-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mg7Dpo/+DjtzM9wD4kCIXJou+oIrZOwRYQ8zsZ8Y2bWzQPf5bFCi5Yp+jXkjpMbN TJ6bEHCUpsyFGqlZ7JU+6Q== 0001000577-97-000010.txt : 19971209 0001000577-97-000010.hdr.sgml : 19971209 ACCESSION NUMBER: 0001000577-97-000010 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971208 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIMON TRANSPORTATION SERVICES INC CENTRAL INDEX KEY: 0001000577 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 870545608 STATE OF INCORPORATION: NV FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-27208 FILM NUMBER: 97733867 BUSINESS ADDRESS: STREET 1: 4646 SOUTH 500 WEST CITY: SALT LAKE CITY STATE: UT ZIP: 84123 BUSINESS PHONE: 8012689100 MAIL ADDRESS: STREET 1: P O BOX 26297 CITY: SALT LAKE CITY STATE: UT ZIP: 84126-0297 10-K 1 ANNUAL REPORT ON FORM 10-K 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 (FEE REQUIRED) For the Fiscal Year Ended September 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED). For the transition period from to ---------------------- Commission file number 0-27208 SIMON TRANSPORTATION SERVICES INC. (Exact name of registrant as specified in its charter) Nevada 87-0545608 (State or Other Jurisdiction (I.R.S. Employer Identification No.) of Incorporation or Organization) 5175 West 2100 South West Valley City, Utah 84120 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: 801/924-7000 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 $99,881,340 as of October 31, 1997 (based upon the $22 1/4 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 5% of a class of outstanding common stock, and no other persons, are affiliates. As of October 31, 1997, the registrant had 5,320,713 shares of Class A Common Stock and 962,661 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 1997 annual meeting of stockholders that will be filed no later than January 28, 1998. 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 Pages 3 - 7 herein Item 2 Properties Page 7 herein Item 3 Legal Proceedings Page 8 herein Item 4 Submission of Matters to a Vote of Security Holders Page 8 herein Part II Item 5 Market for Registrant's Common Equity and Related Stockholder Matters Page 9 herein Item 6 Selected Financial and Operating Data Page 10 herein Item 7 Management's Discussion and Analysis of Financial Pages 11 - 16 herein Condition and Results of Operations Item 8 Financial Statements and Supplementary Data Page 17 herein Item 9 Changes in and Disagreements with Accountants on Page 17 herein Accounting and Financial Disclosure Part III Item 10 Directors and Executive Officers of the Registrant Pages 2, 3 and 4 of Proxy Statement Item 11 Executive Compensation Pages 5, 6 and 7 of Proxy Statement Item 12 Security Ownership of Certain Beneficial Owners and Page 9 of Proxy Statement Management Item 13 Certain Relationships and Related Transactions Page 4 of Proxy Statement Part IV Item 14 Exhibits, Financial Statement Schedules and Reports on Pages 18 - 34 herein Form 8-K
This report contains "forward-looking" statements in paragraphs marked with an asterisk. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. See "Management's Discussion and Analysis of Financial Condition and Results of Operations Cautionary Statement Regarding Forward-Looking Statements" for additional information and factors to be considered concerning forward-looking statements. PART I Item 1: BUSINESS The Company Simon Transportation is a rapidly-growing truckload carrier that specializes in temperature-controlled transportation services for major shippers in the food industry. Richard D. Simon founded the Company with one truck in 1955. Today Simon Transportation operates nationwide and in eight Canadian provinces from its strategically located headquarters in Salt Lake City, Utah, and terminals in Phoenix, Arizona; Fontana, California; Atlanta, Georgia; Katy, Texas; and Portland, Oregon. Simon Transportation Services Inc., a Nevada corporation, is a holding company organized in 1995, the sole business of which is to own 100% of the capital stock of Dick Simon Trucking, Inc., a Utah corporation. Dick Simon Trucking, Inc. was incorporated in 1972 and had operated as a sole proprietorship since 1955. Simon Transportation acquired all of the capital stock of Dick Simon Trucking, Inc. contemporaneously with the November 17, 1995 effective date of the Company's initial public offering. Prior to such time, Dick Simon Trucking, Inc. had elected to be taxed as an S corporation. References to the "Company" herein refer to the consolidated operations of Simon Transportation Services and Dick Simon Trucking. See "Selected Financial and Operating Data", "Management's Discussion and Analysis of Financial Condition and Results of Operations", and Consolidated Financial Statements. Strategy The Company has grown rapidly in recent years by adding revenue equipment to meet the service demands of new and existing customers and expanding core carrier partnerships. Management plans to continue the Company's growth by capitalizing on the trend among shippers to place increased reliance on a smaller number of financially stable, service-oriented truckload carriers. The key elements of the Company's strategy are: Food Industry Focus. Simon Transportation focuses on providing specialized service to sophisticated, high-volume customers in the food industry such as Nestle, Kraft, North American Logistics, ConAgra, Albertson's, Pillsbury, Campbell's Soup, and Coca-Cola Foods. These customers seek nationwide transportation partners that understand the specialized needs