SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549-1004
-----------------------------------------------------
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-20793
Smithway Motor Xpress Corp.
(Exact name of registrant as specified in its charter)
Nevada 42-1433844
(State or other jurisdiction (I.R.S. employer identification number)
of incorporation or organization)
2031 Quail Avenue
Fort Dodge, Iowa 50501
(515) 576-7418
(Address, including zip code, and telephone number,
including area code, of registrant's
principal executive office)
Indicate by check mark whether the registrant (1)has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2)has been subject to the filing
requirements for at least the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date (August 7, 1998).
Class A Common Stock, $.01 par value: 4,015,015 shares
Class B Common Stock, $.01 par value: 1,000,000 shares
Exhibit Index is on Page 16.
Page Number 1 of 19
<PAGE>
PART I
FINANCIAL INFORMATION
PAGE
NUMBER
Item 1. Financial Statements........................................... 3-9
Condensed Consolidated Balance Sheets as of
December 31, 1997 and June 30, 1998 (unaudited).............. 3-4
Condensed Consolidated Statements of Earnings for the
three and six months ended June 30, 1998 and 1997(unaudited). 5
Condensed Consolidated Statements of Stockholders' Equity for
the year ended December 31, 1997, and the six months
ended June 30, 1998 (unaudited).............................. 6
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 1998 and 1997 (unaudited).......... 7-8
Notes to Condensed Consolidated Financial
Statements (unaudited)....................................... 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................... 10-15
PART II
Item 1. Legal Proceedings............................................... 16
Item 2. Changes in Securities........................................... 16
Item 3. Defaults Upon Senior Securities................................. 16
Item 4. Submission of Matters to a Vote of Security Holders............. 16
Item 5. Other Information............................................... 16
Item 6. Exhibits and Reports on Form 8-K............................... 16-18
FORWARD LOOKING STATEMENTS
This document contains forward-looking statements in paragraphs that are marked
with an asterisk. Statements by the Company in press releases, public filings,
and stockholder reports, as well as oral public statements by Company
representatives, also may contain certain forward-looking information.
Forward-looking information is subject to certain risks and uncertainties that
could cause actual results to differ materially from those projected. Without
limitation, these risks and uncertainties include economic factors such as
recessions, downturns in customers' business cycles, surplus inventories,
inflation, higher interest rates, and fuel price increases; the resale value of
the Company's used revenue equipment; the availability and compensation of
qualified drivers and owner-operators; competition from trucking, rail, and
intermodal competitors; and the availability of desirable target companies and
financing for acquisitions. Readers should review and consider the various
disclosures made by the Company in its press releases, stockholder reports, and
public filings, as well as the factors explained in greater detail in the
Company's annual report on Form 10-K.
Page Number 2 of 19
<PAGE>
PART I
FINANCIAL INFORMATION
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------------ ------------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents................................................... $ 2,851 $ 4,082
Receivables:
Trade..................................................................... 14,421 11,040
Other..................................................................... 1,859 1,261
Inventories................................................................. 1,247 1,064
Deposits, primarily with insurers........................................... 268 770
Prepaid expenses............................................................ 1,501 1,160
Deferred income taxes....................................................... 470 350
------------------ -------------------
Total current assets................................................. 22,617 19,727
------------------ -------------------
Property and equipment:
Land........................................................................ 881 531
Buildings and improvements.................................................. 6,028 5,100
Tractors.................................................................... 46,041 38,217
Trailers.................................................................... 30,350 24,233
Other equipment............................................................. 5,737 5,308
------------------ -------------------
89,037 73,389
Less accumulated depreciation............................................... 24,541 20,257
------------------ -------------------
Net property and equipment........................................... 64,496 53,132
------------------ -------------------
Other assets, net............................................................. 4,463 2,019
------------------ -------------------
$ 91,576 $ 74,878
================== ===================
Page Number 3 of 19
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------------ ------------------
(unaudited)
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt ....................................... $ 4,463 $ 3,971
Accounts payable............................................................ 4,125 2,277
Accrued compensation ....................................................... 1,640 1,278
Income taxes payables....................................................... 225 275
Accrued loss reserves....................................................... 1,221 905
Other accrued expenses...................................................... 340 921
------------------ ------------------
Total current liabilities............................................ 12,014 9,627
Long-term debt, less current maturities....................................... 37,904 27,005
Deferred income taxes......................................................... 9,425 8,340
------------------ ------------------
Total liabilities.................................................... 59,343 44,972
------------------ ------------------
Stockholders' equity:
Preferred stock............................................................. - -
Common stock:
Class A................................................................... 40 40
Class B................................................................... 10 10
Additional paid-in capital.................................................. 11,307 11,144
