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 March 31, 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 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 (May 3, 1999).
Class A Common Stock, $.01 par value: 4,024,627 shares
Class B Common Stock, $.01 par value: 1,000,000 shares
Exhibit Index is on Page 18.
Page Number 1 of 20
<PAGE>
PART I
FINANCIAL INFORMATION
PAGE
NUMBER
Item 1. Financial Statements............................................. 3-9
Condensed Consolidated Balance Sheets as of December 31, 1998
and March 31, 1999 (unaudited).......................... 3-4
Condensed Consolidated Statements of Earnings for the
three months ended March 31, 1999
and 1998 (unaudited).................................... 5
Condensed Consolidated Statements of Stockholders' Equity
for the year ended December 31, 1998, and the three
months ended March 31, 1999 (unaudited)................. 6
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 1999
and 1998 (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................................... 10-16
Item 3. Quantitative and Qualitative Disclosures
About Market Risks ..................................... 15
PART II
OTHER INFORMATION
Item 1. Legal Proceedings................................................ 17
Item 2. Changes in Securities............................................ 17
Item 3. Defaults Upon Senior Securities.................................. 17
Item 4. Submission of Matters to a Vote of Security Holders.............. 17
Item 5. Other Information................................................ 17
Item 6. Exhibits and Reports on Form 8-K................................. 18-19
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,
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 20
<PAGE>
PART I
FINANCIAL INFORMATION
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------------ ------------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................................$ 1,534 $ 1,276
Receivables:
Trade..................................................................... 18,668 15,481
Other..................................................................... 1,807 1,366
Recoverable income taxes.................................................. 117 270
Inventories................................................................. 1,527 1,537
Deposits, primarily with insurers........................................... 414 391
Prepaid expenses............................................................ 1,954 1,110
Deferred income taxes....................................................... 660 510
------------------ ------------------
Total current assets................................................. 26,681 21,941
------------------ ------------------
Property and equipment:
Land........................................................................ 883 881
Buildings and improvements.................................................. 6,180 6,147
Tractors.................................................................... 64,918 60,915
Trailers.................................................................... 38,251 39,194
Other equipment............................................................. 6,364 6,269
------------------ ------------------
116,596 113,406
Less accumulated depreciation............................................... 28,920 26,269
------------------ ------------------
Net property and equipment........................................... 87,676 87,137
------------------ ------------------
Intangible assets, net........................................................ 5,942 5,892
Other assets.................................................................. 274 524
------------------ ------------------
$ 120,573 $ 115,494
================== ==================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page Number 3 of 20
<PAGE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------------ ------------------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt........................................ $ 8,418 $ 8,124
Accounts payable............................................................ 5,865 3,280
Accrued compensation ....................................................... 2,367 1,714
Accrued loss reserves....................................................... 1,552 1,204
Other accrued expenses...................................................... 750 808
------------------ ------------------
Total current liabilities............................................ 18,952 15,130
Long-term debt, less current maturities....................................... 52,556 53,579
Deferred income taxes......................................................... 12,280 11,380
------------------ ------------------
Total liabilities.................................................... 83,788 80,089
------------------ ------------------
Stockholders' equity:
Preferred stock............................................................. - -
Common stock:
Class A................................................................... 40 40
Class B................................................................... 10 10
Additional paid-in capital.................................................. 11,345 11,311
Retained earnings........................................................... 25,422 24,118
Reacquired shares, at cost.................................................. (32) (74)
------------------ ------------------
Total stockholders' equity........................................... 36,785 35,405
------------------ ------------------
$ 120,573 $ 115,494
================== ==================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page Number 4 of 20
<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
March 31,
1999 1998
------------------ ------------------
<S> <C> <C>
Operating revenue:
Freight..........................................................$ 47,206 $ 33,294
Other............................................................ 89 97
------------------ ------------------
Operating revenue.......................................... 47,295 33,391
------------------ ------------------
Operating expenses:
Purchased transportation......................................... 18,889 13,206
Compensation and employee benefits............................... 11,720 7,866
Fuel, supplies, and maintenance.................................. 5,518 4,344
Insurance and claims............................................. 1,240 737
Taxes and licenses............................................... 991 632
General and administrative....................................... 1,723 1,348
