SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED).
For the transition period from to
----------------------
Commission file number 0-27208
SIMON TRANSPORTATION SERVICES INC.
(Exact name of registrant as specified in its charter)
Nevada 87-0545608
(State or Other Jurisdiction of
Incorporation or Organization) (I.R.S. Employer Identification No.)
4646 South 500 West
Salt Lake City, Utah 84123
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 801/268-9100
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: $0.01 Par Value
Class A Common Stock
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 amendments to
this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $36,480,012 as of October 31, 1996 (based upon the $16 3/8 per
share closing price on that date as reported by NASDAQ). In making this
calculation the registrant has assumed, without admitting for any purpose, that
all executive officers, directors, and holders of more than 5% of a class of
outstanding common stock, and no other persons, are affiliates.
As of October 31, 1996, the registrant had 2,870,597 shares of Class A
Common Stock and 1,872,161 shares of Class B Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: The information set forth under Part III,
Items 10, 11, 12, and 13 of this Report is incorporated by reference from the
registrant's definitive proxy statement for the 1996 annual meeting of
stockholders that will be filed no later than January 28, 1997.
<PAGE>
Cross Reference Index
The following cross reference index indicates the document and location of the
information contained herein and incorporated by reference into the Form 10-K.
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Document and Location
Part I
Item 1 Business Pages 3 - 7 herein
Item 2 Properties Page 7 herein
Item 3 Legal Proceedings Page 8 herein
Item 4 Submission of Matters to a Vote of Security Holders Page 8 herein
Part II
Item 5 Market for the Registrant's Common Equity and
Related Stockholder Matters Page 9 herein
Item 6 Selected Financial Data Page 10 herein
Item 7 Management's Discussion and Analysis of Financial Pages 11 - 15 herein
Condition and Results of Operations
Item 8 Financial Statements and Supplementary Data Page 16 herein
Item 9 Changes in and Disagreements with Accountants on Page 16 herein
Accounting and Financial Disclosure
Part III
Item 10 Directors and Executive Officers of the Registrant Pages 2 and 3 of Proxy Statement
Item 11 Executive Compensation Pages 4, 5 and 6 of Proxy Statement
Item 12 Security Ownership of Certain Beneficial Owners and Page 8 of Proxy Statement
Management
Item 13 Certain Relationships and Related Transactions Page 9 of Proxy Statement
Part IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Pages 17 - 33 herein
Form 8-K
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PART I
Item 1: BUSINESS
The Company
Simon Transportation is a rapidly-growing truckload carrier that
specializes in temperature-controlled transportation services for major shippers
in the food industry. Richard D. Simon founded the Company with one truck in
1955. Today Simon Transportation operates nationwide and in eight Canadian
provinces from its strategically located headquarters in Salt Lake City, Utah,
and terminals in Phoenix, Arizona; Fontana, California; Atlanta, Georgia; Katy,
Texas; and Portland, Oregon.
Simon Transportation Services Inc., a Nevada corporation, is a holding
company organized in 1995, the sole business of which is to own 100% of the
capital stock of Dick Simon Trucking, Inc., a Utah corporation. Dick Simon
Trucking, Inc. was incorporated in 1972 and had operated as a sole
proprietorship since 1955. Simon Transportation acquired all of the capital
stock of Dick Simon Trucking, Inc. contemporaneously with the November 17, 1995
effective date of the Company's initial public offering. Prior to such time,
Dick Simon Trucking, Inc. had elected to be taxed as an S corporation.
References to the "Company" herein refer to the consolidated operations of Simon
Transportation Services and Dick Simon Trucking. See "Selected Financial and
Operating Data", "Management's Discussion and Analysis of Financial Condition
and Results of Operations", and Consolidated Financial Statements.
Strategy
The Company has grown rapidly in recent years by adding revenue
equipment to meet the service demands of new and existing customers and
expanding core carrier partnerships. Management plans to continue the Company's
growth by capitalizing on the trend among shippers to place increased reliance
on a smaller number of financially stable, service-oriented truckload carriers.
The key elements of the Company's strategy are:
Food Industry Focus. Simon Transportation focuses on providing
specialized service to sophisticated, high-volume customers in the food industry
such as Nestle, Kraft, North American Logistics, ConAgra, Albertson's,
Pillsbury, Campbell's Soup, and Coca-Cola Foods. These customers seek nationwide
transportation partners that understand the specialized needs of food industry
shippers and offer the late-model equipment, experienced personnel, advanced
technology, and geographic coverage to provide "continuous movement" of
temperature-controlled and dry loads from processing or packaging plants to
distribution centers and other destinations. Management believes the food
industry is an attractive niche because it is generally less affected by
economic cycles and many shippers require time-sensitive and specialized service
that justifies a higher rate per mile.
Core Carrier Partnerships. Simon Transportation has grown by
establishing core carrier partnerships with high-volume, service sensitive
shippers. Core carriers provide customers with consistent equipment availability
and premium service such as time-definite pick-up and delivery, express
time-in-transit, multiple delivery stops, and real-time access to load
information through satellite-based tracking and communication systems and EDI
capability. The Company also meets specialized customer requests for access to
terminal facilities, stationing employees at customer locations, and dedicating
equipment to specific traffic lanes. Management believes major shippers favor
their core carrier "partners" during periods of reduced demand for truck
service, and that the trend among major shippers to reduce the number of
carriers used in favor of core carriers will continue.
Dedicated Fleets. Simon Transportation emphasizes dedicated fleet
operations in which it offers round trip or continuous movement service to a
shipper (or a shipper and one or more of its suppliers) by dedicating certain
tractors and trailers exclusively to that shipper's needs. Dedicated service is
desirable because the customers typically pay a round-trip rate per mile
assuming that the truck will return empty and cover all loading, unloading, and
pallet costs. The Company frequently is able to further enhance revenue per mile
by locating a profitable load to cover unloaded segments. In addition, drivers
prefer the predictable runs and priority treatment at shipping and receiving
locations. Management intends to aggressively grow its dedicated fleet
operations and expects this service niche to expand as shippers outsource
transportation needs presently served by private carriage.
Modern Fleet. Simon Transportation intends to maintain modern tractor
and trailer fleets after its fleet upgrade in 1996. Reliable, late-model
equipment promotes customer service and driver recruitment and retention by
minimizing the delays caused by breakdowns and excessive maintenance. In
addition, management believes that a practice of replacing tractors while under
warranty will reduce expenses and permit the Company to take advantage of
improvements in fuel economy and equipment technology.
Technology. Simon Transportation is an industry leader in technology
and was the thirteenth carrier to offer fleetwide Qualcomm satellite-based
tracking and communication system. This system and EDI capability improve
customer service and operating efficiency by offering the Company and customers
real time access to load locations and advance warning of potential delivery
delays. The Company's document imaging system allows prompt and simultaneous
processing of payroll and billing in a paperless work environment. The Company's
load optimization software has been implemented and is constantly updated to
enhance service and profitability. Management believes shippers will continue to
demand advanced technology of their core carriers and plans to respond to such
requirements.
Operations
The Company conducts a centralized dispatch and customer service
operation at its Salt Lake City headquarters to offer the precision scheduling
required by its customers. The operations center features a fully-integrated,
computerized network of dispatch, customer service, and driver liaison
personnel. Customer service representatives solicit and accept freight, quote
rates, and serve as the primary contact with customers. After accepting a load,
customer service representatives transfer the pick-up and delivery information
to the computer screen of the appropriate load planner, who assigns the load to
an available driver based upon the proximity of the trucks, scheduled "home
time," and available hours-in-service. Dispatchers then use the Qualcomm
satellite-based tracking and communication system to locate the position and
availability status of equipment and notify the driver of pick-up and delivery
requirements, route and fueling instructions, and other information. Upon the
assignment of a load, the Company's proprietary software calculates the
projected travel time from origin to destination and uses satellite position
updates and driver communications to provide load progress reports at
thirty-minute intervals. The system automatically advises the appropriate
dispatcher and customer service representative if a load is behind schedule, and
customers are able to use EDI to access information about load locations at any
time. Management believes that these satellite and computer systems are crucial
to satisfying the stringent service standards, such as 30-minute pick-up and
delivery windows, demanded by shippers of their core carriers.
Management measures the Company's efficiency through miles per tractor,
empty miles percentage, revenue per mile, and revenue per tractor. Fleet
productivity is tracked daily in the operations center, with actual progress
matched against a monthly goal. All operations personnel have access to these
statistics on a real time basis, and all participate in a cash bonus program for
achieving certain fleetwide levels of miles per tractor per month, driver
turnover, and revenue per mile.
Customers and Marketing
The Company's sales and marketing function is led by senior management
and other sales professionals based in its Salt Lake City headquarters and near
key customers. These sales personnel aggressively market Simon Transportation to
food industry shippers as a customer-oriented provider of dependable, on-time
service. The Company targets customers that seek financially stable, long-term
transportation partners offering dependable equipment, satellite and EDI
technologies, and premium service. This customer service philosophy has
contributed to continuing demands for added equipment to expand service for
existing shippers and establishing core carrier relationships with Nestle,
Kraft, North American Logistics, ConAgra, Albertson's, Pillsbury, Campbell's
Soup, Coca-Cola Foods, and other major customers. Management intends to continue
developing business with existing customers and attempting to add new core
carrier relationships. The Company's top 5, 10, and 25 customers accounted for
45.4%, 59.9%, and 71.4% of revenue, respectively, during fiscal 1996, with
Nestle (including Nestle's Stouffer's and Friskie's units) accounting for 18.3%
of revenue.
Simon Transportation is a North American truck line that provides
service to and from customer locations throughout the United States, in several
Canadian provinces and Mexico. The Company's operations are strongest in the
western United States and between points in the West to and from points in the
East and Southeast. In addition to traditional for-hire service, management
emphasizes the marketing of dedicated fleet and regional distribution services.
Dedicated fleets generally receive compensation for all miles, and regional
operations provide a stronger presence for driver recruiting. Management
believes that these services offer consistent equipment utilization and
predictable home-time for drivers.
The Company has written contracts with substantially all of its
customers. These contracts generally specify service standards and rates,
eliminating the need for negotiating the rate for individual shipments. Although
a contract typically runs for a specified term of at least one year, it
generally may be terminated by either party upon 30 days' notice.
