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 March 31, 2002
( ) 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 (May 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 18
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 March 31, 2002
and September 30, 2001 3
Condensed Consolidated Statements of Operations for the Three and Six Month
Periods Ended March 31, 2002 and 2001 4
Condensed Consolidated Statements of Cash Flows for the Six Months Ended March
31, 2002 and 2001 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 10
PART II
OTHER INFORMATION
Item 1. Legal Proceedings 15
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
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SIMON TRANSPORTATION SERVICES INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
ASSETS
March 31, 2002 September 30, 2001
-------------- ------------------
(Liquidation Basis - (Going Concern Basis)
Unaudited)
Current Assets:
Cash $ 2,014,909 $ -
Receivables, net of valuation allowance of $7,263,835 and an
allowance for doubtful accounts of $607,000, respectively 17,198,341 36,495,339
Operating supplies 882,071 1,302,067
Prepaid expenses and other 3,747,207 2,528,675
----------------------- ------------------------
Total current assets 23,842,528 40,326,081
----------------------- ------------------------
Property and Equipment, at cost:
Land 8,222,970 8,884,752
Revenue equipment 73,991,343 73,409,529
Buildings and improvements 18,209,345 18,650,478
Office furniture and equipment 9,962,275 9,906,788
----------------------- ------------------------
110,385,933 110,851,547
Less accumulated depreciation and amortization (39,399,334) (27,056,006)
----------------------- ------------------------
70,986,599 83,795,541
----------------------- ------------------------
Other Assets 3,158,526 5,574,182
----------------------- ------------------------
$ 97,987,653 $ 129,695,804
======================= ========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities Not Subject to Compromise:
Long-term debt $ 30,807,314 $ 32,164,357
Capital lease obligations - 42,373,463
Accounts payable 407,338 11,329,148
Accrued liabilities 10,955,854 12,324,242
Accrued operating lease payments - 6,809,609
Accrued liability for guaranteed lease residuals - 6,047,868
Accrued claims payable 1,451,970 9,520,721
----------------------- ------------------------
Total liabilities not subject to compromise 43,622,476 120,569,408
----------------------- ------------------------
Liabilities Subject to Compromise 114,020,030 -
----------------------- ------------------------
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 (119,284,982) (50,503,733)
----------------------- ------------------------
Total stockholders' (deficit) equity (59,654,853) 9,126,396
----------------------- ------------------------
$ 97,987,653 $ 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
----------------------------------------------------
March 31, 2002 March 31, 2001
-------------- --------------
(Liquidation Basis) (Going Concern Basis)
Operating revenue $ 58,672,751 $ 64,063,814
----------------------- ------------------------
Operating expenses:
Salaries, wages, and benefits 22,513,959 25,829,375
Fuel & fuel taxes 11,351,209 14,482,675
Operating supplies and expenses 12,365,652 9,139,558
Taxes and licenses 2,890,786 2,270,859
Insurance and claims 6,758,974 3,706,501
Communications and utilities 1,258,972 1,335,676
Depreciation and amortization 2,351,652 1,624,215
Purchased transportation 10,535,109 3,662,704
Rent 10,752,551 10,371,913
Loss on lease residual guarantees 3,385,294 -
Loss on valuation of assets at liquidation basis 26,400,175 -
----------------------- ------------------------
Total operating expenses 110,564,333 72,423,476
----------------------- ------------------------
Operating loss (51,891,582) (8,359,662)
Interest expense (1,623,383) (467,522)
Other income (expense) (2,264,293) -
----------------------- ------------------------
Loss before income taxes (55,779,258) (8,827,184)
Benefit for income taxes - -
----------------------- ------------------------
Net loss $ (55,779,258) $ (8,827,184)
======================= ========================
Dividends related to convertible preferred stock $ (218,884) $ -
======================= ========================
Net loss attributable to common stockholders $ (55,998,142) $ (8,827,184)
======================= ========================
Basic and diluted net loss per common share $ (9.16) $ (1.44)
======================= ========================
Basic and diluted weighted average common shares outstanding 6,115,109 6,115,109
======================= ========================
<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 Six Months Ended
----------------------------------------------------
March 31, 2002 March 31, 2001
-------------- --------------
(Liquidation Basis) (Going Concern Basis)
Operating revenue $ 132,083,764 $ 129,573,173
----------------------- ------------------------
Operating expenses:
Salaries, wages, and benefits 46,380,905 51,845,763
Fuel & fuel taxes 23,575,012 29,311,869
Operating supplies and expenses 22,639,954 17,920,287
Taxes and licenses 4,865,598 4,569,971
Insurance and claims 13,142,412 7,208,522
Communications and utilities 2,714,540 2,604,141
Depreciation and amortization 4,880,609 2,596,934
Purchased transportation 20,351,766 4,183,336
Rent 21,283,106 20,274,021
Loss on lease residual guarantees 7,752,475 -
Loss on valuation of assets to liquidation basis 26,400,175 -
----------------------- ------------------------
Total operating expenses 193,986,552 140,514,844
----------------------- ------------------------
Operating loss (61,902,788) (10,941,671)
Interest expense (3,252,738) (878,561)
Other income (expense) (3,187,956) -
----------------------- ------------------------
Loss before income taxes (68,343,482) (11,820,232)
Benefit for income taxes - -
----------------------- ------------------------
Net loss $ (68,343,482) $ (11,820,232)
======================= ========================
Dividends related to convertible preferred stock $ (437,767) $ -
======================= ========================
Net loss attributable to common stockholders $ (68,781,249) $ (11,820,232)
======================= ========================
Basic and diluted net loss per common share $ (11.25) $ (1.93)
======================= ========================
Basic and diluted weighted average common shares outstanding 6,115,109 6,114,862
======================= ========================
<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 Six Months Ended
----------------------------------------------
March 31, 2002 March 31, 2001
-------------- --------------
(Liquidation Basis) (Going Concern Basis)
Cash Flows From Operating Activities:
Net loss $ (68,343,482) $ (11,820,232)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 4,880,608 2,596,934
Loss on valuation of assets at liquidation basis 26,400,175 -
Changes in operating assets and liabilities:
Receivables, net 12,033,163 (497,495)
Operating supplies 419,996 (92,697)
Prepaid expenses and other (2,535,242) (861,951)
Other assets (5,318,719) (1,588,191)
Accounts payable (3,324,130) 845,372
Accrued liabilities 6,638,244 1,564,931
Accrued operating lease payments 17,793,148 -
Accrued liability for guaranteed lease residuals 7,752,475 -
Accrued claims payable 2,934,813 324,451
----------------------------------------------
Net cash used in operating activities (668,951) (9,528,878)
----------------------------------------------
Cash Flows From Investing Activities:
Purchase of property and equipment (5,846,975) (7,974,690)
Proceeds from the sale of property and equipment 2,669,419 5,751,119
----------------------------------------------
Net cash used in investing activities (3,177,556) (2,223,571)
----------------------------------------------
Cash Flows From Financing Activities:
Proceeds from issuance of long-term debt 11,851,999 14,195,000
Principal payments on long-term debt (160,393) (1,506,067)
(Payments) borrowings under line-of-credit agreement (4,006,919) 900,000
Principal payments under capital lease obligations (1,823,271) (778,478)
Net proceeds from issuance of common stock - 19,550
----------------------------------------------
Net cash provided by financing activities 5,861,416 12,830,005
----------------------------------------------
Net Increase In Cash 2,014,909 1,077,556
Cash at Beginning of Period - 3,331,119
----------------------------------------------
Cash at End of Period $ 2,014,909 $ 4,408,675
==============================================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 517,062 $ 896,044
Cash paid during the period for income taxes - 44,932
Supplemental Schedule of Noncash Investing and Financing Activities:
Preferred stock dividends accrued but not paid $ 437,767 $ -
<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) PROCEEDINGS UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
On February 25, 2002 ("Petition Date"), Simon Transportation Services,
Inc. and its wholly-owned subsidiary, Dick Simon Trucking, Inc. filed voluntary
petitions for reorganization under Chapter 11 of the federal bankruptcy laws
("Bankruptcy Code" or "Chapter 11") in the United States Bankruptcy Court for
the District of Utah (the "Court"). On March 26, 2002, Simon Terminal LLC, a
wholly-owned subsidiary of Simon Transportation Services, Inc. also filed a
voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code in
the Court. The reorganizations are being jointly administered under the caption
"In re Simon Transportation Services, Inc., et al, case No. 02-22906 GEC." Simon
Transportation Services, Inc., Dick Simon Trucking, Inc. and Simon Terminal LLC
are collectively referred to as the "Company". The Company decided to reorganize
because its financial condition had substantially deteriorated as a result of a
number of operating setbacks, including reduced shipping demand caused by the
general national economic decline, a scarcity of qualified drivers, declining
market values of used tractor and trailers, problems stemming from two
acquisitions in fiscal 2001, periods of high fuel costs and increased driver and
insurance costs. During 2001, the Company's negative cash flow and operating
losses led to a partial deferral of payments owed for tractors and trailers. In
January 2002, principally due to softness in the freight market, Simon was
forced to discontinue substantially all payments to lien holders.
As debtor-in-possession under the Bankruptcy Code, the Company was
authorized to continue to operate as an ongoing business, but may not engage in
transactions outside the ordinary course of business without the approval of the
Court, after notice and an opportunity for a hearing. Under the Bankruptcy Code,
actions to collect pre-petition indebtedness, as well as most other pending
litigation, are stayed and other contractual obligations against the Company may
not be enforced. In addition, under the Bankruptcy Code, the Company may assume
or reject executory contracts, including lease obligations. Parties affected by
these rejections may file claims with the Court in accordance with the
reorganization process. Unless otherwise specifically addressed, the Company's
pre-petition liabilities will be determined and liquidated under a plan of
liquidation to be approved by the Court.
On February 27, 2002, the Court gave interim approval for $2 million of
a $5 million senior secured debtor-in-possession financing facility ("DIP Credit
Facility") for payment of permitted pre-petition claims, working capital needs,
letters of credit and other general corporate purposes. On March 8, 2002, the
Court approved the entire $5 million DIP Credit Facility to supplement the
Company's operations during the reorganization process.
On March 11, 2002, the Company filed a motion with the Court for bid
and auction procedures for a sale of the Company's assets and operations. On
March 21, 2002, the Court approved the bid and auction procedures. The Company
engaged the services of Morgan Keegan and Company to assist in soliciting bids
for the sale of the Company's operations and assets. On April 8, 2002, the
operations and assets of the Company were sold, subject to final negotiation of
the Asset Purchase Agreement , to Central Refrigerated Services, Inc., a
wholly-owned subsidiary of Central Freight Lines, Inc. The sale of substantially
all of the Company's assets and operations was completed on April 22, 2002.
On June 7, 2002 the Company publicly announced through a press release
and the filing of a Form 8-K with the Securities and Exchange Commission that it
would be filing a liquidating plan with the Court, part of which will be a
proposal to cancel the interests of the holders of the Company's common stock.
The Company expects that unsecured creditors will receive, at best, cents on the
dollar for their claims. Accordingly, the Company does not expect the holders of
its common stock to receive any return of their investment or any distribution
under the liquidation plan. On June 6, 2002 the Company sent notification to
market makers in the Company's stock and major broker-dealers of its intentions
and requested that they cease making markets and trading in the Company's common
stock.
(2) BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
Simon Transportation Services Inc. and its wholly-owned subsidiaries. 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.
Up until the time of the sale of substantially all of its operations
and assets, the Company was a truckload carrier that specialized in premium
service, primarily through temperature-controlled transportation predominantly
for major shippers in the U.S. food industry.
The accompanying condensed consolidated financial statements as of
March 31, 2002 and for the three and six-month periods then ended have been
prepared on a liquidation basis with assets presented at their estimated net
realizable values based upon the allocated value in the sale of the Company's
assets and operations or relevant market data. Liabilities are subject to the
resolution of the Court and until the Court resolves their disposition, will be
presented at their historical carrying values. The accompanying condensed
consolidated financial statements as of September 30, 2001 and for the three and
six-month periods ended March 31, 2001 have been prepared on a going concern
basis. Accordingly, the financial statements for the fiscal 2002 periods are not
comparable with those presented for the fiscal 2001 periods.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
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.
The financial statements have not been reviewed by independent public
accountants. The Company's independent public accounting firm has historically
been Andersen. However, in May 2002, the audit and tax practice personnel of
Andersen in Salt Lake City left Andersen and joined KPMG. Andersen no longer has
a tax and audit practice in Salt Lake City. As a result of the change at
Andersen and the sale of the Company's assets and pending liquidation of
liabilities, the timing or completion of a review of the financial statements is
uncertain. 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.
