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, 1999
( ) 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
of incorporation or number)
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 6, 1999).
Class A Common Stock, $.01 par value: 4,035,876 shares
Class B Common Stock, $.01 par value: 1,000,000 shares
Exhibit Index is on Page 19-20.
Page Number 1 of 21
<PAGE>
PART I
FINANCIAL INFORMATION
PAGE
NUMBER
Item 1. Financial Statements............................................. 3-8
Condensed Consolidated Balance Sheets as of June 30, 1999
(unaudited) and December 31, 1998................................ 3-4
Condensed Consolidated Statements of Earnings for the
three and six months ended June 30, 1999 and 1998 (unaudited).... 5
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 1999 and 1998 (unaudited).............. 6-7
Notes to Condensed Consolidated Financial Statements
(unaudited)...................................................... 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 9-16
Item 3. Quantitative and Qualitative Disclosures About Market Risks......16-17
PART II
OTHER INFORMATION
Item 1. Legal Proceedings................................................. 18
Item 2. Changes in Securities............................................. 18
Item 3. Defaults Upon Senior Securities................................... 18
Item 4. Submission of Matters to a Vote of Security Holders............... 18
Item 5. Other Information................................................. 18
Item 6. Exhibits and Reports on Form 8-K.................................19-20
FORWARD LOOKING STATEMENTS
This document contains forward-looking statements. 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,sur-
plus 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 21
<PAGE>
PART I
FINANCIAL INFORMATION
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------------ ------------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................................$ 2,607 $ 1,276
Receivables:
Trade..................................................................... 19,580 15,481
Other..................................................................... 1,719 1,366
Recoverable income taxes.................................................. - 270
Inventories................................................................. 1,585 1,537
Deposits, primarily with insurers........................................... 232 391
Prepaid expenses............................................................ 1,458 1,110
Deferred income taxes....................................................... 660 510
------------------ ------------------
Total current assets................................................. 27,841 21,941
------------------ ------------------
Property and equipment:
Land........................................................................ 1,045 881
Buildings and improvements.................................................. 6,738 6,147
Tractors.................................................................... 67,209 60,915
Trailers.................................................................... 40,747 39,194
Other equipment............................................................. 6,473 6,269
------------------ ------------------
122,212 113,406
Less accumulated depreciation............................................... 31,582 26,269
------------------ ------------------
Net property and equipment........................................... 90,630 87,137
------------------ ------------------
Intangible assets, net........................................................ 5,828 5,892
Other assets.................................................................. 257 524
------------------ ------------------
$ 124,556 $ 115,494
================== ==================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page Number 3 of 21
<PAGE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---------------- -----------------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt ....................................... $ 8,520 $ 8,124
Accounts payable............................................................ 6,785 3,280
Accrued compensation........................................................ 2,904 1,714
Accrued loss reserves....................................................... 1,553 1,204
Other accrued expenses...................................................... 1,098 808
Income taxes payable........................................................ 7 -
---------------- -----------------
Total current liabilities............................................ 20,867 15,130
Long-term debt, less current maturities....................................... 51,863 53,579
Deferred income taxes......................................................... 13,220 11,380
---------------- -----------------
Total liabilities.................................................... 85,950 80,089
---------------- -----------------
Stockholders' equity:
Preferred stock............................................................. - -
Common stock:
Class A................................................................... 40 40
Class B................................................................... 10 10
Additional paid-in capital.................................................. 11,412 11,311
Retained earnings........................................................... 27,144 24,118
Reacquired shares, at cost.................................................. - (74)
---------------- -----------------
Total stockholders' equity...........................................
