SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549-1004
-----------------------------------------------------
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-20793
Smithway Motor Xpress Corp.
(Exact name of registrant as specified in its charter)
Nevada 42-1433844
(State or other jurisdiction (I.R.S. employer identification
of incorporation or organization) number)
2031 Quail Avenue
Fort Dodge, Iowa 50501
(515) 576-7418
(Address, including zip code, and telephone number,
including area code, of registrant's
principal executive office)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days.
YES X NO_____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date (November 9, 1999).
Class A Common Stock, $.01 par value: 4,035,876 shares
Class B Common Stock, $.01 par value: 1,000,000 shares
Exhibit Index is on Page 18-19.
Page 1 of 20
<PAGE>
PART I
FINANCIAL INFORMATION
PAGE
NUMBER
Item 1. Financial Statements.......................................... 3-8
Condensed Consolidated Balance Sheets as of September 30, 1999
(unaudited) and December 31, 1998........................... 3-4
Condensed Consolidated Statements of Earnings for the three and
nine months ended September 30, 1999 and 1998 (unaudited).... 5
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 1999 and 1998 (unaudited)... 6-7
Notes to Condensed Consolidated Financial Statements (unaudited) 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................ 9-16
Item 3. Quantitative and Qualitative Disclosures
About Market Risks........................................... 16
PART II
OTHER INFORMATION
Item 1. Legal Proceedings................................................ 17
Item 2. Changes in Securities............................................ 17
Item 3. Defaults Upon Senior Securities.................................. 17
Item 4. Submission of Matters to a Vote of Security Holders.............. 17
Item 5. Other Information................................................ 17
Item 6. Exhibits and Reports on Form 8-K................................. 18-19
FORWARD LOOKING STATEMENTS
This document contains forward-looking statements. Statements by the
Company in press releases, public filings, and stockholder reports, as well as
oral public statements by Company representatives, also may contain certain
forward-looking information. Forward-looking information is subject to certain
risks and uncertainties that could cause actual results to differ materially
from those projected. Without limitation, these risks and uncertainties include
economic factors such as recessions, downturns in customers' business cycles,
surplus inventories, inflation, higher interest rates, and fuel price increases;
the resale value of the Company's used revenue equipment; the availability and
compensation of qualified drivers and owner-operators; competition from
trucking, rail, and intermodal competitors; and the availability of desirable
target companies and financing for acquisitions. Readers should review and
consider the various disclosures made by the Company in its press releases,
stockholder reports, and public filings, as well as the factors explained in
greater detail in the Company's annual report on Form 10-K.
Page 2 of 20
<PAGE>
PART I
FINANCIAL INFORMATION
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------------ ------------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................................$ 1,766 $ 1,276
Receivables:
Trade..................................................................... 19,445 15,481
Other..................................................................... 1,887 1,366
Recoverable income taxes.................................................. - 270
Inventories................................................................. 1,638 1,537
Deposits, primarily with insurers........................................... 254 391
Prepaid expenses............................................................ 1,155 1,110
Deferred income taxes....................................................... 1,020 510
------------------ ------------------
Total current assets................................................. 27,165 21,941
------------------ ------------------
Property and equipment:
Land........................................................................ 1,081 881
Buildings and improvements.................................................. 6,852 6,147
Tractors.................................................................... 68,916 60,915
Trailers.................................................................... 42,449 39,194
Other equipment............................................................. 6,602 6,269
------------------ ------------------
125,900 113,406
Less accumulated depreciation............................................... 34,091 26,269
------------------ ------------------
Net property and equipment........................................... 91,809 87,137
------------------ ------------------
Intangible assets, net........................................................ 5,781 5,892
Other assets.................................................................. 259 524
------------------ ------------------
$ 125,014 $ 115,494
================== ==================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 3 of 20
<PAGE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------------ ------------------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt........................................$ 8,473 $ 8,124
Accounts payable............................................................ 7,602 3,280
Accrued compensation........................................................ 3,345 1,714
Accrued loss reserves....................................................... 2,414 1,204
Other accrued expenses...................................................... 792 808
Income taxes payable........................................................ 45 -
------------------ ------------------
Total current liabilities............................................ 22,671 15,130
Long-term debt, less current maturities....................................... 49,476 53,579
Deferred income taxes......................................................... 13,650 11,380
------------------ ------------------
Total liabilities.................................................... 85,797 80,089
------------------ ------------------
Stockholders' equity:
Preferred stock............................................................. - -
Common stock:
Class A................................................................... 40 40
Class B................................................................... 10 10
Additional paid-in capital.................................................. 11,413 11,311
Retained earnings........................................................... 27,754 24,118
Reacquired shares, at cost.................................................. - (74)
------------------ ------------------
Total stockholders' equity........................................... 39,217 35,405
------------------ ------------------
$ 125,014 $ 115,494
================== ==================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 4 of 20