of food industry shippers and offer the late-model equipment, experienced personnel, advanced technology, and geographic coverage to provide "continuous movement" of temperature-controlled and dry loads from processing or packaging plants to distribution centers and other destinations. Management believes the food industry is an attractive niche because it is generally less affected by economic cycles and many shippers require time-sensitive and specialized service that justifies a higher rate per mile. Core Carrier Partnerships. Simon Transportation has grown by establishing core carrier partnerships with high-volume, service sensitive shippers. Core carriers provide customers with consistent equipment availability and premium service such as time-definite pick-up and delivery, express time-in-transit, multiple delivery stops, and real-time access to load information through satellite-based tracking and communication systems and EDI capability. The Company also meets specialized customer requests for access to terminal facilities, stationing employees at customer locations, and dedicating equipment to specific traffic lanes. Management believes major shippers favor their core carrier "partners" during periods of reduced demand for truck service, and that the trend among major shippers to reduce the number of carriers used in favor of core carriers will continue.(*) Dedicated Fleets. Simon Transportation emphasizes dedicated fleet operations in which it offers round trip or continuous movement service to a shipper (or a shipper and one or more of its suppliers) by dedicating certain tractors and trailers exclusively to that shipper's needs. Dedicated service is desirable because the customers typically pay a round-trip rate per mile assuming that the truck will return empty and cover all loading, unloading, and pallet costs. The Company frequently is able to further enhance revenue per mile ________________________________________________ (*) May contain "forward-looking" statements. by locating a profitable load to cover unloaded segments. In addition, drivers prefer the predictable runs and priority treatment at shipping and receiving locations. Management intends to aggressively grow its dedicated fleet operations and expects this service niche to expand as shippers outsource transportation needs presently served by private carriage.(*) Modern Fleet. Simon Transportation intends to maintain modern tractor and trailer fleets. Reliable, late-model equipment promotes customer service and driver recruitment and retention by minimizing the delays caused by breakdowns and excessive maintenance. In addition, management believes that a practice of replacing tractors while under warranty will reduce expenses and permit the Company to take advantage of improvements in fuel economy and equipment technology.(*) Technology. Simon Transportation is an industry leader in technology and was the thirteenth carrier to offer a fleetwide Qualcomm satellite-based tracking and communication system. This system and EDI capability improve customer service and operating efficiency by offering the Company and customers real time access to load locations and advance warning of potential delivery delays. The Company's document imaging system allows prompt and simultaneous processing of payroll and billing in a paperless work environment. The Company's load optimization software has been implemented and is constantly updated to enhance service and profitability. Management believes shippers will continue to demand advanced technology of their core carriers and plans to respond to such requirements. (*) Operations The Company conducts a centralized dispatch and customer service operation at its Salt Lake City headquarters to offer the precision scheduling required by its customers. The operations center features a fully-integrated, computerized network of dispatch, customer service, and driver liaison personnel. Customer service representatives solicit and accept freight, quote rates, and serve as the primary contact with customers. After accepting a load, customer service representatives transfer the pick-up and delivery information to the computer screen of the appropriate load planner, who assigns the load to an available driver based upon the proximity of the trucks, scheduled "home time," and available hours-in-service. Dispatchers then use the Qualcomm satellite-based tracking and communication system to locate the position and availability status of equipment and notify the driver of pick-up and delivery requirements, route and fueling instructions, and other information. Upon the assignment of a load, the Company's proprietary software calculates the projected travel time from origin to destination and uses satellite position updates and driver communications to provide load progress reports at thirty-minute intervals. The system automatically advises the appropriate dispatcher and customer service representative if a load is behind schedule, and customers are able to use EDI to access information about load locations at any time. Management believes that these satellite and computer systems are crucial to satisfying the stringent service standards, such as 30-minute pick-up and delivery windows, demanded by shippers of their core carriers. Management measures the Company's efficiency through miles per tractor, empty miles percentage, revenue per mile, and revenue per tractor. Fleet productivity is tracked daily in the operations center, with actual progress matched against a monthly goal. All operations personnel have access to