Communications and utilities..................................... 578 413
Depreciation and amortization.................................... 3,486 2,352
------------------ ------------------
Total operating expenses.................................... 44,145 30,898
------------------ ------------------
Earnings from operations.................................... 3,150 2,493
Financial (expense) income
Interest expense................................................. (954) (585)
Interest income.................................................. 41 80
------------------ ------------------
Earnings before income taxes................................ 2,237 1,988
Income taxes.......................................................... 933 845
------------------ ------------------
Net earnings................................................$ 1,304 $ 1,143
================== ==================
Basic and diluted earnings per common share...........................$ 0.26 $ 0.23
================== ==================
Basic weighted average common shares outstanding...................... 5,020,892 5,005,804
Common stock options and awards.................................. 748 39,727
------------------ ------------------
Diluted weighted average common shares outstanding.................... 5,021,640 5,045,531
================== ==================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page Number 5 of 20
<PAGE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
(Dollars in thousands)
(Unaudited)
<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, 1997................ $ 50 $ 11,144 $ 18,789 $ (77) $ 29,906
Net earnings................................ - - 5,329 - 5,329
Issuance of stock bonuses................... - 165 - - 165
Treasury stock reissued..................... - 2 - 3 5
------------- ------------ ------------- ------------- --------------
Balance at December 31, 1998................ 50 11,311 24,118 (74) 35,405
Net earnings................................ - - 1,304 - 1,304
Issuance of stock bonuses................... - 26 - 30 56
Treasury stock reissued..................... - 8 - 12 20
------------- ------------ ------------- ------------- --------------
Balance at March 31, 1999................... $ 50 $ 11,345 $ 25,422 $ (32) $ 36,785
============= ============ ============= ============= ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page Number 6 of 20
<PAGE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------
1999 1998
------------ ---------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings.......................................................................$ 1,304 $ 1,143
------------ ---------------
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization.................................................... 3,486 2,352
Deferred income taxes............................................................ 750 430
Provision for bad debts.......................................................... 3 12
Stock bonuses.................................................................... 76 75
Changes in:
Receivables.................................................................... (3,631) (3,453)
Inventories.................................................................... 10 (84)
Deposits, primarily with insurers.............................................. (23) 530
Prepaid expenses............................................................... (844) (601)
Accounts payable and other accrued liabilities................................. 3,593 1,429
------------ ---------------
Total adjustments....................................................... 3,420 690
------------ ---------------
Net cash provided by operating activities............................... 4,724 1,833
------------ ---------------
Cash flows from investing activities:
Payments for acquisitions.......................................................... - (11,346)
Purchase of property and equipment................................................. (2,471) (1,509)
Proceeds from the sale of property and equipment................................... 891 510
Other ............................................................................. 100 (59)
------------ ---------------
Net cash used in investing activities................................... (1,480) (12,404)
------------ ---------------
Cash flows from financing activities:
Proceeds from long-term debt....................................................... - 11,000
Principal payments on long-term debt............................................... (2,986) (3,105)
------------ ---------------
Net cash (used in) provided by financing activities......................... (2,986) 7,895
------------ ---------------
Net increase (decrease) in cash and cash equivalents........................ 258 (2,676)
Cash and cash equivalents at beginning of period..................................... 1,276 4,082
------------ ---------------
Cash and cash equivalents at end of period...........................................$ 1,534 $ 1,406
============ ===============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page Number 7 of 20
<PAGE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1999 1998
------------ -------------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest................................................................ $ 717 $ 737
Income taxes............................................................ 29 91
============ ============
Supplemental schedules of noncash investing and financing activities:
Notes payable issued for tractors and trailers............................ $ 2,257 $ 1,962
Issuance of stock bonuses................................................. 76 75
Liability issued for intangible assets.................................... - 1,154
============ ============
Cash payments for acquisitions:
Revenue equipment.......................................................... $ 8,913
Intangible assets.......................................................... 1,162
Land, buildings and other assets........................................... 1,271
------------
Total cash paid for acquisitions............................................... $ 11,346
============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page Number 8 of 20
<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," will be effective
for the Company for the year beginning January 1, 2000. Management is
evaluating the impact the adoption of SFAS No.133 will have on the
Company's consolidated financial statements. The Company expects to
adopt SFAS No. 133 when required.