(3) RECENT DEVELOPMENTS - SALE OF OPERATIONS AND ASSETS
On April 8, 2002, the operations and assets of the Company were sold,
subject to final negotiation of an asset purchase agreement, to Central
Refrigerated Services, Inc. ("Central"), a wholly-owned subsidiary of Central
Freight Lines, Inc. The sale of the Company's assets and operations was closed
on April 22, 2002. In connection with the sale, Central paid approximately $51
million for the acquired assets and operations. The consideration for the
purchase price was paid through the assumption of approximately $49 million of
the Company's liabilities and payment of approximately $2.5 million in cash. In
addition, Central agreed to pay the Company 50 percent of amounts collected in
excess of $20 million related to receivables and 25 percent of amounts collected
in excess of $4 million related to insurance premium refunds and deposits.
Additionally, Central separately negotiated with certain of the Company's
lessors to lease some of the Company's revenue equipment. Several of the lessors
agreed to waive certain administrative and unsecured claims against the Company
as a result of these negotiations.
(4) BASIC AND DILUTED EARNINGS PER SHARE
As a result of the losses attributable to common stockholders, no common stock
equivalents are considered in the calculation of weighted average shares
outstanding for the purpose of computing basic and diluted earnings per share.
(5) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reclassifications
Certain reclassifications have been made in the prior period financial
statements to conform to the presentation for the three and six-month periods
ended March 31, 2002.
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.
The Company's fiscal year ends on September 30 of each year. Thus, the
fiscal quarters discussed in this report represent the Company's second fiscal
quarters of its 2002 and 2001 fiscal years, respectively.
Recent Developments
On February 25, 2002 ("Petition Date"), Simon Transportation Services,
Inc. and its wholly-owned subsidiary, Dick Simon Trucking, Inc. filed voluntary
petitions for reorganization under Chapter 11 of the federal bankruptcy laws
("Bankruptcy Code" or "Chapter 11") in the United States Bankruptcy Court for
the District of Utah (the "Court"). On March 26, 2002, Simon Terminal LLC, a
wholly-owned subsidiary of Simon Transportation Services, Inc. also filed a
voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code in
the Court. The reorganizations are being jointly administered under the caption
"In re Simon Transportation Services, Inc. et al, case No. 02-22906 GEC." Simon
Transportation Services, Inc., Dick Simon Trucking, Inc. and Simon Terminal LLC
are collectively referred to as the "Company". The Company decided to reorganize
because its financial condition had substantially deteriorated as a result of a
number of operating setbacks, including reduced shipping demand caused by the
general national economic decline, a scarcity of qualified drivers, declining
market values of used tractor and trailers, problems stemming from two
acquisitions in fiscal 2001, periods of high fuel costs and increased driver and
insurance costs. During 2001, the Company's negative cash flow and operating
losses led to a partial deferral of payments owed for tractors and trailers. In
January 2002, principally due to softness in the freight market, Simon was
forced to discontinue substantially all payments to lien holders.
As debtor-in-possession under the Bankruptcy Code, the Company was
authorized to continue to operate as an ongoing business, but may not engage in
transactions outside the ordinary course of business without the approval of the
Court, after notice and an opportunity for a hearing. Under the Bankruptcy Code,
actions to collect pre-petition indebtedness, as well as most other pending
litigation, are stayed and other contractual obligations against the Company may
not be enforced. In addition, under the Bankruptcy Code, the Company may assume
or reject executory contracts, including lease obligations. Parties affected by
these rejections may file claims with the Court in accordance with the
reorganization process. Unless otherwise specifically addressed, the Company's
pre-petition liabilities will be determined and liquidated under a plan of
liquidation to be approved by the Court.
On February 27, 2002, the Court gave interim approval for $2 million of
a $5 million senior secured debtor-in-possession financing facility ("DIP Credit
Facility") for payment of permitted pre-petition claims, working capital needs,
letters of credit and other general corporate purposes. On March 8, 2002, the
Court approved the entire $5 million DIP Credit Facility to supplement the
Company's operations during the reorganization process.
On March 11, 2002, the Company filed a motion with the Court for bid
and auction procedures for a sale of the Company's assets and operations. On
March 21, 2002, the Court approved the bid and auction procedures. The Company
engaged the services of Morgan Keegan and Company to assist in soliciting bids
for the sale of the Company's operations and assets. On April 8, 2002, the
operations and assets of the Company were sold, subject to final negotiation of
the sale agreement, to Central Refrigerated Services, Inc., a wholly-owned
subsidiary of Central Freight Lines, Inc. The sale of substantially all of the
Company's assets and operations was completed on April 22, 2002.
