SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the Fiscal Year Ended December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
Commission file number 000-20793
SMITHWAY MOTOR XPRESS CORP.
(Exact name of registrant as specified in its charter)
Nevada 42-1433844
- -------------------------------------------- --------------------------
(State or Other Jurisdiction of Incorporation (I.R.S. Employer
or Organization) Identification No.)
2031 Quail Avenue
Fort Dodge, Iowa 50501
- -------------------------------------------- --------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 515/576-7418
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: $0.01 Par Value
Class A Common Stock
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 such filing
requirements for the past 90 days. YES X NO ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $6,352,333 as of January 31, 2002 (based upon the $2.52 per share
closing price on that date as reported by Nasdaq). In making this calculation
the registrant has assumed, without admitting for any purpose, that all
executive officers, directors, and holders of more than 10% of a class of
outstanding common stock, and no other persons, are affiliates, and has excluded
stock options.
As of January 31, 2002, the registrant had 3,843,980 shares of Class A Common
Stock and 1,000,000 shares of Class B Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: The information set forth under Part III,
Items 10, 11, 12, and 13 of this Report is incorporated by reference from the
registrant's definitive proxy statement for the 2002 annual meeting of
stockholders that will be filed no later than April 29, 2002.
1
Cross Reference Index
The following cross reference index indicates the document and location of
the information contained herein and incorporated by reference into the Form
10-K.
Document and Location
Part I
Item 1 Business Page 3 through 6 herein
Item 2 Properties Page 6 herein
Item 3 Legal Proceedings Page 7 herein
Item 4 Submission of Matters to a Vote of Security Holders Page 7 herein
Part II
Item 5 Market for the Registrant's Common Equity and
Related Stockholder Matters Page 7 herein
Item 6 Selected Financial Data Page 8 herein
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations Page 9 through 17 herein
Item 7A Quantitative and Qualitative Disclosures About Market Risk Page 18 herein
Item 8 Financial Statements and Supplementary Data Page 19 herein
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure Page 19 herein
Part III
Item 10 Directors and Executive Officers of the Registrant Proxy Statement
Item 11 Executive Compensation Proxy Statement
Item 12 Security Ownership of Principal Stockholders and
Management Proxy Statement
Item 13 Related Party Transactions Proxy Statement
Part IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Pages 20 through 21 herein
Form 8-K
- ------------------------------------
This report contains "forward-looking statements." These statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those anticipated. See "Management Discussion and
Analysis of Financial Condition and Results of Operations - Factors That May
Affect Future Results" for additional information and factors to be considered
concerning forward-looking statements.
2
PART I
ITEM 1. BUSINESS
The Company
Smithway Motor Xpress Corp. ("Smithway" or the "Company") is a truckload
carrier that provides nationwide transportation of diversified freight,
concentrating primarily on the flatbed segment of the truckload market. The
Company uses its "Smithway Network" of 27 computer-connected field offices,
commission agencies, and company-owned terminals to offer comprehensive
truckload transportation services to shippers located predominantly between the
Rocky Mountains in the West and the Appalachian Mountains in the East, and in
eight Canadian provinces.
Prior to 1984, the Company specialized in transporting building materials
on flatbed trailers. William G. Smith became President of Smithway in 1984, and
led the Company's effort to diversify its customer and freight base, form the
Smithway Network of locations, and implement systems to support the Company's
growth. Management commenced the Company's acquisition strategy in 1995 to take
advantage of opportunities offered by industry consolidation.
Smithway acquired the operations of nine trucking companies between June
1995 and March 2001. In March 2001, the Company acquired tractors, trailers, and
certain other assets owned or leased by Skipper Transportation, Inc., a flatbed
carrier headquartered in Birmingham, Alabama. The Skipper acquisition augmented
Smithway's presence in the southeastern United States. Through acquisitions and
internal growth the Company expanded from $77 million in revenue in 1995 to $191
million in 2001.
Smithway Motor Xpress Corp. was incorporated in Nevada in January 1995 to
serve as a holding company and conduct the Company's initial public offering,
which occurred in June 1996. References to the "Company" or "Smithway" herein
refer to the consolidated operations of Smithway Motor Xpress Corp., a Nevada
corporation, and its wholly owned subsidiaries, Smithway Motor Xpress, Inc., an
Iowa corporation, East West Motor Express, Inc., a South Dakota corporation,
SMSD Acquisition Corp., a South Dakota corporation, and New Horizons Leasing,
Inc., an Iowa corporation.
Operations
Smithway integrates its sales and dispatch functions throughout its
computer-connected "Smithway Network." The Smithway Network consists of the
Company's headquarters in Fort Dodge, Iowa and 26 terminals, field offices, and
independent agencies. The headquarters and 20 terminals and field offices are
managed by Smithway employees, while the six agencies are managed by independent
commission agents. The customer sales representatives and agents at each
location have front-line responsibility for booking freight in their regions.
Fleet managers at the Fort Dodge, Iowa headquarters coordinate all load
movements via computer link to optimize load selection and promote proper fleet
balance among regions. Sales and dispatch functions for traffic are generally
performed at terminals within the sales region.
Agents are important to the Company's operations because they are the
primary contact for shippers within their region and have regular contact with
drivers and independent contractors. The Company's agents are paid a commission
on revenue they generate. Although agent contracts typically are cancelable on
14 days' notice, Smithway's agents average more than 10 years' tenure with the
Company. In addition to sales and customer service benefits, management believes
agents offer the advantage of minimizing capital investment and fixed costs,
because agents are responsible for all of their own expenses.
Customers and Marketing
Smithway's sales force includes ten national sales representatives,
personnel at 21 terminals and field offices, and six independent commission
agents. National sales representatives focus on national customers and van
freight, while sales personnel at terminals, field offices, and agencies are
responsible for regional customer contact. The Company's sales force emphasizes
rapid response time to customer requests for equipment, undamaged and on-time
pickup and delivery, one of the nation's largest fleets of flatbed equipment,
safe and professional drivers, logistics management, dedicated fleet capability,
and its strategically located Smithway Network. Management believes that few
other carriers operating principally in the Midwest flatbed market offer similar
size and service. Consequently, the Company seeks primarily service-sensitive
freight rather than competing for all freight on the basis of price.
3
In 2001, the Company's top 50, 25, 10, and 5 customers accounted for
approximately 50%, 37%, 24%, and 17% of revenue, respectively, with the
remaining customers accounting for approximately 50% of revenue. No single
customer accounted for 10% or more of the Company's revenue during 2001.
Technology
Management believes that advances in technology can enhance the Company's
operating efficiency and customer service. During February 2002, the Company
purchased new operating system and freight selection software to improve the
efficiency of its operations. The Company expects to have the software fully
functioning by June 2002. This software designed specifically for the trucking
industry will allow the Company's managers to coordinate available equipment
with the transportation needs of customers, monitor truck productivity and fuel
consumption, and schedule regular equipment maintenance. It also will allow
immediate access to current information regarding driver and equipment status
and location, special load and equipment instructions, routing, and dispatching.
Smithway operates satellite-based tracking and communication units in all
of its company-owned tractors and has offered rental of these units as an option
to its independent contractors. Management believes on-board communication
capability can reduce unnecessary stops and out-of-route miles because drivers
are not forced to find a telephone to contact the Company or receive
instructions. In addition, drivers can immediately report breakdowns or other
emergency conditions. The system also enables the Company to advise customers of
the location of freight in transit through its hourly position reports of each
tractor's location.
Smithway also offers its customers electronic data interchange which allows
customers to communicate directly with the Company via computer link or the
Internet and, with the aid of satellite communication, obtain location updates
of in-transit freight, expected delivery times, and account payment
instructions.
Drivers, Independent Contractors, and Other Personnel
Smithway seeks drivers and independent contractors who safely manage their
equipment and treat freight transportation as a business. The Company
historically has operated a fleet comprised of substantial numbers of both
company-owned and independent contractor tractors. Management believes a mixed
fleet offers competitive advantages because the Company is able to recruit from
both personnel pools. The Company intends to retain a mixed fleet in the future
to insure that its recruiting efforts toward either group are not damaged by
becoming categorized as predominantly either a company-owned or independent
contractor fleet, although several factors may cause fluctuations in the fleet
mix from time-to-time.
In 2001, the combination of high fuel prices, a slowing economy, and
tightened credit standards placed extreme pressure on independent contractors.
Many were forced to exit their business. At year-end, Smithway's number of
independent contractors had decreased by approximately 6% from year-end 2000.
Smithway has implemented several policies to promote driver and independent
contractor recruiting and retention. These include maintaining an open-door
policy with easy access to senior executives, appointing an advisory board
comprised of top drivers and independent contractors to consult with management,
and assigning each driver and independent contractor to a particular dispatcher
to insure personal contact. In addition, the Company utilizes conventional
(engine-forward) tractors, which are more comfortable for the driver, and
operates over relatively short-to- medium distances (697-mile average length of
haul in 2001) to return drivers home as frequently as possible.
Smithway is not a party to a collective bargaining agreement and its
employees are not represented by a union. At December 31, 2001, the Company had
729 Company drivers, 300 non-driver employees, and 575 independent contractors.
Management believes that the Company has good relationships with its employees
and independent contractors.
4
Safety and Insurance
Smithway's active safety and loss prevention program has resulted in the
Department of Transportation's highest safety and fitness rating (satisfactory)
and numerous safety awards. The Company's safety and loss prevention program
includes pre-screening, initial orientation, six weeks on-the-road training for
drivers without substantial experience, and safety bonuses.
The Company maintains insurance covering losses in excess of a $50,000
self-insured retention for cargo loss, personal injury, property damage, and
physical damage claims. The Company has a $100,000 deductible for workers'
compensation claims in states where a deductible is allowed. Its primary
personal injury and property damage insurance policy has a limit of $2.0 million
per occurrence, and the Company carries excess liability coverage, which
management believes is adequate to cover exposure to claims exceeding its
retention limit.