Page Number 9 of 20
<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 first quarter 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 March 31, 1999, revenue increased 41.6% and net earnings
increased 14.1% compared with the same period in 1998.
The Company significantly increased its dry van operations with the
acquisition of East West and JHT. The Company's increasing revenue from dry van
operations has affected its operating statistics. Company-wide revenue per
loaded mile has decreased to $1.31 in the 1999 quarter from $1.35 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 is 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 10 of 20
<PAGE>
Results of Operations
The following table sets forth the percentage relationship of certain
items to operating revenue for the three months ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
------------------ ----------------
<S> <C> <C>
Operating revenue................................................. 100.0% 100.0%
Operating expenses
Purchased transportation........................................ 39.9 39.6
Compensation and employee benefits.............................. 24.8 23.6
Fuel, supplies, and maintenance................................. 11.7 13.0
Insurance and claims............................................ 2.6 2.2
Taxes and licenses.............................................. 2.1 1.9
General and administrative...................................... 3.6 4.0
Communications and utilities.................................... 1.2 1.2
Depreciation and amortization................................... 7.4 7.0
------------------ ----------------
Total operating expenses...................................... 93.3 92.5
------------------ ----------------
Earnings from operations.......................................... 6.7 7.5
Interest expense (net)............................................ (1.9) (1.5)
------------------ ----------------
Earnings before income taxes...................................... 4.8 6.0
Income taxes...................................................... 2.0 2.6
------------------ ----------------
Net earnings...................................................... 2.8% 3.4%
================== ================
</TABLE>
Comparison of three months ended March 31, 1999 with three months ended March
31, 1998
Operating revenue increased $13.9 million (41.6%) to $47.3 million
during the 1999 quarter from $33.4 million during the 1998 quarter. Expanded
business with existing customers and revenue from the acquired operations of
East West in February 1998 and JHT in October 1998 contributed to the Company's
revenue growth. The increase was attributable to a 44.3% increase in weighted
average tractors to 1,529 during the 1999 quarter from 1,060 during the 1998
quarter. This was offset by a decrease in revenue per loaded mile to $1.31 in
the 1999 quarter from $1.35 in the 1998 quarter. This decrease in the rate per
mile is a result of the increase in van freight associated with the acquisition
of East West and JHT.
Purchased transportation increased $5.7 million (43.0%) to $18.9
million in the 1999 quarter from $13.2 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 increased to 39.9% of revenue in the 1999 quarter from 39.6% in
the 1998 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 $3.9 million (49%) to
$11.7 million in the 1999 quarter from $7.9 million in the 1998 quarter. As a
percentage of revenue, compensation and employee benefits increased to 24.8% of
revenue in the 1999 quarter from 23.6% in the 1998
Page Number 11 of 20
<PAGE>
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, and (iii) an increase in the workers compensation claims paid and
reserved.
Fuel, supplies, and maintenance increased $1.2 million (27%) to $5.5
million in the 1999 quarter from $4.3 million in the 1998 quarter. As a
percentage of revenue, fuel, supplies, and maintenance decreased to 11.7% of
revenue for the 1999 quarter compared with 13.0% for the 1998 quarter reflecting
a 9.4% decrease in average fuel costs to $.96 per gallon during the 1999 quarter
from $1.07 per gallon during the 1998 quarter and a reduction in maintenance
costs.
Insurance and claims increased $503,000 (68.2%) to $1.2 million in the
1999 quarter from $737,000 in the 1998 quarter. As a percentage of revenue,
insurance and claims increased to 2.6% of revenue in the 1999 quarter from 2.2%
in the 1998 period as a result of increased insurance claims paid and reserved.
Taxes and licenses increased $359,000 (56.8%) to $991,000 in the 1999
quarter from $632,000 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 period. As a percentage of revenue,
taxes and licenses increased to 2.1% of revenue from 1.9% in the 1998 period.
