SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549-1004
-----------------------------------------------------
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2001
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 of (I.R.S. employer identification
incorporation or organization) number)
2031 Quail Avenue
Fort Dodge, Iowa 50501
(515) 576-7418
(Address, including zip code, and telephone number,
including area code, of registrant's
principal executive office)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days.
YES X NO_____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date (October 5, 2001).
Class A Common Stock, $.01 par value: 3,843,980 shares
Class B Common Stock, $.01 par value: 1,000,000 shares
Exhibit Index is on Page 16-17.
Page 1
PART I
FINANCIAL INFORMATION
PAGE
NUMBER
Item 1. Financial Statements....................................................................... 3-8
Condensed Consolidated Balance Sheets as of December 31, 2000 and
September 30, 2001 (unaudited)................................................... 3-4
Condensed Consolidated Statements of Earnings for the three and nine months
ended September 30, 2000 and 2001 (unaudited)..................................... 5
Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 2000 and 2001 (unaudited)........................................... 6-7
Notes to Condensed Consolidated Financial Statements (unaudited)........................... 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations........................................................................ 9-14
Item 3. Quantitative and Qualitative Disclosures About Market Risks................................ 14
PART II
OTHER INFORMATION
Item 1. Legal Proceedings........................................................................... 15
Item 2. Changes in Securities and Use of Proceeds................................................... 15
Item 3. Defaults Upon Senior Securities............................................................. 15
Item 4. Submission of Matters to a Vote of Security Holders......................................... 15
Item 5. Other Information........................................................................... 15
Item 6. Exhibits and Reports on Form 8-K............................................................ 16-17
Page 2
PART I
FINANCIAL INFORMATION
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
December 31, September 30,
2000 2001
------------------ ------------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents..................................................$ 349 $ 100
Receivables:
Trade................................................................... 17,832 21,375
Other................................................................... 1,310 1,547
Recoverable income taxes................................................ 17 833
Inventories................................................................ 1,586 1,587
Deposits, primarily with insurers.......................................... 160 364
Prepaid expenses........................................................... 910 1,139
Deferred income taxes...................................................... 1,384 1,418
------------------ ------------------
Total current assets................................................. 23,548 28,363
------------------ ------------------
Property and equipment:
Land....................................................................... 1,412 1,548
Buildings and improvements................................................. 7,006 7,197
Tractors................................................................... 77,098 77,989
Trailers................................................................... 43,167 45,038
Other equipment............................................................ 7,497 8,080
------------------ ------------------
136,180 139,852
Less accumulated depreciation.............................................. 49,432 61,207
------------------ ------------------
Net property and equipment........................................... 86,748 78,645
------------------ ------------------
Intangible assets, net........................................................ 5,191 5,201
Other assets.................................................................. 341 378
------------------ ------------------
$ 115,828 $ 112,587
================== ==================
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, September 30,
2000 2001
------------------ ------------------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt.......................................$ 8,636 $ 10,354
Accounts payable........................................................... 5,669 6,580
Checks issued in excess of cash balances................................... - 307
Accrued compensation....................................................... 2,505 2,925
Accrued loss reserves...................................................... 2,344 2,484
Other accrued expenses..................................................... 1,094 630
------------------ ------------------
Total current liabilities............................................ 20,248 23,280
Long-term debt, less current maturities....................................... 43,698 41,014
Deferred income taxes......................................................... 14,649 14,100
------------------ ------------------
Total liabilities.................................................... 78,595 78,394
------------------ ------------------
Stockholders' equity:
Preferred stock............................................................ - -
Common stock:
Class A................................................................. 40 40
Class B................................................................. 10 10
Additional paid-in capital................................................. 11,396 11,394
