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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED).
For the transition period from _____________ to ______________
Commission file number 0-27208
SIMON TRANSPORTATION SERVICES INC.
(Exact name of registrant as specified in its charter)
Nevada 87-0545608
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
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
--------------------
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 $24,892,065 as of October 30, 1998 (based upon the $5.50 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 30, 1998, the registrant had 5,231,083 shares of Class A Common
Stock and 913,751 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 1998 annual meeting of
stockholders that will be filed no later than November 30, 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 - 8 herein
Item 2 Properties Page 9 herein
Item 3 Legal Proceedings Page 9 herein
Item 4 Submission of Matters to a Vote of Security Holders Page 9 herein
Part II
Item 5 Market for Registrant's Common Equity and
Related Stockholder Matters Page 10 herein
Item 6 Selected Financial and Operating Data Page 11 herein
Item 7 Management's Discussion and Analysis of Financial Pages 12 - 19 herein
Condition and Results of Operations
Item 8 Financial Statements and Supplementary Data Page 20 herein
Item 9 Changes in and Disagreements with Accountants on Page 20 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 4, 5 and 6 of Proxy Statement
Item 12 Security Ownership of Certain Beneficial Owners and Page 8 of Proxy Statement
Management
Item 13 Certain Relationships and Related Transactions Page 4 of Proxy Statement
Part IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Pages 22 - 36 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 Albertson's, Campbell's Soup, Coca-Cola Foods, ConAgra, Kraft, Nestle,
North American Logistics, Pillsbury, and Procter & Gamble. These customers seek
nationwide transportation partners that understand the specialized needs of food
industry shippers and offer the late-model equipment, experienced personnel,
advanced technology, and geographic coverage to provide "continuous movement" of
temperature-controlled and dry loads from processing or packaging plants to
distribution centers and other destinations. Management believes the food
industry is an attractive niche because it is generally less affected by
economic cycles and many shippers require time-sensitive and specialized service
that justifies a higher rate per mile.
Core Carrier Partnerships. Simon Transportation has grown by
establishing core carrier partnerships with high-volume, service sensitive
shippers. Core carriers provide customers with consistent equipment availability
and premium service such as time-definite pick-up and delivery, express
time-in-transit, multiple delivery stops, and real-time access to load
information through satellite-based tracking and communication systems and EDI
capability. The Company also meets specialized customer requests for access to
terminal facilities, stationing employees at customer locations, and dedicating
equipment to specific traffic lanes. Management believes major shippers favor
their core carrier "partners" during periods of reduced demand for truck
service, and that the trend among major shippers to reduce the number of
carriers used in favor of core carriers will continue.(*)
Dedicated Fleets. Simon Transportation emphasizes dedicated fleet
operations in which it offers round trip or continuous movement service to a
shipper (or a shipper and one or more of its suppliers) by dedicating certain
tractors and trailers exclusively to that shipper's needs. Dedicated service is
desirable because the customers typically pay a round-trip rate per mile
assuming that the truck will return empty and cover all loading, unloading, and
pallet costs. The Company frequently is able to further enhance revenue per mile
by locating a profitable load to cover unloaded segments. In addition, drivers
prefer the predictable runs and priority treatment at shipping and receiving
locations. Management intends to aggressively grow its dedicated fleet
operations and expects this service niche to expand as shippers outsource
transportation needs presently served by private carriage.(*)
_________________________________
(*) "Forward-looking" statements.
<PAGE>
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 Albertson's,
Campbell's Soup, Coca-Cola Foods, ConAgra, Kraft, Nestle, North American
Logistics, Pillsbury, Procter & Gamble, 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 33%, 47%, and 64% of revenue, respectively, during fiscal 1998,
with Nestle (including Nestle's Stouffer's and Friskie's units) accounting for
11% of revenue. No other customer accounted for more than 10% of revenue during
the fiscal year.
_________________________________
(*) "Forward-looking" statements.
<PAGE>
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.
Year 2000 Compliance
The Company has completed a review of each of its core systems to
determine year 2000 (Y2K) compliance. The Company's billing, dispatch, EDI,
fueling, payroll, telephone, vehicle maintenance, and yard and equipment
inventory systems and all other critical hardware and software systems were
designed to be Y2K compliant from inception. The Company is currently reviewing
the Y2K compliance status of its facilities and equipment. The Company expects
to complete this review and have taken actions toward making each non-core
system Y2K compliant by June 1999.
The Company relies on Qualcomm to provide the satellite tracking system
necessary to track the location of its equipment, and to provide dispatch and
routing information to its drivers. The Company has been informed that the
software utilized by Qualcomm and the Company is fully Y2K compliant. The
Company utilizes Comdata to transmit payroll funds to its drivers and to allow
drivers to purchase fuel outside of the Company's terminal locations. The
Company has been informed that Comdata expects to be fully Y2K compliant by June
1999. The Company also interacts with many of its vendors through electronic
data interchange (EDI). Although the Company is Y2K compliant in its EDI
applications, we cannot and do not guarantee the Y2K compliance of our business
partners' systems.
The Company has incurred internal staff costs necessary to review and
further Y2K compliance of its core operating systems. Because the systems were
designed to be Y2K compliant since inception, the costs have not had a material
effect on the Company's financial position or results of operations. The Company
will incur additional internal staff time to complete its compliance review of
non-core systems embedded in facilities and equipment. These non-core systems
include microcontrollers contained in tractor engines and other components,
refrigeration units, and terminal facilities. The costs of such review are not
expected to be incremental since they represent the redeployment of existing
information technology resources. Because of the relatively young age of its
facilities and equipment, the Company does not expect to find non-core systems
that need to be replaced to further Y2K compliance.
The Company anticipates that the risks related to its core and non-core
systems will be mitigated by ongoing assessment and correction of the systems.
The primary risk to operations is service disruption from third-party providers
that supply satellite communication, telephone, fueling and financial services.
Any disruption of these critical services would hinder the Company's ability to
receive, process and track its freight or communicate with its customers and
drivers.
A failure of the satellite communication system could have a materially
adverse effect on the Company's business and results of operations. The Company
is relying on the contingency plan established by Qualcomm to prevent the
interruption of business. As an additional backup, the Company plans to use its
existing telephone systems to dispatch its equipment and provide support to its
drivers in the event of a complete satellite system failure. In the event of EDI
failures on the part of our customers, the Company plans to use its telephone
and facsimile system to receive load tenders from its customers. The Company
would switch to paper invoices for its customers unable to use EDI. Management
believes that the Company's current state of readiness, the nature of the
Company's business, and the availability of the contingency plans minimizes Y2K
risks. Management does not foresee significant liability to third parties if the
Company's systems are not Y2K compliant.
<PAGE>
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 industry-wide
driver shortage adversely affected the Company's operations during the 1998
fiscal year resulting in an unusually high number of tractors without drivers.
The Company's driver turnover was 93% in fiscal 1998, measuring drivers after
they are assigned a tractor.