General and administrative expenses increased $375,000 (27.8%) to $1.7
million in the 1999 quarter from $1.3 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 4.0% in the 1998 quarter as a result of
decrease in freight revenue being dispatched by terminal agents resulting in
less commissions paid during the 1999 quarter.
Communications and utilities increased $165,000 (40%) to $578,000 in
the 1999 quarter from $413,000 in the 1998 quarter. As a percentage of revenue,
communications and utilities remained constant at 1.2% of revenue.
Depreciation and amortization increased $1.1 million (48.2%) to $3.5
million in the 1999 quarter from $2.4 million in the 1998 quarter. As a
percentage of revenue, depreciation and amortization increased to 7.4% of
revenue in the 1999 quarter from 7.0% 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 $408,000 (80.8%) to $913,000 in the
1999 quarter from $505,000 in the 1998 quarter. As a percentage of revenue,
interest expense (net)increased to 1.9% of revenue in the 1999 quarter from 1.5%
in the 1998 quarter, due to higher average debt balances of $61.7 million in the
1999 quarter compared with $33.9 million in the 1998 quarter, which was partial-
ly offset by slightly lower average interest rates in the 1999 quarter.
Page Number 12 of 20
<PAGE>
As a result of the foregoing, the Company's pretax margin decreased to
4.8% in the 1999 quarter from 6% in the 1998 quarter.
The Company's effective tax rate was 41.7% for the 1999 quarter and
42.5% 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 $161,000 (14.1%) to $1.3 million (2.8% of revenue) in the 1999 quarter
from $1.1 million (3.4% of revenue) in the 1998 quarter.
Liquidity and Capital Resources
The growth of the Company's business has required significant investments
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
operations, 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
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 1999.
Net cash provided by operating activities was $4.6 million for the
three months ended March 31, 1999. The primary sources of cash from operations
were net earnings of $1.3 million increased by $3.5 million in depreciation and
amortization, and a $3.6 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 $3.6 million for the three
months ended March 31, 1999. The average age of the Company's accounts
receivable was approximately 32.8 days for the 1999 quarter.
Net cash used in investing activities of $1.5 million in the 1999
quarter 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 $20.3 million during the remaining nine months of 1999. Such
projected capital expenditures will be funded with cash flow from operations,
borrowings, or operating leases.
Net cash used in financing activities of $3.0 million for the three
months ended March 31, 1999 consisted of $3.0 million of principal payments made
under the Company's other long-term debt agreement.
Page Number 13 of 20
<PAGE>
At March 31, 1999, the Company had outstanding long-term debt
(including current maturities) of approximately $61 million, most of which was
comprised of obligations for the purchase of revenue equipment. Approximately
$35 million consisted of borrowings from financial institutions and equipment
manufacturers, $25 million represented the amount drawn under the Company's
revolving credit facility, and $1 million represented future payments for
purchases of intangible assets. Interest rates on this debt range from 5.81% to
6.58% with maturities through 2003.
At March 31, 1999, the revolving credit facility provided for
borrowings of up to $40.0 million, based upon certain accounts receivable and
revenue equipment values. 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 March 31, 1999.
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 it expects to be compliant by June 1999.
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.
Page Number 14 of 20
<PAGE>
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 March 31, 1999 the Company has spent approximately $100,000 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.
The Company's primary risk relating to Year 2000 compliance is the
possibility of service disruption from third-party suppliers of satellite
communication, telephone, fueling, and financial services. 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. A
worst-case 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. 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 is in the process of developing contingency plans in case
business interruptions do occur. Management expects these plans to be completed
by June 30, 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.
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.
Page Number 15 of 20
<PAGE>
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.
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 March 31, 1999, there have been no material changes in the
amount or nature of the Company's derivative instruments.
Page Number 16 of 20
<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.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Page Number 17 of 20
<PAGE>
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.
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.
27 # Financial Data Schedule.
Page Number 18 of 20
<PAGE>
- ------------------
+ Incorporated by reference from the Company's Registration State-
ment 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 19 of 20
<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: May 14, 1999 By:/s/Michael E. Oleson
--------------------
Michael E. Oleson
Treasurer and Chief Accounting Officer
Page Number 20 of 20
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