Retained earnings.......................................................... 26,053 23,169
Reacquired shares, at cost................................................. (266) (420)
------------------ ------------------
Total stockholders' equity........................................... 37,233 34,193
------------------ ------------------
$ 115,828 $ 112,587
================== ==================
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 per share data)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
2000 2001 2000 2001
------------- ------------- ------------- --------------
Operating revenue:
Freight.........................................$ 50,033 $ 48,389 $ 151,554 $ 147,209
Other........................................... 173 182 494 495
------------- ------------- ------------- --------------
Operating revenue........................... 50,206 48,571 152,048 147,704
------------- ------------- ------------- --------------
Operating expenses:
Purchased transportation........................ 19,712 17,619 59,961 53,963
Compensation and employee benefits.............. 12,693 13,742 39,087 41,441
Fuel, supplies, and maintenance................. 7,983 8,480 22,592 26,163
Insurance and claims............................ 648 1,922 2,550 3,954
Taxes and licenses.............................. 1,016 956 2,964 2,860
General and administrative...................... 1,830 1,955 5,588 5,996
Communications and utilities.................... 483 496 1,549 1,620
Depreciation and amortization................... 4,637 4,515 13,828 13,610
------------- ------------- ------------- --------------
Total operating expenses.................... 49,002 49,685 148,119 149,607
------------- ------------- ------------- --------------
Earnings (loss) from operations........ 1,204 (1,114) 3,929 (1,903)
Financial (expense) income
Interest expense................................ (1,056) (741) (3,133) (2,422)
Interest income................................. 26 10 69 36
------------- ------------- ------------- --------------
Earnings (loss) before income taxes.... 174 (1,845) 865 (4,289)
Income taxes (benefit).............................. 153 (633) 599 (1,405)
------------- ------------- ------------- --------------
Net earnings (loss)....................$ 21 $ (1,212) $ 266 $ (2,884)
============= ============= ============= ==============
Basic and diluted earnings (loss) per common share..$ 0.00 $ (0.25) $ 0.05 $ (0.59)
============= ============= ============= ==============
Basic weighted average common shares
outstanding......................................... 5,034,072 4,843,980 5,024,814 4,854,792
Common stock options and awards................. 58,190 - 19,396 -
------------- ------------- ------------- --------------
Diluted weighted average common shares 5,092,262 4,843,980 5,044,210 4,854,792
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)
Nine Months Ended
September 30,
------------------------------
2000 2001
-------------- ---------------
Cash flows from operating activities:
Net earnings (loss)................................................................$ 266 $ (2,884)
-------------- ---------------
Adjustments to reconcile net earnings (loss) to net cash provided by operating
activities:
Depreciation and amortization.................................................... 13,828 13,610
Deferred income taxes............................................................ 548 (583)
Stock bonuses.................................................................... 171 9
Changes in:
Receivables.................................................................... (2,032) (4,483)
Inventories.................................................................... (37) 3
Deposits, primarily with insurers.............................................. 164 (204)
Prepaid expenses............................................................... (325) (118)
Accounts payable and other accrued liabilities................................. 1,943 1,000
-------------- ---------------
Total adjustments............................................................. 14,260 9,234
-------------- ---------------
Net cash provided by operating activities..................................... 14,526 6,350
-------------- ---------------
Cash flows from investing activities:
Payments for acquisitions.......................................................... - (2,954)
Purchase of property and equipment................................................. (3,062) (1,399)
Proceeds from the sale of property and equipment................................... 999 1,101
Other ............................................................................. (12) (37)
-------------- ---------------
Net cash used in investing activities......................................... (2,075) (3,289)
-------------- ---------------
Cash flows from financing activities:
Proceeds from long-term debt....................................................... 6,700 16,545
Principal payments on long-term debt............................................... (19,045) (19,997)
Change in net checks issued in excess of cash balances............................. - 307
Payments for reacquired shares..................................................... (196) (165)
-------------- ---------------
Net cash used in financing activities......................................... (12,541) (3,310)
-------------- ---------------
Net decrease in cash and cash equivalents..................................... (90) (249)
Cash and cash equivalents at beginning of period..................................... 685 349
-------------- ---------------
Cash and cash equivalents at end of period...........................................$ 595 $ 100
============== ===============
See accompanying notes to condensed consolidated financial statements.
