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 June 30, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________ to _____________
Commission File Number 0-20793
Smithway Motor Xpress Corp.
(Exact name of registrant as specified in its charter)
Nevada 42-1433844
(State or other jurisdiction (I.R.S. employer identification number)
of incorporation or organization)
2031 Quail Avenue
Fort Dodge, Iowa 50501
(515) 576-7418
(Address, including zip code, and telephone number,
including area code, of registrant's
principal executive office)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days.
YES X NO_____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date (August 4, 2000).
Class A Common Stock, $.01 par value: 4,033,992 shares
Class B Common Stock, $.01 par value: 1,000,000 shares
Exhibit Index is on Page 14-15.
Page 1
PART I
FINANCIAL INFORMATION
PAGE
NUMBER
Item 1. Financial Statements............................................. 3-7
Condensed Consolidated Balance Sheets as of
December 31, 1999 and June 30, 2000 (unaudited)............... 3-4
Condensed Consolidated Statements of Earnings for the
three and six months ended June 30, 1999 and 2000 (unaudited).. 5
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 1999 and 2000 (unaudited)............ 6
Notes to Condensed Consolidated Financial
Statements (unaudited)......................................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 8-12
Item 3. Quantitative and Qualitative Disclosures About Market Risks...... 12
PART II
OTHER INFORMATION
Item 1. Legal Proceedings................................................ 13
Item 2. Changes in Securities and Use of Proceeds........................ 13
Item 3. Defaults Upon Senior Securities.................................. 13
Item 4. Submission of Matters to a Vote of Security Holders.............. 13
Item 5. Other Information................................................ 13
Item 6. Exhibits and Reports on Form 8-K................................. 14-15
FORWARD LOOKING STATEMENTS
This document contains forward-looking statements. Statements by the
Company in press releases, public filings, and stockholder reports, as well as
oral public statements by Company representatives, also may contain certain
forward-looking information. Forward-looking information is subject to certain
risks and uncertainties that could cause actual results to differ materially
from those projected. Without limitation, these risks and uncertainties include
economic factors such as recessions, downturns in customers' business cycles,
surplus inventories, inflation, higher interest rates, and fuel price increases;
the resale value of the Company's used revenue equipment; the availability and
compensation of qualified drivers and owner-operators; competition from
trucking, rail, and intermodal competitors; and the availability of desirable
target companies and financing for acquisitions. Readers should review and
consider the various disclosures made by the Company in its press releases,
stockholder reports, and public filings, as well as the factors explained in
greater detail in the Company's annual report on Form 10-K.
Page 2
PART I
FINANCIAL INFORMATION
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
December 31, June 30,
1999 2000
------------------ ------------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents..................................................$ 685 $ 404
Receivables:
Trade................................................................... 17,928 20,969
Other................................................................... 1,599 2,090
Recoverable income taxes................................................ 1,021 184
Inventories................................................................ 1,611 1,641
Deposits, primarily with insurers.......................................... 281 246
Prepaid expenses........................................................... 579 929
Deferred income taxes...................................................... 1,111 1,038
------------------ ------------------
Total current assets................................................. 24,815 27,501
------------------ ------------------
Property and equipment:
Land....................................................................... 1,081 1,462
Buildings and improvements................................................. 6,865 7,302
Tractors................................................................... 74,004 79,585
Trailers................................................................... 42,054 42,397
Other equipment............................................................ 6,765 7,093
------------------ ------------------
130,769 137,839
Less accumulated depreciation.............................................. 36,464 43,804
------------------ ------------------
Net property and equipment........................................... 94,305 94,035
------------------ ------------------
Intangible assets, net........................................................ 5,650 5,452
Other assets.................................................................. 244 249
------------------ ------------------
$ 125,014 $ 127,237
================== ==================
See accompanying notes to condensed consolidated financial statements.
Page 3
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
December 31, June 30,
1999 2000
------------------ ------------------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt.......................................$ 8,530 $ 8,444
Accounts payable........................................................... 4,962 6,691
Accrued compensation....................................................... 2,436 2,951
Accrued loss reserves...................................................... 2,540 2,333
Other accrued expenses..................................................... 1,188 759
------------------ ------------------
Total current liabilities............................................ 19,656 21,178
Long-term debt, less current maturities....................................... 50,985 51,135
Deferred income taxes......................................................... 14,865 15,196
------------------ ------------------
Total liabilities.................................................... 85,506 87,509
------------------ ------------------
Stockholders' equity:
Preferred stock............................................................ - -
Common stock:
Class A................................................................. 40 40
Class B................................................................. 10 10
Additional paid-in capital................................................. 11,414 11,396
Retained earnings.......................................................... 28,044 28,289
Reacquired shares, at cost................................................. - (7)
------------------ ------------------
Total stockholders' equity........................................... 39,508 39,728
------------------ ------------------
$ 125,014 $ 127,237
================== ==================
See accompanying notes to condensed consolidated financial statements.
