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, 1997
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
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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 (I.R.S. Employer Identification No.)
of Incorporation or Organization)
5175 West 2100 South West Valley City, Utah 84120
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 801/924-7000
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
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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 $99,881,340 as of October 31, 1997 (based upon the $22 1/4 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, 1997, the registrant had 5,320,713 shares of Class A Common
Stock and 962,661 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 1997 annual meeting of
stockholders that will be filed no later than January 28, 1998.
<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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<S> <C> <C>
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 Registrant's Common Equity and
Related Stockholder Matters Page 9 herein
Item 6 Selected Financial and Operating Data Page 10 herein
Item 7 Management's Discussion and Analysis of Financial Pages 11 - 16 herein
Condition and Results of Operations
Item 8 Financial Statements and Supplementary Data Page 17 herein
Item 9 Changes in and Disagreements with Accountants on Page 17 herein
Accounting and Financial Disclosure
Part III
Item 10 Directors and Executive Officers of the Registrant Pages 2, 3 and 4 of Proxy Statement
Item 11 Executive Compensation Pages 5, 6 and 7 of Proxy Statement
Item 12 Security Ownership of Certain Beneficial Owners and Page 9 of Proxy Statement
Management
Item 13 Certain Relationships and Related Transactions Page 4 of Proxy Statement
Part IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Pages 18 - 34 herein
Form 8-K
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This report contains "forward-looking" statements in paragraphs marked with an
asterisk. These statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those anticipated. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations Cautionary Statement Regarding Forward-Looking Statements" for
additional information and factors to be considered concerning forward-looking
statements.
<PAGE>
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
________________________________________________
(*) May contain "forward-looking" statements.
<PAGE>
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. 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 a 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
________________________________________________
(*) May contain "forward-looking" statements.
<PAGE>
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
38.2%, 51.0%, and 66.9% of revenue, respectively, during fiscal 1997, with
Nestle (including Nestle's Stouffer's and Friskie's units) accounting for 11.6%
of revenue. No other customer accounted for more than 10% of revenue during the
fiscal year.
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 does not maintain any foreign
currency positions and therefore does not engage in any hedging transactions to
manage foreign currency exposure. 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 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.
<PAGE>
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. The Company's driver
turnover was 86% in fiscal 1997, measuring drivers after they are assigned a
tractor.
At September 30, 1997, Simon Transportation employed approximately 500
non-driver employees and approximately 1,500 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 1997 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
<PAGE>
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 1997 fiscal year revenue constituted approximately two
percent of the total market for temperature-controlled services and
approximately four 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 or fuel surcharges.
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 new headquarters and primary terminal is
located on fifty-five acres near the intersection of Interstates 15 and 80 in
Salt Lake City, Utah. This facility includes a 60,000 square foot office
building housing all operations and administrative personnel, and maintenance
facilities and a driver center covering approximately 97,000 square feet. The
Company's additional terminal and driver recruitment facilities include owned
locations in Phoenix, Arizona; Fontana, California; and Atlanta, Georgia; and
leased locations in Katy, Texas; and Portland, Oregon. The Company leases
trailer drop yards at Tulare, California and various customer locations. All
terminals except the Atlanta office and the Katy office have modern fuel
facilities with environmental monitoring equipment.
The Company completed construction of its new headquarters, shop,
terminal, and driver center during fiscal year 1997. The available acreage will
<PAGE>
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, 1997,
no matters were submitted to a vote of security holders.
<PAGE>
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, 1997.
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
4th Quarter $ 17 1/4 $ 13 3/4
Calendar Year 1997
1st Quarter $ 18 1/8 $ 15
2nd Quarter $ 20 1/2 $ 16 1/2
3rd Quarter $ 23 7/8 $ 19
The prices reported reflect interdealer quotations without retail
mark-ups, mark-downs or commissions, and may not represent actual transactions.
As of October 31, 1997, the Company had 76 stockholders of record of its common
stock. However, the Company believes that it has approximately 1,500 beneficial
holders of common stock including shares 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.
<PAGE>
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.
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<CAPTION>
Fiscal Years Ended September 30,
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<S> <C> <C> <C> <C> <C>
(In thousands, except per share amounts & operating 1997 1996 1995 1994 1993
data) ---- ---- ---- ---- ----
Statement of Earnings Data:
Operating revenue................................. $155,296 $101,090 $ 75,218 $ 71,691 $ 57,694
--------------------------------------------------------------
Operating expenses:
Salaries, wages, and benefits................... 60,504 40,015 28,035 25,949 21,990
Fuel and fuel taxes............................. 30,069 20,359 14,115 14,363 11,629
Operating supplies and expenses................. 19,289 13,701 10,839 8,978 6,111
Taxes and licenses.............................. 5,197 3,288 2,756 2,558 2,291
Insurance and claims............................ 3,404 2,172 2,003 1,995 1,600
Communications and utilities.................... 2,550 1,680 1,245 1,274 927
Depreciation and amortization................... 5,396 5,920 7,223 6,857 4,781
Rent............................................ 17,143 4,794 2,926 3,435 3,422
--------------------------------------------------------------
Total operating expenses...................... 143,552 91,929 69,142 65,409 52,751
--------------------------------------------------------------
Operating earnings............................ 11,744 9,161 6,076 6,282 4,943
Gain on sale of real property............... 1,896 -- -- -- --
Interest expense and other, net................... (1,134) (2,758) (3,527) (3,136) (2,559)
--------------------------------------------------------------
Earnings before provision for income 12,506 6,403 2,549 3,146 2,384
taxes..........