At September 30, 1998, Simon Transportation employed approximately 600
non-driver employees and approximately 1,800 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
$50 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. Effective
November 1, 1998, the Company's equipment and cargo loss is insured subject to a
"basket deductible" of $250,000 per occurrence. Management believes these
coverages are adequate to cover reasonably anticipated claims.
<PAGE>
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 1998 issue
of Refrigerated Transporter, the five largest temperature-controlled carriers by
revenue are Frozen Food Express Industries, C. R. England & Sons, Rocor
International, Prime, Inc., and Ameritruck. The combined revenue reported for
these five carriers comprises approximately 25% of the estimated $4 billion
for-hire, temperature-controlled market. The proprietary fleet portion of the
temperature-controlled market has been estimated at an additional $3 billion.
The Company's 1998 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.
<PAGE>
Item 2. PROPERTIES
Simon Transportation operates terminals and driver recruitment offices
at five locations. The Company's 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 have
modern fuel facilities with environmental monitoring equipment.
The Company completed construction of its new headquarters, shop,
terminal, and driver center during fiscal year 1998. The available acreage will
accommodate future expansion, and the facility has been designed so that
additions can be constructed to serve the Company's foreseeable future needs.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity."
Item 3. LEGAL PROCEEDINGS
The Company from time to time is a party to litigation arising in the
ordinary course of its business, substantially all of which involves claims for
personal injury and property damage incurred in the transportation of freight.
The Company presently is not a party to any legal proceeding other than
litigation arising from vehicle accidents, and management is not aware of any
claims or threatened claims that reasonably would be expected to exceed
insurance limits or have a materially adverse effect upon the Company's
operations or financial position.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year ended September 30, 1998,
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 for the fiscal years ended September 30, 1997 and 1998.
Period High Low
- ---------------------------- ------------- -------------
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
4th Quarter $ 24 3/4 $ 21 3/4
Calendar Year 1998
1st Quarter $ 24 $ 13 3/8
2nd Quarter $ 15 5/8 $ 6 3/8
3rd Quarter $ 6 7/8 $ 4 7/8
The prices reported reflect interdealer quotations without retail
mark-ups, mark-downs or commissions, and may not represent actual transactions.
As of October 31, 1998, the Company had 182 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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(In thousands, except per share amounts & operating 1998 1997 1996 1995 1994
data) ---- ---- ---- ---- ----
Statement of Earnings Data:
Operating revenue................................. $193,507 $155,296 $101,090 $ 75,218 $ 71,691
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Operating expenses:
Salaries, wages, and benefits................... 80,500 60,504 40,015 28,035 25,949
Fuel and fuel taxes............................. 35,281 30,069 20,359 14,115 14,363
Operating supplies and expenses................. 26,156 19,289 13,701 10,839 8,978
Taxes and licenses.............................. 6,557 5,197 3,288 2,756 2,558
Insurance and claims............................ 5,217 3,404 2,172 2,003 1,995
Communications and utilities.................... 3,946 2,550 1,680 1,245 1,274
Depreciation and amortization................... 4,728 5,396 5,920 7,223 6,857
Rent............................................ 28,987 17,143 4,794 2,926 3,435
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Total operating expenses...................... 191,372 143,552 91,929 69,142 65,409
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Operating earnings............................ 2,135 11,744 9,161 6,076 6,282
Gain on sale of real property..................... -- 1,896 -- -- --
Interest expense and other, net................... (1,500) (1,134) (2,758) (3,527) (3,136)
--------------------------------------------------------------
Earnings before provision for income taxes........ 635 12,506 6,403 2,549 3,146
Provision for income taxes1....................... 297 4,727 5,454 -- --
--------------------------------------------------------------
Net earnings...................................... $ 338 $ 7,779 $ 949 $ 2,549 $ 3,146
==============================================================
Pro Forma Statement of Earnings Data: 1
Earnings before provision for income taxes........ $ 635 $ 12,506 $ 6,403 $ 2,549 $ 3,146
Provision for income taxes........................ 297 4,727 2,536 1,010 1,246
--------------------------------------------------------------
Net earnings...................................... $ 338 $ 7,779 $ 3,867 $ 1,539 $ 1,900
==============================================================
Diluted net earnings per common share............. $ 0.05 $ 1.33 $ 0.87 $ 0.67 $ 0.83
==============================================================
Diluted weighted average shares outstanding....... 6,270,734 5,864,043 4,464,837 2,300,000 2,300,000
Balance Sheet Data (at end of period):
Net property and equipment........................ $64,618 $71,154 $56,714 $52,200 $49,039
Total assets...................................... 99,526 107,704 78,223 61,437 56,752
Long-term debt and capitalized
leases, including current portion............... 21,206 32,791 37,428 47,903 44,525
Stockholders' equity.............................. 59,699 59,849 29,103 9,033 7,443
Operating Data:
Operating ratio2.................................. 98.9% 92.4% 90.9% 91.9% 91.2%
Average revenue per loaded mile................... $1.25 $1.25 $1.24 $1.26 $1.23
Average revenue per total mile.................... $1.11 $1.10 $1.10 $1.11 $1.10
Average revenue per tractor per week.............. $2,510 $2,627 $2,526 $2,417 $2,489
Empty miles percentage............................ 11.8% 11.9% 11.7% 11.3% 10.7%
Average length of haul in miles................... 1,026 1,001 984 949 725
Weighted average tractors during period........... 1,494 1,142 774 598 554
Tractors at end of period......................... 1,655 1,344 940 623 570
Trailers at end of period......................... 2,455 1,998 1,430 877 873
<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 Notes 1 and
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
Simon Transportation 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 $193.5 million in revenue for its
fiscal year ended September 30, 1998, from $71.7 million in revenue for fiscal
1994, a compounded annual growth rate of 28.2%. From fiscal 1994 through fiscal
1997, the Company's pretax earnings grew to $12.5 million from $3.1 million, a
compounded annual growth rate of 59.2%. The increase in pretax earnings was
attributable primarily to revenue growth, greater equipment productivity, and
the reduction in financing costs attributable to public offerings in 1995 and
1997.
During fiscal 1998, the Company continued its strong revenue growth,
with revenue increasing approximately 25%. Pretax earnings decreased
substantially, however, as the Company experienced financial and operating
difficulties. For much of the year the industry-wide driver shortage contributed
to a substantial number of unseated tractors. To address this problem, the
Company raised driver wages by a total of four cents per mile. Although
management believes the higher wages have made the Company more competitive in
attracting and retaining drivers, the combination of unproductive equipment and
higher wages adversely affected the Company's profitability. The Company's
financial results also were affected by unusually high accident claims and
repair expense during the second fiscal quarter. Since May of 1998, the Company
has raised its freight rates to partially offset the increased wages, and the
insurance and repair expenses have returned to historical levels.(*)
Going forward, management has deferred deliveries of new tractors to
better match the anticipated availability of drivers. This is expected to reduce
revenue growth compared with historical levels, but improve profitability
compared with fiscal 1998.(*)
In comparing the Company's historical financial position and results of
operations, readers should be aware of changes in financing methods. During
fiscal years 1994 and 1995, the Company financed most of its tractors and
trailers with debt and capitalized leases. During fiscal years 1996, 1997 and
1998, the Company has financed most of this revenue equipment under operating
lease arrangements. 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 as
interest expense. The use of operating leases also affects the presentation of
the Statement of Cash Flows. However, the method of financing does not affect
net earnings or net cash flows. 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
effective rate of 46.8% for fiscal year 1998, 37.8% for fiscal year 1997, and a
combined effective rate of 39.6% for fiscal years 1994 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.