Retained earnings........................................................... 20,953 18,789
Reacquired shares, at cost.................................................. (77) (77)
------------------ ------------------
Total stockholders' equity........................................... 32,233 29,906
------------------ ------------------
$ 91,576 $ 74,878
================== ==================
Page Number 4 of 19
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1998 1997 1998 1997
-------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Operating revenue:
Freight...................................$ 40,762 $ 30,486 $ 74,056 $ 57,367
Other..................................... 73 128 170 155
-------------- ---------------- --------------- ---------------
Operating revenue................... 40,835 30,614 74,226 57,522
-------------- ---------------- --------------- ---------------
Operating expenses:
Purchased transportation.................. 17,436 11,769 30,642 22,306
Compensation and employee benefits........ 9,919 6,813 17,785 12,860
Fuel, supplies, and maintenance........... 4,976 4,053 9,320 7,886
Insurance and claims...................... 583 542 1,320 1,014
Taxes and licenses........................ 719 554 1,351 1,082
General and administrative................ 1,582 1,422 2,930 2,692
Communication and utilities............... 429 331 842 694
Depreciation and amortization............. 2,795 2,023 5,147 3,926
-------------- ---------------- --------------- ---------------
Total operating expenses............. 38,439 27,507 69,337 52,460
-------------- ---------------- --------------- ---------------
Earnings from operations............. 2,396 3,107 4,889 5,062
Financial (expense) income
Interest expense.......................... (732) (459) (1,317) (779)
Interest income........................... 55 2 135 6
-------------- ---------------- --------------- ---------------
Earnings before income taxes......... 1,719 2,650 3,707 428
Income taxes................................... 698 1,114 1,543 1,802
-------------- ---------------- --------------- ---------------
Net earnings.........................$ 1,021 $ 1,536 $ 2,164 $ 2,487
============== ================ =============== ===============
Basic and diluted earnings per common
share..........................................$ 0.20 $ 0.31 $ 0.43 $ 0.50
============== ================ =============== ===============
Basic weighted average common shares
outstanding.................................... 5,013,592 4,999,293 5,009,682 4,999,293
Common stock options and awards........... 55,266 6,648 47,499 3,779
-------------- ---------------- --------------- ---------------
Diluted weighted average common shares
outstanding.................................... 5,068,858 5,005,941 5,057,181 5,003,072
============== ================ =============== ===============
Page Number 5 of 19
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Additional Total
Common paid-in Retained Reacquired stockholders'
stock capital earnings shares equity
------------- ------------ ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996................ $ 50 $11,104 $13,116 $ (77) $ 24,193
Net earnings................................ - - 5,673 - 5,673
Issuance of stock bonuses................... - 40 - - 40
------------- ------------ ------------- ------------- --------------
Balance at December 31, 1997 ............... 50 11,144 18,789 (77) 29,906
Net earnings(unaudited)..................... - - 2,164 - 2,164
Issuance of stock bonuses(unaudited)........ - 163 - - 163
------------- ------------ ------------- ------------- --------------
Balance at June 30, 1998(unaudited)......... $ 50 $11,307 $20,953 $ (77) $ 32,233
============= ============ ============= ============= ==============
Page Number 6 of 19
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------------
1998 1997
------------ ---------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings.......................................................................$ 2,164 $ 2,487
------------ ---------------
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization.................................................... 5,147 3,926
Deferred income taxes............................................................ 965 901
Provision for bad debts.......................................................... 22 -
Stock bonuses.................................................................... 163 -
Changes in:
Receivables.................................................................... (4,002) (3,145)
Inventories.................................................................... (54) (32)
Deposits, primarily with insurers.............................................. 502 3
Prepaid expenses............................................................... (159) (402)
Accounts payable and other accrued liabilities................................. 1,896 571
------------ ---------------
Total adjustments....................................................... 4,480 1,822
------------ ---------------
Net cash provided by operating activities............................... 6,644 4,309
------------ ---------------
Cash flows from investing activities:
Payments for acquisitions.......................................................... (11,516) (1,421)
Purchase of property and equipment................................................. (3,949) (1,026)
Proceeds from the sale of property and equipment................................... 870 137
Purchase of other assets........................................................... 37 (65)
------------ ---------------
Net cash used in investing activities................................... (14,558) (2,375)
------------ ---------------
Cash flows from financing activities:
Proceeds from long-term debt....................................................... 11,000 3,000
Principal payments on long-term debt............................................... (4,317) (3,258)
Borrowings on line of credit agreement............................................. - 67,938
Payments on line of credit agreement............................................... - (70,107)
------------ ---------------
Net cash provided by (used in) financing activities.......................... 6,683 (2,427)
------------ ---------------
Net decrease in cash and cash equivalents................................... (1,231) (493)
Cash and cash equivalents at beginning of period..................................... 4,082 940
------------ ---------------
Cash and cash equivalents at end of period........................................... $ 2,851 $ 447
============ ===============
</TABLE>
Page Number 7 of 19
See accompanying notes to condensed consolidated financial statements.