Provision for income taxes1....................... 4,727 5,454 -- -- --
--------------------------------------------------------------
Net earnings...................................... $ 7,779 $ 949 $ 2.549 $ 3,146 $ 2,384
==============================================================
Pro Forma Statement of Earnings Data: (1)
Earnings before provision for income $ 12,506 $ 6,403 $ 2.549 $ 3,146 $ 2,384
taxes..........
Provision for income taxes........................ 4,727 2,536 1,010 1,246 944
--------------------------------------------------------------
Net earnings...................................... $ 7,779 $ 3,867 $ 1,539 $ 1,900 $ 1,440
==============================================================
Net earnings per common share..................... $ 1.36 $ 0.88 $ 0.67 $ 0.83 $ 0.63
==============================================================
Weighted average shares outstanding............... 5,707,642 4,417,643 2,300,000 2,300,000 2,300,000
Balance Sheet Data (at end of period):
Net property and equipment........................ $71,154 $56,714 $52,200 $49,039 $45,409
Total assets...................................... 107,704 78,223 61,437 56,752 52,601
Long-term debt and capitalized
leases, including current 32,791 37,428 47,903 44,525 43,181
portion.........................................
Stockholders' equity.............................. 59,849 29,103 9,033 7,443 5,736
Operating Data:
Operating ratio(2)................................ 92.4% 90.9% 91.9% 91.2% 91.4%
Average revenue per loaded mile................... $1.25 $1.24 $1.26 $1.23 $1.23
Average revenue per total mile.................... $1.10 $1.10 $1.11 $1.10 $1.07
Average revenue per tractor per week.............. $2,627 $2,526 $2,417 $2,489 $2,471
Empty miles percentage............................ 11.9% 11.7% 11.3% 10.7% 12.6%
Average length of haul in miles................... 1,001 984 949 725 677
Weighted average tractors during period........... 1,142 774 598 554 449
Tractors at end of period......................... 1,344 940 623 570 523
Trailers at end of period......................... 1,998 1,430 877 873 745
<FN>
(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. The provision for income taxes for fiscal 1996 includes the
one-time, non-cash charge of $2,980,115. 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.
</FN>
</TABLE>
<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 $155.3 million in revenue for its fiscal year ended
September 30, 1997, from $57.7 million in revenue for fiscal 1993, a compounded
annual growth rate of 28.1%. During the same period, operating earnings
increased to $11.7 million from $4.9 million, a compounded annual growth rate of
24.2%.
During fiscal years 1994 and 1995, the Company financed most of its
tractors and trailers with debt and capitalized leases. In the 1996 and 1997
fiscal years, 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
37.8% for fiscal year 1997 and a combined rate of 39.6% for fiscal years 1993
through 1996. 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 during fiscal year 1996 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>
<CAPTION>
Fiscal Years Ended
September 30,
<S> <C> <C> <C>
---------------------------------
1997 1996 1995
---------- ----------------------
Operating revenue.............................................................. 100.0% 100.0% 100.0%
Operating expenses:
Salaries, wages, and benefits................................................ 39.0 39.6 37.3
Fuel and fuel taxes.......................................................... 19.4 20.1 18.8
Operating supplies and expenses.............................................. 12.4 13.6 14.4
Taxes and licenses........................................................... 3.3 3.3 3.6
Insurance and claims......................................................... 2.2 2.1 2.7
Communications and utilities................................................. 1.6 1.6 1.6
Depreciation and amortization................................................ 3.5 5.9 9.6
Rent......................................................................... 11.0 4.7 3.9
---------- ----------------------
Total operating expenses 92.4 90.9 91.9
---------- ----------------------
Operating earnings............................................................. 7.6 9.1 8.1
Gain on sale of real property................................................... 1.2 -- --
Interest expense and other, net................................................ (0.7) (2.8) (4.7)
---------- ----------------------
Earnings before provision for income taxes..................................... 8.1 6.3 3.4
Pro forma provision for income taxes........................................... (3.1) (2.5) (1.4)
---------- ----------------------
Pro forma net earnings......................................................... 5.0% 3.8% 2.0%
========== ======================
</TABLE>
<PAGE>
Comparison of fiscal year ended September 30, 1997, with fiscal year ended
September 30, 1996.
Operating revenue increased $54.2 million (53.6%), to $155.3 million
during the 1997 fiscal year from $101.1 million during the 1996 fiscal year. The
increase in revenue was primarily attributable to a 47.5% increase in the
weighted average number of tractors, to 1,142 during the 1997 fiscal year from
774 during the 1996 fiscal year, an increase in the average revenue per tractor
per week to $2,627 during the 1997 fiscal year from $2,526 during the 1996
fiscal year, and an increase in the Company's average revenue per loaded mile to
$1.25 during the 1997 fiscal year from $1.24 during the 1996 fiscal year. These
increases were partially offset by an increase in empty miles percentage to
11.9% during the 1997 fiscal year from 11.7% during the 1996 fiscal year.
Salaries, wages and benefits increased $20.5 million (51.3%), to $60.5
million in the 1997 fiscal year from $40.0 million in the 1996 fiscal year. As a
percentage of revenue, salaries, wages, and benefits decreased to 39.0% of
revenue during the 1997 fiscal year from 39.6% during the 1996 fiscal year. The
change is primarily attributable to a decrease in the ratio of administrative
personnel to driving personnel and reduced workers' compensation premiums.