_________________________________
(*) "Forward-looking" statements.
<PAGE>
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>
1998 1997 1996
---------------------------------
Operating revenue.............................................................. 100.0% 100.0% 100.0%
Operating expenses:
Salaries, wages, and benefits................................................ 41.6 39.0 39.6
Fuel and fuel taxes.......................................................... 18.2 19.4 20.1
Operating supplies and expenses.............................................. 13.5 12.4 13.6
Taxes and licenses........................................................... 3.4 3.3 3.3
Insurance and claims......................................................... 2.7 2.2 2.1
Communications and utilities................................................. 2.0 1.6 1.6
Depreciation and amortization................................................ 2.4 3.5 5.9
Rent......................................................................... 15.0 11.0 4.7
---------------------------------
Total operating expenses 98.9 92.4 90.9
---------------------------------
Operating earnings............................................................. 1.1 7.6 9.1
Gain on sale of real property.................................................. -- 1.2 --
Interest expense and other, net................................................ (0.8) (0.7) (2.8)
---------------------------------
Earnings before provision for income taxes..................................... 0.3 8.1 6.3
Pro forma provision for income taxes........................................... (0.1) (3.1) (2.5)
---------------------------------
Pro forma net earnings......................................................... 0.2% 5.0% 3.8%
=================================
</TABLE>
<PAGE>
Comparison of fiscal year ended September 30, 1998, with fiscal year ended
September 30, 1997.
Operating revenue increased $38.2 million (24.6%), to $193.5 million
during the 1998 fiscal year from $155.3 million during the 1997 fiscal year. The
increase in revenue was primarily attributable to a 30.8% increase in the
weighted average number of tractors, to 1,494 during the 1998 fiscal year from
1,142 during the 1997 fiscal year. This increase was partially offset by a
decrease in the average revenue per tractor per week to $2,510 during the 1998
fiscal year from $2,627 during the 1997 fiscal year due to a substantial number
of tractors without drivers throughout most of the year. The Company's average
revenue per loaded mile, net of fuel surcharges, remained constant at $1.25
during both the 1998 and 1997 fiscal years.
Salaries, wages and benefits increased $20.0 million (33.1%), to $80.5
million in the 1998 fiscal year from $60.5 million in the 1997 fiscal year. As a
percentage of revenue, salaries, wages, and benefits increased to 41.6% of
revenue during the 1998 fiscal year from 39.0% during the 1997 fiscal year.
The increase is primarily attributable to driver wage increases. In order to
remain competitive, the Company raised driver base pay two cents per mile
effective January 1, 1998 and an additional two cents per mile effective
April 15, 1998.
Fuel and fuel taxes increased $5.2 million (17.3%), to $35.3 million
in the 1998 fiscal year from $30.1 million in the 1997 fiscal year. As a
percentage of revenue, fuel and fuel taxes decreased to 18.2% of revenue during
the 1998 fiscal year from 19.4% during the 1997 fiscal year. The decrease
resulted principally from lower fuel prices in the 1998 fiscal year and an
overall increase in the fuel efficiency of the Company's fleet.
Operating supplies and expenses increased $6.9 million (35.8%), to
$26.2 million in the 1998 fiscal year from $19.3 million in the 1997 fiscal
year. As a percentage of revenue, operating supplies and expenses increased
to 13.5% of revenue during the 1998 fiscal year, from 12.4% during the 1997
fiscal year. The increase was attributable primarily to costs incurred during
the second fiscal quarter for accident repairs, preparing equipment for trade,
and completing work on and opening the Atlanta terminal.
Taxes and licenses increased $1.4 million (26.9%), to $6.6 million
in the 1998 fiscal year from $5.2 million in the 1997 fiscal year. As a
percentage of revenue, taxes and licenses remained essentially constant at 3.4%
of revenue during the 1998 fiscal year compared to 3.3% of revenue during the
1997 fiscal year.
Insurance and claims increased $1.8 million (52.9%), to $5.2 million
in the 1998 fiscal year from $3.4 million in the 1997 fiscal year. As a
percentage of revenue, insurance and claims increased to 2.7% of revenue for
the 1998 fiscal year compared to 2.2% during the 1997 fiscal year. Most of the
increase was attributable to an unusually high number of severe accidents
suffered during the second fiscal quarter. Insurance and claims returned to
2.2% of revenue during the fourth quarter.(*)
Communications and utilities increased $1.3 million (50.0%), to $3.9
million in the 1998 fiscal year from $2.6 million in the 1997 fiscal year. As a
percentage of revenue, communications and utilities increased to 2.0% of revenue
during the 1998 fiscal year from 1.6% of revenue during the 1997 fiscal year
primarily as a result of an access fee charged to the Company by the owners of
pay telephones based on calls to toll free numbers. In addition, the fixed costs
of utilities for the Company's terminals and costs associated with the usage of
the Company's satellite tracking system did not remain proportionate with the
decreased revenue per tractor.
Depreciation and amortization decreased $700,000 (13.0%), to $4.7
million in the 1998 fiscal year from $5.4 million in the 1997 fiscal year. As a
percentage of revenue, depreciation and amortization (adjusted for the net gain
on sale of equipment) decreased to 2.4% of revenue during the 1998 fiscal year
from 3.5% during the 1997 fiscal year primarily because of a decrease in the
percentage of the Company's revenue equipment that was owned or acquired under
capitalized leases. Depreciation and amortization (unadjusted for the net gain
on sale of equipment) decreased to 3.6% of revenue ($7.0 million) during the
1998 fiscal year from 4.5% of revenue ($7.0 million) during the 1997 fiscal
year. Depreciation was adjusted for a $2.3 million net gain on the sale of
revenue equipment during the 1998 fiscal year compared with a $1.6 million net
gain during the 1997 fiscal year.
_________________________________
(*) "Forward-looking" statements.
<PAGE>
Rent increased $11.9 million (69.6%), to $29.0 million in the 1998
fiscal year from $17.1 million in the 1997 fiscal year. As a percentage of
revenue, rent increased to 15.0% of revenue during the 1998 fiscal year from
11.0% during the 1997 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
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 as interest expense.
As a result of the foregoing, the Company's operating ratio increased
to 98.9% during the 1998 fiscal year from 92.4% during the 1997 fiscal year.