38,606 35,405
---------------- -----------------
$ 124,556 $ 115,494
================ =================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page Number 4 of 21
<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,
1999 1998 1999 1998
---------------- ------------ ------------ ------------------
<S> <C> <C> <C> <C>
Operating revenue:
Freight....................................$ 50,888 $ 40,762 $ 98,094 $ 74,056
Other...................................... 229 73 318 170
---------------- ------------ ------------ ------------------
Operating revenue.................... 51,117 40,835 98,412 74,226
---------------- ------------ ------------ ------------------
Operating expenses:
Purchased transportation................... 20,655 17,436 39,544 30,642
Compensation and employee benefits.......... 12,283 9,919 24,003 17,785
Fuel, supplies, and maintenance............. 6,150 4,976 11,668 9,320
Insurance and claims........................ 765 583 2,005 1,320
Taxes and licenses.......................... 976 719 1,967 1,351
General and administrative.................. 1,865 1,582 3,588 2,930
Communications and utilities................ 566 429 1,144 842
Depreciation and amortization............... 3,974 2,795 7,460 5,147
---------------- ------------ ------------ ------------------
Total operating expenses............... 47,234 38,439 91,379 69,337
---------------- ------------ ------------ ------------------
Earnings from operations............... 3,883 2,396 7,033 4,889
Financial (expense) income
Interest expense........................... (959) (732) (1,913) (1,317)
Interest income............................ 28 55 69 135
---------------- ------------ ------------ ------------------
Earnings before income taxes.......... 2,952 1,719 5,189 3,707
Income taxes.................................... 1,230 698 2,163 1,543
---------------- ------------ ------------ ------------------
Net earnings..........................$ 1,722 $ 1,021 $ 3,026 $ 2,164
================ ============ ============ ==================
Basic and diluted earnings
per common share................................$ 0.34 $ 0.20 $ 0.60 $ 0.43
================ ============ ============ ==================
Basic weighted average common
shares outstanding.............................. 5,030,931 5,013,592 5,025,940 5,009,682
Common stock options and awards............ 2,022 55,266 1,386 47,499
---------------- ------------- ------------- -----------------
Diluted weighted average
common shares outstanding....................... 5,032,953 5,068,858 5,027,326 5,057,181
================ ============ ============ ==================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page Number 5 of 21
<PAGE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------------
1999 1998
------------ ---------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings.......................................................................$ 3,026 $ 2,164
------------ ---------------
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization.................................................... 7,460 5,147
Deferred income taxes............................................................ 1,690 965
Provision for bad debts.......................................................... - 22
Stock bonuses.................................................................... 176 163
Changes in:
Receivables.................................................................... (4,452) (4,002)
Inventories.................................................................... (48) (54)
Deposits, primarily with insurers.............................................. 158 502
Prepaid expenses............................................................... (348) (159)
Accounts payable and other accrued liabilities................................. 5,610 1,896
------------ ---------------
Total adjustments....................................................... 10,246 4,480
------------ ---------------
Net cash provided by operating activities............................... 13,272 6,644
------------ ---------------
Cash flows from investing activities:
Payments for acquisitions.......................................................... - (11,516)
Purchase of property and equipment................................................. (8,600) (3,949)
Proceeds from the sale of property and equipment................................... 1,696 870
Other ............................................................................. 117 37
------------ ---------------
Net cash used in investing activities................................... (6,787) (14,558)
------------ ---------------
Cash flows from financing activities:
Proceeds from long-term debt....................................................... - 11,000
Principal payments on long-term debt............................................... (5,154) (4,317)
------------ ---------------
Net cash (used in) provided by financing activities..................... (5,154) 6,683
------------ ---------------
Net increase (decrease) in cash and cash equivalents.................... 1,331 (1,231)
Cash and cash equivalents at beginning of period..................................... 1,276 4,082
------------ ---------------
Cash and cash equivalents at end of period........................................... $ 2,607 $ 2,851
============= ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page Number 6 of 21
<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,
----------------------------------
1999 1998
--------------- ----------------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest.................................................................. $ 1,704 $ 1,498
Income taxes.............................................................. 197 628
============== ================
Supplemental schedules of noncash investing and financing activities:
Notes payable issued for tractors and trailers.............................. $ 3,834 $ 3,554
Issuance of stock bonuses................................................... 176 163
Liability issued for intangible assets...................................... - 1,154
============== =================
Cash payments for acquisitions:
Revenue equipment........................................................... $ - $ 8,913
Intangible assets........................................................... - 1,332
Land, buildings and other assets............................................ - 1,271
--------------- ----------------
Total cash paid for acquisitions................................................ $ - $ 11,516
=============== ================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page Number 7 of 21
<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. (East West). JHT, Inc. (JHT), a subsidiary of the Company
at December 31, 1998, was merged into Smithway Motor Xpress, Inc. in
February, 1999. 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, 1998 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, 1998. Results of operations in interim
periods are not necessarily indicative of results to be expected for a
full year.