On June 7, 2002 the Company publicly announced through a press release
and filing the filing of a Form 8-K with the Securities and Exchange Commission
that it would be filing a liquidating plan with the Court, part of which will be
a proposal to cancel the interests of the holders of the Company's common stock.
The Company expects that unsecured creditors will receive, at best, cents on the
dollar for their claims. Accordingly, the Company does not expect the holders of
its common stock to receive any return of their investment or any distribution
under the liquidation plan. On June 6, 2002 the Company sent notification to
market makers in the Company's stock and major broker-dealers of its intentions
and requested that they cease making markets and trading in the Company's common
stock.
Liquidity and Capital Resources
As described above, the Company sold substantially all of its assets
and liabilities on April 22, 2002. In connection with that sale, the Company
generated net cash of approximately $2.5 million and relieved debt of
approximately $49 million. The Company's liabilities far exceed its assets. The
Company currently does not have any business operations and is in the process of
preparing to file a plan of liquidation with the Court. The proposed plan of
liquidation contains the following provisions for settlement of outstanding
liabilities:
o Administrative Expense Claims - (including fees for attorneys and
accountants, expenses incurred after the date of filing bankruptcy,
claims of vendors and lessors incurred subsequent to the date of filing
bankruptcy and any post-bankruptcy filing taxes) will be paid in full
on the effective date of the plan of liquidation ("Effective Date").
o Priority Claims, including but not limited to priority tax claims -
will be paid, exclusive of penalties and post-bankruptcy filing
interest, as soon as practicable.
o Priority Unsecured Claims - (including priority wage, employee benefit
and tax claims) will be paid in full on the Effective Date.
o General Unsecured Claims - will be paid on a pro rata basis from the
remaining funds held by the Company after payment of the Administrative
Expense Claims, U.S. Trustee fees, Priority Tax Claims and Priority
Unsecured Claims.
o Interests of Common and Preferred Stockholders - will be extinguished
with no distribution.
o Unexpired leases and executory contracts - any not previously
rejected or assumed and assigned to Central will be rejected as of
the Effective Date.
The Company currently has approximately $3.0 million in cash on
deposit. Additionally, the Company might obtain additional funds through the
pursuit of preferential payment claims against certain of the Company's vendors.
However, no estimate has been made of the potential amount of these claims.
Results of Operations
Three months ended March 31, 2002 and 2001
Operating revenue decreased $5.4 million (8.4%) to $58.7 million for
the three months ended March 31, 2002, from $64.1 million for the corresponding
period of 2001. Weighted average tractors decreased 5.3%, to 2,075 in the 2002
period from 2,192 in the 2001 period. Average revenue per tractor per week
decreased to $2,179 during the 2002 period from $2,285 during the 2001 period.
Average revenue per loaded mile excluding fuel surcharge increased to $1.29
($1.30 including fuel surcharge) during the 2002 period from $1.24 ($1.32
including fuel surcharge) in the 2001 period. This was offset by a decrease in
the average miles per tractor per week to 1,921 in 2002 from 1,985 in 2001. The
decrease in the weighted average number of tractors during the 2002 period was
the result of a reduction in the size of the Company's fleet in connection with
the February 25, 2002 bankruptcy filing.
Salaries, wages, and benefits decreased $3.3 million (12.8%) to $22.5
million during the quarter ended March 31, 2002, from $25.8 million in the 2001
period. As a percentage of revenue, salaries, wages, and benefits decreased to
38.3% of revenue for the three months ended March 31, 2002, from 40.2% for the
corresponding period of 2001. This decrease was due to an increase in
owner-operator tractors and decreases in administrative personnel salaries
offset by increases in driver wages. In response to continued operating losses,
the Company reduced its headcount by approximately 200 administrative and shop
personnel in February 2002.
In early fiscal 2001, the Company implemented an owner-operator driver
program. As of March 31, 2002, the Company had approximately 400 owner-operator
tractors under this program or approximately 25.6% 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 $3.1 million (21.4%) to $11.4 million
during the quarter ended March 31, 2002, from $14.5 million in the 2001 period.
As a percentage of revenue, fuel and fuel taxes decreased to 19.4% of revenue
for the three months ended March 31, 2002, from 22.6% of revenue for the
corresponding period of 2001. This was principally the result of a 19.6%
decrease in the average price of fuel to $1.11 per gallon in the 2002 quarter
from $1.38 per gallon in the 2001 quarter, and the increase in the Company's
owner-operator fleet.
Operating supplies and expenses increased $3.3 million (36.3%) to $12.4
million during the quarter ended March 31, 2002 from $9.1 million in the 2001
period. As a percentage of revenue, operating supplies and expenses increased to
21.1% of revenue for the three months ended March 31, 2002, from 14.2% for the
corresponding period of 2001. The increase is primarily attributable to
increases in parts and repairs, professional fees, recruiting and other costs
associated with driver turnover.
Taxes and licenses increased $.6 million (26.1%) to $2.9 million during
the quarter ended March 31, 2002, from $2.3 million for the corresponding period
of 2001. As a percentage of revenue, taxes and licenses increased to 4.9% of
revenue for the three months ended March 31, 2002, compared with 3.6% for the
corresponding period of 2001. This increase is primarily the result of expensing
prepaid licensing fees associated with the Company's reduced fleet size.
Insurance and claims increased $3.1 million (83.8%) to $6.8 million
during the quarter ended March 31, 2002, from $3.7 million during the quarter
ended March 31, 2001. As a percentage of revenue, insurance and claims increased
to 11.6% for the three months ended March 31, 2002, compared with 5.8% for the
corresponding period of 2001, 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.
Communications and utilities remained relatively unchanged at $1.3
million for the quarter March 31, 2002, compared to the quarter ended March 31,
2001. As a percentage of revenue, communications and utilities increased to 2.2%
of revenue for the three months ended March 31, 2002, compared with 2.0% for the
corresponding period of 2001. The Company pays a fixed base charge per tractor
for its satellite communications.
Depreciation and amortization increased $0.8 million (50.0%) to $2.4
million during the quarter ended March 31, 2002, from $1.6 million for the
corresponding period of 2001. As a percentage of revenue, depreciation and
amortization (adjusted for the net loss on the sale of property and equipment)
increased to 4.1% for the three months ended March 31, 2002, from 2.5% for the
corresponding period of 2001, 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 of $0.6 million during the 2001 period.
Purchased transportation increased to $10.5 million in the 2002 quarter
from $3.7 million in the 2001 quarter. As a percentage of revenue, purchased
transportation increased to 17.9% during the 2002 fiscal year from 5.8% during
the 2001 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 March 31, 2002.
Rent increased $0.4 million (3.8%) to $10.8 million for the quarter
ended March 31, 2002, from $10.4 million for the corresponding period of 2001.
As a percentage of revenue, rent increased to 18.4% of revenue for the three
months ended March 31, 2002, from 16.2% for the corresponding period of 2001.
This increase was primarily attributable to lower utilization due to soft
freight partially offset by the shift from Company owned tractors to tractors
supplied by owner-operators.
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 March 31, 2002. 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 March 31, 2002, the
Company has recorded an accrued liability for guaranteed lease residuals of
$13.4 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.
A loss of $26.4 million was recorded in the quarter ended March 31,
2002 in connection with preparing the accompanying balance sheet on a
liquidation basis.
As a result of the foregoing, the Company's operating ratio increased
to 188.4% for the three months ended March 31, 2002, from 112.9% for the
corresponding period of 2001.
Interest expense increased $1.1 million (220.0%) to $1.6 million for
the quarter ended March 31, 2002, from $0.5 million for the corresponding period
of 2001. As a percentage of revenue, interest expense increased to 1.9% of
revenue for the quarter ended March 31, 2002 compared with 0.7% of revenue for
the corresponding period in 2001 primarily as a result of a majority of the
Company's new leases during fiscal 2002 being capital leases for financial
reporting purposes and higher average debt balances.
Other expense, net amounted to $2.3 million for the quarter ended March
31, 2002, compared to zero for the quarter ended March 31, 2001. The 2002
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 March 31, 2002 and 2001 was 0%. Due to the losses
reported by the Company in the 2002 and 2001 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 $47.2 million to a net loss attributable to common
stockholders of $56.0 million for the three months ended March 31, 2002,
compared with a net loss attributable to common stockholders of $8.8 million for
the corresponding period of 2001. As a percentage of revenue, net loss
attributable to common stockholders was 95.4% of revenue in the quarter ended
March 31, 2002, compared with 13.7% in the 2001 period.
Six months ended March 31, 2002 and 2001
Operating revenue increased $2.5 million (1.9%), to $132.1 million for
the six months ended March 31, 2002, from $129.6 million for the corresponding
period of 2001. The increase in operating revenue was primarily attributable to
a 5.5% increase in weighted average tractors resulting from the Westway and Ort
acquisitions, to 2,197 in the 2002 period from 2,083 in the corresponding 2001
period, partially offset by a decrease in average revenue per total mile in the
2002 period to $1.16, from $1.19 in the 2001 period and by a decrease in average
revenue per tractor per week, to $2,347 in the 2002 period from $2,398 in the
2001 period. The decrease in the average revenue per tractor in the 2002 period
is primarily attributable to lower utilization due to soft freight demand and an
increase in empty miles percentage.
Salaries, wages, and benefits decreased $5.4 million (10.4%), to $46.4
million during the six months ended March 31, 2002, from $51.8 million in the
2001 period. As a percentage of revenue, salaries, wages, and benefits decreased
to 35.1% of revenue for the six months ended March 31, 2002, from 40.0% for the
corresponding period of 2001. The decrease as a percentage of revenue was
primarily attributable to a decrease in the percentage of the Company's fleet
supplied by Company drivers following the institution of an owner-operator
program in October 2000 and to reductions administrative and shop headcount
during the period. These decreases were partially offset by driver wage
increases. Effective November 1, 2000, management raised driver wages by two
cents per mile. One cent of the increase applied to all drivers at all levels
and another cent can be attained based upon a monthly mileage target. Effective
April 1, 2001, the Company increased its wages for its experienced drivers by an
average of three cents per mile. In addition, drivers with less than one year of
experience received a one cent per mile increase after each three month
period during the first year of employment.
Fuel and fuel taxes decreased $5.7 million (19.5%), to $23.6 million
during the six months ended March 31, 2002, from $29.3 million in the 2001
period. As a percentage of revenue, fuel and fuel taxes decreased to 17.9% of
revenue for the six months ended March 31, 2002, from 22.6% for the
corresponding period of 2001. This was principally the result of a 29.1%
decrease in the average price of fuel to $1.07 per gallon in the 2002 period
from $1.51 per gallon in the 2001 period, and the increase in the Company's
owner-operator fleet.
Operating supplies and expenses increased $4.7 million (26.3%), to
$22.6 million during the six months ended March 31, 2002, from $17.9 million in
the 2001 period. As a percentage of revenue, operating supplies and expenses
increased to 17.1% of revenue for the six months ended March 31, 2002, from
13.8% for the corresponding period of 2001. The increase is primarily
attributable to the increases in parts and repairs, professional fees,
recruiting and other costs associated with driver turnover.
Taxes and licenses increased $0.3 million (6.5%), to $4.9 million
during the six months ended March 31, 2002, from $4.6 million for the
corresponding period of 2001. As a percentage of revenue, taxes and licenses
increased to 3.7% of revenue for the six months ended March 31, 2002, from 3.5%
of revenue for the corresponding period of 2001. The increase is primarily
attributable to expensing prepaid licensing fees associated with the Company's
reduced fleet size.
Insurance and claims increased $5.9 million (81.9%), to $13.1 million
during the six months ended March 31, 2002, from $7.2 million for the
corresponding period of 2001. As a percentage of revenue, insurance and claims
increased to 9.9% of revenue for the six months ended March 31, 2002, from 5.6%
for the corresponding period of 2001, primarily as a result of increased claims
associated with driver turnover. Effective October 1, 1999, the Company adopted
a fully-developed claims expense estimate based on an actuarial computation of
the ultimate liability. Both the method formerly used by the Company and the
fully-developed method are acceptable under accounting principles generally
accepted in the United States.
Communications and utilities increased $0.1 million (3.8%), to $2.7
million during the six months ended March 31, 2002, from $2.6 million for the
corresponding period of 2001. As a percentage of revenue, communications and
utilities remained relatively unchanged at 2.0% for both periods. The Company
pays a fixed base charge per tractor for its satellite communications.