Technology
The Company uses computer and satellite technology to enhance
efficiency and customer service in all aspects of its operations, and management
believes the Company is among the industry leaders in applying advanced
technology to improve transportation service. The Qualcomm OmniTRACSTM
satellite-based tracking and communication system provides hourly updates of the
position of each tractor and permits real time communication between operations
personnel and every driver. As a result, dispatchers relay pick-up and delivery
times, weather and road information, route and fueling directions, and other
instructions without waiting for a driver to stop and call the Company. The
Company's entire fleet has been equipped with the Qualcomm systems since 1992,
making it the thirteenth carrier in the nation to install the units in 100% of
its tractors. The Company's proprietary software also monitors load progress
against projected delivery time every half-hour and warns the appropriate
dispatcher and customer service representative if a load is behind schedule.
This software also facilitates early routing toward each driver's home base by
signaling dispatchers several days in advance of drivers' requested home-time
dates.
The Company's EDI capability permits customers to communicate directly
via computer link to tender loads, receive load confirmation, check load status,
and receive billing information. The Company's largest customers require EDI
service from their core carriers, and more than 50% of the Company's revenue is
generated by customers that actively use EDI. EDI not only improves customer
service and communication, but also benefits the Company's cash flow through
accelerated receivable collection. The Company further enhances its operations
through its recently installed document imaging technology, which provides
customer service representatives and other personnel (all of whom have
computers) real-time access to freight bills, supplier invoices, and other
information. Management believes that advanced technology will be required by an
increasing number of large shippers as they reduce the number of carriers they
use in favor of core carriers.
The Company has designed a load optimization software program that
allows customer service representatives to quote rates by automatically
computing the range of acceptable rates between any two points, based upon the
rates for all Simon Transportation loads in and out of the applicable region
during the past year and the need for pallets, multiple stops, and other
additional charges. The system then prioritizes the loads and identifies the
optimal tractor to accept a load, based upon location, empty miles required,
revenue per mile, remaining driver hours-in-service, maintenance scheduling,
driver home time, and other factors.
The Company's maintenance shops are fully computerized and paperless,
and all maintenance, repair, and inspection records for each vehicle are
instantly accessible. Drivers are able to monitor maintenance progress on
computer screens located in the driver lounge.
Revenue Equipment
Simon Transportation's equipment strategy is to operate modern tractors
and trailers that help reduce parts, maintenance, and fuel costs, promote the
reliable service customers demand from core carriers, and attract and retain
drivers. The Company operates conventional tractors (engine-forward) equipped
with electronic engines and Eaton transmissions. All Simon Transportation
tractors are equipped with electronic engines, and most are covered by
three-year, 500,000-mile engine warranties and lifetime transmission warranties.
Most of the tractors also are equipped with the "condo" sleeper cabs preferred
by drivers. The Company's practice is to trade or replace its tractors on a
three-year cycle, and to trade or replace its trailers on a five-year cycle.
Drivers and Other Personnel
Driver hiring and retention are critical to the success of all trucking
companies. Simon Transportation emphasizes driver satisfaction and has made
significant investments to improve its drivers' employment experience. Drivers
are selected in accordance with specific Company quality guidelines relating
primarily to safety history, driving experience, road test evaluations, and
other personnel evaluations, including physical examinations and mandatory drug
testing. The Company offers competitive compensation, including mileage pay, and
full participation in all employee benefit and profit-sharing plans. The Company
uses proprietary software to warn dispatchers in advance of a driver's requested
home time. Management believes it has promoted driver loyalty by assigning
drivers to a single dispatcher, regardless of geographic area, awarding
dedicated routes and regional distribution positions to senior, top-performing
drivers, and educating customers concerning the need to treat drivers with
respect.
The truckload industry has experienced a shortage of qualified drivers.
Strict DOT enforcement of hours-in-service limitations, mandatory drug and
alcohol testing, and other safety measures have shrunk the available pool of
drivers and increased the cost of recruiting and retention. Despite this driver
shortage and vigorous competition for drivers during the past several years, the
Company's driver turnover has decreased from 134% in fiscal 1990 to 76% in
fiscal 1996, measuring drivers after they are assigned a tractor.
At September 30, 1996, Simon Transportation employed approximately 385
non-driver employees and approximately 1,070 drivers. The Company's employees
have never been represented by or attempted to organize a union, and management
believes it has a good relationship with the Company's employees.
Safety and Insurance
Simon Transportation emphasizes safety in all aspects of its
operations. Its safety program includes: (i) initial orientation; (ii) a
four-week to eight-week, on-the-road training program; (iii) 100% log
monitoring; and (iv) progressive penalties for excessive speed. The Company has
earned the highest DOT safety and fitness rating of "satisfactory," which most
recently was extended on June 7, 1995.
The Company carries primary and excess liability insurance coverage of
$30 million, with a $100,000 deductible for personal injury and property damage.
The Company's workers' compensation coverage also carries a $100,000 deductible,
with no coverage limit. The Company's equipment is insured for fair market
value, subject to deductibles of $25,000 for tractors and $10,000 for trailers,
and cargo loss is covered to $200,000 with a $10,000 deductible. Management
believes these coverages are adequate to cover reasonably anticipated claims.
Competition
The truckload segment of the trucking industry is highly competitive
and fragmented, and no carrier or group of carriers dominates the
temperature-controlled or dry van market. According to the September 1996 issue
of Refrigerated Transporter, the five largest temperature-controlled carriers by
revenue are Frozen Food Express Industries, KLLM Transport Services, Prime,
Inc., C. R. England & Sons, and Rocor International. The combined revenue
reported for these five carriers comprises approximately 25% of the estimated $4
billion for-hire, temperature-controlled market. The proprietary fleet portion
of the temperature-controlled market has been estimated at an additional $3
billion. The Company's 1996 fiscal year revenue constituted approximately one
percent of the total market for temperature-controlled services and
approximately two percent of the for-hire market. The Company competes with a
number of other trucking companies, as well as private truck fleets used by
shippers to transport their own products. The Company competes to a limited
extent with rail and rail-truck intermodal service, but attempts to limit this
competition by seeking service-sensitive freight. There are other trucking
companies, including diversified carriers with large temperature-controlled
fleets, possessing substantially greater financial resources and operating more
equipment than the Company.
Fuel Availability and Cost
The Company actively manages its fuel costs by requiring drivers to
fuel at Company terminals or, whenever possible en route, at service centers
with which the Company has established volume purchasing arrangements. The
Company controls fuel purchases by using its proprietary software and Qualcomm
communications ability to schedule fueling stops and amounts purchased based
upon fuel prices at locations on drivers' routes. The Company historically has
been able to pass through most increases in fuel prices and taxes to customers
in the form of higher rates. During the fiscal year ended September 30, 1996,
the Company entered into fuel surcharge agreements with approximately 51% of its
customers. These customers represent approximately 82% of the Company's revenue.
The fuel surcharges are adjusted weekly based on the national weekly average
price of diesel fuel published by the Department of Energy.
Regulation
The Company is a common and contract motor carrier of general
commodities. Historically, the Interstate Commerce Commission (the "ICC") and
various state agencies regulated motor carriers' operating rights, accounting
systems, mergers and acquisitions, periodic financial reporting, and other
matters. In 1995, federal legislation preempted state regulation of prices,
routes, and services of motor carriers and eliminated the ICC. Several ICC
functions were transferred to the Department of Transportation (the "DOT").
Management does not believe that regulation by the DOT or by the states in their
remaining areas of authority will have a material effect on the Company's
operations. The Company's employee and independent contractor drivers also must
comply with the safety and fitness regulations promulgated by the DOT, including
those relating to drug and alcohol testing and hours of service.
The Company's operations are subject to various federal, state, and
local environmental laws and regulations, implemented principally by the EPA and
similar state regulatory agencies, governing the management of hazardous wastes,
other discharge of pollutants into the air and surface and underground waters,
and the disposal of certain substances. These regulations extend to the above
ground and underground fuel storage tanks located at each of the Company's
terminal facilities. All of the Company's tanks are of double hull construction
in accordance with EPA requirements and equipped with monitoring devices which
constantly monitor for leakage. Management is not aware of any fuel spills or
hazardous substance contamination on its properties and believes that its
operations are in material compliance with current laws and regulations.
Item 2. PROPERTIES
Simon Transportation operates terminals and driver recruitment offices
at five locations. The Company's headquarters is located on ten acres near the
intersection of Interstates 15 and 80 in Salt Lake City, Utah, and includes a
17,000 square foot office building housing all operations and administrative
personnel, a 23,000 square foot maintenance shop, and a 3,600 square foot driver
recruitment and orientation center. The Company owns additional terminal and
driver recruitment facilities in Phoenix, Arizona; Fontana, California; and
Atlanta, Georgia; leases terminal space in Katy, Texas; and Portland, Oregon;
and leases trailer drop yards at Tulare, California and various customer
locations. All locations except the Atlanta office and the Katy office have
modern fuel facilities with environmental monitoring equipment.
The Company is constructing a new headquarters, shop, terminal, and
driver recruitment and orientation center. Management anticipates that
construction of the new facility will be completed in the Spring of 1997. Upon
completion, the Company intends to sell its existing facility. The available
acreage will accommodate future expansion, and the facility has been designed so
that additions can be constructed to serve the Company's foreseeable future
needs. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity."
Item 3. LEGAL PROCEEDINGS
The Company from time to time is a party to litigation arising in the
ordinary course of its business, substantially all of which involves claims for
personal injury and property damage incurred in the transportation of freight.
The Company presently is not a party to any legal proceeding other than
litigation arising from vehicle accidents, and management is not aware of any
claims or threatened claims that reasonably would be expected to exceed
insurance limits or have a materially adverse effect upon the Company's
operations or financial position.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year ended September 30, 1996, no
matters were submitted to a vote of security holders.
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PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Price Range of Common Stock. The Company's Class A common stock has
been traded on the Nasdaq National Market under the NASDAQ symbol SIMN, since
November 17, 1995, the date of the Company's initial public offering. The
following table sets forth for the calendar periods indicated the range of high
and low bid quotations for the Company's Class A common stock as reported by
NASDAQ from November 17, 1995, to September 30, 1996.
Period High Low
- ---------------------------- ------------- -------------
Calendar Year 1995
4th Quarter $ 9 1/2 $ 8 1/2
Calendar Year 1996
1st Quarter $ 11 1/4 $ 9
2nd Quarter $ 14 $ 10 1/2
3rd Quarter $ 15 $ 12 3/4
The prices reported reflect interdealer quotations without retail
mark-ups, mark-downs or commissions, and may not represent actual transactions.