Page 4
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands, except share and per share data)
(Unaudited)
Three months ended Six months ended
June 30, June 30,
1999 2000 1999 2000
------------- ------------- ------------- --------------
Operating revenue:
Freight.........................................$ 50,888 $ 50,942 $ 98,094 $ 101,521
Other........................................... 229 152 318 321
------------- ------------- ------------- --------------
Operating revenue........................... 51,117 51,094 98,412 101,842
------------- ------------- ------------- --------------
Operating expenses:
Purchased transportation........................ 20,655 20,275 39,544 40,249
Compensation and employee benefits.............. 12,283 13,085 24,003 26,394
Fuel, supplies, and maintenance................. 6,150 7,345 11,668 14,609
Insurance and claims............................ 765 1,104 2,005 1,902
Taxes and licenses.............................. 976 1,030 1,967 1,948
General and administrative...................... 1,865 1,867 3,588 3,758
Communications and utilities.................... 566 540 1,144 1,066
Depreciation and amortization................... 3,974 4,642 7,460 9,191
------------- ------------- ------------- --------------
Total operating expenses.................... 47,234 49,888 91,379 99,117
------------- ------------- ------------- --------------
Earnings from operations............... 3,883 1,206 7,033 2,725
Financial (expense) income
Interest expense................................ (959) (1,062) (1,913) (2,077)
Interest income................................. 28 26 69 43
------------- ------------- ------------- --------------
Earnings before income taxes........... 2,952 170 5,189 691
Income taxes........................................ 1,230 163 2,163 446
------------- ------------- ------------- --------------
Net earnings...........................$ 1,722 $ 7 $ 3,026 $ 245
============= ============= ============= ==============
Basic and diluted earnings per common share.........$ 0.34 $ 0.00 $ 0.60 $ 0.05
============= ============= ============= ==============
Basic weighted average common shares
outstanding......................................... 5,030,931 5,019,805 5,025,940 5,020,134
Common stock options and awards................. 2,022 - 1,386 -
------------- ------------- ------------- --------------
Diluted weighted average common shares 5,032,953 5,019,805 5,027,326 5,020,134
outstanding.........................................
============= ============= ============= ==============
See accompanying notes to condensed consolidated financial statements.
Page 5
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Six Months Ended
June 30,
------------------------------
1999 2000
-------------- ---------------
Cash flows from operating activities:
Net earnings.......................................................................$ 3,026 $ 245
-------------- ---------------
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization.................................................... 7,460 9,191
Deferred income taxes............................................................ 1,690 404
Stock bonuses.................................................................... 176 171
Changes in:
Receivables.................................................................... (4,452) (3,532)
Inventories.................................................................... (48) (30)
Deposits, primarily with insurers.............................................. 158 35
Prepaid expenses............................................................... (348) (350)
Accounts payable and other accrued liabilities................................. 5,610 2,445
-------------- ---------------
Total adjustments............................................................. 10,246 8,334
-------------- ---------------
Net cash provided by operating activities..................................... 13,272 8,579
-------------- ---------------
Cash flows from investing activities:
Purchase of property and equipment................................................. (8,600) (2,655)
Proceeds from the sale of property and equipment................................... 1,696 619
Other ............................................................................. 117 (5)
-------------- ---------------
Net cash used in investing activities......................................... (6,787) (2,041)
-------------- ---------------
Cash flows from financing activities:
Proceeds from long-term debt....................................................... - 6,700
Principal payments on long-term debt............................................... (5,154) (13,323)
Payments for reacquired shares..................................................... - (196)
-------------- ---------------
Net cash used in financing activities......................................... (5,154) (6,819)
-------------- ---------------
Net increase (decrease) in cash and cash equivalents.......................... 1,331 (281)
Cash and cash equivalents at beginning of period..................................... 1,276 685
-------------- ---------------
Cash and cash equivalents at end of period...........................................$ 2,607 $ 404
============== ===============
Supplemental disclosure of cash flow information: Cash paid during the period
for:
Interest......................................................................$ 1,704 $ 2,125
Income taxes.................................................................. 197 (796)
============== ===============
Supplemental schedules of noncash investing and financing activities:
Notes payable issued for tractors and trailers................................$ 3,834 $ 6,687
Issuance of stock bonuses..................................................... 176 171
============== ===============
See accompanying notes to condensed consolidated financial statements.
