SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549-1004
-----------------------------------------------------
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2002
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 (May 3, 2002).
Class A Common Stock, $.01 par value: 3,846,821 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....................................................................... 3-9
Condensed Consolidated Balance Sheets as of December 31, 2001 and
March 31, 2002 (unaudited)....................................................... 3-4
Condensed Consolidated Statements of Operations for the three months
ended March 31, 2001 and 2002 (unaudited)......................................... 5
Condensed Consolidated Statements of Cash Flows for the three months ended
March 31, 2001 and 2002 (unaudited)............................................... 6-7
Notes to Condensed Consolidated Financial Statements (unaudited)........................... 8-9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations........................................................................ 10-15
Item 3. Quantitative and Qualitative Disclosures About Market Risks................................ 15
PART II
OTHER INFORMATION
Item 1. Legal Proceedings........................................................................... 16
Item 2. Changes in Securities and Use of Proceeds................................................... 16
Item 3. Defaults Upon Senior Securities............................................................. 16
Item 4. Submission of Matters to a Vote of Security Holders......................................... 16
Item 5. Other Information........................................................................... 16
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, March 31,
2001 2002
------------------ ------------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents.................................................. $ 722 $ 25
Receivables:
Trade................................................................... 13,649 15,779
Other................................................................... 1,020 1,664
Recoverable income taxes................................................ 1,820 1,786
Inventories................................................................ 1,561 1,559
Deposits, primarily with insurers.......................................... 539 508
Prepaid expenses........................................................... 926 2,113
Deferred income taxes...................................................... 1,726 1,892
----------------- ------------------
Total current assets................................................. 21,963 25,326
----------------- ------------------
Property and equipment:
Land....................................................................... 1,548 1,548
Buildings and improvements................................................. 8,175 8,205
Tractors................................................................... 79,472 78,869
Trailers................................................................... 44,784 41,887
Other equipment............................................................ 7,318 7,845
----------------- ------------------
141,297 138,354
Less accumulated depreciation.............................................. 62,252 63,623
----------------- ------------------
Net property and equipment........................................... 79,045 74,731
----------------- ------------------
Goodwill...................................................................... 5,016 5,016
Other assets.................................................................. 412 401
----------------- ------------------
$ 106,436 $ 105,474
================= ==================
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, March 31,
2001 2002
------------------ ------------------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt.......................................$ 12,052 $ 12,497
Accounts payable........................................................... 4,589 6,321
Checks issued in excess of cash balances................................... - 385
Accrued compensation....................................................... 2,258 3,167
Accrued loss reserves...................................................... 2,327 2,650
Other accrued expenses..................................................... 792 567
------------------ ------------------
Total current liabilities............................................ 22,018 25,587
Long-term debt, less current maturities....................................... 37,105 33,269
Deferred income taxes......................................................... 14,862 13,804
Line of credit................................................................ 585 2,980
------------------ ------------------
Total liabilities.................................................... 74,570 75,640
------------------ ------------------
Stockholders' equity:
Preferred stock............................................................ - -
Common stock:
Class A................................................................. 40 40
Class B................................................................. 10 10
Additional paid-in capital................................................. 11,394 11,393
Retained earnings.......................................................... 20,842 18,805
Reacquired shares, at cost................................................. (420) (414)
------------------ ------------------
Total stockholders' equity........................................... 31,866 29,834
------------------ ------------------
$ 106,436 $ 105,474
================== ==================
See accompanying notes to condensed consolidated financial statements. Page 4
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share and per share data)
(Unaudited)
Three months ended
March 31,
2001 2002
-------------- --------------
Operating revenue:
Freight......................................................................$ 47,230 $ 41,059
Other........................................................................ 149 161
-------------- --------------
Operating revenue........................................................ 47,379 41,220
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Operating expenses:
Purchased transportation..................................................... 17,579 15,291
Compensation and employee benefits........................................... 13,360 13,404
Fuel, supplies, and maintenance.............................................. 8,615 6,484
Insurance and claims......................................................... 984 1,813
Taxes and licenses........................................................... 886 836
General and administrative................................................... 1,989 1,809
Communications and utilities................................................. 561 507
Depreciation and amortization................................................ 4,532 3,776
-------------- --------------
Total operating expenses................................................. 48,506 43,920
-------------- --------------
Loss from operations................................................ (1,127) (2,700)
Financial (expense) income
Interest expense............................................................. (860) (561)
Interest income.............................................................. 12 7
-------------- --------------
Loss before income taxes............................................ (1,975) (3,254)
Income tax benefit............................................................... (687) (1,217)
-------------- --------------
Net loss............................................................$ (1,288) $ (2,037)
============== ==============
Basic and diluted loss per common share..........................................$ (0.26) $ (0.42)
============== ==============
Basic weighted average common shares outstanding................................. 4,875,503 4,844,524
Common stock options and awards.............................................. - -
-------------- --------------
Diluted weighted average common shares outstanding............................... 4,875,503 4,844,524
============== ==============
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)
Three Months Ended
March 31,
--------------------------------
2001 2002
-------------- ----------------
Cash flows from operating activities:
Net loss...........................................................................$ (1,288) $ (2,037)
--------------- ----------------
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation and amortization.................................................... 4,532 3,776
Deferred income taxes............................................................ (659) (1,224)
Stock bonuses.................................................................... 9 -
Changes in:
Receivables.................................................................... (2,702) (2,740)
Inventories.................................................................... (11) 2
Deposits, primarily with insurers.............................................. 22 31
Prepaid expenses............................................................... (838) (1,187)
Accounts payable and other accrued liabilities................................. 2,066 2,739
--------------- ----------------
Total adjustments............................................................. 2,419 1,397
--------------- ----------------
Net cash provided by (used in) operating activities........................... 1,131 (640)
--------------- ----------------
Cash flows from investing activities:
Payments for acquisitions.......................................................... (2,678) -
Purchase of property and equipment................................................. (1,215) (273)
Proceeds from the sale of property and equipment................................... 431 1,311
Other ............................................................................. (25) 11
--------------- ----------------
Net cash used in (provided by) investing activities........................... (3,487) 1,049
--------------- ----------------
Cash flows from financing activities:
Borrowings on line of credit....................................................... - 34,461
Payments on line of credit......................................................... - (32,066)
Proceeds from long-term debt....................................................... 7,500 -
Principal payments on long-term debt............................................... (4,547) (3,891)
Change in net checks issued in excess of cash balances............................. - 385
Other.............................................................................. (151) 5
--------------- ----------------
Net cash provided by (used in) financing activities........................... 2,802 (1,106)
--------------- ----------------
Net increase (decrease) in cash and cash equivalents.......................... 446 (697)
Cash and cash equivalents at beginning of period..................................... 349 722
--------------- ----------------
Cash and cash equivalents at end of period...........................................$ 795 $ 25
=============== ================
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)
Three Months Ended
March 31,
------------------------------
2001 2002
-------------- ---------------
Supplemental disclosure of cash flow information:
Cash paid (received) during the period for:
Interest......................................................................$ 899 $ 582
Income tax.................................................................... (18) (27)
============== ===============
Supplemental schedules of noncash investing and financing activities:
Notes payable issued for tractors and trailers................................$ 94 $ 500
Issuance of stock bonuses..................................................... 10 -
============== ===============
Cash payments for acquisitions:
Revenue equipment.............................................................$ 2,088 $ -
Goodwill...................................................................... 250 -
Other assets (net)............................................................ 340 -
-------------- ---------------
$ 2,678 $ -
============== ===============
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, 2001
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, 2001.
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 Standard (SFAS) 142, Goodwill and Other
Intangible Assets, became effective for the Company on January 1, 2002.
