SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the Fiscal Year Ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
Commission file number 000-20793
SMITHWAY MOTOR XPRESS CORP.
(Exact name of registrant as specified in its charter)
Nevada 42-1433844
(State or Other Jurisdiction of
Incorporation or Organization) (I.R.S. Employer Identification No.)
2031 Quail Avenue
Fort Dodge, Iowa (Zip Code)50501
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: 515/576-7418
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
$0.01 Par Value Class A Common Stock
------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $23,227,539 as of February 12, 1999, (based upon the $8.625 per
share closing price on that date as reported by Nasdaq). In making this
calculation the registrant has assumed, without admitting for any purpose, that
all executive officers, directors, and holders of more than 5% of a class of
outstanding common stock, and no other persons, are affiliates.
As of February 12, 1999, the registrant had 4,024,627 shares of Class A Common
Stock and 1,000,000 shares of Class B Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: The information set forth under Part III,
Items 10, 11, 12, and 13 of this Report is incorporated by reference from the
registrant's definitive proxy statement for the 1999 annual meeting of
stockholders that will be filed no later than April 30, 1999.
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Cross Reference Index
The following cross reference index indicates the document and location
of the information contained herein and incorporated by reference into the Form
10-K.
Document and Location
Part I
Item 1 Business Page 3 through 7 herein
Item 2 Properties Page 8 herein
Item 3 Legal Proceedings Page 8 herein
Item 4 Submission of Matters to a Vote of
Security Holders Page 8 herein
Part II
Item 5 Market for the Registrant's Common
Equity and Related Stockholder
Matters Page 9 herein
Item 6 Selected Financial Data Page 10 herein
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of
Operations Page 11 through 18 herein
Item 8 Financial Statements and
Supplementary Data Page 19 herein
Item 9 Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure Page 19 herein
Part III
Item 10 Directors and Executive Officers Page 3 of Proxy Statement
of the Registrant
Item 11 Executive Compensation Page 5 of Proxy Statement
Item 12 Security Ownership of Principal
Stockholders and Management Page 8 of Proxy Statement
Item 13 Related Party Transactions Page 5 of Proxy Statement
Part IV
Item 14 Exhibits, Financial Statement Schedules,
and Reports on Form 8-K Pages 20 through 38 herein
------------------------------------
This report contains "forward-looking statements" in paragraphs that
are marked with an asterisk. These statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
anticipated. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Cautionary Statement Regarding Forward-Looking
Statements" for additional information and factors to be considered concerning
forward-looking statements.
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PART I
ITEM 1. BUSINESS
The Company
Smithway Motor Xpress Corp. ("Smithway" or the "Company") is a
truckload carrier that provides nationwide transportation of diversified
freight, concentrating primarily on the flatbed segment of the truckload market.
The Company uses its "Smithway Network" of 29 computer-connected field offices,
commission agencies, and Company-owned terminals to offer comprehensive
truckload transportation services to shippers located predominantly between the
Rocky Mountains in the West and the Appalachian Mountains in the East, and in
eight Canadian provinces.
Prior to 1984, the Company specialized in transporting building
materials on flatbed trailers. William G. Smith became President of Smithway in
1984, and led the Company's effort to diversify its customer and freight base,
form the Smithway Network of locations, and implement systems to support
sustained growth and premium service. After establishing an efficient growth
platform, management commenced the Company's acquisition strategy in 1995 to
take advantage of economies of scale, customer relationships, and other
opportunities offered by industry consolidation.
Smithway acquired the operations of eight trucking companies between
June 1995 and October 1998. In each transaction, Smithway purchased specific
assets for fair market value and paid the selling company's owner a small
percentage of revenue for goodwill or a noncompetition arrangement. The Company
acquired the business of Van Tassel, Inc., a primarily flatbed carrier based in
Pittsburg, Kansas, in June 1995, and Smith Trucking Company, a primarily dry van
carrier based in McPherson, Kansas, in January 1996. Both of these acquisitions
permitted Smithway to expand and solidify existing customer relationships as
well as access new customers. The Smith Trucking location also expanded the
Company's driver recruiting region. In October 1996, the Company acquired the
business of Marquardt Transportation, Inc., a primarily flatbed carrier based in
Yankton, South Dakota, and with a small facility in Stockton, California.
Marquardt further diversified Smithway's freight base by increasing its presence
in hauling large, manufactured items and heavy machinery. In February 1997,
Smithway acquired Fort Dodge, Iowa-based Pirie Motor Freight, Inc. Pirie was a
small flatbed carrier, and its operations were consolidated into Smithway's
headquarters. In September 1997, Smithway acquired the business of Royal
Transport, Ltd. of Grand Rapids, Michigan, primarily a flatbed carrier. The
Royal acquisition provided Smithway a regional niche specializing in heavy loads
hauled primarily on multiple axle trailers. In February 1998, the Company
acquired the business of East West Motor Express, Inc. of Black Hawk, South
Dakota ("East West"), a regional flatbed and dry van carrier. The East West
acquisition added 225 trucks to Smithway's fleet. TP Transportation, Inc.
("TP"), a flatbed carrier from Enid, Oklahoma was acquired in August 1998. In
October 1998 the Company continued to build its dry van freight base with the
acquisition of the business of JHT, Inc. ("JHT") of Cohasset, Minnesota. JHT
operated 185 tractors serving exclusively the dry van market with slightly over
half of the tractors company-owned and the balance being provided by
owner-operators. Through acquisitions and internal growth the Company expanded
from $77.3 million revenue in 1995 to $161.4 million in 1998.
Smithway Motor Xpress Corp. was incorporated in Nevada in January 1995
to serve as a holding company and conduct the Company's initial public offering,
which occurred in June 1996. References to the "Company" or "Smithway" herein
refer to the consolidated operations of Smithway Motor Xpress Corp., a Nevada
corporation ("Smithway-Nevada"), and its wholly owned subsidiaries, Smithway
Motor Xpress, Inc., an Iowa corporation ("Smithway-Iowa"), and East West Motor
Express, Inc., a South Dakota corporation. Former subsidiaries Smithway
Transportation Brokerage, Inc., an Iowa corporation, and Wilmar Truck Leasing,
Inc., an Iowa corporation, were merged into Smithway-Iowa in 1996. JHT, Inc., a
Minnesota corporation formed by Smithway to purchase the assets from the former
JHT in October 1998, was merged into Smithway-Iowa in February 1999.
Growth Strategy
Management believes that the flatbed and dry van truckload markets
offer growth opportunities because of several identifiable trends. First, many
major shippers are reducing the number of carriers they use in favor of
service-based, ongoing relationships with a limited group of core carriers.
These partnerships and the increasing use of equipment and drivers dedicated to
a single shipper's needs ("dedicated fleets") are designed to offer higher
quality, more consistent service for shippers and greater equipment utilization
and more predictable revenue for core carriers. Second, some shippers that
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own tractor-trailer fleets are outsourcing their transportation requirements to
truckload carriers to lower operating expenses and conserve capital for core
corporate purposes. This outsourcing has resulted in some shippers eliminating
their own trucks in favor of truckload carriers, which frequently can provide
similar service at less cost. Third, deregulation and economies of scale also
promote consolidation. Many truckload carriers have grown rapidly since
deregulation in 1980 and have achieved the size to negotiate lifetime equipment
warranties and obtain equipment, fuel, insurance, financing, and other items for
significantly less than smaller or more leveraged competitors. Management
believes that these trends favor large carriers with modern fleets, excellent
service, in-transit communication and load tracking, good drivers, a strong
safety record, adequate insurance, and a strong capital base.
The Smithway growth strategy contains six key elements:
o Market Leadership. Smithway strives for market prominence by offering
a combination of premium service, equipment availability, and broad geographic
coverage. These factors can differentiate Smithway in a highly fragmented
flatbed market segment characterized primarily by smaller, less diversified, and
less technologically advanced carriers. Management believes the flatbed market
is less developed than the dry van segment, and that the Company's size, service
standards, and financial strength have positioned it to take advantage of market
consolidation.(*)
o Diversified Freight. Smithway targets a diversified mix of freight.
Management believes that diversification can reduce exposure to certain
customers' or industries' business cycles. In addition, certain shipments
outside the construction materials most typically transported by flatbed
carriers can increase profitability. Smithway's diversified operations include
revenue generated by dry van, transportation logistics, brokerage, specialized
railroad service, and dedicated route operations, together with transporting
non-construction freight such as tires, machinery, and irrigation systems.
o Acquisitions. Smithway has grown substantially through eight
acquisitions since May 1995, and management expects that acquisitions of flatbed
and dry van carriers will continue to be an important part of the Company's
growth strategy. Management believes that, over time, smaller carriers will find
it difficult to compete with larger, better capitalized carriers. As a result,
management believes that consolidation in the truckload industry will accelerate
in future years. Management believes that acquisitions can promote the Company's
growth by providing access to drivers, customer relationships, and diversified
freight. In 1999, management expects to concentrate on integrating the
operations of the three companies acquired during 1998 and may not pursue
acquisitions as aggressively as in 1998.(*)
o Return on Equity. Smithway emphasizes return on equity by limiting
capital investment and attempting to increase the utilization of its equipment.
The Company limits capital expenditures through the use of equipment owned by
independent contractors and facilities provided by commission sales agents. The
Company's participation in the flatbed market also reduces capital requirements
because flatbed operations generally require a lower ratio of trailers to
tractors than is required for van traffic.
o Productivity Incentives. Smithway seeks to create an entrepreneurial
environment for its personnel by compensating all independent contractors,
commission sales agents, and most flatbed drivers solely on a percentage of
revenue basis, all Company sales personnel partially through percentage of
revenue bonuses, and all van drivers on a per mile basis. The majority of
employees also own Smithway stock through the Company's 401(k) plan.
o Operating Efficiencies. Smithway enhances operating efficiency through
freight-selection software, satellite-based communication, late-model revenue
equipment, and the Smithway Network. The Spectrum freight selection software
permits dispatchers to select freight based upon profitability and compatibility
with preferred routes. The satellite-based tracking and communication system
permits instantaneous location of equipment and communication with drivers.
Smithway operates a late-model tractor fleet (with an average age of 28 months
at December 31, 1998) to enhance fuel efficiency and driver recruitment while
reducing maintenance downtime.
- --------
(*) May contain "forward-looking" statements.
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Operations
Smithway integrates its sales and dispatch functions throughout its
computer-connected "Smithway Network." The Smithway Network consists of the
Company's headquarters in Fort Dodge, Iowa, and 28 field offices, independent
agencies, and terminals strategically located near major shippers to provide the
consistent, local contact with shipper personnel expected by many of the
Company's flatbed customers. The headquarters and 23 terminals and field offices
are managed by Smithway employees, while the 5 agencies are managed by
independent commission agents. The customer sales representatives and agents at
each location have front-line responsibility for booking freight and dispatching
all trucks in their regions. Fleet managers at the Fort Dodge, Iowa,
headquarters coordinate all load movements via computer link to optimize load
selection and promote proper fleet balance among regions. Personnel at the
Company's headquarters also handle all sales and dispatch functions for van
traffic and for flatbed traffic that does not originate within a specific sales
region.
Agents are important to the Company's operations because they are the
primary contact for shippers within their region and have regular contact with
drivers and independent contractors. The Company's agents are paid a commission
on revenue they generate. Although agent contracts typically are cancelable on
14 days' notice, Smithway's agents average nearly ten years' tenure with the
Company. In addition to sales and customer service benefits, management believes
agents offer the advantage of minimizing capital investment and fixed costs,
because agents are responsible for all of their own expenses.
Customers and Marketing
Smithway's sales force includes seven national sales representatives,
personnel at 24 terminals and field offices, and 5 independent commission
agents. National sales representatives focus on national customers and van
freight, while sales personnel at terminals, field offices, and agencies are
responsible for regional customer contact. The Company's sales force emphasizes
rapid response time to customer requests for equipment, undamaged and on-time
pickup and delivery, one of the nation's largest fleets of flatbed equipment,
safe and professional drivers, logistics management, dedicated fleet capability,
and its strategically located Smithway Network. Management believes that few
other carriers operating principally in the Midwest flatbed market offer similar
size, service, and the reliability of a late-model fleet. Consequently, the
Company seeks primarily service-sensitive freight rather than competing for all
freight on the basis of price.
In 1998, the Company's top 50, 25, 10, and 5 customers accounted for
44.3%, 33.4%, 26.0%, and 16.1% of revenue, respectively, with the remaining
customers accounting for 55.7% of revenue. No single customer accounted for more
than 5% of Smithway's revenue during 1998.
Technology
Management believes that advances in technology can enhance the
Company's operating efficiency and customer service. Three principal
technologies used by Smithway includes freight selection software,
satellite-based tracking and communication with tractors, and electronic data
interchange ("EDI") with customers. In July 1993, the Company initiated the use
of the Spectrum freight selection software. Spectrum ranks each potential load
based upon rate per loaded mile, empty mile exposure, and history of obtaining a
profitable return load from the proposed destination.
Smithway operates satellite-based tracking and communication units in
all of its Company-owned tractors and has offered rental of these units as an
option to its independent contractors. Management believes on-board
communication capability can reduce unnecessary stops and out-of-route miles
because drivers are not forced to find a telephone to contact the Company or
receive instructions. In addition, drivers can immediately report breakdowns or
other emergency conditions. The system also enables the Company to advise
customers of the location of freight in transit through its hourly position
reports of each tractor's location.
Smithway also offers its customers EDI technology. EDI allows
customers to communicate directly with the Company via computer link and, with
the aid of satellite communication, obtain location updates of in-transit
freight, expected delivery times, and account payment instructions.
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Drivers, Independent Contractors, And Other Personnel
Smithway seeks drivers and independent contractors who safely manage
their equipment and treat freight transportation as a business. The Company
historically has operated a fleet comprised of substantial numbers of both
Company-owned and independent contractor tractors. Management believes a mixed
fleet offers competitive advantages because the Company is able to recruit from
both personnel pools to facilitate fleet expansion. The Company intends to
retain a mixed fleet in the future to insure that its recruiting efforts toward
either group are not damaged by becoming categorized as predominantly either a
Company-owned or independent contractor fleet, although acquisitions or other
factors may cause fluctuations in the fleet mix from time to time.