Revenue Equipment
Smithway's equipment strategy for its owned tractors (as opposed to
independent contractors' tractors) is to operate tractors for a period that
balances capital expenditure requirements, disposition values, driver
acceptability, repair and maintenance expense, and fuel efficiency. As a result
of advances in the manufacturing of tractors and major components, as well as
the depressed value of used equipment, the Company extended its average trade
cycle mileage from 550,000 to 600,000 miles. This mileage exceeds warranty
limits. Based upon projected repair and maintenance needs, management does not
expect a substantial increase in repair and maintenance expense compared with
the cost of disposing of tractors on the former trade cycle, but has seen an
increase in maintenance expense in recent periods. Smithway orders conventional
(engine forward) tractors with standard engine and drivetrain components, and
trailers with standard brakes and tires to minimize its inventory of spare
parts. All equipment is subject to the Company's regular maintenance program,
and is also inspected and maintained each time it passes through a Smithway
maintenance facility. Smithway's company-owned tractor fleet had an average age
of 38.5 months at December 31, 2001.
Competition
The truckload segment of the trucking industry is highly competitive and
fragmented, and no carrier or group of carriers dominates the flatbed or van
market. Smithway competes primarily with other regional, short-to-medium-haul
carriers and private truck fleets used by shippers to transport their own
products in proprietary equipment. Competition is based primarily upon service
and price. The Company competes to a limited extent with rail and rail-truck
intermodal service, but attempts to limit this competition by seeking
service-sensitive freight and focusing on short-to-medium lengths of haul.
Although management believes the approximately 881 company drivers and
independent contractors dedicated to its flatbed operation at December 31, 2001,
rank its flatbed division among the ten largest such fleets in that industry
segment, there are other trucking companies, including diversified carriers with
large flatbed fleets, that possess substantially greater financial resources and
operate more equipment than Smithway.
Fuel Availability and Cost
The Company actively manages its fuel costs. Company drivers purchase
virtually all of the Company's fuel through service centers with which Smithway
has volume purchasing arrangements. In addition, management periodically enters
into options, futures contracts, and price swap agreements on heating oil, which
is derived from the same petroleum products as diesel fuel, in an effort to
partially hedge increases in fuel prices. The Company did not have any options,
futures contracts, or price swap agreements in place at any time during 2001.
Most of the Company's contracts with customers contain fuel surcharge provisions
and the Company also attempts to recover increases in fuel prices through higher
rates. However, increases in fuel prices are generally not fully offset through
these measures.
Regulation
Historically, the Interstate Commerce Commission ("ICC") and various state
agencies regulated motor carriers' operating rights, accounting systems, mergers
and acquisitions, periodic financial reporting, and other matters. In 1995,
federal legislation preempted state regulation of prices, routes, and services
of motor carriers and eliminated the ICC. Several ICC functions were transferred
to the Department of Transportation ("DOT"). Management does not believe that
regulation by the DOT or by the states in their remaining areas of authority
will have a material effect on the Company's operations. The Company's drivers
and independent contractors must comply with the safety and fitness regulations
promulgated by the DOT, including those relating to drug and alcohol testing and
hours of service.
5
The Company's operations are subject to various federal, state, and local
environmental laws and regulations, implemented principally by the EPA and
similar state regulatory agencies, governing the management of hazardous wastes,
the discharge of pollutants into the air and surface and underground waters, and
the disposal of certain substances. The Company transports certain commodities
that may be deemed hazardous substances, and its Fort Dodge, Iowa headquarters
and Black Hawk, South Dakota and Des Moines, Iowa terminals have above-ground
fuel storage tanks and fueling facilities. The Company's Cohasset, Minnesota
terminal has underground fuel storage tanks. If the Company should be involved
in a spill or other accident involving hazardous substances, if any such
substances were found on the Company's properties, or if the Company were found
to be in violation of applicable laws and regulations, the Company could be
responsible for clean-up costs, property damage, and fines or other penalties,
any one of which could have a materially adverse effect on the Company.
Management believes that its operations are in material compliance with current
laws and regulations and does not know of any existing condition that would
cause compliance with applicable environmental regulations to have a material
effect on the Company's capital expenditures, earnings, or competitive position.
If the Company should fail to comply with applicable regulations, the Company
could be subject to substantial fines or penalties and to civil or criminal
liability.
ITEM 2. PROPERTIES
Smithway's headquarters consists of 25,000 square feet of office space and
51,000 square feet of equipment maintenance and wash facilities, located on 31
acres near Fort Dodge, Iowa. The Smithway Network consists of locations in or
near the following cities with the facilities noted:
Driver
Company Locations Maintenance Recruitment Dispatch Sales Ownership
----------------- ----------- ----------- -------- ----- ---------
Birmingham, Alabama .......... X X X Leased
Black Hawk, South Dakota...... X X X X Owned
Chicago, Illinois............. X X Owned
Cohasset, Minnesota........... X X X Owned
Dallas, Texas................. X X X Leased+
Denver, Colorado.............. X X Leased+
Des Moines, Iowa ............. X X X Owned
Enid, Oklahoma ............... X Leased+
Fort Dodge, Iowa.............. X X X X Owned
Houston, Texas................ X X Leased
Joplin, Missouri.............. X X X Owned
Kansas City, Missouri......... X X Leased
McPherson, Kansas............. X X X Owned
Oklahoma City, Oklahoma....... X X X X Owned
Oshkosh, Wisconsin............ X X Leased+
Phoenix, Arizona.............. X X Leased
Stockton, California.......... X X X Leased
St. Louis, Missouri........... X X Leased+
St. Paul, Minnesota........... X X Leased+
Yankton, South Dakota......... X X X X Owned
Youngstown, Ohio.............. X X X Leased+
Agent Locations
---------------
Cedar Rapids, Iowa ........... X X
Chambersburg, Pennsylvania.... X X
Detroit, Michigan ............ X X
Hennepin, Illinois ........... X X
Norfolk, Nebraska ............ X X
Toledo, Ohio ................. X X
- ---------------------------
+ Month-to-month leases.
6
ITEM 3. LEGAL PROCEEDINGS
The Company from time-to-time is a party to litigation arising in the
ordinary course of its business, substantially all of which involves claims for
personal injury and property damage incurred in the transportation of freight.
The Company is not aware of any claims or threatened claims that might have a
materially adverse effect upon its operations or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year ended December 31, 2001, no
matters were submitted to a vote of security holders.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Price Range of Common Stock. The Company's Class A Common Stock is traded
on the Nasdaq National Market under the symbol "SMXC." The following table sets
forth for the calendar periods indicated the range of high and low sales prices
for the Company's Class A Common Stock as reported by Nasdaq from January 1,
2000, to December 31, 2001.
Period High Low
- ------------------------------ -------------------- ---------------------
Calendar Year 2001
1st Quarter $ 3.25 $ 1.63
2nd Quarter $ 3.13 $ 2.06
3rd Quarter $ 2.98 $ 1.85
4th Quarter $ 2.65 $ 1.20
Period High Low
- ------------------------------ -------------------- ---------------------
Calendar Year 2000
1st Quarter $ 4.31 $ 2.75
2nd Quarter $ 3.75 $ 1.63
3rd Quarter $ 3.25 $ 1.84
4th Quarter $ 2.94 $ 1.63
As of January 31, 2002, the Company had 332 stockholders of record of its
Class A Common Stock. However, the Company believes that many additional holders
of Class A Common Stock are unidentified because a substantial number of the
Company's shares are held of record by brokers or dealers for their customers in
street names.
Dividend Policy. The Company has never declared and paid a cash dividend on
its Class A Common Stock. It is the current intention of the Company's Board of
Directors to continue to retain earnings to finance the growth of the Company's
business rather than to pay dividends. Future payments of cash dividends will
depend upon the financial condition, results of operations, and capital
commitments of the Company, restrictions under then-existing agreements, and
other factors deemed relevant by the Board of Directors.
7
ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
Years Ended December 31,
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
Statement of Operations Data: (In thousands, except per share and operating data)
Operating revenue................................ $ 120,117 $161,375 $ 196,945 $ 198,990 $ 190,826
Operating expenses:
Purchased transportation....................... 47,095 66,495 79,735 77,755 70,129
Compensation and employee benefits............. 26,904 38,191 49,255 51,718 54,394
Fuel, supplies, and maintenance................ 15,965 19,738 23,754 30,995 32,894
Insurance and claims........................... 2,206 2,745 4,212 3,426 5,325
Taxes and licenses............................. 2,299 3,048 4,045 3,943 3,817
General and administrative..................... 5,391 6,237 7,491 8,319 8,294
Communications and utilities................... 1,378 1,838 2,190 2,052 2,123
Depreciation and amortization.................. 7,880 11,015 15,800 19,325 18,778
------------- ------------- ------------- ------------- -------------
Total operating expenses.................... 109,118 149,307 186,482 197,533 195,754
------------- ------------- ------------- ------------- -------------
Earnings (loss) from operations............. 10,999 12,068 10,463 1,457 (4,928)
Interest expense (net)........................... 1,545 2,965 3,715 4,029 3,004
------------- ------------- ------------- ------------- -------------
Earnings (loss) before income taxes.............. 9,454 9,103 6,748 (2,572) (7,932)
Income taxes (benefit)........................... 3,781 3,774 2,822 (581) (2,721)
------------- ------------- ------------- ------------- -------------
Net earnings (loss).............................. 5,673 5,329 3,926 (1,991) (5,211)
============= ============= ============= ============= =============
Basic and diluted earnings (loss) per common share $ 1.13 $ 1.06 $ 0.78 $ (0.40) $ (1.07)
============= ============= ============= ============= =============
Operating Data (1)
Operating ratio (2).............................. 90.8% 92.5% 94.7% 99.3% 102.6%
Average revenue per tractor per week (3)......... $ 2,342 $ 2,330 $ 2,299 $ 2,261 $ 2,189
Average revenue per loaded mile (3).............. $ 1.36 $ 1.33 $ 1.33 $ 1.32 $ 1.34
Average length of haul in miles.................. 609 659 678 712 697
Company tractors at end of period................ 525 815 844 887 939
Independent contractor tractors at end of period. 443 711 689 614 575
Weighted average tractors during period.......... 909 1,236 1,532 1,515 1,530
Trailers at end of period........................ 1,673 2,720 2,783 2,679 2,781
Weighted averages shares outstanding:
Basic.......................................... 5,001 5,012 5,031 5,009 4,852
Diluted........................................ 5,019 5,037 5,032 5,009 4,852
Balance Sheet Data (at end of period):
Working capital.................................. $ 10,100 $ 6,811 $ 5,159 $ 3,300 $ (55)
Net property and equipment....................... 53,132 87,137 94,305 86,748 79,045
Total assets..................................... 74,878 115,494 125,014 115,828 106,436
Long-term debt, including current maturities..... 30,976 61,703 59,515 52,334 49,742
Total stockholders' equity....................... 29,906 35,405 39,508 37,233 31,866
(1) Excludes brokerage activities except as to operating ratio.
(2) Operating expenses as a percentage of operating revenue.
(3) Net of fuel surcharges.
8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Introduction
Except for the historical information contained herein, the discussion in
this annual report on Form 10-K 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's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed below in the section entitled
"Factors That May Affect Future Results," as well as those discussed in this
item and elsewhere in this annual report on Form 10-K.
General
The trucking industry operated in a very difficult business environment in
2000 and 2001. A combination of high fuel prices, rising insurance premiums, a
depressed used truck market, a declining number of owner-operators, and slowing
freight demand associated with an economic recession affected the profitability
of most trucking companies, including Smithway.
The Company has historically expanded its operations through a combination
of acquisitions and internal growth, but over the past three years the size of
the Company's business has decreased slightly. From 1999 to 2001, operating
revenue decreased 3.1%, to $191 million in 2001 from $197 million in 1999. For
the year 2001, Smithway experienced a net loss of $5.2 million or $1.07 per
basic and diluted share. The loss included fourth-quarter pre-tax adjustments of
$1.1 million, including a $707,000 write-off of the carrying value of
proprietary operating software and a $332,000 adjustment to increase reserves
for bad debts primarily as a result of steel company bankruptcies.
Smithway's revenue was primarily impacted by a slowing economy, which
reduced revenue per tractor per week and brokerage revenue versus the prior
year. In addition, higher fuel prices and insurance premiums and tighter credit
standards by lending institutions caused the number of owner-operators providing
tractors to Smithway to drop by approximately 6% during 2001. With fewer
owner-operators, higher unseated company tractors, and lower production caused
by soft freight demand, Smithway's revenue base suffered. In addition to
industry pressures, the Company's dry van operation significantly underperformed
the flatbed operation. Freight and brokerage revenue decreased approximately
$6.0 million between 2000 and 2001, and is projected to decrease $2.0 million
between 2001 and 2002 from customer bankruptcies. Management has sought, and
will continue to seek, replacement freight, including freight from sectors other
than steel and building materials.
On the expense side, Smithway's profitability was affected primarily by
higher insurance premiums, increased parts and maintenance expense, and the two
previously mentioned non-recurring adjustments. During the fourth quarter of
2000, three of Smithway'>s significant customers declared bankruptcy. In 2000,
the Company reserved $775,000 pre-tax to reflect the full amount of the
receivables owed by these customers plus certain amounts for other customers
experiencing economic difficulties. The $332,000 adjustment during the fourth
quarter of 2001 was made because of additional steel company bankruptcies. The
adjustment is reflected in general and administrative expense.
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.
9
Results of Operations
The following table sets forth the percentage relationship of certain
items to revenue for the periods indicated:
1999 2000 2001
---- ---- ----
Operating revenue......................................... 100.0% 100.0% 100.0%
Operating expenses:
Purchased transportation......................... 40.5 39.1 36.8
Compensation and employee benefits............... 25.0 26.0 28.5
Fuel, supplies, and maintenance.................. 12.1 15.6 17.2
Insurance and claims............................. 2.1 1.7 2.8
Taxes and licenses............................... 2.1 2.0 2.0
General and administrative....................... 3.8 4.2 4.3
Communication and utilities...................... 1.1 1.0 1.1
Depreciation and amortization.................... 8.0 9.7 9.8
----------------------------------------------------------
Total operating expenses......................... 94.7 99.3 102.6
----------------------------------------------------------
Earnings (loss) from operations........................... 5.3 0.7 (2.6)
Interest expense, net..................................... 1.9 2.0 1.6
----------------------------------------------------------
Earnings (loss) before income taxes....................... 3.4 (1.3) (4.2)
Income taxes (benefit).................................... 1.4 (0.3) (1.4)
----------------------------------------------------------
Net earnings (loss)....................................... 2.0% (1.0)% (2.7)%
==========================================================
Comparison of year ended December 31, 2001 to year ended December 31, 2000.
Operating revenue decreased $8.2 million (4.1%), to $190.8 million in 2001
from $199.0 million in 2000. Lower average revenue per tractor per week,
decreased brokerage revenue, and decreased fuel surcharge 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 $2,189 in 2001 from $2,261 in 2000, primarily due to a higher
number of unseated company tractors, lower weekly production caused by soft
freight demand, and lower weekly production of tractors acquired from Skipper
Transportation, Inc. In addition, soft freight demand caused a $2.9 million
decrease in brokerage revenue, to $9.5 million in 2001 from $12.3 million in
2000. Finally, fuel surcharge revenue decreased $1.0 million to $6.3 million in
2001 from $7.3 million in 2000. During 2001 and 2000, approximately $3.5 million
and $3.9 million, respectively, of the fuel surcharge revenue collected helped
to offset Company fuel costs. The remainder was passed through to independent
contractors. These factors were partially offset by an increase in revenue per
loaded mile, net of surcharges, to $1.34 in 2001 from $1.32 in 2000.
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 $7.6 million (9.8%), to $70.1 million in 2001 from
$77.8 million in 2000, as the Company contracted with fewer independent
contractor providers of revenue equipment. As a percentage of revenue, purchased
transportation decreased to 36.8% in 2001 from 39.1% in 2000. This reflects a
decrease in the percentage of the Company'>s fleet supplied by independent
contractors. Management believes the decline in independent contractor
percentage 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.
Compensation and employee benefits increased $2.7 million (5.2%), to $54.4
million in 2001 from $51.7 million in 2000. As a percentage of revenue,
compensation and employee benefits increased to 28.5% in 2001 from 26.0% in
2000. The increases were primarily attributable to the increase in the
percentage of the Company's fleet represented by Company-owned equipment.
Additionally, wages paid to drivers for unloaded miles increased during the year
as weak freight demand caused deadhead miles to increase. Finally, workers'
compensation claims and premiums increased in 2001 compared with 2000, and
management expects this trend to continue in future periods.
10
Fuel, supplies, and maintenance increased $1.9 million (6.1%), to $32.9
million in 2001 from $31.0 million in 2000. As a percentage of revenue, fuel,
supplies, and maintenance increased to 17.2% of revenue in 2001 compared with
15.6% in 2000. 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 4% to an average of $1.38 per gallon in 2001 from $1.45 per
gallon in 2000. Fuel surcharge revenue attributable to loads hauled by Company
trucks remained relatively constant at $3.5 million in 2001 compared with $3.9
million in 2000. The extension of the trade cycle for tractors is expected to
continue to impact maintenance expense in future periods.
Insurance and claims increased $1.9 million (55.4%), to $5.3 million in
2001 from $3.4 million in 2000. As a percentage of revenue, insurance and claims
increased to 2.8% of revenue in 2001 compared with 1.7% in 2000. 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. High premiums and claims are
expected to continue to impact this category in future periods.
Taxes and licenses decreased $126,000 (3.2%), to $3.8 million in 2001 from
$3.9 million in 2000, reflecting a decrease in the number of shipments requiring
special permits. The special permits are paid for by the shippers, which is
included in freight revenue. As a percentage of revenue, taxes and licenses
remained constant at 2.0% of revenue in 2001and 2000.
General and administrative expenses remained essentially constant at $8.3
million in 2001 and 2000. During the fourth quarter of 2001, steel company
bankruptcies caused the Company to increase its allowance for doubtful accounts
by $332,000. Similarly, during the fourth quarter of 2000, three major customers
declared bankruptcy causing the Company to increase its allowance for doubtful
accounts by $775,000. General and administrative expenses, excluding
bankruptcies, increased $418,000 in 2001 as the Company incurred higher costs
associated with recruiting and training new drivers. As a percentage of revenue,
general and administrative expenses remained relatively constant at 4.3% of
revenue in 2001 compared with 4.2% of revenue in 2000. However, without the
increases in allowance for doubtful accounts during 2001 and 2000, general and
administrative expenses would have increased to 4.2% of revenue in 2001 compared
with 3.8% in 2000.
Communications and utilities remained essentially constant at $2.1 million
in 2001 and 2000. As a percentage of revenue, communications and utilities
remained relatively constant at 1.1% of revenue in 2001 compared with 1.0% of
revenue in 2000.
Depreciation and amortization decreased $547,000 (2.8%), to $18.8 million
in 2000 from $19.3 million in 2000. In 2001, the Company committed to a plan to
replace its proprietary computer operating system with third party software.
Accordingly, the Company wrote off the $707,000 carrying value of its existing
software during the fourth quarter. In 2000 and 2001, the market value of used
tractors declined in the United States. In response, management assessed the
valuation of its long-lived assets and identified tractors with carrying values
in excess of recoverable value. The carrying value of these tractors was reduced
by $1.0 million in 2000. In accordance with industry practices, the gain or loss
on retirement, sale, or write-down of equipment is included in depreciation and
amortization. In 2001 and 2000, the Company recognized net gains on equipment,
excluding one-time write-downs, of $187,000 and $119,000, respectively.
Additionally, increasing costs of new equipment continued to increase
depreciation per tractor. As a percentage of revenue, depreciation and
amortization remained essentially constant at 9.8% of revenue in 2001 and 9.7%
in 2000.
Interest expense, net, decreased $1.0 million (25.4%), to $3.0 million in
2001 from $4.0 million in 2000. This decrease was attributable to lower interest
rates and lower average debt outstanding. As a percentage of revenue, interest
expense, net, decreased to 1.6% of revenue in 2001 compared with 2.0% in 2000.
As a result of the foregoing, the Company's pre-tax margin decreased to
(4.2%) in 2001 from (1.3%) in 2000.