Note 2. Effect of New Accounting Standards
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting
for Derivative Instruments and Hedging Activities," as amended by SFAS
No. 137, will be effective for the Company for the year beginning
January 1, 2001. Management is evaluating the impact the adoption of
SFAS No. 133 will have on the Company's consolidated financial state-
ments. The Company expects to adopt SFAS No. 133 when required.
Page Number 8 of 21
<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 1999
and 1998 fiscal years.
The Company has expanded its operations substantially over the past
three years through a combination of internal growth and acquisitions. For the
three months ended June 30, 1999, revenue increased 25.2% and net earnings
increased 68.7% compared with the same period in 1998. For the six months ended
June 30, 1999, revenue increased 32.6% and net earnings increased 39.8% compared
with the same period in 1998.
The Company significantly increased its dry van operations with the
acquisition of East West and JHT in 1998. The Company's increasing revenue from
dry van operations has affected its operating statistics. Company-wide revenue
per loaded mile has decreased to $1.32 in the 1999 quarter from $1.33 in 1998
quarter, primarily because revenue per loaded mile for the Company's dry van
freight is lower than for its flatbed freight. Management believes, however,
that the dry van freight can be comparable in profitability to flatbed freight
because it typically generates fewer empty miles and greater miles per tractor
than flatbed freight. Management expects that the percentage of the Company's
revenue generated by dry van freight will increase in 1999 because of the
acquisition of JHT in October 1998. Fluctuations in revenue per loaded mile and
other operating statistics may occur from time-to-time as the Company's freight
mix changes due to acquisitions and other factors.
The Company operates a tractor-trailer fleet comprised of both
Company-owned vehicles and vehicles obtained under leases from independent
contractors and third-party finance companies. Fluctuations among expense
categories may occur as a result of changes in the relative percentage of the
fleet obtained through equipment that is owned versus equipment that is leased
from independent contractors or financing sources. 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, independent contractor 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.
Page Number 9 of 21
<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, 1999 and
1998:
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, June 30,
1999 1998 1999 1998
----------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Operating revenue............................................... 100.0% 100.0% 100.0% 100.0%
Operating expenses
Purchased transportation...................................... 40.4 42.7 40.2 41.3
Compensation and employee benefits............................ 24.0 24.3 24.4 24.0
Fuel, supplies, and maintenance............................... 12.0 12.2 11.9 12.6
Insurance and claims.......................................... 1.5 1.4 2.0 1.8
Taxes and licenses............................................ 1.9 1.8 2.0 1.8
General and administrative.................................... 3.6 3.9 3.6 3.9
Communications and utilities.................................. 1.1 1.0 1.2 1.1
Depreciation and amortization................................. 7.8 6.8 7.6 6.9
----------- ----------- --------- ----------
Total operating expenses.................................... 92.4 94.1 92.9 93.4
----------- ----------- --------- ----------
Earnings from operations........................................ 7.6 5.9 7.1 6.6
Interest expense (net).......................................... (1.8) (1.7) (1.8) (1.6)
----------- ----------- --------- ----------
Earnings before income taxes.................................... 5.8 4.2 5.3 5.0
Income taxes.................................................... 2.4 1.7 2.2 2.1
----------- ----------- --------- ----------
Net earnings.................................................... 3.4% 2.5% 3.1% 2.9%
=========== =========== ========= ==========
</TABLE>
Comparison of three months ended June 30, 1999 with three months
ended June 30, 1998
Operating revenue increased $10.3 million (25.2%) to $51.1 million
during the 1999 quarter from $40.8 million during the 1998 quarter. Expanded
business with existing customers and revenue from the acquired operations of JHT
in October 1998 contributed to the Company's revenue growth. Weighted average
tractors increased 28.6% to 1,540 during the 1999 quarter from 1,198 during the
1998 quarter. This was offset by a decrease in average revenue per tractor per
week to $2,399 during the 1999 quarter from $2,425 during the 1998 quarter.