Page 6
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The condensed consolidated financial statements include the accounts of
Smithway Motor Xpress Corp., a Nevada holding company, and its four wholly
owned subsidiaries. All significant intercompany balances and transactions
have been eliminated in consolidation.
The condensed consolidated financial statements have been prepared, without
audit, in accordance with generally accepted accounting principles, pursuant
to the published rules and regulations of the Securities and Exchange
Commission. In the opinion of management, the accompanying condensed
consolidated financial statements include all adjustments which are necessary
for a fair presentation of the results for the interim periods presented,
such adjustments being of a normal recurring nature. Certain information and
footnote disclosures have been condensed or omitted pursuant to such rules
and regulations. The December 31, 1999 Condensed Consolidated Balance Sheet
was derived from the audited balance sheet of the Company for the year then
ended. It is suggested that these condensed consolidated financial statements
and notes thereto be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Form 10-K for the year
ended December 31, 1999. Results of operations in interim periods are not
necessarily indicative of results to be expected for a full year.
Note 2. Effect of New Accounting Standards
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 137
and SFAS No. 138, will be effective for the Company for the year beginning
January 1, 2001. Management is evaluating the impact the adoption of SFAS
No. 133 will have on the Company's consolidated financial statements. The
Company expects to adopt SFAS No. 133 when required.
Page 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The Company's fiscal year ends on December 31 of each year. Thus, this
report discusses the second quarter and first six months of the Company's 1999
and 2000 fiscal years.
The Company has expanded its operations substantially over the past
three years through a combination of internal growth and acquisitions. For the
three months ended June 30, 2000, operating revenue was $51.1 million, equal to
operating revenue during the same quarter in 1999. Net earnings were $7,000, or
$0.00 per diluted share, compared with $1.7 million, or $0.34 per diluted share,
during the 1999 quarter. For the six months ended June 30, 2000, operating
revenue was $101.8 million, compared to $98.4 million in 1999. Net earnings were
$245,000, or $0.05 per diluted share, compared with $3.0 million, or $0.60 per
diluted share, in 1999. The primary reasons for the decline in the Company's
profitability were lower than expected revenue, increases in the costs of fuel
and driver compensation, and a decline in the market for used tractors.
The Company operates a tractor-trailer fleet comprised of both
Company-owned vehicles and vehicles obtained under leases from independent
contractors and third-party finance companies. Fluctuations among expense
categories may occur as a result of changes in the relative percentage of the
fleet obtained through equipment that is owned versus equipment that is leased
from independent contractors or financing sources. Costs associated with revenue
equipment acquired under operating leases or through agreements with independent
contractors are expensed as "purchased transportation." For these categories of
equipment the Company does not incur costs such as interest and depreciation as
it might with owned equipment. In addition, independent contractor tractors,
driver compensation, fuel, communications, and certain other expenses are borne
by the independent contractors and are not incurred by the Company. Obtaining
equipment from independent contractors and under operating leases reduces
capital expenditures and on-balance sheet leverage and effectively shifts
expenses from interest to "above the line" operating expenses. The fleet profile
of acquired companies and the Company's relative recruiting and retention
success with Company-employed drivers and independent contractors will cause
fluctuations from time-to-time in the percentage of the Company's fleet that is
owned versus obtained from independent contractors and under operating leases.
Results of Operations
The following table sets forth the percentage relationship of certain
items to operating revenue for the three and six months ended June 30, 1999 and
2000:
Three Months Ended Six Months Ended
June 30, June 30,
1999 2000 1999 2000
-------------------------------------------------------------
Operating revenue.................................... 100.0% 100.0% 100.0% 100.0%
Operating expenses
Purchased transportation........................... 40.4 39.7 40.2 39.5
Compensation and employee benefits................. 24.0 25.6 24.4 25.9
Fuel, supplies, and maintenance.................... 12.0 14.4 11.9 14.3
Insurance and claims............................... 1.5 2.2 2.0 1.9
Taxes and licenses................................. 1.9 2.0 2.0 1.9
General and administrative......................... 3.6 3.7 3.6 3.7
Communications and utilities....................... 1.1 1.1 1.2 1.0
Depreciation and amortization...................... 7.8 9.1 7.6 9.0
-------------------------------------------------------------
Total operating expenses......................... 92.4 97.6 92.9 97.3
-------------------------------------------------------------
Earnings from operations............................. 7.6 2.4 7.1 2.7
Interest expense (net)............................... (1.8) (2.0) (1.9) (2.0)
-------------------------------------------------------------
Earnings before income taxes......................... 5.8 0.3 5.3 0.7
Income taxes......................................... 2.4 0.3 2.2 0.4
-------------------------------------------------------------
Net earnings......................................... 3.4% 0.0% 3.1% 0.2%
=============================================================
Page 8
Comparison of three months ended June 30, 2000 with three months ended June 30,
1999
Operating revenue remained constant at $51.1 million during the 2000
and 1999 quarter. A substantial increase in fuel surcharge revenue to $1.6
million in the 2000 quarter from $3,000 in the 1999 quarter and a slight
increase in freight rates helped to offset reductions in revenue caused by lower
weighted average tractors and lower average revenue per tractor per week.