<PAGE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands, except share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Operating revenue:
Freight....................................$ 49,922 $ 42,203 $ 148,016 $ 116,259
Other...................................... 121 221 439 391
------------- -------------- -------------- --------------
Operating revenue.................... 50,043 42,424 148,455 116,650
------------- -------------- -------------- --------------
Operating expenses:
Purchased transportation................... 20,475 17,911 60,019 48,553
Compensation and employee benefits......... 12,698 9,679 36,701 27,464
Fuel, supplies, and maintenance............ 5,966 4,934 17,634 14,254
Insurance and claims....................... 1,327 620 3,332 1,940
Taxes and licenses......................... 1,021 799 2,988 2,150
General and administrative................. 1,886 1,576 5,474 4,506
Communications and utilities............... 499 469 1,643 1,311
Depreciation and amortization.............. 4,212 2,908 11,672 8,055
------------- -------------- -------------- --------------
Total operating expenses............... 48,084 38,896 139,463 108,233
------------- -------------- -------------- --------------
Earnings from operations............ 1,959 3,528 8,992 8,417
Financial (expense) income
Interest expense........................... (950) (831) (2,863) (2,148)
Interest income............................ 26 46 95 181
------------- -------------- -------------- --------------
Earnings before income taxes....... 1,035 2,743 6,224 6,450
Income taxes.................................... 425 1,139 2,588 2,682
------------- -------------- -------------- --------------
Net earnings.......................$ 610 $ 1,604 $ 3,636 $ 3,768
============= ============== ============== ==============
Basic and diluted earnings per common
share...........................................$ 0.12 $ 0.32 $ 0.72 $ 0.75
============= ============== ============== ==============
Basic weighted average common shares
outstanding..................................... 5,035,876 5,015,082 5,029,288 5,011,523
Common stock options and awards............ 2,802 1,365 1,857 32,119
------------- -------------- -------------- --------------
Diluted weighted average common shares 5,038,678 5,016,447 5,031,145 5,043,642
outstanding.....................................
============= ============== ============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 5 of 20
<PAGE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------
1999 1998
-------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings.......................................................................$ 3,636 $ 3,768
-------------- ---------------
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization.................................................... 11,672 8,055
Deferred income taxes............................................................ 1,760 1,808
Stock bonuses.................................................................... 176 164
Changes in:
Receivables (net).............................................................. (4,486) (4,961)
Inventories.................................................................... (101) (101)
Deposits, primarily with insurers.............................................. 138 465
Prepaid expenses............................................................... (45) 459
Accounts payable and other accrued liabilities................................. 7,461 2,657
-------------- ---------------
Total adjustments....................................................... 16,575 8,546
-------------- ---------------
Net cash provided by operating activities............................... 20,211 12,314
-------------- ---------------
Cash flows from investing activities:
Payments for acquisitions.......................................................... - (14,255)
Purchase of property and equipment................................................. (14,441) (10,295)
Proceeds from the sale of property and equipment................................... 2,193 1,414
Other ............................................................................. 115 (162)
-------------- ---------------
Net cash used in investing activities................................... (12,133) (23,298)
-------------- ---------------
Cash flows from financing activities:
Proceeds from long-term debt....................................................... - 14,000
Principal payments on long-term debt............................................... (7,588) (5,662)
-------------- ---------------
Net cash (used in) provided by financing activities......................... (7,588) 8,338
-------------- ---------------
Net increase (decrease) in cash and cash equivalents........................ 490 (2,646)
Cash and cash equivalents at beginning of period..................................... 1,276 4,082
-------------- ---------------
Cash and cash equivalents at end of period...........................................$ 1,766 $ 1,436
============== ===============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 6 of 20
<PAGE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------
1999 1998
--------------- --------------
<S> <C> <C>
Supplemental disclosure of cash flow information: Cash paid during the period
for:
Interest................................................................$ 2,908 $ 2,310
Income taxes............................................................ 1,276 1,153
=============== ==============
Supplemental schedules of noncash investing and financing activities:
Notes payable issued for tractors and trailers............................$ 3,834 $ 10,394
Issuance of stock bonuses................................................. 176 164
Liability issued for intangible assets.................................... - 1,293
=============== ==============
Cash payments for acquisitions:
Revenue equipment.........................................................$ - $ 11,188
Intangible assets......................................................... - 1,697
Land, buildings and other assets.......................................... - 1,370
--------------- --------------
Total cash paid for acquisitions..............................................$ - $ 14,255
=============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 7 of 20
<PAGE>
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The condensed consolidated financial statements include the accounts of Smithway
Motor Xpress Corp., a Nevada holding company, and its wholly owned subsidiaries,
Smithway Motor Xpress, Inc. and East West Motor Express, Inc. (East West). JHT,
Inc. (JHT), a subsidiary of the Company at December 31, 1998, was merged into
Smithway Motor Xpress, Inc. in February, 1999. Unless otherwise indicated, the
companies named in this paragraph are collectively referred to as the "Company."
All significant intercompany balances and transactions have been eliminated in
consolidation.
The condensed consolidated financial statements have been prepared, without
audit, in accordance with generally accepted accounting principles, pursuant to
the published rules and regulations of the Securities and Exchange Commission.