Purchased transportation increased $3.2 million (18.5%) to $20.7
million in the 1999 quarter from $17.4 million in the 1998 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 decreased to 40.4% of revenue in the 1999 quarter from 42.7% in
the 1998 quarter. This reflects a decrease in the amount of freight brokered by
the Company and a slight decrease in the percentage of the Company's fleet
supplied by independent contractors.
Compensation and employee benefits increased $2.4 million (23.8%) to
$12.3 million in the 1999 quarter from $9.9 million in the 1998 quarter. As a
percentage of revenue, compensation and employee benefits decreased to 24.0%
of revenue in the 1999 quarter from 24.3% in the 1998 quarter. The decrease
was attributable to a decrease in workers compensation claims paid and reserved.
Page Number 10 of 21
<PAGE>
Fuel, supplies, and maintenance increased $1.2 million (23.6%) to $6.2
million in the 1999 quarter from $5.0 million in the 1998 quarter. As a
percentage of revenue, fuel, supplies, and maintenance decreased to 12.0% of
revenue for the 1999 quarter compared with 12.2% for the 1998 quarter. This was
the result of a reduction in maintenance costs and tires expense which more than
offset a 2.9% increase in average fuel costs to $1.07 per gallon during the 1999
quarter from $1.04 per gallon during the 1998 quarter.
Insurance and claims increased $182,000 (31.2%) to $765,000 in the 1999
quarter from $583,000 in the 1998 quarter. As a percentage of revenue, insurance
and claims remained essentially constant at 1.5% of revenue in the 1999 quarter
and 1.4% in the 1998 quarter.
Taxes and licenses increased $257,000 (35.7%) to $976,000 in the 1999
quarter from $719,000 in the 1998 quarter reflecting an increase in the number
of tractors licensed by the Company and an increase in the number of shipments
requiring special permits during the 1999 quarter. The special permits are paid
for by the shippers. As a percentage of revenue, taxes and licenses remained
essentially constant at 1.9% of revenue in the 1999 quarter and 1.8% in the 1998
quarter.
General and administrative expenses increased $283,000 (17.9%) to $1.9
million in the 1999 quarter from $1.6 million in the 1998 quarter. As a
percentage of revenue, general and administrative expenses decreased to 3.6% of
revenue in the 1999 quarter from 3.9% in the 1998 quarter as a result of a
decrease in freight revenue being dispatched by terminal agents resulting in
less commissions paid during the 1999 quarter.
Communications and utilities increased $137,000 (31.9%) to $566,000 in
the 1999 quarter from $429,000 in the 1998 quarter. As a percentage of revenue,
communications and utilities remained essentially constant at 1.1% of revenue in
the 1999 quarter and 1.0% in the 1998 quarter.
Depreciation and amortization increased $1.2 million (42.2%) to $4.0
million in the 1999 quarter from $2.8 million in the 1998 quarter. As a
percentage of revenue, depreciation and amortization increased to 7.8% of
revenue in the 1999 quarter from 6.8% in the 1998 quarter. The increase was
attributable to a larger fleet of Company-owned tractors and trailers, which
increased the cost of equipment being depreciated, an increase in the number of
Company-owned tractors financed with debt rather than operating leases, slightly
lower revenue per tractor, and an increase in goodwill amortization as a
result of three acquisitions in 1998, two occurring after the 1998 quarter.
Interest expense (net) increased $254,000 (37.5%) to $931,000 in the
1999 quarter from $677,000 in the 1998 quarter. As a percentage of revenue,
interest expense (net) remained essentially constant at 1.8% of revenue in the
1999 quarter and 1.7% in the 1998 quarter.
As a result of the foregoing, the Company's pretax margin increased to
5.8% in the 1999 quarter from 4.2% in the 1998 quarter.
Page Number 11 of 21
<PAGE>
The Company's effective tax rate was 41.7% for the 1999 quarter and
40.6% for the 1998 quarter. 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
increased $701,000 (68.7%) to $1.7 million (3.4% of revenue) in the 1999 quarter
from $1.0 million (2.5% of revenue) in the 1998 quarter.