As of October 31, 1996, the Company had 688 stockholders of record of its common
stock. However, the Company believes that many additional holders of common
stock are unidentified because a substantial number of the Company's shares are
held of record by brokers or dealers for their customers in street names.
Dividend Policy. The Company has never declared and paid a cash
dividend on its common stock. It is the current intention of the Company's Board
of Directors to continue to retain earnings to finance the growth of the
Company's business rather than to pay dividends. Future payments of cash
dividends will depend upon the financial condition, results of operations and
capital commitments of the Company, restrictions under then-existing agreements,
and other factors deemed relevant by the Board of Directors.
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Item 6. SELECTED FINANCIAL AND OPERATING DATA
The selected consolidated financial data presented below reflect the
consolidated financial position and results of operations of Simon
Transportation Services Inc. and its subsidiary. The selected consolidated
financial data are derived from the Company's consolidated financial statements
and should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's consolidated
financial statements and notes thereto included elsewhere herein.
(In thousands, except per share amounts and
operating data)
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Years Ended September 30,
--------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Statement of Earnings Data:
Operating revenue................................. $101,090 $75,218 $71,691 $57,694 $40,823
--------------------------------------------------------------
Operating expenses:
Salaries, wages, and benefits................... 40,015 28,035 25,949 21,990 14,990
Fuel and fuel taxes............................. 20,359 14,115 14,363 11,629 8,014
Operating supplies and expenses................. 13,701 10,839 8,978 6,111 4,245
Taxes and licenses.............................. 3,288 2,756 2,558 2,291 1,625
Insurance and claims............................ 2,172 2,003 1,995 1,600 1,320
Communications and utilities.................... 1,680 1,245 1,274 927 579
Depreciation and amortization................... 5,920 7,223 6,857 4,781 1,898
Rent............................................ 4,794 2,926 3,435 3,422 3,632
--------------------------------------------------------------
Total operating expenses...................... 91,929 69,142 65,409 52,751 36,303
--------------------------------------------------------------
Operating earnings............................ 9,161 6,076 6,282 4,943 4,520
Interest expense and other, net................... 2,758 3,527 3,136 2,559 1,276
--------------------------------------------------------------
Earnings before provision for income 6,403 2,549 3,146 2,384 3,244
taxes..........
Provision for Income taxes........................ 5,454 -- -- -- --
--------------------------------------------------------------
Net earnings...................................... 949 2,549 3,146 2,384 3,244
==============================================================
Pro Forma Statement of Earnings Data:1
Earnings before provision for income 6,403 2,549 3,146 2,384 3,244
taxes..........
Provision (benefit) for income taxes.............. 2,536 1,010 1,246 944 1,285
--------------------------------------------------------------
Net earnings...................................... $3,867 $1,539 $1,900 $1,440 $1,959
==============================================================
Net earnings per common share..................... $0.88 $0.67 $0.83 $0.63 $0.85
==============================================================
Weighted average shares outstanding............... 4,417,643 2,300,000 2,300,000 2,300,000 2,300,000
Operating Data:
Operating ratio2.................................. 90.9% 91.9% 91.2% 91.4% 88.9%
Average revenue per loaded mile................... $1.24 $1.26 $1.23 $1.23 $1.23
Average revenue per total mile.................... $1.10 $1.11 $1.10 $1.07 $1.07
Average revenue per tractor per week.............. $2,526 $2,417 $2,489 $2,471 $2,582
Empty miles percentage............................ 11.7% 11.3% 10.7% 12.6% 13.2%
Average length of haul in miles................... 984 949 725 677 596
Weighted average tractors during period........... 774 598 554 449 304
Tractors at end of period......................... 940 623 570 523 389
Trailers at end of period......................... 1,430 877 873 745 589
Balance Sheet Data (at end of period):
Net property and equipment........................ $56,714 $52,200 $49,039 $45,409 $29,665
Total assets...................................... 78,223 61,437 56,752 52,601 34,863
Long-term debt and capitalized
leases, including current 37,428 47,903 44,525 43,181 27,217
portion.........................................
Stockholders' equity.............................. 29,103 9,033 7,443 5,736 4,871
</TABLE>
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1 The Company was treated as an S Corporation for federal and state
income tax purposes from October 1, 1990 to November 16, 1995. As a result, the
Company's taxable earnings for such period were taxed for federal and state
income tax purposes directly to the Company's then-existing stockholders. The
pro forma statement of earnings data give effect to an adjustment for a
provision for federal and state income taxes as if the Company had been treated
as a C Corporation during such periods. The pro forma statement of earnings data
do not give effect to the one-time, non-cash charge of $2,980,115 in recognition
of deferred income taxes that resulted from the termination of the Company's S
Corporation status. Pro forma net earnings per share and pro forma weighted
average shares outstanding give effect to the Company's August 1995 reverse
stock split and all share issuances and contributions during 1995 as if they had
been outstanding for all periods presented. See Note 1 and Note 3 to
Consolidated Financial Statements.
2 Operating expenses as a percentage of revenue.
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
Founded by Richard D. Simon in 1955 with a single truck, Simon
Transportation today provides nationwide, predominantly temperature-controlled
truckload transportation for numerous major shippers. In recent years, much of
the Company's growth has resulted from earning core carrier status with major
shippers and meeting the demands of these shippers for additional equipment. The
Company has grown to $101.1 million in revenue for its fiscal year ended
September 30, 1996, from $31.0 million in revenue for fiscal 1991, a compounded
annual growth rate of 26.7%. During the same period, operating earnings
increased to $9.2 million from $2.0 million, a compounded annual growth rate of
35.7%.
During fiscal years 1994 and 1995, the Company financed most of its
tractors and trailers with debt and capitalized leases. In the 1996 fiscal year,
the Company financed most of this revenue equipment with operating leases rather
than borrowing. Financing equipment with operating leases increases the
Company's operating ratio because the implied interest component of the lease
payments is reflected as an "above-the-line" operating expense rather than
interest expense. The method of financing does not affect net income. The
Company's operating ratio may fluctuate from time-to-time based upon the method
of equipment financing.
The Company operated as an S Corporation from October 1, 1990 to
November 16, 1995. As a result, the Company's net taxable earnings were taxed
directly to the Company's existing stockholders rather than to the Company. The
pro forma statement of earnings data included in the "Selected Financial and
Operating Data" set forth the Company's net earnings for such periods as if the
Company had been subject to federal and state income taxes at a combined rate of
39.6%. In addition to the ongoing income tax effect, the termination of the
Company's S Corporation status resulted in a one-time, non-cash charge of
approximately $3.0 million in recognition of deferred income taxes.
Results of Operations
The following table sets forth the percentage relationship of certain
items to operating revenue for the periods indicated:
<TABLE>
<S> <C> <C> <C>
Fiscal Years Ended
September 30,
----------------------------------
1996 1995 1994
---------- ----------- -----------
Operating revenue....................................... 100.0% 100.0% 100.0%
Operating expenses:
Salaries, wages, and benefits........................ 39.6 37.3 36.2
Fuel and fuel taxes.................................. 20.1 18.8 20.0
Operating supplies and expenses...................... 13.6 14.4 12.4
Taxes and licenses................................... 3.3 3.6 3.6
Insurance and claims................................. 2.1 2.7 2.8
Communications and utilities......................... 1.6 1.6 1.8
Depreciation and amortization........................ 5.9 9.6 9.6
Rent................................................. 4.7 3.9 4.8
---------- -----------------------
Total operating expenses 90.9 91.9 91.2
---------- -----------------------
Operating earnings..................................... 9.1 8.1 8.8
Interest expense and other, net......................... (2.8) (4.7) (4.4)
---------- -----------------------
Earnings before provision for income taxes............. 6.3 3.4 4.4
Pro forma provision for income taxes.................... (2.5) (1.4) (1.7)
---------- -----------------------
Pro forma net earnings.................................. 3.8% 2.0% 2.7%
========== =======================
</TABLE>
<PAGE>
Comparison of fiscal year ended September 30, 1996, with fiscal year ended
September 30, 1995.
Operating revenue increased 34.4%, to $101.1 million during the 1996
fiscal year from $75.2 million during the 1995 fiscal year. The increase in
revenue was primarily attributable to a 29.4% increase in the weighted average
number of tractors, to 774 during the 1996 fiscal year from 598 during the 1995
fiscal year and an increase in the average revenue per tractor per week to
$2,526 during the 1996 fiscal year from $2,417 during the 1995 fiscal year.
These increases were partially offset by a decrease in the Company's average
revenue per loaded mile to $1.24 during the 1996 fiscal year from $1.26 during
the 1995 fiscal year, and an increase in empty miles percentage to 11.7% during
the 1996 fiscal year from 11.3% during the 1995 fiscal year.
Salaries, wages, and benefits increased to 39.6% of revenue
during the 1996 fiscal year from 37.3% during the 1995 fiscal year. The
change was attributable to the full effect of an increase in driver base pay
implemented during the 1995 fiscal year; the improvement of health
insurance coverage to attract and retain qualified drivers and other
personnel; an increase in the number of active participants in the 401(k)
plan; and an increase in administrative personnel. The additional cost of
these items was partially offset by reduced workers' compensation premiums
and a reduction in workers' compensation claims.
Fuel and fuel taxes increased to 20.1% of revenue during the 1996
fiscal year from 18.8% during the 1995 fiscal year as a result of an increase
in fuel prices. The increase in fuel prices was partially offset by an
overall increase in the fuel efficiency of the Company's fleet. During the
fiscal year ended September 30, 1996, the Company entered into fuel surcharge
agreements with approximately 51% of its customers. These customers
represent approximately 82% of the Company's revenue. The fuel surcharges
are adjusted weekly based on the national weekly average price of diesel fuel
published by the Department of Energy.
Operating supplies and expenses decreased to 13.6% of revenue during
the 1996 fiscal year, from 14.4% during the 1995 fiscal year, primarily as a
result of decreased parts costs, outside repairs, and maintenance expense
associated with a decrease in the average age of the Company's tractor fleet.
These savings were partially offset by retaining certain older tractors that had
been scheduled for trade or sale in order to meet customer demand for more
equipment. The Company upgraded its tractor fleet in fiscal year 1996 and
reduced the average age of its fleet at September 30, 1996, to approximately 8
months from 30 months at September 30, 1995.