In the opinion of management, the accompanying condensed consolidated financial
statements include all adjustments which are necessary for a fair presentation
of the results for the interim periods presented, such adjustments being of a
normal recurring nature. Certain information and footnote disclosures have been
condensed or omitted pursuant to such rules and regulations. The December 31,
1998 Condensed Consolidated Balance Sheet was derived from the audited balance
sheet of the Company for the year then ended. It is suggested that these
condensed consolidated financial statements and notes thereto be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Form 10-K for the year ended December 31, 1998.
Results of operations in interim periods are not necessarily indicative of
results to be expected for a full year.
Note 2. Effect of New Accounting Standards
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 137, will
be effective for the Company for the year beginning January 1, 2001. Management
is evaluating the impact the adoption of SFAS No. 133 will have on the Company's
consolidated financial statements. The Company expects to adopt SFAS No. 133
when required.
Page 8 of 20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The Company's fiscal year ends on December 31 of each year. Thus, this
report discusses the third quarter and first nine months of the Company's 1999
and 1998 fiscal years.
The Company has expanded its operations substantially over the past
three years through a combination of internal growth and acquisitions. For the
three months ended September 30, 1999, revenue increased 18.0% and net earnings
decreased 62.0% compared with the same period in 1998. For the nine months ended
September 30, 1999, revenue increased 27.3% and net earnings decreased 3.5%
compared with the same period in 1998.
The Company significantly increased its dry van operations with the
acquisition of East West and JHT in 1998. The Company's increasing revenue from
dry van operations has affected its operating statistics. Company-wide revenue
per loaded mile remained constant at $1.33 in the 1999 quarter and 1998 quarter.
For the nine months ended September 30, 1999, Company-wide revenue per loaded
mile has decreased to $1.32 from $1.33 in the 1998 period, primarily because
revenue per loaded mile for the Company's dry van freight is lower than for its
flatbed freight. Management believes that dry van freight can be comparable in
profitability to flatbed freight. In the third quarter, however, the Company's
dry van operations were not as profitable as its flatbed operations. The
percentage of the Company's revenue generated by dry van freight has increased
in 1999 because of the acquisition of JHT in October 1998. Fluctuations in
revenue per loaded mile and other operating statistics may occur from
time-to-time as the Company's freight mix changes due to acquisitions and other
factors.
The Company operates a tractor-trailer fleet comprised of both
Company-owned vehicles and vehicles obtained under leases from independent
contractors and third-party finance companies. Fluctuations among expense
categories may occur as a result of changes in the relative percentage of the
fleet obtained through equipment that is owned versus equipment that is leased
from independent contractors or financing sources. Costs associated with revenue
equipment acquired under operating leases or through agreements with independent
contractors are expensed as "purchased transportation." For these categories of
equipment the Company does not incur costs such as interest and depreciation as
it might with owned equipment. In addition, independent contractor tractors,
driver compensation, fuel, communications, and certain other expenses are borne
by the independent contractors and are not incurred by the Company. Obtaining
equipment from independent contractors and under operating leases reduces
capital expenditures and on- balance sheet leverage and effectively shifts
expenses from interest to "above the line" operating expenses. The fleet profile
of acquired companies and the Company's relative recruiting and retention
success with Company-employed drivers and independent contractors will cause
fluctuations from time-to-time in the percentage of the Company's fleet that is
owned versus obtained from independent contractors and under operating leases.
Accordingly, management intends to evaluate the Company's efficiency using
pretax margin and net margin rather than operating ratio.
Page 9 of 20
<PAGE>
Results of Operations
The following table sets forth the percentage relationship of certain
items to operating revenue for the three and nine months ended September 30,
1999 and 1998:
<TABLE>
<CAPTION>
Three Months Ended Nine months Ended
September 30, September 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operating revenue.................................... 100.0% 100.0% 100.0% 100.0%
Operating expenses
Purchased transportation........................... 40.9 42.2 40.4 41.6
Compensation and employee benefits................. 25.4 22.8 24.7 23.5
Fuel, supplies, and maintenance.................... 11.9 11.6 11.9 12.2
Insurance and claims............................... 2.7 1.5 2.2 1.7
Taxes and licenses................................. 2.0 1.9 2.0 1.8
General and administrative......................... 3.8 3.7 3.7 3.9
Communications and utilities....................... 1.0 1.1 1.1 1.1
Depreciation and amortization...................... 8.4 6.9 7.9 6.9
----------- ----------- ----------- -----------
Total operating expenses......................... 96.1 91.7 93.9 92.8
----------- ----------- ----------- -----------
Earnings from operations............................. 3.9 8.3 6.1 7.2
Interest expense (net)............................... (1.8) (1.9) (1.9) (1.7)
----------- ----------- ----------- -----------
Earnings before income taxes......................... 2.1 6.5 4.2 5.5
Income taxes......................................... 0.8 2.7 1.7 2.3
----------- ----------- ----------- -----------
Net earnings......................................... 1.2% 3.8% 2.4% 3.2%
=========== =========== =========== ===========
</TABLE>
Comparison of three months ended September 30, 1999 with three months ended
September 30, 1998
Operating revenue increased $7.6 million (18.0%) to $50.0 million
during the 1999 quarter from $42.4 million during the 1998 quarter. Expanded
business with existing customers and revenue from the acquired operations of JHT
in October 1998 contributed to the Company's revenue growth. Weighted average
tractors increased 21.2% to 1,531 during the 1999 quarter from 1,263 during the
1998 quarter. This was offset by a decrease in average revenue per tractor per
week to $2,328 during the 1999 quarter from $2,384 during the 1998 quarter,
caused by a shortage of manned tractors in the fleet and lower miles per tractor
in the dry van operations.
