current portion of long-term debt ................... 710 6,849
-------- --------
Total current liabilities ...................... 78,871 57,776
-------- --------
Borrowings under revolving line of credit ............ 128,000 56,500
Long-term debt, less current portion ................. 15,208 16,920
Claims accruals, less current portion ................ 28,091 21,343
Deferred income taxes ................................ 58,760 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
65,044,275 and 64,190,335 shares in 1998
and 1997, respectively .............................. 65 64
Additional paid-in capital .......................... 123,386 116,120
Retained earnings ................................... 216,918 161,407
-------- --------
340,369 277,591
Less treasury stock, at cost (1,323,075 and
496,575 shares at December 31, 1998 and
1997, respectively) ............................... 13,016 3,416
-------- --------
Total stockholders' equity ..................... 327,353 274,175
-------- --------
Commitments, contingencies and subsequent events
$636,283 $471,134
======== ========
See accompanying notes to consolidated financial statements.
24
<PAGE>
SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT SHARE DATA)
YEARS ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
---- ---- ----
Operating revenue .......................... $873,433 $713,638 $562,259
-------- -------- --------
Operating expenses:
Salaries, wages and employee benefits...... 318,992 246,231 192,572
Operating supplies and expenses ........... 79,556 63,622 52,362
Fuel ...................................... 93,023 91,257 77,063
Purchased transportation .................. 135,453 96,107 72,040
Rental expense ............................ 41,447 46,545 32,599
Insurance and claims ...................... 24,094 23,161 20,358
Depreciation and amortization ............. 46,033 37,849 33,883
Communications and utilities .............. 11,433 10,695 8,219
Operating taxes and licenses .............. 24,710 24,132 19,584
-------- -------- --------
Total operating expenses .............. 774,741 639,599 508,680
-------- -------- --------
Operating income ...................... 98,692 74,039 53,579
-------- -------- --------
Other (income) expenses:
Interest expense .......................... 6,277 4,647 7,106
Interest income ........................... (269) (183) (107)
Other ..................................... (622) (419) (632)
-------- -------- --------
Other (income) expenses, net .......... 5,386 4,045 6,367
-------- -------- --------
Earnings before income taxes .......... 93,306 69,994 47,212
Income taxes .............................. 37,795 28,350 19,790
-------- -------- --------
Net earnings .......................... $ 55,511 $ 41,644 $ 27,422
======== ======== ========
Basic earnings per share ................... $ .87 $ .66 $ .49
======== ======== ========
Diluted earnings per share ................. $ .85 $ .64 $ .47
======== ======== ========
See accompanying notes to consolidated financial statements.
25
<PAGE>
SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------ PAID-IN RETAINED TREASURY STOCKHOLDERS'
SHARES PAR VALUE CAPITAL EARNINGS STOCK EQUITY
------ --------- ------- -------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 ............... 55,974,451 $ 56 $ 45,854 $ 92,341 $ (3,416) $134,835
Issuance of common stock under
stock option and employee stock
purchase plans ........................ 657,338 1,676 1,676
Issuance of common stock upon
public offering, net of issuance
costs of $300 ......................... 6,468,750 7 59,407 59,414
Issuance of common stock for
Navajo Shippers acquisition ........... 202,500 1,918 1,918
Income tax benefit arising from
the exercise of stock options ......... 1,330 1,330
Amortization of deferred
compensation ......................... 71 71
Net earnings ........................... 27,422 27,422
---------- ---- -------- -------- -------- --------
Balance, December 31, 1996 ............. 63,303,039 63 110,256 119,763 (3,416) 226,666
Issuance of common stock under
stock option and employee stock
purchase plans ........................ 887,296 1 2,963 2,964
Income tax benefit arising from the
exercise of stock options ............ 2,765 2,765
Amortization of deferred
compensation ......................... 136 136
Net earnings ........................... 41,644 41,644
---------- ---- -------- -------- -------- --------
Balance, December 31, 1997 ............. 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
---------- ---- -------- -------- -------- --------
Balance, December 31, 1998 ............. 65,044,275 $ 65 $123,386 $216,918 $(13,016) $327,353
========== ==== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE>
SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
---- ---- ----
Cash flows from operating activities:
Net earnings ............................... $ 55,511 $ 41,644 $ 27,422
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization ............. 42,568 37,104 33,883
Deferred income taxes ..................... 15,610 4,830 3,510
Income tax benefit arising from the
exercise of stock options ................ 3,349 2,765 1,330
Provision for losses on accounts
