SWIFT TRANSPORTATION CO INC - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)


x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2004


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0–18605

SWIFT TRANSPORTATION CO., INC.

(Exact name of registrant as specified in its charter)


Nevada		86-0666860
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification Number)

2200 South 75th Avenue
Phoenix, AZ 85043
(602) 269-9700
(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive office)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for at least the past 90 days. YES x NO o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes x No o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date (May 5, 2004)

Common stock, $.001 par value: 80,666,864 shares

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES

Consolidated Balance Sheets

(In thousands, except share data)


	March 31,		December 31,
	2004		2003
	(unaudited)
Assets
Current assets:
Cash	$	50,226	$	19,055
Accounts receivable, net		287,291		289,924
Equipment sales receivable		4,838		5,998
Inventories and supplies		10,043		17,570
Prepaid taxes, licenses and insurance		30,462		21,851
Assets held for sale		2,591
Deferred income taxes		6,059		3,133

Total current assets		391,510		357,531

Property and equipment, at cost:
Revenue and service equipment		1,610,886		1,580,581
Land		74,962		70,107
Facilities and improvements		259,021		259,379
Furniture and office equipment		81,109		76,897

Total property and equipment		2,025,978		1,986,964
Less accumulated depreciation and amortization		654,217		636,059

Net property and equipment		1,371,761		1,350,905

Investment in Transplace		2,227		3,079
Notes receivable from Trans-Mex				15,166
Deferred legal fees		6,297		8,416
Other assets		20,952		21,078
Customer relationship intangible, net		43,606		39,535
Goodwill		56,188		25,233

	$	1,892,541	$	1,820,943

See accompanying notes to consolidated financial statements.

Continued

SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES

Consolidated Balance Sheets
(In thousands, except share data)


	March 31,			December 31,
	2004			2003
	(unaudited)
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	70,280		$	63,898
Accrued liabilities		75,174			68,509
Current portion of claims accruals		94,363			86,637
Current portion of long-term debt		5,752			4,573
Current portion of obligations under capital leases		19,744			14,047
Fair value of operating lease guarantees		2,011			2,156
Securitization of accounts receivable		162,000			142,000

Total current liabilities		429,324			381,820

Borrowings under revolving credit agreement		90,000			30,000
Senior Notes		200,000			200,000
Long-term debt, less current portion		3,747			6,847
Obligations under capital leases		13,324			21,047
Claims accruals, less current portion		78,900			73,800
Deferred income taxes		262,984			254,951
Fair value of interest rate swaps		8,942			7,863
Stockholders’ equity:
Preferred stock, par value $.001 per share
Authorized 1,000,000 shares; none issued
Common stock, par value $.001 per share
Authorized 200,000,000 shares; 92,608,729 and 91,379,776 shares issued at March 31, 2004 and December 31, 2003, respectively		93			91
Additional paid-in capital		319,152			291,095
Retained earnings		669,255			662,851
Treasury stock, at cost (11,422,830 and 7,438,077 shares at March 31, 2004 and December 31, 2003, respectively)		(182,742	)		(108,760	)
Accumulated other comprehensive income and other		(438	)		(662	)

Total stockholders’ equity		805,320			844,615

Commitments and contingencies
	$	1,892,541		$	1,820,943

See accompanying notes to consolidated financial statements.

SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES

Consolidated Statements of Earnings

(unaudited)

(In thousands, except share data)


	Three months ended March 31,
	2004			2003
Operating revenue	$	622,374		$	551,303

Operating expenses:
Salaries, wages and employee benefits		234,710			204,395
Operating supplies and expenses		66,935			58,139
Fuel		88,974			84,710
Purchased transportation		107,553			91,254
Rental expense		20,844			20,665
Insurance and claims		25,242			22,490
Depreciation and amortization		40,860			34,354
Communication and utilities		7,796			6,940
Operating taxes and licenses		14,800			10,011

Total operating expenses		607,714			532,958

Operating income		14,660			18,345

Other (income) expenses:
Interest expense		6,006			3,932
Interest income		(133	)		(158	)
Other		(1,549	)		224

Other (income) expenses, net		4,324			3,998

Earnings before income taxes		10,336			14,347
Income taxes		3,932			5,450

Net earnings	$	6,404		$	8,897

Basic earnings per share	$	.08		$	.11

Diluted earnings per share	$	.08		$	.10

See accompanying notes to consolidated financial statements.

SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(unaudited)

(In thousands)


	Three months ended March 31,
	2004		2003
Net earnings	$	6,404	$	8,897
Other comprehensive income:
Reclassification of derivative loss on cash flow hedge into net earnings, net of tax effect of $14		22
Foreign currency translation		188

Comprehensive income	$	6,614	$	8,897

See accompanying notes to consolidated financial statements.

SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

(unaudited)

(In thousands, except share data)


												Accumulated
	Common Stock				Additional							Other Comprehensive			Total
					Paid-in		Retained		Treasury			Income and			Stockholders’
	Shares		Par Value		Capital		Earnings		Stock			Other			Equity
Balances, December 31, 2003		91,379,776	$	91	$	291,095	$	662,851	$	(108,760	)	$	(662	)	$	844,615
Issuance of common stock under stock option and employee stock purchase plans		286,798		1		2,753										2,754
Income tax benefit arising from the exercise of stock options						1,416										1,416
Amortization of deferred compensation						3,727										3,727
Issuance of common stock for acquisition of Trans-Mex		942,155		1		20,161										20,162
Reclassification of cash flow hedge to interest expense													36			36
Purchase of 3,984,753 shares of treasury stock										(73,982	)					(73,982	)
Foreign currency translation													188			188
Net earnings								6,404								6,404

Balances, March 31, 2004		92,608,729	$	93	$	319,152	$	669,255	$	(182,742	)	$	(438	)	$	805,320

See accompanying notes to consolidated financial statements.

SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES

Consolidated Statements of Cash Flows

(unaudited)

(In thousands)


	Three Months Ended March 31,
	2004			2003
Cash flows from operating activities:
Net earnings	$	6,404		$	8,897
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		39,732			34,181
Deferred income taxes		5,107			2,778
Income tax benefit arising from the exercise of stock options		1,416
Provision for losses on accounts receivable					1,943
Amortization of deferred compensation		3,727			353
Change in fair market value of interest rate swaps		1,079			(100	)
Amortization of deferred legal fees		2,119			2,119
Increase (decrease) in cash resulting from changes in:
Accounts receivable		7,946			3,361
Inventories and supplies		7,547			2,741
Prepaid expenses		(8,527	)		(7,317	)
Other assets		(93	)		275
Accounts payable, accrued liabilities and claims accruals		19,437			5,435

Net cash provided by operating activities		85,894			54,666

Cash flows from investing activities:
Proceeds from sale of property and equipment		32,265			7,576
Capital expenditures		(85,908	)		(55,669	)
Proceeds from sale of assets held for sale					3,760
Repayment of note receivable		86			270
Notes receivable					(1,328	)
Payment for purchase of Trans-Mex		(10,810	)
Payments received on equipment sale receivables		5,998			10,327

Net cash used in investing activities		(58,369	)		(35,064	)

See accompanying notes to consolidated financial statements.

Continued

SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES

Consolidated Statements of Cash Flows
(unaudited)
(In thousands)


	Three Months Ended March 31,
	2004			2003
Cash flows from financing activities:
Repayments of long-term debt		(5,332	)		(20,851	)
Borrowings under line of credit		60,000			50,800
Repayments of borrowings under line of credit					(19,800	)
Change in borrowings under accounts receivable securitization		20,000			(12,000	)
Purchases of treasury stock		(73,982	)		(17,267	)
Proceeds from issuance of common stock under stock option plans		2,772			1,589

Net cash provided by (used in) financing activities		3,458			(17,529	)

Effect of exchange rate changes on cash		188

Net increase in cash		31,171			2,073
Cash at beginning of period		19,055			7,930

Cash at end of period	$	50,226		$	10,003

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	3,092		$	4,103

Income taxes	$	2,798		$	8,857

Supplemental schedule of noncash investing and financing activities:
Equipment sales receivables	$	4,838		$	706

Stock issued in acquisition of Trans-Mex	$	20,162

Accrual of additional Merit acquisition cost	$	5,000

See accompanying notes to consolidated financial statements.

SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES

Notes to Consolidated Financial Statements

(unaudited)

Note 1. Basis of Presentation

The condensed consolidated financial statements include the accounts of Swift Transportation Co., Inc., a Nevada holding company, and its wholly-owned subsidiaries (the Company). All significant intercompany balances and transactions have been eliminated.

The financial statements have been prepared in accordance with generally accepted accounting principles, pursuant to rules and regulations of the Securities and Exchange Commission. In the opinion of management, the accompanying financial statements include all adjustments, which are necessary for a fair presentation of the results for the interim periods presented. Certain information and footnote disclosures have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. Results of operations in interim periods are not necessarily indicative of results to be expected for a full year.