Smithway has implemented several policies to promote driver and
independent contractor recruiting and retention. These include maintaining an
open-door policy with easy access to senior executives, appointing an advisory
board comprised of top drivers and independent contractors to consult with
management, and assigning each driver and independent contractor to a particular
dispatcher to insure personal contact. In addition, the Company utilizes
conventional (engine-forward) tractors, which are more comfortable for the
driver, and operates over relatively short-to-medium distances (659-mile average
length of haul in 1998) to return drivers home as frequently as possible.
Smithway is not a party to a collective bargaining agreement and its
employees are not represented by a union. At December 31, 1998, the Company had
767 Company drivers, 337 non-driver employees, and 711 independent contractors.
Management believes that the Company has good relationships with its employees
and independent contractors.
Safety and Insurance
Smithway's active safety and loss prevention program has resulted in
the Department of Transportation's highest safety and fitness rating and
numerous safety awards. Its safety and loss prevention program includes,
pre-screening, initial orientation, six weeks on-the-road training for drivers
without substantial experience, 100% log monitoring, and safety bonuses.
The Company maintains insurance covering losses in excess of a $50,000
self-insured retention for cargo loss, personal injury, property damage, and
physical damage claims. The Company has a $100,000 deductible for workers'
compensation claims in states where a deductible is allowed. Its primary
personal injury and property damage insurance policy has a limit of $2.0 million
per occurrence, and the Company carries excess liability coverage, which
management believes is adequate to cover exposure to claims exceeding its
retention limit.
Revenue Equipment
Smithway's equipment strategy for its own tractors (as opposed to
independent contractors' tractors) is to operate late-model tractors and trade
or dispose of its tractors prior to the expiration of major component
warranties. Management believes that operating newer equipment can minimize
repair and maintenance expense and offer improvements in fuel efficiency.
Smithway orders conventional (engine forward) tractors with standard engine and
drivetrain components, and trailers with standard brakes and tires to minimize
its inventory of spare parts. All equipment is subject to the Company's regular
maintenance program, and is also inspected and maintained each time it passes
through a Smithway maintenance facility. Smithway's Company-owned tractor fleet
had an average age of 28 months at December 31, 1998.
Competition
The truckload segment of the trucking industry is highly competitive
and fragmented, and no carrier or group of carriers dominates the flatbed or van
market. Smithway competes primarily with other regional, short-to-medium-haul
carriers and private truck fleets used by shippers to transport their own
products in proprietary equipment. Competition is based primarily upon service
and price. The Company competes to a limited extent with rail and rail-truck
intermodal service, but attempts to limit this competition by seeking
service-sensitive freight and focusing on short-to-medium lengths of haul.
Although management believes the 1,804 flatbed trailers it operated at December
31, 1998, rank its flatbed division among the ten largest such fleets in that
industry segment, there are other trucking companies, including diversified
carriers with large flatbed fleets, that possess substantially greater financial
resources and operate more equipment than Smithway.
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Fuel Availability and Cost
The Company actively manages its fuel costs. Company drivers purchase
virtually all of the Company's fuel through service centers with which Smithway
has volume purchasing arrangements. In addition, management periodically enters
into futures contracts and price swap agreements on heating oil, which is
derived from the same petroleum products as diesel fuel, in an effort to
partially hedge increases in fuel prices. Most of the Company's contracts with
customers contain fuel surcharge provisions. Although the Company historically
has been able to pass through most long-term increases in fuel prices and taxes
to customers in the form of surcharges and higher rates, shorter-term increases
are not fully recovered.
Regulation
Historically, the Interstate Commerce Commission ("ICC") and various
state agencies regulated motor carriers' operating rights, accounting systems,
mergers and acquisitions, periodic financial reporting, and other matters. In
1995, federal legislation preempted state regulation of prices, routes, and
services of motor carriers and eliminated the ICC. Several ICC functions were
transferred to the Department of Transportation ("DOT"). Management does not
believe that regulation by the DOT or by the states in their remaining areas of
authority will have a material effect on the Company's operations. The Company's
drivers and independent contractors must comply with the safety and fitness
regulations promulgated by the DOT, including those relating to drug and alcohol
testing and hours of service.
The Company's operations are subject to various federal, state, and
local environmental laws and regulations, implemented principally by the EPA and
similar state regulatory agencies, governing the management of hazardous wastes,
the discharge of pollutants into the air and surface and underground waters, and
the disposal of certain substances. The Company transports certain commodities
that may be deemed hazardous substances, and its Fort Dodge, Iowa, headquarters
and Black Hawk, South Dakota, Enid, Oklahoma, and Stockton, California terminals
have above-ground fuel storage tanks and fueling facilities. The Company's
Cohasset, Minnesota terminal has underground fuel storage tanks. If the Company
should be involved in a spill or other accident involving hazardous substances,
if any such substances were found on the Company's properties, or if the Company
were found to be in violation of applicable laws and regulations, the Company
could be responsible for clean-up costs, property damage, and fines or other
penalties, any one of which could have a materially adverse effect on the
Company. Management believes that its operations are in material compliance with
current laws and regulations and does not know of any existing condition that
would cause compliance with applicable environmental regulations to have a
material effect on the Company's capital expenditures, earnings, or competitive
position. If the Company should fail to comply with applicable regulations, the
Company could be subject to substantial fines or penalties and to civil or
criminal liability.
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ITEM 2. PROPERTIES
Smithway's headquarters consists of 25,000 square feet of office space
and 51,000 square feet of equipment maintenance and wash facilities, located on
31 acres near Fort Dodge, Iowa. The Smithway Network consists of locations in or
near the following cities with the facilities noted:
Driver
Company Locations Maintenance Recruitment Dispatch Sales Ownership
- --------------------------------------------------------------------------------
Altoona, Iowa ................. X X Owned
Birmingham, Alabama ........... X X X Leased
Black Hawk, South Dakota....... X X X X Owned
Chicago, Illinois.............. X X Owned
Cincinnati, Ohio............... X X Leased
Cohasset, Minnesota............ X X X X Leased
Dallas, Texas.................. X X Leased+
Denver, Colorado............... X X Leased+
Enid, Oklahoma................. X X X X Leased
Fort Dodge, Iowa............... X X X X Owned
Grand Rapids, Michigan......... X X Leased
Joplin, Missouri............... X X X X Owned
Kansas City, Missouri.......... X X Leased+
McPherson, Kansas.............. X X X Leased
Memphis, Tennessee............. X X Leased
Oklahoma City, Oklahoma........ X X X Owned
Oshkosh, Wisconsin............. X X Leased+
Philadelphia, Pennsylvania..... X X Leased+
Stockton, California........... X X X X Leased+
St. Louis, Missouri............ X X Leased+
St. Paul, Minnesota............ X X Leased+
Tulsa, Oklahoma ............... X Leased
Yankton, South Dakota.......... X X X X Leased
Youngstown, Ohio............... X X X Leased+
Agent Locations
- -------------------------------
Cedar Rapids, Iowa ............ X X
Detroit Michigan .............. X X
Hennepin, Illinois ............ X X
Norfolk, Nebraska ............. X X
Toledo, Ohio .................. X X
------------------------------------
+ Month-to-month leases.
ITEM 3. LEGAL PROCEEDINGS
The Company from time to time is a party to litigation arising in the
ordinary course of its business, substantially all of which involves claims for
personal injury and property damage incurred in the transportation of freight.
The Company is not aware of any claims or threatened claims that might have a
materially adverse effect upon its operations or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year ended December 31, 1998,
no matters were submitted to a vote of security holders.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Price Range of Common Stock. The Company's Class A Common Stock is
traded on the Nasdaq National Market, under the symbol "SMXC." The following
table sets forth for the calendar periods indicated the range of high and low
sales quotations for the Company's Class A Common Stock as reported by Nasdaq
from January 1, 1997 to December 31, 1998.
Period High Low
- ----------------------------------------- ----------------- --------------------
Calendar Year 1998
1st Quarter $ 16 1/8 $ 11 1/2
2nd Quarter $ 19 1/8 $ 9 3/4
3rd Quarter $ 10 3/4 $ 6 7/8
4th Quarter $ 10 $ 6 5/8
Period High Low
- ----------------------------------------- ----------------- --------------------
Calendar Year 1997
1st Quarter $ 9 3/4 $ 8
2nd Quarter $ 12 7/8 $ 8 1/2
3rd Quarter $ 14 1/2 $ 10 3/4
4th Quarter $ 14 7/8 $ 10 1/2
The prices reported reflect interdealer quotations without retail
mark-ups, mark-downs, or commissions, and may not represent actual transactions.
As of February 12, 1999, the Company had 286 stockholders of record of its Class
A Common Stock. However, the Company believes that many additional holders of
Class A Common Stock are unidentified because a substantial number of the
Company's shares are held of record by brokers or dealers for their customers in
street names.
Dividend Policy. The Company has never declared and paid a cash
dividend on its Class A Common Stock. It is the current intention of the
Company's Board of Directors to continue to retain earnings to finance the
growth of the Company's business rather than to pay dividends. Future payments
of cash dividends will depend upon the financial condition, results of
operations and capital commitments of the Company, restrictions under
then-existing agreements, and other factors deemed relevant by the Board of
Directors.
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ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996 1995 1994
--------- ---------- ----------- ---------- ---------
(in thousands, except per share and operating data amounts)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Operating revenue.............................. $ 161,375 $ 120,117 $ 93,667 $ 77,339 $ 69,180
Operating expenses:
Purchased transportation..................... 66,495 47,095 37,386 31,621 27,420
Compensation and employee benefits........... 38,191 26,904 20,800 17,182 15,877
Fuel, supplies, and maintenance.............. 19,738 15,965 12,347 10,183 9,368
Insurance and claims......................... 2,745 2,206 1,995 1,827 2,238
Taxes and licenses........................... 3,048 2,299 1,856 1,588 1,454
General and administrative................... 6,237 5,391 4,214 3,592 3,512
Communications and utilities................. 1,838 1,378 971 758 585
Depreciation and amortization................ 11,015 7,880 5,740 3,879 2,774
---------- --------- ---------- ----------- -----------
Total operating expenses................... 149,307 109,118 85,309 70,630 63,228
---------- --------- ---------- ----------- -----------
Earnings from operations................... 12,068 10,999 8,358 6,709 5,952
Interest expense (net)......................... 2,965 1,545 1,548 1,225 966
---------- --------- ---------- ----------- -----------
Earnings before income taxes .................. 9,103 9,454 6,810 5,484 4,986
Income taxes(1)................................ 3,774 3,781 2,860 2,393 2,111
---------- --------- ---------- ----------- -----------
Net earnings(1)................................ $ 5,329 $ 5,673 $ 3,950 $ 3,091 $ 2,875
========== ========= ========== =========== ===========
Basic and diluted earnings
per common share(1)(2) 1.06 $ 1.13 $ 0.93 $ 0.88 $ 0.82
========================================================
Weighted averages shares outstanding(2):
Basic ...................................... 5,012 5,001 4,250 3,524 3,498
Diluted .................................... 5,037 5,019 4,250 3,524 3,498
Operating Data(3):
Operating ratio(4)............................. 92.5% 90.8% 91.1% 91.3% 91.4%
Average revenue per tractor per week........... $ 2,330 $ 2,342 $ 2,243 $ 2,160 $ 2,272
Average revenue per loaded mile(5)............. $ 1.33 $ 1.36 $ 1.37 $ 1.38 $ 1.39
Average length of haul in miles............... 659 609 568 563 571
Company tractors at end of period.............. 815 525 458 376 302
Independent contractor tractors at end of period 711 443 406 303 258
Weighted average tractors during period........ 1,236 909 747 619 532
Trailers at end of period...................... 2,720 1,673 1,492 1,167 911
Balance Sheet Data (at end of period):
Working capital ............................... $ 6,811 $ 10,100 $ 1,893 $ 2,516 $ 371
Net property and equipment..................... 87,137 53,132 39,170 27,843 15,824
Total assets................................... 115,494 74,878 55,330 40,702 25,229
Long-term debt, including current maturities... 61,703 30,976 15,904 23,219 11,775
Total stockholders' equity..................... 35,405 29,906 24,193 7,871 4,789
- ------------------
</TABLE>
(1) Balance for 1994 has been adjusted by $232 to reflect a provision for
pro forma income taxes for certain related entities acquired by
Smithway, the earnings of which were not subject to corporate income
taxes. Such transactions were accounted for in a manner similar to a
pooling of interests.
(2) Balance for 1994 has been adjusted to reflect the issuance of 3,514
shares of Common Stock by the Company in the formation of the holding
company and acquisition of the related entities referred to in Note (1)
above.
(3) Excludes brokerage activities except as to operating ratio.
(4) Operating expenses as a percentage of operating revenue.
(5) Net of fuel surcharges.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
From 1996 to 1998 the Company expanded its operating revenue by 72.3%,
to $161.4 million in 1998 from $93.7 million in 1996. This revenue growth was
accompanied by a 34.9% increase in net earnings, to $5.3 million in 1998 from
$4.0 million in 1996. A significant portion of the Company's growth since 1995
has occurred through acquisitions. Since January 1, 1996, the Company has
acquired companies that generated aggregate annual revenue of approximately $90
million. These acquisitions included the purchases of East West, TP, and JHT
between February and October of 1998. Those three carriers generated aggregate
annual revenue of approximately $60 million in 1997. The Company invested
approximately $26.3 million in the three acquisitions in 1998. The acquisitions
and other investments in revenue equipment raised the Company's ratio of
debt-to-capitalization, representing the ratio of (i) long-term debt, including
current maturities, to (ii) long-term debt, including current maturities, and
stockholders' equity, to 63.5% at December 31, 1998. Although management expects
acquisitions of both flatbed and dry van carriers to continue to be an important
aspect of the Company's growth strategy, management expects to concentrate its
efforts during 1999 on integrating the operations of the companies acquired
during 1998. Management will continue to evaluate acquisition candidates using a
number of factors, including the impact of any potential transaction on the
Company's debt-to-capitalization ratio.(*)
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 from $1.37 in 1996 to $1.33 in 1998, 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.(*)
- ------------------
(*) May contain "forward-looking" statements.