receivable................................ 1,110 240 616
Amortization of deferred compensation ..... 212 136 71
Change in assets and liabilities (net of
effects of acquisitions in 1997 and 1996):
Increase in accounts receivable .......... (27,056) (14,890) (22,637)
Increase in inventories and supplies ..... (357) (512) (774)
Decrease (increase) in prepaid expenses
and other current assets ................ (10,138) (1,636) 1,912
Decrease (increase) in other assets ...... 78 (720) 416
Increase in accounts payable, accrued
liabilities and claims accruals ......... 33,982 6,932 13,035
--------- --------- ---------
Net cash provided by operating
activities ........................... 114,869 75,893 58,784
--------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of property and
equipment ................................. 63,233 30,680 36,692
Capital expenditures ....................... (238,002) (131,310) (111,820)
Payments received on equipment sales
receivables................................ 3,407 389 106
Business acquisitions ...................... (3,749) (5,148)
--------- --------- ---------
Net cash used in investing
activities ........................... (171,362) (103,990) (80,170)
--------- --------- ---------
Cash flows from financing activities:
Repayments of long-term debt ............... (8,287) (10,332) (60,897)
Proceeds from issuance of long-term debt ... 15,026
Increase in borrowings under
revolving line of credit ................ 71,500 40,000 4,750
Payment of stock split fractional shares ... (21)
Proceeds from sale of common stock,
net of issuance costs ................... 3,705 2,945 61,090
Purchase of treasury stock ................. (9,600)
--------- --------- ---------
Net cash provided by financing
activities ........................... 57,297 32,613 19,969
--------- --------- ---------
Net increase (decrease) in cash ............. 804 4,516 (1,417)
Cash at beginning of year ................... 5,726 1,210 2,627
--------- --------- ---------
Cash at end of year ......................... $ 6,530 $ 5,726 $ 1,210
========= ========= =========
See accompanying notes to consolidated financial statements.
27
<PAGE>
SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
---- ---- ----
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest ..................................... $ 5,842 $ 4,568 $ 7,112
======= ======= =======
Income taxes ................................. $27,404 $23,059 $14,163
======= ======= =======
Supplemental schedule of noncash investing
and financing activities:
Equipment sales receivables .................. $ 5,385 $ 3,284 $ 362
======= ======= =======
Direct financing for purchase of equipment ... $ 436
=======
During 1997 and 1996, in connection with
business acquisitions, assets were acquired
and liabilities were incurred as follows:
Current assets ............................... $ 180 $ 222
Property and equipment ....................... 2,554 5,644
Intangibles .................................. 1,015 1,200
Issuance of common stock ..................... (1,918)
------- -------
Cash paid .................................... $ 3,749 $ 5,148
======= =======
See accompanying notes to consolidated financial statements.
28
<PAGE>
SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The 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 in consolidation.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, 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 1998, 1997 and 1996 were $6,105,000, $3,626,000 and $2,185,000,
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, 1998, 1997 and 1996, the Company
capitalized interest related to self-constructed assets totaling $894,000,
$586,000 and $428,000, 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.
29
<PAGE>
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
$3,762,000 and $2,901,000 at December 31, 1998 and 1997, 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 (64,005,000, 63,363,000 and
56,151,000 for 1998, 1997, and 1996, 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 1,245,000,
1,413,000, and 1,603,000 shares in 1998, 1997, and 1996, 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.
30
<PAGE>
SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(2) ACCOUNTS RECEIVABLE
Accounts receivable consists of:
DECEMBER 31,
-------------------
1998 1997
---- ----
(IN THOUSANDS)
Trade customers ........................ $112,290 $ 88,373
Equipment manufacturers ................ 1,050 2,657
Income tax receivable .................. 3,645
Other .................................. 2,686 1,848
-------- --------
119,671 92,878
Less allowance for doubtful accounts ... 1,116 291
-------- --------
$118,555 $ 92,587
======== ========
The schedule of allowance for doubtful accounts is as follows:
BEGINNING ENDING
BALANCE ADDITIONS DEDUCTIONS BALANCE
------- --------- ---------- -------
(IN THOUSANDS)
Year ended December 31:
1998 ................... $ 291 $1,110 $ (285) $1,116
====== ====== ====== ======
1997 ................... $ 553 $ 240 $ (502) $ 291
====== ====== ====== ======
1996 ................... $ 927 $ 616 $ (990) $ 553
====== ====== ====== ======
(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.