The Company realized a $1.9 million gain on the sale of its former
headquarters facilities during the 1997 fiscal year. This non-recurring
transaction increased earnings before provision for income taxes by 1.2% of
revenue during the 1997 period.
Interest expense and other, net increased $400,000 (36.4%), to $1.5
million in the 1998 fiscal year from $1.1 million in the 1997 fiscal year. As
a percentage of revenue, interest expense and other, net remained essentially
constant at 0.8% of revenue during the 1998 fiscal year compared with 0.7%
during the 1997 fiscal year.
The Company's effective combined federal and state income tax rate for
the 1998 fiscal year was 46.8% compared to 37.8% for the 1997 fiscal year as a
result of adjusting the tax provision for non-deductible expenses in fiscal
1998. These expenses remained essentially constant during both the 1998 and 1997
fiscal years; however, the effect of these items on the tax rate is magnified
because of the lower earnings experienced in the 1998 fiscal year.
As a result of the factors described above, net earnings decreased $7.5
million (96.2%) to $338,000 during the 1998 fiscal year from $7.8 million ($6.6
million excluding the gain on the sale of the Company's former headquarters)
during the 1997 fiscal year. As a percentage of revenue, net earnings decreased
to 0.2% of revenue in the 1998 fiscal year from 5.0% (4.2% of revenue excluding
the gain on the sale of the Company's former headquarters) in the 1997 fiscal
year.
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.
<PAGE>
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
million 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 utilized operating leases during
fiscal year 1997 because of more favorable terms.
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
headquarters 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.
<PAGE>
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.
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. During the 1998, 1997 and 1996 fiscal years, the Company financed
most of its tractors with operating leases.
Net cash provided by operating activities was $4.2 million, $7.9
million, and $7.0 million, for the fiscal years ended September 30, 1998,
1997, and 1996, 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 $627,000, $6,362,000,
and $5,930,000, for the fiscal years ended September 30, 1998, 1997, and 1996,
respectively. The average age of the Company's accounts receivable was 35,
41, and 39 days for the fiscal years ended September 30, 1998, 1997, and
1996, respectively.
Net cash provided by (used in) investing activities was $1.8 million,
($19.0 million), and ($4.6 million), for the fiscal years ended September 30,
1998, 1997, and 1996, 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 $61.0 million in aggregate for fiscal years 1999
and 2000. The Company's projected capital expenditures will be funded mostly
with operating leases, borrowings and cash flows from operations.(*)
Net cash (used in) provided by financing activities was ($11.0
million), $18.3 million, and $2.9 million, for the fiscal years ended September
30, 1998, 1997, and 1996, respectively. Primary sources of cash were
approximately $23.0 million in net proceeds from the Company's February 1997
secondary public offering, and $19.7 million in net proceeds from the Company's
November 1995 initial public offering. Primary uses of cash were net payments on
borrowings of $11.6 million, $4.6 million, and $12.0 million of principal under
the Company's long-term debt and capitalized lease agreements and net payments
of $0, $0, and $4.3 million, under the Company's line of credit for the fiscal
years ended September 30, 1998, 1997, and 1996, respectively. During the 1998
fiscal year, the Company repurchased 81,100 shares of Common Stock at an average
market price of $6.55 per share for a total cash outlay of $530,000. In
addition, the Company paid S corporation dividends to its stockholders of
$605,000 for the fiscal year ended September 30, 1996.
The maximum amount committed under the Company's line of credit at
September 30, 1998 was $10 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, 1998, the Company had outstanding long-term debt and capitalized
lease obligations (including current portions) of approximately $21.2 million,
most of which comprised obligations for the purchase of revenue equipment. As
of September 30, 1998, the Company's future commitments under noncancelable
operating leases amounted to $71.4 million. See Notes 4 and 5 to Consolidated
Financial Statements.
The Company's working capital at September 30, 1998, 1997, and 1996 was
$15.6 million, $15.9 million and $6.7 million, respectively. Management believes
that available borrowings under the line of credit, future borrowings under
installment notes payable or lease arrangements for revenue equipment, and cash
flow generated from operations, will allow the Company to continue to meet its
working capital requirements, anticipated capital expenditures, and obligations
under debt and capitalized and operating leases at least through fiscal year
1999.(*)
_________________________________
(*) "Forward-looking" statements.
<PAGE>
Inflation
Inflation has had a minimal effect upon the Company's profitability
in recent years. Most of the Company's operating expenses are
inflation-sensitive, with inflation generally producing increased costs of
operation. The Company expects that inflation will affect its costs no more
than it affects those of other truckload carriers.
Seasonality
The Company experiences some seasonal fluctuations in freight volume,
as shipments have historically decreased during the first calendar quarter. In
addition, the Company's operating expenses historically have been higher in
the winter months due to decreased fuel efficiency and increased maintenance
costs in colder weather.
Fuel Availability and Cost
The Company actively manages its fuel costs by requiring drivers to
fuel at Company terminals or, whenever possible en route, at service centers
with which the Company has established volume purchasing arrangements. The
Company controls fuel purchases by using its proprietary software and Qualcomm
communications ability to schedule fueling stops and amounts purchased based
upon fuel prices at locations on drivers' routes. The Company historically has
been able to pass through most increases in fuel prices and taxes to customers
in the form of higher rates and fuel surcharges.
Year 2000 Compliance
The Company has completed a review of each of its core systems to
determine year 2000 (Y2K) compliance. The Company's billing, dispatch, EDI,
fueling, payroll, telephone, vehicle maintenance, and yard and equipment
inventory systems and all other critical hardware and software systems were
designed to be Y2K compliant from inception. The Company is currently reviewing
the Y2K compliance status of its facilities and equipment. The Company expects
to complete this review and have taken actions toward making each non-core
system Y2K compliant by June 1999.
The Company relies on Qualcomm to provide the satellite tracking system
necessary to track the location of its equipment, and to provide dispatch and
routing information to its drivers. The Company has been informed that the
software utilized by Qualcomm and the Company is fully Y2K compliant. The
Company utilizes Comdata to transmit payroll funds to its drivers and to allow
drivers to purchase fuel outside of the Company's terminal locations. The
Company has been informed that Comdata expects to be fully Y2K compliant by
June 1999. The Company also interacts with many of its vendors through
electronic data interchange (EDI). Although the Company is Y2K compliant in
its EDI applications, we cannot and do not guarantee the Y2K compliance of
our business partners' systems.
The Company has incurred internal staff costs necessary to review and
further Y2K compliance of its core operating systems. Because the systems were
designed to be Y2K compliant since inception, the costs have not had a material
effect on the Company's financial position or results of operations. The Company
will incur additional internal staff time to complete its compliance review of
non-core systems embedded in facilities and equipment. These non-core systems
include microcontrollers contained in tractor engines and other components,
refrigeration units, and terminal facilities. The costs of such review are not
expected to be incremental since they represent the redeployment of existing
information technology resources. Because of the relatively young age of its
facilities and equipment, the Company does not expect to find non-core systems
that need to be replaced to further Y2K compliance.