Comparison of six months ended June 30, 1999, with six months ended
June 30, 1998
Operating revenue increased $24.2 million (32.6%) to $98.4 million
during the 1999 period from $74.2 million during the 1998 period. Expanded
business with existing customers and revenue from the acquired operations of JHT
in October 1998 contributed to the Company's revenue growth. Weighted average
tractors increased 35.9% to 1,534 during the 1999 period from 1,129 during the
1998 period. The increase in fleet size was partially offset by a decrease in
average revenue per tractor per week to $2,312 during the 1999 period from
$2,341 during the 1998 period.
Purchased transportation increased $8.9 million (29.1%) to $39.5
million in the 1999 period from $30.6 million in the 1998 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 decreased to 40.2% of revenue in the 1999 period from 41.3% in
the 1998 period. This reflects a decrease in the amount of freight brokered by
the Company and a slight decrease in the percentage of the Company's fleet
supplied by independent contractors.
Compensation and employee benefits increased $6.2 million (35.0%) to
$24.0 million in the 1999 period from $17.8 million in the 1998 period. As a
percentage of revenue, compensation and employee benefits increased to 24.4% of
revenue in the 1999 period from 24.0% in the 1998 period. The increase was
attributable to an increase in the per-mile wage paid to van division drivers,
and an increase in the number of trainers and trainees, which was partially
offset by a decrease in the workers compensation claims paid and reserved.
Fuel, supplies, and maintenance increased $2.3 million (25.2%) to $11.7
million in the 1999 period from $9.3 million in the 1998 period. As a percentage
of revenue, fuel, supplies, and maintenance decreased to 11.9% of revenue for
the 1999 period compared with 12.6% for the 1998 period. The decrease as a
percentage of revenue reflected a 3.8% decrease in average fuel costs to $1.01
per gallon during the 1999 period from $1.05 per gallon during the 1998 period
and a reduction in maintenance costs and tires expense.
Insurance and claims increased $685,000 (51.9%) to $2.0 million in the
1999 period from $1.3 million in the 1998 period. As a percentage of revenue,
insurance and claims increased to 2.0% of revenue in the 1999 period from 1.8%
in the 1998 period as a result of increased insurance claims paid and reserved.
Taxes and licenses increased $616,000 (45.6%) to $2.0 million in the
1999 period from $1.3 million in the 1998 period reflecting an increase in the
number of tractors licensed by the Company and an increase in the number of
shipments requiring special permits during the 1999 period. The special permits
are paid for by the shippers. As a percentage of revenue, taxes and licenses
increased to 2.0% of revenue in the 1999 period from 1.8% in the 1998 period
because of lower average revenue per tractor per week and the cost of the
special permits.
Page Number 12 of 21
<PAGE>
General and administrative expenses increased $658,000 (22.5%) to $3.6
million in the 1999 period from $2.9 million in the 1998 period. As a percentage
of revenue, general and administrative expenses decreased to 3.6% of revenue in
the 1999 period from 3.9% in the 1998 period as a result of a decrease in
freight revenue being dispatched by terminal agents resulting in less
commissions paid during the 1999 period. Additionally, certain fixed costs are
being spread over a larger revenue base.
Communications and utilities increased $302,000 (35.9%) to $1.1 million
in the 1999 period from $842,000 in the 1998 period. As a percentage of revenue,
communications and utilities remained essentially constant at 1.2% of revenue in
the 1999 period and 1.1% in the 1998 period.
Depreciation and amortization increased $2.3 million (44.9%) to $7.5
million in the 1999 period from $5.1 million in the 1998 period. As a percentage
of revenue, depreciation and amortization increased to 7.6% of revenue in the
1999 period from 6.9% in the 1998 period. The increase was attributable to a
larger fleet of Company-owned tractors and trailers, which increased the cost of
equipment being depreciated, an increase in the number of Company-owned tractors
financed with debt rather than operating leases, slightly lower revenue per
tractor, and an increase in goodwill amortization as a result of three
acquisitions in 1998, two occurring after the 1998 period.
Interest expense (net) increased $662,000 (56.0%) to $1.8 million in
the 1999 period from $1.2 million in the 1998 period. As a percentage of
revenue, interest expense (net) increased to 1.8% of revenue in the 1999 period
from 1.6% in the 1998 period, due to higher average debt balances of $61.0
million in the 1999 period compared with $37.3 million in the 1998 period.