All tractors are now covered by three-year, 500,000-mile warranties.
Taxes and licenses decreased to 3.3% of revenue during the 1996
fiscal year from 3.6% during the 1995 fiscal year primarily as a result of
greater efficiency in licensing new tractors being added to the fleet.
Insurance and claims decreased to 2.1% of revenue during the 1996
fiscal year from 2.7% during the 1995 fiscal year because of reduced insurance
premiums and claims.
Communications and utilities remained constant at 1.6% of revenue
during the 1996 and 1995 fiscal years.
Depreciation and amortization (adjusted for the net gain on sale of
equipment) decreased to 5.9% of revenue during the 1996 fiscal year from 9.6%
during the 1995 fiscal year. Depreciation and amortization (unadjusted for the
net gain on sale of equipment) decreased to 8.3% of revenue ($8.4 million)
during the 1996 fiscal year from 10.8% of revenue ($8.1 million) during the 1995
fiscal year as a result of a decrease in the percentage of the Company's revenue
equipment that was owned or acquired under capitalized leases. This decrease in
depreciation was adjusted for a $2.4 million net gain on the sale of revenue
equipment during the 1996 fiscal year compared with an $885,000 net gain during
the 1995 fiscal year. Rent increased to 4.7% of revenue during the 1996 fiscal
year from 3.9% during the 1995 fiscal year as the Company increased its
percentage of revenue equipment under operating leases.
As a result of the foregoing, the Company's operating ratio
decreased to 90.9% during the 1996 fiscal year from 91.9% during the 1995 fiscal
year.
Interest expense and other, net decreased to 2.8% of revenue during the
1996 fiscal year from 4.7% during the 1995 fiscal year. This resulted from
application of $17.2 million in net proceeds from the Company's initial public
offering to decrease debt and capitalized lease balances, a decrease in the
Company's average interest rate in the 1996 fiscal year compared with the 1995
fiscal year, and an increase in the percentage of the Company's tractor and
trailer fleets being obtained through operating leases.
As a result of the factors described above, pro forma net earnings
increased to $3.9 million (3.8% of revenue) during the 1996 fiscal year from
$1.5 million (2.0% of revenue) during the 1995 fiscal year.
Comparison of fiscal year ended September 30, 1995, with fiscal year ended
September 30, 1994
Operating revenue increased 4.9%, to $75.2 million during the 1995
fiscal year from $71.7 million during the 1994 fiscal year, as management slowed
the addition of new revenue equipment to avoid increasing the Company's level of
long-term debt and lease obligations. The weighted average number of tractors
increased 7.9% to 598 during the 1995 fiscal year from 554 during the 1994
fiscal year. The Company's average revenue per loaded mile increased to $1.26
during the 1995 fiscal year from $1.23 during the 1994 fiscal year, but this was
partially offset by an increase in empty miles percentage to 11.3% during the
1995 fiscal year from 10.7% during the 1994 fiscal year. Average revenue per
tractor per week declined to $2,417 during the 1995 fiscal year from $2,489
during the 1994 fiscal year.
Salaries, wages, and benefits increased to 37.3% of revenue during the
1995 fiscal year from 36.2% during the 1994 fiscal year. The change was
attributable to an increase in driver base pay; the implementation of a driver
bonus program; the improvement of health insurance coverage to attract and
retain qualified drivers and other personnel; an increase in the number of
active participants in the 401(k) plan; and an increase in administrative
personnel. The additional cost of these items was partially offset by a one-time
rebate from the previous workers' compensation insurer, reduced workers'
compensation premiums, and a reduction in workers' compensation claims.
Fuel and fuel taxes decreased to 18.8% of revenue during the 1995
fiscal year from 20.0% during the 1994 fiscal year as a result of a decrease in
fuel prices under a fuel management program implemented in January 1995 and an
overall increase in the fuel efficiency of the Company's fleet.
Operating supplies and expenses increased to 14.4% of revenue during
the 1995 fiscal year, from 12.4% during the 1994 fiscal year, primarily as a
result of increased parts and tire replacement costs, outside repairs, and
maintenance expense associated with the delay in trading and adding new revenue
equipment. The average age of the Company's tractor fleet at September 30, 1995,
was 30 months, and most repairs of such tractors were no longer covered by
manufacturers' warranties. The Company also experienced an increase in loading
and unloading, pallet, and toll costs associated with additional shipper
requirements.
Taxes and licenses and insurance and claims both remained essentially
constant during the 1995 and 1994 fiscal years.
Communications and utilities decreased to 1.6% of revenue during
the 1995 fiscal year from 1.8% during the 1994 fiscal year as a result of a
one-time, negotiated credit with the Company's long distance provider for
expenses incurred during the 1995 fiscal year. The Company also negotiated a
reduction of approximately 35% in monthly in long-distance rates effective
October 1995.
Depreciation and amortization (adjusted for the net gain on sale of
equipment) remained unchanged at 9.6% of revenue during the 1995 and 1994 fiscal
years. Depreciation and amortization (unadjusted for the net gain on sale of
equipment) increased to $8.1 million (10.8% of revenue) during the 1995 fiscal
year from $7.1 million (9.9% of revenue) during the 1994 fiscal year as a result
of an increase in the percentage of the Company's revenue equipment that was
owned or acquired under capitalized leases. This increase in depreciation was
adjusted for an $885,000 net gain on the sale of revenue equipment during the
1995 fiscal year compared with a $229,000 net gain during the 1994 fiscal year.
Rent decreased to 3.9% of revenue during the 1995 fiscal year from 4.8% during
the 1994 fiscal year as the Company reduced its percentage of revenue equipment
under operating leases.
As a result of the foregoing, the Company's operating ratio
increased to 91.9% during the 1995 fiscal year from 91.2% during the 1994 fiscal
year.
Interest expense and other, net increased to 4.7% of revenue
during the 1995 fiscal year from 4.4% during the 1994 fiscal year as a result
of higher average interest rates and an increase in the percentage of the
Company's revenue equipment that was owned or acquired under capitalized leases.
As a result of the factors described above, pro forma net earnings
decreased to $1.5 million (2.0% of revenue) during the 1995 fiscal year from
$1.9 million (2.7% of revenue) during the 1994 fiscal year.
Liquidity and Capital Resources
The growth of the Company's business has required significant
investment in new revenue equipment that the Company historically has financed
with borrowings under installment notes payable to commercial lending
institutions and equipment manufacturers, equipment leases from third-party
lessors, borrowings under its line of credit, and cash flow from operations. The
Company's primary sources of liquidity currently are funds provided by
operations and borrowings and leases with financial institutions and equipment
manufacturers.
Net cash provided by operating activities was $7.0 million, $8.3
million, and $10.4 million for the fiscal years ended September 30, 1996,
1995, and 1994, respectively. The Company's principal use of cash from
operations is to service debt incurred to purchase new revenue equipment
and internally finance accounts receivable associated with growth in the
business. Customer accounts receivable increased $5,930,000, $478,000,
and $753,000 for the fiscal years ended September 30, 1996, 1995, and 1994,
respectively. The average age of the Company's accounts receivable was 39,
36, and 36 days for the fiscal years ended September 30, 1996, 1995, and
1994, respectively.
Net cash (used in) provided by investing activities was ($4.6 million),
$1.3 million, and ($6.1 million) for the fiscal years ended September 30,
1996, 1995, and 1994, respectively. The Company expects capital
expenditures (primarily for revenue equipment, satellite communications units,
and the construction of a new main terminal and headquarters facility), net
of revenue equipment trade-ins, to be approximately $21,000,000 in
1997. The Company's projected capital expenditures will be funded with
borrowings or capitalized or operating leases, and cash flows from
operations. The total cost of the headquarters is estimated at
approximately $15 million, the majority of which is expected to be incurred
during calendar 1996 and the first calendar quarter of 1997. Following
completion of the new facility, the Company intends to sell its existing
headquarters facility, which had an appraised value of $3,385,000 in May 1995.
Net cash provided by (used in) financing activities was $2.9 million,
($9.2 million), and ($4.5 million) for the fiscal years ended September 30,
1996, 1995, and 1994, respectively, consisted primarily of approximately $19.7
million in net proceeds from the Company's November 1995 initial public
offering, net payments on borrowings of $11.9 million, $10.2 million, and $3.0
million of principal under the Company's long-term debt and capitalized lease
agreements and net payments (borrowings) of $4.3 million, ($2.6 million), and
($9,000) under the Company's line of credit. In addition, the Company paid S
Corporation dividends to its stockholders of $605,000, $1.6 million, and $1.4
million for the fiscal years ended September 30, 1996, 1995, and 1994,
respectively.
The maximum amount committed under the Company's line of credit at
September 30, 1996, was $5 million and no borrowings were outstanding. The
interest rate on the line of credit is one-half percent (.5%) above the
30-day London Interbank Offered Rate ("LIBOR") in effect from time-to-time.
At September 30, 1996, the Company had outstanding long-term debt and
capitalized lease obligations (including current portions) of approximately
$37.4 million, most of which comprised obligations for the purchase of
revenue equipment. See Notes 4 and 5 to Consolidated Financial Statements.
Although the Company historically has experienced a working capital
deficit common to many truckload carriers that have expanded by financing
revenue equipment purchases, management believes its working capital
deficits have had little impact upon liquidity. When the purchase of
revenue equipment is financed through borrowing or capitalized lease
obligations, a portion of the indebtedness is categorized as a current
liability, although the revenue equipment is classified as a long-term
asset. Consequently, each purchase of financed revenue equipment decreases
working capital. The Company's working capital surplus at September 30, 1996
was $6.7 million. The Company's working capital deficits amounted to $16.7
million and $7.0 million at the fiscal years ended September 30, 1995 and
1994, respectively. Management believes that available borrowings under the
line of credit, future borrowings under installment notes payable or lease
arrangements for revenue equipment, and cash flow generated from
operations, will allow the Company to continue to meet its working
capital requirements, anticipated capital expenditures, and obligations
under debt and capitalized and operating leases at least through fiscal year
1997.
Inflation
Inflation has had a minimal effect upon the Company's
profitability in recent years. Most of the Company's operating expenses
are inflation-sensitive, with inflation generally producing increased
costs of operation. The Company expects that inflation will affect its
costs no more than it affects those of other truckload carriers.