<PAGE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six months ended
June 30,
-------------------------------
1998 1997
------------ -------------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest................................................................. $ 1,498 $ 775
Income taxes.............................................................. 628 2
============ =============
Supplemental schedules of noncash investing and financing
activities:
Notes payable issued for tractors and trailers..............................$ 3,554 $ 6,292
Issuance of stock bonuses................................................... 163 -
Liability issued for intangible assets...................................... 1,154 -
============= =============
Cash payments for acquisitions:
Revenue equipment...........................................................$ 8,913 $ 1,175
Intangible assets........................................................... 1,332 171
Other assets................................................................ 1,271 75
------------- -------------
Total cash paid for acquisitions................................................$ 11,516 $ 1,421
============= =============
</TABLE>
Page Number 8 of 19
See accompanying notes to condensed consolidated financial statements.
<PAGE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The condensed consolidated financial statements include the
accounts of Smithway Motor Xpress Corp., a Nevada holding
company, and its wholly owned subsidiaries, Smithway Motor
Xpress, Inc. and East West Motor Express, Inc. Unless
otherwise indicated, the companies named in this paragraph are
collectively referred to as the "Company." All significant
intercompany balances and transactions have been eliminated in
consolidation.
The condensed consolidated financial statements have been
prepared, without audit, in accordance with generally accepted
accounting principles, pursuant to the published rules and
regulations of the Securities and Exchange Commission. In the
opinion of management, the accompanying condensed consolidated
financial statements include all adjustments which are
necessary for a fair presentation of the results for the
interim periods presented, such adjustments being of a normal
recurring nature. Certain information and footnote disclosures
have been condensed or omitted pursuant to such rules and
regulations. The December 31, 1997 Condensed Consolidated
Balance Sheet was derived from the audited balance sheet of
the Company for the year then ended. It is suggested that
these condensed consolidated financial statements and notes
thereto be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Form
10-K for the year ended December 31, 1997. Results of
operations in interim periods are not necessarily indicative
of results to be expected for a full year.
Note 2. Acquisition
In February 1998, the Company acquired tractors, trailers, and
certain other assets of East West Motor Express, Inc. of Black
Hawk, South Dakota. In exchange for these assets, the Company
paid approximately $6,852 to the previous owners, assumed and
repaid approximately $4,017 in equipment financing secured by
these assets and agreed to pay $2,256 in goodwill. East West
Motor Express, Inc. had approximately $31 million in revenue
during 1997.
Note 3. Change in Accounting Estimate
The Company changed its estimate of the useful life of tires
purchased with revenue equipment from two years to the
estimated life of the underlying revenue equipment. This
change was based on the Company's experience with warranties
and tread life of tires and has been accounted for
prospectively beginning January 1, 1998. The effect on net
earnings and basic and diluted earnings per share was not
material for the 1998 periods.
Note 4. Effect of New Financial Accounting Standards
In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133,"Accounting for Derivative Instruments and
Hedging Activities," effective for fiscal years beginning
after June 15, 1999. The adoption of SFAS No. 133 is not
expected to have a significant impact on the Company's
financial statements.
Page Number 9 of 19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The Company's fiscal year ends on December 31 of each year. Thus, this
report discusses the second quarter and first six months of the Company's 1998
and 1997 fiscal years, respectively.
The Company has expanded its operations substantially over the past three
years through a combination of internal growth and acquisitions. In the quarter
ended June 30,1998, revenue increased 33.4% and net earnings decreased 33.5%,
compared with the same quarter in 1997. For the six months ended June 30, 1998,
revenue increased 29.0% and net earnings decreased 13.0% compared with the same
period in 1997.
The Company operates a tractor-trailer fleet comprised of Company-owned
vehicles and vehicles obtained under leases from independent contractors.