Approximately $800,000 of the fuel surcharge revenue collected helped to offset
Company fuel costs and the remainder was passed through to independent
contractors. Weighted average tractors decreased to 1,498 during the 2000
quarter from 1,540 during the 1999 quarter, caused by a reduction in tractors
provided by independent contractors. Average revenue per tractor per week
(excluding revenue from brokerage operations) decreased to $2,348 during the
2000 quarter from $2,399 during the 1999 quarter, primarily due to decreasing
freight demand which was partially offset by a slight increase in revenue per
loaded mile, net of surcharges, to $1.33 in the 2000 quarter from $1.32 in the
1999 quarter.
Purchased transportation decreased $380,000 (1.8%) to $20.3 million in
the 2000 quarter from $20.7 million in the 1999 quarter and decreased as a
percentage of revenue to 39.7% of revenue in the 2000 quarter from 40.4% in the
1999 quarter. This reflects a decrease in the percentage of the Company's fleet
supplied by independent contractors which was partially offset by an increase in
the percentage of the revenue paid to the independent contractors for fuel
surcharges. Management believes the decline in independent contractor percentage
is attributable to high fuel costs and rising interest rates, which have
diminished the pool of drivers interested in becoming or remaining independent
contractors.
Compensation and employee benefits increased $802,000 (6.5%) to $13.1
million in the 2000 quarter from $12.3 million in the 1999 quarter and increased
as a percentage of revenue to 25.6% of revenue in the 2000 quarter from 24.0% in
the 1999 quarter. The increases were primarily attributable to the increase in
the per-mile wage paid to flatbed drivers which occurred in the fourth quarter
of 1999 and an increase in the percentage of the Company's fleet represented by
company owned equipment.
Fuel, supplies, and maintenance increased $1.2 million (19.4%) to $7.3
million in the 2000 quarter from $6.2 million in the 1999 quarter. As a
percentage of revenue, fuel, supplies, and maintenance increased to 14.4% of
revenue for the 2000 quarter compared with 12.0% for the 1999 quarter. This was
the result of a 31% increase in the average price of fuel to $1.40 per gallon
during the 2000 quarter from $1.07 per gallon during the 1999 quarter. The
increase in fuel prices was partially offset by a $321,000 benefit from fuel
hedging transactions. The Company is attempting to recover increases in fuel
prices through fuel surcharges and higher rates, however, fuel price increases
will not be fully offset through these measures. The Company's fuel hedging
positions expired in June 2000, which is expected to increase the Company's fuel
cost going forward.
Insurance and claims increased $339,000 (44.3%) to $1.1 million in the
2000 quarter from $765,000 in the 1999 quarter. As a percentage of revenue,
insurance and claims increased to 2.2% of revenue for the 2000 quarter compared
with 1.5% for the 1999 quarter. The increase was attributable to an increase in
liability and physical damage claims paid and reserved.
Taxes and licenses increased $54,000 (5.5%) to $1.0 million in the 2000
quarter from $976,000 in the 1999 quarter. As a percentage of revenue, taxes and
licenses remained essentially constant at 2.0% of revenue in the 2000 quarter
and 1.9% in the 1999 quarter.
General and administrative expenses remained constant at $1.9 million
in the 2000 and 1999 quarter. As a percentage of revenue, general and
administrative expenses remained essentially constant at 3.7% of revenue in the
2000 quarter and 3.6% in the 1999 quarter.
Communications and utilities decreased $26,000 (4.6%) to $540,000 in
the 2000 quarter from $566,000 in the 1999 quarter due to renegotiated long
distance telephone service contracts. As a percentage of revenue, communications
and utilities remained constant at 1.1% of revenue for both periods.