Page 6
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
(Unaudited)
(Dollars in thousands)
Nine Months Ended
September 30,
------------------------------
2000 2001
-------------- ---------------
Supplemental disclosure of cash flow information: Cash paid (received) during
the period for:
Interest......................................................................$ 3,176 $ 2,427
Income taxes.................................................................. (787) (5)
============== ===============
Supplemental schedules of noncash investing and financing activities:
Notes payable issued for tractors and trailers................................$ 8,267 $ 2,486
Issuance of stock bonuses..................................................... 171 9
============== ===============
Cash payments for acquisitions:
Revenue equipment............................................................. - 2,088
Intangible assets............................................................. - 526
Other assets (net)............................................................ - 340
-------------- ---------------
- 2,954
============== ===============
See accompanying notes to condensed consolidated financial statements.
Page 7
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 accounting principles generally accepted in the
United States of America, 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, 2000
Condensed Consolidated Balance Sheet was derived from the audited balance
sheet of the Company. 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, 2000. 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," became effective for the
Company for the year beginning January 1, 2001. Management has conducted a
review of the Company's operations and believes the options and futures
contracts used to hedge fuel costs are the only derivative instruments
which require valuation in the financial statements under the provisions of
SFAS 133. The Company did not have any options or futures contracts in
place at January 1, 2001, or any transactions during the nine months ended
September 30, 2001, and thus there is no effect on the financial statements
from the adoption of the pronouncement.
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires
that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001, as well as all purchase method
business combinations completed after June 30, 2001. SFAS No. 142 will
require that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead be tested for impairment at least
annually. The Company will adopt SFAS No. 142 for its fiscal year beginning
January 1, 2002. The impact of adoption of SFAS No. 142 on the Company's
financial statements has not yet been determined.
Page 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction
Except for the historical information contained herein, the discussion in
this quarterly report on Form 10-Q contains forward-looking statements that
involve risk, assumptions, and uncertainties that are difficult to predict.
Words such as "anticipate," "believe," "estimate," "projects," "may," "could,"
"expects," "likely," variations of these words, and similar expressions, are
intended to identify such forward-looking statements. Such statements are based
upon the current beliefs and expectations of the Company's management and are
subject to significant risks and uncertainties. The Company claims the
protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995 for all forward-looking
statements. The Company's actual results could differ materially from those
discussed herein. Without limitation, factors that could cause or contribute to
such differences include economic recessions or downturns in customers' business
cycles, excessive increases in capacity within truckload markets, surplus
inventories, decreased demand for transportation services offered by the
Company, increases or rapid fluctuations in inflation, interest rates, fuel
prices and fuel hedging, the availability and costs of attracting and retaining
qualified drivers and owner-operators, increases in insurance premiums and
deductible amounts relating to accident, cargo, workers' compensation, health,
and other claims, seasonal factors such as harsh weather conditions that
increase operating costs, the resale value of used equipment, and the ability to
negotiate, consummate, and integrate acquisitions.
The Company's fiscal year ends on December 31 of each year. Thus, this
report discusses the third quarter and first nine months of the Company's 2000
and 2001 fiscal years.
For the three months ended September 30, 2001, operating revenue decreased
3.3% to $48.6 million from $50.2 million during the same quarter in 2000. Net
loss was $1,212,000, or $0.25 per diluted share, compared with net earnings of
$21,000, or $0.00 per diluted share, during the 2000 quarter. For the nine
months ended September 30, 2001, operating revenue decreased 2.9% to $147.7
million from $152.0 million during the same period in 2000. Net loss was $2.9
million, or $0.59 per diluted share, compared with net earnings of $266,000, or
$0.05 per diluted share, during the 2000 period.
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.