Fluctuations among expense categories may occur primarily as a result of two
factors: (i) the percentage of the Company's tractor fleet being obtained
through independent contractors, and (ii) the use of operating leases to finance
revenue equipment. Costs associated with revenue equipment acquired under
operating leases or through agreements with independent contractors are expensed
as "purchased transportation." For these categories of equipment the Company
does not incur costs such as interest and depreciation as it might with owned
equipment. In addition, for independent contractors, tractors, driver
compensation, fuel, communications, and certain other expenses are borne by the
independent contractors and are not incurred by the Company. Obtaining equipment
from independent contractors and under operating leases reduces capital
expenditures and on-balance sheet leverage and effectively shifts expenses from
interest to "above the line" operating expenses. The fleet profile of acquired
companies and the Company's relative recruiting and retention success with
Company-employed drivers and independent contractors will cause fluctuations
from time-to-time in the percentage of the Company's fleet that is owned versus
obtained from independent contractors and under operating leases. Accordingly,
management intends to evaluate the Company's efficiency using pretax margin and
net margin rather than operating ratio(*).
- --------
(*) May contain "forward-looking" statements.
Page Number 10 of 19
<PAGE>
Results of Operations
The following table sets forth the percentage relationship of certain items
to operating revenue for the three and six months ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
------------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
Operating revenue................................ 100.0% 100.0% 100.0% 100.0%
Operating expenses
Purchased transportation....................... 42.7 38.4 41.3 38.8
Compensation and employee benefits............. 24.3 22.3 24.0 22.4
Fuel, supplies, and maintenance................ 12.2 13.2 12.6 13.7
Insurance and claims........................... 1.4 1.8 1.8 1.8
Taxes and licenses............................. 1.8 1.8 1.8 1.9
General and administrative..................... 3.9 4.6 3.9 4.7
Communications and utilities................... 1.0 1.1 1.1 1.2
Depreciation and amortization.................. 6.8 6.6 6.9 6.8
------------- ------------ ------------ ---------------
Total operating expenses..................... 94.1 89.9 93.4 91.2
------------- ------------ ------------ ---------------
Earnings from operations......................... 5.9 10.1 6.6 8.8
Interest expense (net)........................... (1.7) (1.5) (1.6) (1.3)
------------- ------------ ------------ ---------------
Earnings before income taxes..................... 4.2 8.6 5.0 7.5
Income taxes..................................... 1.7 3.6 2.1 3.2
------------- ------------ ------------ ---------------
Net earnings..................................... 2.5% 5.0% 2.9% 4.3%
============= ============ ============ ===============
</TABLE>
Comparison of three months ended June 30, 1998 with three months ended June
30,1997
Operating revenue increased $10.2 million (33.4%) to $40.8 million during
the 1998 quarter from $30.6 million during the 1997 quarter. Expanded business
with existing customers and revenue from the acquired operations of Royal
Transport in September 1997 and East West Motor Express in February 1998
contributed to the Company's revenue growth. The increase was attributable to a
36.8% increase in weighted average tractors, to 1,198 during the 1998 quarter
from 876 during the 1997 quarter. This was offset by a decrease in revenue per
loaded mile to $1.33 in the 1998 quarter from $1.36 in the 1997 quarter. This
decrease in rate per mile is a result of the increase in van freight associated
with the acquisition of East West Motor Express.
Purchased transportation increased $5.7 million (48.2%) to $17.4 million in
the 1998 quarter from $11.8 million in the 1997 quarter as the Company's
business expanded and the Company contracted with more independent contractor
providers of revenue equipment. As a percentage of revenue, purchased
transportation increased to 42.7% of revenue in the 1998 quarter from 38.5% in
the 1997 quarter. This reflects an increase in the percentage of the Company's
fleet supplied by independent contractors as a result of the Company's internal
recruiting efforts and the acquisition of East West, which has obtained a higher
percentage of its fleet from independent contractors.
Compensation and employee benefits increased $3.1 million (45.6%) to $9.9
million in the 1998 quarter from $6.8 million in the 1997 quarter. As a
percentage of revenue, compensation and employee benefits increased to 24.3% of
revenue in the 1998 quarter from 22.3% in the 1997 quarter. The increase was
attributable to (i) an increase in the per-mile wage paid to van division
drivers (ii) an increase in the number of trainers and trainees, (iii) an
increase in the self-insured retention for health insurance claims and
Page Number 11 of 19
<PAGE>
reserve amounts for the period, and, (iv) an increase in the amount of worker's
compensation claims paid and reserved.