Depreciation and amortization increased $668,000 (16.8%) to $4.6
million in the 2000 quarter from $4.0 million in the 1999 quarter. As a
percentage of revenue, depreciation and amortization increased to 9.1% of
revenue in the 2000 quarter from 7.8% in the 1999 quarter reflecting lower gains
on sales of equipment, a larger fleet of Company-owned tractors and trailers,
which increased the cost of equipment being depreciated, and an increase in the
number of Company-owned tractors, trailers, and satellite communications units
financed with debt rather than operating leases.
Page 9
Interest expense (net) increased $105,000 (11.3%) to $1.0 million in
the 2000 quarter from $931,000 in the 1999 quarter. As a percentage of revenue,
interest expense (net) remained essentially constant at 2.0% of revenue in the
2000 quarter and 1.8% in the 1999 quarter.
As a result of the foregoing, the Company's pretax margin decreased to
0.3% in the 2000 quarter from 5.8% in the 1999 quarter.
The Company's effective tax rate was 95.9% for the 2000 quarter and
41.7% for the 1999 quarter. The effective tax rate is higher than the expected
combined tax rate for a company headquartered in Iowa because of the cost of
nondeductible driver per diem expense absorbed by the Company. The impact of the
Company's paying per diem travel expenses varies depending upon the ratio of
drivers to independent contractors and the Company's pretax earnings. At the
Company's low earnings level for the quarter, nondeductible per diem travel
expenses comprised a larger portion of pretax earnings, effectively increasing
the tax rate during the quarter.
As a result of the factors described above, net earnings decreased to
$7,000 (0.0% of revenue) in the 2000 quarter from $1.7 million (3.4% of revenue)
in the 1999 quarter.
Comparison of six months ended June 30, 2000 with six months ended June 30, 1999
Operating revenue increased $3.4 million (3.5%) to $101.8 million
during the 2000 period from $98.4 million during the 1999 period. A substantial
increase in fuel surcharge revenue to $2.9 million in the 2000 period from
$13,000 in the 1999 period and slightly higher average revenue per tractor per
week were partially offset by lower weighted average tractors. Approximately
$1.5 million of the fuel surcharge revenue collected helped to offset Company
fuel costs and the remainder was passed through to independent contractors.
Weighted average tractors decreased to 1,518 during the 2000 period from 1,534
during the 1999 period, caused by a reduction in tractors provided by
independent contractors. Average revenue per tractor per week (excluding revenue
from brokerage operations) increased to $2,336 during the 2000 period from
$2,312 during the 1999 period. Revenue per loaded mile, net of surcharges,
remained constant at $1.32 in the 2000 and 1999 period.
Purchased transportation increased $705,000 (1.8%) to $40.2 million in
the 2000 period from $39.5 million in the 1999 period. As a percentage of
revenue, purchased transportation decreased to 39.5% of revenue in the 2000
period from 40.2% in the 1999 period. The decrease as a percentage of revenue
reflects a decrease in the percentage of the Company's fleet supplied by
independent contractors. This was partially offset by an increase in the
percentage of revenue paid to the independent contractors for fuel surcharges.
Compensation and employee benefits increased $2.4 million (10.0%) to
$26.4 million in the 2000 period from $24.0 million in the 1999 period. As a
percentage of revenue, compensation and employee benefits increased to 25.9% of
revenue in the 2000 period from 24.4% in the 1999 period. The increase was
primarily attributable to the increase in the per-mile wage paid to flatbed
drivers which occurred in the fourth quarter of 1999 and an increase in the
percentage of the Company's fleet represented by company owned equipment.
Fuel, supplies, and maintenance increased $2.9 million (25.2%) to $14.6
million in the 2000 period from $11.7 million in the 1999 period. As a
percentage of revenue, fuel, supplies, and maintenance increased to 14.3% of
revenue for the 2000 period compared with 11.9% for the 1999 period. This was
the result of a 38% increase in the average price of fuel to $1.39 per gallon
during the 2000 period from $1.01 per gallon during the 1999 period. The
increase in fuel prices was partially offset by a $667,000 benefit from fuel
hedging transactions. The Company is attempting to recover increases in fuel
prices through fuel surcharges and higher rates, however, fuel price increases
will not be fully offset through these measures. The Company's fuel hedging
positions expired in June 2000, which is expected to increase the Company's fuel
cost going forward.
Insurance and claims decreased $103,000 (5.1%) to $1.9 million in the
2000 period from $2.0 million in the 1999 period. As a percentage of revenue,
insurance and claims remained essentially constant at 1.9% of revenue for the
2000 period compared with 2.0% for the 1999 period.
Taxes and licenses decreased $19,000 (1.0%) to $1.9 million in the 2000
period from $2.0 million in the 1999 period. As a percentage of revenue, taxes
and licenses remained essentially constant at 1.9% of revenue for the 2000
period compared with 2.0% for the 1999 period.