Fuel and fuel taxes increased $9.7 million (47.5%), to $30.1 million
in the 1997 fiscal year from $20.4 million in the 1996 fiscal year. As a
percentage of revenue, fuel and fuel taxes decreased to 19.4% of revenue during
the 1997 fiscal year from 20.1% during the 1996 fiscal year as a result of a
decrease in fuel prices. The decrease in fuel expense as a percentage of
revenue also was aided by an overall increase in the fuel efficiency of the
Company's fleet.
Operating supplies and expenses increased $5.6 million (40.9%), to
$19.3 million in the 1997 fiscal year from $13.7 million in the 1996 fiscal
year. As a percentage of revenue, operating supplies and expenses decreased
to 12.4% of revenue during the 1997 fiscal year, from 13.6% during the 1996
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. Most tractors are now covered by three-year,
500,000-mile warranties.
Taxes and licenses increased $1.9 million (57.6%), to $5.2 million
in the 1997 fiscal year from $3.3 million in the 1996 fiscal year. As a
percentage of revenue, taxes and licenses remained constant at 3.3% of
revenue during the 1997 and 1996 fiscal years.
Insurance and claims increased $1.2 million (54.5%), to $3.4 million
in the 1997 fiscal year from $2.2 million in the 1996 fiscal year. As a
percentage of revenue, insurance and claims remained essentially unchanged at
2.2% of revenue during the 1997 fiscal year compared to 2.1% during the 1996
fiscal year.
Communications and utilities increased $870,000 (51.8%), to $2.6
in the 1997 fiscal year from $1.7 million in the 1996 fiscal year. As a
percentage of revenue, communications and utilities remained essentially
unchanged at 1.6% of revenue during the 1997 and 1996 fiscal years.
Depreciation and amortization decreased $523,000 (8.8%), to $5.4
million in the 1997 fiscal year from $5.9 million in the 1996 fiscal year. As a
percentage of revenue, depreciation and amortization (adjusted for the net gain
on sale of equipment) decreased to 3.5% of revenue during the 1997 fiscal year
from 5.9% during the 1996 fiscal year. Depreciation and amortization (unadjusted
for the net gain on sale of equipment) decreased to 4.5% of revenue ($7.0
million) during the 1997 fiscal year from 8.3% of revenue ($8.4 million) during
the 1996 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 $1.6 million net gain on the
sale of revenue equipment during the 1997 fiscal year compared with a $2.4
million net gain during the 1996 fiscal year.
Rent increased $12.3 million (256.3%), to $17.1 million in the 1997
fiscal year from $4.8 million in the 1996 fiscal year. As a percentage of
revenue, rent increased to 11.0% of revenue during the 1997 fiscal year from
4.7% during the 1996 fiscal year as the Company added new equipment and
replaced equipment that had been financed under capital lease arrangements
with equipment financed under operating leases. The Company has utilized
operating leases in the most recent year because of more favorable terms. If
<PAGE>
the Company continues to use operating lease financing, its operating ratio
may be affected in future periods because the implied financing costs of such
equipment are included as operating expenses instead of interest expense.
As a result of the foregoing, the Company's operating ratio increased
to 92.4% during the 1997 fiscal year from 90.9% during the 1996 fiscal year.
The Company realized a gain of $1,896,025 on the sale of its former
headquarter facilities during the 1997 fiscal year. This non-recurring
transaction increased earnings before provision for income taxes by 1.2% of
revenue during the period.
Interest expense and other, net decreased $1.7 million (60.7%), to $1.1
million in the 1997 fiscal year from $2.8 million in the 1996 fiscal year. As a
percentage of revenue, interest expense and other, net decreased to 0.7% of
revenue during the 1997 fiscal year from 2.8% during the 1996 fiscal year. This
resulted from application of $13.3 million in net proceeds from the Company's
secondary public offering to purchase revenue equipment, a decrease in the
Company's average interest rate in the 1997 fiscal year compared with the 1996
fiscal year, and an increase in the percentage of the Company's tractor and
trailer fleets being obtained through operating leases.
The Company's effective combined federal and state income tax rate for
the 1997 fiscal year was 37.8%, compared with an estimated combined federal and
state income tax rate of 39.6% used for fiscal year 1996.
As a result of the factors described above, pro forma net earnings
increased $3.9 million (100.0%) to $7.8 million ($6.6 million excluding the gain
on the sale of the Company's former headquarters) during the 1997 fiscal year
from $3.9 million during the 1996 fiscal year. As a percentage of revenue, pro
forma net earnings increased to 5.0% (4.2% of revenue excluding the gain on the
sale of the Company's former headquarters) of revenue in the 1997 fiscal year
from 3.8% in the 1996 fiscal year.
Comparison of fiscal year ended September 30, 1996, with fiscal year ended
September 30, 1995.
Operating revenue increased $25.9 million (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 $12.0 million (42.9%), to $40.0
million in the 1996 fiscal year from $28.0 million in the 1995 fiscal year. As a
percentage of revenue, 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 $6.3 million (44.7%), to $20.4 million
in the 1996 fiscal year from $14.1 million in the 1995 fiscal year. As a
percentage of revenue, 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.