11
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of certain
items to revenue for the periods indicated:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- ---------------
<S> <C> <C> <C>
Operating revenue................................................. 100.0% 100.0% 100.0%
Operating expenses:
Purchased transportation................................. 41.2 39.2 39.9
Compensation and employee benefits....................... 23.7 22.4 22.2
Fuel, supplies, and maintenance.......................... 12.2 13.3 13.2
Insurance and claims..................................... 1.7 1.8 2.1
Taxes and licenses....................................... 1.9 1.9 2.0
General and administrative............................... 3.9 4.5 4.5
Communications and utilities.............................. 1.1 1.1 1.0
Depreciation and amortization............................ 6.8 6.6 6.1
-------------- -------------- ---------------
Total operating expenses................................. 92.5 90.8 91.1
-------------- -------------- ---------------
Earnings from operations.......................................... 7.5 9.2 8.9
Interest expense, net............................................. 1.8 1.3 1.7
-------------- -------------- ---------------
Earnings before income taxes...................................... 5.6 7.9 7.3
Income taxes...................................................... 2.3 3.2 3.1
-------------- -------------- ---------------
Net earnings...................................................... 3.3% 4.7% 4.2%
============== ============== ===============
</TABLE>
Comparison of year ended December 31, 1998 to year ended December 31, 1997.
Operating revenue increased $41.3 million (34.3%), to $161.4 million in
1998 from $120.1 million in 1997. The revenue increase resulted primarily from a
36.0% increase in weighted average tractors, to 1,236 in 1998 from 909 during
1997 as the Company expanded internally to meet customer demand and acquired the
business of East West in February 1998, TP in August 1998, and JHT in October
1998. Revenue per tractor per week (excluding revenue from brokerage operations)
decreased $12 per week (0.5%), to $2,330 in 1998 from $2,342 in 1997. This
resulted from a decrease in revenue per loaded mile, which was largely offset by
an increase in miles per tractor and a decrease in empty miles percentage. These
changes were a result of the increase in van freight associated with the
acquisition of East West. In addition, revenue from the Company's
brokerage division increased $3.1 million (42.3%), to $10.4 million in 1998 from
$7.3 million in 1997.
Purchased transportation consists primarily of payments to independent
contractor providers of revenue equipment, expenses related to brokerage
activities, and payments under operating leases of revenue equipment. Purchased
transportation increased $19.4 million (41.2%), to $66.5 million in 1998 from
$47.1 million in 1997, as the Company's business expanded and the Company
contracted with more independent contractor providers of revenue equipment. As a
percentage of revenue, purchased transportation increased to 41.2% in 1998 from
39.2% in 1997. This reflects an increase in the percentage of the Company's
fleet supplied by independent contractors as a result of the Company's internal
recruiting efforts and the acquisition of East West, which has obtained a higher
percentage of its fleet from independent contractors. It also reflects an
increase in the freight hauled by brokered equipment.
Compensation and employee benefits increased $11.3 million (42.0%) to $38.2
million in 1998 from $26.9 million in 1997. As a percentage of revenue,
compensation and employee benefits increased to 23.7% in 1998 from 22.4% in
1997. The increase was attributable to (i) an increase in the per-mile wage paid
to van drivers, (ii) an increase in the number of driver trainers and trainees,
and (iii) an increase in the self-insured retention for health insurance claims
and reserve amounts for the period, which primarily related to unusual health
claims during the second quarter of 1998.
Fuel, supplies, and maintenance increased $3.8 million (23.6%), to $19.7
million in 1998 from $16.0 million in 1997. As a percentage of revenue, fuel,
supplies, and maintenance decreased to 12.2% in 1998 from 13.3% in 1997,
reflecting a 13.4% decrease in fuel costs to $1.03 per gallon during 1998 from
$1.19 per gallon in 1997. The decrease was partially offset by an increase in
the cost of parts, tires, tarps, supplies, and binders used in the Company's
operations.
Insurance and claims increased $539,000 (24.4%), to $2.7 million in 1998
from $2.2 million in 1997. As a percentage of revenue, insurance and claims
remained relatively constant at 1.7% of revenue in 1998 compared with 1.8% in
1997.
12
<PAGE>
Taxes and licenses increased $749,000 (32.6%), to $3.0 million in 1998
from $2.3 million in 1997. As a percentage of revenue, taxes and licenses
remained unchanged at 1.9% of revenue for each year.
General and administrative expenses increased $846,000 (15.7%), to $6.2
million in 1998 from $5.4 million in 1997. As a percentage of revenue, general
and administrative expenses decreased to 3.9% of revenue in 1998 from 4.5% in
1997, as a result of a decrease in freight revenue being dispatched by terminal
agents, resulting in less commissions paid during the 1998 period. Additionally,
certain fixed costs are being spread over a larger revenue base.
Communications and utilities increased $460,000 (33.4%), to $1.8
million in 1998 from $1.4 million in 1997. As a percentage of revenue,
communications and utilities remained unchanged at 1.1% in both years.
Depreciation and amortization increased $3.1 million (39.8%), to $11.0
million in 1998 from $7.9 million in 1997. As a percentage of revenue,
depreciation and amortization increased to 6.8% of revenue in 1998 from 6.6% in
1997. The increase was attributable to a larger fleet of Company-owned tractors
and trailers, which increased the cost of the 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 the three acquisitions in 1998.
Interest expense, net, increased $1.4 million (91.9%), to $3.0 million
in 1998 from $1.5 million in 1997. As a percentage of revenue, interest expense,
net increased to 1.8% of revenue in 1998 from 1.3% in 1997, as the Company
incurred debt to finance the acquisition of three trucking companies. This
increase in debt was partially offset by lower average interest rates of 6.79%
in 1998 compared with 7.1% in 1997.
As a result of the foregoing, the Company's pretax margin decreased to
5.6% in 1998 from 7.9% in 1997.
The Company's effective tax rate was 41.5% in 1998 (2.3% of revenue),
compared with 40.0% in 1997 (3.1% of revenue). 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.
As a result of the factors described above, net earnings decreased to
$5.3 million in 1998 (3.3% of revenue), from $5.7 million in 1997 (4.7% of
revenue).
Comparison of year ended December 31, 1997 to year ended December 31, 1996.
Operating revenue increased $26.5 million (28.2%), to $120.1 million in
1997 from $93.7 million in 1996. The revenue increase resulted primarily from a
21.7% increase in weighted average tractors, to 909 in 1997 from 747 during 1996
as the Company expanded internally to meet customer demand and acquired the
business of Pirie Motor Freight, Inc. in February 1997, and Royal Transport Ltd.
in September 1997. Revenue per tractor per week (excluding revenue from
brokerage operations) increased $99 per week (4.4%), to $2,342 in 1997 from
$2,243 in 1996. In addition, revenue from the Company's brokerage division
increased $900,000 (14.1%), to $7.3 million in 1997 from $6.4 million in 1996.
Purchased transportation consists primarily of payments to independent
contractor providers of revenue equipment, expenses related to brokerage
activities, and payments under operating leases of revenue equipment. Purchased
transportation increased $9.7 million (26.0%), to $47.1 million in 1997 from
$37.4 million in 1996, 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 39.2% in 1997 from
39.9% in 1996, as the increase in expenses related to brokerage revenue was more
than offset by the decrease in the percentage of the Company's overall fleet
comprised of tractors and trailers leased from independent contractors and a
decrease in the amount of fuel surcharge passed through to independent
contractors and tractors utilized by the brokerage division.
Compensation and employee benefits increased $6.1 million (29.4%) to
$26.9 million in 1997 from $20.8 million in 1996. As a percentage of revenue,
compensation and employee benefits increased to 22.4% in 1997 from 22.2% in
1996,
13
<PAGE>
because of the increase in the percentage of the Company's revenue equipment
fleet being operated by employee drivers.
Fuel, supplies, and maintenance increased $3.6 million (29.3%), to $16.0
million in 1997 from $12.3 million in 1996. As a percentage of revenue, fuel,
supplies, and maintenance increased slightly to 13.3% in 1997 from 13.2% in
1996, because the increase in the percentage of the Company's fleet being
comprised of Company-owned tractors, for which the Company pays fuel costs, more
than offset decreasing per gallon fuel prices.
Insurance and claims increased $211,000 (10.6%), to $2.2 million in
1997 from $2.0 million in 1996. As a percentage of revenue, insurance and claims
decreased to 1.8% of revenue in 1997 from 2.1% in 1996, as the Company reduced
its insurance reserves as claims were ultimately resolved at less than the
reserve amount.
Taxes and licenses increased $443,000 (23.9%), to $2.3 million in 1997
from $1.9 million in 1996. As a percentage of revenue, taxes and licenses
remained relatively constant at 1.9% and 2.0% of revenue for 1997 and 1996,
respectively.
General and administrative expenses increased $1.2 million (27.9%), to
$5.4 million in 1997 from $4.2 million in 1996. As a percentage of revenue,
general and administrative expenses were unchanged at 4.5% of revenue for each
year.
Communications and utilities increased $407,000 (41.9%), to $1.4
million in 1997 from $1.0 million in 1996. As a percentage of revenue,
communications and utilities increased to 1.1% in 1997 from 1.0% in 1996 as a
result of an increase in the number of Company-owned terminals, for which the
Company pays telephone costs, and an increase in the costs relating to usage of
mobile, satellite-based tracking and communication units.
Depreciation and amortization increased $2.1 million (37.3%), to $7.9
million in 1997 from $5.7 million in 1996. As a percentage of revenue,
depreciation and amortization increased to 6.6% of revenue in 1997 from 6.1% in
1996. The increase was attributable to a newer and larger fleet of Company-owned
tractors and trailers, which increased the cost of the equipment being
depreciated, and an increase in Company tractors financed with debt rather than
operating leases. These factors were partially offset by an increase in revenue
per tractor per week, which more efficiently spread the fixed cost of
depreciation over a larger revenue base.
Interest expense, net remained unchanged at $1.5 million in each year.
As a percentage of revenue, interest expense, net decreased to 1.3% of revenue
in 1997 from 1.7% in 1996, as the increase in average debt balance was offset by
lower average interest rates of 7.1% in 1997 compared with 7.5% in 1996.
As a result of the foregoing, the Company's pretax margin improved to 7.9%
in 1997 from 7.3% in 1996.
The Company's effective tax rate was 40.0% in 1997 (3.2% of revenue),
compared with 42.0% in 1996 (3.1% of revenue). 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.
As a result of the factors described above, net earnings increased to
$5.7 million in 1997 (4.7% of revenue), from $4.0 million in 1996 (4.2% of
revenue).
14
<PAGE>
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 $16.5 million, $14.9 million,
and $7.1 million for the years ended December 31, 1998, 1997, and 1996,
respectively. 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 $4.4 million, $1.4 million, and
$4.0 million for the years ended December 31, 1998, 1997, and 1996 respectively.
The average age of the Company's accounts receivable was approximately 33 days
for 1998, 34 days for 1997, and 30 days for 1996.
Net cash used in investing activities was $36.6 million, $1.8 million, and
$8.4 million for the years ended December 31, 1998, 1997, and 1996,
respectively. Such amounts related primarily to payments made in acquisitions of
seven trucking companies and purchases, sales, and trades of revenue equipment.
The Company expects capital expenditures (primarily for revenue equipment and
satellite communications units), net of revenue equipment trade-ins, to be
approximately $22.8 million during 1999. Such projected capital expenditures are
expected to be funded with cash flow from operations, borrowings, or operating
leases. The Company has begun to evaluate the need to expand its present
headquarters facility and may incur a portion of the expansion costs during
1999. The size and cost of the possible expansion has not yet been determined.
The Company's projected capital expenditures do not include any amount for this
possible expansion.(*)
Net cash provided by (used in) financing activities of $17.3 million,
($10.0 million), and ($766,000) for the years ended December 31, 1998, 1997, and
1996, respectively, consisted primarily of net borrowings (payments) of $17.3
million, ($5.5 million), and ($16.1 million) of principal under the Company's
long-term debt agreements, and net borrowings (payments) of $0, ($4.5 million),
and $4.5 million under the Company's former line of credit, which was paid off
during 1997.
At December 31, 1998, the Company had outstanding long-term debt (including
current maturities) of approximately $61.7 million, most of which was comprised
of obligations for the purchase of revenue equipment. Approximately $35.4
million consisted of borrowings from financial institutions and equipment
manufacturers, $25 million represented the amount drawn under the Company's
revolving credit facility, and $1.3 million represented future payments for
purchases of intangible assets. Interest rates on this debt range from 5.81% to
6.99% with maturities through 2003.
At December 31, 1998, 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 credit facility at
December 31, 1998.
- ---------------------
(*) May contain "forward-looking" statements.
15
<PAGE>
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. Assuming borrowing levels at December 31, 1998, a one-point increase
in the LIBOR would increase our interest expense by $250,000.
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. At December 31, 1998, the notional amount for purchased options
and futures contracts was 1.6 million gallons and net unrealized losses were
approximately $140,000. At December 31, 1998, a ten percent change in fuel
prices would impact 1998 net unrealized losses by approximately $97,000.
The Company also uses heating oil price swap agreements to reduce a portion
of its exposure to fuel price fluctuations. At December 31, 1998, the Company
had price swap agreements for 7.5 million gallons at prices ranging from 37.8
cents per gallon to 42.2 cents per gallon. Since the Company's price is fixed
for these gallons, changes in fuel prices would have no impact on the Company's
future fuel expense related to these gallons. Therefore, there is no earnings or
liquidity risk associated with these price swap agreements. The fair value of
the price swap agreements is the estimated amount the Company would pay or
receive to terminate the swap agreements. At December 31, 1998, a ten percent
change in the price of heating oil would result in a $271,000 change in the
current cost of $317,000 to terminate the 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.