Under SFAS 142, which establishes new accounting and reporting requirements
for goodwill and other intangible assets, all goodwill amortization ceased
effective January 1, 2002. At adoption, the Company tested for impairment
of its goodwill by comparing the fair value of the company to its carrying
value. Fair value was based upon an independent appraisal and indicated
that the Company's goodwill was not impaired. On an ongoing basis (absent
any impairment indicators), the Company expects to perform the impairment
tests annually during the fourth quarter.
The following table reflects the consolidated results adjusted as though
the adoption of SFAS 142 occurred as of the beginning of the three month
period ended March 31, 2001:
Three months ended
(Dollars in thousands) March 31, 2001 March 31, 2002
--------------------------------------------------
Net loss:
As reported.......................................................... $ (1,288) $ (2,037)
Goodwill amortization, net of tax.................................... 103 -
--------------------- ---------------------
Adjusted net loss.................................................... $ (1,185) $ (2,037)
===================== =====================
Basic and diluted net loss per share:
As reported.......................................................... $ (0.26) $ (0.42)
Goodwill amortization................................................ 0.02 -
--------------------- ---------------------
Adjusted basic and diluted net loss per share........................ $ (0.24) $ (0.42)
===================== =====================
On January 1, 2002, the Company adopted SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This statement establishes a
single accounting model for the impairment or disposal of long-lived
assets. Upon adoption of SFAS No. 144, there was no material impact on the
Company's results of operations or financial condition.
Page 8
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
Note 3. Net earnings per common share
Basic earnings per share have been computed by dividing net earnings by the
weighted-average outstanding Class A and Class B common shares during each
of the quarters. Diluted earnings per share have been calculated by also
including in the computation the effect of employee stock options,
nonvested stock, and similar equity instruments granted to employees as
potential common shares. Because the Company suffered a net loss for the
quarters ended March 31, 2001 and 2002, the effects of potential common
shares were not included in the calculation as their effects would be
anti-dilutive. Stock options outstanding at March 31, 2001 and 2002 totaled
345,000 and 647,525, respectively.
Page 9
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 "believe," "may," "could," "expects," "likely," variations of
these words, and similar expressions, are intended to identify such
forward-looking statements. 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, decreased demand for transportation services
offered by the Company, increases or rapid fluctuation in inflation, interest
rates, fuel prices and fuel hedging, the availability and costs of attracting
and retaining qualified drivers and owner-operators, increasing insurance
premiums and deductible amounts related 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. 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.
The Company's fiscal year ends on December 31 of each year. Thus, this
report discusses the first quarter of the Company's 2001 and 2002 fiscal years.
For the three months ended March 31, 2002, operating revenue decreased 13%
to $41.2 million from $47.4 million during the same quarter in 2001. Net loss
was $2.0 million, or ($0.42) per diluted share, compared with net loss of $1.3
million or ($0.26) per diluted share, during the 2001 quarter.
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 10
Results of Operations
The following table sets forth the percentage relationship of certain items
to operating revenue for the three months ended March 31, 2001 and 2002:
Three Months Ended
March 31,
2001 2002
--------- ---------
Operating revenue...................................... 100.0% 100.0%
Operating expenses
Purchased transportation............................. 37.1 37.1
Compensation and employee benefits................... 28.2 32.5
Fuel, supplies, and maintenance...................... 18.2 15.7
Insurance and claims................................. 2.1 4.4
Taxes and licenses................................... 1.9 2.0
General and administrative........................... 4.2 4.4
Communications and utilities......................... 1.2 1.2
Depreciation and amortization................... 9.6 9.2
--------- ---------
Total operating expenses........................... 102.4 106.6
--------- ---------
Loss from operations................................... (2.4) (6.6)
Interest expense (net)................................. (1.8) (1.4)
--------- ---------
Loss before income taxes............................... (4.2) (7.9)
Income tax benefit..................................... (1.5) (3.0)
--------- ---------
Net loss............................................... (2.7)% (4.9)%
========= =========
Comparison of three months ended March 31, 2002 with three months ended
March 31, 2001
Operating revenue decreased $6.2 million (13.0%), to $41.2 million during
the 2002 quarter from $47.4 million during the 2001 quarter. Lower average
revenue per tractor per week, decreased fuel surcharge revenue, and decreased
brokerage revenue were responsible for the decrease in operating revenue.