Seasonality
The Company experiences some seasonal fluctuations in freight
volume, as shipments have historically decreased during the first calendar
quarter. In addition, the Company's operating expenses historically have
been higher in the winter months due to decreased fuel efficiency and
increased maintenance costs in colder weather.
Fuel Availability and Cost
The Company actively manages its fuel costs by requiring drivers
to fuel at Company terminals or, whenever possible en route, at service
centers with which the Company has established volume purchasing
arrangements. The Company controls fuel purchases by using its proprietary
software and Qualcomm communications ability to schedule fueling stops and
amounts purchased based upon fuel prices at locations on drivers' routes.
The Company historically has been able to pass through most increases in
fuel prices and taxes to customers in the form of higher rates. During the
fiscal year ended September 30, 1996, the Company entered into fuel
surcharge agreements with approximately 51% of its customers. These
customers represent approximately 82% of the Company's revenue. The fuel
surcharges are adjusted weekly based on the national weekly average price of
diesel fuel published by the Department of Energy.
Forward Looking Statements
This annual report and statements by the Company in press releases and
public filings, as well as oral public statements by Company representatives may
contain certain forward looking information that is subject to risks and
uncertainties that could cause actual results to differ materially from those
projected. Without limitation, these risks and uncertainties include economic
recessions or downturns in customers' business cycles, excessive increases in
capacity in truckload markets, decreased demand for transportation services
offered by the Company, rapid inflation, fuel price increases, increases in
interest rates, delays in the delivery of new tractors and trailers, and the
availability and compensation of qualified drivers. Readers should review and
consider the various disclosures made herein and in other reports, press
releases, and statements by the Company.
<PAGE>
Item 8. . FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's audited financial statements, including its consolidated
balance sheets and consolidated statements of earnings, cash flows, and
stockholders' equity, and notes related thereto, are included at pages 20
to 33 of this report. The supplementary quarterly financial data (unadjusted
for the pro forma effects of tax as if the Company had always been a C
corporation) follow:
Quarterly Financial Data:
<TABLE>
<S> <C> <C> <C>
Fourth Quarter Third Quarter Second Quarter First Quarter
1996 1996 1996 1996
------------------ ---------------- ------------------- ----------------
Revenue $31,068 $27,225 $22,208 $20,588
Operating earnings 2,697 2,568 2,235 1,661
Earnings before taxes 2,140 1,812 1,596 855
Income taxes 848 718 632 3,257
Net earnings 1,292 1,095 964 (2,402)
Net earnings per share $0.27 $0.23 $0.20 ($0.70)
Fourth Quarter Third Quarter Second Quarter First Quarter
1995 1995 1995 1995
------------------ ---------------- ------------------- ----------------
Revenue $19,540 $19,288 $18,539 17,851
Operating earnings 1,684 1,460 1,440 1,491
Earnings before taxes 828 545 529 647
Income taxes -- -- -- --
Net earnings 828 545 529 647
Net earnings per share $0.36 $0.24 $0.23 $0.28
</TABLE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No reports on Form 8-K have been filed within the twenty-four months
prior to September 30, 1996, involving a change of accountants or disagreements
on accounting and financial disclosure.
PART III
Item 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
The Company incorporates by reference the information contained under
the heading "Election of Directors" from its definitive Proxy Statement to be
delivered to stockholders of the Company in connection with the 1996 Annual
Meeting of Stockholders to be held December 18, 1996.
Item 11. EXECUTIVE COMPENSATION
The Company incorporates by reference the information contained under
the heading "Executive Compensation" from its definitive Proxy Statement to be
delivered to stockholders of the Company in connection with the 1996 Annual
Meeting of Stockholders to be held December 18, 1996.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company incorporates by reference the information contained under
the heading "Security Ownership of Certain Beneficial Owners and Management"
from its definitive Proxy Statement to be delivered to stockholders of the
Company in connection with the 1996 Annual Meeting of Stockholders to be held
December 18, 1996.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company incorporates by reference the information contained under
the heading "Certain Relationships and Related Transactions" from its definitive
Proxy Statement to be delivered to stockholders of the Company in connection
with the 1996 Annual Meeting of Stockholders to be held December 18, 1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements.
The Company's audited financial statements are set forth at the following pages
of this report:
Page
Consolidated Statement of Earnings................................. 20
Consolidated Statement of Financial Position....................... 21
Consolidated Statements of Stockholders' Equity.................... 22
Consolidated Statements of Cash Flows.............................. 23
Notes to Consolidated Financial Statements......................... 24
Report of Independent Public Accountants........................... 33
2. Financial Statement Schedules.
Financial statement schedules are not required because all required information
is included in the financial statements.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the fourth quarter ended
September 30, 1996.
<PAGE>
(c) Exhibits
NumberDescription 1 + Form of Underwriting Agreement.
2.1 + Exchange Agreement dated as of April 19, 1995, among Richard D. Simon,
Trustee of the Richard D. Simon Revocable Trust, UTAD 2/12/93, and Richard
D. Simon as a sole proprietorship d/b/a R. D. Simon Trucking, Kelle A.
Simon, A. Lyn Simon, Sherry L. Simon Bokovoy, Richard D. Simon, Jr., Alban
B. Lang, and Dick Simon Trucking, Inc., a
Utah corporation.
2.2 + Formation Agreement dated May 31, 1995, among Richard D. Simon, Trustee
of the Richard D. Simon Trust, UTAD 2/12/93, Kelle Allen Simon, Arthur
Lynn Simon (also known as Lyn Simon), Sherry Lee Simon Bokovoy, Richard D.
Simon, Jr. (also known as Richard Dick Simon, or "King" Simon) and Alban
Lang.
3.1 + Articles of Incorporation.
3.2 + Bylaws.
4.1 + Articles of Incorporation.
4.2 + Bylaws.
4.3 + Formation Agreement dated May 31, 1995, among Richard D. Simon, Trustee
of the Richard D. Simon Trust, UTAD 2/12/93, Kelle Allen Simon, Arthur
Lynn Simon (also known as Lyn Simon), Sherry Lee Simon Bokovoy, Richard D.
Simon, Jr. and Alban Lang.
10.1+ OmniTRACSTM Contract dated May 6, 1992, between Qualcomm, Incorporated and
Dick Simon Trucking, Inc., a Utah corporation, for communications
equipment and services, and most recent amendment dated May 13, 1994.
10.2+ Outside Director Stock Option Plan.
10.3+ Incentive Stock Plan.
10.4+ 401(k) Plan.
10.5+ Exchange Agreement dated April 19, 1995, among Richard D. Simon, Trustee
of the Richard D. Simon Revocable Trust, UTAD 2/12/93, and Richard D.
Simon as a sole proprietorship d/b/a R. D. Simon Trucking, Kelle A. Simon,
A. Lyn Simon, Sherry L. Simon Bokovoy, Richard D. Simon, Jr., Alban B.
Lang, and Dick Simon Trucking, Inc., a
Utah corporation.
10.6+ Formation Agreement dated May 31, 1995, among Richard D. Simon, Trustee of
the Richard D. Simon Trust, UTAD 2/12/93, Kelle Allen Simon, Arthur Lynn
Simon (also known as Lyn Simon), Sherry Lee Simon Bokovoy, Richard D.
Simon, Jr. and Alban Lang.
10.7+ License Agreement dated October 12, 1993, between Dick Simon
Trucking, Inc., a Utah corporation and Rand McNally - TDM, Inc.
10.8+ Line of Credit and Security Agreement, Inclusive Loan Agreement, and
Promissory Note, all dated February 28, 1994 between First Interstate Bank
of Utah, N.A., and Dick Simon Trucking, Inc., a Utah corporation, as
amended June 21, 1994.
10.9+ Firm Fixed Price Agreement Contract for Sale of Petroleum Product dated
July 9, 1993 between MG Refining and Marketing, Inc. and Dick Simon
Trucking, Inc., a Utah corporation
10.1+ Plan of Merger dated April 19, 1995 between the Richard D. Simon Trust,
UTAD 2/12/93, Kelle A. Simon, Lyn Simon, Richard D. Simon, Jr., Sherry
Simon Bokovoy, and Alban Lang as officers, directors, and/or shareholders
of Dick Simon Trucking, Inc., a Utah corporation.
10.1# Loan Agreement (Line of Credit) dated April 29, 1996 (replaced loan
agreement dated December 1, 1995) between U.S. Bank of Utah and Simon
Transporation Services Inc.
10.1# Loan Agreement (Headquarter's Loan) dated May 23, 1996 between U.S. Bank
of Utah and Dick Simon Trucking, Inc.
21 + List of subsidiaries.
23 Consent of Arthur Andersen LLP, independent public accountants.
+ Filed as an exhibit to the registrant's Registration Statement on
Form S-1, Registration No. 33-96876, effective November 17, 1995, and
incorporated herein by reference.
# Filed as an exhibit to the registrant's Quarterly Report on Form
10-Q for the period ended June 30, 1996, Commission File No. 0-27208,
dated August 9, 1996, and incorporated herein by reference.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
SIMON TRANSPORATION SERVICES, INC.
Date: November 5, 1996 By: /s/ Alban B. Lang
---------------- -----------------
Alban B. Lang
Treasurer and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Signature Position Date
--------- -------- ----
/s/ Richard D. Simon November 5, 1996
- -------------------------------------- Chairman of the Board, President, and Chief
Richard D. Simon Executive Officer (principal executive officer)
/s/ Alban B. Lang November 5, 1996
- -------------------------------------- Treasurer and Chief Financial Officer
Alban B. Lang (principal financial and accounting officer);
Director
/s/ Irene Warr November 5, 1996
- --------------------------------------
Irene Warr Director
/s/ H.J. Frazier November 5, 1996
- --------------------------------------
H.J. Frazier Director
</TABLE>
<PAGE>
SIMON TRANSPORTATION SERVICES INC.