<PAGE>
The Company anticipates that the risks related to its core and non-core
systems will be mitigated by ongoing assessment and correction of the systems.
The primary risk to operations is service disruption from third-party providers
that supply satellite communication, telephone, fueling and financial
services. Any disruption of these critical services would hinder the
Company's ability to receive, process and track its freight or communicate with
its customers and drivers.
A failure of the satellite communication system could have a materially
adverse effect on the Company's business and results of operations. The Company
is relying on the contingency plan established by Qualcomm to prevent the
interruption of business. As an additional backup, the Company plans to use
its existing telephone systems to dispatch its equipment and provide support to
its drivers in the event of a complete satellite system failure. In the event
of EDI failures on the part of our customers, the Company plans to use its
telephone and facsimile system to receive load tenders from its customers. The
Company would switch to paper invoices for its customers unable to use EDI.
Management believes that the Company's current state of readiness, the nature
of the Company's business, and the availability of the contingency plans
minimizes Y2K risks. Management does not foresee significant liability to third
parties if the Company's systems are not Y2K compliant.
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.
<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 24 to 36
of this report. The supplementary quarterly financial data follow:
<TABLE>
Quarterly Financial Data:
<S> <C> <C> <C> <C>
Fourth Third Second First
Quarter Quarter Quarter Quarter
1998 1998 1998 1998
------------------ ---------------- ------------------- ----------------
Revenue $50,296 $50,055 $46,149 $ 47,006
Operating earnings (loss) 945 (90) (2,105) 3,386
Earnings (loss) before income taxes 608 (435) (2,536) 2,997
Provision (benefit) for income taxes 286 (165) (959) 1,132
Net earnings (loss) 322 (270) (1,577) 1,864
Diluted net earnings (loss) per share $ 0.05 $ (0.04) $ (0.25) $ 0.29
Fourth Third Second First
Quarter Quarter Quarter 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 income taxes 3,375 4,919 2,225 1,987
Provision for income taxes 1,276 1,859 841 751
Net earnings 2,099 3,060 1,384 1,236
Diluted net earnings per share $ 0.33 $ 0.48 $ 0.25 $ 0.26
</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, 1998, 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 2, 3, and 6 of Registrant's Proxy Statement for the 1998
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.
<PAGE>
Item 11. EXECUTIVE COMPENSATION
The information respecting executive compensation set forth under the
caption "Executive Compensation" on pages 4, 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.
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 8 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 pages 3 and 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....................................... 24
Consolidated Statement of Financial Position............................. 25
Consolidated Statement of Stockholders' Equity........................... 26
Consolidated Statement of Cash Flows..................................... 27
Notes to Consolidated Financial Statements............................... 28
Report of Independent Public Accountants................................. 37
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, 1998.
<PAGE>
(c)......Exhibits
NumberDescription 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 12, 1998 By: /s/ Alban B. Lang
----------------- -----------------
Alban B. Lang
Treasurer and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Signature Position Date
- --------- -------- ----
/s/ Richard D. Simon Chairman of the Board, President, and Chief November 12, 1998
- -------------------------------------- Executive Officer (principal executive officer)
Richard D. Simon
/s/ Alban B. Lang Treasurer and Chief Financial Officer November 12, 1998
- -------------------------------------- (principal financial and accounting officer);
Alban B. Lang Director
/s/ Kelle A. Simon Vice President of Maintenance; Director November 12, 1998
- --------------------------------------
Kelle A. Simon
/s/ A. Lyn Simon Vice President of Sales and Operations; Director November 12, 1998
- --------------------------------------
A. Lyn Simon
/s/ Richard D. Simon, Jr. Vice President of Driver Relations; Director November 12, 1998
- --------------------------------------
Richard D. Simon, Jr.
/s/ Sherry L. Bokovoy Assistant Secretary/Treasurer; Director November 12, 1998
- --------------------------------------
Sherry L. Bokovoy
/s/ Irene Warr Director November 12, 1998
- --------------------------------------
Irene Warr
/s/ H.J. Frazier Director November 12, 1998
- --------------------------------------
H.J. Frazier
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIMON TRANSPORTATION SERVICES INC.
CONSOLIDATED STATEMENT OF EARNINGS
For the Years Ended September 30,
----------------------------------------------------------
<S> <C> <C> <C>
1998 1997 1996
----------------------------------------------------------
Operating Revenue $193,506,902 $155,296,354 $101,089,530
----------------------------------------------------------
Operating Expenses:
Salaries, wages, and benefits 80,499,985 60,504,236 40,014,702
Fuel and fuel taxes 35,280,815 30,068,552 20,359,375
Operating supplies and expenses 26,155,797 19,288,560 13,701,428
Taxes and licenses 6,557,109 5,197,086 3,287,833
Insurance and claims 5,216,804 3,404,550 2,172,308
Communications and utilities 3,945,707 2,550,301 1,679,967
Depreciation and amortization 4,728,477 5,396,198 5,919,494
Rent 28,987,072 17,142,835 4,793,804
----------------------------------------------------------
Total operating expenses 191,371,766 143,552,318 91,928,911
----------------------------------------------------------
Operating earnings 2,135,136 11,744,036 9,160,619
Other (Expense) Earnings:
Gain on sale of real property -- 1,896,025 --
Interest expense (1,818,100) (1,761,939) (2,849,549)
Other, net 317,644 627,769 92,025
----------------------------------------------------------
Earnings before provision for income taxes 634,680 12,505,891 6,403,095
Provision for income taxes (Note 3) 296,536 4,727,227 5,454,170
----------------------------------------------------------
Net Earnings $ 338,144 $ 7,778,664 $ 948,925
==========================================================
Unaudited Pro Forma Information: (Note 9)
Earnings before provision for income taxes $ 634,680 $ 12,505,891 $ 6,403,095
Provision for income taxes 296,536 4,727,227 2,535,626
==========================================================
Net earnings $ 338,144 $ 7,778,664 $ 3,867,469
==========================================================
Net earnings per common share
Basic $ 0.05 $ 1.36 $ 0.88
Diluted $ 0.05 $ 1.33 $ 0.87
==========================================================
Weighted average common shares outstanding
Basic 6,270,734 5,707,642 4,417,643
Diluted 6,270,734 5,864,043 4,464,837
==========================================================
<FN>
The accompanying notes to consolidated financial statements are
an integral part of this consolidated financial statement.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIMON TRANSPORTATION SERVICES INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
ASSETS
September 30,
----------------------------------
<S> <C> <C>
1998 1997
----------------------------------
Current Assets:
Cash $ 7,826,365 $ 12,766,001
Receivables, net of allowance for doubtful accounts
of $189,000 and $62,000, respectively 20,250,931 20,712,286
Operating supplies 1,069,095 752,213