Average revenue per tractor per week (excluding revenue from brokerage
operations and fuel surcharges) decreased to $1,990 during the 2002 quarter from
$2,193 during the 2001 quarter, primarily due to a higher number of unseated
company tractors and lower weekly production caused by soft freight demand. Soft
freight demand caused a combination of fewer loads, higher non- revenue miles,
more layovers, and rate pressure, but the Company was still able to achieve a
$.04 increase in revenue per loaded mile, net of surcharges, to $1.35 in the
2002 quarter from $1.31 in the 2001 quarter. A $1.7 million decrease in fuel
surcharge revenue to $220,000 in the 2002 quarter from $1.9 million in the 2001
quarter also contributed to the decrease in operating revenue. During the 2002
and 2001 quarter, approximately $111,000 and $1.0 million, respectively, of the
fuel surcharge revenue collected helped to offset Company fuel costs. The
remainder was passed through to independent contractors. Finally, weighted
average tractors increased slightly to 1,517 during the 2002 quarter from 1,501
during the 2001 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 $2.3 million (13.0%), to $15.3 million in the 2002
quarter from $17.6 million in the 2001 quarter. This reflects a decrease in
freight hauled by independent contractors and broker carriers and a $760,000
decrease in payments to independent contractors and brokers for fuel surcharges.
Management believes the decline in independent contractors is attributable to
high fuel costs, high insurance costs, tighter credit standards, and slow
freight demand which have diminished the pool of drivers interested in becoming
or remaining independent contractors. Additionally, brokerage revenue has
decreased due to slow freight demand. Purchased transportation remained constant
as a percentage of revenue at 37.1% of revenue in both quarters as the decrease
in the amount paid to independent contractors resulting from lower fuel
surcharges was offset by an increase in the percentage of the Company's fleet
supplied by independent contractors.
Compensation and employee benefits increased $44,000 (0.3%), to $13.4
million in the 2002 quarter from $13.4 million in the 2001 quarter. As a
percentage of revenue, compensation and employee benefits increased to 32.5% of
revenue in the 2002 quarter from 28.2% in the 2000 quarter. The increase was
primarily attributable to higher workers'
Page 11
compensation claims and premiums and the increase in wages paid to drivers for
unloaded miles, which was partially offset by a decrease in the percentage of
the Company's fleet supplied by seated Company-owned equipment.
Fuel, supplies, and maintenance decreased $2.1 million (24.7%), to $6.5
million in the 2002 quarter from $8.6 million in the 2001 quarter. As a
percentage of revenue, fuel, supplies, and maintenance decreased to 15.7% of
revenue for the 2002 quarter compared with 18.2% for the 2001 quarter. This was
the result of a decrease in average fuel prices, to $1.12 per gallon in the 2002
quarter from $1.42 per gallon in the 2001 quarter and a decrease in the
percentage of the Company's fleet supplied by seated Company-owned equipment.
Fuel surcharge revenue attributable to loads hauled by Company trucks decreased
to $111,000 in the 2002 quarter from $1.0 million in the 2000 quarter.
Insurance and claims increased $829,000 (84.2%), to $1.8 million in the
2002 quarter from $984,000 in the 2001 quarter. As a percentage of revenue,
insurance and claims increased to 4.4% of revenue in the 2002 quarter compared
with 2.1% in 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.
Taxes and licenses decreased $50,000 (5.6%), to $836,000 in the 2002
quarter from $886,000 in the 2001 quarter. As a percentage of revenue, taxes and
licenses remained essentially constant at 2.0% of revenue in the 2002 quarter
compared with 1.9% in the 2001 quarter.