Note 2. Stock Compensation Plans

The Company applies APB Opinion No. 25 and related interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for Swift’s Employee Stock Purchase Plan. The compensation cost that has been charged against income for its Fixed Stock Option Plans was $3.7 million and $353,000 for the three months ended March 31, 2004 and 2003, respectively.

Had compensation cost for the Company’s four stock-based compensation plans been determined consistent with FASB Statement No. 123 (“SFAS No. 123”), the Company’s net earnings and earnings per share would have been reduced to the pro forma amounts indicated below:


		Three Months Ended
		March 31,
		2004			2003
Net earnings (in thousands)	As Reported	$	6,404		$	8,897
	Add: Compensation expense, using intrinsic method, net of tax		2,311			219
	Deduct: Compensation expense, using fair value method, net of tax		(3,377	)		(943	)

	Pro forma	$	5,338		$	8,173

Basic earnings per share	As Reported	$	.08		$	.11

	Pro forma	$	.06		$	.10

Diluted earnings per share	As Reported	$	.08		$	.10

	Pro forma	$	.06		$	.10

SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES

Notes to Consolidated Financial Statements
(unaudited)

Pro forma net earnings reflect only options granted in 1995 through March 31, 2004. 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 and compensation cost for options granted prior to January 1, 1995 is not considered under SFAS No. 123.

Note 3. Contingencies

The Company is involved in certain claims and pending litigation arising from the normal course of business. Based on the knowledge of the facts and, in certain cases, opinions of outside counsel, management believes the resolution of claims and pending litigation will not have a material adverse effect on the financial condition of the Company.

Note 4. Assets Held for Sale

As of March 31, 2004, the Company has identified two properties as assets held for sale, which are stated at the lower of depreciated cost or fair value less costs to sell. The Company expects to dispose of these two properties within twelve months and does not expect any material loss on these dispositions.

Note 5. Earnings Per Share

The computation of basic and diluted earnings per share is as follows:


	Three months ended March 31,
	2004		2003
	(in thousands, except per share amounts)
Net earnings	$	6,404	$	8,897

Weighted average shares:
Common shares outstanding for basic earnings per share		83,937		83,780
Equivalent shares issuable upon exercise of stock options		1,037		967

Diluted shares		84,974		84,747

Basic earnings per share	$	.08	$	.11

Diluted earnings per share	$	.08	$	.10

Note 6. Stock Repurchase Program

The Company purchased 3,984,753 shares of its common stock for a total cost of $74 million during the first quarter of 2004. The Company may repurchase up to an additional $26 million of its common stock under the current authorization established by the Board of Directors.

SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES

Notes to Consolidated Financial Statements
(unaudited)

Note 7. Acquisition of Trans-Mex

In January 2004 we completed the acquisition of an additional 51% interest in Trans-Mex, Inc. S.A. de C.V. We now own 100% of this Mexican truckload carrier. The purchase price for this 51% interest was $31 million consisting of $11 million in cash and 942,155 shares of Swift common stock. Trans-Mex is one of the top five international trucking companies operating in Mexico. Through this acquisition, we become the only United States trucking company with a 100% ownership interest in a Mexican carrier. The results of Trans-Mex operations have been included in the consolidated financial statements since January 1, 2004.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:


Goodwill	$	30,955
Revenue equipment		7,093
Other assets		2,433
Liabilities assumed		(9,319	)

Purchase price	$	31,162

Management believes the goodwill will be deductible for tax purposes.

The results of operations for the two periods ended March 31, 2004 and 2003 as though the Trans-Mex acquisition had been completed as of the beginning of each respective period are as follows:


	Three months ended
	March 31,
	2004		2003
Revenue	$	622,374	$	553,880
Net earnings	$	6,404	$	9,145
Diluted earnings per share	$	.08	$	.11

SWIFT TRANSPORTATION CO., INC. & SUBSIDIARIES

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This Report on Form 10-Q contains forward-looking statements. The words “believe,” “expect,” “anticipate,” “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 revenue, income, or loss, capital expenditures, plans for future operations, financing needs or plans, the impact of inflation, the ultimate outcome and impact of litigation against the Company, the deductibility of goodwill for tax purposes, the impact of the Department of Transportation’s revised regulations with respect to maximum daily drive time, our plans with respect to our vehicle replacement program, the sufficiency of our capital resources and plans relating to the foregoing.