Page 9
Results of Operations
The following table sets forth the percentage relationship of certain
items to operating revenue for the three and nine months ended September 30,
2000 and 2001:
Three Months Ended Nine Months Ended
September 30, September 30,
2000 2001 2000 2001
-------------------------------------------------------
Operating revenue.................................... 100.0% 100.0% 100.0% 100.0%
Operating expenses
Purchased transportation........................... 39.3 36.3 39.4 36.5
Compensation and employee benefits................. 25.3 28.3 25.7 28.1
Fuel, supplies, and maintenance.................... 15.9 17.5 14.9 17.7
Insurance and claims............................... 1.3 4.0 1.7 2.7
Taxes and licenses................................. 2.0 2.0 1.9 1.9
General and administrative......................... 3.6 4.0 3.7 4.1
Communications and utilities....................... 1.0 1.0 1.0 1.1
Depreciation and amortization...................... 9.2 9.3 9.1 9.2
-------------------------------------------------------
Total operating expenses......................... 97.6 102.3 97.4 101.3
-------------------------------------------------------
Earnings (loss) from operations...................... 2.4 (2.3) 2.6 (1.3)
Interest expense (net)............................... (2.1) (1.5) (2.1) (1.6)
-------------------------------------------------------
Earnings (loss) before income taxes.................. 0.3 (3.8) 0.6 (2.9)
Income taxes (benefit)............................... 0.3 (1.3) 0.4 (0.9)
-------------------------------------------------------
Net earnings (loss).................................. 0.0% (2.5)% 0.2% (2.0)%
=======================================================
Comparison of three months ended September 30, 2001 with three months ended
September 30, 2000
Operating revenue decreased $1.6 million (3.3%), to $48.6 million during
the 2001 quarter from $50.2 million during the 2000 quarter. Decreased brokerage
revenue, lower average revenue per tractor per week, and decreased fuel
surcharge revenue were partially offset by slightly higher weighted average
tractors. Soft freight demand caused a $1.1 million decrease in brokerage
revenue, to $2.4 million in the 2001 quarter from $3.5 million in the 2000
quarter. In addition, average revenue per tractor per week (excluding revenue
from brokerage operations and fuel surcharges) decreased to $2,221 during the
2001 quarter from $2,270 during the 2000 quarter, primarily due to the lower
weekly production of tractors acquired from Skipper Transportation, Inc.
Finally, fuel surcharge revenue decreased $282,000 to $1.6 million in the 2001
quarter from $1.9 million in the 2000 quarter. During the 2001 and 2000 quarter,
approximately $923,000 and $990,000, respectively, of the fuel surcharge revenue
collected helped to offset Company fuel costs. The remainder was passed through
to independent contractors. Slightly higher weighted average tractors, which
increased to 1,534 during the 2001 quarter from 1,506 during the 2000 quarter
helped to partially offset those revenue reducing factors described above.
Revenue per loaded mile, net of surcharges, increased slightly to $1.35 in the
2001 quarter from $1.33 in the 2000 quarter.
Purchased transportation consists primarily of payments to independent
contractor providers of revenue equipment, expenses related to brokerage
activities, and payments under operating leases of revenue equipment. Purchased
transportation decreased $2.1 million (10.6%), to $17.6 million in the 2001
quarter from $19.7 million in the 2000 quarter and decreased as a percentage of
revenue to 36.3% of revenue in the 2001 quarter from 39.3% in the 2000 quarter.
This reflects a decrease in the percentage of the Company's fleet supplied by
independent contractors 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, high insurance costs, and slow freight demand which have
diminished the pool of drivers interested in becoming or remaining independent
contractors.
Compensation and employee benefits increased $1.0 million (8.3%), to $13.7
million in the 2001 quarter from $12.7 million in the 2000 quarter and increased
as a percentage of revenue to 28.3% of revenue in the 2001 quarter from 25.3%
Page 10
in the 2000 quarter. The increases were primarily attributable to the increase
in the percentage of the Company's fleet represented by company owned equipment.