INFLATION AND FUEL COST
Most of the Company's operating expenses are inflation-sensitive, with
inflation generally producing increased costs of operation. During the past
three years, the most significant effects of inflation have been on revenue
equipment prices and the compensation paid to drivers. Innovations in equipment
technology and comfort have resulted in higher tractor prices, and there has
been an industry-wide increase in wages paid to attract and retain qualified
drivers. The Company historically has limited the effects of inflation through
increases in freight rates and certain cost control efforts. The failure to
obtain rate increases in the future could have an adverse effect on
profitability. In addition to inflation, fluctuations in fuel prices can affect
profitability. Most of the Company's contracts with customers contain fuel
surcharge provisions. Although the Company historically has been able to pass
through most long-term increases in fuel prices and taxes to customers in the
form of surcharges and higher rates, shorter-term increases are not fully
recovered. (*)
SEASONALITY
In the trucking industry, results of operations show a seasonal pattern
because customers generally reduce shipments during the winter season, and the
Company experiences some seasonality due to the open, flatbed nature of the
majority of its trailers. The Company at times has experienced delays in meeting
its shipment schedules as a result of severe weather conditions, particularly
during the winter months. In addition, the Company's operating expenses have
been higher in the winter months due to decreased fuel efficiency and increased
maintenance costs in colder weather.
- ---------------------
(*) May contain "forward-looking" statements.
16
<PAGE>
YEAR 2000
The Year 2000 issue, common to most companies, concerns the inability of
information and non information 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 are not Year 2000 compliant have been identified and remediation
efforts are in process. Management estimates that nearly 100 percent of known
remediation efforts were completed as of December 31, 1998. All known
remediation efforts and testing of systems/equipment are expected to be
completed by March 31, 1999.
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 communications 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 December 31, 1998 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. The progress of the Company's Year 2000
efforts are reported to 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.
17
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The Company may from time-to-time make written or oral forward-looking
statements. Written forward-looking statements may appear in documents
filed with the Securities and Exchange Commission, in press releases, and
in reports to stockholders. The Private Securities Litigation Reform Act of
1995 contains a safe harbor for forward-looking statements. The Company
relies on this safe harbor in making such disclosures. In connection with
this "safe harbor" provision, the Company is hereby identifying important
factors that could cause actual results to differ materially from those
contained in any forward-looking statement made by or on behalf of the
Company. Factors that might cause such a difference include, but are not
limited to, the following:
Economic Factors; Fuel Prices. Negative economic factors such as
recessions, downturns in customer's business cycles, surplus inventories,
inflation, and higher interest rates could impair the Company's operating
results by decreasing equipment utilization or increasing costs of
operations. Increases in fuel prices usually are not fully recovered.
Accordingly, high fuel prices can have a negative impact on the Company's
profitability.
Resale of Used Revenue Equipment. The Company historically has
recognized a gain on the sale of its revenue equipment. The market for used
equipment has experienced greater supply than demand in 1996 through 1998.
If the resale value of the Company's revenue equipment were to decline, the
Company could find it necessary to dispose of its equipment at lower prices
or retain some of its equipment longer, with a resulting increase in
operating expenses.
Recruitment, Retention, and Compensation of Qualified Drivers and
Independent Contractors. Competition for drivers and independent
contractors is intense in the trucking industry. There is, and historically
has been, an industry-wide shortage of qualified drivers and
independent contractors. This shortage could force the Company to
significantly increase the compensation it pays to driver employees and
independent contractors or curtail the Company's growth.
Competition. The trucking industry is highly competitive and
fragmented. The Company competes with other truckload carriers, private
fleets operated by existing and potential customers, and to some extent
railroads and rail-intermodal service. Competition is based primarily on
service, efficiency, and freight rates. Many competitors offer
transportation service at lower rates than the Company. The Company's
results could suffer if it cannot obtain higher rates than competitors that
offer a lower level of service.
Acquisitions. A significant portion of the Company's growth since June
1995 has occurred through acquisitions, and acquisitions are an important
component of the Company's growth strategy. Management believes that the
Company must continue to identify desirable target companies and negotiate,
finance, and close acceptable transactions and successfully integrate the
acquired operations or the Company's growth and profitability could suffer.
In 1999, management intends to concentrate on integrating the operations of
the three companies acquired during 1998 and may not pursue additional
acquisitions as aggressively.
18
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's audited financial statements, including its consolidated
balance sheets and consolidated statements of earnings, cash flows,
stockholders' equity, and notes related thereto, are included at pages 24 to 39
of this report. The supplementary quarterly financial data follow:
<TABLE>
<CAPTION>
Quarterly Financial Data:
(Dollars in thousands,
except earnings per share) First Quarter Second Quarter Third Quarter Fourth Quarter
1998 1998 1998 1998
-------------- ------------------ -------------- -----------------
<S> <C> <C> <C> <C>
Operating revenue................................$ 33,391 $ 40,835 $ 42,424 $ 44,725
Earnings from operations......................... 2,493 2,396 3,528 3,651
Earnings before income taxes..................... 1,988 1,719 2,743 2,653
Income taxes..................................... 845 698 1,139 1,092
Net earnings..................................... 1,143 1,021 1,604 1,561
Basic and diluted earnings per share............. 0.23 0.20 0.32 0.31
</TABLE>
<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter
1997 1997 1997 1997
-------------- ------------------ -------------- -----------------
<S> <C> <C> <C> <C>
Operating revenue................................$ 26,908 $ 30,614 $ 31,834 $ 30,761
Earnings from operations......................... 1,955 3,107 3,369 2,569
Earnings before income taxes..................... 1,639 2,650 2,899 2,267
Income taxes..................................... 688 1,114 1,204 775
Net earnings..................................... 951 1,536 1,695 1,492
Basic and diluted earnings per share............. 0.19 0.31 0.34 0.30
</TABLE>
As a result of rounding, the total of the four quarters may not equal the
Company's results for the full year.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
No reports on Form 8-K have been filed within the twenty-four months
prior to December 31, 1998, involving a change of accountants or disagreements
on accounting and financial disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information respecting executive officers and directors set forth
under the captions "Election of Directors; Information Concerning Directors and
Executive Officers" and "Section 16(a) Beneficial Ownership Reporting
Compliance" on pages 3, 4, 5, and 7 of the Registrant's Proxy Statement for the
1999 annual meeting of stockholders, which will be filed with the Securities and
Exchange Commission in accordance with Rule 14a-6 promulgated under the
Securities Exchange Act of 1934, as amended (the "Proxy Statement") is
incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information respecting executive compensation set forth under the
caption "Executive Compensation" on page 5 of the Proxy Statement is
incorporated herein by reference; provided, that the "Compensation Committee
Report on Executive Compensation" contained in the Proxy Statement is not
incorporated by reference.
19
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information respecting security ownership of certain beneficial
owners and management set forth under the caption "Security Ownership of
Principal Stockholders and Management" on page 8 of the Proxy Statement is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information respecting certain relationships and transactions of
management set forth under the captions "Compensation Committee Interlocks,
Insider Participation, and Related Party Transactions" on page 5 of the Proxy
Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a) 1. Financial Statements.
The Company's audited financial statements are set forth at the
following pages of this report:
Page
Independent Auditors' Report............................................. 24
Consolidated Balance Sheets.............................................. 25
Consolidated Statements of Earnings...................................... 27
Consolidated Statements of Stockholders' Equity......................... 28
Consolidated Statements of Cash Flows.................................... 29
Notes to Consolidated Financial Statements............................... 31
2. Financial Statement Schedules.
Financial statement schedules are not required because all required
information is included in the financial statements.
(b) Reports on Form 8-K
A Form 8-K was filed on November 12, 1998, pertaining to the
acquisition of certain assets from JHT.
20
<PAGE>
(c) Exhibits
Exhibit Description
Number
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.
2.3 +++++ First Amendment to Asset Purchase Agreement dated October 29,
1998, by and among Smithway Motor Xpress, Inc., JHT, Inc.,
JHT LOGISTICS, INC., Bass Brook Truck Service, Inc., and JERDON
TERMINAL HOLDINGS, LLC.
2.4 # Second Amendment to Asset Purchase Agreement dated October 30,
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.
3.2 + Bylaws.
4.1 + Articles of Incorporation.
4.2 + Bylaws.
10.1 + Outside Director Stock Plan dated March 1, 1995.
10.2 + Incentive Stock Plan, adopted March 1, 1995.
10.3 + Form of Agency Agreement between Smithway Motor Xpress, Inc.and
its independent commission agents.
10.4 + Memorandum of officer incentive compensation policy.
10.5 + Form of Independent Contractor Agreement between Smithway Motor
Xpress, Inc. and its independent contractor providers of
tractors.
10.6 ++ Credit Agreement dated September 3, 1997, between Smithway
Motor Xpress Corp., as Guarantor, Smithway Motor Xpress, Inc.,
as Borrower, and LaSalle National Bank.
10.7 +++ Asset Purchase Agreement dated February 20, 1998, by and
among Smithway Motor Xpress, Inc., East West Motor Express,
Inc., and Darwyn and David Stebbins.
10.8 ++++ 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.
10.9 ++++ 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.
10.10 +++++ 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.
21
<PAGE>
10.11 +++++ First Amendment to Asset Purchase Agreement dated October 29,
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 # Second Amendment to Asset Purchase Agreement dated October 30,
1998, by and among Smithway Motor Xpress, Inc., JHT,Inc.,
JHT LOGISTICS, INC., Bass Brook Truck Service, Inc., and
JERDON TERMINAL HOLDINGS, LLC. (Filed as Exhibit 2.4 hereto)
10.13 # Third Amendment to Credit Agreement dated October 30, 1998,
between Smithway Motor Xpress Corp., as Guarantor,
Smithway Motor Xpress, Inc., as Borrower, and LaSalle National
Bank, as Lender.
21 # List of subsidiaries.
23 # Consent of KPMG Peat Marwick LLP, independent accountants.
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.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SMITHWAY MOTOR XPRESS CORP.