Statements in Exhibit 99 to this Quarterly Report on Form 10-Q and in the Company’s Annual Report on Form 10-K, including Notes to the Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” describe factors, among others, that could cause actual results or events to differ materially from those expressed in such forward-looking statements. Additional factors that could contribute to or cause such differences are set forth in “Business” and “Market for the Registrant’s Common Stock and Related Stockholder Matters” in the Company’s Annual Report on Form 10-K.

OVERVIEW

We operate the largest fleet of truckload carrier equipment in the United States. As part of the truckload segment of the trucking industry, we transport freight for shippers in large quantities who generally pay for our services based upon the number of miles between pickup and delivery. Our fleet of tractors and trailers is as follows:

March 31,

December 31,

March 31,

2004

2003

Tractors:*

Company


		Page
		Number
	PART I
	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets as of March 31, 2004 (unaudited) and December 31, 2003		3-4
	Consolidated Statements of Earnings (unaudited) for the Three Month Periods Ended March 31, 2004 and 2003		5
	Consolidated Statements of Comprehensive Income (unaudited) for the Three Month Periods Ended March 31, 2004 and 2003		6
	Consolidated Statements of Stockholders’ Equity (unaudited) for the Three Month Period Ended March 31, 2004		7
	Consolidated Statements of Cash Flows (unaudited) for the Three Month Periods Ended March 31, 2004 and 2003		8-9
	Notes to Consolidated Financial Statements		10-12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		13-19
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		19-20
Item 4.	Controls and Procedures		20
	PART II
	OTHER INFORMATION
Items 1, 3, 4 and 5.	Not applicable
Item 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities		21-22
Item 6.	Exhibits and Reports on Form 8-K		23
EX-31.1
EX-31.2
EX-32
EX-99

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Note 1.		Basis of Presentation

		The condensed consolidated financial statements include the accounts of Swift Transportation Co., Inc., a Nevada holding company, and its wholly-owned subsidiaries (the Company). All significant intercompany balances and transactions have been eliminated.

		The financial statements have been prepared in accordance with generally accepted accounting principles, pursuant to rules and regulations of the Securities and Exchange Commission. In the opinion of management, the accompanying financial statements include all adjustments, which are necessary for a fair presentation of the results for the interim periods presented. Certain information and footnote disclosures have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. Results of operations in interim periods are not necessarily indicative of results to be expected for a full year.

Note 2.		Stock Compensation Plans

		The Company applies APB Opinion No. 25 and related interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for Swift’s Employee Stock Purchase Plan. The compensation cost that has been charged against income for its Fixed Stock Option Plans was $3.7 million and $353,000 for the three months ended March 31, 2004 and 2003, respectively.

		Had compensation cost for the Company’s four stock-based compensation plans been determined consistent with FASB Statement No. 123 (“SFAS No. 123”), the Company’s net earnings and earnings per share would have been reduced to the pro forma amounts indicated below:

		Pro forma net earnings reflect only options granted in 1995 through March 31, 2004. 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 and compensation cost for options granted prior to January 1, 1995 is not considered under SFAS No. 123.

Note 3.		Contingencies

		The Company is involved in certain claims and pending litigation arising from the normal course of business. Based on the knowledge of the facts and, in certain cases, opinions of outside counsel, management believes the resolution of claims and pending litigation will not have a material adverse effect on the financial condition of the Company.

Note 4.		Assets Held for Sale

		As of March 31, 2004, the Company has identified two properties as assets held for sale, which are stated at the lower of depreciated cost or fair value less costs to sell. The Company expects to dispose of these two properties within twelve months and does not expect any material loss on these dispositions.

Note 5.		Earnings Per Share

		The computation of basic and diluted earnings per share is as follows:

Note 6.		Stock Repurchase Program

		The Company purchased 3,984,753 shares of its common stock for a total cost of $74 million during the first quarter of 2004. The Company may repurchase up to an additional $26 million of its common stock under the current authorization established by the Board of Directors.

Note 7.		Acquisition of Trans-Mex

		In January 2004 we completed the acquisition of an additional 51% interest in Trans-Mex, Inc. S.A. de C.V. We now own 100% of this Mexican truckload carrier. The purchase price for this 51% interest was $31 million consisting of $11 million in cash and 942,155 shares of Swift common stock. Trans-Mex is one of the top five international trucking companies operating in Mexico. Through this acquisition, we become the only United States trucking company with a 100% ownership interest in a Mexican carrier. The results of Trans-Mex operations have been included in the consolidated financial statements since January 1, 2004.

		The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:

		Management believes the goodwill will be deductible for tax purposes.

		The results of operations for the two periods ended March 31, 2004 and 2003 as though the Trans-Mex acquisition had been completed as of the beginning of each respective period are as follows: