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, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED).
For the transition period from to
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Commission file number 0-27208
SIMON TRANSPORTATION SERVICES INC.
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(Exact name of registrant as specified in its charter)
Nevada 87-0545608
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
5175 West 2100 South
West Valley City, Utah 84120
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 801/924-7000
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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 $9,898,510 as of December 29, 2000 (based upon the $5 5/16 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 December 29, 2000, the registrant had 6,291,709 shares of Class A Common
Stock and no 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 2000 annual meeting of
stockholders or an amendment hereto that will be filed no later than January 28,
2001.
<PAGE>
Cross Reference Index
The following cross reference index indicates the document and location of the
information contained herein and incorporated by reference into this Form 10-K.
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Document and Location
Part I
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Item 1 Business Pages 3 - 7 herein
Item 2 Properties Page 7 herein
Item 3 Legal Proceedings Page 8 herein
Item 4 Submission of Matters to a Vote of Security Holders Page 8 herein
Part II
Item 5 Market for Registrant's Common Equity and
Related Stockholder Matters Page 9 herein
Item 6 Selected Financial and Operating Data Pages 10 - 11 herein
Item 7 Management's Discussion and Analysis of Financial Pages 11 - 17 herein
Condition and Results of Operations
Item 7A Quantitative and Qualitative Page 18 herein
Disclosures About Market Risk
Item 8 Financial Statements and Supplementary Data Page 18 herein
Item 9 Changes in and Disagreements with Accountants on Page 19 herein
Accounting and Financial Disclosure
Part III
Item 10 Directors and Executive Officers of the Registrant Proxy Statement
Item 11 Executive Compensation Proxy Statement
Item 12 Security Ownership of Certain Beneficial Owners and Proxy Statement
Management
Item 13 Certain Relationships and Related Transactions Proxy Statement
Part IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Pages 20 - 37 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 truckload carrier that specializes in
temperature-controlled transportation services for major shippers. From a single
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; and Katy, Texas. Effective February 1, 2001, the Company will
discontinue its Katy, Texas operation.(*)
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. 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 the consolidated financial statements.
Strategy
The Company has grown 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, Anheuser Busch, Campbell's Soup, ConAgra, Coors, Costco,
Kraft, M&M Mars, Nestle, Pillsbury, and Walmart. These customers seek nationwide
transportation partners that understand the specialized needs of food industry
shippers. Many of the Company's customers seek carriers that offer late-model
equipment, experienced personnel, advanced technology, and broad geographic
coverage. Management believes the food industry is an attractive niche because
consumers require food throughout all economic cycles.(*)
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 grow its dedicated fleet operations and expects
---------------------------------
(*) "Forward-looking" statements.
<PAGE>
this service niche to expand as shippers outsource transportation needs
presently served by private carriage.(*)
Modern Fleet. Simon Transportation intends to maintain modern tractor
and trailer fleets. Reliable, late-model equipment promotes customer service and
driver recruitment and retention by minimizing the delays caused by breakdowns
and excessive maintenance. In addition, management believes that a practice of
replacing tractors while under warranty will reduce expenses and permit the
Company to take advantage of improvements in fuel economy and equipment
technology.(*)
Technology. Simon Transportation uses the Qualcomm satellite-based
tracking and communication system in all of its tractors. 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. 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.
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
major 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,
Anheuser Busch, Campbell's Soup, ConAgra, Coors, Costco, Kraft, M&M Mars,
Nestle, Pillsbury, Walmart, 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 24%, 39%, and 57% of revenue, respectively, during fiscal 2000. No single
customer accounted for more than 10% of revenue during the fiscal year.
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(*) "Forward-looking" statements.
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Simon Transportation is a North American truck line that provides
service to and from customer locations throughout the United States and in
several Canadian provinces. 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.
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.
<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. Most of the tractors 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 driver retention. 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 for its company
drivers. 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 2000
fiscal year resulting in an unusually high number of tractors without drivers.
The Company's driver turnover was 175% in fiscal 2000, measuring drivers after
they are assigned a tractor. The Company started an owner-operator program in
mid-October of 2000.
At September 30, 2000, Simon Transportation employed approximately 480
non-driver employees and approximately 2,400 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
three-week to six-week, on-the-road training program; and (iii) progressive
penalties for excessive speed and log violations. The Company has earned the
highest DOT safety and fitness rating of "satisfactory," which most recently was
extended on July 6, 2000.
The Company carries primary and excess liability insurance coverage of
$50 million, with a $250,000 basket deductible for personal injury and property
damage. The Company's workers' compensation coverage also carries a $350,000
deductible, with no coverage limit. Management believes these coverages are
adequate to cover reasonably anticipated claims.
Competition
The truckload segment of the trucking industry is highly competitive
and fragmented, and no carrier or group of carriers dominates the
temperature-controlled or dry van market. According to the September 2000 issue
of Refrigerated Transporter, the five largest temperature-controlled carriers by
revenue are C. R. England, Prime, Inc., Frozen Food Express Industries, Rocor
International, and KLLM Transport Services. The combined revenue reported for
these five carriers comprises approximately 36% of the estimated $4.8 billion
for-hire, temperature-controlled market. The proprietary fleet portion of the
temperature-controlled market has been estimated at an additional $3 billion.
<PAGE>
The Company's 2000 fiscal year revenue constituted approximately three percent
of the total market for temperature-controlled services and approximately five
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. The Company has fuel surcharge
agreements with a majority of its customers. However, recent increases in fuel
prices will not be fully offset by these surcharges.
Regulation
The Company is a common and contract motor carrier of general
commodities. Historically, the Interstate Commerce Commission (the "ICC") and
various state agencies regulated motor carriers' operating rights, accounting
systems, mergers and acquisitions, periodic financial reporting, and other
matters. In 1995, federal legislation preempted state regulation of prices,
routes, and services of motor carriers and eliminated the ICC. Several ICC
functions were transferred to the Department of Transportation (the "DOT").
Management does not believe that regulation by the DOT or by the states in their
remaining areas of authority will have a material effect on the Company's
operations. The Company's employee and independent contractor drivers also must
comply with the safety and fitness regulations promulgated by the DOT, including
those relating to drug and alcohol testing and hours of service.
The Company's operations are subject to various federal, state, and
local environmental laws and regulations, implemented principally by the EPA and
similar state regulatory agencies, governing the management of hazardous wastes,
other discharge of pollutants into the air and surface and underground waters,
and the disposal of certain substances. These regulations extend to the above
ground and underground fuel storage tanks located at each of the Company's
terminal facilities. All of the Company's tanks are of double hull construction
in accordance with EPA requirements and equipped with monitoring devices which
constantly monitor for leakage. Management is not aware of any fuel spills or
hazardous substance contamination on its properties and believes that its
operations are in material compliance with current laws and regulations.
Item 2. PROPERTIES
Simon Transportation operates terminals and driver recruitment offices
at seven 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. In January 2001, the
Company amended its line of credit agreement to add a $10 million term loan.
Borrowings are secured by the Salt Lake City terminal. The Company's additional
terminal and driver recruitment facilities include owned locations in Phoenix,
Arizona; Fontana, California; and Atlanta, Georgia; and a leased location in
Katy, Texas. Effective February 1, 2001, the Company is discontinuing its Katy,
Texas operation. The Company leases trailer drop yards at Tulare, California and
various customer locations. All terminals have modern fuel facilities with
environmental monitoring equipment.
The available acreage at the Company's headquarters will accommodate
future expansion, and the facility has been designed so that additions can be
<PAGE>
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 and certain of its officers and directors have been named
as defendants in a securities class action filed in the United States District
Court for the District of Utah, Caprin v. Simon Transportation Services, Inc.,
et al., No. 2:98CV 863K (filed December 3, 1998). Plaintiffs in this action
allege that defendants made material misrepresentations and omissions during the
period February 13, 1997 through April 2, 1998 in violation of Sections 11,
12(2) and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. On
September 27, 2000, the District Court dismissed the case with prejudice.
Plaintiffs have asked the Court for reconsideration and alteration or amendment
of the decision.
The Company is a defendant in a lawsuit filed April of 1998 in the
Third District Court in and for Salt Lake County Utah, Gallegos v. Dick Simon
Trucking, Inc., based upon the death of two people and the severe brain injury
to a child in an accident involving a Company truck. The lawsuit involves a
punitive damage claim, which is uninsurable under Utah law. The Company has
admitted liability on the non-punitive damages claims. The lawsuit is set for
trial on March 29, 2001. The probable verdict range of the compensatory damage
claim is from 5 to 20 million dollars, well within the Company's liability
insurance limits. Liability for the punitive damage claim and likely punitive
damage verdict amount, if any, are very difficult to predict. Management is
unable to assess the ultimate impact of this litigation on the Company's results
of operations or financial position.
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.
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, 2000,
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 is
traded on the NASDAQ National Market under the NASDAQ symbol SIMN. 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, 1999 and 2000.
Period High Low
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Calendar Year 1998
4th Quarter $ 6 13/16 $ 4 3/8
Calendar Year 1999
1st Quarter $ 7 1/2 $ 4 11/16
2nd Quarter $ 6 1/2 $ 4 1/2
3rd Quarter $ 5 3/4 $ 4
4th Quarter $ 6 3/4 $ 4 1/2
Calendar Year 2000
1st Quarter $ 6 1/8 $ 4 29/64
2nd Quarter $ 6 7/16 $ 4 7/8
3rd Quarter $ 7 3/8 $ 4 15/16
The prices reported reflect interdealer quotations without retail
mark-ups, mark-downs or commissions, and may not represent actual transactions.
As of November 30, 2000, the Company had 88 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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Fiscal Years Ended September 30,
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(In thousands, except per share amounts & operating 2000 1999 1998 1997 1996
data) ---- ---- ---- ---- ----
Statement of Operations Data:
Operating revenue................................. $231,397 $209,143 $193,507 $155,296 $101,090
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Operating expenses:
Salaries, wages, and benefits................... 94,240 90,876 80,500 60,504 40,015
Fuel and fuel taxes............................. 51,190 37,262 35,281 30,069 20,359
Operating supplies and expenses................. 31,576 27,872 26,156 19,289 13,701
Taxes and licenses.............................. 7,830 7,319 6,557 5,197 3,288
Insurance and claims............................ 10,352 6,591 5,217 3,404 2,172
Communications and utilities.................... 4,039 4,239 3,946 2,550 1,680
Depreciation and amortization................... 4,122 4,466 4,728 5,396 5,920
Rent............................................ 37,947 34,363 28,987 17,143 4,794
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Total operating expenses...................... 241,296 212,988 191,372 143,552 91,929
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Operating earnings (loss)..................... (9.899) (3,845) 2,135 11,744 9,161
Gain on sale of real property..................... -- -- -- 1,896 --
Interest expense and other, net................... (1,422) (1,353) (1,500) (1,134) (2,758)
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Earnings (loss) before income taxes and
cumulative effect of accounting change.......... (11,321) (5,198) 635 12,506 6,403
Provision (benefit) for income taxes1............. (4,075) (1,965) 297 4,727 5,454
--------------------------------------------------------------
Earnings (loss) before cumulative effect
of accounting change............................ (7,246) (3,233) 338 7,779 949
Cumulative effect of accounting change for
accrued claims payable, net of tax
benefit of $2,173............................... (3,862) -- -- -- --
--------------------------------------------------------------
Net earnings (loss)............................... $(11,108) $ (3,233) $ 338 $ 7,779 $ 949
==============================================================
Pro Forma Statement of Earnings Data: 1
Earnings (loss) before income taxes............... $(11,321) $ (5,198) $ 635 $ 12,506 $ 6,403
Provision (benefit) for income taxes.............. (4,076) (1,965) 297 4,727 2,536
--------------------------------------------------------------
Earnings (loss) before cumulative
effect of accounting change................... (7,246) (3,233) 338 7,779 3,867
Cumulative effect of accounting change, net....... (3,862) -- -- -- --
--------------------------------------------------------------
Net earnings (loss)............................... $(11,108) $ (3,233) $ 338 $ 7,779 $ 3,867
==============================================================
Diluted cumulative effect of accounting
change per common share....................... $ (0.63) -- -- -- --
==============================================================
Diluted net earnings (loss) per common share...... $ (1.82) $ (0.53) $ 0.05 $ 1.33 $ 0.87
==============================================================
Diluted weighted average shares outstanding....... 6,110,213 6,116,815 6,270,734 5,864,043 4,464,837
==============================================================
Balance Sheet Data (at end of period):
Net property and equipment........................ $49,403 $57,648 $64,618 $71,154 $56,714
Total assets...................................... 91,107 96,730 99,526 107,704 78,223
Debt and capitalized leases, including current 19,814 21,623 21,206 32,791 37,428
portion.........................................
Stockholders' equity.............................. 44,844 55,944 59,699 59,849 29,103
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[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 period. The pro forma statement of operations
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.
</FN>
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Operating Data:
Operating ratio2.................................. 104.3% 101.8% 98.9% 92.4% 90.9%
Average revenue per loaded mile................... $1.30 $1.26 $1.25 $1.25 $1.24
Average revenue per total mile.................... $1.16 $1.11 $1.11 $1.10 $1.10
Average revenue per tractor per week.............. $2,493 $2,478 $2,510 $2,627 $2,526
Empty miles percentage............................ 10.6% 12.0% 11.8% 11.9% 11.7%
Average length of haul in miles................... 1,067 1,017 1,026 1,001 984
Weighted average tractors during period........... 1,785 1,635 1,494 1,142 774
Tractors at end of period......................... 1,932 1,693 1,655 1,344 940
Trailers at end of period......................... 2,468 2,424 2,455 1,998 1,430
</TABLE>
[FN]
2 Operating expenses as a percentage of revenue.
</FN>
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 $231.4 million in revenue for
its fiscal year ended September 30, 2000, from $101.1 million in revenue for
fiscal 1996, a compounded annual growth rate of 23.0%.
During fiscal 1998, the Company experienced 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 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.
During fiscal year 1999, management deferred deliveries of new
tractors to better match the anticipated availability of drivers. This reduced
revenue growth for the year to 8% compared with historical levels. The Company
continued to experience financial and operating difficulties due to driver
turnover rates far in excess of historical averages and the fact that driver pay
increases effective in fiscal 1998 were not offset by increases in the freight
rates charged by the Company. In July 1999, the Company reduced its shop and
administrative personnel by approximately 25%.
During fiscal year 2000, revenue growth was 11%. Despite this growth,
the Company struggled to restore profitability because of high fuel prices,
and increased driver turnover. Accident claims, repair expenses, recruiting
costs, and low miles per tractor hurt the Company's profitability and were
exacerbated by the highest turnover in Simon's history.
During fiscal year 2000, in connection with the change in controlling
ownership and management, the Company changed its method of accounting for its
accrual for accident and workers' compensation claims. Effective October 1,
1999, the Company adopted a fully-developed claims expense estimate based on an
actuarial computation of the ultimate liability. Both the method formerly used
by the Company and the fully-developed method are acceptable under generally
accepted accounting principles (GAAP). The cumulative effect of the accounting
change was $3.9 million, net of an income tax benefit of $2.2 million.
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
<PAGE>
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 39.6% for fiscal year 1996. In addition to the ongoing income
tax effect, the termination of the Company's S corporation status resulted
in a one-time, non-cash charge of approximately $3.0 million during fiscal year
1996 in recognition of deferred income taxes.
Results of Operations
The following table sets forth the percentage relationship of certain
items to operating revenue for the periods indicated:
<TABLE>
<CAPTION>
Fiscal Years Ended
September 30,
----------------------------------
2000 1999 1998
----------------------------------
<S> <C> <C> <C>
Operating revenue.............................................................. 100.0% 100.0% 100.0%
Operating expenses:
Salaries, wages, and benefits................................................ 40.7 43.5 41.6
Fuel and fuel taxes.......................................................... 22.1 17.8 18.2
Operating supplies and expenses.............................................. 13.6 13.3 13.5
Taxes and licenses........................................................... 3.4 3.5 3.4
Insurance and claims......................................................... 4.5 3.2 2.7
Communications and utilities................................................. 1.7 2.0 2.0
Depreciation and amortization................................................ 1.8 2.1 2.4
Rent......................................................................... 16.4 16.4 15.0
---------------------------------
Total operating expenses.................................................... 104.3 101.8 98.9
---------------------------------
Operating earnings (loss)...................................................... (4.3) (1.8) 1.1
Interest expense and other, net................................................ (0.6) (0.6) (0.8)
---------------------------------
Earnings (loss) before income taxes and
cumulative effect of accounting change..................................... (4.9) (2.4) 0.3
Benefit (provision) for income taxes........................................... 1.8 0.9 (0.1)
---------------------------------
Earnings (loss) before cumulative effect of accounting change.................. (3.1) (1.5) 0.2
Cumulative effect of accounting change, net of income tax benefit............. (1.7) -- --
=================================
Net earnings (loss)............................................................ (4.8)% (1.5)% 0.2%
=================================
</TABLE>
Comparison of fiscal year ended September 30, 2000, with fiscal year ended
September 30, 1999.
Operating revenue increased $22.3 million (10.6%), to $231.4 million
during the 2000 fiscal year from $209.1 million during the 1999 fiscal year. The
increase in revenue was primarily attributable to a 9.2% increase in the
weighted average number of tractors to 1,785 during the 2000 fiscal year from
1,635 during the 1999 fiscal year. Average revenue per tractor per week
increased to $2,493 during the 2000 fiscal year from $2,478 during the 1999
fiscal year due to an increase in average revenue per loaded mile to $1.30,
$1.26 excluding fuel surcharge, during the 2000 fiscal year from $1.26 in the
1999 fiscal year.
Salaries, wages and benefits increased $3.3 million (3.7%), to $94.2
million in the 2000 fiscal year from $90.9 million in the 1999 fiscal year. As a
percentage of revenue, salaries, wages, and benefits decreased to 40.7% of
revenue during the 2000 fiscal year from 43.5% during the 1999 fiscal year.
The decrease is primarily attributable to a reduction in the Company's
shop and administrative personnel in July 1999, as the Company reduced its non-
driver personnel, mostly from the shop area, by approximately 25%. Management
announced a driver wage increase of two cents per mile effective November 1,
2000. One cent of the increase applies to all drivers at all levels and another
cent can be attained based upon a monthly mileage target.
Fuel and fuel taxes increased $13.9 million (37.4%), to $51.2 million
in the 2000 fiscal year from $37.3 million in the 1999 fiscal year. As a
percentage of revenue, fuel and fuel taxes increased to 22.1% of revenue during
the 2000 fiscal year from 17.8% during the 1999 fiscal year, principally as a
result of higher fuel prices in the 2000 period as compared with the 1999
period. The Company has agreements in place with a substantial number of
<PAGE>
customers who have agreed to pay fuel surcharges to help offset the escalation
in fuel prices. However, increased fuel prices will not be fully offset by
these surcharges.
Operating supplies and expenses increased $3.7 million (13.3%), to
$31.6 million in the 2000 fiscal year from $27.9 million in the 1999 fiscal
year. As a percentage of revenue, operating supplies and expenses increased
to 13.6% of revenue during the 2000 fiscal year from 13.3% during the 1999
fiscal year. The increase is principally attributable to the increased
recruiting costs associated with driver turnover, primarily in the fourth
quarter.
Taxes and licenses increased $0.5 million (7.0%), to $7.8 million in
the 2000 fiscal year from $7.3 million in the 1999 fiscal year. As a percentage
of revenue, taxes and licenses remained essentially constant at 3.4% of revenue
during the 2000 fiscal year compared to 3.5% of revenue during the 1999 fiscal
year.
Insurance and claims increased $3.8 million (57.1%), to $10.4 million
in the 2000 fiscal year from $6.6 million in the 1999 fiscal year. As a
percentage of revenue, insurance and claims increased to 4.5% of revenue for the
2000 fiscal year compared to 3.2% during the 1999 fiscal year, primarily as a
result of increased claims associated with driver turnover.
Communications and utilities decreased $0.2 million (4.7%), to $4.0
million in the 2000 fiscal year from $4.2 million in the 1999 fiscal year. As a
percentage of revenue, communications and utilities decreased to 1.7% of
revenue for the 2000 fiscal year compared to 2.0% during the 1999 fiscal year.
The decrease was primarily attributable to more efficient use of the
Company's satellite communication and long distance services. The Company
has reduced its long distance phone rates by over 40% versus the 1999 fiscal
year.(*)
Depreciation and amortization decreased $0.4 million (7.7%), to $4.1
million in the 2000 fiscal year from $4.5 million in the 1999 fiscal year. As a
percentage of revenue, depreciation and amortization (adjusted for the net gain
on sale of equipment) decreased to 1.8% of revenue during the 2000 fiscal year
from 2.1% during the 1999 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 2.6% of revenue ($6.0 million) during the
2000 fiscal year from 3.2% of revenue ($6.6 million) during the 1999 fiscal
year. Depreciation and amortization was adjusted for a $1.9 million net gain on
the sale of revenue equipment during the 2000 fiscal year compared with a $2.1
million net gain during the 1999 fiscal year.
Rent increased $3.6 million (10.4%), to $38.0 million in the 2000
fiscal year from $34.4 million in the 1999 fiscal year. As a percentage of
revenue, rent remained constant at 16.4% of revenue during both the 2000 and
1999 fiscal years. Substantially all of the Company's revenue equipment is
financed through 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 104.3% during the 2000 fiscal year from 101.8% during the 1999 fiscal year.
Interest expense and other, remained constant at $1.4 million in both
the 2000 and 1999 fiscal years. As a percentage of revenue, interest expense
and other, net remained constant at 0.6% during both the 2000 and 1999 fiscal
years.
The Company's effective combined federal and state income tax rate for
the 2000 fiscal year was 36.0% compared to 37.8% for the 1999 fiscal year. The
Company reduced its effective rate because of state franchise and gross
receipts taxes payable even though the Company experienced a net loss in fiscal
---------------------------------
(*) "Forward-looking" statements.
<PAGE>
2000. The Company has utilized all available loss carrybacks in prior years.
The 2000 loss will carry forward.
During fiscal year 2000, the Company changed its method of accounting
for its accrual for accident and workers' compensation claims. Effective
October 1, 1999, the Company adopted a fully-developed claims expense based
on an actuarial computation of the ultimate liability. Both the method formerly
used by the Company and the fully-developed method are acceptable under GAAP.
The cumulative effect of the accounting change was $3.9 million, net of an
income tax benefit of $2.2 million.
As a result of the factors described above, net loss increased $7.9
million to a net loss of $11.1 million during the 2000 fiscal year, or $1.82 per
share, from a net loss of $3.2 million during the 1999 fiscal year, or $0.53 per
share. As a percentage of revenue, net loss was 4.8% of revenue in the 2000
fiscal year compared with net loss of 1.5% of revenue in the 1999 fiscal year.
Comparison of fiscal year ended September 30, 1999, with fiscal year ended
September 30, 1998.
Operating revenue increased $15.6 million (8.1%), to $209.1 million
during the 1999 fiscal year from $193.5 million during the 1998 fiscal year. The
increase in revenue was primarily attributable to a 9.4% increase in the
weighted average number of tractors, to 1,635 during the 1999 fiscal year from
1,494 during the 1998 fiscal year, and an increase in average revenue per loaded
mile to $1.26 during the 1999 fiscal year from $1.25 in the 1998 fiscal year.
This increase was partially offset by a decrease in the average revenue per
tractor per week to $2,478 during the 1999 fiscal year from $2,510 during the
1998 fiscal year due to slower than expected freight demand in the Company's
second fiscal quarter and a significant number of tractors without drivers
throughout much of the fiscal year, particularly the first and fourth quarters.
Salaries, wages and benefits increased $10.4 million (12.9%), to $90.9
million in the 1999 fiscal year from $80.5 million in the 1998 fiscal year. As a
percentage of revenue, salaries, wages, and benefits increased to 43.5% of
revenue during the 1999 fiscal year from 41.6% during the 1998 fiscal year. The
increase is primarily attributable to the full effect of the two-cent per mile
driver wage increases effective April 15, 1998, and excess non-driving personnel
during most of the 1999 fiscal year. In July 1999, the Company reduced its shop
and administrative personnel by approximately 25%.
Fuel and fuel taxes increased $2.0 million (5.6%), to $37.3 million
in the 1999 fiscal year from $35.3 million in the 1998 fiscal year. As a
percentage of revenue, fuel and fuel taxes decreased to 17.8% of revenue during
the 1999 fiscal year from 18.2% during the 1998 fiscal year. The decrease
resulted principally from lower fuel prices in the first three quarters of the
1999 fiscal year. Fuel prices rose dramatically during the quarter ended
September 30, 1999.
Operating supplies and expenses increased $1.7 million (6.6%), to
$27.9 million in the 1999 fiscal year from $26.2 million in the 1998 fiscal
year. As a percentage of revenue, operating supplies and expenses decreased
to 13.3% of revenue during the 1999 fiscal year from 13.5% during the 1998
fiscal year. The decrease is primarily attributable to the Company's efforts
to reduce the amount spent on operating supplies and expenses.
Taxes and licenses increased $0.7 million (11.6%), to $7.3 million in
the 1999 fiscal year from $6.6 million in the 1998 fiscal year. As a percentage
of revenue, taxes and licenses remained essentially constant at 3.5% of revenue
during the 1999 fiscal year compared to 3.4% of revenue during the 1998 fiscal
year.
Insurance and claims increased $1.4 million (26.3%), to $6.6 million
in the 1999 fiscal year from $5.2 million in the 1998 fiscal year. As a
percentage of revenue, insurance and claims increased to 3.2% of revenue for
the 1999 fiscal year compared to 2.7% during the 1998 fiscal year. The increase
was attributable to an increase in the number of accidents experienced by the
Company during the 1999 fiscal year.
Communications and utilities increased $0.3 million (7.4%), to $4.2
million in the 1999 fiscal year from $3.9 million in the 1998 fiscal year. As a
percentage of revenue, communications and utilities remained unchanged at 2.0%
of revenue during the 1999 and 1998 fiscal years.
<PAGE>
Depreciation and amortization decreased $0.2 million (5.5%), to $4.5
million in the 1999 fiscal year from $4.7 million in the 1998 fiscal year. As a
percentage of revenue, depreciation and amortization (adjusted for the net gain
on sale of equipment) decreased to 2.1% of revenue during the 1999 fiscal year
from 2.4% during the 1998 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 3.2% of revenue ($6.6 million) during the
1999 fiscal year from 3.6% of revenue ($7.0 million) during the 1998 fiscal
year. Depreciation was adjusted for a $2.1 million net gain on the sale of
revenue equipment during the 1999 fiscal year compared with a $2.3 million net
gain during the 1998 fiscal year.
Rent increased $5.4 million (18.5%), to $34.4 million in the 1999
fiscal year from $29.0 million in the 1998 fiscal year. As a percentage of
revenue, rent increased to 16.4% of revenue during the 1999 fiscal year from
15.0% during the 1998 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. Substantially all of the
Company's revenue equipment is financed through operating leases. In addition,
the fixed monthly rental payments were not as efficiently spread over lower
revenue per tractor.
As a result of the foregoing, the Company's operating ratio increased
to 101.8% during the 1999 fiscal year from 98.9% during the 1998 fiscal year.
Interest expense and other, net decreased $0.1 million (9.8%), to $1.4
million in the 1999 fiscal year from $1.5 million in the 1998 fiscal year. As a
percentage of revenue, interest expense and other, net decreased slightly to
0.6% of revenue during the 1999 fiscal year compared with 0.8% during the 1998
fiscal year.
The Company's effective combined federal and state income tax rate for
the 1999 fiscal year was 37.8% compared to 46.8% for the 1998 fiscal year as a
result of the relative impact of non-deductible expenses in fiscal 1998. These
non-deductible expenses remained essentially constant during both the 1999 and
1998 fiscal years; however, the relative effect on the tax rate varies because
of the earnings experienced in the 1998 fiscal year versus the loss in the 1999
fiscal year.
As a result of the factors described above, net earnings decreased $3.6
million to a loss of $3.2 million during the 1999 fiscal year from net earnings
of $338,000 during the 1998 fiscal year. As a percentage of revenue, net loss
was 1.5% of revenue in the 1999 fiscal year compared with net earnings of 0.2%
of revenue in the 1998 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 flows from operations.
The Company's primary sources of liquidity are borrowings and leases with
financial institutions and equipment manufacturers. During the 2000, 1999, and
1998 fiscal years, the Company financed most of its tractors with operating
leases.
Net cash (used in) provided by operating activities was ($7.6 million),
($1.6 million), and $4.2 million, for the fiscal years ended September 30,
2000, 1999, and 1998, respectively. Accounts receivable increased $7.1 million,
$2.6 million, and $627,000 for the fiscal years ended September 30, 2000, 1999,
and 1998, respectively. The average age of the Company's accounts receivable
was 42, 39, and 35 days for the fiscal years ended September 30, 2000, 1999, and
1998, respectively.
Net cash provided by investing activities was $4.1 million, $2.5
million, and $2.9 million, for the fiscal years ended September 30, 2000, 1999,
and 1998, 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 $33.3 million in aggregate for fiscal years 2001
<PAGE>
and 2002. The Company expects projected capital expenditures to be funded with
operating leases, borrowings and cash flows from operations.(*)
Net cash used in financing activities was $1.8 million, $100,000, and
$12.1 million, for the fiscal years ended September 30, 2000, 1999, and 1998,
respectively. Primary sources of cash were borrowings of $6 million and $10
million on the Company's line-of-credit in the fiscal years ended September 30,
2000 and 1999, respectively. Primary uses of cash were net payments on
borrowings of $7.8 million, $9.5 million, and $14.5 million of principal under
the Company's long-term debt and capitalized lease agreements for the fiscal
years ended September 30, 2000, 1999, and 1998, respectively. During fiscal year
1999, the Company purchased 95,500 shares of Class A Common Stock at an average
market price of $5.46 per share for a total cash outlay of $522,000. The Company
purchased 81,100 shares at an average market price of $6.55 per share for a
total cash outlay of $532,000 in fiscal 1998.
The maximum amount committed under the Company's line of credit at
September 30, 2000 was $20 million. As of September 30, 2000, the Company had
drawn $16 million against the line. At September 30, 2000, the interest rate
on the line of credit is 1.75 percent above the 30-day London Interbank Offered
Rate ("LIBOR") in effect from time-to-time. At September 30, 2000, the Company
had other outstanding long-term debt and capitalized lease obligations
(including current portions) of approximately $3.8 million, most of which
comprised obligations for the purchase of revenue equipment. As of September
30, 2000, the Company's future commitments under noncancelable operating leases
amounted to $74.1 million.
In January 2001, the Company amended its credit facility. The amended
agreement provides for a $10 million term loan in addition to the $20 million
line of credit. The term loan matures September 30, 2001 and the line of credit
matures September 30, 2002. Borrowings under the line of credit and term loan
are secured by the Company's Salt Lake City terminal facility. In addition, a
portion of borrowings under the agreement are guaranteed by the Company's
majority stockholder. All borrowings under the agreement bear interest at rates
ranging from 1.75 percent to 3.25 percent above the Eurodollar Rate in effect
from time-to-time. Applicable interest rates are determined based on the
Company's net worth.
The Company's working capital at September 30, 2000, 1999, and 1998 was
$16.0 million, $17.5 million, and $14.9 million, respectively. Management
believes that available borrowings under the line of credit and term loan,
future borrowings under installment notes payable or lease arrangements for
revenue equipment, and cash flows 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 2001.(*)
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.
---------------------------------
(*) "Forward-looking" statements.
<PAGE>
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. The Company has fuel
surcharge agreements with a majority of its customers. However, the recent
increases in fuel prices are not fully offset by these surcharges.
Cautionary Statement Regarding Forward-Looking Statements
The Company may from time-to-time make written or oral forward-looking
statements. Written forward-looking statements may appear in documents filed
with the Securities and Exchange Commission, in press releases, and in reports
to stockholders. The Private Securities Litigation Reform Act of 1995 contains
a safe harbor for forward-looking statements. The Company relies on this safe
harbor in making such disclosures. In connection with this "safe harbor"
provision, the Company is hereby identifying important factors that could cause
actual results to differ materially from those contained in any forward-looking
statement made by or on behalf of the Company. Factors that might cause such a
difference include, but are not limited to the following:
Economic Factors; Fuel Prices. Negative economic factors such as
recessions, downturns in customers' business cycles, surplus inventories,
inflation, and higher interest rates could impair the Company's operating
results by decreasing equipment utilization or increasing costs of operations.
Increases in fuel prices usually are not fully recoverable. Accordingly, high
fuel prices can have a negative impact on the Company's profitability.
Recruitment, Retention, and Compensation of Qualified Drivers.
Competition for drivers is intense in the trucking industry. There is, and
historically has been, an industry-wide shortage of qualified drivers. The
Company experienced the highest driver turnover in its history in fiscal 2000,
175% measuring from the time the driver is assigned a tractor. The Company's
driver turnover in fiscal 2000 is believed to be higher than the industry
generally. This shortage caused the Company to implement a driver pay increase
effective November 1, 2000. The Company could be forced to further increase
the compensation it pays to drivers or curtail the Company's growth, which could
have a material adverse effect on the Company's profitability.
Resale of Used Revenue Equipment. The Company historically has
recognized a gain on the sale of its revenue equipment. The market for used
equipment has experienced greater supply than demand in 1998, 1999 and 2000.
If the resale value of the Company's revenue equipment were to decline, the
Company could find it necessary to dispose of its equipment at lower prices or
retain some of its equipment longer, with a resulting increase in operating
expenses.
Acquisitions. In December 2000, the Company announced the signing
of a definitive acquisition agreement. The agreement has not been consummated
as of the date of this report and is subject to certain conditions to closing,
including due diligence. This acquisition, and any other acquisition by the
Company, involves numerous risks, including difficulties in assimilating
operations, diversion of management time, exposure to successor liability
issues, and the potential loss of customers, key employees, and drivers of the
acquired company, any of which could have a material adverse effect on the
Company's profitability.
<PAGE>
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The principal market risks to which the Company is exposed are
fluctuations in fuel prices and interest rates on our debt financing.
We are not engaged in any fuel hedging transactions. Thus, we are
exposed to fluctuations in fuel prices but are not exposed to any market risk
involving hedging costs.
The principal market risks (i.e., the risk of loss arising from adverse
changes in market rates and prices) to which we are exposed are interest rates
on our debt financing. Our variable rate debt consists of a revolving line of
credit, and an equipment finance term loan carrying interest rates tied to LIBOR
or the Eurodollar rate. These variable interest rates expose us to the risk
that interest rates may rise. At September 30, 2000, assuming borrowing
equal to the $16 million drawn on the line of credit and $260,000 on other
outstanding variable rate loans, a one percentage point increase in the LIBOR
and Eurodollar rate would increase our annual interest expense by approximately
$163,000. The balance of our equipment financing carries fixed interest rates
and includes term notes payable and capitalized leases totaling approximately
$3.1 million. These fixed interest rates expose us to the risk that interest
rates may fall. A one percentage point decline in interest rates would have the
effect of increasing the premium we pay over market interest rates by one
percentage point or approximately $31,000 annually.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's audited financial statements, including its
consolidated balance sheets and consolidated statements of operations, cash
flows, and stockholders' equity, and notes related thereto, are included at
pages 22 to 37 of this report. The supplementary quarterly financial data for
fiscal years 2000 and 1999 follows. The quarterly data has been restated from
amounts previously disclosed to reflect the effect of accounting change for
accrued claims payable.
Quarterly Financial Data:
<TABLE>
<CAPTION>
Fourth Third Second First
Quarter Quarter Quarter Quarter
2000 2000 2000 2000
------------------ ---------------- ------------------- ----------------
<S> <C> <C> <C> <C>
Revenue $ 61,430 $60,948 $55,159 $53,861
Operating earnings (loss) (10,459) (82) 545 98
Earnings (loss) before income
taxes and cumulative effect
of accounting change (10,805) (418) 122 (221)
Provision (benefit) for income taxes (3,890) (151) 44 (80)
Cumulative effect of
accounting change -- -- -- (3,863)
Net earnings (loss) (6,915) (267) 78 (4,004)
Diluted net earnings (loss) per share $ (1.13) $ (0.04) $ 0.01 $ (0.66)
Fourth Third Second First
Quarter Quarter Quarter Quarter
1999 1999 1999 1999
------------------ ---------------- ------------------- ----------------
Revenue $ 53,281 $53,599 $49,271 $52,992
Operating earnings (loss) (440) (1,058) (2,716) 369
Earnings (loss) before income taxes (782) (1,393) (3,097) 73
Provision (benefit) for income taxes (294) (527) (1,171) 27
Net earnings (loss) (486) (866) (1,926) 45
Diluted net earnings (loss) per share $ (0.08) $ (0.14) $ (0.32) $ 0.01
</TABLE>
<PAGE>
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, 2000, 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" of Registrant's Proxy Statement for the 2000 annual meeting of
stockholders following the fiscal year ended September 30, 2000, which will be
filed with the Securities and Exchange Commission in accordance with Rule 14a-6
promulgated under the Securities Exchange Act of 1934, as amended (the "Proxy
Statement"), is incorporated by reference.
Item 11. EXECUTIVE COMPENSATION
The information respecting executive compensation set forth under the
caption "Executive Compensation" 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" 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" of the Proxy Statement is
incorporated herein by reference.
<PAGE>
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 Financial Position............................. 22
Consolidated Statement of Operations..................................... 23
Consolidated Statement of Stockholders' Equity........................... 24
Consolidated Statement of Cash Flows..................................... 25
Notes to Consolidated Financial Statements............................... 26
Report of Independent Public Accountants................................. 38
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, 2000.
(c) Exhibits
Number Description
------ -----------
3.1 + Articles of Incorporation.
3.2 * Amended and Restated Bylaws.
4.1 + Articles of Incorporation.
4.2 * Amended and Restated Bylaws.
10.1 + Outside Director Stock Option Plan.
10.2 * Amendment to Outside Director Stock Option Plan
10.3 + Incentive Stock Plan.
10.4 # Amendment No. 2 to the Simon Transportation Services Inc. Incentive
Stock Plan
10.5 * Revised Amendment No. 3 to the Simon Transportation Services
Incentive Stock Plan
10.6 @ Warrant to Purchase Shares of Class A Common Stock dated
September 19, 2000, between Jerry Moyes and Simon Transportation
Services Inc.
10.7 + 401(k) Plan.
10.8 ++ Loan Agreement (Headquarters Loan) dated May 23, 1996 between U.S.
Bank of Utah and Dick Simon Trucking, Inc.
10.9 +++ Loan Agreement (Line of Credit) dated September 28, 1999 (replaced
loan agreement dated April 29, 1996) between U.S. Bank of Utah and
Simon Transportation Services Inc.
21 + List of subsidiaries.
23 * Consent of Arthur Andersen LLP, independent public accountants.
-------------------------------------------
+ Filed as an exhibit to the registrant's Registration Statement on
Form S-1, Registration No. 33-96876, effective November 17, 1995, and
incorporated herein by reference.
++ Filed as an exhibit to the
registrant's Quarterly Report on Form 10-Q for the period ended June
30, 1996, Commission File No. 0-27208, dated August 9, 1996, and
incorporated herein by reference.
+++ Filed as an exhibit to the registrant's Annual Report on Form 10-K
for the period ended September 30, 1999, Commission File No. 0-27208,
dated December 14, 1999, and incorporated herein by reference. # Filed
as an exhibit to the registrant's Definitive Proxy Statement for the
annual meeting held December 19, 1997, Commission File No. 0-27208, and
incorporated herein by reference.
@ Filed as an exhibit to the registrant's Current Report on Form 8-K,
Commission File No. 0-27208, dated October 4, 2000, and incorporated
herein by reference.
* Filed herewith
<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 TRANSPORTATION SERVICES INC.
Date: January 10, 2001 By: /s/ Alban B. Lang
---------------- -----------------
Alban B. Lang
Treasurer and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Position Date
--------- -------- ----
<S> <C> <C>
/s/ Jerry Moyes Chairman of the Board January 10, 2001
--------------------------------------
Jerry Moyes
/s/ Jon Isaacson Chief Executive Office (principal operating January 10, 2001
-------------------------------------- officer); Director
Jon Isaacson
/s/ Kelle A. Simon President; Director January 10, 2001
--------------------------------------
Kelle A. Simon
/s/ Richard D. Simon Director January 10, 2001
--------------------------------------
Richard D. Simon
/s/ Lou Edwards Director January 10, 2001
--------------------------------------
Lou Edwards
/s/ Gordon Holladay Director January 10, 2001
--------------------------------------
Gordon Holladay
/s/ Earl Scudder Director January 10, 2001
--------------------------------------
Earl Scudder
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIMON TRANSPORTATION SERVICES INC.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
ASSETS
<S> <C> <C>
September 30,
----------------------------------
2000 1999
----------------------------------
Current Assets:
Cash $ 3,331,119 $ 8,658,268
Receivables, net of allowance for doubtful accounts
of $586,000 and $285,000, respectively 29,932,630 22,862,685
Operating supplies 1,330,462 1,468,216
Income taxes receivable -- 1,656,338
Prepaid expenses and other 2,325,199 2,643,993
Current deferred income tax asset 4,332,445 1,066,786
----------------------------------
Total current assets 41,251,855 38,356,286
----------------------------------
Property and Equipment, at cost:
Land 8,884,752 8,387,972
Revenue equipment 37,114,744 45,089,385
Buildings and improvements 18,525,612 18,484,326
Office furniture and equipment 9,262,994 8,889,433
----------------------------------
73,788,102 80,851,116
Less accumulated depreciation and amortization (24,384,568) (23,203,536)
----------------------------------
49,403,534 57,647,580
----------------------------------
Other Assets 451,603 726,140
----------------------------------
$ 91,106,992 $ 96,730,006
==================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 1,841,735 $ 7,459,577
Current portion of capitalized lease obligations 1,595,385 1,855,675
Accounts payable 7,721,099 6,108,118
Accrued liabilities 5,242,894 3,419,629
Accrued claims payable 8,880,638 1,970,336
----------------------------------
Total current liabilities 25,281,751 20,813,335
----------------------------------
Long-Term Debt, net of current portion 16,376,791 11,718,580
----------------------------------
Capitalized Lease Obligations, net of current portion -- 589,181
----------------------------------
Deferred Income Tax Liability 4,604,318 7,665,063
----------------------------------
Commitments and Contingencies (Notes 2 and 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,
6,287,709 and 5,372,683 shares issued, respectively 62,877 53,727
Class B common stock, $.01 par value, 5,000,000 shares authorized, 0 and
913,751 shares issued, respectively -- 9,138
Additional paid-in capital 48,285,578 48,277,256
Treasury stock, 176,600 shares at cost (1,053,147) (1,053,147)
Retained earnings (deficit) (2,451,176) 8,656,873
----------------------------------
Total stockholders' equity 44,844,132 55,943,847
----------------------------------
$ 91,106,992 $ 96,730,006
==================================
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of this consolidated financial statement.
<PAGE>
<TABLE>
<CAPTION>
SIMON TRANSPORTATION SERVICES INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<S> <C> <C> <C>
For the Years Ended September 30,
----------------------------------------------------------
2000 1999 1998
----------------------------------------------------------
Operating Revenue $231,396,894 $209,143,336 $193,506,902
----------------------------------------------------------
Operating Expenses:
Salaries, wages, and benefits 94,240,163 90,875,731 80,499,985
Fuel and fuel taxes 51,189,390 37,261,969 35,280,815
Operating supplies and expenses 31,575,822 27,872,046 26,155,797
Taxes and licenses 7,829,742 7,318,915 6,557,109
Insurance and claims 10,352,274 6,591,246 5,216,804
Communications and utilities 4,039,162 4,239,479 3,945,707
Depreciation and amortization 4,121,893 4,466,114 4,728,477
Rent 37,947,272 34,362,746 28,987,072
----------------------------------------------------------
Total operating expenses 241,295,718 212,988,246 191,371,766
----------------------------------------------------------
Operating earnings (loss) (9,898,824) (3,844,910) 2,135,136
Other (Expense) Earnings:
Interest expense (1,505,160) (1,471,426) (1,818,100)
Other, net 82,652 117,794 317,644
----------------------------------------------------------
Earnings (loss) before income taxes and
cumulative effect of accounting change (11,321,332) (5,198,542) 634,680
Provision (benefit) for income taxes (4,075,680) (1,965,049) 296,536
----------------------------------------------------------
Earnings (loss) before cumulative
effect of accounting change (7,245,652) (3,233,493) 338,144
Cumulative effect of accounting change
for accrued claims payable, net of
income tax benefit of $2,172,598 (3,862,397) -- --
----------------------------------------------------------
Net Earnings (Loss) $(11,108,049) $ (3,233,493) $ 338,144
==========================================================
Basic and diluted cumulative effect of
accounting change per common share $ (0.63) -- --
==========================================================
Basic and diluted net earnings
(loss) per common share $ (1.82) $ (0.53) $ 0.05
==========================================================
Basic and diluted weighted average
common shares outstanding 6,110,213 6,116,815 6,270,734
==========================================================
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of this consolidated financial statement.
<PAGE>
<TABLE>
<CAPTION>
SIMON TRANSPORTATION SERVICES INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C> <C> <C>
Class A Class B Additional Retained Total
Common Common Paid-in Treasury Earnings Stockholders'
Stock Stock Capital Stock (Deficit) Equity
-------------------------------------------------------------------------
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 stockholder
Issuance of 3,460 shares 35 43,648 43,683
of 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
Purchase of 95,500 shares (521,600) (521,600)
of Class A Common Stock
Net loss (3,233,493) (3,233,493)
-------------------------------------------------------------------------
Balance, September 30, 1999 53,727 9,138 48,277,256 (1,053,147) 8,656,873 55,943,847
Issuance of 1,275 shares 12 8,322 8,334
of Class A Common Stock
upon exercise of stock
options
Sale of 913,751 shares of 9,138 (9,138) --
Class B Common Stock by
major stockholder
Net loss (11,108,049) (11,108,049)
-------------------------------------------------------------------------
Balance, September 30, 2000 $ 62,877 $ -- $ 48,285,578 $(1,053,147)$ (2,451,176) $ 44,844,132
=========================================================================
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of this consolidated financial statement.
<PAGE>
<TABLE>
<CAPTION>
SIMON TRANSPORTATION SERVICES INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<S> <C> <C> <C>
For the Years Ended September 30,
-------------------------------------------------------
2000 1999 1998
-------------------------------------------------------
Cash Flows From Operating Activities:
Net earnings (loss) $ (11,108,049) $ (3,233,493) $ 338,144
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,121,893 4,466,114 4,728,477
Changes in operating assets and liabilities:
Receivables, net (7,069,945) (2,611,754) (627,145)
Operating supplies 137,754 (399,121) (316,882)
Income taxes receivable 1,656,338 936,767 (3,224,881)
Prepaid expenses and other 318,794 (462,013) (623,057)
Current deferred income tax asset (3,265,659) (304,323) (127,436)
Other assets 274,537 140,981 (98,373)
Accounts payable 1,612,981 1,093,069 1,421,629
Accrued liabilities 1,823,266 231,224 (136,874)
Accrued claims payable 6,910,302 66,211 1,153
Deferred income tax liability (3,060,745) (1,491,780) 2,902,398
-------------------------------------------------------
Net cash provided by (used in) operating activities (7,648,533) (1,568,118) 4,237,153
-------------------------------------------------------
Cash Flows From Investing Activities:
Purchase of property and equipment (16,318,070) (10,385,759) (12,936,744)
Proceeds from the sale of property and equipment 20,440,223 12,890,002 15,833,300
-------------------------------------------------------
Net cash provided by investing activities 4,122,153 2,504,243 2,896,556
-------------------------------------------------------
Cash Flows From Financing Activities:
Proceeds from issuance of long-term debt -- -- 2,900,000
Principal payments on long-term debt (6,959,631) (7,551,634) (7,191,295)
Borrowings under line-of-credit agreement 6,000,000 10,000,000 --
Principal payments under capitalized lease obligations (849,471) (2,030,988) (7,294,186)
Net proceeds from issuance of common stock 8,334 -- 43,683
Purchase of treasury stock -- (521,600) (531,547)
-------------------------------------------------------
Net cash used in financing activities (1,800,769) (104,222) (12,073,345)
-------------------------------------------------------
Net Increase (Decrease) In Cash (5,327,149) 831,903 (4,939,636)
Cash at Beginning of Year 8,658,268 7,826,365 12,766,001
-------------------------------------------------------
Cash at End of Year $ 3,331,119 $ 8,658,268 $ 7,826,365
=======================================================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest $ 1,422,508 $ 1,471,426 $ 1,818,100
Cash paid during the year for income taxes 55,505 32,486 153,461
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of this consolidated financial statement.
<PAGE>
SIMON TRANSPORTATION SERVICES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) DESCRIPTION OF THE COMPANY
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.
(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.
No customer accounted for more than 10 percent of operating revenue in the
fiscal year ended September 30, 2000. One customer accounted for approximately
11 percent of operating revenue in fiscal years 1999 and 1998, respectively. No
other customer accounted for more than 10% of revenue during fiscal years 1999
and 1998.
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 $1,858,535, $2,131,460 and $2,290,074 for fiscal years 2000, 1999
and 1998, respectively, have been included in depreciation and amortization in
the accompanying statements of operations and cash flows.
<PAGE>
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.
Quantitative and Qualitative Disclosures About Market Risk
The principal market risks to which the Company is exposed are
fluctuations in fuel prices and interest rates on debt financing.
The Company has not engaged in any fuel hedging transactions. Thus, the
Company is exposed to fluctuations in fuel prices but is not exposed to any
market risk involving hedging costs.
The principal market risks (i.e., the risk of loss arising from adverse
changes in market rates and prices) to which the Company is exposed are interest
rates on debt financing. Variable rate debt consists of a revolving line of
credit, and an equipment finance term loan carrying interest rates tied to LIBOR
or the Eurodollar rate. These variable interest rates expose the Company to the
risk that interest rates may rise. At September 30, 2000, assuming borrowing
equal to the $16 million drawn on the line of credit and $260,000 on other
outstanding variable rate loans, a one percentage point increase in the LIBOR
and Eurodollar rate would increase annual interest expense by approximately
$163,000. The balance of equipment financing carries fixed interest rates and
includes term notes payable and capitalized leases totaling approximately $3.1
million. These fixed interest rates expose the Company to the risk that interest
rates may fall. A one percentage point decline in interest rates would have the
effect of increasing the premium paid over market interest rates by one
percentage point or approximately $31,000 annually.
Insurance Coverage and Accrued Claims Payable
The Company acts as a self-insurer for auto liability, tractor physical
damage, trailer physical damage, and cargo damage claims subject to a "basket
deductible" of $250,000 per occurrence. The Company acts as a self-insurer for
workers' compensation claims up to $350,000 per single occurrence. Liability in
excess of these amounts has been insured by the Company through an 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 risk 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 provides for adverse
loss developments in the period when new information so dictates.
Prior to October 1, 1999, the Company provided a reserve for workers'
compensation and automobile related liabilities for each reported claim on a
case by case basis plus an allowance for the cost of incurred but not reported
claims. Effective October 1, 1999, the Company changed its method of accounting
for workers' compensation and accident claims. The Company adopted a
fully-developed claims expense estimate based on an actuarial computation of the
ultimate liability. Both the method formerly used by the Company and the
fully-developed method are acceptable under accounting principles generally
accepted in the United States (GAAP). The cumulative effect of the accounting
<PAGE>
change was $3,862,397, net of an income tax benefit of $2,172,598, or $(0.63)
per diluted common share for the year ended September 30, 2000.
The Company had outstanding letters of credit related to insurance
coverage totaling $2,085,000 at September 30, 2000. Subsequent to year end,
outstanding letters of credit related to insurance coverage were increased to
$2,835,000. These letters of credit mature at various times through November
2001 and renew annually unless terminated by either party.
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 (Loss) Per Common Share
Basic net earnings (loss) per common share (Basic EPS) excludes
dilution and is computed by dividing net earnings (loss) by the weighted average
number of common shares outstanding during the fiscal year. Diluted net earnings
(loss) 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 (loss) per common share.
Options to purchase 1,342,555, 1,008,350 and 717,130 shares of common
stock at weighted average exercise prices of $12.51, $14.34 and $18.05 as of
September 30, 2000, 1999, and 1998, respectively, were not included in the
computation of Diluted EPS. The inclusion of the options would have been
antidilutive, thereby increasing net earnings per common share or decreasing net
loss per common share.
<PAGE>
Segment Reporting
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 131, "Disclosures About Segments of an Enterprise and Related
Information." This statement requires disclosures related to components of a
company for which separate financial information is available that is evaluated
regularly by the Company's chief operating decision maker in deciding how to
allocate resources and assess performance. Management believes that the Company
has only one operating segment in accordance with SFAS No. 131.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
133 establishes new accounting and reporting standards for companies to report
information about derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. This statement is effective for
financial statements issued for all fiscal quarters of fiscal years beginning
after June 15, 2000. The Company does not expect this statement to have a
material impact on the Company's results of operations, financial position or
liquidity.
In December 1999, the Securities and Exchange Commission ("SEC") staff
issued Staff Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial
Statements." This pronouncement summarizes certain of the SEC staff's views in
applying generally accepted accounting principles to selected revenue
recognition issues. The Company is required to adopt SAB 101 during the first
quarter of fiscal year 2001. Although management is currently evaluating the
impact, if any, of SAB 101, management does not presently believe it will have a
material impact on the Company's results of operations, financial position or
liquidity.
In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation, an
Interpretation of Accounting Principles Board Opinion No. 25 ("APB 25")." This
interpretation clarifies the definition of an employee for purposes of applying
APB 25, the criteria for determining whether a plan qualifies as a
noncompensatory plan, the accounting consequence of various modifications to the
terms of a previously fixed stock option or award, and the accounting for an
exchange of stock compensation awards in a business combination. This
interpretation became effective July 1, 2000 at which time it was adopted by the
Company. The adoption of FIN 44 had no impact on the Company's results of
operations, financial position or liquidity at the time of the adoption.
<PAGE>
(3) INCOME TAXES
The provision (benefit) for income taxes includes the following
components for the years ended September 30, 2000, 1999 and 1998:
<TABLE>
<S> <C> <C> <C>
2000 1999 1998
---------------------------------------------------------
Current income tax provision (benefit):
Federal $ -- $ (333,900) $ (2,100,924)
State 47,000 164,957 (377,502)
---------------------------------------------------------
47,000 (168,943) (2,478,426)
---------------------------------------------------------
Deferred income tax provision (benefit):
Federal (5,722,329) (1,331,839) 2,352,293
State (572,949) (464,267) 422,669
---------------------------------------------------------
(6,295,278) (1,796,106) 2,774,962
---------------------------------------------------------
Provision (benefit) for income taxes
(including $2,172,598 of benefit
in fiscal 2000 netted against the cumulative
effect of accounting change) $ (6,248,278) $ (1,965,049) $ 296,536
=========================================================
</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 (benefit) for income taxes by earnings (loss) before income taxes for
the years ended September 30, 2000, 1999 and 1998:
<TABLE>
<S> <C> <C> <C>
2000 1999 1998
---------------------------------------------------------
Computed "expected" provision (benefit)
for income taxes at the statutory rate $(5,901,151) $(1,767,504) $ 215,791
Increase (decrease) in income taxes Resulting from:
State income taxes, net of federal income
tax benefit (347,126) (197,545) 24,118
Other, net -- -- 56,627
---------------------------------------------------------
Provision (benefit) for income taxes $(6,248,277) $(1,965,049) $ 296,536
=========================================================
</TABLE>
The significant components of the net deferred income tax assets and
liabilities as of September 30, 2000 and 1999 are as follows:
<TABLE>
<S> <C> <C>
2000 1999
------------------ -----------------
Deferred income tax assets:
Accrued claims payable $ 2,881,635 $ 397,259
Other reserves and accruals 1,450,809 669,527
AMT credit carryforward 1,001,786 1,017,279
Federal net operating loss carryforward 1,660,412 396,533
State net operating loss carryforward 300,207 478,991
------------------ -----------------
Total deferred income tax assets 7,294,850 2,959,589
------------------ -----------------
Deferred income tax liability:
Difference between book and tax basis
of property and equipment (7,566,723) (9,557,866)
------------------ -----------------
Net deferred income tax liability $ (271,873) $ (6,598,277)
================== =================
</TABLE>
<PAGE>
(4) LONG-TERM DEBT
Long-term debt consists of the following as of September 30, 2000 and 1999:
<TABLE>
<S> <C> <C>
2000 1999
--------------------------------------
Notes payable to a bank, interest ranging from 6.24 percent to 7.20 percent, $ 1,539,834 $ 4,507,051
payable in monthly installments through April 2001, secured by revenue
equipment
Note payable to a bank, interest based on Eurodollar rate payable in monthly -- 4,022,222
installments through August 2000, unsecured
Note payable to a bank, interest based on Eurodollar rate (6.39 percent at 259,554 648,884
September 30, 2000), payable in monthly installments through May 2001,
secured by revenue equipment
Note payable to a municipality for a special improvement district 419,138 --
Line of credit payable to a bank, interest based on Eurodollar rate (7.14 16,000,000 10,000,000
percent at September 30, 2000), interest payable monthly, principle
due September 2002, secured by accounts receivable (see description
below)
--------------------------------------
18,218,526 19,178,157
Less current portion (1,841,735) (7,459,577)
--------------------------------------
$ 16,376,791 $ 11,718,580
======================================
</TABLE>
Scheduled principal payments of long-term debt as of September 30, 2000
are as follows:
Years Ending September 30, Amount
------------------------------------------------------ -------------------
2001 $ 1,841,735
2002 16,376,791
-------------------
$18,218,526
===================
The Company has a secured line of credit that provides for maximum
borrowings of $20,000,000 with a bank through September 30, 2002. Borrowings
under the line of credit are secured with accounts receivable and are limited to
a portion of the book value of accounts receivable. As of September 30, 2000,
the Company had drawn $16,000,000 on this line of credit, had $2,085,000 of
outstanding letters of credit, and had $1,915,000 of additional availability
under the agreement.
The Company's secured line of credit agreement contains various
restrictive covenants including a minimum tangible net worth requirement and a
fixed charge coverage covenant. As of September 30, 2000, the Company was in
violation of the minimum tangible net worth requirement. The Company obtained a
waiver of the violation and as discussed in Note 10 has amended the covenant
subsequent to September 30, 2000.
<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 as of September 30, 2000 and 1999:
2000 1999
----------------------------------------------
Revenue equipment $ 5,987,377 $ 5,987,377
Less accumulated amortization (2,910,314) (2,514,305)
----------------------------------------------
$ 3,077,063 $3,473,072
==============================================
The following is a schedule of future minimum lease payments under
capitalized leases together with the present value of the minimum lease payments
at September 30, 2000:
Years Ending September 30, Amount
---------------------------------------------------
--------------------
2001 $ 1,603,054
--------------------
Total minimum lease payments 1,603,054
Less amount representing interest (7,669)
--------------------
Present value of minimum lease payments $ 1,595,385
====================
(6) COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company is committed under noncancelable operating leases involving
certain revenue equipment. Rent expense for noncancelable operating leases was
$35,261,458, $31,767,339 and $25,343,111 for fiscal years 2000, 1999 and 1998,
respectively. Aggregate future lease commitments are $35,096,831, $24,871,158,
$11,349,895, $1,946,816, and $837,049 for the years ending September 30, 2001,
2002, 2003, 2004, and 2005, respectively.
Orders for Revenue Equipment
As of September 30, 2000, the Company had placed orders for fiscal
years 2001 and 2002 to purchase revenue equipment at an estimated total purchase
price of $154 million. The revenue equipment is to be delivered during fiscal
years 2001 and 2002. Approximately $121 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 and certain of its officers and directors have been named
as defendants in a securities class action filed in the United States District
Court for the District of Utah, Caprin v. Simon Transportation Services, Inc.,
et al., No. 2:98CV 863K (filed December 3, 1998). Plaintiffs in this action
allege that defendants made material misrepresentations and omissions during the
period February 13, 1997 through April 2, 1998 in violation of Sections 11,
12(2) and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.
On September 27, 2000, the District Court dismissed the case with
prejudice. Plaintiffs have asked the Court for reconsideration and alteration or
amendment of the decision. Management believes, after discussion with legal
counsel and its Directors and Officers Insurance carrier, that the ultimate
outcome of this matter will not have a significant effect on the Company's
financial position and results of operations. However, pending any further
action by Plaintiffs, it is possible that a change in the Company's estimate of
probable liability could occur.
<PAGE>
The Company is a defendant in a lawsuit filed April of 1998 in the
Third District Court in and for Salt Lake County Utah, Gallegos v. Dick Simon
Trucking, Inc., based upon the death of two people and the severe brain injury
to a child in an accident involving a Company truck. The lawsuit involves a
punitive damage claim, which is uninsurable under Utah law. The Company has
admitted liability on the non-punitive damages claims. The lawsuit is set for
trial on March 29, 2001. The probable verdict range of the compensatory damage
claim is from 5 to 20 million dollars, well within the Company's liability
insurance limits. Liability for the punitive damage claim and likely punitive
damage verdict amount, if any, are very difficult to predict. Management is
unable to assess the ultimate impact of this litigation on the Company's results
of operations or financial position.
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.
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 results of operations or financial position.
Consulting and Noncompetition Agreement
Effective September 19, 2000, the Company entered into a consulting and
noncompetition agreement with its former Chairman of the Board, Chief Executive
Officer and President. For a period of three years, the Company is obligated to
pay a consulting fee of $259,000 per year, provide executive level medical and
dental coverage, reimburse ordinary and necessary business expenses, and provide
continuing directors' and officers' liability insurance for the consultant. The
consultant agrees to not compete with the Company for the term of the agreement.
Employment and Noncompetition Agreements
On September 19, 2000, the Company entered into at-will employment and
noncompetition agreements with five of its executive officers. The Company is
obligated to pay a salary to these individuals of not less than $156,000 per
year. Each executive is eligible to receive an annual performance bonus based on
the operating ratio of the Company. The bonus is equal to $10,000 for each
percentage point or portion thereof that the operating ratio is less than 97%.
In addition, during the period of an executive's employment, the Company
provides executive level medical and dental coverage, disability insurance,
directors' and officers' liability insurance and reimburses ordinary and
necessary business expenses. If an executive's employment is terminated by the
executive for "Good Reason" or by the Company without "Cause", the Company is
obligated to continue payment of compensation for a period of three years. If an
executive's employment is terminated by the executive without "Good Reason" or
by the Company with "Cause", the Company is obligated to continue payment of
compensation for a period of one year. Each executive agrees to not compete with
the Company for any term covered by compensation.
(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 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 years 1999 and 1998, the Company repurchased
95,500 and 81,100 shares of Class A Common Stock, respectively, at an average
<PAGE>
price of $5.96 per share, for a total cash outlay of $1,053,147. The stock
repurchase program expired September 30, 1999.
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 2,000,000 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.
Non-Officer Incentive Stock Plan
On December 18, 1998, the Company's Board of Directors approved and
adopted the Simon Transportation Services Inc. 1998 Non-Officer Incentive Stock
Plan (the "1998 Plan"). The 1998 Plan reserves 400,000 shares of Class A Common
Stock for issuance thereunder. The Board of Directors or its designated
committee administers the Plan and has the discretion to determine the employees
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.
Warrant Agreement
On September 19, 2000, the Company's Board of Directors adopted and
approved a Warrant Agreement between the Company and the Chairman of the Board.
Under the agreement, the Chairman was granted warrants to purchase 300,000
shares of the Company's Class A Common Stock at $7.00 per share. The warrants
become exercisable at the rate of 100,000 per year on each of September 19,
2001, 2002, and 2003.
Outside Director Stock Plan
The Company adopted an Outside Director Stock Plan, under which each
director who is not an employee of the Company and not holding a warrant will
receive an option to purchase 5,000 shares of the Company's Class A Common Stock
at the market price at the grant date. The options vest 20% at grant and an
additional 20% on the first through fourth anniversaries of the grant date. On
the five year anniversary of service as an outside director, each qualifying
director will receive an option to purchase an additional 5,000 shares of the
Company's Class A Common Stock. 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
all plans for fiscal years 1998, 1999 and 2000:
<TABLE>
<S> <C> <C> <C>
Weighted Average
Number of Exercise Price Per
Options Price Range Share
---------------- ------------------- --------------------
Outstanding at September 30, 1997 349,234 $ 9.00 - 16.00 $ 11.79
Granted 386,500 14.50 - 23.50
23.26
Exercised (3,460) 9.00 9.00
Forfeited (15,144) 9.00 - 16.00 9.18
---------------- ------------------- --------------------
Outstanding at September 30, 1998 717,130 9.00 - 23.50 18.05
Granted 373,000 4.25 - 5.50 5.50
Exercised -- -- --
Forfeited (81,780) 5.50 - 16.00 6.74
---------------- ------------------- --------------------
Outstanding at September 30, 1999 1,008,350 4.25 - 23.50 14.34
Granted 408,000 4.50 - 7.00 6.85
Exercised (1,275) 5.50 - 9.00 6.26
Forfeited (72,520) 4.25 - 19.87 6.14
---------------- ------------------- --------------------
Outstanding at September 30, 2000 1,342,555 $ 4.25 - 23.50 $ 12.51
================ =================== ====================
</TABLE>
The weighted average fair value of options granted during the years
ended September 30, 2000, 1999, and 1998 was $2.88, $3.23, and $10.12,
respectively. A summary of the options outstanding and options exercisable at
September 30, 2000 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------------------ -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Weighted Average
Range of Exercise Options Remaining Weighted Average Options Weighted Average
Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
--------------------- ------------------ ------------------- ------------------ ------------------- ------------------
$ 4.25 - 5.50 279,000 8.29 years $ 5.49 26,500 $ 5.45
5.51 - 15.00 545,555 8.32 years 7.65 394,655 7.88
15.01 - 20.00 138,000 6.20 years 16.03 83,200 16.05
20.01 - 23.50 380,000 7.21 years 23.38 152,000 23.38
--------------------- ------------------ ------------------- ------------------ ------------------- ------------------
$ 4.25 - 23.50 1,342,555 7.78 years $ 12.51 656,355 $ 12.41
===================== ================== =================== ================== =================== ==================
</TABLE>
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 (loss) 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 5.98%,
4.79%, and 5.77% in fiscal years 2000, 1999 and 1998, respectively, a dividend
yield of 0%, average volatility of the expected common stock price of 50.9%,
54.9%, and 24.6% for fiscal years 2000, 1999 and 1998, respectively, and
weighted average expected lives for the stock options of approximately 5.1
years, 8.0 years, and 7.4 years for fiscal years 2000, 1999 and 1998,
respectively. 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 ($12,230,289), ($4,329,975), and ($479,122), and pro
<PAGE>
forma diluted net (loss) earnings per share would have been ($2.00), ($0.71),
and ($0.08) for the fiscal years ended September 30, 2000, 1999, and 1998,
respectively.
(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 2000, 1999, and 1998, the Company
contributed $331,596, $320,438, and $351,829, respectively, to the 401(k) Plan.
(9) RELATED PARTY TRANSACTIONS
During fiscal year 2000, the Company had transactions with entities
affiliated with former members of the Board of Directors. These transactions
totaled $158,000. Management believes that these transactions were completed at
fair market value.
(10) SUBSEQUENT DEBT AGREEMENTS
In January 2001, the Company amended its credit facility. The amended
agreement provides for a $10 million term loan in addition to the $20 million
line of credit. The term loan matures September 30, 2001 and the line of credit
matures September 30, 2002. Borrowings under the line of credit and term loan
are secured by the Company's Salt Lake City terminal facility. In addition, a
portion of borrowings under the agreement are guaranteed by the Company's
majority stockholder. All borrowings under the agreement bear interest at rates
ranging from 1.75 percent to 3.25 percent above the Eurodollar Rate in effect
from time-to-time. Applicable interest rates are determined based on the
Company's net worth.
<PAGE>
(11) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C>
Fourth Third Second First
Quarter Quarter Quarter Quarter
2000 2000 2000 2000
------------------ ---------------- ------------------- ----------------
Revenue $ 61,430 $60,948 $55,159 $53,861
Operating earnings (loss) (10,459) (82) 545 98
Earnings (loss) before income
taxes and cumulative effect
of accounting change (10,805) (418) 122 (221)
Provision (benefit) for income taxes (3,890) (151) 44 (80)
Cumulative effect of
accounting change -- -- -- (3,863)
Net earnings (loss) (6,915) (267) 78 (4,004)
Diluted net earnings (loss) per share $ (1.13) $ (0.04) $ 0.01 $ (0.66)
Fourth Third Second First
Quarter Quarter Quarter Quarter
1999 1999 1999 1999
------------------ ---------------- ------------------- ----------------
Revenue $ 53,281 $53,599 $49,271 $52,992
Operating earnings (loss) (440) (1,058) (2,716) 369
Earnings (loss) before income taxes (782) (1,393) (3,097) 73
Provision (benefit) for income taxes (294) (527) (1,171) 27
Net earnings (loss) (486) (866) (1,926) 45
Diluted net earnings (loss) per share $ (0.08) $ (0.14) $ (0.32) $ 0.01
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Simon Transportation Services Inc.:
We have audited the accompanying consolidated statement of financial
position of Simon Transportation Services Inc. (a Nevada corporation) and
subsidiary as of September 30, 2000 and 1999, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended September 30, 2000. 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 auditing standards generally
accepted in the United States. 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, 2000 and 1999, and the results
of their operations and their cash flows for each of the three years in the
period ended September 30, 2000 in conformity with auditing standards generally
accepted in the United States.
As explained in Note 2 to the consolidated financial statements,
effective October 1, 1999, the Company changed its method of accounting for
accrued claims payable.
/s/ Arthur Andersen LLP
Salt Lake City, Utah
January 9, 2001