Fuel, supplies, and maintenance increased $497,000 (6.2%), to $8.5 million
in the 2001 quarter from $8.0 million in the 2000 quarter. As a percentage of
revenue, fuel, supplies, and maintenance increased to 17.5% of revenue for the
2001 quarter compared with 15.9% for the 2000 quarter. This was attributable
primarily to (i) an increase in the percentage of the Company's fleet supplied
by Company-owned equipment, (ii) a slightly older fleet of Company-owned
equipment as the Company has extended its trade cycle for tractors, and (iii)
higher non-billable miles for which the Company incurs fuel expense, but does
not recoup increased costs through fuel surcharges. These factors were partially
offset by a decrease in fuel prices, which decreased 5.4% to $1.40 per gallon in
the 2001 quarter from $1.48 per gallon in the 2000 quarter. Fuel surcharge
revenue attributable to loads hauled by Company trucks remained relatively
constant at $923,000 in the 2001 quarter compared with $990,000 in the 2000
quarter.
Insurance and claims increased $1.3 million (196.6%), to $1.9 million in
the 2001 quarter from $648,000 in the 2000 quarter. As a percentage of revenue,
insurance and claims increased to 4.0% of revenue for the 2001 quarter compared
with 1.3% for the 2000 quarter. The increase was attributable to a substantial
increase in insurance premiums on July 1, 2001 when the Company's insurance
policies were renewed. Additionally, liability claims paid and reserved
increased.
Taxes and licenses decreased $60,000 (5.9%), to $956,000 in the 2001
quarter from $1.0 million in the 2000 quarter. As a percentage of revenue, taxes
and licenses remained constant at 2.0% of revenue in both quarters.
General and administrative expenses increased $125,000 (6.8%), to $2.0
million in the 2001 quarter from $1.8 million in the 2000 quarter. As a
percentage of revenue, general and administrative expenses increased to 4.0% of
revenue for the 2001 quarter compared with 3.6% for the 2000 quarter. The
increase was attributable to higher driver training costs as the number of new
drivers in the Company's training and orientation program increased over the
previous year.
Communications and utilities increased $13,000 (2.7%), to $496,000 in the
2001 quarter from $483,000 in the 2000 quarter. As a percentage of revenue,
communications and utilities remained constant at 1.0% of revenue for both
quarters.
Depreciation and amortization decreased $122,000 (2.6%), to $4.5 million in
the 2001 quarter from $4.6 million in the 2000 quarter. As a percentage of
revenue, depreciation and amortization increased slightly to 9.3% of revenue in
the 2001 quarter compared with 9.2% in the 2000 quarter. Under normal
circumstances, the increase in the percentage of the Company's fleet supplied by
Company-owned equipment would cause depreciation, expressed as a percentage of
revenue, to increase. However, given the significant decrease in used equipment
values, the Company has extended the time period for replacing Company-owned
equipment and acquired low mileage, late-model used equipment when replacement
of older equipment is necessary.
Interest expense (net) decreased $299,000 (29.0%), to $731,000 in the 2001
quarter from $1.0 million in the 2000 quarter, reflecting a decrease in average
outstanding debt and lower interest rates. As a percentage of revenue, interest
expense (net) decreased to 1.5% of revenue in the 2001 quarter from 2.1% in the
2000 quarter.
As a result of the foregoing, the Company's pretax margin decreased to
(3.8%) in the 2001 quarter from 0.3% in the 2000 quarter.
The Company's income tax benefit for the 2001 quarter was $633,000, or
34.3% of loss before income taxes. The Company's income tax expense for the 2000
quarter was $153,000, or 87.9% of earnings before income taxes. In both quarters
the effective tax rate differs from 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 Company drivers to
independent contractors and the Company's pretax earnings.