Purchased transportation increased $2.6 million (14.3%) to $20.5
million in the 1999 quarter from $17.9 million in the 1998 quarter as the
Company's business expanded and the Company contracted with more independent
contractor providers of revenue equipment. As a percentage of revenue, purchased
transportation decreased to 40.9% of revenue in the 1999 quarter from 42.2% in
the 1998 quarter. This reflects a decrease in the amount of freight brokered by
the Company as a percent of total revenue, a slight decrease in the percentage
of the Company's fleet supplied by independent contractors, and a reduction in
equipment rent caused by the purchase of equipment which was previously leased.
Compensation and employee benefits increased $3.0 million (31.2%) to
$12.7 million in the 1999 quarter from $9.7 million in the 1998 quarter. As a
percentage of revenue, compensation and employee benefits increased to 25.4% of
revenue in the 1999 quarter from 22.8% in the 1998 quarter. The increase was
attributable to an approximately $1.0 million increase in workers' compensation
claims reserved and a slight increase in the percentage of the Company's fleet
supplied by Company trucks.
Page 10 of 20
<PAGE>
Fuel, supplies, and maintenance increased $1.0 million (20.9%) to $6.0
million in the 1999 quarter from $4.9 million in the 1998 quarter. As a
percentage of revenue, fuel, supplies, and maintenance increased to 11.9% of
revenue for the 1999 quarter compared with 11.6% for the 1998 quarter. This was
the result of a 17% increase in average fuel costs to $1.17 per gallon during
the 1999 quarter from $1.00 per gallon during the 1998 quarter, which was
partially offset by fuel hedging transactions.
Insurance and claims increased $707,000 (114.0%) to $1.3 million in the
1999 quarter from $620,000 in the 1998 quarter. As a percentage of revenue,
insurance and claims increased to 2.7% of revenue for the 1999 quarter compared
with 1.5% for the 1998 quarter. The increase was attributable to an increase in
liability and physical damage claims paid and reserved.
Taxes and licenses increased $222,000 (27.8%) to $1.0 million in the
1999 quarter from $799,000 in the 1998 quarter reflecting an increase in the
number of tractors licensed by the Company and an increase in the number of
shipments requiring special permits during the 1999 quarter. The special permits
are paid for by the shippers, which increases freight revenue. As a percentage
of revenue, taxes and licenses remained essentially constant at 2.0% of revenue
in the 1999 quarter and 1.9% in the 1998 quarter.
General and administrative expenses increased $310,000 (19.7%) to $1.9
million in the 1999 quarter from $1.6 million in the 1998 quarter. As a
percentage of revenue, general and administrative expenses remained essentially
constant at 3.8% of revenue in the 1999 quarter and 3.7% in the 1998 quarter.
Communications and utilities increased $30,000 (6.4%) to $499,000 in
the 1999 quarter from $469,000 in the 1998 quarter. As a percentage of revenue,
communications and utilities remained essentially constant at 1.0% of revenue in
the 1999 quarter and 1.1% in the 1998 quarter.
Depreciation and amortization increased $1.3 million (44.8%) to $4.2
million in the 1999 quarter from $2.9 million in the 1998 quarter. As a
percentage of revenue, depreciation and amortization increased to 8.4% of
revenue in the 1999 quarter from 6.9% in the 1998 quarter. Depreciation and
amortization increased because of a larger fleet of Company-owned tractors and
trailers, which increased the cost of equipment being depreciated, an increase
in the number of Company-owned tractors, trailers, and satellite communications
units financed with debt rather than operating leases, and an increase in
goodwill amortization as a result of the JHT acquisition, which occurred during
the fourth quarter of 1998. Depreciation and amortization increased as a
percentage of revenue primarily because lower revenue per tractor less
efficiently spread this fixed cost.
Interest expense (net) increased $139,000 (17.7%) to $924,000 in the
1999 quarter from $785,000 in the 1998 quarter. As a percentage of revenue,
interest expense (net) remained essentially constant at 1.8% of revenue in the
1999 quarter and 1.9% in the 1998 quarter.
As a result of the foregoing, the Company's pretax margin decreased to
2.1% in the 1999 quarter from 6.5% in the 1998 quarter.
The Company's effective tax rate was 41.1% for the 1999 quarter and
41.5% for the 1998 quarter. The effective tax rate is higher than the expected
combined tax rate for a company headquartered in Iowa because of the cost of
nondeductible driver per diem expense absorbed by the Company. The impact of the
Company's paying per diem travel expenses varies depending upon the ratio of
drivers to independent contractors and the Company's net earnings.