(4) ACCRUED LIABILITIES
Accrued liabilities consists of:
DECEMBER 31,
---------------------
1998 1997
---- ----
(IN THOUSANDS)
Employee compensation ............ $16,741 $12,400
Fuel and mileage taxes ........... 3,789 2,662
Income taxes payable ............. 1,575
Other ............................ 6,743 3,540
------- -------
$27,273 $20,177
======= =======
31
<PAGE>
SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(5) 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 $14 million at December 31, 1998.
(6) LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31,
-----------------
1998 1997
---- ----
(IN THOUSANDS)
Notes payable to commercial lending institutions
with varying payments through the year 2001:
Fixed interest rates ranging from 2.8% to 7.3% .......... $ 918 $ 2,206
Floating interest rate based on LIBOR plus .45%
to .625% (effective rates ranging from 6.2% to
6.32% at December 31, 1997) ............................ 6,563
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 ............................ 15,918 23,769
Less current portion ...................................... 710 6,849
------- -------
Long-term debt, less current portion ...................... $15,208 $16,920
======= =======
32
<PAGE>
SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The aggregate annual maturities of long-term debt exclusive of amounts
due under the revolving line of credit (see note 5) as of December 31, 1998 are
as follows:
YEAR ENDING
DECEMBER 31 (IN THOUSANDS)
----------- ------------
1999........................................... $ 710
2000........................................... 150
2001........................................... 58
2002........................................... 3,000
2003........................................... 3,000
Thereafter..................................... 9,000
----------
$ 15,918
==========
(7) COMMITMENTS
LEASES
The Company leases various revenue equipment and terminal facilities
under operating leases. At December 31, 1998, the future minimum lease payments
under noncancelable operating leases are as follows:
YEAR ENDING REVENUE
DECEMBER 31, EQUIPMENT FACILITIES TOTAL
------------ --------- ---------- -----
(IN THOUSANDS)
1999 ........................... $33,574 $ 848 $34,422
2000 ........................... 19,933 484 20,417
2001 ........................... 11,557 266 11,823
2002 ........................... 1,324 163 1,487
2003 ........................... 18 18
Thereafter ..................... 296 296
------- ------- -------
Total minimum lease payments ... $66,388 $ 2,075 $68,463
======= ======= =======
The revenue equipment leases generally include purchase options
exercisable at the completion of the lease. The Company recorded gains of
approximately $3.8 million, $770,000, and $3.3 million from the sale of leased
tractors in 1998, 1997, and 1996, respectively.
PURCHASE COMMITMENTS
The Company had commitments outstanding to acquire revenue equipment
for approximately $247 million at December 31, 1998. 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.
33
<PAGE>
SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(8) STOCKHOLDERS' EQUITY
On March 12,1998, the Company completed a three-for-two stock split
effected in the form of a dividend of one share of common stock for every two
shares of common stock outstanding. All share and per share amounts
retroactively reflect the effect of this split for all periods presented in the
consolidated financial statements.
The Company purchased 826,500 shares of its common stock during 1998
for a total cost of $9.6 million. 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
At December 31, 1998, the Company has three 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 $212,000, $136,000 and $71,000 for 1998, 1997 and 1996,
respectively.
Had compensation cost for the Company's three 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:
1998 1997 1996
---- ---- ----
Net earnings ................... As Reported $55,511 $41,644 $27,422
======= ======= =======
Pro forma $54,755 $41,147 $27,154
======= ======= =======
Basic earnings per share ....... As Reported $ .87 $ .66 $ .49
======= ======= =======
Pro forma $ .86 $ .65 $ .48
======= ======= =======
Diluted earnings per share ..... As Reported $ .85 $ .64 $ .47
======= ======= =======
Pro forma $ .84 $ .64 $ .47
======= ======= =======
Pro forma net earnings reflect only options granted in 1995 through
1998. 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 two fixed stock option plans. Under the 1990 Employee
Stock Option Plan, the Company may grant options to employees for up to 6.3
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 both plans, the exercise price of each option equals 85
percent of the market price of the Company's stock on the date of the grant, and
an option's maximum term is ten years. Options under the Employee Stock Option
Plan generally vest 20 percent after five years and 20 percent each succeeding
year. Options under the Non-Employee Directors Plan vest on the grant date.