<PAGE>
Operating supplies and expenses increased $2.9 million (26.9%), to
$13.7 million in the 1996 fiscal year from $10.8 million in the 1995 fiscal
year. As a percentage of revenue, 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 increased $531,000 (19.3%), to $3.3 million in the
1996 fiscal year from $2.8 million in the 1995 fiscal year. As a percentage of
revenue, 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 increased $169,000 (8.4%), to $2.2 million in the
1996 fiscal year from $2.0 million in the 1995 fiscal year. As a percentage of
revenue, 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 increased $435,000 (34.9%), to $1.7 in the
1996 fiscal year from $1.2 million in the 1995 fiscal year. As a percentage of
revenue, communications and utilities remained constant at 1.6% of revenue
during the 1996 and 1995 fiscal years.
Depreciation and amortization decreased $1.3 million (18.0%), to $5.9
million in the 1996 fiscal year from $7.2 million in the 1995 fiscal year. As a
percentage of revenue, 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 $1.9 million (65.5%), to $4.8 million in the 1996 fiscal
year from $2.9 million in 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 $769,000 (21.8%), to $2.8
million in the 1996 fiscal year from $3.5 million in the 1995 fiscal year. As a
percentage of revenue, 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 $2.4 million (160.0%), to $3.9 million during the 1996 fiscal year
from $1.5 million during the 1995 fiscal year. As a percentage of revenue,
pro forma net earnings increased to 3.8% of revenue in the 1996 fiscal year
from 2.0% in the 1995 fiscal year.
<PAGE>
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 $7.9 million, $7.0
million, and $8.3 million, for the fiscal years ended September 30, 1997, 1996,
and 1995, respectively. The Company's principal use of cash from operations is
to service debt and capitalized leases incurred to purchase new revenue
equipment and internally finance accounts receivable associated with growth in
the business. Accounts receivable increased $6,362,000, $5,930,000, and
$478,000 for the fiscal years ended September 30, 1997, 1996, and 1995,
respectively. The average age of the Company's accounts receivable was 41,
39, and 36 days for the fiscal years ended September 30, 1997, 1996, and
1995, respectively.
Net cash (used in) provided by investing activities was ($19.0
million), ($4.6 million), and $1.3 million for the fiscal years ended September
30, 1997, 1996, and 1995, respectively, and consisted of net purchases of
property and equipment. The Company expects capital expenditures (primarily
for revenue equipment, and satellite communications units), net of revenue
equipment trade-ins, to be approximately $104 million in 1998 and 1999. The
Company's projected capital expenditures will be funded mostly with operating
leases, borrowings and cash flows from operations.
Net cash provided by (used in) financing activities was $18.3 million,
$2.9 million, and ($9.2 million) for the fiscal years ended September 30, 1997,
1996, and 1995, respectively, and consisted primarily of approximately $23.0
million in net proceeds from the Company's February 1997 secondary public
offering, $19.7 million in net proceeds from the Company's November 1995 initial
public offering, net payments on borrowings of $4.6 million, $12.0 million, and
$10.2 million of principal under the Company's long-term debt and capitalized
lease agreements and net payments (borrowings) of $0, $4.3 million, and ($2.6
million) under the Company's line of credit. In addition, the Company paid S
Corporation dividends to its stockholders of $605,000 and $1.6 million for the
fiscal years ended September 30, 1996, and 1995, respectively.
The maximum amount committed under the Company's line of credit at
September 30, 1997 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, 1997, the Company had outstanding long-term debt and capitalized
lease obligations (including current portions) of approximately $32.8 million,
most of which comprised obligations for the purchase of revenue equipment. See
Notes 4, 5 and 6 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, 1997 and 1996 was $15.9 million and $6.7
million, respectively. The Company's working capital deficit amounted to
$16.7 million at September 30, 1995. 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 1998.
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.
<PAGE>
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 and fuel surcharges.
Cautionary Statement Regarding Forward Looking Statements
The Company may from time-to-time make written or oral forward-
looking statements. Written forward-looking statements may appear in documents
filed with the Securities and Exchange Commission, in press releases, and in
reports to stockholders. The Private Securities Litigation Reform Act of 1995
contains a safe harbor for forward-looking statements. The Company relies on
this safe harbor in making such disclosures. In connection with this "safe
harbor" provision, the Company is hereby identifying important factors that
could cause actual results to differ materially from those contained in any
forward-looking statement made by or on behalf of the Company. Factors that
might cause such a difference include, but are not limited to the following:
Economic Factors; Fuel Prices. Negative economic factors such as
recessions, downturns in customers' business cycles, surplus inventories,
inflation, and higher interest rates could impair the Company's operating
results by decreasing equipment utilization or increasing costs of operations.
Increases in fuel prices usually are not fully recoverable. Accordingly, high
fuel prices can have a negative impact on the Company's profitability.
Recruitment, Retention, and Compensation of Qualified Drivers.
Competition for drivers is intense in the trucking industry. There is, and
historically has been, an industry-wide shortage of qualified drivers. This
shortage could force the Company to significantly increase the compensation
it pays to drivers or curtail the Company's growth.
Delay in Delivery of Revenue Equipment. The Company has scheduled
delivery of approximately 1,400 tractors during the next two years. The
inability of revenue equipment manufacturers to make delivery as scheduled
could impede the Company's ability to meet customer demands for revenue
equipment and force the Company to retain its present fleet of revenue equipment
for a longer period of time with potential higher operating expenses associated
with an older fleet.