As a result of the foregoing, the Company's pretax margin increased to
5.3% in the 1999 period from 5.0% in the 1998 period.
The Company's effective tax rate was 41.7% for the 1999 period and
41.6% for the 1998 period. 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
increased $862,000 (39.8%) to $3.0 million (3.1% of revenue) in the 1999 period
from $2.2 million (2.9% of revenue) in the 1998 period.
Liquidity and Capital Resources
The growth of the Company's business has required significant invest-
ments in new revenue equipment that the Company historically has financed with
borrowing under installment notes payable to commercial lending institutions and
equipment manufacturers, borrowings under lines of credit, cash flow from opera-
tions, equipment leases from third-party lessors, and 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
Page Number 13 of 21
<PAGE>
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
currently anticipated working capital requirements, capital expenditures, and
other needs at least through 1999.
Net cash provided by operating activities was $13.3 million for the six
months ended June 30, 1999. The primary sources of cash from operations were net
earnings of $3.0 million increased by $7.5 million in depreciation and
amortization, and a $5.6 million increase in accounts payable and other accrued
liabilities. The Company's principal use of cash from operations is to service
debt and internally finance accounts receivable associated with growth in the
business. Customer accounts receivable increased $4.5 million for the six months
ended June 30, 1999. The average age of the Company's accounts receivable was
approximately 34.5 days for the 1999 period versus 33.1 days for the 1998
period.
Net cash used in investing activities of $6.8 million in the 1999
period related primarily to 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 $14.2 million during the remaining six months of 1999. Such
projected capital expenditures will be funded with a combination of cash flow
from operations, borrowings, and operating leases.
Net cash used in financing activities of $5.2 million for the six
months ended June 30, 1999 consisted entirely of principal payments made under
the Company's long-term debt obligations.
At June 30, 1999, the Company had outstanding long-term debt (including
current maturities) of approximately $60.4 million, most of which was comprised
of obligations for the purchase of revenue equipment. Approximately $34.5
million consisted of borrowings from financial institutions and equipment
manufacturers, $25 million represented the amount drawn under the Company's
revolving credit facility, and $900,000 represented future payments for
purchases of intangible assets. Interest rates on this debt range from 5.81% to
6.71% with maturities through 2003.
At June 30, 1999, the revolving credit facility provided for borrowings
of up to $40.0 million, based upon certain accounts receivable and revenue
equipment values. Based upon the borrowing levels at June 30, 1999, the Company
had $7.6 million of remaining borrowing capacity under this credit facility. The
interest rate under the credit facility is 1.5% plus the LIBOR rate for the
corresponding period. The credit facility is secured and contains covenants that
impose certain minimum financial ratios and limit additional liens, the size of
certain mergers and acquisitions, dividends, and other matters. The Company was
in compliance with the terms of the credit facility at June 30, 1999.
Page Number 14 of 21
<PAGE>
Year 2000
The Year 2000 issue, common to most companies, concerns the inability
of information and noninformation systems to recognize and process
date-sensitive information after 1999 due to the use of only the last two digits
to refer to a year. This problem could affect both information systems (software
and hardware) and other equipment that relies on microprocessors. Management has
completed a Company-wide evaluation of this impact on its computer systems,
applications and other date-sensitive equipment. The Company's primary
information technology systems ("IT Systems") include hardware and software for
billing, dispatch, electronic data interchange, fueling, payroll and satellite
communications systems. These IT Systems include both Company-developed software
and software designed by third-parties. The primary IT System designed by a
third party is the satellite tracking system, which tracks equipment locations,
provides dispatch and routing information and allows in-cab communication with
drivers. The Company has been informed by this provider that its system is
compliant. Another significant IT System provided by a third party transmits
payroll funds to drivers and allows drivers to purchase fuel and other items
outside the Company's terminal locations. The Company has been informed by this
provider that its system is compliant.
The IT Systems developed by the Company have been assessed and systems
and equipment that were not Year 2000 compliant have been identified and
remediation efforts and testing of systems/equipment have been completed.