As a result of the factors described above, net earnings decreased
$994,000 (62.0%) to $610,000 (1.2% of revenue) in the 1999 quarter from $1.6
million (3.8% of revenue) in the 1998 quarter.
Page 11 of 20
<PAGE>
Comparison of nine months ended September 30, 1999, with nine months ended
September 30, 1998
Operating revenue increased $31.8 million (27.3%) to $148.5 million
during the 1999 period from $116.7 million during the 1998 period. Expanded
business with existing customers and revenue from the acquired operations of JHT
in October 1998 contributed to the Company's revenue growth. Weighted average
tractors increased 30.6% to 1,533 during the 1999 period from 1,174 during the
1998 period. The increase in fleet size was partially offset by a decrease in
average revenue per tractor per week to $2,318 during the 1999 period from
$2,357 during the 1998 period, caused primarily by lower miles per tractor in
the dry van operations.
Purchased transportation increased $11.4 million (23.6%) to $60.0
million in the 1999 period from $48.6 million in the 1998 period as the
Company's business expanded and the Company contracted with more independent
contractor providers of revenue equipment. As a percentage of revenue, purchased
transportation decreased to 40.4% of revenue in the 1999 period from 41.6% in
the 1998 period. This reflects a decrease in the amount of freight brokered by
the Company as a percent of total revenue, a slight decrease in the percentage
of the Company's fleet supplied by independent contractors, and a reduction in
equipment rent caused by the purchase of equipment which was previously leased.
Compensation and employee benefits increased $9.2 million (33.6%) to
$36.7 million in the 1999 period from $27.5 million in the 1998 period. As a
percentage of revenue, compensation and employee benefits increased to 24.7% of
revenue for the 1999 period from 23.5% for the 1998 period. The increase was
attributable to an approximately $1.0 million increase in workers' compensation
claims reserved in the three months ended September 30, 1999, and a slight
increase in the percentage of the Company's fleet supplied by Company trucks.
Fuel, supplies, and maintenance increased $3.4 million (23.7%) to $17.6
million in the 1999 period from $14.3 million in the 1998 period. As a
percentage of revenue, fuel, supplies, and maintenance decreased to 11.9% of
revenue for the 1999 period compared with 12.2% for the 1998 period. The
decrease as a percentage of revenue reflected a reduction in maintenance costs
and tires expense, which was partially offset by increased fuel costs in the
three months ended September 30, 1999. The fuel price increase was partially
offset by fuel hedging transactions.
Insurance and claims increased $1.4 million (71.8%) to $3.3 million in
the 1999 period from $1.9 million in the 1998 period. As a percentage of
revenue, insurance and claims increased to 2.2% of revenue for the 1999 period
compared with 1.7% for the 1998 period. The increase was attributable to an
increase in liability and physical damage claims paid and reserved.
Taxes and licenses increased $838,000 (39.0%) to $3.0 million in the
1999 period from $2.2 million in the 1998 period, reflecting an increase in the
number of tractors licensed by the Company and an increase in the number of
shipments requiring special permits during the 1999 period. The special permits
are paid for by the shippers, which increases freight revenue. As a percentage
of revenue, taxes and licenses increased to 2.0% of revenue in the 1999 period
from 1.8% in the 1998 period because of lower average revenue per tractor per
week and the cost of the special permits.
General and administrative expenses increased $968,000 (21.5%) to $5.5
million in the 1999 period from $4.5 million in the 1998 period. As a percentage
of revenue, general and administrative expenses decreased to 3.7% of revenue in
the 1999 period from 3.9% in the 1998 period as a result of a decrease in
freight revenue being dispatched by terminal agents resulting in less
commissions paid during the 1999 period. Additionally, certain fixed costs are
being spread over a larger revenue base.
Page 12 of 20
<PAGE>
Communications and utilities increased $332,000 (25.3%) to $1.6 million
in the 1999 period from $1.3 million in the 1998 period. As a percentage of
revenue, communications and utilities remained constant at 1.1% of revenue.
Depreciation and amortization increased $3.6 million (44.9%) to $11.7
million in the 1999 period from $8.1 million in the 1998 period. As a percentage
of revenue, depreciation and amortization increased to 7.9% of revenue in the
1999 period from 6.9% in the 1998 period. Depreciation and amortization
increased because of a larger fleet of Company-owned tractors and trailers,
which increased the cost of equipment being depreciated, an increase in the
number of Company-owned tractors, trailers, and satellite communications units
financed with debt rather than operating leases, and an increase in goodwill
amortization as a result of the East West acquisition which closed February 20,
1998, the TP Transportation acquisition which closed August 21, 1998, and the
JHT acquisition, which closed October 30, 1998. Depreciation and amortization
increased as a percentage of revenue primarily because lower revenue per tractor
less efficiently spread this fixed cost.