<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 21 to 34
of this report. The supplementary quarterly financial data (unadjusted for the
pro forma effects of income taxes as if the Company had always been a C
corporation) follow:
Quarterly Financial Data:
<TABLE>
<S> <C> <C> <C> <C>
Fourth Quarter Third Quarter Second Quarter First Quarter
1997 1997 1997 1997
------------------ ---------------- ------------------- ----------------
Revenue $44,175 $41,191 $35,765 $34,166
Operating earnings 3,571 3,278 2,462 2,433
Earnings before taxes 3,375 4,919 2,225 1,987
Income taxes 1,276 1,859 841 751
Net earnings 2,099 3,060 1,384 1,236
Net earnings per share $ 0.33 $ 0.49 $ 0.25 $ 0.26
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)
</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, 1997, involving a change of accountants or disagreements
on accounting and financial disclosure.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information respecting executive officers and directors set forth
under the captions "Election of Directors - Information Concerning Directors and
Executive Officers" and "Section 16(a) Beneficial Ownership Reporting
Compliance" on pages 3, 4, and 7 of Registrant's Proxy Statement for the 1997
annual meeting of stockholders, which will be filed with the Securities and
Exchange Commission in accordance with Rule 14a-6 promulgated under the
Securities Exchange Act of 1934, as amended (the "Proxy Statement"), is
incorporated by reference.
Item 11. EXECUTIVE COMPENSATION
The information respecting executive compensation set forth under the
caption "Executive Compensation" on pages 5 and 6 of the Proxy Statement is
incorporated herein by reference; provided, that the "Compensation Committee
Report on Executive Compensation" contained in the Proxy Statement is not
incorporated by reference.
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information respecting security ownership of certain beneficial
owners and management set forth under the caption "Security Ownership of
Principal Stockholders and Management" on page 9 of the Proxy Statement is
incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information respecting certain relationships and transactions of
management set forth under the captions "Compensation Committee Interlocks and
Insider Participation" and "Certain Transactions" on page 4 of the Proxy
Statement is incorporated herein by reference.
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......................................... 21
Consolidated Statement of Financial Position............................... 22
Consolidated Statements of Stockholders' Equity............................ 23
Consolidated Statements of Cash Flows...................................... 24
Notes to Consolidated Financial Statements................................. 25
Report of Independent Public Accountants................................... 34
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, 1997.
<PAGE>
(c) Exhibits
Number Description
1 + Form of Underwriting Agreement.
3.1 + Articles of Incorporation.
3.2 + Bylaws.
4.1 + Articles of Incorporation.
4.2 + Bylaws.
10.2+ Outside Director Stock Option Plan.
10.3+ Incentive Stock Plan.
10.4+ 401(k) Plan.
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
Transportation 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.
27 Financial Data Schedule
+ 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 18, 1997 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>
<CAPTION>
Signature Position Date
--------- -------- ----
<S> <C> <C>
/s/ Richard D. Simon Chairman of the Board, President, and Chief November 18, 1997
- -------------------------------------- Executive Officer (principal executive officer)
Richard D. Simon
/s/ Alban B. Lang Treasurer and Chief Financial Officer November 18, 1997
- -------------------------------------- (principal financial and accounting officer);
Alban B. Lang Director
/s/ Kelle A. Simon Vice President of Maintenance; Director November 18, 1997
- --------------------------------------
Kelle A. Simon
/s/ A. Lyn Simon Vice President of Sales; Director November 18, 1997
- --------------------------------------
A. Lyn Simon
/s/ Richard D. Simon, Jr. Vice President of Operations; Director November 18, 1997
- --------------------------------------
Richard D. Simon, Jr.
/s/ Sherry L. Bokovoy Assistant Secretary/Treasurer; Director November 18, 1997
- --------------------------------------
Sherry L. Bokovoy
/s/ Irene Warr Director November 18, 1997
- --------------------------------------
Irene Warr
/s/ H.J. Frazier Director November 18, 1997
- --------------------------------------
H.J. Frazier
</TABLE>
<PAGE>
SIMON TRANSPORTATION SERVICES INC.
CONSOLIDATED STATEMENT OF EARNINGS
<TABLE>
For the Years Ended September 30,
----------------------------------------------------------
<S> <C> <C> <C>
1997 1996 1995
----------------------------------------------------------
Operating Revenue $155,296,354 $101,089,530 $ 75,218,184
----------------------------------------------------------
Operating Expenses:
Salaries, wages, and benefits 60,504,236 40,014,702 28,035,318
Fuel and fuel taxes 30,068,552 20,359,375 14,115,283
Operating supplies and expenses 19,288,560 13,701,428 10,839,485
Taxes and licenses 5,197,086 3,287,833 2,756,587
Insurance and claims 3,404,550 2,172,308 2,002,505
Communications and utilities 2,550,301 1,679,967 1,244,650
Depreciation and amortization 5,396,198 5,919,494 7,222,887
Rent 17,142,835 4,793,804 2,925,541
----------------------------------------------------------
Total operating expenses 143,552,318 91,928,911 69,142,256
----------------------------------------------------------
Operating earnings 11,744,036 9,160,619 6,075,928
Other (Expense) Earnings:
Gain on sale of real property 1,896,025 -- --
Interest expense (1,761,939) (2,849,549) (3,558,932)
Other, net 627,769 92,025 31,751
----------------------------------------------------------
Earnings before provision for income taxes 12,505,891 6,403,095 2,548,747
Provision for income taxes (Note 11) 4,727,227 5,454,170 --
----------------------------------------------------------
Net Earnings $ 7,778,664 $ 948,925 $ 2,548,747
==========================================================
Unaudited Pro Forma Information: (Note 11)
Earnings before provision for income taxes $ 12,505,891 $ 6,403,095 $ 2,548,747
Provision for income taxes 4,727,227 2,535,626 1,009,304
----------------------------------------------------------
Net earnings $ 7,778,664 $ 3,867,469 $ 1,539,443
==========================================================
Net earnings per common share $ 1.36 $ 0.88 $ 0.67
==========================================================
Weighted average common shares outstanding 5,707,642 4,417,643 2,300,000
==========================================================
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of this consolidated financial statement.