Income taxes receivable 2,593,105 --
Prepaid expenses and other 2,181,980 1,558,923
Current deferred income tax asset 762,463 635,027
----------------------------------
Total current assets 34,683,939 36,424,450
----------------------------------
Property and Equipment, at cost:
Land 8,589,422 7,632,711
Revenue equipment 47,702,977 59,392,072
Buildings and improvements 18,350,370 14,321,869
Office furniture and equipment 8,573,389 5,974,291
----------------------------------
83,216,158 87,320,943
Less accumulated depreciation and amortization (18,598,221) (16,166,473)
----------------------------------
64,617,937 71,154,470
----------------------------------
Other Assets 223,823 125,450
----------------------------------
$ 99,525,699 $ 107,704,370
==================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 7,627,142 $ 6,382,697
Current portion of capitalized lease obligations 2,030,988 5,346,645
Accounts payable 5,015,049 3,593,420
Accrued liabilities 3,188,405 3,325,279
Accrued claims payable 1,260,827 1,259,674
Income taxes payable -- 631,776
----------------------------------
Total current liabilities 19,122,411 20,539,491
----------------------------------
Long-Term Debt, net of current portion 9,102,649 14,638,389
----------------------------------
Capitalized Lease Obligations, net of current portion 2,444,856 6,423,385
----------------------------------
Deferred Income Taxes Payable 9,156,843 6,254,445
----------------------------------
Commitments (Note 6)
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,
5,372,683 and 5,320,313 shares issued, respectively 53,727 53,203
Class B Common Stock, $.01 par value, 5,000,000 shares authorized, 913,751 and
962,661 shares issued, respectively 9,138 9,627
Additional paid-in capital 48,277,256 48,233,608
Treasury stock, 81,100 shares at cost (531,547) --
Retained earnings 11,890,366 11,552,222
----------------------------------
Total stockholders' equity 59,698,940 59,848,660
----------------------------------
$ 99,525,699 $ 107,704,370
==================================
<FN>
The accompanying notes to consolidated financial statements are
an integral part of this consolidated financial statement.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIMON TRANSPORTATION SERVICES INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C> <C> <C>
Class A Class B Additional Total
Common Common Paid-in Treasury Retained Stockholders'
Stock Stock Capital Stock Earnings Equity
----------------------------------------------------------------------
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 2,441,968 shares 24,420 19,696,318 19,720,738
of Class A Common Stock
in initial public
offering, net of
issuance costs
Change in tax status 4,844,593 (4,844,593) --
Sale of 700 shares of 7 6,293 6,300
Class A Common Stock
upon exercise of stock
options
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 1,535,000 shares 24,445 (9,095) 22,903,411 22,918,761
of Class A Common Stock
in secondary public
offering, net of
issuance costs
Sale of 5,306 shares of 53 47,701 47,754
Class A Common Stock
upon exercise of stock
options
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
Sale of 48,910 shares of 489 (489) --
Class B Common Stock by
major shareholder
Sale of 3,460 shares of 35 43,648 43,683
Class A Common Stock
upon exercise of stock
options
Purchase of 81,100 shares (531,547) (531,547)
of Class A Common Stock
Net earnings 338,144 338,144
----------------------------------------------------------------------
Balance, September 30, 1998 $ 53,727 $ 9,138 $ 48,277,256 $(531,547) $11,890,366 $ 59,698,940
======================================================================
<FN>
The accompanying notes to consolidated financial statements are
an integral part of this consolidated financial statement.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIMON TRANSPORTATION SERVICES INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended September 30,
-------------------------------------------------------
<S> <C> <C> <C>
1998 1997 1996
-------------------------------------------------------
Cash Flows From Operating Activities:
Net earnings $ 338,144 $ 7,778,664 $ 948,925
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 4,728,477 5,396,198 5,919,494
Gain on sale of real property -- (1,896,025) --
Changes in operating assets and liabilities:
Increase in receivables, net (627,145) (6,361,812) (5,930,273)
(Increase) decrease in operating supplies (316,882) (324,090) 211,792
Increase in prepaid expenses and other (623,057) (256,431) (885,547)
Increase in current deferred income tax asset (127,436) (7,144) (627,883)
(Increase) decrease in other assets (98,373) 192,195 180,828
Increase in accounts payable 1,421,629 1,901,521 322,648
(Decrease) increase in accrued liabilities (136,874) 1,000,361 489,298
Increase (decrease) in accrued claims payable 1,153 (342,670) 305,769
(Decrease) increase in income taxes payable (3,224,881) (1,560,208) 2,191,984
Increase in deferred income taxes payable 2,902,398 2,373,792 3,880,653
-------------------------------------------------------
Net cash provided by operating activities 4,237,153 7,894,351 7,007,688
-------------------------------------------------------
Cash Flows From Investing Activities:
Purchase of property and equipment (12,936,744) (31,815,000) (23,149,090)
Proceeds from the sale of property and equipment 15,833,300 12,785,576 18,499,863
-------------------------------------------------------
Net cash provided by (used in) investing activities 2,896,556 (19,029,424) (4,649,227)
-------------------------------------------------------
Cash Flows From Financing Activities:
Proceeds from issuance of long-term debt 2,900,000 15,894,391 19,666,814
Principal payments on long-term debt (7,191,295) (13,198,750) (12,775,333)
Net payments under line-of-credit agreement -- -- (4,279,741)
Principal payments under capitalized lease obligations (7,294,186) (7,332,513) (18,871,127)
Net proceeds from issuance of common stock 43,683 22,966,515 19,727,037
Purchase of treasury stock (531,547) -- --
Distributions to S corporation stockholders -- -- (605,060)
-------------------------------------------------------
Net cash (used in) provided by financing activities (12,073,345) 18,329,643 2,862,590
-------------------------------------------------------
Net (Decrease) Increase In Cash (4,939,636) 7,194,570 5,221,051
Cash at Beginning of Year 12,766,001 5,571,431 350,380
-------------------------------------------------------
Cash at End of Year $ 7,826,365 $ 12,766,001 $ 5,571,431
=======================================================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest $ 1,818,100 $ 1,761,939 $ 2,847,583
Cash paid during the year for income taxes 153,461 4,631,593 --
Supplemental Schedule of Noncash Investing and
Financing Activities:
Equipment acquired through capitalized lease obligations $ -- $ -- $ 5,784,405
<FN>
The accompanying notes to consolidated financial statements are
an integral part of this consolidated financial statement.
</FN>
</TABLE>
<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. 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.
Recapitalization
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 expenses 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 11, 12, and 18 percent of operating
revenue in fiscal years 1998, 1997, and 1996, respectively. At September 30,
1998, the Company had accounts receivable outstanding with this customer
totaling $1,485,400. No other customer accounted for more than 10% of revenue
during fiscal years 1998, 1997 and 1996.
<PAGE>
Operating Supplies
Operating supplies consist primarily of tires, fuel and maintenance
parts for revenue equipment which are stated at the lower of first-in, first-out
(FIFO) cost or market value.