General and administrative expenses decreased $180,000 (9.0%), to $1.8
million in the 2002 quarter from $2.0 million in the 2001 quarter. As a
percentage of revenue, general and administrative expenses increased to 4.4% of
revenue in the 2002 quarter compared with 4.2% in the 2001 quarter. Cost saving
efforts have been successful in reducing the dollars spent for general and
administrative expenses, however lower fuel surcharge revenue and lower truck
production caused the percentage of revenue to increase.
Communications and utilities decreased $54,000 (9.6%), to $507,000 in the
2002 quarter from $561,000 in the 2001 quarter. As a percentage of revenue,
communications and utilities remained constant at 1.2% in both quarters.
Depreciation and amortization decreased $756,000 (16.7%), to $3.8 million
in the 2002 quarter from $4.5 million in the 2001 quarter. As a percentage of
revenue, depreciation and amortization decreased to 9.2% of revenue in the 2002
quarter compared with 9.6% in the 2001 quarter reflecting a $649,000 gain on the
sale of excess trailers and a decrease in the percentage of the Company's fleet
supplied by seated Company-owned equipment. Additionally, adoption of SFAS 142
caused amortization of goodwill to decrease to $0 in the 2002 quarter from
$158,000 in the 2001 quarter.
Interest expense (net) decreased $294,000 (34.7%), to $554,000 in the 2002
quarter from $848,000 in the 2001 quarter reflecting a decrease in average
outstanding debt and lower interest rates. As a percentage of revenue, interest
expense (net) decreased slightly to 1.4% of revenue in the 2002 quarter compared
with 1.8% in the 2001 quarter.
As a result of the foregoing, the Company's pretax margin was (7.9%) in the
2002 quarter compared with (2.4%) in the 2001 quarter.
The Company's income tax benefit for the 2002 quarter was $1.2 million, or
37.4% of loss before income taxes. The Company's income tax benefit for the 2001
quarter was $687,000, or 34.8% of loss 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 $2.0 million (4.9%
of revenue) in the 2002 quarter, compared with $1.3 million (2.7% of revenue) in
the 2001 quarter.
Page 12
Liquidity and Capital Resources
The size of the Company's business has remained essentially constant for
the past three years. During this period the Company has reduced debt and
invested in new revenue equipment to replace older equipment. New equipment has
been 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. The Company
reduced its borrowing by $1.0 million during the quarter. The Company has
experienced a recent decrease in the ratio of its current assets to current
liabilities, primarily as a result of a decrease in trade receivables and an
increase in current maturities of long-term debt. The increase in current
maturities resulted from a restructuring of the Company's financing agreement
with LaSalle Bank. Management expects this trend to continue in future periods
until the Company returns to profitability. 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 2002.
Net cash used in operating activities was $640,000 for the three months
ended March 31, 2002. The Company's principal uses of cash from operations are
to service debt and internally finance accounts receivable. Customer accounts
receivable increased $2.7 million for the three months ended March 31, 2002. The
average age of the Company's accounts receivable was approximately 33.3 days in
the 2002 period versus 35.9 days in the 2001 period.
Net cash provided by investing activities of $1.0 million in the 2002
period related primarily to purchases and sales 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 $7.2 million during the remaining nine months of 2002. Such
projected capital expenditures are expected to be funded with a combination of
cash flow from operations, borrowings, and operating leases.
Net cash used in financing activities of $1.1 million for the three months
ended March 31, 2002, consisted primarily of principal payments, net of
borrowings, made under the Company's long-term debt obligations.
At March 31, 2002, the Company had outstanding long-term debt (including
line of credit and current maturities) of approximately $48.7 million, most of
which was comprised of obligations for the purchase of revenue equipment.
Approximately $28.5 million consisted of borrowings from financial institutions
and equipment manufacturers and $20.2 million was the amount owed under the
Company's revolving credit facility. Interest rates on this debt range from
2.96% to 6.58% with maturities through 2009.