Page 10
General and administrative expenses increased $170,000 (4.7%) to $3.8
million in the 2000 period from $3.6 million in the 1999 period. As a percentage
of revenue, general and administrative expenses remained essentially constant at
3.7% of revenue in the 2000 period and 3.6% in the 1999 period.
Communications and utilities decreased $78,000 (6.8%) to $1.1 million
in the 2000 period from $1.1 million in the 1999 period due to renegotiated long
distance telephone service contracts. As a percentage of revenue, communications
and utilities decreased slightly to 1.0% of revenue for the 2000 period compared
with 1.2% for the 1999 period.
Depreciation and amortization increased $1.7 million (23.2%) to $9.2
million in the 2000 period from $7.5 million in the 1999 period. As a percentage
of revenue, depreciation and amortization increased to 9.0% of revenue in the
2000 period from 7.6% in the 1999 period reflecting lower gains on sales of
equipment, a larger fleet of Company- owned tractors and trailers, which
increased the cost of equipment being depreciated, and an increase in the number
of Company-owned tractors, trailers, and satellite communications units financed
with debt rather than operating leases.
Interest expense (net) increased $190,000 (10.3%) to $2.0 million in
the 2000 period from $1.8 million in the 1999 period. As a percentage of
revenue, interest expense (net) remained essentially constant at 2.0% of revenue
in the 2000 period and 1.9% in the 1999 period.
As a result of the foregoing, the Company's pretax margin decreased to
0.7% in the 2000 period from 5.3% in the 1999 period.
The Company's effective tax rate was 64.5% for the 2000 period and
41.7% for the 1999 period. The effective tax rate is higher than the expected
combined tax rate for a company headquartered in Iowa because of the cost of
nondeductible driver per diem expense absorbed by the Company. The impact of the
Company's paying per diem travel expenses varies depending upon the ratio of
drivers to independent contractors and the Company's pretax earnings. At the
Company's low earnings level for the period, nondeductible per diem travel
expenses comprised a larger portion of pretax earnings, effectively increasing
the tax rate during the period.
As a result of the factors described above, net earnings decreased to
$245,000 (0.2% of revenue) in the 2000 period from $3.0 million (3.1% of
revenue) in the 1999 period.
Liquidity and Capital Resources
The growth of the Company's business has required significant
investments in new revenue equipment that the Company has financed in recent
years with borrowings under installment notes payable to commercial lending
institutions and equipment manufacturers, borrowings under lines of credit, cash
flow from operations, and equipment leases from third-party lessors. The Company
also has obtained a portion of its revenue equipment fleet from independent
contractors who own and operate the equipment, which reduces overall capital
expenditure requirements compared with providing a fleet of entirely
Company-owned equipment. The Company's primary sources of liquidity currently
are funds provided by operations and borrowings under credit agreements with
financial institutions and equipment manufacturers. Management believes that its
sources of liquidity are adequate to meet its currently anticipated working
capital requirements, capital expenditures, and other needs at least through
2000.
Net cash provided by operating activities was $8.6 million for the six
months ended June 30, 2000. The primary sources of cash from operations were net
earnings of $245,000 increased by $9.2 million in depreciation and amortization,
and a $2.4 million increase in accounts payable and other accrued liabilities.
The Company's principal uses of cash from operations are to service debt and
internally finance accounts receivable growth. Customer accounts receivable
increased $3.5 million for the six months ended June 30, 2000. The average age
of the Company's accounts receivable was approximately 36.0 days for the 2000
period versus 34.5 days for the 1999 period.
Net cash used in investing activities of $2.0 million for the six
months ended June 30, 2000 related primarily to purchases, sales, and trades of
revenue equipment. The Company expects capital expenditures (primarily for
revenue equipment and satellite communications units), net of revenue equipment
trade-ins, to be approximately $6.9 million during the remaining six months of
2000. Such projected capital expenditures will be funded with a combination of
cash flow from operations, borrowings, and operating leases. The Company
continues to evaluate the need to expand its present headquarters facility and
may incur a portion of the expansion costs in 2000. The size and cost of the
possible
Page 11
expansion has not yet been determined. The Company's projected capital
expenditures do not include any amount for this possible expansion.
Net cash used in financing activities of $6.8 million for the six
months ended June 30, 2000, consisted primarily of principal payments, net of
borrowings, made under the Company's long-term debt obligations.