34
<PAGE>
SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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 1996 through 1998:
1998 1997 1996
---- ---- ----
Dividend yield ............................ 0% 0% 0%
Expected volatility ....................... 45% 35% 46.5%
Risk free interest rate ................... 5% 6% 6.5%
Expected lives (days after vesting date)... 51 36 42
A summary of the status of the Company's two fixed stock option plans
as of December 31, 1998, 1997 and 1996, and changes during the years then ended
on those dates is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------- ------------------ -------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year ... 3,681,360 $ 5.27 3,673,800 $ 2.91 4,169,362 $ 2.67
Granted ............................ 812,400 $10.15 1,006,312 $10.19 112,500 $ 7.35
Exercised .......................... (615,262) $ 1.55 (691,852) $ 1.37 (501,075) $ 1.41
Forfeited .......................... (52,673) $ 9.82 (306,900) $ 1.93 (106,987) $ 5.32
---------- ---------- ----------
Outstanding at end of year ......... 3,825,825 $ 6.84 3,681,360 $ 5.27 3,673,800 $ 2.91
========== ========== ==========
Options exercisable at year-end .... 164,025 177,075 182,925
========== ========== ==========
Weighted-average fair value of
options granted during the year ... $ 7.71 $ 7.24 $ 8.41
========== ========== ==========
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------ ----------------------
WEIGHTED-
NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED-
OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
AT CONTRACTUAL EXERCISE AT EXERCISE
12/31/98 LIFE PRICE 12/31/98 PRICE
-------- ---- ----- -------- -----
$1.24 to $3.15 ...... 976,537 2.69 $ 1.87 152,025 $ 2.20
$4.87 to $5.62 ...... 771,413 5.87 $ 5.19
$6.28 to $10.01 ..... 1,074,600 7.73 $ 9.37 4,500 $ 6.63
$10.02 .............. 765,900 9.75 $10.02
$10.39 to $12.61 .... 237,375 8.65 $10.96 7,500 $12.35
--------- -------
3,825,825 6.53 $ 6.84 164,025 $ 2.79
========= =======
35
<PAGE>
SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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 240,135, 195,750 and 153,411 shares to 1,351, 1,143 and 482
employees in 1998, 1997 and 1996, 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:
1998 1997 1996
---- ---- ----
Dividend yield ............ 0% 0% 0%
Expected volatility ....... 45% 35% 46.5%
Risk free interest rate.... 4.5% 5% 5%
The weighted-average fair value of those purchase rights granted in
1998, 1997 and 1996 was $3.98, $3.09 and $2.53 respectively.
(9) INCOME TAXES
Income tax expense consists of:
1998 1997 1996
---- ---- ----
(IN THOUSANDS)
Current expense:
Federal ........ $20,445 $19,395 $13,610
State .......... 3,494 4,125 2,670
------- ------- -------
23,939 23,520 16,280
------- ------- -------
Deferred expense:
Federal ........ 11,435 4,242 2,980
State .......... 2,421 588 530
------- ------- -------
13,856 4,830 3,510
------- ------- -------
$37,795 $28,350 $19,790
======= ======= =======
36
<PAGE>
SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The Company's effective tax rate was 40.5%, 40.5% and 42% in 1998, 1997
and 1996, 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,
---------------------------
1998 1997 1996
---- ---- ----
(IN THOUSANDS)
Computed "expected" tax expense .............. $32,657 $24,498 $16,524
Increase in income taxes resulting from:
State income taxes, net of federal
income tax benefit ......................... 4,185 3,002 2,080
Other, net .................................. 953 850 1,186
------- ------- -------
$37,795 $28,350 $19,790
======= ======= =======
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,
-------------------
1998 1997
---- ----
(IN THOUSANDS)
Deferred tax assets:
Claims accruals .................................. $ 20,480 $ 14,790
Accounts receivable due to allowance for
doubtful accounts................................ 440 110
Other ............................................ 160 100
-------- --------
Total deferred tax assets .................... 21,080 15,000
-------- --------
Deferred tax liabilities:
Property and equipment, principally due to
differences in depreciation ..................... (70,010) (52,140)
Prepaid taxes, licenses and permits deducted
for tax purposes ................................ (5,820) (2,000)
-------- --------
Total deferred tax liabilities ............... (75,830) (54,140)
-------- --------
Net deferred tax liability ................... $(54,750) $(39,140)
======== ========
37
<PAGE>
SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
These amounts are presented in the accompanying consolidated balance
sheets as follows:
DECEMBER 31,
---------------------
1998 1997
---- ----
(IN THOUSANDS)
Current deferred tax asset .......... $ 4,010 $ 5,280
Noncurrent deferred tax liability.... (58,760) (44,420)
-------- --------
Net deferred tax liability .......... $(54,750) $(39,140)
======== ========
(10) CLAIMS ACCRUALS
The Company's insurance program for liability, workers' compensation,
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, 1998 and 1997. 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.