<PAGE>
SIMON TRANSPORTATION SERVICES INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
ASSETS
<TABLE>
September 30,
----------------------------------
<S> <C> <C>
1997 1996
----------------------------------
Current Assets:
Cash $ 12,766,001 $ 5,571,431
Receivables, net of allowance for doubtful accounts
of $62,000 and $66,000, respectively 20,712,286 13,261,974
Operating supplies 752,213 428,123
Prepaid expenses and other 1,558,923 1,302,492
Deferred tax asset 635,027 627,883
----------------------------------
Total current assets 36,424,450 21,191,903
----------------------------------
Property and Equipment, at cost:
Land 7,632,711 2,918,804
Revenue equipment 59,392,072 58,779,032
Buildings and improvements 14,321,869 8,639,875
Office furniture and equipment 5,974,291 2,766,218
----------------------------------
87,320,943 73,103,929
Less accumulated depreciation and amortization (16,166,473) (16,390,209)
----------------------------------
71,154,470 56,713,720
----------------------------------
Other Assets 125,450 317,645
----------------------------------
$ 107,704,370 $ 78,223,268
==================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 6,382,697 $ 2,892,300
Current portion of capitalized lease obligations 5,346,645 3,760,250
Accounts payable 3,593,420 1,691,900
Income taxes payable 631,776 2,191,984
Accrued liabilities 3,325,279 2,324,918
Accrued claims payable 1,259,674 1,602,344
----------------------------------
Total current liabilities 20,539,491 14,463,696
----------------------------------
Long-Term Debt, net of current portion 14,638,389 15,433,145
----------------------------------
Capitalized Lease Obligations, net of current portion 6,423,385 15,342,293
----------------------------------
Deferred Income Taxes 6,254,445 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,
5,320,313 and 2,870,507 shares issued, respectively 53,203 28,705
Class B Common Stock, $.01 par value, 5,000,000 shares authorized, 962,661 and
1,872,161 shares issued, respectively 9,627 18,722
Additional paid-in capital 48,233,608 25,282,496
Retained earnings 11,552,222 3,773,558
----------------------------------
Total stockholders' equity 59,848,660 29,103,481
----------------------------------
$ 107,704,370 $ 78,223,268
==================================
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of this consolidated financial statement.
<PAGE>
SIMON TRANSPORTATION SERVICES INC.
CONSOLIDATED STATEMENT 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, 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
Sale of common stock in 24,445 (9,095) 22,903,411 22,918,761
secondary public
offering, net of
issuance costs
Exercise of stock options 53 47,701 47,754
Net earnings 7,778,664 7,778,664
------------------------------------------------------------------------------
Balance, September 30, 1997 $ -- $ 53,203 $ 9,627 $48,233,608 $11,552,222 $ -- $59,848,660
==============================================================================
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of this consolidated financial statement.
<PAGE>
SIMON TRANSPORTATION SERVICES INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
For the Years Ended September 30,
-------------------------------------------------------
<S> <C> <C> <C>
1997 1996 1995
-------------------------------------------------------
Cash Flows From Operating Activities:
Net earnings $ 7,778,664 $ 948,925 $ 2,548,747
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 5,396,198 5,919,494 7,222,887
Gain on sale of real property (1,896,025) -- --
Changes in operating assets and liabilities:
Increase in receivables, net (6,361,812) (5,930,273) (477,913)
(Increase) decrease in operating supplies (324,090) 211,792 (166,726)
Increase in prepaid expenses and other (256,431) (885,547) (117,628)
Increase in deferred tax asset (7,144) (627,883) --
Decrease (increase) in other assets 192,195 180,828 (464,990)
Increase (decrease) in accounts payable 1,901,521 322,648 (577,613)
(Decrease) increase in income taxes payable (1,560,208) 2,191,984 --
Increase in accrued liabilities 1,000,361 489,298 17,700
(Decrease) increase in accrued claims payable (342,670) 305,769 277,903
Increase in deferred income taxes 2,373,792 3,880,653 --
-------------------------------------------------------
Net cash provided by operating activities 7,894,351 7,007,688 8,262,367
-------------------------------------------------------
Cash Flows From Investing Activities:
Purchase of property and equipment (31,815,000) (23,149,090) (6,338,014)
Proceeds from the sale of property and equipment 12,785,576 18,499,863 7,594,684
-------------------------------------------------------
Net cash (used in) provided by investing activities (19,029,424) (4,649,227) 1,256,670
-------------------------------------------------------
Cash Flows From Financing Activities:
Proceeds from issuance of long-term debt 15,894,391 19,666,814 3,764,916
Principal payments on long-term debt (13,198,750) (12,775,333) (4,653,591)
Net (payments) borrowings under line-of-credit agreement -- (4,279,741) 2,570,529
Principal payments under capitalized lease obligations (7,332,513) (18,871,127) (9,309,717)
Net proceeds from issuance of common stock 22,966,515 19,727,037 --
Distributions to S corporation stockholders -- (605,060) (1,593,611)
-------------------------------------------------------
Net cash provided by (used in) financing activities 18,329,643 2,862,590 (9,221,474)
-------------------------------------------------------
Net Increase In Cash 7,194,570 5,221,051 297,563
Cash at Beginning of Year 5,571,431 350,380 52,817
-------------------------------------------------------
Cash at End of Year $ 12,766,001 $ 5,571,431 $ 350,380
=======================================================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest $ 1,761,939 $ 2,847,583 $ 3,440,685
Cash paid during the year for income taxes 4,631,593 -- --
Supplemental Schedule of Noncash Investing and
Financing Activities:
Equipment acquired through capitalized lease obligations $ -- $ 5,784,405 $11,479,970
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of this consolidated financial statement.