Fuel, supplies, and maintenance increased $923,000 (22.8%) to $5.0 million
in the 1998 quarter from $4.1 million in the 1997 quarter. As a percentage of
revenue, fuel, supplies, and maintenance decreased to 12.2% of revenue for the
1998 quarter compared with 13.2 % for the 1997 quarter reflecting a 11.9%
decrease in fuel costs to $1.04 during the 1998 quarter from $1.18 per gallon
during the 1997 quarter. The decrease was partially offset by an increase in the
cost of parts, tires, tarps, supplies, and binders used in the Company's tractor
fleet.
Insurance and claims increased $41,000 (7.6%) to $583,000 in the 1998
quarter from $542,000 in the 1997 quarter. As a percentage of revenue, insurance
and claims decreased to 1.4% of revenue in the 1998 quarter from 1.8% in the
1997 period as a result of lower liability and physical damage expenses.
Taxes and licenses increased $165,000 (29.8%) to $719,000 in the 1998
quarter from $554,000 in the 1997 quarter reflecting an increase in Company
owned tractors. As a percentage of revenue, taxes and licenses remained constant
at 1.8% of revenue.
General and administrative expenses increased $160,000 (11.3%) to $1.6
million in the 1998 quarter from $1.4 million in the 1997 quarter. As a
percentage of revenue, general and administrative expenses decreased to 3.9% of
revenue in the 1998 quarter from 4.6% in the 1997 quarter as a result of a
decrease in freight revenue being dispatched by terminal agents, resulting in
less commissions paid during the 1998 quarter. This was partially offset by a
slight increase in advertising cost. Additionally, certain fixed costs are being
spread over a larger revenue base.
Communications and utilities increased $98,000 (29.6%) to $429,000 in the
1998 quarter from $331,000 in the 1997 quarter. As a percentage of revenue,
communications and utilities remained essentially constant at 1.0% of revenue in
the 1998 quarter and 1.1% in the 1997 quarter.
Depreciation and amortization increased $772,000 (38.2%) to $2.8 million in
the 1998 quarter from $2.0 million in the 1997 quarter. As a percentage of
revenue, depreciation and amortization increased slightly to 6.8% of revenue in
the 1998 quarter from 6.6% in the 1997 quarter, as lower revenue per tractor
less efficiently spread this fixed cost and more than offset a decrease in the
percent of the Company's fleet being comprised of Company-owned tractors and
trailers.
Interest expense (net) increased $220,000 (48.1%) to $677,000 in the 1998
quarter from $457,000 in the 1997 quarter. As a percentage of revenue, interest
expense (net) increased to 1.7% of revenue in the 1998 quarter from 1.5% in the
1997 quarter, due to higher average debt balances ($41.8 million in the 1998
quarter compared with $25.1 million in the 1997 quarter).
As a result of the foregoing, the Company's pretax margin decreased to
4.2% in the 1998 quarter from 8.6% in the 1997 quarter.
The Company's effective tax rate was 40.6% in the 1998 quarter compared
with 42.0% in the 1997 quarter. The decrease in the effective tax rate was due
to a lower expected combined tax rate for the operations of East West Motor
Express, Inc. located in South Dakota. The effective tax rate is higher than the
expected combined tax rate for a company headquartered in Iowa because of the
cost of nondeductible driver per diem expense absorbed by the Company. The
impact of the Company's paying per diem travel expenses varies depending upon
the ratio of drivers to independent contractors and the Company's net earnings.
Page Number 12 of 19
<PAGE>
Primarily as a result of the factors described above, net earnings
decreased $515,000 (33.5%) to $1.0 million (2.5% of revenue) in the 1998 quarter
from $1.5 million (5.0% of revenue) in the 1997 quarter.
Comparison of six months ended June 30, 1998 with six months ended June 30, 1997
Operating revenue increased $16.7 million (29.0%) to $74.2 million during
the 1998 period from $57.5 million during the 1997 period. Expanded business
with existing customers and revenue from the acquired operations of Royal
Transport in September 1997 and East West Motor Express on February 27, 1998,
contributed to the Company's revenue growth. The increase was attributable to
(i) a 5.1% increase in revenue equipment utilization as the average billed miles
per tractor per week increased to 1,752 miles in the 1998 period from 1,667
miles in the 1997 period; and (ii) a 28.9% increase in weighted average
tractors, to 1,129 during the 1998 period from 876 during the 1997 period which
was offset by a decrease in loaded revenue per mile to $1.34 in the 1998 period
from $1.36 per loaded mile during the 1997 period. This decrease in rate per
mile is a result of the increase in van freight associated with the acquisition
of East West Motor Express.