(11) 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.
38
<PAGE>
SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
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, 1998, the
amounts that will actually be realized or paid at settlement or maturity of the
instruments could be significantly different.
(12) 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 $7.1 million, $4.2 million and $2.9 million
for 1998, 1997 and 1996, respectively.
(13) RELATED PARTY TRANSACTIONS
The Company leases various properties from entities owned by the
principal stockholder. Rents paid under these leases totaled $135,000, $700,000
and $1.0 million for the years ended December 31, 1998, 1997 and 1996,
respectively.
The Company provided transportation services to entities owned by its
principal stockholder. For the years ended December 31, 1998, 1997 and 1996, the
Company recognized $831,000, $318,000 and $213,000, respectively, in operating
revenue from these entities. At December 31, 1998, $341,000 was owed to the
Company for these services.
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
1998, 1997 and 1996, the Company acquired new tractors and sold them to this
entity for $22.1 million, $22.8 million and $13.2 million, respectively, and
recognized fee income of $1.3 million, $1.4 million and $855,000, respectively.
During 1998, 1997, and 1996, the Company also sold used revenue equipment to
this entity totaling $320,000, $238,000 and $700,000 respectively, and
recognized gains of $69,000 in 1998, $36,000 in 1997 and $114,000 in 1996.
A Company owned by the principal stockholder provides aircraft services
to the Company. Payments for such services totaled $429,000, $590,000 and
$450,000 for the years ended December 31, 1998, 1997 and 1996, respectively. At
December 31, 1998, $141,000 was owed to this entity for such services.
39
<PAGE>
SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
During 1997 and 1996, the Company purchased parts and maintenance
services from an entity owned by one of the Company's outside directors totaling
$3,217,000 and $2,379,000, respectively. This entity was sold to an unrelated
party on January 1, 1998.
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 recognized $5.3 million and $1.5
million in operating revenue in 1998 and 1997, respectively. At December 31,
1998, $401,000 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
$227,000 and $80,000 to the carrier for facilities rental in 1998 and 1997,
respectively.
The Company's principal stockholder owns an entity with a fleet of
approximately 200 tractors which operates as a fleet operator for the Company.
During 1998 and 1997, the Company paid $17.2 million and $5.3 million to this
fleet operator for purchased transportation services. At December 31, 1998,
$326,000 was owed for these purchased transportation services. Also, the Company
was paid $267,000 and $264,000 by this fleet operator and paid $450,000 and
$117,000 to this fleet operator for various services including training and
repairs in 1998 and 1997, respectively. At December 31, 1998, $32,000 was owed
to the Company and nothing was owed by the Company for these services.
All of the above related party arrangements were approved by the
independent members of the Company's Board of Directors.
(14) ACQUISITIONS
On April 8, 1997, the Company completed its acquisition of 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. The Company acquired inventory, furniture and office equipment, computer
equipment and miscellaneous assets from DTI for $2.7 million. Also, the Company
paid $1 million to the principal shareholder of DTI in exchange for a covenant
not to compete. Separately, the Company acquired 565 tractors and 1,622 trailers
from various lessors. Certain of the revenue equipment was purchased for $31
million and new lease agreements were negotiated on $11 million of revenue
equipment. The Company used working capital and borrowings under its existing
line of credit to acquire the assets described above and for payments under the
covenant not to compete.
