UNITED STATES
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 December 31, 2001
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-27208
Simon Transportation Services Inc.
(Exact name of registrant as specified in its charter)
Nevada 87-0545608
(State or other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
5175 West 2100 South
West Valley City, Utah 84120
(801) 924-7000
(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 (January 31, 2002).
Class A Common Stock, $.01 par value: 6,115,109 shares
Class B Common Stock, $.01 par value: None
Exhibit Index is on Page 19
SIMON TRANSPORTATION SERVICES INC.
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
PAGE
NUMBER
---------------
Item 1. Financial Statements:
Condensed Consolidated Statements of Financial Position as of December 31,
2001 and September 30, 2001 3
Condensed Consolidated Statements of Operations for the Three Months Ended
December 31, 2001 and 2000 4
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
December 31, 2001 and 2000 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 10
PART II
OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 19
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SIMON TRANSPORTATION SERVICES INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
ASSETS
December 31, 2001 September 30, 2001
----------------- ------------------
(Unaudited)
Current Assets:
Cash $ - $ -
Receivables, net of allowance for doubtful accounts of $632,000
and $607,000, respectively 32,294,202 36,495,339
Operating supplies 1,312,304 1,302,067
Prepaid expenses and other 7,950,376 2,528,675
----------------------- ------------------------
Total current assets 41,556,882 40,326,081
----------------------- ------------------------
Property and Equipment, at cost:
Land 8,222,970 8,884,752
Revenue equipment 74,021,343 73,409,529
Buildings and improvements 18,215,777 18,650,478
Office furniture and equipment 9,872,549 9,906,788
----------------------- ------------------------
110,332,639 110,851,547
Less accumulated depreciation and amortization (27,512,711) (27,056,006)
----------------------- ------------------------
82,819,928 83,795,541
----------------------- ------------------------
Other Assets 7,865,271 5,574,182
----------------------- ------------------------
$ 132,242,081 $ 129,695,804
======================= ========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 39,951,805 $ 32,164,357
Current portion of capital lease obligations 41,286,627 42,373,463
Accounts payable 9,947,564 11,329,148
Accrued liabilities 10,467,241 12,324,242
Accrued operating lease payments 13,671,106 6,809,609
Accrued liability for guaranteed lease residuals 10,188,243 6,047,868
Accrued claims payable 10,386,207 9,520,721
----------------------- ------------------------
Total current liabilities 135,898,793 120,569,408
----------------------- ------------------------
Stockholders' (Deficit) Equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized:
Series I convertible preferred stock, 162,401 shares issued,
with a liquidation preference of $7,008,416 4,000,499 4,000,499
Series II convertible preferred stock, 130,042 shares issued,
with a liquidation preference of $2,132,687 1,194,935 1,194,935
Class A common stock, $.01 par value, 20,000,000 shares
authorized, 6,291,709 shares issued 62,917 62,917
Class B common stock, $.01 par value, 5,000,000 shares
authorized, none issued - -
Additional paid-in capital 51,865,007 51,865,007
Treasury stock, 176,600 shares at cost (1,053,147) (1,053,147)
Preferred stock warrants 3,559,918 3,559,918
Accumulated deficit (63,286,841) (50,503,733)
----------------------- ------------------------
Total stockholders' (deficit) equity (3,656,712) 9,126,396
----------------------- ------------------------
$ 132,242,081 $ 129,695,804
======================= ========================
<FN>
The accompanying notes to condensed consolidated
financial statements are an integral part of
these condensed consolidated financial
statements.
</FN>
SIMON TRANSPORTATION SERVICES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended
----------------------------------------------------
December 31, 2001 December 31, 2000
----------------- -----------------
Operating revenue $ 73,411,013 $ 65,509,359
----------------------- ------------------------
Operating expenses:
Salaries, wages, and benefits 23,866,946 26,016,388
Fuel & fuel taxes 12,223,803 14,829,194
Operating supplies and expenses 10,274,302 8,780,729
Taxes and licenses 1,974,812 2,299,112
Insurance and claims 6,383,438 3,502,021
Communications and utilities 1,455,568 1,268,465
Depreciation and amortization 2,528,957 972,719
Purchased transportation 9,816,657 520,632
Rent 10,530,555 9,902,108
Loss on lease residual guarantees 4,367,181 -
----------------------- ------------------------
Total operating expenses 83,422,219 68,091,368
----------------------- ------------------------
Operating loss (10,011,206) (2,582,009)
Interest expense (1,629,355) (412,327)
Other income (expense) (923,663) 1,288
----------------------- ------------------------
Loss before income taxes (12,564,224) (2,993,048)
Benefit for income taxes - -
----------------------- ------------------------
Net loss $ (12,564,224) $ (2,993,048)
======================= ========================
Dividends related to convertible preferred stock $ (218,884) $ -
======================= ========================
Net loss attributable to common stockholders $ (12,783,108) $ (2,993,048)
======================= ========================
Basic and diluted net loss per common share $ (2.09) $ (0.49)
======================= ========================
Basic and diluted weighted average common shares outstanding 6,115,109 6,114,620
======================= ========================
<FN>
The accompanying notes to condensed consolidated
financial statements are an integral part of
these condensed consolidated financial
statements.
</FN>
SIMON TRANSPORTATION SERVICES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended
----------------------------------------------
December 31, 2001 December 31, 2000
----------------- -----------------
Cash Flows From Operating Activities:
Net loss $ (12,564,224) $ (2,993,048)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 2,528,957 972,719
Changes in operating assets and liabilities:
Receivables, net 4,201,137 (2,423,932)
Operating supplies (10,237) 29,518
Prepaid expenses and other (5,421,701) (864,063)
Other assets (2,291,089) (51,812)
Accounts payable (1,381,584) 1,650,661
Accrued liabilities (755,886) 1,311,707
Accrued operating lease payments 6,861,497 -
Accrued liability for guaranteed lease residuals 4,367,181 -
Accrued claims payable 865,486 447,466
----------------------------------------------
Net cash used in operating activities (3,600,463) (1,920,784)
----------------------------------------------
Cash Flows From Investing Activities:
Purchase of property and equipment (5,754,069) (2,883,594)
Proceeds from the sale of property and equipment 2,653,920 3,267,933
----------------------------------------------
Net cash (used in) provided by investing activities (3,100,149) 384,339
----------------------------------------------
Cash Flows From Financing Activities:
Proceeds from issuance of long-term debt 5,351,999 -
Principal payments on long-term debt (80,545) (870,526)
Borrowings under line-of-credit agreement 2,515,994 1,827,346
Principal payments under capital lease obligations (1,086,836) (27,544)
Net proceeds from issuance of common stock - 19,550
----------------------------------------------
Net cash provided by financing activities 6,700,612 948,826
----------------------------------------------
Net Decrease In Cash - (587,619)
Cash at Beginning of Period - 3,331,119
----------------------------------------------
Cash at End of Period $ - $ 2,743,500
==============================================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 696,756 $ 412,327
Cash paid during the period for income taxes 36,296 39,597
Supplemental Schedule of Noncash Investing and Financing Activities:
Preferred stock dividends accrued but not paid $ 218,884 $ -
<FN>
The accompanying notes to condensed consolidated
financial statements are an integral part of
these condensed consolidated financial
statements.