CONSOLIDATED STATEMENT OF EARNINGS
<TABLE>
<S> <C> <C> <C>
For the Years Ended September 30,
----------------------------------------------------------
1996 1995 1994
----------------------------------------------------------
Operating Revenue $101,089,530 $ 75,218,184 $ 71,690,734
----------------------------------------------------------
Operating Expenses:
Salaries, wages, and benefits 40,014,702 28,035,318 25,948,755
Fuel and fuel taxes 20,359,375 14,115,283 14,362,789
Operating supplies and expenses 13,701,428 10,839,485 8,978,394
Taxes and licenses 3,287,833 2,756,587 2,557,612
Insurance and claims 2,172,308 2,002,505 1,995,244
Communications and utilities 1,679,967 1,244,650 1,274,074
Depreciation and amortization 5,919,494 7,222,887 6,856,673
Rent 4,793,804 2,925,541 3,435,117
----------------------------------------------------------
Total operating expenses 91,928,911 69,142,256 65,408,658
----------------------------------------------------------
Operating earnings 9,160,619 6,075,928 6,282,076
Other (Expense) Earnings:
Interest expense (2,849,549) (3,558,932) (3,191,708)
Other, net 92,025 31,751 55,876
----------------------------------------------------------
Earnings before provision for income taxes 6,403,095 2,548,747 3,146,244
Provision for income taxes (Note 11) 5,454,170 - -
----------------------------------------------------------
Net Earnings $ 948,925 $ 2,548,747 $ 3,146,244
==========================================================
Unaudited Pro Forma Information: (Note 11)
Earnings before provision for income taxes $ 6,403,095 $ 2,548,747 $ 3,146,244
Provision for income taxes 2,535,626 1,009,304 1,245,913
----------------------------------------------------------
Net earnings $ 3,867,469 $ 1,539,443 $ 1,900,331
==========================================================
Net earnings per common share $ 0.88 $ 0.67 $ 0.83
==========================================================
Weighted average common shares outstanding 4,417,643 2,300,000 2,300,000
==========================================================
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these consolidated financial statements
<PAGE>
SIMON TRANSPORTATION SERVICES INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
ASSETS
<TABLE>
<S> <C> <C>
September 30,
----------------------------------
1996 1995
----------------------------------
Current Assets:
Cash $ 5,571,431 $ 350,380
Receivables, net of allowance for doubtful accounts of $66,000 and $115,000,
respectively 13,261,974 7,331,701
Operating supplies 428,123 639,915
Prepaid expenses and other 1,302,492 416,945
Deferred tax asset 627,883 --
----------------------------------
Total current assets 21,191,903 8,738,941
----------------------------------
Property and Equipment, at cost:
Land 2,918,804 2,710,071
Revenue equipment 58,779,032 63,591,169
Buildings and improvements 8,639,875 4,796,379
Office furniture and equipment 2,766,218 2,116,518
----------------------------------
73,103,929 73,214,137
Less accumulated depreciation and amortization (16,390,209) (21,014,556)
----------------------------------
56,713,720 52,199,581
----------------------------------
Other Assets 317,645 498,473
----------------------------------
$78,223,268 $61,436,995
==================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 2,892,300 $ 8,577,770
Current portion of capitalized lease obligations 3,760,250 12,389,442
Accounts payable 1,691,900 1,369,252
Income taxes payable 2,191,984 --
Accrued liabilities 2,324,918 1,835,620
Accrued claims payable 1,602,344 1,296,575
----------------------------------
Total current liabilities 14,463,696 25,468,659
----------------------------------
Long-Term Debt, net of current portion 15,433,145 7,135,935
----------------------------------
Capitalized Lease Obligations, net of current portion 15,342,293 19,799,823
----------------------------------
Deferred Income Taxes 3,880,653 --
----------------------------------
Commitments (Note 7)
Stockholders' Equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized, none issued
Class A Common Stock, $.01 par value, 20,000,000 shares authorized,
2,870,507 and 427,839 shares issued, respectively 28,705 4,278
Class B Common Stock, $.01 par value, 5,000,000 shares authorized, 1,872,161
shares issued 18,722 18,722
Additional paid-in capital 25,282,496 735,292
Retained earnings 3,773,558 8,274,286
----------------------------------
Total stockholders' equity 29,103,481 9,032,578
----------------------------------
$78,223,268 $61,436,995
==================================
</TABLE>
The accompanyning notes to consolidated financial statements are
an integral part of these consolidated financial statements.
<PAGE>
SIMON TRANSPORTATION SERVICES INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Class A Class B Additional Total
Common Common Common Paid-in Retained Treasury Stockholders'
Stock Stock Stock Capital Earnings Stock Equity
------------------------------------------------------------------------------
Balance, September 30, 1993 $149,852 $ -- $ -- $ -- $5,611,880 $(25,764) $ 5,735,968
Distributions to -- -- -- (1,438,974) -- (1,438,974)
stockholders of S
corporation
Net Earnings -- -- -- 3,146,244 -- 3,146,244
------------------------------------------------------------------------------
Balance, September 30, 1994 149,852 -- -- -- 7,319,150 (25,764) 7,443,238
Distributions to -- -- (1,593,611) (1,593,611)
stockholders of S
corporation
Acquisition of Freight 160,000 -- -- 160,000
Sales, Inc. through
issuance of 22,308
shares of common stock
(Note 1)
Payment of notes payable 474,204 -- -- 474,204
to stockholders through
issuance of 66,225
shares of common stock
(Note 9)
Recapitalization of (784,056) 7,000 28,500 722,792 25,764 --
capital stock, 700,000
Class A shares and
2,850,000 Class B shares
of Common Stock issued
for 3,550,000 shares of
common stock (Note 1)
Pro rata contribution of (2,722) (9,778) 12,500 -- --
272,161 shares of
Class A Common Stock and
977,839 shares of
Class B Common Stock by
stockholders (Note 1)
Net Earnings -- -- 2,548,747 2,548,747
------------------------------------------------------------------------------
Balance, September 30, 1995 -- 4,278 18,722 735,292 8,274,286 -- 9,032,578
Distributions to (605,060) (605,060)
stockholders of S
corporation
Sale of Common Stock in 24,420 19,696,318 19,720,738
initial public offering,
net of issuance costs
Change in tax status 4,844,593 (4,844,593) --
Exercise of stock options 7 6,293 6,300
Net Earnings 948,925 948,925
------------------------------------------------------------------------------
Balance, September 30, 1996 $ -- $28,705 $18,722 $25,282,496 $3,773,558 $ -- $29,103,481
==============================================================================
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these consolidated financial statements.
<PAGE>
SIMON TRANSPORTATION SERVICES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C> <C>
For the Years Ended September 30,
--------------------------------------------------------
1996 1995 1994
--------------------------------------------------------
Cash Flows From Operating Activities:
Net earnings $ 948,925 $2,548,747 $3,146,244
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 5,919,494 7,222,887 6,856,673
Changes in assets and liabilities:
Increase in receivables, net (5,930,273) (477,913) (752,748)
Decrease (increase) in operating supplies 211,792 (166,726) (71,633)
Increase in prepaid expenses and other (885,547) (117,628) (22,397)
Increase in deferred tax asset (627,883) -- --
Decrease (increase) in other assets 180,828 (464,990) 99,225
Increase (decrease) in accounts payable 322,648 (577,613) 274,652
Increase in income taxes payable 2,191,984 -- --
Increase in accrued liabilities 489,298 17,700 326,248
Increase in accrued claims payable 305,769 277,903 498,654
Increase in deferred income taxes 3,880,653 -- --
--------------------------------------------------------
Net cash provided by operating activities 7,007,688 8,262,367 10,354,918
--------------------------------------------------------
Cash Flows From Investing Activities:
Purchase of property and equipment (23,149,090) (6,338,014) (8,332,284)
Proceeds from the sale of property and equipment 18,499,863 7,594,684 2,224,519
--------------------------------------------------------
Net cash (used in) provided by investing
activities (4,649,227) 1,256,670 (6,107,765)
--------------------------------------------------------
Cash Flows From Financing Activities:
Proceeds from issuance of long-term debt 19,666,814 3,764,916 13,553,287
Principal payments on long-term debt (12,775,333) (4,653,591) (10,818,948)
Net (payments) borrowings under line-of-credit agreement (4,279,741) 2,570,529 9,313
Principal payments under capitalized lease
obligations (18,871,127) (9,309,717) (5,779,042)
Net proceeds from issuance of Class A Common Stock 19,727,037 -- --
Distributions to stockholders (605,060) (1,593,611) (1,438,973)
--------------------------------------------------------
Net cash provided by (used in) financing activities 2,862,590 (9,221,474) (4,474,363)
--------------------------------------------------------
Net Increase (Decrease) In Cash 5,221,051 297,563 (227,210)
Cash at Beginning of Year 350,380 52,817 280,027
--------------------------------------------------------
Cash at End of Year $5,571,431 $ 350,380 $ 52,817
========================================================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest $2,847,583 $3,440,685 $3,150,503
Supplemental Schedule of Noncash Investing and
Financing Activities:
Equipment acquired through capitalized lease
obligations $5,784,405 $11,479,970 $4,379,060
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these consolidated financial statements.
<PAGE>
SIMON TRANSPORTATION SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) DESCRIPTION OF THE COMPANY, ACQUISITIONS, AND RECAPITALIZATION
Simon Transportation Services Inc. was incorporated in Nevada on August
15, 1995 to acquire all of the outstanding capital stock of Dick Simon Trucking,
Inc., a Utah corporation, through a transaction intended to qualify as a
transfer to a controlled corporation. The accompanying consolidated financial
statements present the consolidated financial position and results of operations
of Simon Transportation Services Inc. and Dick Simon Trucking, Inc., its wholly
owned subsidiary (collectively, the "Company"). All intercompany accounts and
transactions have been eliminated in consolidation.
The Company is a truckload carrier that specializes in premium service,
primarily through temperature-controlled transportation predominantly for major
shippers in the U.S. food industry.
R. D. Simon Trucking
Historically, the accompanying financial statements included the
combined accounts of Dick Simon Trucking, Inc. and R. D. Simon Trucking (the
"Affiliate"). The Affiliate was a sole proprietorship owned by Richard D. Simon,
the majority stockholder of the Company. The Affiliate leased tractors, trailers
and terminal and shop facilities to the Company.
On April 19, 1995, the Company entered into an exchange agreement with
its majority stockholder to acquire all of the assets and liabilities of the
Affiliate in exchange for 753,135 shares of Common Stock of the Company. In
exchange for the issuance of the common stock, the Company assumed ownership of
assets with an estimated fair value of approximately $8,500,000 and liabilities
of approximately $3,100,000.
The Company has accounted for the acquisition of the Affiliate as a
reorganization of entities under common control and, accordingly, the financial
statements for all periods presented have been adjusted to reflect the
combination of the entities at their historical bases.