On September 12, 1996, the Company acquired substantially all of the
operating assets utilized in the dry freight van division of Navajo Shippers,
Inc. and two of its wholly-owned subsidiaries, Digby Leasing and Digby-Ringsby
Truck Lines, Inc. (collectively, "Navajo Shippers"). The acquisition was
accounted for as a purchase and the results of operations of Navajo Shippers
have been included in the consolidated financial statements beginning on
September 12, 1996. The Company acquired 287 tractors and 417 trailers and
related on-board communication equipment. The Company assumed Navajo Shipper's
position on operating leases for 257 tractors and acquired 30 owner operators.
Total consideration for the assets purchased and goodwill was $7,066,000
consisting of cash of $5,148,000 and 202,500 shares of the Company's common
stock valued at $1,918,000. The Company paid the sellers approximately $1.2
million for commissions on revenues generated by the Company in the 12 months
following the date of acquisition. The excess of cost over net book value has
been accounted for as goodwill. Goodwill is being amortized on a straight-line
basis over 15 years.
40
<PAGE>
SWIFT TRANSPORTATION CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(15) COMMITMENTS AND 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 financial condition of the Company.
(16) 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.
(17) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN THOUSANDS, EXCEPT SHARE DATA)
YEAR ENDED DECEMBER 31, 1998
Operating revenue .............. $191,608 $215,832 $227,184 $238,809
Operating income ............... 16,936 25,086 27,309 29,361
Net earnings ................... 9,412 14,036 15,644 16,419
Basic earnings per share ....... .15 .22 .24 .26
Diluted earnings per share ..... .14 .21 .24 .25
YEAR ENDED DECEMBER 31, 1997
Operating revenue .............. $156,074 $180,855 $188,071 $188,640
Operating income ............... 11,123 18,979 22,829 21,138
Net earnings ................... 6,231 10,556 12,882 12,005
Basic earnings per share ....... .10 .17 .20 .19
Diluted earnings per share ..... .10 .16 .20 .18
(18) SUBSEQUENT EVENT
On March 15, 1999, the Company's Board of Directors approved a 3-for-2
stock split effected in the form of a stock dividend and payable on April 10,
1999 to the stockholders of record at the close of business on March 31, 1999.
All share amounts, share prices and earnings per share have been retroactively
adjusted to reflect this 3-for-2 stock split.
41
<PAGE>
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 1999 Annual Meeting of Stockholders ("the 1999 Notice and Proxy
Statement") to be held on May 20, 1999 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 1999 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 1999 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 1999 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 1999 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 1999 Notice and Proxy Statement and is incorporated herein by reference.
42
<PAGE>
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 22
(2) Consolidated Financial Statements and Page 23
Notes to Consolidated Financial
Statements of the Company, including
Consolidated Balance Sheets as of
December 31, 1998 and 1997 and related
Consolidated Statements of Earnings,
Stockholders' Equity and Cash Flows for
each of the years in the three-year
period ended December 31, 1998
(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
None
(c) Exhibits.