The Company's income tax benefit was $2.7 million, or 34.3% of loss before
income taxes. The Company's income tax benefit in 2000 was $581,000, or 22.6% of
loss before income taxes. In both years, the effective tax rate is different
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 drivers to independent contractors and the level of the
Company's pre-tax earnings.
11
As a result of the factors described above, net loss was $5.2 million in
2001 (2.7% of revenue), compared with net loss of $2.0 million in 2000 (1.0% of
revenue).
Comparison of year ended December 31, 2000 to year ended December 31, 1999.
Operating revenue increased $2.1 million (1.0%), to $199.0 million in 2000
from $196.9 million in 1999. A substantial increase in fuel surcharge revenue to
$7.3 million in 2000 from $489,000 in 1999 was largely offset by lower revenue
per tractor per week (excluding revenue from brokerage operations), and slightly
lower weighted average tractors. Approximately $3.9 million of the fuel
surcharge revenue helped to offset Company fuel costs and the remainder was
passed through to independent contractors. Revenue per tractor per week (net of
fuel surcharges) decreased $38 per week (1.7%), to $2,261 in 2000 from $2,299 in
1999, primarily caused by a $.01 decrease in average revenue per loaded mile.
Weighted average tractors decreased 1.1%, to 1,515 in 2000 from 1,532 during
1999 as the Company's owner operator fleet decreased due to economic pressures
that forced many to leave the trucking industry. Revenue from the Company's
brokerage operations increased $752,000 (6.5%), to $12.3 million in 2000 from
$11.6 million in 1999.
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 $1.9 million (2.5%), to $77.8 million in 2000 from
$79.7 million in 1999, as the Company contracted with fewer independent
contractor providers of revenue equipment. As a percentage of revenue, purchased
transportation decreased to 39.1% in 2000 from 40.5% in 1999. 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 as they receive 100% of fuel
surcharges attributable to the loads they haul.
Compensation and employee benefits increased $2.5 million (5.0%), to $51.7
million in 2000 from $49.3 million in 1999. As a percentage of revenue,
compensation and employee benefits increased to 26.0% in 2000 from 25.0% in
1999. The increase was primarily attributable to an increase in the per-mile
wage paid to flatbed drivers in October 1999 and an increase in the percentage
of the Company's revenue attributable to company-owned equipment. This was
partially offset by a decrease in workers' compensation and health insurance
claims in 2000 compared with 1999.
Fuel, supplies, and maintenance increased $7.2 million (30.5%), to $31.0
million in 2000 from $23.8 million in 1999. As a percentage of revenue, fuel,
supplies, and maintenance increased dramatically to 15.6% in 2000 from 12.1% in
1999 caused primarily by higher fuel price. Average fuel prices increased to
$1.45 per gallon during 2000 from $1.09 per gallon in 1999. This increase was
partially offset by $3.9 million of fuel surcharges attributable to loads hauled
by Company trucks and $667,000 in gains from fuel hedging transactions. The
Company attempted to recover increases in fuel prices through fuel surcharges
and higher rates, however, the costs were not fully offset through these
measures. The Company's fuel hedging positions expired in June 2000.
Insurance and claims decreased $786,000 (18.7%), to $3.4 million in 2000
from $4.2 million in 1999. As a percentage of revenue, insurance and claims
decreased to 1.7% of revenue in 2000 compared with 2.1% in 1999, reflecting a
decrease in liability and physical damage claims paid and reserved.
Taxes and licenses decreased $102,000 (2.5%), to $3.9 million in 2000 from
$4.0 million in 1999, reflecting a decrease in the number of shipments requiring
special permits. The special permits are paid for by the shippers, which is
included in freight revenue. As a percentage of revenue, taxes and licenses
remained relatively constant at 2.0% of revenue in 2000 compared with 2.1% of
revenue in 1999.
General and administrative expenses increased $828,000 (11.1%), to $8.3
million in 2000 from $7.5 million in 1999, caused by an increase in bad debt
expense. During the fourth quarter of 2000, three major customers declared
bankruptcy causing the Company to increase its allowance for doubtful accounts
by $775,000. Other general and administrative expenses remained relatively
unchanged. As a percentage of revenue, general and administrative expenses
increased to 4.2% of revenue in 2000 compared with 3.8% of revenue in 1999.
Without the increase in allowance for doubtful accounts, general and
administrative expenses would have remained constant at approximately 3.8% of
revenue in each year.
Communications and utilities decreased $138,000 (6.3%), to $2.1 million in
2000 from $2.2 million in 1999. As a percentage of revenue, communications and
utilities remained relatively constant at 1.0% of revenue in 2000 compared with
1.1% of revenue in 1999.
12
Depreciation and amortization increased $3.5 million (22.3%), to $19.3
million in 2000 from $15.8 million in 1999. In 2000, the market value of used
tractors declined in the United States. In response, management assessed the
valuation of its long-lived assets and identified tractors with carrying values
in excess of recoverable value. The carrying value of these tractors was reduced
by $1.0 million. In accordance with industry practices, the gain or loss on
retirement, sale, or write-down of equipment is included in depreciation and
amortization. In 2000, the Company recognized net losses on equipment of
$881,000, adjusting for the $1.0 million write-down of equipment, compared to
net gain of $954,000 in 1999, causing a $1.8 million increase in depreciation
and amortization expense. Additionally, increasing costs of new equipment
continued to increase depreciation per tractor. As a percentage of revenue,
depreciation and amortization increased to 9.7% of revenue in 2000 from 8.0% in
1999, reflecting losses on equipment, higher cost of new equipment, and lower
revenue per tractor that less efficiently spread this fixed cost.
Interest expense, net, increased $314,000 (8.5%), to $4.0 million in 2000
from $3.7 million in 1999. This increase was attributable to higher interest
rates, offset partially by lower average debt outstanding. As a percentage of
revenue, interest expense, net, increased slightly to 2.0% of revenue in 2000
compared with 1.9% in 1999.
As a result of the foregoing, the Company's pre-tax margin decreased to
(1.3%) in 2000 from 3.4% in 1999.
The Company's income tax benefit for 2000 was $581,000, or 22.6% of loss
before income taxes. The Company's income tax expense for 1999 was $2.8 million,
or 41.8% of earnings before income taxes. In both years, the effective tax rate
is different 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 drivers to independent contractors and the level of
the Company's pre-tax earnings.
As a result of the factors described above, net loss was $2.0 million in
2000 (1.0% of revenue), compared with net earnings of $3.9 million in 1999 (2.0%
of revenue).
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 $2.6 million during 2001 as cash generated from
operations paid down long-term debt. 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 provided by operating activities was $24.0 million, $18.7 million,
and $14.3 million for the years ended December 31, 1999, 2000, and 2001,
respectively. The Company's principal use of cash from operations is to service
debt and to internally finance acquisitions of revenue equipment. Total
receivables increased (decreased) $3.4 million, ($1.4) million, and ($2.8)
million for the years ended December 31, 1999, 2000, and 2001, respectively. The
average age of the Company's trade accounts receivable was approximately 35 days
for 1999, 37 days for 2000, and 37 days for 2001.
Net cash used in investing activities was $14.7 million, $2.6 million, and
$4.0 million for the years ended December 31, 1999, 2000, and 2001,
respectively. Such amounts related primarily to purchases, sales, and trades of
revenue equipment and payments made for the acquisition of Skipper
Transportation, Inc. in 2001. The Company expects capital expenditures
(primarily for revenue equipment and satellite communications units), net of
revenue equipment trade-ins, to be approximately $7.7 million during 2002. Such
projected capital expenditures are expected to be funded with cash flow from
operations, borrowings, or operating leases.
13
Net cash used in financing activities of $9.9 million, $16.5 million, and
$9.9 million for the years ended December 31, 1999, 2000, and 2001,
respectively, consisted primarily of net payments of principal under the
Company's long-term debt agreements.
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. The term loan has a balance of $18.5 million, and is payable in 72 equal
monthly installments of $257,000 in principal. The revolving line of credit
allows for borrowings up to 85 percent of eligible receivables. 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. The combination of all loans with LaSalle Bank
can not exceed $32.5 million. At December 31, 2001, the Company's borrowing
limit was $28.7 million, including the letters of credit discussed below, and
total borrowings under the revolving line were $585,000.
The financing agreement also includes financing for letters of credit. At
December 31, 2001, 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.
The financing arrangement 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 December 31, 2001.
Contractual Obligations and Commercial Commitments
The following tables set forth the contractual obligations and other
commercial commitments as of December 31, 2001:
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 $49,742 $12,052 $22,983 $11,623 $3,084
Operating leases 859 676 178 5 -
Purchase and installation of
new software system 686 686 - - -
------------ ------------- ------------- ------------ -----------
Total contractual cash obligations $51,287 $13,414 $23,161 $11,628 $3,084
============ ============= ============= ============ ===========
The Company had no other commercial commitments at December 31, 2001.
14
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 is
contained in Note 1 of the financial statements attached hereto. Other footnotes
describe various elements of the financial statements 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.
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.
15
New Accounting Pronouncements
Statement of Financial Accounting Standard (SFAS) 142, Goodwill and Other
Intangible Assets, will be effective for the Company for the year beginning
January 1, 2002. Under SFAS 142, which establishes new accounting and reporting
requirements for goodwill and other intangible assets, all goodwill amortization
will cease effective January 1, 2002. The Company has 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. These impairment tests are
required to be performed at adoption of SFAS 142 and at least annually
thereafter. On an ongoing basis (absent any impairment indicators), the Company
expects to perform the impairment tests during the fourth quarter. Initial
impairment tests indicated no impairment of goodwill.
In 2001, Financial Accounting Standards Board (FASB) issued 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. The Company plans to adopt the provisions of SFAS No. 144 in
2002, as required. Management has not yet determined what impact, if any, the
adoption of SFAS No. 144 will have on the Company's results of operations or
financial condition.
Related Party Transactions
During the years ended December 31, 1999, 2000, and 2001, there were no
material transactions with related parties.
Inflation and Fuel Costs
Most of the Company's operating expenses are inflation-sensitive, with
inflation generally producing increased costs of operation. During the past
three years, the most significant effects of inflation have been on revenue
equipment prices, the compensation paid to drivers, and fuel prices. Innovations
in equipment technology and comfort have resulted in higher tractor prices, and
there has been an industry-wide increase in wages paid to attract and retain
qualified drivers. The Company attempts to limit the effects of inflation
through increases in freight rates and certain cost control efforts. The failure
to obtain rate increases in the future could adversely affect profitability.