</FN>
SIMON TRANSPORTATION SERVICES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
Simon Transportation Services Inc. and its wholly-owned subsidiaries
(collectively, the "Company"). Simon Transportation Services Inc. was
incorporated in Nevada on August 15, 1995 to acquire all of the outstanding
capital stock of Dick Simon Trucking, Inc., a Utah corporation. During fiscal
2001, Simon Terminal LLC, an Arizona limited liability company, was formed as a
wholly owned subsidiary of Simon Transportation Services Inc. for the purpose of
holding the real estate assets related to the Salt Lake City headquarters and
terminal and in connection with a debt financing on the Salt Lake City
headquarters and terminal. All intercompany accounts and transactions have been
eliminated in consolidation.
The Company is a truckload carrier that specializes in premium service,
primarily through temperature-controlled transportation predominantly for major
shippers in the U.S. food industry.
The financial statements have been prepared, without audit, in
accordance with accounting principles generally accepted in the United States,
pursuant to the rules and regulations of the Securities and Exchange Commission.
In the opinion of management, the accompanying financial statements include all
adjustments 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 September 30, 2001 condensed consolidated
statement of financial position was derived from the audited balance sheet of
the Company as of September 30, 2001. 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 Form
10-K of Simon Transportation Services Inc. for the year ended September 30,
2001. Results of operations in interim periods are not necessarily indicative of
results to be expected for a full year.
(2) BASIC AND DILUTED EARNINGS PER SHARE
The following table sets forth for the periods indicated the
calculation of net earnings per share included in the Company's condensed
consolidated statements of operations:
For the Three Months Ended
----------------------------------------
Dec 31, 2001 Dec 31, 2000
------------ ------------
Basic and Diluted:
Common shares outstanding beginning of period: 6,115,109 6,114,620
Common share equivalents:
Common stock repurchased
Basic -- --
Diluted -- --
Employee stock options outstanding
Basic -- --
Diluted -- --
Employee stock options exercised
Basic -- --
Diluted -- --
----------------------------------------
Number of common shares and common
share equivalents outstanding end of
period:
Basic 6,115,109 6,114,620
========================================
Diluted 6,115,109 6,114,620
========================================
Net loss attributable to common stockholders $(12,783,108) $ (2,993,048)
========================================
Net loss per common share and common share equivalent:
Basic $ (2.09) $ (0.49)
========================================
Diluted $ (2.09) $ (0.49)
========================================
(3) RECENT DEVELOPMENTS
The Company has incurred net losses of $12.6 million, $44.3 million,
$11.1 million and $3.2 million and its operating activities have used $3.6
million, $19.7 million, $7.6 million and $1.6 million of cash during the quarter
ended December 31, 2001 and the fiscal years ended September 30, 2001, 2000 and
1999, respectively. As of December 31, 2001, the Company had a working capital
deficit of $94.3 million (after classification of all of its long-term debt and
capital lease obligations as current liabilities, which totaled $70.2) and was
in default under its lease and debt agreements. The Company has faced and
continues to face several operating challenges, including, among others, a
reduced shipping demand given unfavorable domestic economic conditions, unseated
tractors, decreased market values for used tractors and trailers, increased
claims, challenges in assimilating two acquisitions, volatile fuel costs and
increased insurance costs and driver payroll costs. These factors have
significantly and negatively impacted the Company's results of operations and
liquidity.
During August 2001, the Company's continued losses from operations and
negative cash flows forced it to defer making payments on most of its equipment
leases with total obligations outstanding of approximately $183.1 million and
related monthly payments of approximately $3.7 million. Between August and
December 2001, the Company continued to make partial payments towards some of
the past due lease payments. However, during January 2002, due to weakened
results of operations (principally as a result of softness in the freight
market) the Company ceased making lease payments on substantially all of its
equipment leases. The lack of payment on the equipment leases constitutes an
event of default under the related lease agreements. In addition, the default on
the equipment leases resulted in defaults on effectively all of the Company's
outstanding secured debt, which consists principally of its line of credit
facility, the mortgage on its Salt Lake City headquarters and terminal, and all
other lease obligations.
The Company's $30 million line of credit is secured by accounts
receivable, inventories of operating supplies, office furniture and fixtures and
the personal guarantee of the Company's majority stockholder. As a result of
recurring losses, the Company has negative net worth, which will eliminate the
Company's ability to borrow on the line of credit, unless renegotiated.
The Company has guaranteed a substantial portion of the residual values
on all of its leased tractors and trailers. These residual guarantees total
approximately $126.1 million at December 31, 2001. Based upon current market
prices for used tractors and trailers, management estimates that the difference
between the residual guarantees and the projected market value of the equipment
at the termination of the leases is approximately $25.0 million. Effective
August 1, 2001, the Company began accruing this potential liability over the
remaining life of the leases in accordance with the EITF 96-21. As of December
31, 2001, the Company has recorded an accrued liability and a valuation
allowance for guaranteed lease residuals totaling $10.8 million. Prior to August
1, 2001, it was not probable that any residual guarantee payments would be
required. The remainder of the estimated loss (as adjusted for future market
conditions) will be accrued over the remaining terms of the related leases.
Assuming the used equipment markets maintain their current levels, management
expects it will accrue additional liability and valuation allowance for
guaranteed residuals of $8.1 million during the remainder of fiscal 2002. At
December 31, 2001, the Company had residual guarantees due (net of the estimated
fair value of related equipment) on matured equipment leases amounting to $6.9
million. The Company does not have the cash to pay these residual guarantees and
currently is in negotiations with its lessors to attempt to address these
issues.
During early December 2001, the Company met with representatives from
most of its equipment lessors. In connection with these meetings, the Company
requested a restructuring of the equipment leases and most of the lessors
expressed their willingness to negotiate a restructuring. However, results of
operations since that meeting have made the feasibility of the original
restructuring plan very unlikely. The Company has hired a consultant to assist
management in developing a business plan and evaluating available alternatives
including restructuring the equipment leases, or a sale of the Company or its
assets, in each case with or without a bankruptcy filing.
Dime Commercial Credit ("Dime"), one of the Company's equipment lessors
with total lease obligations outstanding of approximately $6.4 million is
unwilling to renegotiate the terms of its leases. On December 27, 2001, the
Company was served with a lawsuit by Dime. The lawsuit asserts that the Company
is in default under the lease agreements held by Dime and seeks judgments
against the Company. The requested relief includes the return to Dime of all
equipment under the lease agreements, payment of delinquent monthly payments,
payment of the stipulated loss value as defined and payment of other fees and
costs. A hearing regarding Dimes efforts to obtain their equipment was held on
January 28, 2002. At that hearing, the Company was given until April 1, 2002 to
return the related equipment to Dime. After disposition of the equipment by
Dime, the Company will be liable to Dime for any difference between the proceeds
from the disposition and the obligations under the lease. Management estimates
the range of potential exposure related to this obligation is $1.5 to $3.0
million.
On February 1, 2002, Bank of America Leasing & Capital, LLC ("BofA"),
one the Company's equipment lessors with total lease obligations outstanding of
$2.7 million, obtained a Writ of Replevin stipulating the return of 49 tractors.
The Company is complying with the court order and is in the process of returning
the equipment. After disposition of the tractors by BofA, the Company will be
liable to BofA for any difference between the proceeds from the disposition and
the obligations under the lease. Management estimates the range of potential
exposure related to this obligation is $0.5 to $1.0 million.
On February 11, 2002, the Company was served with a lawsuit by TCF
Leasing ("TCF"), one of the Company's equipment lessors with total lease
obligations outstanding of approximately $2.5 million. The lawsuit asserts that
the Company is in default under the lease agreements held by TCF and seeks
judgments against the Company. The requested relief also includes the return to
TCF of all equipment under the lease agreements and payment of damages of
approximately $2.8 million.
The Company is in discussions with several other of its equipment
lessors that have requested the return of their equipment and is actively
considering its options related to these requests.
The Company also has met with its line of credit lender regarding a
decrease in the advance rate, which is based upon the Company's net worth. The
line of credit lender has stated a willingness to consider an amendment to the
tangible net worth requirement and maintaining the current advance rate for a
period of approximately nine months, at which time the Company's progress will
be reassessed. The Company has received a draft of the proposed amendment to the
line of credit. Finalization of this amendment of the tangible net worth
requirement is expected during the first or second calendar quarter of 2002. The
draft amendment is contingent upon the successful renegotiation of the Company's
equipment leases. A renegotiation of the equipment leases is highly questionable
given the Company's financial condition and future prospects. If the amendment
is not obtained, the Company's ability to borrow on the line of credit could be
eliminated. At December 31, 2001, the Company had drawn $20.8 million against
the line of credit and does not have the liquidity to repay the outstanding
balance.
A substantial portion of the Company's tractor fleet is covered by
trade-in and repurchase agreements with the manufacturer. The trade-in and
repurchase agreements require the Company to purchase additional tractors in
connection with the trade-ins or repurchases. These trade-in and repurchase
agreements have been structured in alignment with the Company's historical
tractor life cycles. During December 2001, the Company commenced discussions
with the manufacturer of its tractors regarding extension of the trade-in or
repurchase periods, as well as the revised trade-in or repurchase values and
related provisions. To date, the Company and the manufacturer have been unable
to reach agreement on the provisions of any revised trade-in or repurchase
agreements. However, the manufacturer has affirmed that they intend to honor the
current trade-in and repurchase agreements to the extent that the Company
purchases an equal number of replacement units.
Subject to restructuring of the equipment leases, line of credit, and
tractor trade-in and repurchase arrangements on terms and conditions
satisfactory to the majority stockholder in his sole discretion, the Company's
majority stockholder has indicated a willingness to consider providing an up to
$15 million line of credit ("Stockholder Line of Credit"). The Stockholder Line
of Credit would be secured by, and have a borrowing base limited to a percentage
of the value of, a second priority position in the Company's accounts
receivable, inventories of operating supplies, and office furniture and
fixtures. To the extent the Stockholder Line of Credit is available, proceeds
are expected to be reduced by the approximately $7.6 million advanced to the
Company by the majority stockholder and his controlled corporation as described
below. In such case the collateral securing such advances may be consolidated
under the Stockholder Line of Credit and the borrowing base adjusted
accordingly.
The Company's current insurance policy is contingent upon the Company
obtaining $4 million in additional collateral to secure an insurance bond. The
current coverage will expire February 26, 2002, if the additional collateral is
not obtained. In order to continue insurance coverage on its operations, the
Company must find the additional collateral, negotiate a new policy, or lower
its coverage by such time.
On December 19, 2001, the Company entered into a $3 million secured
short-term loan with its majority stockholder secured by a security interest in
the Company's Atlanta, Georgia terminal. The proceeds of this loan were used to
meet the annual permitting and licensing requirements for a majority of the
Company's fleet. On February 8, 2002, the Company entered into a $4.6 million
secured short-term loan with Interstate Equipment Leasing, Inc., an entity
controlled by its majority stockholder. This note is secured by the Company's
Fontana, California terminal, 195 trailers and 70 tractors. The proceeds of this
loan may be used to meet fuel, payroll and payroll tax withholding obligations.
The loans may be partially repaid from cash to be released from a cash secured
letter of credit (if the Company is able to secure a surety bond) or may be
rolled over into the Stockholder Line of Credit, if such line is available to
the Company.
The Company's majority stockholder and his affiliates have no legal
obligation to provide the Stockholder Line of Credit or any other debt or equity
financing for the Company, and they may cease providing sources of liquidity at
any time. The Company has pledged substantially all if its assets to provide the
financing in place to date and does not have any significant collateral to
support additional borrowings.
The Company's current liquidity position and existing credit
facilities, without the restructuring discussed above, are not sufficient to
cover liquidity requirements for the next twelve months and the Company is
facing the prospect of not having adequate funds to operate its business. As a
result, there is substantial doubt as to the Company's ability to continue as a
going concern. In the event the Company's liquidity position is insufficient to
cover its liquidity requirements, the Company may be compelled to file for
bankruptcy protection.
The Company's consolidated financial statements for the quarter ended
December 31, 2001 included in this Quarterly Report have been prepared assuming
that the Company will continue as a going concern. The consolidated financial
statements do not include any adjustments that might result from the outcome of
the uncertainties described above.
(4) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reclassifications
Certain reclassifications have been made in the prior period financial
statements to conform to the presentation for the quarter ended December 31,
2001.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-looking Statements
Except for the historical information contained herein, the discussion
in this quarterly report on Form 10-Q contains forward-looking statements that
involve risks, assumptions, and uncertainties that are difficult to predict.
Words such as "anticipate," "believe," "estimate," "project," "may," "could,"
"expects," "likely," variations of these words, and similar expressions, are
intended to identify such forward-looking statements. Such statements are based
upon the current beliefs and expectations of the Company's management and are
subject to significant risks and uncertainties. The Company claims the
protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995 for all forward-looking
statements. The Company's actual results could differ materially from those
discussed herein. Without limitation, factors that could cause or contribute to
such differences include economic recessions or downturns in customers' business
cycles, excessive increases in capacity within truckload markets, surplus
inventories, decreased demand for transportation services offered by the
Company, increases or rapid fluctuations in inflation, interest rates, fuel
prices and fuel hedging, the availability and costs of attracting and retaining
qualified drivers and owner-operators, increases in insurance premiums and
deductible amounts relating to accident, cargo, workers' compensation, health,
and other claims, seasonal factors such as harsh weather conditions that
increase operating costs, the resale value of used equipment, the Company's
ability to complete the restructuring of its lease and debt obligations and
access adequate sources of capital, the Company's ability to turn around its
operating performance, and the ability to negotiate, consummate, and integrate
acquisitions.
The Company's fiscal year ends on September 30 of each year. Thus, the
fiscal quarters discussed in this report represent the Company's first fiscal
quarters of its 2002 and 2001 fiscal years, respectively.
Recent Developments
The Company has incurred net losses of $12.6 million, $44.3 million,
$11.1 million and $3.2 million and its operating activities have used $3.6
million, $19.7 million, $7.6 million and $1.6 million of cash during the quarter
ended December 31, 2001 and the fiscal years ended September 30, 2001, 2000 and
1999, respectively. As of December 31, 2001, the Company had a working capital
deficit of $94.3 million (after classification of all of its long-term debt and
capital lease obligations as current liabilities, which totaled $70.2) and was
in default under its lease and debt agreements. The Company has faced and
continues to face several operating challenges, including, among others, a
reduced shipping demand given unfavorable domestic economic conditions, unseated
tractors, decreased market values for used tractors and trailers, increased
claims, challenges in assimilating two acquisitions, volatile fuel costs and
increased insurance costs and driver payroll costs. These factors have
significantly and negatively impacted the Company's results of operations and
liquidity.
During August 2001, the Company's continued losses from operations and
negative cash flows forced it to defer making payments on most of its equipment
leases with total obligations outstanding of approximately $183.1 million and
related monthly payments of approximately $3.7 million. Between August and
December 2001, the Company continued to make partial payments towards some of
the past due lease payments. However, during January 2002, due to weakened
results of operations (principally as a result of softness in the freight
market) the Company ceased making lease payments on substantially all of its
equipment leases. The lack of payment on the equipment leases constitutes an
event of default under the related lease agreements. In addition, the default on
the equipment leases resulted in defaults on effectively all of the Company's
outstanding secured debt, which consists principally of its line of credit
facility, the mortgage on its Salt Lake City headquarters and terminal, and all
other lease obligations.
The Company's $30 million line of credit is secured by accounts
receivable, inventories of operating supplies, office furniture and fixtures and
the personal guarantee of the Company's majority stockholder. As a result of
recurring losses, the Company has negative net worth, which will eliminate the
Company's ability to borrow on the line of credit, unless renegotiated.
The Company has guaranteed a substantial portion of the residual values
on all of its leased tractors and trailers. These residual guarantees total
approximately $126.1 million at December 31, 2001. Based upon current market
prices for used tractors and trailers, management estimates that the difference
between the residual guarantees and the projected market value of the equipment
at the termination of the leases is approximately $25.0 million. Effective
August 1, 2001, the Company began accruing this potential liability over the
remaining life of the leases in accordance with the EITF 96-21. As of December
31, 2001, the Company has recorded an accrued liability and a valuation
allowance for guaranteed lease residuals totaling $10.8 million. Prior to August
1, 2001, it was not probable that any residual guarantee payments would be
required. The remainder of the estimated loss (as adjusted for future market
conditions) will be accrued over the remaining terms of the related leases.
Assuming the used equipment markets maintain their current levels, management
expects it will accrue additional liability and valuation allowance for
guaranteed residuals of $8.1 million during the remainder of fiscal 2002. At
December 31, 2001, the Company had residual guarantees due (net of the estimated
fair value of related equipment) on matured equipment leases amounting to $6.9
million. The Company does not have the cash to pay these residual guarantees and
currently is in negotiations with its lessors to attempt to address these
issues.
During early December 2001, the Company met with representatives from
most of its equipment lessors. In connection with these meetings, the Company
requested a restructuring of the equipment leases and most of the lessors
expressed their willingness to negotiate a restructuring. However, results of
operations since that meeting have made the feasibility of the original
restructuring plan very unlikely. The Company has hired a consultant to assist
management in developing a business plan and evaluating available alternatives
including restructuring the equipment leases, or a sale of the Company or its
assets, in each case with or without a bankruptcy filing.
Dime Commercial Credit ("Dime"), one of the Company's equipment lessors
with total lease obligations outstanding of approximately $6.4 million is
unwilling to renegotiate the terms of its leases. On December 27, 2001, the
Company was served with a lawsuit by Dime. The lawsuit asserts that the Company
is in default under the lease agreements held by Dime and seeks judgments
against the Company. The requested relief includes the return to Dime of all
equipment under the lease agreements, payment of delinquent monthly payments,
payment of the stipulated loss value as defined and payment of other fees and
costs. A hearing regarding Dimes efforts to obtain their equipment was held on
January 28, 2002. At that hearing, the Company was given until April 1, 2002 to
return the related equipment to Dime. After disposition of the equipment by
Dime, the Company will be liable to Dime for any difference between the proceeds
from the disposition and the obligations under the lease. Management estimates
the range of potential exposure related to this obligation is $1.5 to $3.0
million.
On February 1, 2002, Bank of America Leasing & Capital, LLC ("BofA"),
one the Company's equipment lessors with total lease obligations outstanding of
$2.7 million, obtained a Writ of Replevin stipulating the return of 49 tractors.
The Company is complying with the court order and is in the process of returning
the equipment. After disposition of the tractors by BofA, the Company will be
liable to BofA for any difference between the proceeds from the disposition and
the obligations under the lease. Management estimates the range of potential
exposure related to this obligation is $0.5 to $1.0 million.
On February 11, 2002, the Company was served with a lawsuit by TCF
Leasing ("TCF"), one of the Company's equipment lessors with total lease
obligations outstanding of approximately $2.5 million. The lawsuit asserts that
the Company is in default under the lease agreements held by TCF and seeks
judgments against the Company. The requested relief also includes the return to
TCF of all equipment under the lease agreements and payment of damages of
approximately $2.8 million.
The Company is in discussions with several other of its equipment
lessors that have requested the return of their equipment and is actively
considering its options related to these requests.
The Company also has met with its line of credit lender regarding a
decrease in the advance rate, which is based upon the Company's net worth. The
line of credit lender has stated a willingness to consider an amendment to the
tangible net worth requirement and maintaining the current advance rate for a
period of approximately nine months, at which time the Company's progress will
be reassessed. The Company has received a draft of the proposed amendment to the
line of credit. Finalization of this amendment of the tangible net worth
requirement is expected during the first or second calendar quarter of 2002. The
draft amendment is contingent upon the successful renegotiation of the Company's
equipment leases. A renegotiation of the equipment leases is highly questionable
given the Company's financial condition and future prospects. If the amendment
is not obtained, the Company's ability to borrow on the line of credit could be
eliminated. At December 31, 2001, the Company had drawn $20.8 million against
the line of credit and does not have the liquidity to repay the outstanding
balance.