At June 30, 2000, the Company had outstanding long-term debt (including
current maturities) of approximately $59.6 million, most of which was comprised
of obligations for the purchase of revenue equipment. Approximately $36.1
million consisted of borrowings from financial institutions and equipment
manufacturers, $23.4 million represented the amount drawn under the Company's
revolving credit facility, and $130,000 represented future payments for
purchases of intangible assets. Interest rates on this debt range from 5.81% to
8.18% with maturities through 2005.
At June 30, 2000, the revolving credit facility provided for borrowings
of up to $40.0 million, based upon certain accounts receivable and revenue
equipment values. Based upon the borrowing levels at June 30, 2000, the Company
had $13.8 million of remaining borrowing capacity under this credit facility.
The interest rate under the credit facility is currently 1.5% plus the LIBOR
rate for the corresponding period. The credit facility is secured and contains
covenants that impose certain minimum financial ratios and limit additional
liens, the size of certain mergers and acquisitions, dividends, and other
matters. The Company was in compliance with the terms of the credit facility at
June 30, 2000.
On June 23, 2000, the Company's Board of Directors approved a 500,000
share stock repurchase program. No shares have been repurchased under the
program to date.
Quantitative and Qualitative Disclosures About Market Risks
The Company is exposed to market risks from changes in (i) certain
interest rates on its debt and (ii) certain commodity prices.
Interest Rate Risk
The revolving credit facility, provided there has been no default,
carries a maximum variable interest rate of LIBOR for the corresponding period
plus 1.5%. This variable interest exposes the Company to the risk that interest
rates may rise. Most of the Company's other debt carries fixed interest rates
and exposes the Company to the risk that interest rates may fall. At June 30,
2000, approximately 56% of the Company's debt carries a variable interest rate
and the remainder is fixed.
Commodity Price Risk
The Company has used derivative instruments, including heating oil
price swap agreements, to reduce a portion of its exposure to fuel price
fluctuations. Under such instruments, the Company's price is fixed, and changes
in fuel prices would have no impact on the Company's future fuel expense related
to these price swap agreements. Therefore, there has been no earnings or
liquidity risk associated with the price swap agreements used by the Company.
The Company does not trade in these derivatives with the objective of
earning financial gains on price fluctuations, nor does it trade in these
instruments when there are no underlying transaction related exposures.
Through June 30, 2000, there have been no material changes in the
amount or nature of the Company's derivative instruments. All of the Company's
fuel hedging agreements expired by June 30, 2000.
Page 12
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
No reportable events or material changes occurred during the quarter
for which this report is filed.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
On May 12, 2000, the Company held its annual meeting for the purpose of
(a) ratification of the selection of KPMG LLP as independent certified
public accounts for the Company, and (b) electing five directors for
one-year terms. Proxies for the meeting were solicited pursuant to
Section 14(a) of the Securities Exchange Act of 1934, and there was no
solicitation in opposition to management's nominees. Each of
management's nominees for director as listed in the Proxy Statement was
elected. The voting tabulation on the selection of accountants was
5,129,109 votes "FOR", 3,288 votes "AGAINST", and 40,362 votes
"ABSTAIN." The voting tabulation on the election of directors was as
follows:
Shares Shares Shares
voted voted voted
"FOR" "AGAINST" "ABSTAIN"
William G. Smith 5,099,049 0 73,710
G. Larry Owens 5,099,586 0 73,173
Terry G. Christenberry 5,101,871 0 70,888
Herbert D. Ihle 5,099,371 0 73,388
Robert E. Rich 5,100,221 0 72,538
Item 5. Other Information.
None.
Page 13
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit Description
Number
2.1 ++++ Asset Purchase Agreement dated September 23, 1998, by
and among Smithway Motor Xpress, Inc., JHT, Inc.,
JHT LOGISTICS, INC., Bass Brook Truck Service, Inc.,
and JERDON TERMINAL HOLDINGS, LLC.
2.2 ++++ First Amendment to Asset Purchase Agreement dated October 29,
1998, by and among Smithway Motor Xpress, Inc., JHT, Inc.,
JHT LOGISTICS, INC., Bass Brook Truck Service, Inc., and
JERDON TERMINAL HOLDINGS, LLC.
2.3 * Second Amendment to Asset Purchase Agreement dated October
30, 1998, by and among Smithway Motor Xpress, Inc., JHT,
Inc., JHT LOGISTICS, INC., Bass Brook Truck Service, Inc.,
and JERDON TERMINAL HOLDINGS, LLC.
3.1 + Articles of Incorporation.
3.2 + Bylaws.
4.1 + Articles of Incorporation.
4.2 + Bylaws.
10.1 + Outside Director Stock Plan dated March 1, 1995.