On December 28, 2001, the Company amended and restated its financing
agreement with LaSalle Bank. The new agreement expires on December 31, 2004, and
provides for automatic one-year renewals under certain conditions. The agreement
provides for a term loan, a revolving line of credit, and a capital expenditure
loan. At March 31, 2002, the term loan had a balance of $17.3 million, and was
payable in equal monthly installments of $250,000 in principal. The revolving
line of credit allows for borrowings up to 85 percent of eligible receivables,
or approximately $12.4 million at March 31, 2002, on which the Company had drawn
approximately $8.7 million, including the $5.5 million letters of credit
discussed below. The capital expenditure loan allows for borrowing up to 80
percent of the purchase price of revenue equipment purchased with such advances
provided borrowings under the capital expenditure loan are limited to $2.0
million annually, and $4.0 million over the term of the agreement. At March 31,
2002 there was no capital expenditure loan balance. The combination of all loans
with LaSalle Bank can not exceed $32.5 million.
The financing agreement also includes financing for letters of credit. At
March 31, 2002, the Company had outstanding letters of credit totaling $5.5
million for self-insured amounts under its insurance programs. These letters of
credit directly reduce the amount of potential borrowings available under the
financing agreement discussed above.
All borrowings under this financing arrangement bear interest at the bank's
prime rate, and the Company is required to pay a facility fee on the financing
agreement of .25% of the maximum loan limit ($32.5 million). Borrowings under
the agreement are secured by liens on revenue equipment, accounts receivable,
and certain other assets.
Page 13
The financing arrangement with LaSalle Bank also requires compliance with
certain financial covenants, including compliance with a minimum tangible net
worth, capital expenditure limits, and a fixed charge coverage ratio. The
Company was in compliance with these covenants at March 31, 2002 except for the
fixed charge coverage ratio. The Company has received a waiver for violation of
the fixed charge coverage ratio covenant. Additionally, subsequent to quarter
end, the Company's financing arrangement was amended to provide less restrictive
tangible net worth and fixed charge coverage covenant requirements. Management
expects the Company will be in compliance with the less restrictive covenants at
least through March 31, 2003.
Equipment financing provided by a manufacturer contains a minimum net worth
requirement which the Company is in compliance with and expects to be in
compliance with at least through March 31, 2003.
Contractual Obligations and Commercial Commitments
The following tables set forth the contractual obligations and other
commercial commitments as of March 31, 2002:
Principal Payments Due by Year
(In Thousands)
Less than After
Contractual Obligations Total One year 2-3 years 4-5 years 5 years
- ----------------------------------------------------------------------------------------------------------------------
Long-term debt $48,746 $12,497 $24,238 $10,009 $2,002
Operating leases 789 683 104 2 -
----------------------------------------------------------------------
Total contractual cash obligations $49,535 $13,180 $24,342 $10,011 $2,002
======================================================================
The Company had no other commercial commitments at March 31, 2002.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make decisions based upon estimates, assumptions, and factors it
considers as relevant to the circumstances. Such decisions include the selection
of applicable accounting principles and the use of judgment in their
application, the results of which impact reported amounts and disclosures.
Changes in future economic conditions or other business circumstances may affect
the outcomes of management's estimates and assumptions. Accordingly, actual
results could differ from those anticipated. A summary of the significant
accounting policies followed in preparation of the financial statements included
in this Form 10-Q is contained in Note 1 of the consolidated financial
statements included in the Company's Form 10-K for the year ended December 31,
2001. Other footnotes in the Form 10-K describe various elements of the
financial statements included in this Form 10-Q and the assumptions on which
specific amounts were determined.
The Company's critical accounting policies include the following:
Revenue Recognition
The Company generally recognizes operating revenue when the freight to be
transported has been loaded. The Company operates primarily in the
short-to-medium length haul category of the trucking industry; therefore, the
Company's typical customer delivery is completed one day after pickup.
Accordingly, this method of revenue recognition is not materially different from
recognizing revenue based on completion of delivery. The Company recognizes
operating revenue when the freight is delivered for longer haul loads where
delivery is completed more than one day after pickup. Amounts payable to
independent contractors for purchased transportation, to Company drivers for
wages, and other direct expenses are accrued when the related revenue is
recognized.