Freight Sales, Inc.
In connection with the above mentioned exchange agreement, the Company
also acquired Freight Sales, Inc. ("Freight Sales"), a company owned by the
adult children of the majority stockholder of the Company, which children are
also minority stockholders of the Company. The Company issued 22,308 shares of
common stock in exchange for all of the outstanding stock of Freight Sales.
The Company has accounted for the acquisition of Freight Sales under
the purchase method of accounting and, accordingly, the acquired asset values of
$160,000 are presented in these financial statements as of the acquisition date
at their respective fair values in relation to the purchase price. No intangible
assets were recorded in this acquisition. As part of the transaction, Freight
Sales was merged into the Company and ceased to exist as a legal entity. The
Company has omitted the pro forma results of operations required by Accounting
Principles Board Opinion No. 16 because the transaction was immaterial to the
Company's consolidated financial statements.
Recapitalization
In August 1995, the Board of Directors approved a reverse stock split
of one-for-3.37 shares of common stock, and a recapitalization of the Company.
All references in the consolidated financial statements to the number of shares
of common stock have been restated to reflect this reverse stock split.
The post-recapitalization authorized capital stock for the Company
consists of 20,000,000 shares of $.01 par value Class A Common Stock with one
vote per share voting rights; 5,000,000 shares of $.01 par value Class B Common
Stock with two votes per share voting rights; and 5,000,000 shares $.01 par
value preferred stock. In connection with this recapitalization, the Company
issued 700,000 shares of Class A and 2,850,000 shares of Class B Common Stock in
exchange for all of the previously outstanding shares of common stock. All of
the Class B and 39,641 shares of Class A Common Stock were issued to the
majority stockholder of the Company.
On September 30, 1995, the Company's stockholders contributed on a pro
rata basis 272,161 shares of Class A and 977,839 shares of Class B Common Stock
to the Company. This contribution was made to reduce the number of shares of the
Company's common stock prior to its initial public offering. All contributed
shares were retired by the Company.
Immediately prior to the effective date of the Company's initial public
offering, the Company issued 427,839 shares of Class A and 1,872,161 shares of
Class B common stock of Simon Transportation Services Inc. to the existing
shareholders of Dick Simon Trucking, Inc. in exchange for all of the outstanding
capital stock of Dick Simon Trucking, Inc. in a transaction intended to qualify
as a transfer to a controlled corporation under Section 351 of the Internal
Revenue Code. This transaction was consummated on November 17, 1995, and
resulted in a capital stock structure identical to that reflected in the
accompanying September 30, 1995 consolidated balance sheet.
On November 17, 1995, the Company completed its initial public offering
of 2,441,968 shares of Class A Common Stock which generated net proceeds of
$19,720,738 after deducting underwriting commissions and other expenses. A
majority of the proceeds were used to pay off certain long-term debt (see Note
4).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expense during the reporting
period. Actual results could differ from these estimates.
Revenue Recognition and Significant Customers
Freight charges and related direct freight expenses are recognized as
revenue and operating expense when freight is delivered at a destination point.
One customer accounted for approximately 18, 19, and 15 percent of operating
revenue in fiscal years 1996, 1995, and 1994, respectively. At September 30,
1996, the Company had accounts receivable outstanding with this customer
totaling $1,793,808. Another customer accounted for approximately 12 and 17
percent of operating revenue in fiscal years 1995 and 1994, respectively.
Operating Supplies
Operating supplies consist primarily of tires, fuel and maintenance
parts for revenue equipment which are stated at the lower of first-in, first-out
(FIFO) cost or market value.
Property and Equipment
Property and equipment are recorded at cost and depreciated based on
the straight-line method over their estimated useful lives, taking into
consideration salvage values for purchased property and residual values for
equipment held under capitalized leases. Leasehold improvements are amortized
over the terms of the respective lease or the lives of the assets, whichever is
shorter.
Expenditures for routine maintenance and repairs are charged to
operating expense as incurred. Major renewals and betterments are capitalized
and depreciated over their estimated useful lives. Upon retirement or other
disposition of property and equipment, the cost and accumulated depreciation are
removed from the accounts, and any gain or loss is recorded as an adjustment to
depreciation and amortization. Net gains from the disposition of equipment in
the amounts of $2,447,765, $885,439, and $229,386 for the fiscal years ended
September 30, 1996, 1995, and 1994, respectively, have been included in
depreciation and amortization in the accompanying statements of earnings and
cash flows.
The estimated useful lives of property and equipment are as follows:
Revenue equipment 3 - 7 years
Buildings and improvements 30 years
Office furniture and equipment 5 - 8 years
Tires purchased as part of revenue equipment are capitalized as a cost
of the equipment. Replacement tires are expensed when placed in service.
Fair Value of Financial Instruments
The carrying amounts reported in the accompanying statements of
financial position for cash, accounts receivable, and accounts payable
approximate fair values because of the immediate or short-term maturities of
these financial instruments. The carrying amounts of the Company's long-term
debt also approximate fair values based on current rates for similar debt.
Insurance Coverage and Accrued Claims Payable
The Company acts as a self-insurer for auto liability, workers'
compensation, tractor physical damage, trailer physical damage, and cargo damage
claims up to $100,000, $100,000, $25,000, $10,000 and $10,000, respectively, per
single occurrence. Liability in excess of these amounts is assumed by the
insurance underwriter up to applicable policy limits. The Company maintains loss
prevention programs in an effort to minimize this risk.
The Company estimates and accrues a liability for its share of ultimate
settlements using all available information including the services of a
third-party insurance risk claims administrator to assist in establishing
reserve levels for each occurrence based on the facts and circumstances of the
occurrence coupled with the Company's past history of such claims. The Company
accrues for workers' compensation and automobile liabilities when reported,
typically the same day as the occurrence. Additionally, the Company accrues an
estimated liability for incurred but not reported claims. Expense depends upon
actual loss experience and changes in estimates of settlement amounts for open
claims which have not been fully resolved. The Company provides for adverse loss
developments in the period when new information so dictates.
The Company had outstanding letters of credit related to insurance
coverage totaling $950,000 at September 30, 1996. These letters of credit mature
at various times through November 1996 and renew annually unless terminated by
either party.
Recent Accounting Pronouncement
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" ("SFAS No. 121"). SFAS No. 121 is required to be adopted for fiscal years
beginning after December 15, 1995, with early adoption permitted. The effect
of implementing SFAS No. 121 is not expected to be material to the
Company's financial position and results of operations when adopted.
(3) INCOME TAXES
Effective October 1, 1990, Dick Simon Trucking, Inc. elected for
federal and state income tax purposes to include its taxable earnings with that
of its stockholders (an S corporation election). Accordingly, from that date to
November 16, 1995, the Company made no provision for income taxes in its
financial statements. The Company's policy was to make distributions to its
stockholders in amounts at least equal to the stockholders' income taxes that
were attributable to the net earnings of the Company. The Company recorded such
distributions when they were declared to the stockholders.
Concurrently with the acquisition of all of the capital stock of Dick
Simon Trucking, Inc. by Simon Transportation Services Inc. (see Note 1), the S
corporation status of the Company terminated and the Company became subject to
federal and state income taxes. Upon termination of the Company's S corporation
status, the Company recognized deferred income tax assets and liabilities in
accordance with Statement of Financial Accounting Standards No. 109 ("SFAS No.
109"), "Accounting for Income Taxes." The Company recorded, in accordance with
SFAS No. 109, a net deferred income tax liability and the related deferred
income tax expense in the quarter in which the change occurred. Additionally, in
connection with the termination of the S corporation election, the Company
reclassified its retained earnings to additional paid-in capital.
The provision for income taxes includes the following components for
the year ended September 30, 1996:
Current tax provision:
Federal $1,758,933
State 442,467
-----------------
2,201,400
-----------------
Deferred tax provision:
Federal 254,592
State 18,063
Net deferred tax liability upon
termination of S corporation status 2,980,115
-----------------
3,252,770
-----------------
Provision for income taxes $5,454,170
=================
The following is a reconciliation between the statutory Federal income
tax rate of 34 percent and the effective rate which is derived by dividing the
provision for income taxes by earnings before provision for income taxes:
Computed "expected" provision for income
taxes at the statutory rate $2,177,053
Increase (decrease) in income taxes
resulting from:
Net deferred tax liability upon
termination of S corporation status 2,980,115
State income taxes, net of federal income
tax benefit 303,950
Other, net (6,948)
-----------------
Provision for income taxes $5,454,170
=================
<PAGE>
The components of the net deferred income tax liability as of September
30, 1996, and November 17, 1995 (the date the S corporation status terminated)
are as follows:
<TABLE>
<S> <C> <C>
September 30, November 17,
1996 1995
------------------ ------------------
Deferred income tax assets:
Claims reserve $ 423,768 292,435
Other reserves and accruals 204,115 78,877
------------------ ------------------
Total deferred income tax assets 627,883 371,312
Deferred income tax liability:
Difference between book and tax basis
of property and equipment (3,880,653) (3,351,427)
------------------ ------------------
Net deferred income tax liability $ (3,252,770) $ (2,980,115)
================== ==================
</TABLE>
(4) LONG-TERM DEBT
Long-term debt consists of the following and the construction loan discussed in
Note 5:
<TABLE>
<S> <C> <C>
September 30,
--------------------------------------
1996 1995
--------------------------------------
Notes payable to a bank, interest ranging from 6.24 percent to 7.20 percent, $12,331,568 $
payable in monthly installments through April 2001, secured by revenue --
equipment
Note payable to a bank, interest at LIBOR plus 1.1 percent (6.48 percent at 1,816,874 --
September 30, 1996), payable in monthly installments through May 2001,
secured by revenue equipment
Notes payable to a finance company, interest ranging from LIBOR plus 1.75 to -- 4,310,763
2.75 percent (7.53 to 8.53 percent at September 30, 1995), secured by
revenue equipment and land, paid in full during fiscal year 1996
Notes payable to a finance company, interest at a variable rate based on the -- 2,571,969
30-day commercial paper rate plus 2.75 percent (8.7 percent at
September 30, 1995), secured by revenue equipment, paid in full during
fiscal year 1996
Notes payable to a bank, interest ranging from prime plus .75 to 1 percent -- 1,395,846
(9.50 to 9.75 percent at September 30, 1995), secured by land and
buildings, paid in full during fiscal year 1996
Notes payable to a finance company, interest at prime plus .35 percent (9.10 -- 1,039,181
percent at September 30, 1995), secured by revenue equipment, paid in
full during fiscal year 1996
Notes payable to a bank, interest ranging from prime plus .25 to .75 percent -- 1,037,671
(9 to 9.5 percent at September 30, 1995), secured by revenue equipment
, office equipment and land, paid in full during fiscal year 1996
Notes payable to a bank, interest rates ranging from 7.20 to 8.25 percent, 7,126 416,258
payable in monthly installments through October 1996, secured by
revenue equipment
Line-of-credit totaling $7,500,000 at September 30, 1995, interest at LIBOR -- 4,279,470
plus 2 percent (7.78 percent at September 30, 1995) secured by
accounts receivable, paid in full during fiscal year 1996
Other -- 662,547
--------------------------------------
14,155,568 15,713,705
Less current portion (2,892,300) (8,577,770)
--------------------------------------
$11,263,268 $ 7,135,935
======================================
</TABLE>
Scheduled principal payments of long-term debt are as follows:
Years Ending September 30, Amount
- ------------------------------------------------------ -------------------
1997 $ 2,892,300
1998 2,997,601
1999 3,178,059
2000 3,371,044
2001 1,716,564
-------------------
$ 14,155,568
===================
<PAGE>
(5) CONSTRUCTION LOAN AND LINE OF CREDIT
The Company has entered into a construction loan agreement with a bank
to finance the construction of a new headquarters, shop, terminal and driver
recruitment and orientation center. The agreement provides a $10 million credit
facility that will convert to a term loan upon completion of the facility. Until
construction is completed, no payments are due and all accrued interest is added
to the loan balance. As of September 30, 1996, the Company had borrowed
$4,169,877 under the agreement.