<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.
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
<PAGE>
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.
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.
On February 13, 1997, the Company completed a public offering of
2,530,000 shares of Class A Common Stock. Selling stockholders offered and
received net proceeds for 995,000 of these shares (85,500 shares of Class A
Common Stock and 909,500 shares of Class B Common Stock reclassified as Class A
Common Stock upon completion of the offering). The sale of the 1,535,000 shares
of Class A Common Stock offered by the Company generated net proceeds of
$22,918,761 after deducting underwriting commissions and other expenses. A
majority of the proceeds were used to purchase new revenue equipment.
(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 12, 18, and 19 percent of operating
revenue in fiscal years 1997, 1996, and 1995, respectively. At September 30,
1997, the Company had accounts receivable outstanding with this customer
totaling $956,464. Another customer accounted for approximately 12 percent of
operating revenue in fiscal year 1995. No other customer accounted for more than
10% of revenue during fiscal years 1997, 1996 and 1995.
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.
<PAGE>
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 $1,563,524, $2,447,765, and $885,439 for the fiscal years ended
September 30, 1997, 1996, and 1995, 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 - 10 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, 1997. These letters of credit mature
at various times through November 1997 and renew annually unless terminated by
either party.
Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of". SFAS No. 121 establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles and goodwill related to
those assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of. The Company adopted SFAS No. 121 for
fiscal year 1997, which had no impact on the Company's financial position or
results of operations.
In February 1997, the FASB released SFAS No. 128 "Earnings per Share".
SFAS No. 128 specifies the computation, presentation, and disclosure
requirements for earnings per share ("EPS") for financial statements issued
for all periods ending after December 15, 1997. SFAS No. 128 simplifies the
standards for computing EPS previously found in APB Opinion No. 15 and replaces
the presentation for primary EPS and fully diluted EPS. The adoption of SFAS
<PAGE>
No. 128 is not expected to have a significant impact on the Company's
calculation of its net earnings per common share.
(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 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 years ended September 30, 1997 and 1996:
<TABLE>
<S> <C> <C>
1997 1996
------------------ ------------------
Current tax provision:
Federal $ 1,993,941 $ 1,758,933
State 366,638 442,467
------------------ ------------------
2,360,579 2,201,400
------------------ ------------------
Deferred tax provision:
Federal 2,062,976 254,592
State 303,672 18,063
Net deferred tax liability upon
termination of S corporation status -- 2,980,115
------------------ ------------------
2,366,648 3,252,770
------------------ ------------------
Provision for income taxes $ 4,727,227 $ 5,454,170
================== ==================
</TABLE>
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 for the
years ended September 30, 1997 and 1996:
<TABLE>
<S> <C> <C>
1997 1996
------------------ ------------------
Computed "expected" provision for income
taxes at the statutory rate $ 4,252,003 $ 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 479,466 303,950
Other, net (4,242) (6,948)
------------------ ------------------
Provision for income taxes $ 4,727,227 $ 5,454,170
================== ==================
</TABLE>
<PAGE>
The significant components of the net deferred tax assets and
liabilities as of September 30, 1997, and 1996 are as follows:
<TABLE>
<S> <C> <C>
1997 1996
------------------ ------------------
Deferred tax assets:
Claims reserve $ 278,834 $ 423,768
Other reserves and accruals 356,193 204,115
------------------ ------------------
Total deferred tax assets 635,027 627,883
Deferred tax liability:
Difference between book and tax basis
of property and equipment (6,254,445) (3,880,653)
------------------ ------------------
Net deferred tax liability $ (5,619,418) $ (3,252,770)
================== ==================
</TABLE>
(4) LONG-TERM DEBT
Long-term debt consists of the following and the construction loan discussed in
Note 5:
<TABLE>
September 30,
--------------------------------------
<S> <C> <C>
1997 1996
--------------------------------------
Notes payable to a bank, interest ranging from 6.24 percent to 7.20 percent, $ 9,871,320 $12,331,568
payable in monthly installments through April 2001, secured by revenue
equipment
Note payable to a bank, interest at Eurodollar rate (6.69 percent at 9,722,222 --
September 30, 1997), payable in monthly installments through August
2000, unsecured
Note payable to a bank for headquarters loan, interest at LIBOR plus 1.1 1,427,544 1,816,874
percent (6.73 percent at September 30, 1997), payable in monthly
installments through May 2001, secured by revenue equipment
Other -- 7,126
--------------------------------------
21,021,086 14,155,568
Less current portion (6,382,697) (2,892,300)
--------------------------------------
$ 14,638,389 $11,263,268
======================================
</TABLE>
Scheduled principal payments of long-term debt as of September 30, 1997
are as follows:
Years Ending September 30, Amount
- ------------------------------------------------------ -------------------
1998 $ 6,382,697
1999 6,502,407
2000 6,417,402
2001 1,718,580
2002 --
-------------------
$ 21,021,086
===================
<PAGE>
(5) CONSTRUCTION LOAN AND LINE OF CREDIT
The Company entered into a construction loan agreement with a bank to
finance the construction of the Company's new headquarters, shop, terminal and
driver recruitment and orientation center. The agreement provided a $10 million
credit facility that would convert to a term loan upon completion of the
facility. Until construction was complete, no payments were due and all accrued
interest was added to the loan balance. As of September 30, 1996, the Company
had borrowed $4,169,877 under the agreement. During fiscal year 1997, the
Company refinanced this construction loan with a term loan from another bank
(see Note 4).