Property and Equipment
Property and equipment are recorded at cost and depreciated based on
the straight-line method over their estimated useful lives, taking into
consideration salvage values for purchased property and residual values for
equipment held under capitalized leases. Leasehold improvements are amortized
over the terms of the respective lease or the lives of the assets, whichever is
shorter.
Expenditures for routine maintenance and repairs are charged to
operating expense as incurred. Major renewals and betterments are capitalized
and depreciated over their estimated useful lives. Upon retirement or other
disposition of property and equipment, the cost and accumulated depreciation are
removed from the accounts, and any gain or loss is recorded as an adjustment to
depreciation and amortization. Net gains from the disposition of equipment in
the amounts of $2,290,074, $1,563,524, and $2,447,765 for fiscal years 1998,
1997, and 1996, 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 consolidated
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. Effective November 1, 1998, the Company's equipment and cargo
loss is insured subject to a "basket deductible" of $250,000 per occurrence.
Liability in excess of these amounts is assumed by the insurance underwriter up
to applicable policy limits of $1,000,000 per occurrence. 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, 1998. These letters of credit mature
at various times through November 1998 and renew annually unless terminated by
either party.
<PAGE>
Income Taxes
The Company recognizes a liability or asset for the deferred tax
consequences of all temporary differences between the tax bases of assets and
liabilities and their reported amounts in the consolidated financial statements
that will result in taxable or deductible amounts in future years when the
reported amounts of the assets and liabilities are recovered or settled.
Net Earnings Per Common Share
Basic net earnings per common share (Basic EPS) excludes dilution and
is computed by dividing net earnings by the weighted average number of common
shares outstanding during the fiscal year. Diluted net earnings per common share
(Diluted EPS) reflects the potential dilution that could occur if stock options
or other contracts to issue common stock were exercised or converted into common
stock. The computation of Diluted EPS does not assume exercise or conversion of
securities that would have an antidilutive effect on net earnings per common
share. Net earnings per common share amounts and share data have been restated
for all periods presented to reflect Basic and Diluted EPS.
Following is a reconciliation of the numerator and denominator of Basic
EPS to the numerator and denominator of Diluted EPS for fiscal years 1998, 1997
and 1996:
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
=============== ==============================
Numerator:
Pro forma net earnings $ 338,144 $ 7,778,664 $ 3,867,469
=============== ==============================
Denominator:
Weighted average common shares outstanding 6,270,734 5,707,642 4,417,643
Effect of options -- 156,401 47,194
=============== ==============================
6,270,734 5,864,043 4,464,837
=============== ==============================
Basic EPS $ 0.05 $ 1.36 $ 0.88
Diluted EPS $ 0.05 $ 1.33 $ 0.87
</TABLE>
Options to purchase 717,130 shares of common stock at a weighted
average exercise price of $18.05 as of September 30, 1998 were not included in
the computation of Diluted EPS for fiscal year 1998. The inclusion of the
options would have been antidilutive, thereby increasing net earnings per common
share.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income" and No. 131, "Disclosures about Segments of an Enterprise
and Related Information". SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components and SFAS No. 131 establishes
new standards for public companies to report information about their operating
segments, products and services, geographic areas and major customers. Both
statements are effective for financial statements issued for periods beginning
after December 15, 1997. Accordingly, the Company will adopt SFAS No. 130 and
SFAS No. 131 in its fiscal year 1999 consolidated financial statements.
Management believes the adoption of SFAS Nos. 130 and 131 will not have a
material impact on the consolidated financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at fair value and that
changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. SFAS No. 133 is effective for
fiscal years beginning after June 15, 1999. Accordingly, the Company will adopt
SFAS No. 133 in its fiscal year 2000 consolidated financial statements.
Management believes the adoption of SFAS No. 133 will not have a material impact
on the consolidated financial statements.
<PAGE>
(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, 1998, 1997 and 1996:
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
-------------------------------------- ------------------
Current income tax (benefit) provision:
Federal $ (2,100,924) $ 1,993,941 $ 1,758,933
State (377,502) 366,638 442,467
-------------------------------------- ------------------
(2,478,426) 2,360,579 2,201,400
-------------------------------------- ------------------
Deferred income tax provision:
Federal 2,352,293 2,062,976 254,592
State 422,669 303,672 18,063
Net deferred tax liability upon
termination of S corporation status -- -- 2,980,115
-------------------------------------- ------------------
2,774,962 2,366,648 3,252,770
-------------------------------------- ------------------
Provision for income taxes $ 296,536 $ 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, 1998, 1997 and 1996:
<TABLE>
<S> <C> <C> <C>
1998 1997 1996
-------------------------------------- ------------------
Computed "expected" provision for income
taxes at the statutory rate $ 215,791 $ 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 24,118 479,466 303,950
Other, net 56,627 (4,242) (6,948)
-------------------------------------- ------------------
Provision for income taxes $ 296,536 $ 4,727,227 $ 5,454,170
====================================== ==================
</TABLE>
<PAGE>
The significant components of the net deferred income tax assets and
liabilities as of September 30, 1998 and 1997 are as follows:
<TABLE>
<S> <C> <C>
1998 1997
------------------ ------------------
Deferred income tax assets:
Accrued claims payable $ 279,270 $ 278,834
Other reserves and accruals 483,193 356,193
------------------ ------------------
Total deferred income tax assets 762,463 635,027
Deferred income tax liability:
Difference between book and tax basis
of property and equipment (9,156,843) (6,254,445)
------------------ ------------------
Net deferred income tax liability $ (8,394,380) $ (5,619,418)
================== ==================
</TABLE>
(4) LONG-TERM DEBT
Long-term debt consists of the following as of September 30, 1998 and 1997:
<TABLE>
<S> <C> <C>
1998 1997
--------------------------------------
Notes payable to a bank, interest ranging from 6.24 percent to 7.20 percent, $ 7,281,476 $ 9,871,320
payable in monthly installments through April 2001, secured by revenue
equipment
Note payable to a bank, interest at Eurodollar rate (6.63 percent at 8,410,101 9,722,222
September 30, 1998), payable in monthly installments through August
2000, unsecured
Note payable to a bank, interest at LIBOR plus 1.1 percent (6.75 percent at 1,038,214 1,427,544
September 30, 1998), payable in monthly installments through May 2001,
secured by revenue equipment
--------------------------------------
16,729,791 21,021,086
Less current portion (7,627,142) (6,382,697)
--------------------------------------
$ 9,102,649 $ 14,638,389
======================================
</TABLE>
Scheduled principal payments of long-term debt as of September 30, 1998
are as follows:
Years Ending September 30, Amount
- ------------------------------------------------------ -------------------
1999 $ 7,627,142
2000 7,384 069
2001 1,718,580
-------------------
$ 16,729,791
===================
The Company's unsecured long-term debt agreement contains various
restrictive covenants including maximum debt to tangible net worth and minimum
tangible net worth requirements. As of September 30, 1998, the Company was in
compliance with all covenants under the loan agreement.