A substantial portion of the Company's tractor fleet is covered by
trade-in and repurchase agreements with the manufacturer. The trade-in and
repurchase agreements require the Company to purchase additional tractors in
connection with the trade-ins or repurchases. These trade-in and repurchase
agreements have been structured in alignment with the Company's historical
tractor life cycles. During December 2001, the Company commenced discussions
with the manufacturer of its tractors regarding extension of the trade-in or
repurchase periods, as well as the revised trade-in or repurchase values and
related provisions. To date, the Company and the manufacturer have been unable
to reach agreement on the provisions of any revised trade-in or repurchase
agreements. However, the manufacturer has affirmed that they intend to honor the
current trade-in and repurchase agreements to the extent that the Company
purchases an equal number of replacement units.
Subject to restructuring of the equipment leases, line of credit, and
tractor trade-in and repurchase arrangements on terms and conditions
satisfactory to the majority stockholder in his sole discretion, the Company's
majority stockholder has indicated a willingness to consider providing an up to
$15 million line of credit ("Stockholder Line of Credit"). The Stockholder Line
of Credit would be secured by, and have a borrowing base limited to a percentage
of the value of, a second priority position in the Company's accounts
receivable, inventories of operating supplies, and office furniture and
fixtures. To the extent the Stockholder Line of Credit is available, proceeds
are expected to be reduced by the approximately $7.6 million advanced to the
Company by the majority stockholder and his controlled corporation as described
below. In such case the collateral securing such advances may be consolidated
under the Stockholder Line of Credit and the borrowing base adjusted
accordingly.
The Company's current insurance policy is contingent upon the Company
obtaining $4 million in additional collateral to secure an insurance bond. The
current coverage will expire February 26, 2002, if the additional collateral is
not obtained. In order to continue insurance coverage on its operations, the
Company must find the additional collateral, negotiate a new policy, or lower
its coverage by such time.
On December 19, 2001, the Company entered into a $3 million secured
short-term loan with its majority stockholder secured by a security interest in
the Company's Atlanta, Georgia terminal. The proceeds of this loan were used to
meet the annual permitting and licensing requirements for a majority of the
Company's fleet. On February 8, 2002, the Company entered into a $4.6 million
secured short-term loan with Interstate Equipment Leasing, Inc., an entity
controlled by its majority stockholder. This note is secured by the Company's
Fontana, California terminal, 195 trailers and 70 tractors. The proceeds of this
loan may be used to meet fuel, payroll and payroll tax withholding obligations.
The loans may be partially repaid from cash to be released from a cash secured
letter of credit (if the Company is able to secure a surety bond) or may be
rolled over into the Stockholder Line of Credit, if such line is available to
the Company.
The Company's majority stockholder and his affiliates have no legal
obligation to provide the Stockholder Line of Credit or any other debt or equity
financing for the Company, and they may cease providing sources of liquidity at
any time. The Company has pledged substantially all if its assets to provide the
financing in place to date and does not have any significant collateral to
support additional borrowings.
The Company's current liquidity position and existing credit
facilities, without the restructuring discussed above, are not sufficient to
cover liquidity requirements for the next twelve months and the Company is
facing the prospect of not having adequate funds to operate its business. As a
result, there is substantial doubt as to the Company's ability to continue as a
going concern. In the event the Company's liquidity position is insufficient to
cover its liquidity requirements, the Company may be compelled to file for
bankruptcy protection.
Liquidity and Capital Resources
The growth of the Company's business has required significant
investment in new revenue equipment that the Company historically has financed
with borrowings under installment notes payable to commercial lending
institutions and equipment manufacturers, equipment leases from third-party
lessors, borrowings under its line of credit, and cash flow from operations.
The Company's primary sources of liquidity have been borrowings and
leases with financial institutions, equipment manufacturers, and the Company's
majority stockholder and his affiliates. In addition, the majority stockholder's
affiliates purchased approximately $9 million of preferred stock between June 30
and September 30, 2001. As described below, the Company's liquidity is
substantially impaired. Current and future sources of liquidity are uncertain
and, absent a restructuring of the Company's obligations, will be insufficient
to meet the Company's short term and long term needs.
The Company plans to reduce its tractor fleet during fiscal 2002.
Certain tractors coming to the end of their lease cycle will not be replaced.
The Company is currently considering its options for either extending the lease
periods for tractors and trailers by 12 and 24 months, respectively, or staying
with its current equipment trade cycles. If the restructuring of leases
discussed below is successful, the Company's remaining operating leases are
expected to be reclassified and treated as capital leases.
Net cash used in operating activities was $3.6 million for the three
months ended December 31, 2001. Uses of cash included increases in prepaid
expenses of $5.4 million, other assets of $2.3 million and decreases in accounts
payable of $1.4 million and accrued liabilities of $0.8 million. Sources of cash
included a decrease in accounts receivable of $4.2 million and increases in
accrued operating lease payments and residual guarantees of $11.2 million and
accrued claims of $0.9 million. These net uses of cash were offset by a non-cash
charge of $2.5 million for depreciation.
Net cash used by investing activities was $3.1 million for the three
months ended December 31, 2001. The Company purchased $5.8 million of new
property and revenue equipment and sold revenue equipment for $2.7 million.
Because the Company may extend the trade cycles for its revenue equipment, the
Company may decrease its capital expenditures during fiscal 2002. Management
expects that the majority, if not all, of its revenue equipment replacements
during fiscal 2002 will occur through additions to the Company's owner-operator
fleet. The Company does not currently have any commitments to acquire revenue
equipment during fiscal 2002. The Company expects any capital expenditures in
fiscal 2002 will be funded with leases and borrowings. However, there can be no
assurance that the Company will be able to obtain the financing necessary to
acquire replacement equipment or that it will be able to contract with
sufficient owner-operators to replace retired revenue equipment.
Net cash provided by financing activities was $6.7 million in the 2001
period, consisting of borrowings under the Company's line of credit of $2.5
million, borrowings from a shareholder of $4.6 million and the issuance of a
note of $0.8 million offset by payments of $1.2 million of principal under the
Company's long-term debt and capital lease agreements.
The maximum amount committed under the Company's line of credit at
December 31, 2001, was $30 million. As of December 31, 2001, the Company had
drawn $20.8 million against the line. Based upon the level of receivables and
the advance rate in place at December 31, 2001, the Company had $1.3 million of
availability on the line of credit. At December 31, 2001, the interest rate on
the line of credit is 0.25 percent above the prime rate, with a minimum rate of
7 percent. At December 31, 2001, the Company had outstanding borrowings from
shareholders of $4.6 million at interest rates ranging from 7.0 to 7.5 percent.
At December 31, 2001, the Company had other outstanding long-term debt and
capital lease obligations (including current portions) of approximately $55.8
million, which is comprised of obligations for the purchase of revenue equipment
and a $13 million mortgage against its Salt Lake City headquarters and terminal.