Interest expense (net) increased $801,000 (40.7%) to $2.8 million in
the 1999 period from $2.0 million in the 1998 period. As a percentage of
revenue, interest expense (net) increased to 1.9% of revenue in the 1999 period
from 1.7% in the 1998 period, due to higher average debt balances of $60.6
million in the 1999 period compared with $40.5 million in the 1998 period.
As a result of the foregoing, the Company's pretax margin decreased to
4.2% in the 1999 period from 5.5% in the 1998 period.
The Company's effective tax rate was 41.6% in both the 1999 and 1998
periods. 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
$132,000 (3.5%) to $3.6 million (2.4% of revenue) in the 1999 period from $3.8
million (3.2% of revenue) in the 1998 period.
Page 13 of 20
<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 currently anticipated working capital requirements,
capital expenditures, and other needs at least through 2000.
Net cash provided by operating activities was $20.2 million for the
nine months ended September 30, 1999. The primary sources of cash from
operations were net earnings of $3.6 million increased by $11.7 million in
depreciation and amortization, and a $7.5 million increase in accounts payable
and other accrued liabilities. The Company's principal use of cash from
operations is to service debt and internally finance accounts receivable
associated with growth in the business. Customer accounts receivable increased
$4.5 million for the nine months ended September 30, 1999. The average age of
the Company's accounts receivable was approximately 34.2 days for the 1999
period versus 33.1 days for the 1998 period.
Net cash used in investing activities of $12.1 million in the 1999
period related primarily to purchases, sales, and trades of revenue equipment.
The Company expects capital expenditures (primarily for revenue equipment and
satellite communications units), net of revenue equipment trade-ins, to be
approximately $6.5 million during the remaining three months of 1999. Such
projected capital expenditures will be funded with a combination of cash flow
from operations, borrowings, and operating leases.
Net cash used in financing activities of $7.6 million for the nine
months ended September 30, 1999 consisted entirely of principal payments made
under the Company's long-term debt obligations.
At September 30, 1999, the Company had outstanding long-term debt
(including current maturities) of approximately $57.9 million, most of which was
comprised of obligations for the purchase of revenue equipment. Approximately
$32.3 million consisted of borrowings from financial institutions and equipment
manufacturers, $25 million represented the amount drawn under the Company's
revolving credit facility, and $659,000 represented future payments for
purchases of intangible assets. Interest rates on this debt range from 5.81% to
6.94% with maturities through 2004.
At September 30, 1999, the revolving credit facility provided for
borrowings of up to $40.0 million, based upon certain accounts receivable and
revenue equipment values. Based upon the borrowing levels at September 30, 1999,
the Company had $15.0 million of remaining borrowing capacity under this credit
facility. The interest rate under the credit facility is 1.5% plus the LIBOR
rate for the corresponding period. The credit facility is secured and contains
covenants that impose certain minimum financial ratios and limit additional
liens, the size of certain mergers and acquisitions, dividends, and other
matters. The Company was in compliance with the terms of the credit facility at
September 30, 1999.
Page 14 of 20
<PAGE>
Year 2000
The Year 2000 issue, common to most companies, concerns the inability
of information and noninformation systems to recognize and process
date-sensitive information after 1999 due to the use of only the last two digits
to refer to a year. This problem could affect both information systems (software
and hardware) and other equipment that relies on microprocessors. Management has
completed a Company-wide evaluation of this impact on its computer systems,
applications and other date-sensitive equipment. The Company's primary
information technology systems ("IT Systems") include hardware and software for
billing, dispatch, electronic data interchange, fueling, payroll and satellite
communications systems. These IT Systems include both Company-developed software
and software designed by third-parties. The primary IT System designed by a
third party is the satellite tracking system, which tracks equipment locations,
provides dispatch and routing information and allows in-cab communication with
drivers. The Company has been informed by this provider that its system is
compliant. Another significant IT System provided by a third party transmits
payroll funds to drivers and allows drivers to purchase fuel and other items
outside the Company's terminal locations. The Company has been informed by this
provider that its system is compliant.
The IT Systems developed by the Company have been assessed and systems
and equipment that were not Year 2000 compliant have been identified and
remediation efforts and testing of systems/equipment have been completed. The
Company has reviewed its risks associated with microprocessors embedded in
facilities and equipment ("Non-IT Systems"). The primary Non-IT Systems include
microprocessors in tractor engines and other components, terminal facilities,
satellite communication units, and telecommunications and other office
equipment. The Company's assessment of its revenue equipment, satellite
communications units, and office equipment Non-IT Systems has revealed low risk
of material replacement requirements. Such systems are relatively new and were
designed to be Year 2000 compliant. The Company is continuing to assess its
Non-IT Systems included in its terminal facilities, but believes that the risk
of a service-interrupting failure in these systems is low.
The Company is also in the process of monitoring the progress of
material third parties (shippers and suppliers) in their efforts to become Year
2000 compliant. These third parties include, but are not limited to: shippers of
freight, manufacturers of operating equipment, fuel and parts suppliers, the
U.S. Postal Service, financial institutions, and utilities. The Company has
requested copies of the Year 2000 plans of the material third parties and
intends to seek updates from third parties as to their performance against these
plans.