The Company is reviewing its risks associated with microprocessors
embedded in facilities and equipment ("Non-IT Systems"). The primary Non-It
Systems include microprocessors in tractor engines and other components,
terminal facilities, satellite communication units, and telecommunications
and other office equipment. The Company's assessment of its revenue equipment,
satellite communications units, and office equipment Non-IT Systems has revealed
low risk of material replacement requirements. Such systems are relatively new
and were designed to be Year 2000 compliant. The Company is continuing to assess
its Non-IT Systems included in its terminal facilities, but believes that the
risk of a service-interrupting failure in these systems is low.
The Company is also in the process of monitoring the progress of
material third parties (shippers and suppliers) in their efforts to become Year
2000 compliant. These third parties include, but are not limited to: shippers of
freight, manufacturers of operating equipment, fuel and parts suppliers, the
U.S. Postal Service, financial institutions, and utilities. The Company has
requested copies of the Year 2000 plans of the material third parties and
intends to seek updates from third parties as to their performance against these
plans.
Through June 30, 1999 the Company has spent approximately $120,000 to
address Year 2000 issues. Total costs to address Year 2000 issues are currently
estimated not to exceed $150,000 and consist primarily of costs for the
remediation of internal systems and equipment. Funds for these costs are
expected to be provided by the operating cash flows of the Company. The majority
of the internal system remediation efforts relate to staff costs of on staff
systems programmers, and therefore, are not incremental costs.
Page Number 15 of 21
<PAGE>
The Company's most reasonably likely worst case scenario relating to
Year 2000 compliance is the possibility of service disruption from third-party
suppliers of satellite communication, telephone, fueling, and financial
services. This scenario would result in the short term inability of the Company
to deliver freight for its shippers. This would result in lost revenues; however
the amount would be dependent on the length and nature of the disruption, which
cannot be predicted or estimated. The Company could be faced with severe
consequences if Year 2000 issues are not identified and resolved in a timely
manner by the Company and material third parties. In light of the possible
consequences, the Company is devoting the resources needed to address Year 2000
issues in a timely manner. The progress of the Company's Year 2000 efforts are
reported to the audit committee of the board of directors at each quarterly
meeting. While management expects a successful resolution of these issues, there
can be no guarantee that material third parties, on which the Company relies,
will address all Year 2000 issues on a timely basis or that their failure to
successfully address all issues would not have an adverse effect on the Company.
The Company has developed a written contingency plan in case business
interruptions do occur. In general, the written plan includes the following: (a)
equipment will be dispatched by telephone; (b) load information will be manually
recorded into a PC-based database application, which will generate freight
bills, calculate driver wage and settlement payments, and assist in tracking
loads; (c) the departmental teams that have been established will respond to
Year 2000 issues within their department; (d) personnel will be temporarily
re-assigned from noncritical areas to assist in manual data entry; (e) time off
and vacation policies have been modified to ensure the availability of adequate
human resources; and (f) all on-site fueling facilities will be filled prior to
December 31, 1999.
Quantitative and Qualitative Disclosures About Market Risks
The Company is exposed to market risks from changes in (i) certain
interest rates on its debt and (ii) certain commodity prices.
Interest Rate Risk
The revolving credit facility, provided there has been no default,
carries a maximum variable interest rate of LIBOR for the corresponding period
plus 1.5%. This variable interest exposes the Company to the risk that interest
rates may rise. The Company's other debt carries fixed interest rates and
exposes the Company to the risk that interest rates may fall. Approximately
41.4% of our debt carries a variable rate and the remainder is fixed.
Commodity Price Risk
The Company uses derivative instruments, including purchased options
and futures contracts to reduce a portion of its exposure to fuel price
fluctuations.
The Company also uses heating oil price swap agreements to reduce a
portion of its exposure to fuel price fluctuations. Changes in fuel prices would
have no impact on the Company's future fuel expense related to these
price swap agreements. Therefore, there is no earnings or liquidity risk
associated with these price swap agreements.
Page Number 16 of 21
<PAGE>
The Company does not trade in these derivatives with the objective of
earning financial gains on price fluctuations, nor does it trade in these
instruments when there are no underlying transaction related exposures.
Through June 30, 1999, there have been no material changes in the
amount or nature of the Company's derivative instruments.
Page Number 17 of 21
<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.