The Company has an unsecured line of credit for $10,000,000. As of
September 30, 1998, the Company had no outstanding draws on this line of credit.
<PAGE>
(5) 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,
----------------------------------------------
1998 1997
----------------------------------------------
Revenue equipment $ 9,114,812 $ 20,098,048
Less accumulated amortization (3,884,564) (6,276,894)
----------------------------------------------
$ 5,230,248 $ 13,821,154
==============================================
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, 1998:
Years Ending September 30, Amount
- --------------------------------------------------- --------------------
1999 $ 2,208,242
2000 1,999,424
2001 596,850
--------------------
Total minimum lease payments 4,804,516
Less amount representing interest (328,672)
--------------------
Present value of minimum lease payments 4,475,844
Less current portion (2,030,988)
--------------------
$ 2,444,856
====================
(6) COMMITMENTS
Operating Leases
The Company is committed under noncancelable operating leases involving
certain revenue equipment. Rent expense for noncancelable operating leases was
$25,343,111, $15,595,123, and $3,997,352 for fiscal years 1998, 1997, and 1996,
respectively. Aggregate future lease commitments are $28,364,459, $20,452,949,
$13,581,485, $6,811,800, and $1,883,456 for the years ending September 30, 1999,
2000, 2001, 2002, and 2003, respectively.
<PAGE>
Orders for Revenue Equipment
As of September 30, 1998, the Company had placed orders for fiscal
years 1999 and 2000 to purchase revenue equipment at an estimated total purchase
price of $109.3 million. The revenue equipment is to be delivered during fiscal
years 1999 and 2000. Approximately $77.9 million 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.
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.
(7) CAPITAL TRANSACTIONS AND STOCK PLANS
Preferred Stock
The Company is authorized to issue 5,000,000 shares of preferred stock
from time to time in one or more series without stockholder approval. No shares
of preferred stock are presently outstanding. The Board of Directors is
authorized, without any further action by the stockholders of the Company, to
(a) divide the preferred stock into series, (b) designate each such series, (c)
fix and determine dividend rights, (d) determine the price, terms and conditions
on which shares of preferred stock may be redeemed, (e) determine the amount
payable to holders of preferred stock in the event of voluntary or involuntary
liquidation, (f) determine any sinking fund provisions, and (g) establish any
conversion privileges.
Treasury Stock
The Company's Board of Directors has authorized a stock repurchase
program under which management may reacquire up to 500,000 shares of the
Company's Class A Common Stock. During fiscal year 1998, the Company repurchased
81,100 shares of Class A Common Stock at an average price of $6.55 per share,
for a total cash outlay of $531,547.
Incentive Stock Plan
On May 31, 1995, the Company's Board of Directors and stockholders
approved and adopted the Dick Simon Trucking, Inc. Incentive Stock Plan (the
"Plan"). The Plan reserves 1,000,000 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. The Company has reserved 25,000
shares of Class A Common Stock for issuance under the Outside Director Stock
Plan.
<PAGE>
The following table summarizes the combined stock option activity for
both plans for fiscal years 1996, 1997 and 1998:
<TABLE>
<S> <C> <C>
Weighted Average
Number of Options Exercise Price Per Share
--------------------- -------------------------
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 15.97
Exercised (5,306) 9.00
Forfeited (14,160) 9.00
--------------------- -------------------------
Outstanding at September 30, 1997 349,234 11.79
Granted 386,500 23.26
Exercised (3,460) 9.00
Forfeited (15,144) 9.18
--------------------- -------------------------
Outstanding at September 30, 1998 717,130 $18.05
===================== =========================
</TABLE>
The outstanding options range in exercise price from $9.00 to $23.50,
and have a weighted average remaining contractual life of approximately 8.3
years. As of September 30, 1998, approximately 142,970 options are exercisable.
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 earnings 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 5.77%,
6.15% and 5.07% in fiscal years 1998, 1997 and 1996, respectively, a dividend
yield of 0%, weighted average volatility factors of the expected common stock
price of 24.6% for fiscal year 1998 and 25.4% for fiscal years 1997 and 1996,
and weighted average expected lives for the stock options of approximately 7.4
years for fiscal year 1998 and 9.7 years for fiscal years 1997 and 1996. For
purposes of pro forma disclosures, the estimated fair value of the stock options
is amortized over the vesting period of the respective stock options. Under the
fair value method of SFAS No. 123, pro forma net (loss) earnings would have been
($170,195), $7,679,248, and $3,859,555, and pro forma diluted net (loss)
earnings per share would have been ($0.03), $1.31, and $0.86 for the fiscal
years ended September 30, 1998, 1997, and 1996, respectively.
<PAGE>
(8) 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. 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 1998, 1997, and 1996, the Company
contributed $351,829, $301,078, and $192,389, respectively, to the 401(k) Plan.
(9) 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 for fiscal year 1996 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 for fiscal year 1996 does not reflect a
$2,980,115 one-time, non-cash charge to earnings for deferred taxes the Company
recorded upon termination of its S corporation status.
(10) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C>
Fourth Third Second First
Quarter Quarter Quarter Quarter
1998 1998 1998 1998
------------------ ---------------- ------------------- ----------------
Revenue $50,296 $50,055 $46,149 $47,006
Operating earnings (loss) 945 (90) (2,105) 3,386
Earnings (loss) before income taxes 608 (435) (2,536) 2,997
Provision (benefit) for income taxes 286 (165) (959) 1,132
Net earnings (loss) 322 (270) (1,577) 1,864
Diluted net earnings (loss) per share $ 0.05 $ (0.04) $ (0.25) $ 0.29
Fourth Third Second First
Quarter Quarter Quarter 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 income taxes 3,375 4,919 2,225 1,987
Provision for income taxes 1,276 1,859 841 751
Net earnings 2,099 3,060 1,384 1,236
Diluted net earnings per share $ 0.33 $ 0.48 $ 0.25 $ 0.26
</TABLE>
<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, 1998 and 1997, and the related consolidated
statements of earnings, stockholders' equity, and cash flows for each of the
three years in the period ended September 30, 1998. 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, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended September 30, 1998 in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Salt Lake City, Utah
October 15, 1998
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report dated October 15, 1998 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 11, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 7,826,365
<SECURITIES> 0
<RECEIVABLES> 20,440,308
<ALLOWANCES> (189,377)
<INVENTORY> 662,534
<CURRENT-ASSETS> 34,683,939
<PP&E> 83,216,158
<DEPRECIATION> (18,598,221)
<TOTAL-ASSETS> 99,525,699
<CURRENT-LIABILITIES> 19,122,410
<BONDS> 0
0
0
<COMMON> 62,864
<OTHER-SE> 59,636,076
<TOTAL-LIABILITY-AND-EQUITY> 99,525,699
<SALES> 0
<TOTAL-REVENUES> 193,506,902
<CGS> 0
<TOTAL-COSTS> 191,371,766
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,818,100
<INCOME-PRETAX> 634,680
<INCOME-TAX> 296,536
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 338,144
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