Depreciation and amortization increased $2.3 million (88.5%), to $4.9
million during the six months ended March 31, 2002, from $2.6 million for the
corresponding period of 2001. As a percentage of revenue, depreciation and
amortization (adjusted for the net loss on the sale of property and equipment)
increased to 3.7% for the six months ended March 31, 2002, from 2.0% for the
corresponding period of 2001. The increase in depreciation and amortization is
principally attributable to lower revenue per tractor and amortization expense
on revenue equipment acquired under capital lease obligations during fiscal
2001. The Company realized a net loss of $0.1 during the 2002 period, compared
with a net loss of $0.4, including a charge of approximately $0.5 on the
disposition of non-refrigerated trailers, on the sale of property and revenue
equipment during the 2001 period
Rent increased $1.0 million (4.9%), to $21.3 million during the six
months ended March 31, 2002 from $20.3 million for the corresponding period of
2001. As a percentage of revenue, rent increased to 16.1% of revenue for the six
months ended March 31, 2002, from 15.7% for the corresponding period of 2001.
This increase was primarily attributable to lower utilization due to soft
freight partially offset by the shift from Company owned tractors to tractors
supplied by owner-operators.
As a result of the foregoing, the Company's operating ratio increased
to 146.9% for the six months ended March 31, 2002, from 108.4% for the
corresponding period of 2001.
Net interest expense increased $2.4 million (266.67%), to $3.3 million
during the six months ended March 31, 2002, from $0.9 million during the
corresponding period of 2001. As a percentage of revenue, interest expense
increased to 2.5% of revenue for the quarter ended March 31, 2002 compared with
0.7% of revenue for the corresponding period in 2001 primarily as a result of a
majority of the Company's new leases during fiscal 2002 being capital leases for
financial reporting purposes and higher average debt balances.
The Company's effective combined federal and state income tax rates for
the six months ended March 31, 2002 and 2001 were 0% and 36.0%, respectively.
Due to the loss reported by the Company in the 2001 period, 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 $57.0 million to a net loss
attributable to common stockholders of $68.8 million for the three months ended
March 31, 2002, compared with a net loss attributable to common stockholders of
$11.8 million for the corresponding period of 2001. As a percentage of revenue,
net loss attributable to common stockholders was 52.1% of revenue in the quarter
ended March 31, 2002, compared with 9.1% in the 2001 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.
In connection with the bankruptcy proceedings, the Court signed a cash
collateral order allowing the Company to continue to use its existing line of
credit facility. The Company's variable rate debt consisted of its 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 March 31, 2002,
the Company's interest rate on the line of credit was at the minimum rate of 7
percent. At March 31, 2002, assuming borrowing equal to the $15.0 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 $0.15 million. This line of credit was assumed and
refinanced by Central in connection with the acquisition of the Company's assets
and operations.
The Company also entered into a $5 million debtor in possession credit
facility with Mr. Jerry Moyes. This facility carried a fixed interest rate of 7
percent. At March 31, 2002, the Company had drawn approximately $3.5 million
against this facility. This fixed interest rate exposed 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 paid over market
interest rates by one percentage point or approximately $35,000.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
In connection with the Company's bankruptcy filing, all legal
proceedings related to pre-petition liabilities were stayed pending review by
the Court. All of the matters below relating to equipment lessors will be
resolved through the Court and/or address in the Company's liquidating
bankruptcy plan.
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. No decision has been announced by the Court of
Appeals. 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. Through the efforts of Company, outside counsel and
insurance carriers, this litigation has been compromised and settled without the
payment of any punitive damages. The Company paid less than its $250,000
deductible toward this settlement, which did not 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 approximately $5
million. The Company is cooperating with its insurance carrier in defense of
this action, which is at a very preliminary stage. Given the Company's
bankruptcy, the Company has no exposure to punitive damages and the Company
believes its insurers and outside counsel will 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.
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
10.15 > Amended and Restated Asset Purchase Agreement dated April 19, 2002,
between Central Refrigerated Service, Inc. and Simon Transportation
Services, Inc. and subsidiaries
11.1 > Schedule of Computation of Net Loss per Share
99 > Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
+ 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 as an exhibit to the registrant's Quarterly Report on Form
10-Q for the period ended December 31, 2001, Commission File No.
0-27208, dated February 14, 2002, and incorporated herein by reference.
> Filed herewith
(b) Reports on Form 8-K.
Form 8-K filed March 4, 2002, in connection with:
The Company's filing for voluntary petitions
for reorganization under Chapter 11 of the
federal bankruptcy laws ("Bankruptcy Code"
or "Chapter 11") in the United States
Bankruptcy Court for the District of Utah
(the "Court").
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: August 13, 2002 By: /s/ Robert T. Goates
--------------------------- ----------------------------------
(Signature)
Robert T. Goates
Chief Financial Officer (Principal
Financial and Accounting Officer)