Purchased transportation increased $8.3 million (37.4%) to $30.6 million in
the 1998 period from $22.3 million in the 1997 period as the Company's business
expanded and the Company contracted with more independent contractor providers
of revenue equipment. As a percentage of revenue, purchased transportation
increased to 41.3% of revenue in the 1998 period from 38.8% in the 1997 period.
This reflects an increase in the percentage of the Company's fleet supplied by
independent contractors as a result of the Company's internal recruiting efforts
and the acquisition of East West, which has obtained a higher percentage of its
fleet from independent contractors. It also reflects an increase in the freight
hauled by brokered equipment.
Compensation and employee benefits increased $4.9 million (38.3%) to $17.8
million in the 1998 period from $12.9 million in the 1997 period. As a
percentage of revenue, compensation and employee benefits increased to 24.0% of
revenue in the 1998 period from 22.4% in the 1997 period. The increase was
attributable to (i) an increase in the per-mile wage paid to van division
drivers (ii) an increase in the number of trainers and trainees, (iii) an
increase in the self-insured retention for health insurance claims and reserve
amounts for the period, and, (iv) an increase in the amount of worker's
compensation claims paid and reserved.
Fuel, supplies, and maintenance increased $1.4 million (18.2%) to $9.3
million in the 1998 period from $7.9 million in the 1997 period. As a percentage
of revenue, fuel, supplies, and maintenance decreased to 12.6% of revenue for
the 1998 period compared with 13.7% for the 1997 period reflecting a 13.2%
decrease in fuel costs to $1.05 per gallon during the 1998 period from $1.21 per
gallon during the 1997 period. The decrease was partially offset by an increase
in the cost of parts, tires, tarps, supplies, and binders used in the Company's
tractor fleet.
Insurance and claims increased $306,000 (30.2%) to $1.3 million in the 1998
period from $1.0 million in the 1997 period. As a percentage of revenue,
insurance and claims remained constant at 1.8% of revenue.
Taxes and licenses increased $269,000 (24.9%) to $1.4 million in the 1998
period from $1.1 million in the 1997 period. As a percentage of revenue, taxes
and licenses remained essentially constant at 1.8% of revenue in the 1998 period
and 1.9% in the 1997 period.
Page Number 13 of 19
<PAGE>
General and administrative expenses increased $238,000 (8.8%) to $2.9
million in the 1998 period from $2.7 million in the 1997 period. As a percentage
of revenue, general and administrative expenses decreased to 3.9% of revenue in
the 1998 period from 4.7% in the 1997 period predominately as a result of a
decrease in freight revenue being dispatched by terminal agents, resulting in
less commissions paid during the 1998 period. Additionally, certain fixed costs
are being spread over a larger revenue base.
Communications and utilities increased $148,000 (21.3%) to $842,000 in the
1998 period from $694,000 in the 1997 period. As a percentage of revenue,
communications and utilities remained essentially constant at 1.1% of revenue in
the 1998 period and 1.2% in the 1997 period.
Depreciation and amortization increased $1.2 million (31.1%) to $5.1
million in the 1998 period from $3.9 million in the 1997 period. As a percentage
of revenue, depreciation and amortization remained essentially constant at 6.9%
of revenue in the 1998 period and 6.8% in the 1997 period.
Interest expense (net) increased $409,000 (52.9%) to $1,182,000 in the 1998
period from $773,000 in the 1997 period. As a percentage of revenue, interest
expense (net) increased to 1.6% of revenue in the 1998 period from 1.3% in the
1997 period, due to higher average debt balances ($37.3 million in the 1998
period compared with $25.2 million in the 1997 period). Most of the increase in
borrowing was to fund the acquisition of East West Motor Express, Inc. in
February 1998.
As a result of the foregoing, the Company's pretax margin decreased to 5.0%
in the 1998 period from 7.5% in the 1997 period.
The Company's effective tax rate was 41.6% in the 1998 period compared with
42.0% in the 1997 period. The decrease in the effective tax rate was due to a
lower expected combined tax rate for the operations of East West Motor Express,
Inc. located in South Dakota. The effective tax rate is higher than the expected
combined tax rate for a company headquartered in Iowa because of the cost of
nondeductible driver per diem expense absorbed by the Company. The impact of the
Company's paying per diem travel expenses varies depending upon the ratio of
drivers to independent contractors and the Company's net earnings.
Primarily as a result of the factors described above, net earnings
decreased $323,000 (13.0%) to $2,164,000 (2.9% of revenue) in the 1998 period
from $2,487,000 (4.3% of revenue) in the 1997 period.