Through September 30, 1999 the Company has spent approximately $125,000
to address Year 2000 issues. Total costs to address Year 2000 issues are
currently estimated not to exceed $150,000 and consist primarily of costs for
the remediation of internal systems and equipment. Funds for these costs are
expected to be provided by the operating cash flows of the Company. The majority
of the internal system remediation efforts relate to staff costs of on-staff
systems programmers, and therefore, are not incremental costs.
Page 15 of 20
<PAGE>
The Company's most reasonably likely worst case scenario relating to
Year 2000 compliance is the possibility of service disruption from third-party
suppliers of satellite communication, telephone, fueling, and financial
services. This scenario would result in the short term inability of the Company
to deliver freight for its shippers. This would result in lost revenues; however
the amount would be dependent on the length and nature of the disruption, which
cannot be predicted or estimated. The Company could be faced with severe
consequences if Year 2000 issues are not identified and resolved in a timely
manner by the Company and material third parties. In light of the possible
consequences, the Company is devoting the resources needed to address Year 2000
issues in a timely manner. The progress of the Company's Year 2000 efforts are
reported to the audit committee of the board of directors at each quarterly
meeting. While management expects a successful resolution of these issues, there
can be no guarantee that material third parties, on which the Company relies,
will address all Year 2000 issues on a timely basis or that their failure to
successfully address all issues would not have an adverse effect on the Company.
The Company has developed a written contingency plan in case business
interruptions do occur. In general, the written plan includes the following: (a)
equipment will be dispatched by telephone; (b) load information will be manually
recorded into a PC-based database application, which will generate freight
bills, calculate driver wage and settlement payments, and assist in tracking
loads; (c) the departmental teams that have been established will respond to
Year 2000 issues within their department; (d) personnel will be temporarily
re-assigned from noncritical areas to assist in manual data entry; (e) time off
and vacation policies have been modified to ensure the availability of adequate
human resources; and (f) all on-site fueling facilities will be filled prior to
December 31, 1999.
Quantitative and Qualitative Disclosures About Market Risks
The Company is exposed to market risks from changes in (i) certain
interest rates on its debt and (ii) certain commodity prices.
Interest Rate Risk
The revolving credit facility, provided there has been no default,
carries a maximum variable interest rate of LIBOR for the corresponding period
plus 1.5%. This variable interest exposes the Company to the risk that interest
rates may rise. The Company's other debt carries fixed interest rates and
exposes the Company to the risk that interest rates may fall. At September 30,
1999, approximately 43% of our debt carries a variable interest rate and the
remainder is fixed.
Commodity Price Risk
The Company uses derivative instruments, including purchased options
and futures contracts to reduce a portion of its exposure to fuel price
fluctuations. The Company also uses heating oil price swap agreements to reduce
a portion of its exposure to fuel price fluctuations. Changes in fuel prices
would have no impact on the Company's future fuel expense related to
these price swap agreements. Therefore, there is no earnings or liquidity risk
associated with these price swap agreements.
The Company does not trade in these derivatives with the objective of
earning financial gains on price fluctuations, nor does it trade in these
instruments when there are no underlying transaction related exposures.
Through September 30, 1999, there have been no material changes in the
amount or nature of the Company's derivative instruments.
Page 16 of 20
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
No reportable events or material changes occurred
during the quarter for which this report is filed.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Page 17 of 20
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
2.1 +++ Asset Purchase Agreement dated February 20, 1998, by
and among Smithway Motor Xpress, Inc., East West Motor
Express, Inc. and Darwyn and David Stebbins.
2.2 +++++ Asset Purchase Agreement dated September 23,
1998, by and among Smithway Motor Xpress, Inc., JHT,
Inc., JHT LOGISTICS, INC., Bass Brook Truck Service,
Inc., and JERDON TERMINAL HOLDINGS, LLC.
3.1 + Articles of Incorporation.
4.2 + Bylaws.
4.1 + Articles of Incorporation.
4.2 + Bylaws.
10.1 + Outside Director Stock Plan dated March 1, 1995.
10.2 + Incentive Stock Plan, adopted March 1, 1995.
10.3 + 401(k) Plan, adopted August 14, 1992, as amended.
10.4 + Form of Agency Agreement between Smithway Motor
Xpress, Inc. and its independent commission agents.
10.5 + Memorandum of officer incentive compensation policy.
10.6 + Form of Independent Contractor Agreement between
Smithway Motor Xpress, Inc. and its independent
contractor providers of tractors.
10.7 ++ Credit Agreement dated September 3, 1997, between
Smithway Motor Xpress Corp., as Guarantor, Smithway
Motor Xpress, Inc., as Borrower, and LaSalle
National Bank.
10.8 ++ Asset Purchase Agreement dated February 20, 1998, by
and among Smithway Motor Xpress, Inc., East West Motor
Express, Inc., and Darwyn and David Stebbins.
10.9 ++++ First Amendment to Credit Agreement dated March 1,
1998, between Smithway Motor Xpress Corp.,
as Guarantor, Smithway Motor Xpress, Inc.,
as Borrower, and LaSalle National Bank.