EXHIBIT PAGE OR
NUMBER DESCRIPTION METHOD OF FILING
- ------ ----------- ----------------
3.1 Articles of Incorporation of Incorporated by reference to Exhibit
the Company 3.1 of the Company's Form S-3
Registration Statement No. 33-66034
("S-3 #33-66034")
3.2 Bylaws of the Company Incorporated by reference to Exhibit
3.2 of S-3 #33-66034
4 Specimen of Common Stock Incorporated by reference to Exhibit
Certificate 4 of the Company's Annual Report on
Form 10-K for the year ended
December 31, 1992 (the "1992 Form
10-K")
10.1 Lease Agreement between Incorporated by reference to Exhibit
Jerry and Vickie Moyes and 10-E(1) of the Company's Form S-1
the Company relating to Registration Statement No. #33-34983
Stockton, California ("S-1 #33-34983")
property, dated April 10,
1990
43
<PAGE>
EXHIBIT PAGE OR
NUMBER DESCRIPTION METHOD OF FILING
- ------ ----------- ----------------
10.4.1 Asset Purchase Agreement Incorporated by reference to Exhibit
dated June 17, 1994 by and 1 of the Company's Current Report on
among Swift Transportation Form 8-K dated October 6, 1994 (the
Co., Inc., a Nevada "10/6/94 8-K")
corporation; Swift
Transportation Co., Inc., an
Arizona corporation; Mark
VII, Inc., a Missouri
corporation; MNX Carriers,
Inc., a Delaware
corporation; and
Missouri-Nebraska Express,
Inc., an Iowa corporation
10.4.2 Amendment No. 1, dated Incorporated by reference to Exhibit
September 30, 1994, to the 2 of the 10/6/94 8-K
Asset Purchase Agreement
10.5 Stock Option Plan, as Incorporated by Reference to Exhibit
amended through November 18, 10.7 of the Company's Annual Report
1994* on Form 10-K for the year ended
December 31, 1994 (the "1994 Form
10- K")
10.6 Non-Employee Directors Stock Incorporated by reference to Exhibit
Option Plan, as amended 10.8 of the 1994 Form 10-K
through November 18, 1994*
10.7 Employee Stock Purchase Incorporated by reference to Exhibit
Plan, as amended through 10.9 of the 1994 Form 10-K
November 18, 1994*
10.8 Swift Transportation Co., Incorporated by reference to Exhibit
Inc. Retirement (401(k)) 10.14 of the Company's Form S-1
Plan dated January 1, 1992* Registration Statement No. #33-52454
10.9 Note agreement dated Incorporated by reference to Exhibit
February 26, 1996 by and 10.12 of the Company's Annual Report
between Swift Transportation on Company Form 10-K for the year
Co., Inc. and Great-West ended December 31,1995 (the "1995
Life & Annuity Insurance Form 10-K")
Company
10.10 Construction Contract dated Incorporated by reference to Exhibit
November 14, 1994 by and 10.13 of the 1995 Form 10-K
between Swift Transportation
Co., Inc. and Opus Southwest
Corporation
10.11 Note agreement dated January Incorporated by reference to Exhibit
16, 1997 by and between 10.11 of the Company's Annual Report
Swift Transportation Co., on Form 10-K for the year ended
Inc. and Wells Fargo Bank, December 31,1996 (the "1996 Form
N.A., ABN Amro Bank N.V., 10-K")
The Chase Manhattan Bank and
The First National Bank of
Chicago.
10.12 Asset Purchase Agreement Incorporated by reference to Exhibit
Dated as of February 20, 1 of the Company's Current Report on
1997 Among Swift Form 8-K dated April 8, 1997 (the
Transportation Co., Inc. and "4/8/97 8-K")
Direct Transit, Inc. and
Charles G. Peterson
44
<PAGE>
EXHIBIT PAGE OR
NUMBER DESCRIPTION METHOD OF FILING
- ------ ----------- ----------------
10.13 First Modification Agreement Incorporated by Reference to Exhibit
to Note Agreement dated 10.13 of the Company's Quarterly
January 16, 1997 by and Report on Form 10-Q for the quarter
between Swift Transportation ended September 30, 1998 (the "1998
Co., Inc. and Wells Fargo Third Quarter Form 10-Q")
Bank, N.A., ABN Amro
Bank N.V., The Chase
Manhattan Bank and The First
National Bank of Chicago
10.14 Second Modification Incorporated by reference to Exhibit
Agreement to Note Agreement 10.14 of the 1998 Third Quarter Form
dated January 17, 1997 by 10-Q
and between Swift
Transportation Co., 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.
11 Schedule of computation of Filed herewith
net earnings per share
22 Subsidiaries of Registrant Filed herewith
23 Consent of KPMG LLP Filed herewith
27 Financial Data Schedule for Filed herewith
twelve months ended December
31, 1998
99 Private Securities Litiga- Filed herewith
tion Reform Act of 1995
Safe Harbor Compliance
Statement for Forward-
Looking Statements
- ----------
* Indicates a compensation plan
45
<PAGE>
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 16th
day of March, 1999.