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, borrowings under a $25 million unsecured credit agreement, cash
flow from operations, equipment leases from third-party lessors, and, in 1996,
proceeds of the Company's initial public offering. The Company also has obtained
a portion of its revenue equipment fleet from independent contractors who own
and operate the equipment, which reduces overall capital expenditure
requirements compared with providing a fleet of entirely Company-owned
equipment. The Company's primary sources of liquidity currently are funds
provided by operations and borrowings under credit agreements with financial
institutions and equipment manufacturers. Management believes that its sources
of liquidity are adequate to meet its current anticipated working capital
requirements, capital expenditures, and other needs at least through 1998(*).
- --------
(*) May contain "forward-looking" statements.
Page No. 14 of 19
<PAGE>
Net cash provided by operating activities was $6.6 million for the six
months ended June 30, 1998. The primary sources of cash from operations were net
earnings of $2.2 million increased by $5.1 million in depreciation and
amortization, a $1.9 million increase in accounts payable and other accrued
liabilities and a $1.0 million increase in deferred income tax liability. The
Company's principal uses of cash from operations were to service debt and
internally finance accounts receivable associated with growth in the business.
Accounts receivable increased $4.0 million for the six months ended June 30,
1998. The average age of the Company's accounts receivable was approximately
33.1 days for the 1998 period compared to 34 days at December 31, 1997.
Net cash used in investing activities of $14.6 million in the 1998 period
related primarily to payments made for the acquisition of assets of East West
Motor Express, and purchases, sales, and trades of revenue equipment. The
Company expects capital expenditures (primarily for revenue equipment and
satellite communications units), net of revenue equipment trade-ins, to be
approximately $8.5 million during the remaining six months of 1998. Such
projected capital expenditures are expected to be funded with cash flow from
operations, borrowings, or operating leases(*).
Net cash provided by financing activities of $6.7 million for the six
months ended June 30, 1998, consisted primarily of borrowings of $11.0 million
of principal under the Company's long-term unsecured credit agreement and
repayments of $4.3 million of principal under the Company's long-term unsecured
credit agreement and other long-term debt agreements.
The maximum amount available under the Company's unsecured credit agreement
at June 30, 1998, was $25 million, on which the Company had an outstanding
balance of $19.0 million. The interest rate on the outstanding balance is
defined in the agreement and at June 30, 1998 was 6.6875%. At June 30,1998, the
Company had total outstanding long-term debt (including current maturities) of
approximately $42.4 million, most of which was comprised of installment
obligations for the purchase of revenue equipment and borrowings under the
Companys unsecured credit agreement. Interest rates on this debt range from 5.7%
to 7.9%, and the principal amounts mature at various dates through December
2002.
Year 2000
The Company has identified fifteen Year 2000 issues, and has successfully
written and tested programs to deal with eleven of these issues. It is
anticipated that programs addressing the remaining issues will be written and
tested by the end of 1998. All programs are expected to be fully tested and
problems resolved by June 30, 1999. The Company has sent a survey to all
significant customers and vendors requesting written assurance related to their
Year 2000 compliance. As of June 30, 1998, the Company has received responses
from 25% of these surveys, all of which indicate expected third party Year 2000
readiness. Management expects the Year 2000 issues to have a minimal impact on
the Company's results of operations, liquidity, and capital resources (*).
- --------
*May contain "forward-looking" statements.
Page Number 15 of 19
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
No reportable events or material changes occurred during the quarter
for which this report is filed.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Stockholders of Smithway Motor Xpress Corp. was
held on May 8, 1998, for the purpose of (a) ratification of the
selection of KPMG Peat Marwick LLP as independent certified public
accountants for the Company and (b) electing five directors for
one-year terms. Proxies for the meeting were solicited pursuant to
Section 14(a) of the Securities Exchange Act of 1934, and there was no
solicitation in opposition to management's nominees. Each of
management's nominees for director as listed in the Proxy Statement was
elected. The voting tabulation on the selection of accountants was
3,467,874 shares "FOR", 75 shares "AGAINST", and 4,004 shares
"ABSTAIN." The voting tabulation on the election of directors was as
follows:
Shares Shares
Voted Voted
"FOR" "ABSTAIN"
William G. Smith 5,463,903 8,050
G. Larry Owens 5,455,690 16,263
Terry G. Christenberry 5,461,433 10,520
Herbert D. Ihle 5,464,103 7,850
Robert E. Rich 5,464,003 7,950
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Page Number 16 of 19
<PAGE>
Exhibit
Number Description
2.1 * Asset Purchase Agreement dated October 4, 1996, among Smithway
Motor Xpress, Inc., an Iowa corporation, Smithway Motor Xpress
Corp., a Nevada corporation, Marquart Transportation, Inc., a
South Dakota corporation, and Ralph and Lucille Marquardt.