As a result of the factors described above, net loss was $1,212,000 ((2.5%)
of revenue) in the 2001 quarter compared with net earnings of $21,000 (0.0% of
revenue) in the 2000 quarter.
Page 11
Comparison of nine months ended September 30, 2001 with nine months ended
September 30, 2000
Operating revenue decreased $4.3 million (2.9%), to $147.7 million during
the 2001 period from $152.0 million during the 2000 period. Lower average
revenue per tractor per week and decreased brokerage revenue were partially
offset by slightly higher weighted average tractors and increased fuel surcharge
revenue. Average revenue per tractor per week (excluding revenue from brokerage
operations and fuel surcharges) decreased to $2,246 during the 2001 period from
$2,314 during the 2000 period caused by soft freight demand, harsh winter
weather, and lower production of tractors acquired from Skipper Transportation,
Inc. Additionally, lower freight demand caused a $2.5 million decrease in
brokerage revenue, to $7.1 million in the 2001 period from $9.6 million in the
2000 period. Slightly higher weighted average tractors and an increase in fuel
surcharge revenue to $5.4 million in the 2001 period from $4.8 million in the
2000 period helped to partially offset the decrease in weekly production and
brokerage revenue. Weighted average tractors increased to 1,536 during the 2001
period from 1,514 during the 2000 period, resulting from the acquisition of the
assets of Skipper Transportation, Inc on March 28, 2001, offset by a continuing
reduction in tractors provided by independent contractors. During the 2001and
2000 period, approximately $3.0 million and $2.5 million, respectively, of the
fuel surcharge revenue collected helped to offset Company fuel costs and the
remainder was passed through to independent contractors. Revenue per loaded
mile, net of surcharges, increased slightly to $1.34 in the 2001 period from
$1.33 in the 2000 period.
Purchased transportation consists primarily of payments to independent
contractor providers of revenue equipment, expenses related to brokerage
activities, and payments under operating leases of revenue equipment. Purchased
transportation decreased $6.0 million (10.0%), to $54.0 million in the 2001
period from $60.0 million in the 2000 period. As a percentage of revenue,
purchased transportation decreased to 36.5% of revenue in the 2001 period from
39.4% in the 2000 period. 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 revenue paid to the independent contractors
for fuel surcharges. Management believes the decline in independent contractor
percentage is attributable to high fuel costs, high insurance costs, and slow
freight demand which have diminished the pool of drivers interested in becoming
or remaining independent contractors.
Compensation and employee benefits increased $2.4 million (6.0%), to $41.4
million in the 2001 period from $39.1 million in the 2000 period. As a
percentage of revenue, compensation and employee benefits increased to 28.1% of
revenue in the 2001 period from 25.7% in the 2000 period. The increase was
primarily attributable to the increase in the percentage of the Company's fleet
represented by company owned equipment.
Fuel, supplies, and maintenance increased $3.6 million (15.8%), to $26.2
million in the 2001 period from $22.6 million in the 2000 period. As a
percentage of revenue, fuel, supplies, and maintenance increased to 17.7% of
revenue for the 2001 period compared with 14.9% for the 2000 period. This was
attributable primarily to (i) an increase in the percentage of the Company's
fleet supplied by Company-owned equipment, (ii) a slightly older fleet of
Company-owned equipment as the Company has extended its trade cycle for
tractors, (iii) higher non-billable miles for which the Company incurs fuel
expense, but does not recoup increased costs through fuel surcharges, and (iv)
no gain from fuel hedging transactions in the 2001 period, compared to a gain of
$667,000 in the 2000 period. The Company's fuel hedging positions expired in
June 2000. While the average price per gallon of fuel was $1.42 in both periods,
we were aided by higher fuel surcharge revenue attributable to loads hauled by
Company trucks, which increased to $3.0 million in the 2001 period from $2.5
million in the 2000 period. 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.