Date: March 18 , 1999 BY: /s/ William G. Smith
----------------------------------- --------------------
William G. Smith
Chairman of the Board,
President, and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Position Date
- --------------------------------------------------------------------------------
s/ William G. Smith Chairman of the Board, President, March 18, 1999
- -------------------- and Chief Executive Officer; Director
William G. Smith (principal executive officer)
/s/ G. Larry Owens Executive Vice President, March 18, 1999
- -------------------- Chief Operating Officer, and
G. Larry Owens Chief Financial Officer;
Director
/s/ Michael E. Oleson Treasurer and Chief March 18, 1999
- ---------------------- Accounting Officer
Michael E. Oleson (principal financial
and accounting officer)
/s/ Herbert D. Ihle Director March 18, 1999
- --------------------
Herbert D. Ihle
/s/ Robert E. Rich Director March 18, 1999
- -------------------
Robert E. Rich
/s/ Terry G.Christenberry Director March 18, 1999
- ---------------------------
Terry G. Christenberry
23
<PAGE>
Independent Auditors' Report
To the Stockholders and Board of Directors
of Smithway Motor Xpress Corp.:
We have audited the accompanying consolidated balance sheets of Smithway
Motor Xpress Corp. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Smithway
Motor Xpress Corp. and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
/s/KPMG Peat Marwick LLP
Des Moines, Iowa
February 5, 1999
24
<PAGE>
<TABLE>
<CAPTION>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands)
December 31,
--------------------------
Assets 1998 1997
------ ----- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,276 $ 4,082
Receivables (note 5):
Trade 15,481 11,040
Other 1,366 1,261
Recoverable income taxes 270 -
Inventories 1,537 1,064
Deposits, primarily with insurers (note 12) 391 770
Prepaid expenses 1,110 1,160
Deferred income taxes (note 6) 510 350
---------- ------------
Total current assets 21,941 19,727
---------- ------------
Property and equipment (note 5):
Land 881 531
Buildings and improvements 6,147 5,100
Tractors 60,915 38,217
Trailers 39,194 24,233
Other equipment 6,269 5,308
---------- ------------
113,406 73,389
Less accumulated depreciation 26,269 20,257
---------- ------------
Net property and equipment 87,137 53,132
---------- ------------
Intangible assets, net (note 3) 5,892 1,530
Other assets 524 489
---------- ------------
$ 115,494 $ 74,878
========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
Liabilities and December 31,
Stockholders' Equity ----------------------
-------------------- 1998 1997
----- ----
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt (note 5) $ 8,124 $ 3,971
Accounts payable 3,280 2,277
Accrued compensation 1,714 1,278
Income taxes payable - 275
Accrued loss reserves (note 12) 1,204 905
Other accrued expenses 808 921
------------ ----------
Total current liabilities 15,130 9,627
Long-term debt, less current maturities (note 5) 53,579 27,005
Deferred income taxes (note 6) 11,380 8,340
------------ ----------
Total liabilities 80,089 44,972
------------ ----------
Stockholders' equity (notes 7 and 8):
Preferred stock (.01 par value; - -
authorized 5 million shares; issued none)
Common stock:
Class A (.01 par value; authorized 20 million 40 40
shares; issued 1998 -4,015,662;
1997 - 4,003,068 shares)
Class B (.01 par value; authorized 5 million shares; 10 10
issued 1 million shares)
Additional paid-in capital 11,311 11,144
Retained earnings 24,118 18,789
Reacquired shares, at cost (1998 - 13,885;
1997 - 14,404 shares) (74) (77)
------------ ----------
Total stockholders' equity 35,405 29,906
------------ ----------
Commitments (notes 4,11 and 12)
$ 115,494 $ 74,878
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements
26
<PAGE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
Consolidated Statements of Earnings
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------------
1998 1997 1996
----- ---- ----
<S> <C> <C> <C>
Operating revenue:
Freight $ 160,975 $ 119,688 $ 93,428
Other 400 429 239
--------------- ---------------- ---------------
Operating revenue 161,375 120,117 93,667
--------------- ---------------- ---------------
Operating expenses:
Purchased transportation 66,495 47,095 37,386
Compensation and employee benefits 38,191 26,904 20,800
Fuel, supplies, and maintenance 19,738 15,965 12,347
Insurance and claims 2,745 2,206 1,995
Taxes and licenses 3,048 2,299 1,856
General and administrative 6,237 5,391 4,214
Communications and utilities 1,838 1,378 971
Depreciation and amortization 11,015 7,880 5,740
--------------- ---------------- ---------------
Total operating expenses 149,307 109,118 85,309
--------------- ---------------- ---------------
Earnings from operations 12,068 10,999 8,358
Financial (expense) income:
Interest expense (3,200) (1,654) (1,705)
Interest income 235 109 157
--------------- ---------------- ---------------
Earnings before income taxes 9,103 9,454 6,810
Income taxes (note 6) 3,774 3,781 2,860
--------------- ---------------- ---------------
Net earnings $ 5,329 $ 5,673 $ 3,950
=============== ================ ===============
Basic and diluted earnings $ 1.06 $ 1.13 $ 0.93
per share (note 9) =============== ================ ===============
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1998, 1997, and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Equity
Additional reduction Total
Common paid-in Retained Reacquired for stockholders'
stock capital earnings shares ESOP equity
debt
============================================================================
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 28 $ - $ 8,138 $ (52) $ (243) $ 7,871
Net earnings - - 3,950 - - 3,950
Reduction of ESOP debt - - - - 243 243
Acquisition of 4,777 common shares - - - (25) - (25)
Shares sold for cash, net of
issuance costs(note 7) 15 10,727 - - - 10,742
Change in value and number of
redeemable common shares 7 377 1,028 - - 1,412
---------------------------------------------------------------------------
Balance at December 31, 1996 50 11,104 13,116 (77) - 24,193
Net earnings - - 5,673 - - 5,673
Issuance of stock bonuses - 40 - - - 40
---------------------------------------------------------------------------
Balance at December 31, 1997 50 11,144 18,789 (77) - 29,906
Net earnings - - 5,329 - - 5,329
Issuance of stock bonuses - 165 - - - 165
Treasury stock reissued (519 shares) - 2 - 3 - 5
---------------------------------------------------------------------------
Balance at December 31, 1998 $ 50 $ 11,311 $ 24,118 $ (74) $ - $ 35,405
===========================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 5,329 $ 5,673 $ 3,950
----------- ------------ ------------
Adjustments to reconcile net earnings to cash
provided by operating activities:
Depreciation and amortization 11,015 7,880 5,740
Deferred income taxes 2,880 2,460 2,088
Provision for bad debts 57 60 --
Stock bonuses 165 40 --
Change in:
Receivables (4,603) (1,214) (4,756)
Inventories (107) (326) (210)
Deposits, primarily with insurers 379 151 (67)
Prepaid expenses 343 (264) 90
Accounts payable and other accrued liabilities 1,050 450 249
----------- ------------ ------------
Total adjustments 11,179 9,237 3,134
----------- ------------ ------------
Net cash provided by operating activities 16,508 14,910 7,084
----------- ------------ ------------
Cash flows from investing activities:
Payments for acquisitions (26,266) (2,599) (3,834)
Purchase of property and equipment (12,865) (357) (6,341)
Proceeds from sale of property and equipment 2,592 1,317 1,321
Purchase of other assets (36) (117) --
Proceeds from short-term investments -- -- 500
----------- ------------ ------------
Net cash used in investing activities (36,575) (1,756) (8,354)
----------- ------------ ------------
Cash flows from financing activities:
Proceeds from long-term debt 41,000 14,300 --
Principal payments on long-term debt (23,744) (19,822) (16,068)
Borrowings on line of credit agreement -- 44,670 93,593
Payments on line of credit agreement -- (49,160) (89,103)
Proceeds from issuance of common stock, net -- -- 11,232
Other 5 -- (420)
----------- ------------ ------------
Net cash provided by (used in) financing activities 17,261 (10,012) (766)
----------- ------------ ------------
Net(decrease)increase in cash and cash equivalents (2,806) 3,142 (2,036)
Cash and cash equivalents at beginning of year 4,082 940 2,976
----------- ------------ ------------
Cash and cash equivalents at end of year $ 1,276 $ 4,082 $ 940
=========== ============ ============
</TABLE>
29
<PAGE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
(Dollars in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------
1998 1997 1996
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 3,262 $ 1,455 $ 1,732
Income taxes 1,438 835 971
------------ ------------ ------------
Supplemental schedules of noncash investing and financing activities:
Notes payable issued for tractors and trailers $ 11,780 $ 20,594 $ 8,996
Principal payments made by ESOP -- -- 243
Issuance of stock bonuses 165 40 --
Liability issued for intangible assets 1,691 -- 100
============ ============ ============
Cash payments for acquisitions:
Revenue equipment $ 21,671 $ 1,990 $ 3,004
Intangible assets 2,779 472 727
Land, buildings and other assets 1,816 137 103
------------ ------------ ------------
$ 26,266 $ 2,599 $ 3,834
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and 1997
(Dollars in thousands, except share and per share data)
Note 1: Consolidated Entity
Smithway Motor Xpress Corp. and subsidiaries is a truckload carrier
that provides nationwide transportation of diversified freight, concentrating
primarily in flatbed operations. It generally operates over short-to-medium
traffic routes, serving shippers located predominantly in central United States.
The Company also operates in the southern provinces of Canada. Canadian
revenues, based on miles driven, were approximately $339 for the year ended
December 31, 1998.
Smithway Motor Xpress Corp. is a holding company of three wholly-owned
subsidiaries, Smithway Motor Xpress, Inc., East West Motor Express, Inc., and
JHT, Inc. East West Motor Express, Inc. and JHT, Inc. are newly created
corporations formed in 1998 to facilitate the purchase of unrelated businesses
using the same name. (See note 3.) Unless otherwise indicated, the companies
named in this paragraph are collectively referred to as the "Company."
Note 2: Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company as described in note 1. All significant intercompany balances and
transactions have been eliminated in consolidation.
Customers
The Company serves a diverse base of shippers. No single customer
accounted for more than 10 percent of the Company's total operating revenues
during any of the years ended December 31, 1998, 1997, and 1996. The Company's
10 largest customers accounted for approximately 26 percent, 23 percent, and 32
percent of the Company's total operating revenues during 1998, 1997, and 1996,
respectively. The Company's largest concentration of customers is in the steel
and building materials industries, which together accounted for approximately 46
percent, 51 percent, and 47 percent of the Company's total operating revenues in
1998, 1997, and 1996, respectively.
Drivers
The Company faces intense industry competition in attracting and
retaining qualified drivers and independent contractors. This competition could
result in the Company temporarily idling some of its revenue equipment or
increasing the compensation the Company pays to its drivers and independent
contractors.
Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
Cash and Cash Equivalents
The Company considers interest-bearing instruments with maturity of
three months or less at the date of purchase to be the equivalent of cash. At
December 31, 1998 and 1997 cash equivalents consisted of $1,471 and $3,700 of
commercial paper and United States Treasury bills.
Receivables
Trade receivables are stated net of an allowance for doubtful accounts
of $66 and $60 at December 31, 1998 and 1997, respectively. The financial status
of customers is checked and monitored by the Company when granting credit. The
Company routinely has significant dollar transactions with certain customers. At
December 31, 1998 and 1997, no individual customer accounted for more than 10
percent of total trade receivables.
Inventories
Inventories consist of tractor and trailer supplies and parts.
Inventories are stated at lower of cost (first-in, first-out method) or market.
31
<PAGE>
Prepaid Expenses
Prepaid expenses consist primarily of the cost of tarps, which are
amortized over 36 months and licenses which are amortized over 12 months.
Accounting for Leases
The Company is a lessee of revenue equipment under operating leases.
Rent expense is charged to operations as it is incurred under the terms of the
respective leases.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided
by use of the straight-line and declining-balance methods over lives of 5 to 39
years for buildings and improvements, 5 to 7 years for tractors and trailers,
and 3 to 10 years for other equipment. Expenditures for maintenance and minor
repairs are charged to operations, and expenditures for major replacements and
betterments are capitalized. The cost and related accumulated depreciation on
property and equipment retired, traded, or sold are eliminated from the property
accounts at the time of retirement, trade, or sale. In accordance with industry
practices, the gain or loss on retirement or sale is included in depreciation
and amortization in the consolidated statements of earnings. Gains or losses on
trade-ins are included in the basis of the new asset.
Tires purchased as part of revenue equipment are capitalized as a cost of
the equipment. Effective January 1, 1998, the Company changed its estimate of
the life of these tires from two years to the life of the underlying revenue
equipment. This change is in accordance wtih standard industry practice and was
based on the Company's experience with the warranties and tread life of tires.
The change has been accounted for prospectively. The effect of this change on
net earnings was an increase of $175. Replacement tires are expensed when placed
in service.
Intangibles
Intangible assets, primarily goodwill, are recorded at cost and are
amortized using the straight-line method over periods ranging from 5 to 15
years. Accumulated amortization of $583 and $211, at December 31, 1998 and 1997,
respectively, have been netted against these intangible assets. Goodwill
represents the excess of purchase price over fair value of net assets acquired.
The Company assesses the recoverability of this intangible asset by determining
whether the amortization of the goodwill balance over its remaining life can be
recovered through undiscounted future operating cash flows of the acquired
operation. The amount of goodwill impairment, if any, is measured based on
projected discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds. The assessment of the
recoverability of goodwill will be impacted if estimated future operating cash
flows are not achieved.
Revenue Recognition
The Company generally recognizes operating revenue when the freight to
be transported has been loaded. The Company operates primarily in the
short-to-medium length haul category of the trucking industry; therefore, the
Company's typical customer delivery is completed one day after pickup.
Accordingly, this method of revenue recognition is not materially different from
recognizing revenue based on completion of delivery. The Company recognizes
operating revenue when the freight is delivered for longer haul loads where
delivery is completed more than one day after pickup. Amounts payable to
independent contractors for purchased transportation, to Company drivers for
wages, and other direct expenses are accrued when the related revenue is
recognized.
Insurance and Claims
Losses resulting from personal liability, physical damage, workers'
compensation, and cargo loss and damage are covered by insurance subject to
certain deductibles. Losses resulting from uninsured claims are recognized when
such losses are known and can be estimated. The Company estimates and accrues a
liability for its share of ultimate settlements using all available information.
Expenses depend on actual loss experience and changes in estimates of settlement
amounts for open claims which have not been fully resolved.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect of a change in tax rates on deferred tax assets
and liabilities is recognized in income in the period that includes the
enactment date.
32
<PAGE>
Stock Option Plans
The Company has elected the pro forma disclosure option of Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation." The Company will continue applying the accounting treatment
prescribed by the provisions of APB Opinion No. 25, "Accounting for Stock Issued
to Employees." Pro forma net earnings and pro forma net earnings per common
share have been provided as if SFAS No. 123 were adopted for all stock-based
compensation plans.
Derivative Instruments
The Company uses purchased options and futures contracts to hedge a portion
of their anticipated fuel purchases. These derivative instruments are linked to
heating oil which has a high correlation to diesel fuel. These derivative
instruments meet the criteria for hedge accounting and are accounted for on this
basis. The Company does not hold or issue options and futures contracts for
trading purposes. Unrealized gains and losses related to qualifying hedges are
deferred and recognized in income when the fuel purchases are made, or
immediately if the commitment has been canceled.
The Company also uses "floating to fixed" heating oil price swap agreements
to limit its exposure to potentially adverse fluctuations in fuel prices. As the
fuel is purchased, the differential to be paid or received on the swap
agreements is recognized as an adjustment to fuel, supplies, and maintenance
expense in the consolidated statement of earnings.
Net Earnings Per Common Share
Basic earnings per share have been computed by dividing net earnings by the
weighted-average outstanding Class A and Class B common shares during each of
the years. Diluted earnings per share have been calculated by also including in
the computation the effect of employee stock options, nonvested stock, and
similar equity instruments granted to employees as potential common shares.
Effect of New Accounting Standards
The Company adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income" and SFAS No. 132, "Employers' Disclosure about Pensions
and Other Postretirement Benefits" effective January 1, 1998. SFAS No. 130
establishes the standards for the reporting and display of comprehensive income
in the financial statements. SFAS No. 132 revises the disclosure requirements
for pension and other postretirement benefit plans. The adoption of these
standards had no effect on the Company's consolidated financial statements. The
Company adopted the provisions of SFAS No. 131,"Disclosure about Segments of an
Enterprise and Related Information" effective January 1, 1998. SFAS No. 131
establishes disclosure requirements for segment operations. The Company has
three operating segments: Smithway Motor Xpress, Inc.; East West Motor Express,
Inc.; and JHT, Inc. Each of these segments operates in the motor carrier
services industry with a similar operations and customer base. These segments
have been aggregated for purposes of SFAS No. 131. The Company intends to merge
JHT, Inc. into Smithway Motor Xpress, Inc. in 1999, thereby eliminating this
operating segment. 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.
Note 3: Acquisitions
In February 1998, the Company acquired tractors, trailers, real estate and
certain other assets owned or leased by East West Motor Express, Inc. of Black
Hawk, South Dakota. In exchange for these assets, the Company repaid
approximately $4,287 in equipment financing secured by these assets and paid
$5,896 to the former owners of the acquired assets. In addition, the Company
agreed to pay $2,256 for goodwill and other intangible assets.
In October 1998, the Company acquired tractors, trailers, and certain other
assets owned or leased by JHT, Inc. of Cohasset, Minnesota. In exchange for
these assets,the Company assumed and repaid approximately $10,200 in equipment
financing secured by these assets and paid $813 to the former owners of the
acquired assets. In addition, the Company agreed to pay $1,515 for goodwill and
other intangible assets.