2.2 * First Amendment to Asset Purchase Agreement dated as of October
24, 1996, among Smithway Motor Xpress, Inc., an Iowa corporation,
Smithway Motor Xpress Corp., a Nevada corporation, Marquardt
Transportation, Inc., a South Dakota corporation, and Ralph and
Lucille Marquardt.
2.3 * Second Amendment to Asset Purchase Agreement dated as of December
27,1996, among Smithway Motor Xpress, Inc., an Iowa corporation,
Smithway Motor Xpress Corp., a Nevada corporation, Marquardt
Transportation, Inc., a South Dakota corporation, and Ralph and
Lucille Marquardt.
2.4 ^ Asset Purchase Agreement dated February 20, 1998, by and among
Smithway Motor Xpress, Inc., East West Motor Express, Inc.
and Darwyn and David Stebbins.
3.1 + Articles of Incorporation.
3.2 + Bylaws.
4.1 + Articles of Incorporation.
4.2 + Bylaws.
10.1 + Outside Director Stock Plan dated March 1, 1995.
10.2 + Incentive Stock Plan, adopted March 1, 1995.
10.3 + 401(k) Plan, adopted August 14, 1992, as amended.
10.4 + Form of Agency Agreement between Smithway Motor Xpress, Inc. and
its independent commission agents.
10.5 + Memorandum of officer incentive compensation policy.
10.6 + Form of Independent Contractor Agreement between Smithway Motor
Xpress, Inc. and its independent contractor providers of tractors.
10.7 * Asset Purchase Agreement dated October 4, 1996, among Smithway
Motor Xpress, Inc., an Iowa corporation, Smithway Motor Xpress
Corp., a Nevada corporation, Marquardt Transportation, Inc., a
South Dakota corporation, and Ralph and Lucille Marquardt.
10.8 * First Amendment to Asset Purchase Agreement dated as of October
24, 1996, among Smithway Motor Xpress, Inc., an Iowa corporation,
Smithway Motor Xpress Corp., a Nevada corporation, Marquardt
Transportation, Inc., a South Dakota corporation, and Ralph and
Lucille Marquardt.
10.9 * Second Amendment to Asset Purchase Agreement dated as of December
27, 1996, among Smithway Motor Xpress, Inc., an Iowa corporation,
Smithway Motor Xpress Corp., a Nevada corporation, Marquardt
Transportation, Inc., a South Dakota corporation, and Ralph and
Lucille Marquardt.
Page Number 17 of 19
<PAGE>
Exhibit
Number Description
10.10 = Credit Agreement dated September 3, 1997, between Smithway Motor
Xpress Corp., as Guarantor, Smithway Motor Xpress, Inc., as
Borrower, and LaSalle National Bank.
10.11 ^ Asset Purchase Agreement dated February 20, 1998, by and among
Smithway Motor Xpress, Inc., East West Motor Express, Inc., and
Darwyn and David Stebbins.
10.12 < First Amendment to Credit Agreement dated March 1, 1998, between
Smithway Motor Xpress Corp., as Guarantor, Smithway Motor Xpress,
Inc., as Borrower, and LaSalle National Bank.
10.13 < Second Amendment to Credit Agreement dated March 15, 1998, between
Smithway Motor Xpress Corp., as Guarantor, Smithway Motor Xpress,
Inc., as Borrower, and LaSalle National Bank.
27 # Financial Data Schedule.
------------------
+ Incorporated by reference from the Company's Registration Statement on
Form S-1, Registration No. 33-90356, effective June 27, 1996.
* Incorporated by reference from the Company's Yearly Report on Form 10-K
for the fiscal year ended December 31, 1996. Commission File No.
000-20793, dated March 31, 1997.
= Incorporated by reference from the Company's Quarterly Report on Form
10-Q for the period ended September 30, 1997. Commission File No.
000-20793, dated November 12, 1997.
^ Incorporated by reference from the Company's Form 8-K. Commission File
No.000-20793, dated March 12, 1998.
< Incorporated by reference from the Company's Quarterly Report on Form
10-Q for the period ended March 31, 1998. Commission File No.
000-20793, dated May 14, 1998.
# Filed herewith.
(b) Reports on Form 8-K.
None.
Page Number 18 of 19
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SMITHWAY MOTOR XPRESS CORP.,
a Nevada corporation
By: /s/ Michael E. Oleson
Date: August 11, 1998 Michael E. Oleson
Treasurer and Chief Accounting Officer
Page Number 19 of 19
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