Page 18 of 20
<PAGE>
Exhibit
10.10 ++++ Second Amendment to Credit Agreement dated March 15,
1998, between Smithway Motor Xpress Corp., as
Guarantor, Smithway Motor Xpress, Inc., as Borrower,
and LaSalle National Bank.
10.11 +++++ Asset Purchase Agreement dated September 23,
1998, by and among Smithway Motor Xpress, Inc., JHT,
Inc., JHT LOGISTICS, INC., Bass Brook Truck Service,
Inc., and JERDON TERMINAL HOLDINGS, LLC.
10.12 ++++++ 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.
10.13 +++++++ Amendment No. 2 to Smithway Motor Xpress Corp.
Incentive Stock Plan, adopted May 7, 1999.
10.14 # Fourth Amendment to Credit Agreement dated August 20,
1999, between Smithway Motor Xpress Corp., as
Guarantor, Smithway Motor Xpress, Inc., as
Borrower, and LaSalle National Bank.
27 # Financial Data Schedule.
------------------
+ Incorporated by reference from the Company's Registration
Statement on Form S-1, Registration No. 33-90356, effective
June 27, 1996.
++ Incorporated by reference from the Company's 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.
++++++ Incorporated by reference from the Company's Form 10-K for the
fiscal year ended December 31, 1998.
Commission File No. 000-20793, dated March 18, 1999.
+++++++ Incorporated by reference from the Company's Quarterly Report
on Form 10-Q for the period ended June 30, 1999. Commission
File No. 000-20793, dated August 13, 1999.
# Filed herewith.
(b) Reports on Form 8-K.
None.
Page 19 of 20
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
SMITHWAY MOTOR XPRESS CORP.
a Nevada corporation
Date: November 10, 1999 By: /s/Michael E. Oleson
----------------- ----------------------------------------
Michael E. Oleson
Treasurer and Chief Accounting Officer
Page 20 of 20
FOURTH AMENDMENT TO
CREDIT AGREEMENT
This FOURTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered
into as of August 20, 1999, by and between Smithway Motor Xpress, Inc.
("Borrower"), Smithway Motor Xpress Corp. as Guarantor (the "Guarantor") and
LaSalle Bank National Association, formerly known as 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, a Second Amendment to Credit Agreement dated as of March 15, 1998
and a Third Amendment to Credit Agreement dated as of October 30, 1998
(collectively referred to as the "Agreement"); and
WHEREAS, the Borrower has requested certain modifications to the Agree-
ment and the Lender is willing to do so on the following terms and conditions;
and
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. 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 $75,000,000.
3. The definition of Revolving Termination Date appearing in Section
9.1 hereof is hereby deleted and in lieu thereof is inserted the following:
"Revolving Termination Date" means the earlier to
occur of: (a) September 1, 2002 unless extended in
writing by all the parties hereto; and (b) the date
on which the Aggregate Revolving Commitment shall
terminate in accordance with the provisions of this
Agreement.
4. Borrower shall pay 50% of the legal fees incurred in connection with
the preparation of this Amendment 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.
5. 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 arising in connection with the Agreement,
as amended by this Amendment, upon the terms set forth in such agreements, all
of which security interests, liens, pledges, and mortgages are hereby ratified,
reaffirmed, confirmed and approved.
<PAGE>
6. 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.
7. 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 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.
8. 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.
9. This Amendment may be executed in one or more counterparts, each of
which shall be deemed to be an original.
10. This Amendment was executed and 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.
<PAGE>
IN WITNESS WHEREOF, this Amendment 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 & Chief Operating Officer
Address Notice:
P.O. Box 404
Fort Dodge, Iowa 50501
Attn: G. Larry Owens
Facsimile: (515) 576-3304
Tel: (515) 576-7418
LASALLE BANK NATIONAL ASSOCIATION,
as Lender
By:/s/David A. Chaika
Title:Commercial Banking Officer
Address notices and Lending Office::
135 S. LaSalle
Chicago, Illinois 60603
Attn: Mr. Bruce Linger
Facsimile: (312) 904-6150
Tel: (312) 904-8356
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000941914
<NAME> SMITHWAY MOTOR XPRESS CORP.
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 1766
<SECURITIES> 0
<RECEIVABLES> 21398
<ALLOWANCES> 66
<INVENTORY> 1638
<CURRENT-ASSETS> 27165
<PP&E> 125900
<DEPRECIATION> 34091
<TOTAL-ASSETS> 125014
<CURRENT-LIABILITIES> 22671
<BONDS> 49476
0
0
<COMMON> 50
<OTHER-SE> 39167
<TOTAL-LIABILITY-AND-EQUITY> 125014
<SALES> 0
<TOTAL-REVENUES> 148455
<CGS> 0
<TOTAL-COSTS> 139463
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2768
<INCOME-PRETAX> 6224
<INCOME-TAX> 2588
<INCOME-CONTINUING> 3636
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3636
<EPS-BASIC> .72
<EPS-DILUTED> .72
</TABLE>