The construction loan contains various restrictive covenants including
maximum debt to tangible net worth and minimum tangible net worth requirements.
As of September 30, 1996, the Company was in compliance with all covenants under
the construction loan agreement.
The Company has an unsecured line of credit for $5,000,000. As of
September 30, 1996, the Company had not drawn on this line of credit.
(6) CAPITALIZED LEASE OBLIGATIONS
Certain revenue equipment is leased under capitalized lease
obligations. The following is a summary of assets held under capital lease
agreements:
September 30,
----------------------------------------------
1996 1995
----------------------------------------------
Revenue equipment $ 28,823,541 $ 48,678,031
Less accumulated amortization (7,313,862) (14,433,957)
----------------------------------------------
$ 21,509,679 $ 34,244,074
==============================================
The following is a schedule by year of future minimum lease payments
under capitalized leases together with the present value of the minimum lease
payments at September 30, 1996:
Years Ending September 30, Amount
- --------------------------------------------------- --------------------
1997 $ 4,869,050
1998 8,195,453
1999 3,340,570
2000 3,463,770
2001 1,843,795
--------------------
Total minimum lease payments 21,712,638
Less amount representing interest (2,610,094)
--------------------
Present value of minimum lease payments 19,102,544
Less current portion (3,760,251)
--------------------
$ 15,342,293
====================
(7) COMMITMENTS
Operating Leases
The Company is committed under noncancelable operating leases involving
certain revenue equipment. Rent expense for noncancelable operating leases was
$3,997,352, $2,562,440, and $3,153,238 for fiscal years 1996, 1995, and 1994,
respectively. Aggregate future lease commitments are $11,483,479, $11,406,441,
$8,359,297, $2,548,065 and $2,153,511 for the years ending September 30, 1997,
1998, 1999, 2000 and 2001, respectively.
<PAGE>
Orders for Revenue Equipment
As of September 30, 1996, the Company had placed orders for fiscal
years 1997 and 1998 to purchase revenue equipment at an estimated total purchase
price of $77,000,000. The revenue equipment is to be delivered during fiscal
years 1997 and 1998. Approximately $21,000,000 of the new revenue equipment will
be used to replace older revenue equipment and the balance represents
incremental additions to the Company's fleet. These orders may be canceled by
the Company without penalty upon written notification any time prior to 85 days
before the revenue equipment's scheduled delivery.
(8) STOCK PLANS
Incentive Stock Plan
On May 31, 1995, the Board of Directors and stockholders approved and
adopted the Dick Simon Trucking, Inc. Incentive Stock Plan (the "Plan"). The
Plan reserves 400,000 shares of Class A Common Stock for issuance thereunder.
The Board of Directors or its designated committee administers the Plan and has
the discretion to determine the employees and officers who will receive awards,
the type of awards (incentive stock options, non-statutory stock options,
restricted stock awards, reload options, other stock based awards, and other
benefits) to be granted and the term, vesting provisions and exercise prices.
Outside Director Stock Plan
On August 16, 1995, the Company adopted an Outside Director Stock Plan,
under which each director who is not an employee of the Company will receive an
annual option to purchase 1,000 shares of the Company's Class A Common Stock at
85% of the market price at the end of the month immediately the grant date,
except for 1995, in which the exercise price was $9.00. The Company has reserved
25,000 shares of Class A Common Stock for issuance under the Outside Director
Stock Plan.
The following table summarizes the combined stock option activity for
both plans from inception of the plans through the year ended September 30,
1996:
Number of Price Per Share
Options
---------------- -----------------
Outstanding at September 30, 1994 --
Granted 230,900 $ 9.00
---------------- -----------------
Outstanding at September 30, 1995 230,900 $ 9.00
Granted 3,000 $ 9.00
Exercised (700) $ 9.00
Forfeited (5,500) $ 9.00
---------------- -----------------
Outstanding at September 30, 1996 227,700 $ 9.00
================ =================
As of September 30, 1996, approximately 44,700 options are exercisable.
Executive Bonuses
On May 3, 1996, the Board of Directors approved an executive bonus
program whereby 5 percent of earnings before provision for income taxes will be
distributed to executive officers as bonuses. The executive bonus program will
be effective beginning in fiscal year 1997.
<PAGE>
(9) RELATED PARTY TRANSACTIONS
Historically the Company maintained life insurance policies on certain
officers (other than Richard D. Simon) and an employee. The Company was named as
the beneficiary under each of the policies. The cash surrender value for each
policy accrued to the insured officer or employee. During February 1995, the
Company canceled the policies and issued notes payable totaling $475,000 to the
insured individuals for the amount of the cash surrender value of the policies.
During April 1995, the Company issued 66,225 shares of common stock to these
individuals as satisfaction of the notes payable.
During fiscal years 1995 and 1994 the Company paid lease payments of
$30,000 and $90,000, respectively, to Freight Sales.
Prior to the reorganization described in Note 1, the Company leased
certain real estate and revenue equipment from the Affiliate. During fiscal
years 1995 and 1994, the Company paid rent of approximately $532,000 and
$912,000 to the Affiliate. All such amounts have been eliminated in the
accompanying consolidated financial statements because of related ownership and
the single purpose of the entities.
(10) EMPLOYEE BENEFIT PLAN
The Company has adopted a defined contribution plan, the Dick Simon
Trucking, Inc. 401(k) Profit Sharing Plan (the "401(k) Plan"). All employees who
have completed one year of service and have reached age 21 are eligible to
participate in the 401(k) Plan. Newly eligible employees may first begin
participating in the 401(k) Plan on the earlier of January 1 or July 1 after
meeting the eligibility requirements. Under the 401(k) Plan, employees are
allowed to make contributions of up to 15 percent of their annual compensation;
the Company may make matching contributions equal to a discretionary percentage,
to be determined by the Company, of the employee's salary reductions. The
Company may also make additional discretionary contributions to the 401(k) Plan.
All amounts contributed by a participant are fully vested at all times. The
participant becomes 20 percent vested in any matching or discretionary
contributions after two years of service. This vesting percentage increases to
100 percent after six years of service. During fiscal years 1996, 1995, and
1994, the Company contributed $192,389, $141,240, and $94,500, respectively, to
the 401(k) Plan.
(11) PRO FORMA INFORMATION (UNAUDITED)
Pro Forma Provision for Income Taxes
Contemporaneously with the November 17, 1995 effective date of the
Company's initial public offering, the S corporation stockholders terminated
their S corporation election. Accordingly, the pro forma provision for income
taxes has been determined in accordance with SFAS No. 109, assuming the Company
had been taxed as a C corporation for federal and state income tax purposes
using an effective income tax rate of 39.6 percent. The pro forma provision for
income taxes does not reflect the $2,980,115 charge to earnings for deferred
taxes the Company recorded upon termination of its S corporation status.
Pro Forma Net Earnings Per Common Share and Weighted Average Common Shares
Outstanding
As discussed in Note 1, in 1995, the Company recapitalized its capital
stock. Accordingly, the historical presentation of net earnings per common share
would not present a meaningful comparison due to the recapitalization. However,
pro forma net earnings per common share is reflected in the accompanying
consolidated financial statements in order to present net earnings per common
share as if the recapitalization, contribution of Common Stock, and all Common
Stock issuances through September 30, 1995 had been effective for all periods
presented.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Simon Transportation Services Inc.:
We have audited the accompanying consolidated statements of financial
position of Simon Transportation Services Inc. (a Nevada corporation) and
subsidiary as of September 30, 1996 and 1995 and the related consolidated
statements of earnings, stockholders' equity, and cash flows for each of the
three years in the period ended September 30, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these 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 financial statements referred to above present
fairly, in all material respects, the financial position of Simon Transportation
Services Inc. and subsidiary as of September 30, 1996 and 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended September 30, 1996 in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Salt Lake City, Utah
October 11, 1996
As independent public accountants, we hereby consent to the
incorporation of our report dated October 11, 1996 included in this Form 10-K,
into the Company's previously filed Registration Statement on Form S-8 File No.
33-80391.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
October 31, 1996
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 5,571,431
<SECURITIES> 0
<RECEIVABLES> 13,327,974
<ALLOWANCES> (66,000)
<INVENTORY> 0
<CURRENT-ASSETS> 2,358,498
<PP&E> 73,103,929
<DEPRECIATION> (16,390,209)
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<CURRENT-LIABILITIES> 14,463,696
<BONDS> 0
0
0
<COMMON> 47,427
<OTHER-SE> 29,056,054
<TOTAL-LIABILITY-AND-EQUITY> 78,223,268
<SALES> 0
<TOTAL-REVENUES> 101,089,530
<CGS> 0
<TOTAL-COSTS> 9,160,619
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