The refinanced loan contains various restrictive covenants including
maximum debt to tangible net worth and minimum tangible net worth requirements.
As of September 30, 1997, the Company was in compliance with all covenants under
the loan agreement.
The Company has an unsecured line of credit for $5,000,000. As of
September 30, 1997, 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,
----------------------------------------------
1997 1996
----------------------------------------------
Revenue equipment $ 20,098,048 $ 28,823,541
Less accumulated amortization (6,276,894) (7,313,862)
----------------------------------------------
$ 13,821,154 $ 21,509,679
==============================================
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, 1997:
Years Ending September 30, Amount
- --------------------------------------------------- --------------------
1998 $ 5,930,430
1999 1,841,768
2000 3,452,808
2001 1,805,394
2002 --
--------------------
Total minimum lease payments 13,030,400
Less amount representing interest (1,260,370)
--------------------
Present value of minimum lease payments 11,770,030
Less current portion (5,346,645)
--------------------
$ 6,423,385
====================
(7) COMMITMENTS
Operating Leases
The Company is committed under noncancelable operating leases involving
certain revenue equipment. Rent expense for noncancelable operating leases was
$15,595,123, $3,997,352, and $2,562,440 for fiscal years 1997, 1996, and 1995,
respectively. Aggregate future lease commitments are $20,827,654, $17,789,670,
$9,219,164, $5,004,686, and $2,078,659 for the years ending September 30, 1998,
1999, 2000, 2001 and 2002, respectively.
<PAGE>
Orders for Revenue Equipment
As of September 30, 1997, the Company had placed orders for fiscal
years 1998 and 1999 to purchase revenue equipment at an estimated total purchase
price of $168,700,000. The revenue equipment is to be delivered during fiscal
years 1998 and 1999. Approximately $64,700,000 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 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,
1997:
Number of Options Price Per Share
-------------------- -------------------------
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
Granted 141,000 13.70 - 16.00
Exercised (5,306) 9.00
Forfeited (14,160) 9.00 - 16.00
-------------------- -------------------------
Outstanding at September 30, 1997 349,234 $9.00 - $16.00
==================== =========================
As of September 30, 1997, approximately 81,800 options are exercisable.
<PAGE>
Stock-Based Compensation
The Company has elected to continue to apply Accounting Principles
Board Opinion No. 25 and related interpretations in accounting for its
stock-based compensation plans as they relate to employees and directors. SFAS
No. 123, "Accounting for Stock-Based Compensation," requires pro forma
information regarding net income as if the Company had accounted for its stock
options granted to employees and directors subsequent to September 30, 1995
under the fair value method of SFAS No. 123. The fair value of these stock
options was estimated at the grant date using the Black-Scholes option pricing
model with the following assumptions: average risk-free interest rates of 6.15%
and 5.07% in 1997 and 1996, respectively, a dividend yield of 0%, a volatility
factor of the expected common stock price of 25.4%, and a weighted average
expected life of approximately 9.7 years for the stock options. For purposes of
pro forma disclosures, the estimated fair value of the stock options is
amortized over the estimated life of the respective stock options. Following are
the pro forma disclosures and the related impact on net income for the years
ended September 30, 1997 and 1996:
September 30,
---------------------------------------------
1997 1996
---------------------------------------------
Net earnings:
As reported $ 7,778,664 $ 3,867,469
Pro forma 7,683,084 3,865,720
Net earnings per share:
As reported $ 1.36 $ 0.88
Pro forma 1.35 0.88
(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 year 1995 the Company paid lease payments of $30,000 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 year
1995, the Company paid rent of approximately $532,000 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 1997, 1996, and
1995, the Company contributed $301,078, $192,389, and $141,240, respectively, to
the 401(k) Plan.
<PAGE>
(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 one-time, non-cash 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 fiscal year
1995.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To 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, 1997 and 1996, and the related consolidated
statements of earnings, stockholders' equity, and cash flows for each of the
three years in the period ended September 30, 1997. 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, 1997 and 1996, and the results
of their operations and their cash flows for each of the three years in the
period ended September 30, 1997 in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Salt Lake City, Utah
October 15, 1997
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report dated October 15, 1997 included in this Form 10-K,
into the Company's previously filed Registration Statements on Form S-8, file
numbers 33-80389, 33-80391, and 33-80409.
/s/ Arthur Andersen LLP
Salt Lake City, Utah
November 17, 1997
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 12,766,001
<SECURITIES> 0
<RECEIVABLES> 20,774,049
<ALLOWANCES> (61,763)
<INVENTORY> 320,664
<CURRENT-ASSETS> 36,424,450
<PP&E> 87,320,943
<DEPRECIATION> (16,166,473)
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0
0
<COMMON> 62,830
<OTHER-SE> 59,785,830
<TOTAL-LIABILITY-AND-EQUITY> 107,704,370
<SALES> 0
<TOTAL-REVENUES> 155,296,354
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<TOTAL-COSTS> 143,552,318
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