As of December 31, 2001, the Company's future commitments under noncancellable
operating leases amounted to $51.6 million (excluding guaranteed residual
values). The Company's working capital deficit at December 31, 2001 was $94.3
million (after classification of $70.2 million of long-term debt and capital
lease obligations as current liabilities).
Results of Operations
Three months ended December 31, 2001 and 2000
Operating revenue increased $7.9 million (12.1%) to $73.4 million for
the three months ended December 31, 2001, from $65.5 million for the
corresponding period of 2000. Weighted average tractors increased 17.6%, to
2,320 in the 2001 period from 1,973 in the 2000 period. Average revenue per
tractor per week decreased to $2,498 during the 2001 period from $2,524 during
the 2000 period. Average revenue per loaded mile excluding fuel surcharge
increased to $1.314 ($1.344 including fuel surcharge) during the 2001 period
from $1.277 ($1.366 including fuel surcharge) in the 2000 period. This was
offset by a decrease in the average miles per tractor per week to 1,859 in 2001
from 2,059 in 2000. The increase in the weighted average number of tractors
during the 2001 period was primarily the result of a purchase of a portion of
the trucking related assets of Westway Express Inc. ("Westway") and Gerald E.
Ort Trucking, Inc. ("Ort") during the second quarter of fiscal 2001 and growth
in the Company's owner-operator fleet. The Company plans to adjust its fleet
size to better reflect current market conditions during the remainder of fiscal
2002 by not replacing certain tractors which will be returned to the lessors
upon lease maturity. As a result, the Company expects to reduce its tractor
fleet by at least 120 tractors during fiscal 2002.
Salaries, wages, and benefits decreased $2.1 million (8.1%) to $23.9
million during the quarter ended December 31, 2001, from $26.0 million in the
2000 period. As a percentage of revenue, salaries, wages, and benefits decreased
to 32.5% of revenue for the three months ended December 31, 2001, from 39.7% for
the corresponding period of 2000. This decrease was due to an increase in
owner-operator tractors and decreases in administrative personnel salaries
offset by increases in driver wages. Management announced a driver wage increase
of two cents per mile effective November 1, 2000. One cent of the increase
applied to all drivers at all levels and another cent can be attained based upon
a monthly mileage target. Additionally, management announced a five cent per
mile increase in driver wages effective April 1, 2001. In response to continued
operating losses, the Company reduced its headcount by approximately 50
administrative and shop personnel in September 2001. The Company also reduced
wages for all remaining salaried administrative, office and shop personnel by
10% effective September 1, 2001. The administrative, office and shop personnel
can earn the 10% and more back as a bonus, conditional upon the Company
achieving certain operational and financial objectives. Additionally, effective
September 1, 2001, the Company adjusted its driver pay structure to reward
longer term drivers.
In early fiscal 2001, the Company implemented an owner-operator driver
program. As of December 31, 2001, the Company had approximately 400
owner-operator tractors under this program or approximately 13.4% of its fleet.
Owner-operators are paid a flat rate per mile and are responsible for all
associated expenses, including financing costs, fuel, maintenance, insurance and
certain taxes. Amounts paid to owner-operators are classified as "Purchased
Transportation" in the accompanying Consolidated Statements of Operations.
Accordingly, a portion of the costs that would have been classified as wages,
fuel, depreciation, interest and other expenses are now classified as purchased
transportation. This increase in the number of owner-operator tractors in the
fleet more than offset the driver wage increases and contributed to the decrease
in salaries, wages and benefits.
Fuel and fuel taxes decreased $2.6 million (17.6%) to $12.2 million
during the quarter ended December 31, 2001, from $14.8 million in the 2000
period. As a percentage of revenue, fuel and fuel taxes decreased to 16.6% of
revenue for the three months ended December 31, 2001, from 22.6% of revenue for
the corresponding period of 2000. This was principally the result of a 25.3%
decrease in the average price of fuel from $1.58 per gallon in the 2000 quarter
to $1.18 per gallon in the 2001 quarter, and the increase in the Company's
owner-operator fleet.
Operating supplies and expenses increased $1.5 million (17.0%) to $10.3
million during the quarter ended December 31, 2001 from $8.8 million in the 2000
period. As a percentage of revenue, operating supplies and expenses increased to
14.0% of revenue for the three months ended December 31, 2001, from 13.4% for
the corresponding period of 2000. The increase is primarily attributable to
increased recruiting and other costs associated with driver turnover.
Taxes and licenses decreased $0.3 million (14.1%) to $2.0 million
during the quarter ended December 31, 2001, from $2.3 million for the
corresponding period of 2000. As a percentage of revenue, taxes and licenses
decreased to 2.7% of revenue for the three months ended December 31, 2001,
compared with 3.5% for the corresponding period of 2000. This decrease is
primarily the result of a decrease in the cost of base licensing per tractor.
The Company provides base licensing for each of the owner-operator tractors.
Insurance and claims increased $2.9 million (82.3%) to $6.4 million
during the quarter ended December 31, 2001, from $3.5 million during the quarter
ended December 31, 2000. As a percentage of revenue, insurance and claims
increased to 8.7% for the three months ended December 31, 2001, compared with
5.3% for the corresponding period of 2000, primarily as a result of increased
premiums for insurance, increased claims associated with driver turnover and
adjustments to historical reserves based upon developments in the claims over
time. The Company experienced two significant cargo claims during the quarter
ended December 31, 2001, which caused its insurance and claims expense to
increase. In response, the Company increased its cargo insurance coverage to $1
million.
Communications and utilities increased $0.2 million (14.8%) to $1.5
million during the quarter ended December 31, 2001, from $1.3 million during the
quarter ended December 31, 2000. As a percentage of revenue, communications and
utilities increased to 2.0% of revenue for the three months ended December 31,
2001, compared with 1.9% for the corresponding period of 2000. The Company pays
a fixed base charge per tractor for its satellite communications. The Company
increased its fleet size with the Westway and Ort acquisitions but experienced
lower utilization of its equipment. Therefore, revenue did not increase
proportionately with the increase in fixed satellite communication charges
associated with a larger fleet.
Depreciation and amortization increased $1.5 million (160.0%) to $2.5
million during the quarter ended December 31, 2001, from $1.0 million for the
corresponding period of 2000. As a percentage of revenue, depreciation and
amortization (adjusted for the net gain on the sale of property and equipment)
increased to 3.4% of revenue for the three months ended December 31, 2001, from
1.5% for the corresponding period of 2000, primarily because of amortization
expense on revenue equipment acquired under capital lease obligations during
fiscal 2001. Depreciation and amortization was adjusted for a net loss on the
sale of revenue equipment and the Company's Phoenix terminal of $0.1 million
during the 2001 period compared with a net gain of $0.3 million during the 2000
period. Because of a softening of the market for used equipment, management does
not expect gains on the sale of revenue equipment to continue as in the past.