On May 9, 1999, for the purpose of (a)ratification of the selection of KPMG
LLP as independent certified public accounts for the Company, (b) electing
five directors for one-year terms, and (c) amending the Company's Incentive
Stock Plan to reserve an additional 275,000 shares of the Company's Class A
Common Stock for issuance to participants. 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
5,666,598 votes "FOR", 2,260 votes "AGAINST", and 7,404 votes "ABSTAIN."
The voting tabulation on the election of directors was as follows:
Shares Shares Shares
voted voted Voted
"FOR" "AGAINST" "ABSTAIN"
William G. Smith 5,666,142 0 10,120
G. Larry Owens 5,659,526 0 16,736
Terry G. Christenberry 5,666,342 0 9,920
Herbert D. Ihle 5,665,342 0 10,920
Robert E. Rich 5,666,267 0 9,995
The voting tabulation on the amendment of the Incentive Stock Plan was
4,237,820 votes "FOR", 685,653 votes "AGAINST", and 24,157 votes "ABSTAIN."
Item 5. Other Information.
None.
Page Number 18 of 21
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
2.1 +++ Asset Purchase Agreement dated February 20, 1998, by
and among Smithway Motor Xpress, Inc., East West
Motor Express, Inc. and Darwyn and David Stebbins.
2.2 +++++ Asset Purchase Agreement dated September 23, 1998, by
and among Smithway Motor Xpress, Inc., JHT, Inc., JHT
LOGISTICS, INC., Bass Brook Truck Service, Inc., and JERDON
TERMINAL HOLDINGS, LLC.
3.1 + Articles of Incorporation.
4.2 + 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 ++ Credit Agreement dated September 3, 1997, between
Smithway Motor Xpress Corp., as Guarantor, Smithway Motor
Xpress, Inc., as Borrower, and LaSalle National Bank.
Page Number 19 of 21
<PAGE>
Exhibit
10.8 +++ Asset Purchase Agreement dated February 20, 1998, by
and among Smithway Motor Xpress, Inc., East West
Motor Express, Inc., and Darwyn and David Stebbins.
10.9 ++++ 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.
10.10 ++++ 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.
10.11 +++++ Asset Purchase Agreement dated September 23, 1998, by
and among Smithway Motor Xpress, Inc., JHT, Inc., JHT
LOGISTICS, INC., Bass Brook Truck Service, Inc., and JERDON
TERMINAL HOLDINGS, LLC.
10.12 # Amendment No. 2 to Smithway Motor Xpress Corp.
Incentive Stock Plan, adopted May 7, 1999.
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 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.
+++++ Incorporated by reference from the Company's Form 8-K.
Commission File No.000-20793, dated November 12, 1998.
# Filed herewith.
(b) Reports on Form 8-K.
None.
Page Number 20 of 21
<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
Date: August 13, 1999 By:/s/Michael E. Oleson
--------------- --------------------
Michael E. Oleson
Treasurer and Chief Accounting Officer
Page Number 21 of 21
AMENDMENT NO. 2
SMITHWAY MOTOR XPRESS CORP.
INCENTIVE STOCK PLAN
This Amendment No. 2 to the Smithway Motor Xpress Corp. Incentive Stock
Plan (the "Amendment"), is made pursuant to Section 6.4.b. of the Smithway Motor
Xpress Corp. Incentive Stock Plan (the "Plan"). All terms in this Amendment
shall have the meaning ascribed in the Plan, unless otherwise defined herein.
Background. On March 1, 1995, all voting stockholders and all directors of
Smithway Motor Xpress Corp., a Nevada corporation (the "Company"), adopted an
Incentive Stock Plan (the "Plan"). On August 15, 1996, the Company adopted
Amendment No. 1 to the Plan. The Board of Directors desires to further amend the
Plan to increase the number of shares subject to the Plan.
In accordance with the foregoing, Article I of the Plan is amended by
deleting the second sentence of Section 1.6 and replacing it with the following:
The maximum number of shares of Common Stock which may be issued for all
purposes under the Plan shall be Five Hundred Thousand (500,000).
This Amendment was duly adopted and approved by the Company's Board of
Directors on January 28, 1999 and by the Company's stockholders on May 7, 1999.
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