High fuel prices also decrease the Company's profitability. Most of the
Company's contracts with customers contain fuel surcharge provisions. Although
the Company attempts to pass through increases in fuel prices to customers in
the form of surcharges and higher rates, the fuel price increases are not fully
recovered.
Seasonality
In the trucking industry results of operations show a seasonal pattern
because customers generally reduce shipments during the winter season, and the
Company experiences some seasonality due to the open, flatbed nature of the
majority of its trailers. The Company at times has experienced delays in meeting
its shipment schedules as a result of severe weather conditions, particularly
during the winter months. In addition, the Company's operating expenses have
been higher in the winter months due to decreased fuel efficiency and increased
maintenance costs in colder weather.
Factors That May Affect Future Results
The Company may from time-to-time make written or oral forward-looking
statements. Written forward-looking statements may appear in documents filed
with the Securities and Exchange Commission, in press releases, and in reports
to stockholders. The Private Securities Litigation Reform Act of 1995 contains a
safe harbor for forward-looking statements. The Company relies on this safe
harbor in making such disclosures. In connection with this "safe harbor"
provision, the Company is hereby identifying important factors that could cause
actual results to differ materially from those contained in any forward-looking
statement made by or on behalf of the Company. Factors that might cause such a
difference include, but are not limited to, the following:
General Economic and Business Factors. The Company's business is dependent
upon a number of factors that may have a material adverse effect on its results
of operations, many of which are beyond the Company's control. These factors
include excess capacity in the trucking industry, significant increases or rapid
fluctuations in fuel prices, interest rates, fuel taxes, and insurance and
claims costs, to the extent not offset by increases in freight rates or fuel
surcharges. The Company's results of operations also are affected by
recessionary economic cycles and downturns in customers' business cycles,
particularly in market segments and industries in which the Company has a
concentration
16
of customers. In addition, the Company's results of operations are affected by
seasonal factors. Customers tend to reduce shipments during the winter months.
Capital Requirements. The trucking industry is very capital intensive. The
Company depends on cash from operations, operating leases, and debt financing
for funds to maintain modern revenue equipment. The Company has slowed its
growth and extended its trade cycle on tractors and trailers to limit capital
expenditures. If the Company's operating results do not improve, and the Company
is unable in the future to enter into acceptable financing arrangements, it
might be required to operate its revenue equipment for longer periods, which
could have a material adverse effect on the Company's operating results. The
failure of the Company to maintain compliance with all covenants in its
borrowing obligations, or obtain a waiver thereof, could have a significant
impact on the Company's liquidity and operating results.
Resale of Used Revenue Equipment. In years prior to 2000, the Company
frequently recognized a gain on the sale of its revenue equipment. The market
for used equipment weakened dramatically since late 1999. If the resale value of
the Company's revenue equipment were to remain low or decline, the Company could
find it necessary to dispose of its equipment at a lower gain or a loss, or
retain some of its equipment longer, with a resulting increase in operating
expenses, all of which could have a materially adverse effect on the Company's
operating results.
Recruitment, Retention, and Compensation of Qualified Drivers and
Independent Contractors. Competition for drivers and independent contractors is
intense in the trucking industry. There is, and historically has been, an
industry-wide shortage of qualified drivers and independent contractors. The
Company has suffered from an excessive number of Company-owned tractors without
drivers for the past several quarters. In addition, independent contractors have
decreased industry-wide for a variety of economic reasons. The Company's
shortage of drivers and independent contractors has constrained revenue
production. Failure to recruit additional drivers and independent contractors
could force the Company to increase compensation or limit fleet size, either of
which could have a materially adverse effect on operating results.
Competition. The trucking industry is highly competitive and fragmented.
The Company competes with other truckload carriers, private fleets operated by
existing and potential customers, and to some extent railroads and
rail-intermodal service. Competition is based primarily on service, efficiency,
and freight rates. Many competitors offer transportation service at lower rates
than the Company. The Company's results could suffer if it cannot obtain higher
rates.
Acquisitions. A significant portion of the Company's growth prior to 1999
occurred through acquisitions. In March 2001, the Company acquired the assets of
Skipper Transportation, Inc., a small flatbed carrier headquartered in
Birmingham, Alabama. This is the only acquisition the Company has made during
the past three years.
Van Division. The Company's van division has generated an operating loss
for the past three years. Failure to turn around the operating losses may result
in either continued operating losses or sale of the division at a time when the
sale price of used equipment is depressed. Either result could have a materially
adverse effect on operating results.
Operating Losses. The Company has reported operating losses for the past
two years. Failure to turn around the operating losses could result in violation
of bank covenants, which could accelerate the Company's debt and have a
materially adverse effect on the Company's liquidity. Continued operating losses
also could impair the Company's growth and ability to replace capital assets on
the desired schedule, which could raise operating expenses.
17
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 $23.3 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. Assuming borrowing levels at December 31, 2001, a
one-point increase in the prime rate would increase interest expense by
approximately $424,000. The remainder of the Company's other debt carries fixed
interest rates and exposes the Company to the risk that interest rates may fall.
At December 31, 2001, approximately 85% of the Company's debt carries a variable
interest rate and the remainder is fixed.
Commodity Price Risk
The Company in the past has used derivative instruments, including heating
oil price swap agreements, to reduce a portion of its exposure to fuel price
fluctuations. During the year ended December 31, 2001, the Company had no such
agreements in place. The Company does not trade in these derivatives with the
objective of earning financial gains on price fluctuations, nor does it trade in
these instruments when there are no underlying transaction related exposures.
18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's audited financial statements, including its consolidated
balance sheets and consolidated statements of operations, cash flows,
stockholders' equity, and notes related thereto, are included at pages 23 to 38
of this report. The supplementary quarterly financial data follows:
Quarterly Financial Data
(Dollars in thousands, except earnings per share)
------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
2001 2001 2001 2001
-------------- ------------------ -------------- -----------------
Operating revenue................................$ 47,379 $ 51,754 $ 48,571 $ 43,122
Earnings (loss) from operations.................. (1,127) 338 (1,114) (3,025)
Earnings (loss) before income taxes.............. (1,975) (469) (1,845) (3,643)
Income taxes (benefit)........................... (687) (85) (633) (1,316)
Net earnings (loss).............................. (1,288) (384) (1,212) (2,327)
Basic and diluted earnings (loss) per share......$ (0.26) $ (0.08) $ (0.25) $ (0.48)
First Quarter Second Quarter Third Quarter Fourth Quarter
2000 2000 2000 2000
-------------- ------------------ -------------- -----------------
Operating revenue................................$ 50,748 $ 51,094 $ 50,206 $ 46,942
Earnings (loss) from operations.................. 1,519 1,206 1,204 (2,472)
Earnings (loss) before income taxes.............. 521 170 174 (3,437)
Income taxes (benefit)........................... 283 163 153 (1,180)
Net earnings (loss).............................. 238 7 21 (2,257)
Basic and diluted earnings (loss) per share......$ 0.05 $ 0.00 $ 0.00 $ (0.46)
As a result of rounding, the total of the four quarters may not equal the
Company's results for the full year.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
No reports on Form 8-K have been filed within the twenty-four months prior
to December 31, 2001, involving a change of accountants or disagreements on
accounting and financial disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information respecting executive officers and directors set forth under
the captions "Election of Directors; Information Concerning Directors and
Executive Officers" and "Section 16(a) Beneficial Ownership Reporting
Compliance" of the Registrant's Proxy Statement for the 2002 annual meeting of
stockholders, which will be filed with the Securities and Exchange Commission in
accordance with Rule 14a-6 promulgated under the Securities Exchange Act of
1934, as amended (the "Proxy Statement"), is incorporated by reference;
provided, that the "Audit Committee Report for 2001" and the Stock Price
Performance Graph contained in the Proxy Statement are not incorporated by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information respecting executive compensation set forth under the
caption "Executive Compensation" in the Proxy Statement is incorporated herein
by reference; provided, that the "Compensation Committee Report on Executive
Compensation" contained in the Proxy Statement is not incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information respecting security ownership of certain beneficial owners
and management set forth under the caption "Security Ownership of Principal
Stockholders and Management" in the Proxy Statement is incorporated herein by
reference.
19
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information respecting certain relationships and transactions of
management set forth under the captions "Compensation Committee Interlocks,
Insider Participation, and Related Party Transactions" in the Proxy Statement is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements.
The Company's audited financial statements are set forth at the following
pages of this report:
Page
Independent Auditors' Report............................................ 23
Consolidated Balance Sheets............................................. 24
Consolidated Statements of Operations................................... 26
Consolidated Statements of Stockholders' Equity........................ 27
Consolidated Statements of Cash Flows................................... 28
Notes to Consolidated Financial Statements.............................. 30
2. Financial Statement Schedules.
Financial statement schedules are not required because all required
information is included in the financial statements.
3. Exhibits
See list under Item 14(c) below, with management compensatory plans and
arrangements being listed under 10.2, 10.3, 10.5, 10.7, 10.8, 10.9, 10.10, and
10.12.
(b) Reports on Form 8-K
None
20
(c) 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.
10.12 # Letter Agreement dated August 6, 2001, between Smithway Motor
Xpress, Inc. and Donald A. Orr.
21 ***** List of Subsidiaries.
23 # Consent of KPMG LLP, independent auditors.
- ---------------------
* 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, 1999. Commission File No.
000-20793, dated March 29, 2000.
# Filed herewith.
21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities 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.