Purchased transportation increased to $9.8 million in the 2001 quarter
from $0.5 million in the 2000 quarter. As a percentage of revenue, purchased
transportation increased to 13.4% during the 2001 fiscal year from 0.8% during
the 2000 fiscal year primarily as a result of the Company's new emphasis on
building its owner-operator fleet. The Company had approximately 400
owner-operator tractors in its fleet at December 31, 2001.
Rent increased $0.6 million (6.3%) to $10.5 million for the quarter
ended December 31, 2001, from $9.9 million for the corresponding period of 2000.
As a percentage of revenue, rent decreased to 14.3% of revenue for the three
months ended December 31, 2001, from 15.1% for the corresponding period of 2000.
This decrease was primarily attributable to the shift from Company owned
tractors to tractors supplied by owner-operators, and the use of capital leases
as a financing source during fiscal 2001. Prior to fiscal 2001, the Company
primarily utilized operating leases because of more favorable terms. However,
most of the revenue equipment additions in fiscal 2001 were financed under
capital leases.
The Company has guaranteed a substantial portion of the residual values
on all of its leased tractors and trailers. These residual guarantees total
approximately $126.1 million at December 31, 2001. Based upon current market
prices for used tractors and trailers, management estimates that the difference
between the residual guarantees and the projected value of the equipment at the
termination of the leases is approximately $25.0 million. Effective August 1,
2001, the Company began accruing this potential liability over the remaining
life of the leases in accordance with EITF 96-21. As of December 31, 2001, the
Company has recorded an accrued liability for guaranteed lease residuals of
$10.8 million. Prior to August 1, 2001, it was not probable that any residual
guarantee payments would be required. The remainder of the estimated loss (as
adjusted for future market conditions) will be accrued over the remaining terms
of the related leases. Assuming the used equipment markets maintain their
current levels, management expects it will accrue additional liability and
valuation allowance for guaranteed residuals of $8.1 million in the remainder of
fiscal 2002.
As a result of the foregoing, the Company's operating ratio increased
to 113.6% for the three months ended December 31, 2001, from 103.9% for the
corresponding period of 2000.
Interest expense increased $1.2 million (295.4%) to $1.6 million for
the quarter ended December 31, 2001, from $0.4 million for the corresponding
period of 2000. As a percentage of revenue, net interest expense increased to
2.2% of revenue for the quarter ended December 31, 2001 compared with 0.6% of
revenue for the corresponding period in 2000 primarily as a result of a majority
of the Company's new leases during fiscal 2001 being capital leases for
financial reporting purposes and higher average debt balances.
Other expense, net amounted to $0.9 million for the quarter ended
December 31, 2001, compared to zero for the quarter ended December 31, 2000. The
2001 expense relates to the Company accruing late fees and penalties on past due
operating lease payments.
The Company's effective combined federal and state income tax rates for
the three months ended December 31, 2001 and 2000 was 0%. Due to the losses
reported by the Company in the 2001 and 2000 periods, management has established
a valuation allowance to offset the potential benefit for income taxes until
such time as the Company returns to profitability.
As a result of the factors described above, net loss attributable to
common stockholders increased $9.8 million to a net loss attributable to common
stockholders of $12.8 million for the three months ended December 31, 2001,
compared with a net loss attributable to common stockholders of $3.0 million for
the corresponding period of 2000. As a percentage of revenue, net loss
attributable to common stockholders was 17.4% of revenue in the quarter ended
December 31, 2001, compared with 4.6% in the 2000 period.
Quantitative and Qualitative Disclosures About Market Risk
The principal market risks to which the Company is exposed are
fluctuations in fuel prices, interest rates on debt financing (i.e., the risk of
loss arising from adverse changes in market rates and prices) and market values
for used equipment. The Company has not engaged in any fuel hedging
transactions. Thus, the Company is exposed to fluctuations in fuel prices but is
not exposed to any market risk involving hedging costs.
The variable rate debt consists of a revolving line of credit,
carrying an interest rate tied to the prime rate. The line of credit provides
for a minimum interest rate of 7%. This variable interest rate exposes the
Company to the risk that interest rates may rise. At December 31, 2001, the
Company's interest rate on the line of credit was at the minimum rate of 7
percent. At December 31, 2001, assuming borrowing equal to the $20.8 million
drawn on the line of credit, a one percentage point increase in the prime rate
above the minimum interest rate in the agreement would increase the annual
interest expense by approximately $0.2 million. The proposed Stockholder Line of
Credit will carry interest rate terms similar to the Company's current revolving
line of credit. The equipment financing carries fixed interest rates and
includes term notes payable and capital lease obligations totaling approximately
$59.7 million. These fixed interest rates expose the Company to the risk that
interest rates may fall. A one percentage point decline in interest rates would
have the effect of increasing the premium the Company pays over market interest
rates by one percentage point or approximately $0.6 million annually.
The Company has repurchase commitments for a substantial portion of the
tractors in its fleet at prices consistent with the guaranteed residual values
on its proposed restructured leases. However, the Company is exposed to
fluctuations in market values for used trailers, to the extent that they differ
materially from the guaranteed residual values on the related equipment at the
termination of the lease. Assuming a fleet of approximately 3,000 trailers, a
shortfall in the market value for used trailers of $100 below the guaranteed
residual value would result in a loss to the Company of $300,000.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Company and certain of its former officers and directors have been
named as defendants in a securities class action filed in the United States
District Court for the District of Utah, Caprin v. Simon Transportation
Services, Inc., et al., No. 2:98CV 863K (filed December 3, 1998). Plaintiffs in
this action allege that defendants made material misrepresentations and
omissions during the period February 13, 1997 through April 2, 1998 in violation
of Sections 11, 12(2) and 15 of the Securities Act of 1933 and Sections 10(b)
and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder. On September 27, 2000, the District Court dismissed the case with
prejudice. Plaintiffs have appealed the dismissal of this action to the United
States Court of Appeal for the Tenth Circuit, which heard oral arguments on the
matter on January 15, 2002. The Company intends to vigorously defend this
action.
On March 13, 2001, a Company-owned tractor-trailer collided with a
pickup truck in an intersection in Dumas, Texas. A lawsuit has been filed on
behalf of an injured passenger in the pickup truck and her family in the United
States District Court for the Northern District of Texas (Case No.
2-01CV-0194J), seeking actual and punitive damages from the Company and its
former employee/driver. The Company is cooperating with its outside counsel and
insurance carriers in an effort to resolve this matter. Discovery is ongoing in
the case. Unless this matter is resolved through mediation, the parties are
expected to proceed to trial in April 2002. Although the alleged damages in this
matter are very substantial and a risk of punitive damage exposure does exist,
the Company and its counsel believe the facts surrounding the accident do not
warrant punitive damages and that the Company will be able to resolve this
matter within the limits of its insurance policies. Accordingly, the Company
does not expect this litigation to have a material adverse impact on the
Company's results of operations or financial position.