Page 14
Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided by
use of the straight-line and declining-balance methods over lives of 5 to 39
years for buildings and improvements, 5 to 7 years for tractors and trailers,
and 3 to 10 years for other equipment. Tires purchased as part of revenue
equipment are capitalized as a cost of the equipment. Replacement tires are
expensed when placed in service. Expenditures for maintenance and minor repairs
are charged to operations, and expenditures for major replacements and
betterments are capitalized. The cost and related accumulated depreciation on
property and equipment retired, traded, or sold are eliminated from the property
accounts at the time of retirement, trade, or sale. In accordance with industry
practices, the gain or loss on retirement or sale is included in depreciation
and amortization in the consolidated statements of operation. Gains or losses on
trade-ins are included in the basis of the new asset.
Estimated Liability for Insurance Claims
Losses resulting from personal liability, physical damage, workers'
compensation, and cargo loss and damage are covered by insurance subject to
certain deductibles. Losses resulting from uninsured claims are recognized when
such losses are known and can be estimated. The Company estimates and accrues a
liability for its share of ultimate settlements using all available information.
The Company accrues for health insurance claims reported, as well as for claims
incurred but not reported, based upon the Company's past experience. Expenses
depend on actual loss experience and changes in estimates of settlement amounts
for open claims which haven not been fully resolved. However, final settlement
of these claims could differ materially from the amounts the Company has accrued
at year-end.
Impairment of Long-lived Assets
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net undiscounted cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less the costs to sell.
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 Company's financing agreement with LaSalle Bank, provided there has
been no default, carries a variable interest rate based on LaSalle's prime rate.
In addition, approximately $21.4 million of the Company's other debt carries
variable interest rates. This variable interest exposes the Company to the risk
that interest rates may rise. The remainder of the Company's other debt carries
fixed interest rates and exposes the Company to the risk that interest rates may
fall. At March 31, 2002, approximately 85% of the Company's debt carries a
variable interest rate and the remainder is fixed. Each one percentage point
increase or decrease in interest rates effects the Company's pretax loss by
approximately $415,000, assuming the $48.7 million outstanding at March 31, 2002
of which 85% carries variable rates.
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. During the quarter ended March 31, 2002, the Company had no such
agreements in place. 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.
Page 15
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.
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 ** 1997 Profit Incentive Plan, adopted May 8, 1997.
10.8 *** Amendment No. 2 to Smithway Motor Xpress Corp. Incentive Stock Plan, adopted May 7,
1999.
10.9 **** Form of Outside Director Stock Option Agreement dated July 27, 2000, between Smithway
Motor Xpress Corp. and each of its non-employee directors.
10.10 + New Employee Incentive Stock Plan, adopted August 6, 2001 (plan subject to stockholder
approval at next annual meeting to obtain incentive stock option treatment for option grants).
10.11 + Amended and Restated Loan and Security Agreement dated December 28, 2001, between
LaSalle Bank National Association, Smithway Motor Xpress, Inc., as Borrower, and East West
Motor Xpress, Inc., as Borrower.
Page 16
10.12 + Letter Agreement dated August 6, 2001, between Smithway Motor Xpress, Inc. and Donald
A. Orr.
10.13 # First Amendment to Amended and Restated Loan and Security Agreement dated May 10, 2002,
between LaSalle Bank National Association, Smithway Motor Xpress, Inc., as Borrower, and
East West Motor Express, Inc., as Borrower.
- -------------------------
* 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 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 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, 2000. Commission File No. 000-20793, dated November 3, 2000.
+ Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 2001. Commission File No. 000-20793, dated March 28, 2002.
# Filed herewith.
(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: May 15, 2002 By: /s/Douglas C. Sandvig
------------ -------------------------------
Douglas C. Sandvig
Controller and Chief Accounting Officer
Page 18