A summary of unaudited pro forma financial statement data, assuming the
acquisition of East West Motor Express, Inc. and JHT, Inc. had occurred on
January 1, 1997 is as follows: operating revenue, $185,692 and $175,200;
earnings from operations, $13,599 and $15,256; net earnings, $5,739 and $7,176;
and basic and diluted net earnings per common share, $1.14 and $1.43, for 1998
and 1997, respectively.
The Company also acquired tractors, trailers, and certain other assets of
TP Transportation, Inc. of Enid, Oklahoma in August 1998.
33
<PAGE>
In exchange for these assets, the Company assumed or repaid approximately $4,333
in equipment financing secured by these assets and paid $125 to the former
owners of TP Transportation, Inc. In addition, the Company agreed to pay $675
for goodwill and other intangible assets. The effect of this transaction was not
material to the consolidated financial statements of the Company.
In February 1997, the Company acquired tractors, trailers, and certain
other assets of Pirie Motor Freight, Inc. of Fort Dodge, Iowa. In exchange for
these assets, the Company assumed and repaid approximately $1,260 in equipment
financing secured by these assets and paid $140 for a noncompete and consulting
agreement. The effect of this transaction was not material to the consolidated
financial statements of the Company.
In September 1997, the Company acquired tractors, trailers, and certain
other assets of Royal Transport, Ltd. of Grand Rapids, Michigan. In exchange for
these assets, the Company repaid approximately $669 in equipment financing
secured by these assets and paid $179 to the former owners of Royal Transport,
Ltd. In addition, the Company agreed to pay $376 for a noncompete and consulting
agreement. The effect of this transaction was not material to the consolidated
financial statements of the Company.
The above acquisitions were accounted for by the purchase method of
accounting.
Note 4: Financial Instruments
SFAS 107, "Disclosures About Fair Value of Financial Instruments," defines
the fair value of a financial instrument as the amount at which the instrument
could be exchanged in a current transaction between willing parties. At December
31, 1998, the carrying amounts of cash and cash equivalents, trade receivables,
other receivables, accounts payable, and accrued liabilities, approximate fair
value because of the short maturity of those instruments. The carrying amounts
of long-term debt and line of credit approximate fair value because the
applicable borrowing rates equal current market rates.
The Company uses derivative instruments including purchased options and
futures contracts to hedge a portion of their anticipated fuel purchases. The
Company does not hold these instruments with the objective of earning financial
gains on price fluctuations alone, nor does it enter into derivative hedge
instruments for which there are no underlying transaction related exposures. The
notional amounts for options and futures contracts in place at December 31, 1998
and 1997 are 1.6 million gallons and -0- gallons, respectively. These options
and futures contracts generally mature in less than one year. At December 31,
1998 deferred unrealized losses were $140, based upon broker quoted prices.
In December 1998, the Company entered into several "floating to fixed"
heating oil price swap agreements. At December 31, 1998, the notional amount of
the agreements was 7.5 million gallons, related specifically to 1999 fuel
purchases. At December 31,1998, the fixed price in the agreements ranged from
37.8 cents per gallon to 42.2 cents per gallon. Fair value of these swaps, based
upon the estimated amount the Company would pay to terminate the agreements, was
$317 at December 31, 1998.
Note 5: Long-Term Debt
Long-term debt includes a credit agreement, entered into during 1997,
with an outstanding balance of $25,000 and $10,000 at December 31, 1998 and
1997, respectively. The agreement was amended during 1998 to allow for
borrowings up to the lesser of 85 percent of eligible accounts receivable and 75
percent of the net book value of unencumbered revenue equipment or $40,000.
Borrowings under the agreement are secured by liens on revenue equipment,
accounts receivable, and certain other assets at December 31, 1998. The
agreement expires August 31, 2000 and contains certain compliance covenants. The
Company was in compliance with these covenants at December 31, 1998. The
weighted average interest rate on the outstanding balance is defined in the
agreement and at December 31, 1998 and 1997 was 6.79 percent and 6.87 percent,
respectively. The credit agreement also includes financing for letters of
credit. At December 31, 1998 and 1997, the Company had letters of credit of
$2,000 and $1,000 outstanding for self-insured amounts related to its insurance
programs. (See note 12.) These letters of credit directly reduced the amount of
potential borrowings available under the credit agreement.
Long-term debt also includes equipment notes with balances of $35,444
and $20,976 at December 31, 1998 and 1997, respectively. Interest rates on the
equipment notes range from 5.81 percent to 6.99 percent with maturities through
2003. The equipment notes are collateralized by the underlying equipment.
At December 31, 1998, long-term debt also includes future payments for
intangible assets of $1,259.
Future maturities on long-term debt for years ending December 31, are as
follows: 1999, $8,124; 2000, $33,577; 2001, $6,416; 2002, $8,773; and 2003,
$4,813.
34
<PAGE>
Note 6: Income Taxes
Income taxes consisted of the following components for the three years
ended December 31:
<TABLE>
Federal State Total
-------------- ----------- ------------
<S> <C> <C> <C>
1998
----
Current $ 805 $ 89 $ 894
Deferred 2,304 576 2,880
------------- ----------- ------------
$ 3,109 $ 665 $ 3,774
============= =========== ============
1997
----
Current 1,082 239 1,321
Deferred 2,016 444 2,460
------------- ----------- ------------
$ 3,098 $ 683 $ 3,781
============= =========== ============
1996
----
Current 725 47 772
Deferred 1,712 376 2,088
-------------- ----------- ------------
$ 2,437 $ 423 $ 2,860
============= =========== ============
</TABLE>
Total income tax expense differs from the amount of income tax expense
computed by applying the normal United States federal income tax rate of 34
percent to income before income tax expense. The reasons for such differences
are as follows:
<TABLE>
<CAPTION>
Years ended December 31,
1998 1997 1996
----------------------
<S> <C> <C> <C>
Computed "expected" income tax expense $3,095 $3,214 $2,315
State income tax expense net of federal benefit 439 451 279
Permanent differences, primarily nondeductible
portion of driver per diem and travel expenses 234 230 176
Other 6 (114) 90
------------------------
$3,774 $3,781 $2,860
========================
</TABLE>
Temporary differences between the financial statement basis of assets
and liabilities and the related deferred tax assets and liabilities at December
31, 1998 and 1997, were as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------------
<S> <C> <C>
Deferred tax assets:
Alternative minimum tax (AMT)credit carryforwards $ 1,783 $ 910
Accrued expenses 650 508
Other 101 32
-------- --------
Total gross deferred tax assets 2,534 1,450
-------- --------
Deferred tax liabilities:
Prepaid expenses (5) (17)
Property and equipment (13,399) (9,423)
-------- --------
Total gross deferred tax liabilities (13,404) (9,440)
-------- --------
Net deferred tax liabilities ($10,870) ($7,990)
========= ========
</TABLE>
The AMT credit carryforwards are available indefinitely to reduce
future income tax liabilities to the extent they exceed AMT liabilities.
35
<PAGE>
Note 7: Stockholders' Equity
On all matters with respect to which the Company's stockholders have a
right to vote, each share of Class A common stock is entitled to one vote, while
each share of Class B common stock is entitled to two votes. The Class B common
stock is convertible into shares of Class A common stock on a share-for-share
basis at the election of the stockholder and will be converted automatically
into shares of Class A common stock upon transfer to any party other than
William G. Smith, his wife, Marlys L. Smith, their children, their
grandchildren, trusts for any of their benefit, and entities wholly owned by
them.
Effective July 2, 1996, the Company sold 1.5 million shares of its
Class A common stock in an initial public offering. The shares were sold at
$8.50 per share, for a total consideration of $12,750. Underwriting discounts
and offering expenses were $2,008, resulting in net proceeds to the Company of
$10,742.
Note 8: Stock Plans
The Company has reserved 25,000 shares of Class A common stock for
issuance pursuant to an outside director stock option plan. The term of each
option shall be six years from the grant date. Options vest on the first
anniversary of the grant date. Exercise price of each stock option is 85 percent
of the fair market value of the common stock on the date of grant.
The Company has reserved 225,000 shares of Class A common stock for
issuance pursuant to an incentive stock option plan. Any shares which expire
unexercised or are forfeited become available again for issuance under the plan.
Under this plan, no awards of incentive stock options may be made after December
31, 2004.
The Company applied APB Opinion No. 25 in accounting for its stock
option plans; and, accordingly, no compensation expense has been recognized in
the consolidated financial statements. Had the Company determined compensation
based on the fair value at the grant date for its outstanding stock options
under SFAS 123, the effect on Company's net earnings and net earnings per common
share for 1998 and 1997 would have been immaterial. The full impact of
calculating compensation cost for stock options under SFAS 123 is reflected over
the options' vesting period.
A summary of stock option activity and weighted-average exercise prices
follows:
<TABLE>
<CAPTION>
1998 1997 1996
Shares Exercise Shares Exercise Shares Exercise
price price price
---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 114,000 $9.25 88,000 $9.42 85,000 $9.50
Granted 35,000 12.00 28,000 8.73 3,000 7.23
Exercised - - - - - -
Forfeited - - (2,000) 9.50 - -
------- ----- ------- ------ ------ -----
Outstanding at end of year 149,000 $9.90 114,000 $9.25 88,000 $9.42
======= ===== ======= ===== ====== =====
Options exercisable at end of year 97,400 $9.21 48,700 $9.20 16,600 $9.50
Weighted-average fair value of options
granted during the year $5.25 $2.22 $2.72
</TABLE>
At December 31, 1998, the weighted-average remaining contractual life
of the outstanding options was 7.0 years and the exercise prices ranged from
$7.23 to $14.05 per share.
The Company used the Black-Scholes option pricing model to determine
the fair value of stock options for the years ended December 31, 1998, 1997, and
1996. The following assumptions were used in determining the fair value of these
options: weighted-average risk-free interest rate, 5.46% in 1998, 6.12% in 1997,
and 6.44% in 1996; weighted-average expected life, 5 years in 1998, 5 years in
1997 and 3 years in 1996; and weighted-average expected volatility, 41% in 1998,
21% in 1997, and 20% in 1996. There were no expected dividends.
The Company adopted an independent contractor driver bonus plan
effective January 1, 1997. The maximum number of shares to be awarded under the
plan are 50,000 shares of Class A common stock. The Company awarded 5,696 and
3,211 shares under the plan in 1998 and 1997, respectively.
The Company also adopted a Class A common stock profit incentive plan
in 1997. Under the plan, the Company will set aside for delivery to certain
participants the number of shares of Class A common stock having a market value
on the distribution date equal to a designated percentage (as determined by the
board of directors) of the Company's consolidated net earnings for the
applicable fiscal year. In 1998, the Company awarded $80 to certain employees
for which common stock will be issued in 1999. In 1998 the Company issued 6,079
shares of Class A common stock to participants in the plan.
In 1996, the Company granted a common stock bonus of 2,254 shares of
nonvested Class A common stock with a fair value of $8.88 on the grant date.
36
<PAGE>
During 1998 and 1997, 564 and 563 shares, respectively, became vested and were
issued by the Company. The remaining 1,127 shares will vest and be issued during
1999.
Note 9: Earnings per Share
A summary of the basic and diluted earnings per share computations is
presented below:
<TABLE>
<CAPTION>
Years ended December 31,
1998 1997 1996
---------------------------------
<S> <C> <C> <C>
Net earnings available to common stockholders $ 5,329 $ 5,673 $ 3,950
========= ========= =========
Basic weighted-average shares outstanding 5,012,450 5,000,860 4,249,893
Effect of dilutive stock options 24,069 18,011 158
Effect of dilutive stock awards 221 376 -
--------- --------- ---------
Diluted weighted-average shares outstanding 5,036,740 5,019,247 4,250,051
========= ========= =========
Basic earnings per share $1.06 $1.13 $0.93
Diluted earnings per share $1.06 $1.13 $0.93
</TABLE>
Note 10: Employees' Profit Sharing and Savings Plan and ESOP
The Company has an Employees' Profit Sharing and Savings Plan, which is
a qualified plan under the provisions of Sections 401(a) and 501(a) of the
Internal Revenue Code. Eligible employees are allowed to contribute up to a
maximum of 15 percent of pretax compensation into the plan. Employers may make
savings, matching, and discretionary contributions, subject to certain
restrictions. During the years ended December 31, 1998, 1997, and 1996, Company
contributions totaled $152, $150, and $-0-, respectively. The plan owns 475,140
shares of the Company's Class A common stock at December 31, 1998.
The Company previously sponsored an ESOP which was merged into the
Employees' Profit Sharing and Savings Plan, effective January 1, 1997. The ESOP
had previously incurred a note payable with a balance at December 31, 1996 of
$243 in connection with the purchase of common stock of the Company. This debt
was retired by the ESOP during 1996 with the proceeds the ESOP received from
stock it sold in the initial public offering. Actual interest expense on the
ESOP debt was $11 during the year ended December 31, 1996.
Note 11: Lease Commitments
The Company has entered into various noncancelable operating leases for
transportation equipment and buildings which will expire over the next four
years. Under the leases for transportation equipment, the Company is responsible
for all repairs, maintenance, insurance, and all other operating expenses.
Certain leases on transportation equipment require the Company to guarantee the
residual value at the maturity of the lease at amounts varying from 10 percent
to 20 percent of the original equipment cost. The maximum contingent liability
under such leases is approximately $234 from 1999 to 2002.
Approximate future minimum lease payments under noncancelable operating
leases as of December 31, 1998, totaled $601 and are payable as follows: 1999,
$405; 2000, $185; and 2001, $11.
Rent charged to expense on the above leases, expired leases, and
short-term rentals was $974 in 1998; $1,740 in 1997; and $1,462 in 1996.