10.2 + Incentive Stock Plan adopted March 1, 1995.
10.3 + 401(k) Plan adopted August 14, 1992, as amended.
10.4 + Form of Agency Agreement between Smithway Motor Xpress, Inc.
and its independent commission agents.
10.5 + Memorandum of officer incentive compensation policy.
10.6 + Form of Independent Contractor Agreement between Smithway
Motor Xpress, Inc. and its independent contractor providers
of tractors.
10.7 ++ Credit Agreement dated September 3, 1997, between
Smithway Motor Xpress Corp., as Guarantor, Smithway Motor
Xpress, Inc., as Borrower, and LaSalle National Bank.
10.8 +++ First Amendment to Credit Agreement dated March 1, 1998,
between Smithway Motor Xpress Corp., as Guarantor, Smithway
Motor Xpress, Inc., as Borrower, and LaSalle National
Bank.
10.9 +++ Second Amendment to Credit Agreement dated March 15, 1998,
between Smithway Motor Xpress Corp., as Guarantor, Smithway
Motor Xpress, Inc., as Borrower, and LaSalle National
Bank.
10.10 ++++ Asset Purchase Agreement dated September 23, 1998, by and
among Smithway Motor Xpress, Inc., JHT, Inc., JHT
LOGISTICS, INC., Bass Brook Truck Service, Inc., and JERDON
TERMINAL HOLDINGS, LLC.
10.11 ++++ First Amendment to Asset Purchase Agreement dated October 29,
1998, by and among Smithway Motor Xpress, Inc., JHT, Inc.,
JHT LOGISTICS, INC., Bass Brook Truck Service, Inc., and
JERDON TERMINAL HOLDINGS, LLC.
Page 14
10.12 * Second Amendment to Asset Purchase Agreement dated October
30, 1998, by and among Smithway Motor Xpress, Inc., JHT,
Inc., JHT LOGISTICS, INC., Bass Brook Truck Service, Inc.,
and JERDON TERMINAL HOLDINGS, LLC.
10.13 * Third Amendment to Credit Agreement dated October 30, 1998,
between Smithway Motor Xpress Corp., as Guarantor, Smithway
Motor Xpress, Inc., as Borrower, and LaSalle National Bank,
as Lender.
10.14 ** Amendment No. 2 to Smithway Motor Xpress Corp. Incentive
Stock Plan, adopted May 7, 1999.
10.15 *** Fourth Amendment to Credit Agreement dated August 20, 1999,
between Smithway Motor Xpress Corp., as Guarantor, Smithway
Motor Xpress, Inc., as Borrower, and LaSalle National Bank.
10.16 **** Fifth Amendment to Credit Agreement dated December 17, 1999,
between Smithway Motor Xpress Corp., as Guarantor, Smithway
Motor Xpress, Inc., as Borrower, and LaSalle National Bank.
10.17 ***** 1997 Profit Incentive Plan, adopted May 8, 1997.
27 # Financial Data Schedule.
- ----------------
+ Incorporated by reference from the Company's Registration Statement on
Form S-1, Registration No. 33-90356, effective June 27, 1996.
++ Incorporated by reference from the Company's Quarterly Report on Form
10-Q for the period ended September 30, 1997. Commission File No.
000-20793, dated November 12, 1997.
+++ Incorporated by reference from the Company's Quarterly Report on Form
10-Q for the period ended March 31, 1998. Commission File No.
000-20793, dated May 14, 1998.
++++ Incorporated by reference from the Company's Form 8-K. Commission File
No. 000-20793, dated November 12, 1998.
* Incorporated by reference from the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998. Commission File No.
000-20793, dated March 18, 1999.
** Incorporated by reference from the Company's Quarterly Report on Form
10-Q for the period ended June 30, 1999. Commission File No. 000-20793,
dated August 13, 1999.
*** Incorporated by reference from the Company's Quarterly Report on Form
10-Q for the period ended September 30, 1999. Commission File No.
000-20793, dated November 10, 1999.
**** Incorporated by reference from the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1999. Commission File No.
000-20793, dated March 29, 2000.
***** Incorporated by reference from the Company's Quarterly Report on Form
10-Q for the period ended March 31, 2000. Commission File No.
000-20793, dated May 5, 2000.
# Filed herewith.
(b) Reports on Form 8-K.
None.
Page 15
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
SMITHWAY MOTOR XPRESS CORP.,
a Nevada corporation
Date: August 11, 2000 By: /s/ Douglas C. Sandvig
-------------------- ------------------------------------
Douglas C. Sandvig
Controller and Chief Accounting Officer