On August 17, 2001, the State of California filed suit against the
Company in the Superior Court of California, County of Sacramento (Case No.
01AS04951) in relation to damage to the state capitol building of California
arising from an accident involving a Company driver and truck. The lawsuit
requests both compensatory and punitive damages. Two of the Company's insurers
have already paid their policy limits of $5.75 million in partial satisfaction
of the State's property damage. The State's complaint represents an attempt to
collect the balance of property damage, estimated to be between $6 and $10
million. The Company is cooperating with its insurance carrier in defense of
this action, which is at a very preliminary stage. Management believes that it
is unlikely that the Company will be held liable for punitive damages in this
action and further believes that the Company will resolve the matter within the
limits of its insurance policies. Accordingly, the Company does not expect this
litigation to have a material adverse impact on the Company's results of
operations or financial position.
On December 27, 2001, Dime Commercial Credit ("Dime"), one of the
Company's lessors, filed a suit against the Company in the Third Judicial
District Court of Salt Lake County, State of Utah (Civil No. 010911262). The
lawsuit asserts that the Company is in default under the lease agreements held
by Dime and seeks judgments against the Company. The requested relief includes
the return to Dime of all equipment under the lease agreements, payment of
delinquent monthly payments, payment of the stipulated loss value as defined and
payment of other fees and costs. A hearing regarding Dimes efforts to obtain
their equipment was held on January 28, 2002. At that hearing, the Company was
given until April 1, 2002 to return the related equipment to Dime. After
disposition of the equipment by Dime, the Company will be liable to Dime for any
difference between the proceeds from the disposition and the obligations under
the lease. Management estimates the range of potential exposure related to this
obligation is $1.5 to $3.0 million.
On February 1, 2002, Bank of America Leasing & Capital, LLC ("BofA"),
one the Company's equipment lessors with total lease obligations outstanding of
$2.7 million, obtained a Writ of Replevin in the Third Judicial District Court
of Salt Lake County, State of Utah (Civil No. 020900986) stipulating the return
of 49 tractors. The Company is complying with the court order and is in the
process of returning the equipment. After disposition of the tractors by BofA,
the Company will be liable to BofA for any difference between the proceeds from
the disposition and the obligations under the lease. Management estimates the
range of potential exposure related to this obligation is $0.5 to $1.0 million.
On February 11, 2002, the Company was served with a lawsuit by TCF
Leasing ("TCF"), one of the Company's equipment lessors with total lease
obligations outstanding of approximately $2.5 million. The lawsuit filed in the
United States District Court, District of Minnesota (Case No. 02-346 DSD/JMM)
asserts that the Company is in default under the lease agreements held by TCF
and seeks judgments against the Company. The requested relief also includes the
return to TCF of all equipment under the lease agreements and payment of damages
of approximately $2.8 million.
In addition to the foregoing legal proceedings, the Company is a party,
from time to time, 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. Except as set forth in this
Quarterly Report, management is not aware of any claims or threatened claims
that reasonably would be expected to exceed insurance limits or have a
materially adverse effect upon the Company's results of operations or financial
position.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Recent Developments and Liquidity and Capital
Resources".
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Number Description
- ------ -----------
3.1 + Articles of Incorporation.
3.2 * Amended and Restated Bylaws.
4.1 + Articles of Incorporation.
4.2 * Amended and Restated Bylaws.
4.3 ** Amended and Restated Certificate of Designation for Series I
Preferred Shares
4.4 ** Certificate of Designation for Series II Preferred Shares
10.1 + Outside Director Stock Option Plan.
10.2 * Amendment to Outside Director Stock Option Plan
10.3 + Incentive Stock Plan.
10.4 # Amendment No. 2 to the Simon Transportation Services Inc. Incentive
Stock Plan
10.5 * Revised Amendment No. 3 to the Simon Transportation Services
Incentive Stock Plan
10.6 @ Warrant to Purchase Shares of Class A Common Stock dated
September 19, 2000, between Jerry Moyes and Simon Transportation
Services Inc.
10.7 + 401(k) Plan.
10.8 ** Amended and Restated Subscription Agreement for the Purchase of
Series I Preferred Shares between the Company and the Moyes
Children's Limited Partnership dated June 30, 2001
10.9 ** Amended and Restated Warrant to Purchase Series I Preferred Shares
between the Company and the Moyes Children's Limited Partnership
dated June 30, 2001
10.10 ^ Transportation Accounts Financing and Security Agreement dated
April 25, 2001, between Associates Transcapital Services and Dick
Simon Trucking, Inc.
10.11 ^ Loan Agreement dated June 21, 2001, between National Life Insurance
Company and Simon Terminal, LLC 10.12 ** Subscription Agreement for
the Purchase of Series II Preferred Shares between the Company and
Interstate Equipment Leasing, Inc. dated September 30, 2001
10.13 ** Warrant to Purchase Series II Preferred Shares between the
Company and Interstate Equipment Leasing dated September 30, 2001
10.14 > Promissory Note dated December 19, 2001, between Dick Simon
Trucking, Inc. and the Jerry and Vickie Moyes Family Trust
11.1 > Schedule of Computation of Net Loss per Share
+ Filed as an exhibit to the registrant's Registration Statement on
Form S-1, Registration No. 33-96876, effective November 17, 1995, and
incorporated herein by reference.
# Filed as an exhibit to the registrant's Definitive Proxy Statement for
the annual meeting held December 19, 1997, Commission File No. 0-27208,
and incorporated herein by reference.
@ Filed as an exhibit to the registrant's Current Report on Form 8-K,
Commission File No. 0-27208, dated October 4, 2000, and incorporated
herein by reference.
* Filed as an exhibit to the registrant's Annual Report on Form 10-K
for the period ended September 30, 2000, Commission File No. 0-27208,
dated January 12, 2001 and incorporated herein by reference.
^ Filed as an exhibit to the registrant's Quarterly Report on
Form 10-Q for the period ended June 30, 2001, Commission File
No. 0-27208, dated August 20, 2001, and incorporated herein by
reference.
** Filed as an exhibit to the registrants Current Report on Form 8-K,
Commission File No. 0-27208, dated October 12, 2001, and incorporated
herein by reference.
> Filed herewith
(b) Reports on Form 8-K.
Form 8-K filed October 12, 2001, in connection with:
A. Amendment to issuance price of the
Company's Series I Preferred Shares and
warrants to purchase Series I
Preferred Shares; and
B. Issuance of the Company's Series II
Preferred Shares and warrants to
purchase Series II Preferred Shares.
Form 8-K filed on October 30, 2001, in connection
with issuance of press release announcing that the
Company had filed a preliminary proxy statement.
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.
SIMON TRANSPORTATION SERVICES INC.,
a Nevada corporation
Date: February 14, 2002 By: /s/ Robert T. Goates
--------------------------- --------------------------------
(Signature)
Robert T. Goates
Chief Financial Officer
(Principal Financial and
Accounting Officer)