Note 12: Commitments and Contingent Liabilities
The Company's insurance program for personal liability, physical
damage, workers' compensation, and cargo losses and damage involves
self-insurance for losses up to $50 per claim, $50 per claim, $100 per claim,
and $50 per claim, respectively. At December 31, 1998 and 1997, the Company had
approximately $1,204 and $905, respectively, accrued for its estimated liability
for incurred losses related to these programs. Losses in excess of the
self-insured amount per claim are covered by insurance companies.
The insurance companies require the Company to provide letters of
credit to provide funds for payment of the self-insured amounts. At December 31,
1998 and 1997, the Company had a $2,000 and $1,000 letter of credit issued under
the credit agreement described in note 5. In addition, funds totaling $201 and
$683 were held by the insurance companies as deposits at December 31, 1998 and
1997, respectively.
37
<PAGE>
The Company's health insurance program is provided as an employee
benefit for all eligible employees and contractors. The plan is self funded for
losses up to $60,000 per covered member and has an aggregate excess loss cap of
125% of expected claims. At December 31, 1998 and 1997, the Company had
approximately $325 and $250, respectively, accrued for its estimated liability
related to these claims.
The Company has agreed to pay $645 for real estate and improvements
owned by the former owners of JHT, Inc. The commitment to purchase this real
estate is contingent upon satisfactory environmental assessments. The Company is
leasing the property until the transaction occurs.
The Company is also involved in certain legal actions and proceedings
arising from the normal course of operations. Management believes that
liability, if any, arising from such legal actions and proceedings will not have
a material adverse effect on the financial position of the Company.
Note 13: Transactions with Related Parties
During the year ended December 31, 1998, the Company paid $150 for
financial advisory services to an investment banking firm whose president is a
member of the board of directors of the Company.
Note 14: Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for the Company for 1998 and 1997
is as follows:
<TABLE>
<CAPTION>
1998 March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
Operating revenue $ 33,391 $ 40,835 $ 42,424 $ 44,725
Earnings from operations 2,493 2,396 3,528 3,651
Net earnings 1,143 1,021 1,604 1,561
Basic and diluted earnings 0.23 0.20 0.32 0.31
per share
1997
Operating revenue $ 26,908 $ 30,614 $ 31,834 $ 30,761
Earnings from operations 1,955 3,107 3,369 2,569
Net earnings 951 1,536 1,695 1,492
Basic and diluted earnings 0.19 0.31 0.34 0.30
per share
</TABLE>
As a result of rounding, the total of the four quarters may not equal the
Company's results for the year.
38
SECOND AMENDMENT TO
ASSET PURCHASE AGREEMENT,
REAL ESTATE PURCHASE AGREEMENT,
AND COMMERCIAL LEASE
This Second Amendment to Asset Purchase Agreement, Real Estate Purchase
Agreement, and Commercial Lease (the "Amendment") is made effective as of
October 30, 1998, by and among JHT, Inc., a Minnesota corporation and subsidiary
of Smithway Motor Xpress Corp., as assignee of Smithway Motor Xpress, Inc.
("Buyer"); Gone Fishing, Inc., a Minnesota corporation f/k/a JHT, Inc. ("Gone
Fishing"), JHT LOGISTICS, INC., a Minnesota corporation ("Logistics"), Bass
Brook Truck Service, Inc., a Minnesota corporation ("Bass Brook"), and JERDON
TERMINAL HOLDINGS, LLC ("Jerdon"), a Minnesota limited liability company
(individually a "Company" and together the "Companies"); and Jerry H. Hammann,
Donna Hammann, Vicki Dunnell, Tammi Smith, and Jerry S. Hammann, shareholders or
members of the Companies (individually a "Shareholder" and together the
"Shareholders").
RECITALS
The parties previously entered into that certain Asset Purchase Agreement and
Real Estate Purchase Agreement each dated September 23, 1998 (together, the
"Original Agreements"), that certain Commercial Lease dated October 29, 1998
(the "Commercial Lease"), and that certain First Amendment to the original
Agreements dated October 29, 1998 (the "First Amendment", together with the
Commercial Lease and the Original Agreements, the "Agreements"). Certain events
have transpired since the execution of the Agreements that the parties wish to
reflect in writing.
TERMS
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants, representations, and warranties herein contained, and upon the terms
and conditions hereinafter set forth, the parties hereto agree as follows:
A. Amendment of Agreements. The provisions of this Amendment shall supplement
and amend the Agreements as specifically stated herein. If there is a conflict
between this Amendment and the Agreements, this Amendment shall control. Except
as stated herein, the Agreements shall continue in full force and effect.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings ascribed in the Asset Purchase Agreement.
B. Purchase and Lease of Real Estate. Anything to the contrary
notwithstanding, the Commercial Lease and First Amendment are amended to provide
that rent for Buyer's use of the Real Estate shall be paid monthly in arrears,
with the first payment for the period from October 30, 1998 through November 30,
1998, being due on December 1, 1998, and continuing on the first of each month
thereafter. The Commercial Lease is amended to provide that the leased premises
is the Surface of the Real Property described on Exhibit 1 to the Real Estate
Purchase Agreement (the "Premises" or "premises"). Lessor shall retain exclusive
ownership and control of the subsurface of such Real Property. For purposes of
the Commercial Lease, "Surface" shall include that part of the structures or
improvements (including parking and driving areas) above the plane of the soil.
The term Surface shall not include, and Lessor shall retain ownership of, any
39
<PAGE>
soils, groundwater, pollution, or other contamination, or any other solid, gas,
or liquid in the subsurface. The Lessee shall have an irrevocable license to use
the adjacent subsurface of the Real Property for maintenance and repairs of the
Premises. Lessee shall also have an irrevocable license to the use of the
foundation or other support below the structures or improvements of the
Premises.
C. Removal of Underground Storage Tanks. Anything to the contrary
notwithstanding, Gone Fishing shall re-assume, as of October 30, 1998, the
existing contract with Independent Petroleum Service, Inc. with a date of
acceptance of September 15, 1998 by delivery of written notification to
Independent Petroleum Service, Inc. and shall receive the benefit of the $5,543
prepayment under such contract already made by Gone Fishing. Buyer shall pay the
Buyer Amount, as defined in the First Amendment, at the Real Estate Closing. The
Companies shall direct and control the removal and replacement of the
underground storage tanks located on the Real Property. In connection with such
removal and replacement, the Companies shall reasonably consider the advice and
wishes of Buyer and Buyer shall provide reasonable cooperation.
D. Indemnity Supplement in Addition to Indemnity Obligations Under the
Agreements. The Companies and Shareholders shall indemnify and hold harmless
Buyer from any and all claims, causes of action, suits, judgments, losses,
damages, deficiencies, obligations, costs, and expenses (including, without
limitation, interest, penalties, and reasonable fees, and costs of attorneys and
other experts) (hereinafter, collectively referred to as "Claims") caused by the
presence, release, or threatened release of any Environmental Constituent on,
to, or from the Real Property (including soils, groundwater, surface water,
buildings or other structures) before October 30, 1998 or caused by the
performance of the contract referred to in paragraph C hereof. Without limiting
the generality of the foregoing, the Companies and Shareholders shall indemnify
Buyer against any Claims caused by the conditions identified (i) in the Phase I
Environmental Site Assessment prepared by American Engineering Testing, Inc. for
the Scudder Law Firm, or (ii) by GME Consultants, Inc. in its initial site
assessment and remedial investigation. As used herein, the term "Environmental
Constituent" means any pollutant, contaminant, foreign substance, or hazardous
substance, and shall include but not be limited to, petroleum, petroleum
products, and substances identified or designated pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601, et seq.
E. Schedule Amendment. The last page of Schedule A-1 to the Asset Purchase
Agreement is amended to delete the reference to trailer #715,152, and the
$25,000 in payment thereof, that was wrecked prior to Closing. The Companies
shall deliver to Buyer $25,000 in payment thereof.
F. Counterparts. This Amendment may be executed in any number of counterparts
and any party hereto may execute any such counterpart, each of which when
executed and delivered shall be deemed to be an original and all of which
counterparts taken together shall constitute but one and the same instrument.
This Amendment shall become binding when one or more counterparts taken together
shall have been executed and delivered by the parties. It shall not be necessary
in making proof of this Amendment or any counterpart hereof to produce or
account for any of the other counterparts.
*****************************
Signature Page Entitled "Second Amendment To
Asset Purchase Agreement, Real Estate Purchase Agreement,
and Commercial Lease" Follows
*****************************
40
<PAGE>
*****************************
Signature Page to Second Amendment to
Asset Purchase Agreement, Real Estate Purchase Agreement,
and Commercial Lease
*****************************
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment on
the date first written.
THE SHAREHOLDERS THE COMPANIES
GONE FISHING, INC.,
a Minnesota corporation
/s/ Jerry H. Hammann By:/s/ Donna Hammann
- ------------------------------ ------------------------
Jerry H. Hammann, Individually Donna Hammann, President
/s/Donna Hammann
- ------------------------
Donna Hammann, Individually JHT LOGISTICS, INC.,
a Minnesota corporation
/s/Vicki Dunnell By:/s/Donna Hammann
- ------------------------ ------------------------
Vicki Dunnell, Individually Donna Hammann, President
/s/Tammi Smith
- ------------------------
Tammi Smith, Individually BASS BROOK TRUCK SERVICE, INC., a Minnesota
corporation
/s/Jerry Hammann By:/s/Jerry Hammann
- ------------------------ ------------------------
Jerry S. Hammann, Individually Jerry H. Hammann, President
BUYER JERDON TERMINAL HOLDINGS, LLC, a Minnesota
limited liability company
JHT, INC.
By: /s/Jerry H. Hammann
------------------------
Jerry H. Hammann, Manager
By:/s/William G. Smith, President
- ---------------------------------
William G. Smith, President
41
THIRD AMENDMENT TO
CREDIT AGREEMENT
This THIRD AMENDMENT TO CREDIT AGREEMENT (this "Agreement") is entered into
as of October 30, 1998, by and between Smithway Motor Xpress, Inc. ("Borrower"),
Smithway Motor Xpress Corp. as Guarantor (the "Guarantor") and LaSalle National
Bank, as Lender (the "Lender").
W I T N E S S E T H:
WHEREAS, the Borrower and the Guarantor entered into a Credit Agreement dated
as of September 3, 1997, a First Amendment to Credit Agreement dated as of March
1, 1998 and a Second Amendment to Credit Agreement dated as of March 15, 1998;
and
WHEREAS, the Borrower has requested to borrower additional funds from the
Lender and the Lender is willing to do so on the following terms and conditions;
and
WHEREAS, certain additional modifications are required to the Agreement;
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained herein, the parties agree as follows:
1. Unless otherwise stated herein, all of the capitalized terms contained in
this document shall have the same meanings as contained in the Agreement.
2. The first sentence of Section 1.1(a) is hereby deleted and in lieu
thereof is inserted the following:
The Lender agrees, on the terms and conditions hereinafter set
forth, to make Loans to the Borrower (each such Loan, a
"Revolving Loan") from time to time on any Business Day during
the period from the Closing Date to the Revolving Termination
Date, in an aggregate amount not to exceed at any time
outstanding the Revolving Commitment; provided, however, that,
after giving effect to any Borrowing of Revolving Loans, the
aggregate principal amount of all outstanding Revolving Loans
shall not exceed the Maximum Revolving Loan Balance. The
"Maximum Revolving Loan Balance" will be the lesser of the sum
of the Borrowing Base in effect from time to time plus the
face amount of all Letters of Credit outstanding from time to
time, or the Revolving Commitment then in effect. If at any
time the Revolving Loans exceed the Maximum Revolving Loan
Balance, Revolving Loans must be repaid immediately in an
amount sufficient to eliminate any excess.
42
<PAGE>
3. Section 1.2 is hereby deleted and in lieu thereof is inserted
the following:
The Revolving Loans made by the Lender shall be evidenced by a
single Revolving Note payable to the order of the Lender in an amount
equal to $40,000,000 executed by the Borrower, in substantially the
form of Exhibit A hereto.
4. Section 1.8 of the Agreement is hereby deleted and in lieu thereof is
inserted the following:
The Borrower shall pay to the Lender a letter of credit fee
equal, payable quarterly in advance, on the outstanding face amount of
any outstanding Letters of Credit issued by the Lender. If the ratio of
Indebtedness to Tangible Net Worth is less than 2.5:1, the annual fee
rate shall be 1/2% per annum; if the ratio of Indebtedness to Tangible
Net Worth is equal to or greater than 2.5:1 but less than 3.0:1, the
annual fee rate shall be 1% per annum, and; if the ratio of
Indebtedness to Tangible Net Worth is equal to or greater than 3.0:1,
the annual fee rate shall be 1.25% per annum. Notwithstanding anything
to the contrary herein contained, the letter of credit fee shall be 1%
per annum until the December 31, 1998 financial statements are
delivered to Lender.
5. Section 1.9(a) is hereby deleted and in lieu thereof is inserted the
following:
All computations of fees and interest payable under this
Agreement shall be made on the basis of a 365-day year and actual days
elapsed. Interest and fees shall accrue during each period during which
interest or such fees are computed from the first day thereof to the
last day thereof.
6. Section 1.11 is hereby deleted and in lieu thereof is inserted the
following:
Borrower shall pay Lender an annual fee, payable quarterly,
multiplied by the difference between the Commitment and (i) the average
daily amount of Loans outstanding hereunder for such quarterly period,
plus (ii) the average daily amount of Letters of Credit outstanding
hereunder for such quarterly period. If the ratio of Indebtedness to
Tangible Net Worth is less than 3.0:1, the annual fee rate shall be
.25% per annum, and; if the ratio of Indebtedness to Tangible Net Worth
is equal to or greater than 3.0:1, the annual fee rate shall be .375%
per annum. The annual fee shall be .25% until the December 31, 1998
financial statement is delivered to Lender.
7. There is hereby added to Section 3.1 hereof, the following:
(m) Security Agreement. A Security Agreement executed by
Borrower, East West, and JHT, Inc.,each in form
and substance acceptable to Lender.