Insurance and claims increased $1.4 million (55.1%), to $4.0 million in the
2001 period from $2.6 million in the 2000 period. As a percentage of revenue,
insurance and claims increased to 2.7% of revenue for the 2001 period compared
with 1.7% for the 2000 period. The increase was attributable to a substantial
increase in insurance premiums on July 1, 2001 when the Company's insurance
policies were renewed. Additionally, liability claims paid and reserved
increased.
Taxes and licenses decreased $104,000 (3.5%), to $2.9 million in the 2001
period from $3.0 million in the 2000 period. As a percentage of revenue, taxes
and licenses remained constant at 1.9% of revenue
General and administrative expenses increased $408,000 (7.3%), to $6.0
million in the 2001 period from $5.6 million in the 2000 period. As a percentage
of revenue, general and administrative expenses increased to 4.1% of revenue for
Page 12
the 2001 period compared with 3.7% for the 2000 period. The increase was
attributable to higher driver training costs as the number of new drivers in the
Company's training and orientation program continued at higher than normal
levels.
Communications and utilities increased $71,000 (4.6%), to $1.6 million in
the 2001 period from $1.5 million in the 2000 period, primarily due to higher
utility costs. As a percentage of revenue, communications and utilities remained
essentially constant at 1.1% of revenue for the 2001 period compared with 1.0%
for the 2000 period.
Depreciation and amortization decreased $218,000 (1.6%), to $13.6 million
in the 2001 period from $13.8 million in the 2000 period. As a percentage of
revenue, depreciation and amortization remained essentially constant at 9.2% of
revenue in the 2001 period compared with 9.1% in the 2000 period. Under normal
circumstances, the increase in the percentage of the Company's fleet supplied by
Company-owned equipment would cause depreciation, expressed as a percentage of
revenue, to increase. However, given the significant decrease in used equipment
values, the Company has extended the time period for replacing Company-owned
equipment and acquired low mileage, late-model used equipment when replacement
of older equipment is necessary.
Interest expense (net) decreased $678,000 (22.1%), to $2.4 million in the
2001 period from $3.1 million in the 2000 period reflecting a decrease in
average outstanding debt and lower interest rates. As a percentage of revenue,
interest expense (net) decreased to 1.6% of revenue in the 2001 period from 2.1%
in the 2000 period.
As a result of the foregoing, the Company's pretax margin decreased to
(2.9%) in the 2001 period from 0.6% in the 2000 period.
The Company's income tax benefit for the 2001 period was $1.4 million, or
32.8% of loss before income taxes. The Company's income tax expense for the 2000
period was $599,000, or 69.2% of earnings before income taxes. In both periods
the effective tax rate differs from 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 Company drivers to
independent contractors and the Company's pretax earnings.
As a result of the factors described above, net loss was $2.9 million
((2.0%) of revenue) in the 2001 period compared with net earnings of $266,000
(0.2% of revenue) in the 2000 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. At September 30, 2001 the Company was
not in compliance with various loan covenants under its credit agreements with
financial institutions and management does not expect to be in compliance with
these covenants at December 31, 2001. The Company received waivers for all
violations at September 30 and expects to receive waivers at December 31. The
Company's credit agreement with LaSalle Bank was amended on October 12, 2001.
This amendment granted waivers for the period ended September 30, 2001and
extended the expiration of the credit agreement until November 3, 2002.
Management is in the process of renewing and revising the credit agreement with
LaSalle and anticipates this to be in place prior to December 31, 2001. For
these reasons, management believes that its sources of liquidity are adequate to
meet its currently anticipated working capital requirements, capital
expenditures, and other needs.
Net cash provided by operating activities was $6.4 million for the nine
months ended September 30, 2001, consisting of net loss of $2.8 million offset
by $13.6 million in depreciation and amortization, and a $1.0 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 $4.5 million for the
nine
Page 13
months ended September 30, 2001. The average age of the Company's accounts
receivable was approximately 37.0 days for the 2001 period versus 36.6 days for
the 2000 period.