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 16, 1999
- -------------------------- President and Chief Executive
Jerry C. Moyes Officer (Principal Executive
Officer)
/s/ William F. Riley III Executive Vice President, March 16, 1999
- -------------------------- Secretary, Chief Financial Officer
William F. Riley III (Principal Accounting Officer)
and Director
S-1
<PAGE>
/s/ Rodney K. Sartor Executive Vice President and March 16, 1999
- -------------------------- Director
Rodney K. Sartor
/s/ Lou A. Edwards Director March 16, 1999
- --------------------------
Lou A. Edwards
/s/ Alphonse E. Frei Director March 16, 1999
- --------------------------
Alphonse E. Frei
/s/ Earl H. Scudder, Jr. Director March 16, 1999
- --------------------------
Earl H. Scudder, Jr.
S-2
EXHIBIT 11
SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES
SCHEDULE OF COMPUTATION OF NET EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
---------------------------
1998 1997 1996
---- ---- ----
Net Earnings ...................................... $55,511 $41,644 $27,422
======= ======= =======
Weighted average shares:
Common shares outstanding ....................... 64,005 63,363 56,151
Common equivalent shares issuable upon
exercise of employee stock options (1).......... 1,245 1,413 1,603
------- ------- -------
Total weighted average shares -- diluted ...... 65,250 64,776 57,754
======= ======= =======
Basic earnings per share .......................... $ .87 $ .66 $ .49
======= ======= =======
Diluted earnings per share ........................ $ .85 $ .64 $ .47
======= ======= =======
Notes:
(1) Amount calculated using the treasury stock method and fair market values.
(2) All share amounts and earnings per share have been retroactively adjusted to
reflect the 3-for-2 stock split payable on April 10, 1999 to shareholders of
record at the close of business on March 31, 1999.
EXHIBIT 22
SUBSIDIARIES OF THE REGISTRANT
1. Swift Transportation Co., Inc., an Arizona corporation
2. Swift Leasing Co., Inc., an Arizona corporation
3. Common Market Distributing Co., Inc., an Arizona corporation
4. Sparks Finance Co., Inc., a Nevada corporation
5. Cooper Motor Lines, Inc., a South Carolina corporation
6. Common Market Equipment Co., Inc., an Arizona corporation
7. Swift Transportation Co. of Virginia, Inc., a Virginia corporation
8. Swift of Texas Co., Inc., a Texas corporation
9. Swift Logistics Co., Inc., an Arizona corporation
10. Swift Transportation Corporation, a Nevada Corporation
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Swift Transportation Co., Inc.:
We consent to incorporation by reference in the Registration Statements No.
33-66034 and 333-20651 on Form S-3 and in the Registration Statements No.
33-85940, 33-85942 and 33-85944 on Form S-8 of Swift Transportation Co., Inc. of
our report dated February 12, 1999, except as to Note 18 which is as of March
15, 1999, relating to the consolidated balance sheets of Swift Transportation
Co., Inc. and subsidiaries as of December 31, 1998 and 1997, 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, 1998, which report
appears in the December 31, 1998 annual report on Form 10-K of Swift
Transportation Co., Inc.
KPMG LLP
Phoenix, Arizona
March 17, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS AS OF DECEMBER 31, 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. DOLLAR
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 6,530
<SECURITIES> 0
<RECEIVABLES> 118,555
<ALLOWANCES> 0
<INVENTORY> 4,866
<CURRENT-ASSETS> 159,919
<PP&E> 597,822
<DEPRECIATION> 131,045
<TOTAL-ASSETS> 636,283
<CURRENT-LIABILITIES> 78,871
<BONDS> 0
0
0
<COMMON> 43
<OTHER-SE> 327,310
<TOTAL-LIABILITY-AND-EQUITY> 636,283
<SALES> 873,433
<TOTAL-REVENUES> 873,433
<CGS> 0
<TOTAL-COSTS> 774,741
<OTHER-EXPENSES> (891)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,277
<INCOME-PRETAX> 93,306
<INCOME-TAX> 37,795
<INCOME-CONTINUING> 55,511
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,511
<EPS-PRIMARY> .87<F1>
<EPS-DILUTED> .85
<FN>
EPS-PRIMARY and EPS-DILUTED include the effect of a 3-for-2 stock split payable
on April 10, 1999.
</FN>
</TABLE>
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 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.
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(1) "Forward-looking statements" can be identified by use of words such as
"expect," "believe," "estimate," "project," "forecast," "anticipate,"
"plan," and similar expressions.