(n) Corporate Resolution. A corporate resolution authorizing the
loan transaction and the pledging of collateral to Lender.
(o) Opinion of Counsel. An opinion ofcounsel in form acceptable
to Lender.
8. The following new section 5.15 is hereby added to the Agreement:
5.15 Consolidation of JHT. The Borrower covenants and agrees,
by February 28, 1999, JHT, Inc. shall be merged into Borrower or East
West.
9. Section 6.3 of the Agreement is deleted in its entirety and in lieu
thereof is inserted the following:
Borrower, without the prior written consent of Lender, shall
not purchase or acquire, or make any commitment therefore, any capital
stock, equity interest or other securities of, or any interest in, any
Person, or acquire substantially all of assets of any Person or Persons
which, in the aggregate, in any fiscal year exceeds $15,000,000 in
total consideration.
10. Section 6.6 of the Agreement is hereby deleted and in lieu thereof
is inserted the following:
The Borrower shall not permit its consolidated Tangible Net
Worth for any fiscal quarter to be less than $28,000,000, plus 50% of
the Consolidated Net Income for each fiscal year hereafter commencing
the fiscal year ending December 31, 1999.
43
<PAGE>
11. Section 6.7 of the Agreement is hereby deleted and in lieu thereof is
inserted the following:
The Borrower shall not permit its Leverage Ratio, as
determined as of each fiscal quarter for the twelve month period ending
on such date, to be greater than 3.0:1.
12. Section 6.8 of the Agreement is hereby deleted and in lieu thereof is
inserted the following:
The Borrower shall not at any time during any fiscal quarter
permit its ratio of total consolidated liabilities (as determined in
accordance with GAAP) to consolidated Tangible Net Worth to be greater
than 3.25:1
. 13. Section 6.9 of the Agreement is hereby deleted and in lieu thereof
is inserted the following:
The Borrower shall not incur Indebtedness in excess of
$70,000,000.
14. The following new section 6.13 is hereby added to the Agreement:
6.13 Interest Coverage. The ratio of Consolidated Net Income
before deduction for interest and taxes to actual interest expense,
calculated at the end of each fiscal quarter hereafter for the
immediate twelve month period then ending, shall not be less than 2.25
to 1.00.
15. The following Section 6.2(g) is added to the Agreement:
(g) Liens granted to the Lender.
16. The term "Aggregate Commitment" appearing in Section 9.1 hereof is
hereby deleted and in lieu thereof is inserted the following:
"Aggregate Commitment" means the combined Commitments of the
Lender, which shall initially be in the amount of $40,000,000, as such
amount may be reduced from time to time pursuant to this Agreement.
17. The term "Applicable Margin" appearing in Section 9.1 hereof is
hereby deleted and in lieu thereof is inserted the following:
"Applicable Margin" means with respect to Prime Rate Revolving
Loans and with respect to LIBOR Rate Revolving Loans, the rates
contained in the chart below based upon the ratio of Obligations to
Tangible Net Worth as of the end of each fiscal quarter hereafter (for
the immediate following fiscal quarter). Notwithstanding anything to
the contrary contained herein contained, the rate contained in Tier IV
should be used until the December 31, 1998 financial statements are
delivered to Lender.
44
<PAGE>
Indebtedness to Tangible Tier I Tier II
Net Worth Less than 1.0 1.0 to 1.99
----------------------------------------------------------------
LIBOR Rate 75 basis points 100 basis points
Prime Rate negative 100 basis negative 100 basis
points points
Indebtedness to Tangible Tier III Tier IV
Net Worth 2.0 to 2.49 2.5 to 2.99
--------------------------------------------------------------
LIBOR Rate 125 basis points 150 basis points
Prime Rate negative 100 basis negative 50 basis
points points
Indebtedness to Tangible Tier V
Net Worth 3.0 or greater
-----------------------------------------------------
Libor Rate 175 basis points
Prime Rate 0 basis points
18. The term "Borrowing Base" appearing in Section 9.1 hereof is hereby
deleted and in lieu thereof is inserted the following:
"Borrowing Base" means an amount as of any time of
determination equal to the sum of: (a) eighty five percent (85%) of the
aggregate amount of the Borrower's East West's and JHT's then existing
Eligible Accounts, plus (b) seventy five percent (75%) of the aggregate
net book value of the Borrower's, East West's, and JHT's trucks and
trailers, the certificates of title of which list Lender as the first
lienholder (the "Pledged Trucks"); provided, however, that until
February 1, 1999, the borrowing base shall include all of Borrower's,
East West's and JHT's trucks and trailers which each identifies as
being pledged to Lender notwithstanding the fact that Lender does not
yet appear as a lienholder on the applicable certificate of title. Net
book value is defined as the depreciated book value of all of the
Pledged Trucks.
19. The term "EBITDA" appearing in Section 9.1 hereof is hereby deleted
and in lieu thereof is inserted the following:
"EBITDA" means, for any period, for the Guarantor and its
Subsidiaries on a consolidated basis, determined in accordance with
GAAP, the sum of (a) the Consolidated Net Income (or net loss) for such
period plus (b) all amounts deducted from net income (or net loss) for
such period for depreciation or amortization, plus (c) interest expense
deducted from net income (or net loss) for such period, plus (d) all
accrued taxes on or measured by income to the extent included in the
determination of such net income (or loss). In addition, EBITDA for the
applicable period shall include the net income plus interest charges,
depreciation, amortization and tax payment of any entity for which the
Guarantor has acquired 100% of the capital stock, or substantially all
of the assets, business or other ownership interest of which were
acquired by the Guarantor or any consolidated Subsidiary during such
period.
20. The term "Revolving Commitment" appearing in Section 9.1 hereof is
hereby deleted and in lieu thereof is inserted the following:
"Revolving Commitment" means the combined Revolving Commitment
of the Lender, which shall be equal to $40,000,000. Notwithstanding
anything to the contrary contained herein, the Revolving Commitment may
be irrevocably and permanently reduced by the Borrower seven (7) days
after Lender's receipt of written notice from the Borrower of such
reduction, provided, that the Revolving Commitment may not be reduced
below $25,000,000.
45
<PAGE>
21. The term "Tangible Net Worth" appearing in Section 9.1 hereof is
hereby deleted and in lieu thereof is inserted the following:
"Tangible Net Worth" means the consolidated Stockholders'
Equity of Guarantor and its Subsidiaries, determined in accordance with
GAAP, minus (i) general intangible assets, including, but not limited
to, goodwill, covenants not to compete, notes receivable, capital
investments in any Person and amounts due from affiliates not included
in the Borrower's consolidated group and officers, and (ii) amounts due
from employees, drivers and owner/operators to the extent such amounts
exceeds $3,000,000.
22. Borrower shall pay 50% of the legal fees incurred in connection with
the preparation of this Agreement and the documents and instruments
referred to herein, and shall pay 100% of all out of pocket costs
incurred by the Lender or its attorneys.
23. Lender hereby consents to the purchase by Borrower of the assets of JHT,
Inc (and related entities) for an amount not to exceed $15,000,000 in
total consideration, provided that such purchase shall close by November
30, 1998.
24. Borrower expressly acknowledges and agrees that all collateral, security
interests, liens, pledges, and mortgages heretofore, under this
Amendment,or hereafter granted to Lender, including, without limitation,
such collateral, security interests, liens, pledges and mortgages
granted under the Agreement,and all other supplements to the Agreement,
extend to and cover all of the obligations of Borrower to Lender, now
existing or hereafter arising including, without limitation, those
upon the terms set forth in such agreements, all of which security
interests, liens, pledges, and mortgages are hereby ratified,
reaffirmed, confirmed and approved.
25. Borrower represents and warrants to Lender that (i) it has all necessary
power and authority to execute and deliver this Amendment and perform
its obligations hereunder, (ii) this Amendment and the Agreement, as
amended hereby, constitute the legal, valid and binding obligations
of Borrower and are enforceable against Borrower in accordance with
their terms, and (iii) all representations and warranties of Borrower
contained in the Agreement, as amended, and all other agreements,
instruments and other writings relating thereto, are true, correct and
complete as of the date hereof.
26. The parties hereto acknowledge and agree that the terms and provisions
of this Amendment amend, add to and constitute a part of the Agreement.
Except as expressly modified and amended by the terms of this Amendment,
all of the other terms and conditions of the Credit Agreement, as
amended, and all documents executed in connection therewith or
referred to or incorporated therein remain in full force and effect and
are hereby ratified, reaffirmed, confirmed and approved.
27. If there is an express conflict between the terms of this Amendment and
the terms of the Agreement, or any of the other agreements or documents
executed in connection therewith or referred to or incorporated therein,
the terms of this Amendment shall govern and control.
28. This Amendment may be executed in one or more counterparts,each of which
shall be deemed to be an original.
29. This Amendment was executed an delivered in Chicago, Illinois and shall
be governed by and construed in accordance with the internal laws (as
opposed to conflicts of law provisions) of the State of Illinois.
46
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and
year specified at the beginning hereof.
SMITHWAY MOTOR XPRESS, INC., as Borrower
By: /s/G. Larry Owens
------------------------
Title: Executive Vice President & Chief Financial Officer
Address Notice:
P.O. Box 404
Fort Dodge, Iowa 50501
Attn: G. Larry Owens
Facsimile: (515) 576-3304
Tel: (515) 576-7418
LASALLE NATIONAL BANK, as Lender
By: /s/Bruce Linger
------------------------
Title:Senior Vice President, Commericial Banking
Address notices and Lending Office::
135 S. LaSalle
Chicago, Illinois 60603
Attn: Mr. Bruce Linger
Facsimile: (312) 904-6150
Tel: (312) 904-8356
47
<PAGE>
CONSENT AND RATIFICATION
The undersigned, pursuant to that certain Guaranty dated as of
September 3, 1997, is a guarantor of all of the obligations of the Borrower to
the Lender under the terms of the Credit Agreement dated as of September 3,
1997, as amended, and hereby consents to the Second Amendment to Credit
Agreement. Guarantor hereby reaffirms and ratifies his guaranty as if the same
were fully set forth herein.
SMITHWAY MOTOR XPRESS CORP, as Guarantor
By: /s/ G. Larry Owens
------------------------
Title :Executive Vice President & Chief Financial Officer
Address Notice:
P.O. Box 404
Fort Dodge, Iowa 50501
Attn: G. Larry Owens
Facsimile: (515) 576-3304
Tel: (515) 576-7418
48
<PAGE>
EXHIBIT A
AMENDED AND RESTATED NOTE
$40,000,000 as of , 1998
------------------------
Smithway Motor Xpress, Inc., an Iowa corporation (the
"Borrower"), promises to pay to the order of LaSalle National Bank (the
"Lender") the lesser of the principal sum of Forty Million Dollars ($40,000,000)
or the aggregate unpaid principal amount of all Loans made by the Lender to the
Borrower pursuant to Article II of the Credit Agreement (as the same may be
amended or modified, the "Agreement") hereinafter referred to, in immediately
available funds at the main office of LaSalle National Bank in Chicago,
Illinois, together with interest on the unpaid principal amount hereof at the
rates and on the dates set forth in the Agreement. The Borrower shall pay the
principal of and accrued and unpaid interest on the Loans in full on the
Revolving Termination Date.
The Lender shall record in accordance with its usual practice,
the date, amount and interest rate of each Loan and the date and amount of each
principal and interest payment hereunder.
This Note is issued pursuant to, and is entitled to the
benefits of, the Credit Agreement, dated as of September 3, 1997, between the
Borrower and Lender, to which Agreement, as it may be amended from time to time,
reference is hereby made for a statement of the terms and conditions governing
this Note, including the terms and conditions under which this Note may be
prepaid or its maturity date accelerated. Capitalized terms used herein and not
otherwise defined herein are used with the meanings attributed to them in the
Agreement.
SMITHWAY MOTOR XPRESS, INC.
By: _______________________
Print Name: G. Larry Owens
------------------------
Title: Executive Vice President & Chief Financial
Officer
49
SUBSIDIARIES OF THE REGISTRANT
Smithway Motor Xpress, Inc., an Iowa corporation
East West Motor Express, Inc., a South Dakota corporation
SMSD Acquisition Corp., a South Dakota corporation
JHT, Inc., a Minnesota corporation
*On February 23, 1999, JHT, Inc., a Minnesota corporation and former subsidiary
of the Registrant, was merged into Smithway Motor Xpress, Inc.
50
CONSENT OF INDEPENDENT AUDITORS
We consent to incorporation by reference in the Registration Statements (No.
333-10249, 333-10251, and 333-21253) on Form S-8 of Smithway Motor Xpress Corp.
of our report dated February 5, 1999, relating to the consolidated balance
sheets of Smithway Motor Xpress Corp. and subsidiaries as of December 31, 1998
and 1997, and the related consolidated statements of earnings, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1998, which report appears in the December 31, 1998 Annual Report
on Form 10-K of Smithway Motor Xpress Corp.
KPMG Peat Marwick LLP
/s/KPMG Peat Marwick LLP
Des Moines, Iowa
March 15, 1998
51
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<ARTICLE> 5
<CIK> 0000941914
<NAME> Smithway Motor Xpress Copr.
<MULTIPLIER> 1000
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1.0
<CASH> 1276
<SECURITIES> 0
<RECEIVABLES> 17183
<ALLOWANCES> 66
<INVENTORY> 1537
<CURRENT-ASSETS> 21941
<PP&E> 113406
<DEPRECIATION> 26269
<TOTAL-ASSETS> 115494
<CURRENT-LIABILITIES> 15130
<BONDS> 53579
0
0
<COMMON> 50
<OTHER-SE> 35355
<TOTAL-LIABILITY-AND-EQUITY> 115494
<SALES> 0
<TOTAL-REVENUES> 161375
<CGS> 0
<TOTAL-COSTS> 149307
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2965
<INCOME-PRETAX> 9103
<INCOME-TAX> 3774
<INCOME-CONTINUING> 5329
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5329
<EPS-PRIMARY> 1.06
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</TABLE>