Net cash used in investing activities of $3.3 million for the nine months
ended September 30, 2001 related primarily to the acquisition of Skipper
Transportation, Inc. and purchases, sales, and trades of revenue equipment. The
Company expects capital expenditures (primarily for revenue equipment and
satellite communications units), net of revenue equipment trade-ins, to be
approximately $3.2 million during the remaining three months of 2001. Such
projected capital expenditures will be funded with a combination of cash flow
from operations, borrowings, and operating leases.
Net cash used in financing activities of $3.3 million for the nine months
ended September 30, 2001, consisted primarily of principal payments, net of
borrowings, made under the Company's long-term debt obligations.
At September 30, 2001, the Company had outstanding long-term debt
(including current maturities) of approximately $51.4 million, most of which was
comprised of obligations for the purchase of revenue equipment. Approximately
$28.4 million consisted of borrowings from financial institutions and equipment
manufacturers and $23.0 million represented the amount drawn under the Company's
revolving credit facility. Interest rates on this debt range from 4.09% to 6.14%
with maturities through 2006.
At September 30, 2001, the revolving credit facility provided for
borrowings of up to $32.5 million, based upon certain accounts receivable and
revenue equipment values. 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.
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. The Company does not trade
in derivatives with the objective of earning financial gains on price
fluctuations, nor does it trade in these instruments when there are no
underlying exposures.
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. At September 30, 2001, approximately 70.1% of the Company's
total debt carries a variable interest rate and the remainder carries fixed
interest rates which exposes the Company to the risk that interest rates may
fall. Assuming the September 30, 2001 variable rate borrowings, each one percent
increase or decrease in LIBOR would affect the Company's pretax interest expense
by approximately $360,000 on an annualized basis.
Commodity Price Risk
The Company in the past has used derivative instruments, including
heating oil price swap agreements, to reduce a portion of its exposure to fuel
price fluctuations. At September 30, 2001, the Company had no such agreements in
place.
Page 14
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.
None.
Item 5. Other Information.
None.
Page 15
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit Description
Number
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 * 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.
10.11 ** Amendment No. 2 to Smithway Motor Xpress Corp. Incentive Stock
Plan, adopted May 7, 1999.
10.12 *** 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.
10.13 **** 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.
10.14 ***** 1997 Profit Incentive Plan, adopted May 8, 1997.
Page 16
10.15 ^ Form of Outside Director Stock Option Agreement dated July 27,
2000 between Smithway Motor Xpress Corp. and each of its
non-employee directors.
10.16 ^^ Sixth Amendment to Credit Agreement dated July 1, 2000, between
Smithway Motor Xpress Corp., as Guarantor, Smithway Motor Xpress,
Inc., as Borrower, and LaSalle National Bank.
10.17 ^^ Seventh Amendment to Credit Agreement dated August 25, 2000,
between Smithway Motor Xpress Corp., as Guarantor, Smithway Motor
Xpress, Inc., as Borrower, and LaSalle National Bank.
10.18 ^^ Eighth Amendment to Credit Agreement dated March 14, 2001,
between Smithway Motor Xpress Corp., as Guarantor, Smithway Motor
Xpress, Inc., as Borrower, and LaSalle National Bank.
21 **** List of Subsidiaries.
- ----------------
+ 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 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.
^ Incorporated by reference from the Company's Quarterly Report on Form
10-Q for the period ended September 30, 2000. Commission File No.
000-20793, dated November 3, 2000.
^^ Incorporated by reference from the Company's Quarterly Report on Form
10-Q for the period ended March 31, 2001. Commission File No.
000-20793, dated May 14, 2001.
(b) Reports on Form 8-K.
None.
Page 17
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SMITHWAY MOTOR XPRESS CORP.,
a Nevada corporation
Date: November 13, 2001 By: /s/ Douglas C. Sandvig
----------------- -------------------------------
Douglas C. Sandvig
Controller and Chief Accounting Officer