Date: March 28, 2002 By: /s/ William G. Smith
-------------- --------------------
William G. Smith
Chairman of the Board, President, and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Position Date
Chairman of the Board, President, and Chief
/s/ William G. Smith Executive Officer; Director (principal executive
- ---------------------- officer) March 28, 2002
William G. Smith
/s/ G. Larry Owens Executive Vice President, Chief Administrative
- ------------------ Officer, and Chief Financial Officer; Director March 28, 2002
G. Larry Owens
/s/ Donald A. Orr Executive Vice President and Chief Operating
- ----------------- Officer; Director March 28, 2002
Donald A. Orr
/s/ Douglas C. Sandvig Controller and Chief Accounting Officer
- ---------------------- (principal financial and accounting officer) March 28, 2002
Douglas C. Sandvig
/s/ Herbert D. Ihle
- -------------------
Herbert D. Ihle Director March 28, 2002
/s/ Robert E. Rich
- -------------------
Robert E. Rich Director March 28, 2002
/s/ Terry G. Christenberry
- --------------------------
Terry G. Christenberry Director March 28, 2002
22
Independent Auditors' Report
To the Stockholders and Board of Directors of Smithway Motor Xpress Corp.:
We have audited the accompanying consolidated balance sheets of Smithway
Motor Xpress Corp. and subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 2001.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Smithway
Motor Xpress Corp. and subsidiaries as of December 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.
KPMG LLP
/s/ KPMG LLP
Des Moines, Iowa
February 7, 2002
23
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands, except per share data)
December 31,
-------------------------------------
2000 2001
------------------ ------------------
ASSETS
Current assets:
Cash and cash equivalents...................................................$ 349 $ 722
Receivables:
Trade (note 4)............................................................ 17,832 13,649
Other..................................................................... 1,310 1,020
Recoverable income taxes.................................................. 17 1,820
Inventories................................................................. 1,586 1,561
Deposits, primarily with insurers (note 10)................................. 160 539
Prepaid expenses............................................................ 910 926
Deferred income taxes (note 5).............................................. 1,384 1,726
------------------ ------------------
Total current assets................................................. 23,548 21,963
------------------ ------------------
Property and equipment (note 4):
Land........................................................................ 1,412 1,548
Buildings and improvements.................................................. 7,006 8,175
Tractors.................................................................... 77,098 79,472
Trailers.................................................................... 43,167 44,784
Other equipment............................................................. 7,497 7,318
------------------ ------------------
136,180 141,297
Less accumulated depreciation............................................... 49,432 62,252
------------------ ------------------
Net property and equipment........................................... 86,748 79,045
------------------ ------------------
Intangible assets, net (note 2)............................................... 5,191 5,016
Other assets.................................................................. 341 412
------------------ ------------------
$ 115,828 $ 106,436
================== ==================
See accompanying notes to consolidated financial statements.
24
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands, except per share data)
December 31,
-------------------------------------
2000 2001
------------------ ------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt (note 4)...............................$ 8,636 $ 12,052
Accounts payable............................................................ 5,669 4,589
Accrued compensation........................................................ 2,505 2,258
Accrued loss reserves (note 10)............................................. 2,344 2,327
Other accrued expenses...................................................... 1,094 792
------------------ ------------------
Total current liabilities............................................ 20,248 22,018
Long-term debt, less current maturities (note 4).............................. 43,698 37,105
Deferred income taxes (note 5)................................................ 14,649 14,862
Line of credit (note 4)....................................................... - 585
------------------ ------------------
Total liabilities.................................................... 78,595 74,570
------------------ ------------------
Stockholders' equity (notes 6 and 7):
Preferred stock (.01 par value; authorized 5 million shares; issued none)... - -
Common stock:
Class A (.01 par value; authorized 20 million shares;
issued 2000 and 2001 - 4,035,989 shares)................... 40 40
Class B (.01 par value; authorized 5 million shares;
issued 1 million shares).................................... 10 10
Additional paid-in capital.................................................. 11,396 11,394
Retained earnings........................................................... 26,053 20,842
Reacquired shares, at cost (2000 - 119,625 shares; 2001 - 192,009 shares)... (266) (420)
------------------ ------------------
Total stockholders' equity........................................... 37,233 31,866
Commitments (note 10)
------------------ ------------------
$ 115,828 $ 106,436
================== ==================
See accompanying notes to consolidated financial statements.
25
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
Consolidated Statements of Operations
(Dollars in thousands, except per share data)
Years ended December 31,
---------------------------------------------------------
1999 2000 2001
----------------- ------------------ ------------------
Operating revenue:
Freight..............................................$ 196,420 $ 198,247 $ 190,165
Other.............................................. 525 743 661
----------------- ------------------ ------------------
Operating revenue.............................. 196,945 198,990 190,826
----------------- ------------------ ------------------
Operating expenses:
Purchased transportation............................. 79,735 77,755 70,129
Compensation and employee benefits................... 49,255 51,718 54,394
Fuel, supplies, and maintenance...................... 23,754 30,995 32,894
Insurance and claims................................. 4,212 3,426 5,325
Taxes and licenses................................... 4,045 3,943 3,817
General and administrative........................... 7,491 8,319 8,294
Communications and utilities......................... 2,190 2,052 2,123
Depreciation and amortization........................ 15,800 19,325 18,778
----------------- ------------------ ------------------
Total operating expenses........................ 186,482 197,533 195,754
----------------- ------------------ ------------------
Earnings (loss) from operations............... 10,463 1,457 (4,928)
Financial (expense) income
Interest expense..................................... (3,829) (4,124) (3,052)
Interest income...................................... 114 95 48
----------------- ------------------ ------------------
Earnings (loss) before income taxes.......... 6,748 (2,572) (7,932)
Income taxes (benefit) (note 5)........................... 2,822 (581) (2,721)
----------------- ------------------ ------------------
Net earnings (loss)..........................$ 3,926 $ (1,991) $ (5,211)
================= ================== ==================
Basic and diluted earnings (loss) per share (note 8)......$ 0.78 $ (0.40) $ (1.07)
================= ================== ==================
See accompanying notes to consolidated financial statements.
26
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1999, 2000, and 2001
(Dollars in thousands)
Additional Total
Common paid-in Retained Reacquired stockholders'
stock capital earnings shares equity
-----------------------------------------------------------------------
Balance at December 31, 1998............ $ 50 $ 11,311 $ 24,118 $ (74) $ 35,405
Net earnings............................ - - 3,926 - 3,926
Issuance of stock bonuses............... - 56 - - 56
Treasury stock reissued for stock
bonuses (13,885 shares)................. - 47 - 74 121
-----------------------------------------------------------------------
Balance at December 31, 1999............ 50 11,414 28,044 - 39,508
Net earnings (loss)..................... - - (1,991) - (1,991)
Treasury stock acquired (167,922 shares) - - - (456) (456)
Treasury stock reissued for stock
bonuses (48,297 shares)................. - (18) - 190 172
-----------------------------------------------------------------------
Balance at December 31, 2000............ 50 11,396 26,053 (266) 37,233
Net earnings (loss)..................... - - (5,211) - (5,211)
Treasury stock acquired (77,900 shares) - - - (166) (166)
Treasury stock reissued for stock
bonuses (5,516 shares).................. - (2) - 12 10
----------------------------------------------------------------------
Balance at December 31, 2001............ $ 50 $ 11,394 $ 20,842 $ (420) $ 31,866
======================================================================
See accompanying notes to consolidated financial statements.
27
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
Years ended December 31,
------------------------------------------------
1999 2000 2001
-------------- ------------- ---------------
Cash flows from operating activities:
Net earnings (loss)..............................................$ 3,926 $ (1,991) $ (5,211)
--------------- ------------- ---------------
Adjustments to reconcile net earnings (loss) to cash provided
by operating activities:
Depreciation and amortization................................ 15,800 19,325 18,778
Deferred income taxes (benefit).............................. 2,884 (489) (129)
Stock bonuses................................................ 177 172 10
Change in:
Receivables............................................. (3,431) 1,389 2,783
Inventories............................................. (74) 25 29
Deposits, primarily with insurers....................... 110 121 (379)
Prepaid expenses........................................ 531 (331) 95
Accounts payable and other accrued liabilities.......... 4,120 486 (1,653)
--------------- ------------- ---------------
Total adjustments................................... 20,117 20,698 19,534
--------------- ------------- ---------------
Net cash provided by operating activities.......... 24,043 18,707 14,323
--------------- ------------- ---------------
Cash flows from investing activities:
Payments for acquisitions....................................... - - (2,954)
Purchase of property and equipment............................... (18,342) (4,366) (2,537)
Proceeds from sale of property and equipment..................... 3,478 1,905 1,541
Other............................................................ 130 (97) (71)
--------------- ------------- ---------------
Net cash used in investing activities................. (14,734) (2,558) (4,021)
--------------- ------------- ---------------
Cash flows from financing activities:
Borrowings on line of credit.................................... - - 585
Proceeds from long-term debt.................................... - 8,500 24,759
Principal payments on long-term debt............................ (9,900) (24,529) (35,107)
Other........................................................... - (456) (166)
--------------- ------------- ---------------
Net cash used in financing activities.................. (9,900) (16,485) (9,929)
--------------- ------------- ---------------
Net (decrease) increase in cash and cash equivalents... (591) (336) 373
Cash and cash equivalents at beginning of year..................... 1,276 685 349
--------------- ------------- ---------------
Cash and cash equivalents at end of year...........................$ 685 $ 349 $ 722
=============== ============= ===============
See accompanying notes to consolidated financial statements.
28
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
Years ended December 31,
------------------------------------------------
1999 2000 2001
-------------- ------------- ---------------
Supplemental disclosure of cash flow information:
Cash paid (received) during year for:
Interest.................................................$ 3,806 $ 4,181 $ 3,075
Income taxes............................................. 689 (1,096) (788)
============== ============= ===============
Supplemental schedules of noncash investing and financing
activities:
Notes payable issued for tractors and trailers..................$ 7,712 $ 8,848 $ 7,171
Issuance of stock bonuses....................................... 177 172 10
============== ============= ===============
Cash payments for acquisitions:
Revenue equipment...............................................$ - $ - $ 2,088
Intangible assets............................................... - - 526
Land, buildings and other assets................................ - - 340
-------------- ------------- ---------------
$ - $ - $ 2,954
============== ============= ===============
See accompanying notes to consolidated financial statements.
29
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share data)
Note 1: Summary of Significant Accounting Policies
Operations
Smithway Motor Xpress Corp. and subsidiaries (the Company) is a truckload
carrier that provides nationwide transportation of diversified freight,
concentrating primarily in flatbed operations. It generally operates over
short-to-medium traffic routes, serving shippers located predominantly in the
central United States. The Company also operates in the southern provinces of
Canada. Canadian revenues, based on miles driven, were approximately $667, $670,
and $649 for the years ended December 31, 1999, 2000, and 2001, respectively.
The consolidated financial statements include the accounts of Smithway Motor
Xpress Corp. and its three wholly owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
Customers
The Company serves a diverse base of shippers. No single customer accounted
for more than 10 percent of the Company's total operating revenues during any of
the years ended December 31, 1999, 2000, and 2001. The Company's 10 largest
customers accounted for approximately 27 percent, 25 percent, and 24 percent of
the Company's total operating revenues during 1999, 2000, and 2001,
respectively. The Company's largest concentration of customers is in the steel
and building materials industries, which together accounted for approximately 43
percent, 41 percent, and 42 percent of the Company's total operating revenues in
1999, 2000, and 2001, respectively.
Drivers
The Company faces intense industry competition in attracting and retaining
qualified drivers and independent contractors. This competition from time to
time results in the Company temporarily idling some of its revenue equipment or
increasing the compensation the Company pays to its drivers and independent
contractors.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
Cash and Cash Equivalents
The Company considers interest-bearing instruments with maturity of three
months or less at the date of purchase to be the equivalent of cash. At December
31, 2000 cash equivalents consisted $1,170 of commercial paper and United States
Treasury bills. The Company did not hold any cash equivalents as of December 31,
2001.
Receivables
Trade receivables are stated net of an allowance for doubtful accounts of
$855 and $1,265 at December 31, 2000 and 2001, respectively. The financial
status of customers is checked and monitored by the Company when granting
credit. The Company routinely has significant dollar transactions with certain
customers. During 2000 and 2001, various customers declared bankruptcy causing
the Company to increase its allowance for doubtful accounts by $775 and $332,
respectively. At December 31, 2000 and 2001, no individual customer accounted
for more than 10 percent of total trade receivables.
Inventories
Inventories consist of tractor and trailer supplies and parts. Inventories
are stated at lower of cost (first-in, first-out method) or market.
30
Prepaid Expenses
Prepaid expenses consist primarily of the cost of tarps, which are
amortized over 36 months and licenses which are amortized over 12 months.
Accounting for Leases
The Company is a lessee of revenue equipment under a limited number of
operating leases. Rent expense is charged to operations as it is incurred under
the terms of the respective leases. Under the leases for transportation
equipment, the Company is responsible for all repairs, maintenance, insurance,
and all other operating expenses. The Company is also a lessee of terminal
property under various short term operating leases.
Rent charged to expense on the above leases, expired leases, and short-term
rentals was $653 in 1999; $543 in 2000; and $1.1 million in 2001.
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 operations. Gains or losses
on trade-ins are included in the basis of the new asset.
In 2000 the market value of used tractors declined in the United States. In
response, management assessed the valuation of its long-lived assets and
identified tractors with carrying values in excess of recoverable value. The
carrying value of these tractors was reduced by $1,033 which is reflected in
depreciation and amortization expense for the year.
In 2001 the Company decided to discontinue the use of its proprietary
operating system and replace it with third party software. In response,
management wrote off the $707 carrying value of the existing software.
Intangibles
Intangible assets, primarily goodwill, are recorded at cost and are
amortized using the straight-line method over periods ranging from 5 to 15
years. Accumulated amortization of $1,803 and $2,505, at December 31, 2000 and
2001, respectively, has been netted against these intangible assets. Goodwill
represents the excess of purchase price over fair value of net assets acquired.
The Company assesses the recoverability of this intangible asset by determining
whether the amortization of the goodwill balance over its remaining life can be
recovered through undiscounted future operating cash flows of the acquired
operation. The amount of goodwill impairment, if any, is measured based on
projected discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds. The assessment of the
recoverability of goodwill will be impacted if estimated future operating cash
flows are not achieved.
SFAS 142, "Goodwill and Other Intangible Assets," will be effective for the
Company for the year beginning January 1, 2002. Under SFAS 142, which
establishes new accounting and reporting requirements for goodwill and other
intangible assets, all goodwill amortization will cease effective January 1,
2002. The Company has 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. These impairment tests are required to be performed at
adoption of SFAS 142 and at least annually thereafter. On an ongoing basis
(absent any impairment indicators), the Company expects to perform the
impairment tests during the fourth quarter. Our initial impairment tests
indicated no impairment of goodwill.
31
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.
Insurance and 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.
Expenses depend on actual loss experience and changes in estimates of settlement
amounts for open claims which have not been fully resolved.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect of a change in tax rates on deferred tax assets
and liabilities is recognized in income in the period that includes the
enactment date.
Stock Option Plans
The Company has elected the pro forma disclosure option of Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation." The Company will continue applying the accounting treatment
prescribed by the provisions of APB Opinion No. 25, "Accounting for Stock Issued
to Employees." Pro forma net earnings and pro forma net earnings per common
share have been provided as if SFAS No. 123 were adopted for all stock-based
compensation plans.
Derivative Instruments
Prior to January 1, 2001, the Company occasionally used purchased options
and futures contracts to hedge a portion of its anticipated fuel purchases.
These derivative instruments are linked to heating oil which has a high
correlation to diesel fuel. These derivative instruments meet the criteria for
hedge accounting and have been accounted for on this basis. The Company does not
hold or issue options and futures contracts for trading purposes. Unrealized
gains and losses related to qualifying hedges are deferred and recognized in
income when the fuel purchases are made, or immediately if the commitment has
been canceled.
Prior to January 1, 2001, the Company also occasionally used "floating to
fixed" heating oil price swap agreements to limit its exposure to potentially
adverse fluctuations in fuel prices. As the fuel is purchased, the differential
to be paid or received on the swap agreements is recognized as an adjustment to
fuel, supplies, and maintenance expense in the consolidated statement of
operations.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," became effective for the Company 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 will require valuation in the financial statements under the
provisions of SFAS 133. The Company did not have any options, futures contracts,
or price swap agreements in place at any time during 2001, and thus there is no
effect on the financial statements from the adoption of the pronouncement.
32
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 years. 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 years ended December 31, 2000
and 2001, the effects of potential common shares were not included in the
calculation as their effects would be anti-dilutive. Stock options outstanding
at December 31, 2000 and 2001 totaled 345,000 and 623,000, respectively.
Note 2: Acquisitions
In March 2001, the Company acquired tractors, trailers, and certain other
assets owned or leased by Skipper Transportation, Inc. of Birmingham, Alabama.
In exchange for these assets, the Company assumed and repaid approximately
$1,483 in equipment financing secured by these assets and paid $944 to the
former owners of the acquired assets. In addition, the Company paid $526 for
goodwill. This acquisition was accounted for by the purchase method of
accounting.
Note 3: Financial Instruments
SFAS 107, "Disclosures About Fair Value of Financial Instruments," defines
the fair value of a financial instrument as the amount at which the instrument
could be exchanged in a current transaction between willing parties. At December
31, 2001, the carrying amounts of cash and cash equivalents, trade receivables,
other receivables, line of credit, accounts payable, and accrued liabilities,
approximate fair value because of the short maturity of those instruments. The
fair value of the Company's long-term debt, including current maturities, was
$51,999 and $49,227 at December 31, 2000 and 2001, respectively, based upon
estimated market rates.
Note 4: Long-Term Debt
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. The term loan has a balance of $18,500, and is payable in 72 equal monthly
installments of $257 in principal. The revolving line of credit allows for
borrowings up to 85 percent of eligible receivables. 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 $2,000 annually, and $4,000 over the term of the
agreement. The combination of all loans with LaSalle Bank can not exceed
$32,500. At December 31, 2001, the Company's borrowing limit was $28,700,
including the letters of credit discussed below, and total borrowings under the
revolving line were $585.
The financing agreement also includes financing for letters of credit. At
December 31, 2001, the Company had outstanding letters of credit totaling $5,513
for self-insured amounts under its insurance programs. (See note 10). 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 ($32,500). Borrowings under the
agreement are secured by liens on revenue equipment, accounts receivable, and
certain other assets. The weighted average interest rates on debt outstanding at
December 31, 2000 and 2001 were approximately 7.92 and 4.75 percent,
respectively.
The financing arrangement 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 December 31, 2001.
Long-term debt also includes equipment notes with balances of $33,834 and
$30,656 at December 31, 2000 and 2001, respectively. Interest rates on the
equipment notes range from 3.27 percent to 6.58 percent with maturities through
2006. The equipment notes are collateralized by the underlying equipment.
33
Future maturities on long-term debt at December 31, 2001 are as follows:
2002, $12,052; 2003, $12,113; 2004, $10,870; 2005, $6,606; 2006, $5,017;
thereafter, $3,084.
Note 5: Income Taxes
Income taxes consisted of the following components for the three years
ended December 31:
1999 2000 2001
----------------------------------- ----------------------------------- -------------------------------------
Federal State Total Federal State Total Federal State Total
------------ -------- ----------- ----------- ---------- ----------- ----------- ----------- -------------
Current $ (50) $ (12) $ (62) $ (74) $ (18) $ (92) $ (2,541) $ (51) $ (2,592)
Deferred 2,422 462 2,884 (50) (98) (489) (112) (17) (129)
------------ -------- ----------- ----------- ---------- ----------- ----------- ----------- -------------
$ 2,372 $ 450 $ 2,822 $ (465) $ (116) $ (581) $ (2,653) $ (68) $ (2,721)
============ ======== =========== =========== ========== =========== =========== =========== =============
Total income tax expense (benefit) differs from the amount of income tax
expense (benefit) computed by applying the normal United States federal income
tax rate of 34 percent to income before income tax expense (benefit). The
reasons for such differences are as follows:
Years ended December 31,
------------------------
1999 2000 2001
----------------- ---------------- --------------
Computed "expected" income tax expense (benefit) $ 2,294 $ (677) $ (2,696)
State income tax expense net of federal taxes 297 (77) (313)
Permanent differences, primarily nondeductible
portion of driver per diem and travel expenses 291 278 288
Other (60) (105) -
----------------- ---------------- --------------
$ 2,822 $ (581) $ (2,721)
================= ================ ==============
Temporary differences between the financial statement basis of assets and
liabilities and the related deferred tax assets and liabilities at December 31,
2000 and 2001, were as follows:
Deferred tax assets: 2000 2001
----------------- -----------------
Net operating loss carryforwards $ 3,383 $ 5,041
Alternative minimum tax (AMT) credit carryforwards 2,512 271
Accrued expenses 1,458 1,656
Other 155 156
----------------- -----------------
Total gross deferred tax assets 7,508 7,124
----------------- -----------------
Deferred tax liabilities:
Property and equipment (20,773) (20,260)
----------------- -----------------
Net deferred tax liabilities $ (13,265) $ (13,136)
At December 31, 2001, the Company has net operating loss carryforwards for
income tax purposes of approximately $13,000, which are available to offset
future taxable income. These net operating losses expire during the years 2019
through 2021. The AMT credit carryforwards are available indefinitely to reduce
future income tax liabilities to the extent they exceed AMT liabilities.
The Company has reviewed the need for a valuation allowance relating to the
deferred tax assets, and has determined that no allowance is needed. The Company
believes the future deductions will be realized principally through future
reversals of existing taxable temporary differences, and to a lesser extent,
future taxable income. In addition, the Company has the ability to use tax
planning strategies to generate taxable income if necessary to realize the
deferred tax assets.
34
Note 6: Stockholders' Equity
On all matters with respect to which the Company's stockholders have a
right to vote, each share of Class A common stock is entitled to one vote, while
each share of Class B common stock is entitled to two votes. The Class B common
stock is convertible into shares of Class A common stock on a share-for-share
basis at the election of the stockholder and will be converted automatically
into shares of Class A common stock upon transfer to any party other than
William G. Smith, his wife, Marlys L. Smith, their children, their
grandchildren, trusts for any of their benefit, and entities wholly owned by
them.
Note 7: Stock Plans
The Company has reserved 25,000 shares of Class A common stock for issuance
pursuant to an outside director stock option plan. The term of each option shall
be six years from the grant date. Options vest on the first anniversary of the
grant date. The exercise price of each stock option is 85 percent of the fair
market value of the common stock on the date of grant. In July, 2000 the Company
granted outside directors 12,000 stock options not covered by this plan.
The Company has reserved 500,000 shares of Class A common stock for
issuance pursuant to an incentive stock option plan. Any shares which expire
unexercised or are forfeited become available again for issuance under the plan.
Under this plan, no awards of incentive stock options may be made after December
31, 2004.
The Company has reserved 400,000 shares of Class A common stock for
issuance pursuant to a new employee incentive stock option plan adopted during
2001. Any shares which expire unexercised or are forfeited become available
again for issuance under the plan. Under this plan, no award of incentive stock
options may be made after August 6, 2011. The treatment of option grants as
incentive stock options is subject to stockholder approval at the Company's next
annual meeting.
The Company applied APB Opinion No. 25 in accounting for its stock option
plans; and, accordingly, no compensation expense has been recognized in the
consolidated financial statements. Had the Company determined compensation based
on the fair value at the grant date for its outstanding stock options under SFAS
123, the effect on Company's net earnings and net earnings per common share for
1999 would have been immaterial. For 2000 and 2001, pro forma net loss would
have been $2,117 and $5,317, and pro forma basic and diluted loss per share
would have been $.42 and $1.10 per share, respectively. For purposes of pro
forma disclosures, the estimated fair value of options is amortized to expense
over the options' vesting periods.
A summary of stock option activity and weighted-average exercise prices
follows:
1999 2000 2001
------------------------- -------------------------- -------------------------
Shares Exercise Shares Exercise Shares Exercise
price price price
----------- ------------- ------------- ------------ ----------- ------------
Outstanding at beginning of year 149,000 $9.90 152,000 $9.85 345,000 $5.50
Granted 3,000 7.60 193,000 2.07 278,000 2.70
Exercised - - - - - -
Forfeited - - - - - -
----------- ------------- ------------- ------------ ----------- ------------
Outstanding at end of year 152,000 $9.85 345,000 $5.50 623,000 $4.25
=========== ============= ============= ============ =========== ============
Options exercisable at end of year 106,800 $9.50 220,400 $6.71 296,400 $5.77
Weighted-average fair value of
options granted during the year $5.45 $1.66 $1.49
35
A summary of stock options outstanding and exercisable as of December 31,
2001, follows:
Options outstanding Options exercisable
---------------------------------------------------------- ---------------------------------
Range of exercise Number Weighted average Weighted average Number Weighted average
prices outstanding remaining life (years) exercise price exercisable exercise price
- ----------------------------------------------------------------------------- ---------------------------------
$1.55 - $3.47 471,000 8.98 $2.44 157,200 $2.31
$7.23 - $9.50 117,000 3.45 $9.21 117,000 $9.21
$11.81 - $14.05 35,000 5.77 $12.00 22,200 $12.11
---------------------------------------------------------- ---------------------------------
623,000 7.76 $4.25 296,400 $5.77
========================================================== =================================
The Company used the Black-Scholes option pricing model to determine the
fair value of stock options for the years ended December 31, 1999, 2000, and
2001. The following assumptions were used in determining the fair value of these
options: weighted-average risk-free interest rate, 5.64% in 1999, 5.05% in 2000,
and 4.26% in 2001; weighted-average expected life, 3 years in 1999, 5 years in
2000, and 5 years in 2001; and weighted-average expected volatility, 83% in
1999, 55% in 2000, and 60% in 2001. There were no expected dividends.
The Company has reserved 55,000 shares of Class A common stock for issuance
pursuant to an independent contractor driver bonus plan. The Company awarded
11,362, 33,646, and -0- shares under the plan in 1999, 2000, and 2001,
respectively.
The Company also has a Class A common stock profit incentive plan under
which the Company will set aside for delivery to certain participants the number
of shares of Class A common stock having a market value on the distribution date
equal to a designated percentage (as determined by the board of directors) of
the Company's consolidated net earnings for the applicable fiscal year. In 2000
the Company issued 13,401 shares of Class A common stock to participants in the
plan. No shares were awarded in 2001 under the plan.
In 1996, the Company granted a common stock bonus of 2,254 shares of
nonvested Class A common stock with a fair value of $8.88 on the grant date.
During 1999, the final 1,127 shares became vested and were issued by the
Company.
Note 8: Earnings per Share
A summary of the basic and diluted earnings (loss) per share computations
is presented below:
Years ended December 31 1999 2000 2001
- --------------------------------------------------------------- ----------------- ----------------- ------------------
Net earnings (loss) applicable to common stockholders $ 3,926 $ (1,991) $ (5,211)
----------------- ----------------- ------------------
Basic weighted-average shares outstanding 5,030,959 5,008,759 4,852,067
Effect of dilutive stock options 1,394 - -
----------------- ----------------- ------------------
Diluted weighted-average shares outstanding 5,032,353 5,008,759 4,852,067
================= ================= ==================
Basic earnings (loss) per share $ 0.78 $ (0.40) $ (1.07)
Diluted earnings (loss) per share $ 0.78 (0.40) $ (1.07)
36
Note 9: Employees' Profit Sharing and Savings Plan
The Company has an Employees' Profit Sharing and Savings Plan, which is a
qualified plan under the provisions of Sections 401(a) and 501(a) of the
Internal Revenue Code. Eligible employees are allowed to contribute up to a
maximum of 15 percent of pre-tax compensation into the plan. Employers may make
savings, matching, and discretionary contributions, subject to certain
restrictions. During the years ended December 31, 1999, 2000, and 2001, Company
contributions totaled $330, $180, and $-0-, respectively. The plan owns 528,123
shares of the Company's Class A common stock at December 31, 2001.
Note 10: Commitments and Contingent Liabilities
The Company's insurance program for personal liability, physical damage,
and cargo losses involves a deductible of $50 per incident. The Company's
insurance program for workers' compensation involves a deductible of $100 per
incident. At December 31, 2000 and 2001, the Company had approximately $2,344
and $2,327, respectively, accrued for its estimated liability for incurred
losses related to these programs.
The insurance companies require the Company to provide letters of credit to
provide funds for payment of the deductible amounts. At December 31, 2000 and
2001, the Company had $4,878 and $5,513 letters of credit issued under the
financing agreement described in note 4. In addition, funds totaling $105 and
$413 were held by the insurance companies as deposits at December 31, 2000 and
2001, respectively.
The Company's obligations under non-cancelable operating lease agreements
are as follows: 2002, $676; 2003, $158; 2004, $20; 2005, $5; thereafter $-0-.
There are no equipment re-purchase commitments or lease residual guarantees in
place on the Company's fleet. In addition, the Company has no fuel purchase
commitments as of December 31, 2001.
The Company's health insurance program is provided as an employee benefit
for all eligible employees and contractors. The plan is self funded for losses
up to $125 per covered member. At December 31, 2000 and 2001, the Company had
approximately $799 and $871, respectively, accrued for its estimated liability
related to these claims.
The Company is involved in certain legal actions and proceedings arising
from the normal course of operations. Management believes that liability, if
any, arising from such legal actions and proceedings will not have a material
adverse effect on the financial position of the Company.
Note 11: Transactions with Related Parties
During the years ended December 31, 1999, 2000, and 2001 there were no
material transactions with related parties.
37
Note 12: Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for the Company for 2000 and 2001 is as
follows:
March 31 June 30 September 30 December 31
-----------------------------------------------------------------------
2000
- ----
Operating revenue $50,748 $51,094 $50,206 $46,942
Earnings (loss) from operations 1,519 1,206 1,204 (2,472)
Net earnings (loss) 238 7 21 (2,257)
Basic and diluted earnings (loss) per share $0.05 $0.00 $0.00 ($0.46)
2001
- ----
Operating revenue $47,379 $51,754 $48,571 $43,122
Earnings (loss) from operations (1,127) 338 (1,114) (3,025)
Net earnings (loss) (1,288) (384) (1,212) (2,327)
Basic and diluted earnings (loss) per share ($0.26) ($0.08) ($0.25) ($0.48)
As a result of rounding, the total of the four quarters may not equal the
Company's results for the year.
38