these statistics on a real time basis, and all participate in a cash bonus program for achieving certain fleetwide levels of miles per tractor per month, driver turnover, and revenue per mile. Customers and Marketing The Company's sales and marketing function is led by senior management and other sales professionals based in its Salt Lake City headquarters and near key customers. These sales personnel aggressively market Simon Transportation to food industry shippers as a customer-oriented provider of dependable, on-time service. The Company targets customers that seek financially stable, long-term transportation partners offering dependable equipment, satellite and EDI technologies, and premium service. This customer service philosophy has contributed to continuing demands for added equipment to expand service for existing shippers and establishing core carrier relationships with Nestle, Kraft, North American Logistics, ConAgra, Albertson's, Pillsbury, Campbell's ________________________________________________ (*) May contain "forward-looking" statements. Soup, Coca-Cola Foods, and other major customers. Management intends to continue developing business with existing customers and attempting to add new core carrier relationships. The Company's top 5, 10, and 25 customers accounted for 38.2%, 51.0%, and 66.9% of revenue, respectively, during fiscal 1997, with Nestle (including Nestle's Stouffer's and Friskie's units) accounting for 11.6% of revenue. No other customer accounted for more than 10% of revenue during the fiscal year. Simon Transportation is a North American truck line that provides service to and from customer locations throughout the United States, in several Canadian provinces and Mexico. The Company does not maintain any foreign currency positions and therefore does not engage in any hedging transactions to manage foreign currency exposure. The Company's operations are strongest in the western United States and between points in the West to and from points in the East and Southeast. In addition to traditional for-hire service, management emphasizes the marketing of dedicated fleet and regional distribution services. Dedicated fleets generally receive compensation for all miles, and regional operations provide a stronger presence for driver recruiting. Management believes that these services offer consistent equipment utilization and predictable home-time for drivers. The Company has written contracts with substantially all of its customers. These contracts generally specify service standards and rates, eliminating the need for negotiating the rate for individual shipments. Although a contract typically runs for a specified term of at least one year, it generally may be terminated by either party upon 30 days' notice. Technology The Company uses computer and satellite technology to enhance efficiency and customer service in all aspects of its operations, and management believes the Company is among the industry leaders in applying advanced technology to improve transportation service. The Qualcomm OmniTRACSTM satellite-based tracking and communication system provides hourly updates of the position of each tractor and permits real time communication between operations personnel and every driver. As a result, dispatchers relay pick-up and delivery times, weather and road information, route and fueling directions, and other instructions without waiting for a driver to stop and call the Company. The Company's entire fleet has been equipped with the Qualcomm systems since 1992, making it the thirteenth carrier in the nation to install the units in 100% of its tractors. The Company's proprietary software also monitors load progress against projected delivery time every half-hour and warns the appropriate dispatcher and customer service representative if a load is behind schedule. This software also facilitates early routing toward each driver's home base by signaling dispatchers several days in advance of drivers' requested home-time dates. The Company's EDI capability permits customers to communicate directly via computer link to tender loads, receive load confirmation, check load status, and receive billing information. The Company's largest customers require EDI service from their core carriers, and more than 50% of the Company's revenue is generated by customers that actively use EDI. EDI not only improves customer service and communication, but also benefits the Company's cash flow through accelerated receivable collection. The Company further enhances its operations through its document imaging technology, which provides customer service representatives and other personnel (all of whom have computers) real-time access to freight bills, supplier invoices, and other information. Management believes that advanced technology will be required by an increasing number of large shippers as they reduce the number of carriers they use in favor of core carriers. The Company has designed a load optimization software program that allows customer service representatives to quote rates by automatically computing the range of acceptable rates between any two points, based upon the rates for all Simon Transportation loads in and out of the applicable region during the past year and the need for pallets, multiple stops, and other additional charges. The system then prioritizes the loads and identifies the optimal tractor to accept a load, based upon location, empty miles required, revenue per mile, remaining driver hours-in-service, maintenance scheduling, driver home time, and other factors. The Company's maintenance shops are fully computerized and paperless, and all maintenance, repair, and inspection records for each vehicle are instantly accessible. Drivers are able to monitor maintenance progress on computer screens located in the driver lounge. Revenue Equipment Simon Transportation's equipment strategy is to operate modern tractors and trailers that help reduce parts, maintenance, and fuel costs, promote the reliable service customers demand from core carriers, and attract and retain drivers. The Company operates conventional tractors (engine-forward) equipped with electronic engines and Eaton transmissions. All Simon Transportation tractors are equipped with electronic engines, and most are covered by three-year, 500,000-mile engine warranties and lifetime transmission warranties. Most of the tractors also are equipped with the "condo" sleeper cabs preferred by drivers. The Company's practice is to trade or replace its tractors on a three-year cycle, and to trade or replace its trailers on a five-year cycle. Drivers and Other Personnel Driver hiring and retention are critical to the success of all trucking companies. Simon Transportation emphasizes driver satisfaction and has made significant investments to improve its drivers' employment experience. Drivers are selected in accordance with specific Company quality guidelines relating primarily to safety history, driving experience, road test evaluations, and other personnel evaluations, including physical examinations and mandatory drug testing. The Company offers competitive compensation, including mileage pay, and full participation in all employee benefit and profit-sharing plans. The Company uses proprietary software to warn dispatchers in advance of a driver's requested home time. Management believes it has promoted driver loyalty by assigning drivers to a single dispatcher, regardless of geographic area, awarding dedicated routes and regional distribution positions to senior, top-performing drivers, and educating customers concerning the need to treat drivers with respect. The truckload industry has experienced a shortage of qualified drivers. Strict DOT enforcement of hours-in-service limitations, mandatory drug and alcohol testing, and other safety measures have shrunk the available pool of drivers and increased the cost of recruiting and retention. The Company's driver turnover was 86% in fiscal 1997, measuring drivers after they are assigned a tractor. At September 30, 1997, Simon Transportation employed approximately 500 non-driver employees and approximately 1,500 drivers. The Company's employees have never been represented by or attempted to organize a union, and management believes it has a good relationship with the Company's employees. Safety and Insurance Simon Transportation emphasizes safety in all aspects of its operations. Its safety program includes: (i) initial orientation; (ii) a four-week to eight-week, on-the-road training program; (iii) 100% log monitoring; and (iv) progressive penalties for excessive speed. The Company has earned the highest DOT safety and fitness rating of "satisfactory," which most recently was extended on June 7, 1995. The Company carries primary and excess liability insurance coverage of $30 million, with a $100,000 deductible for personal injury and property damage. The Company's workers' compensation coverage also carries a $100,000 deductible, with no coverage limit. The Company's equipment is insured for fair market value, subject to deductibles of $25,000 for tractors and $10,000 for trailers, and cargo loss is covered to $200,000 with a $10,000 deductible. Management believes these coverages are adequate to cover reasonably anticipated claims. Competition The truckload segment of the trucking industry is highly competitive and fragmented, and no carrier or group of carriers dominates the temperature-controlled or dry van market. According to the September 1997 issue of Refrigerated Transporter, the five largest temperature-controlled carriers by revenue are Frozen Food Express Industries, KLLM Transport Services, Prime, Inc., C. R. England & Sons, and Rocor International. The combined revenue reported for these five carriers comprises approximately 25% of the estimated $4 billion for-hire, temperature-controlled market. The proprietary fleet portion of the temperature-controlled market has been estimated at an additional $3 billion. The Company's 1997 fiscal year revenue constituted approximately two percent of the total market for temperature-controlled services and approximately four percent of the for-hire market. The Company competes with a number of other trucking companies, as well as private truck fleets used by shippers to transport their own products. 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. There are other trucking companies, including diversified carriers with large temperature-controlled fleets, possessing substantially greater financial resources and operating more equipment than the Company. Fuel Availability and Cost The Company actively manages its fuel costs by requiring drivers to fuel at Company terminals or, whenever possible en route, at service centers with which the Company has established volume purchasing arrangements. The Company controls fuel purchases by using its proprietary software and Qualcomm communications ability to schedule fueling stops and amounts purchased based upon fuel prices at locations on drivers' routes. The Company historically has been able to pass through most increases in fuel prices and taxes to customers in the form of higher rates or fuel surcharges. Regulation The Company is a common and contract motor carrier of general commodities. Historically, the Interstate Commerce Commission (the "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 (the "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 employee and independent contractor drivers also must comply with the safety and fitness regulations promulgated by the DOT, including those relating to drug and alcohol testing and hours of service. 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, other discharge of pollutants into the air and surface and underground waters, and the disposal of certain substances. These regulations extend to the above ground and underground fuel storage tanks located at each of the Company's terminal facilities. All of the Company's tanks are of double hull construction in accordance with EPA requirements and equipped with monitoring devices which constantly monitor for leakage. Management is not aware of any fuel spills or hazardous substance contamination on its properties and believes that its operations are in material compliance with current laws and regulations. Item 2. PROPERTIES Simon Transportation operates terminals and driver recruitment offices at five locations. The Company's new headquarters and primary terminal is located on fifty-five acres near the intersection of Interstates 15 and 80 in Salt Lake City, Utah. This facility includes a 60,000 square foot office building housing all operations and administrative personnel, and maintenance facilities and a driver center covering approximately 97,000 square feet. The Company's additional terminal and driver recruitment facilities include owned locations in Phoenix, Arizona; Fontana, California; and Atlanta, Georgia; and leased locations in Katy, Texas; and Portland, Oregon. The Company leases trailer drop yards at Tulare, California and various customer locations. All terminals except the Atlanta office and the Katy office have modern fuel facilities with environmental monitoring equipment. The Company completed construction of its new headquarters, shop, terminal, and driver center during fiscal year 1997. The available acreage will accommodate future expansion, and the facility has been designed so that additions can be constructed to serve the Company's foreseeable future needs. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity." 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 presently is not a party to any legal proceeding other than litigation arising from vehicle accidents, and management is not aware of any claims or threatened claims that reasonably would be expected to exceed insurance limits or have a materially adverse effect upon the Company's operations or financial position. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of the fiscal year ended September 30, 1997, 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 has been traded on the NASDAQ National Market under the NASDAQ symbol SIMN, since November 17, 1995, the date of the Company's initial public offering. The following table sets forth for the calendar periods indicated the range of high and low bid quotations for the Company's Class A common stock as reported by NASDAQ from November 17, 1995 to September 30, 1997. Period High Low - ---------------------------- ------------- ------------- Calendar Year 1995 4th Quarter $ 9 1/2 $ 8 1/2 Calendar Year 1996 1st Quarter $ 11 1/4 $ 9 2nd Quarter $ 14 $ 10 1/2 3rd Quarter $ 15 $ 12 3/4 4th Quarter $ 17 1/4 $ 13 3/4 Calendar Year 1997 1st Quarter $ 18 1/8 $ 15 2nd Quarter $ 20 1/2 $ 16 1/2 3rd Quarter $ 23 7/8 $ 19 The prices reported reflect interdealer quotations without retail mark-ups, mark-downs or commissions, and may not represent actual transactions. As of October 31, 1997, the Company had 76 stockholders of record of its common stock. However, the Company believes that it has approximately 1,500 beneficial holders of common stock including shares 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 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. Item 6. SELECTED FINANCIAL AND OPERATING DATA The selected consolidated financial data presented below reflect the consolidated financial position and results of operations of Simon Transportation Services Inc. and its subsidiary. The selected consolidated financial data are derived from the Company's consolidated financial statements and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's consolidated financial statements and notes thereto included elsewhere herein.
Fiscal Years Ended September 30, -------------------------------------------------------------- (In thousands, except per share amounts & operating 1997 1996 1995 1994 1993 data) ---- ---- ---- ---- ---- Statement of Earnings Data: Operating revenue................................. $155,296 $101,090 $ 75,218 $ 71,691 $ 57,694 -------------------------------------------------------------- Operating expenses: Salaries, wages, and benefits................... 60,504 40,015 28,035 25,949 21,990 Fuel and fuel taxes............................. 30,069 20,359 14,115 14,363 11,629 Operating supplies and expenses................. 19,289 13,701 10,839 8,978 6,111 Taxes and licenses.............................. 5,197 3,288 2,756 2,558 2,291 Insurance and claims............................ 3,404 2,172 2,003 1,995 1,600 Communications and utilities.................... 2,550 1,680 1,245 1,274 927 Depreciation and amortization................... 5,396 5,920 7,223 6,857 4,781 Rent............................................ 17,143 4,794 2,926 3,435 3,422 -------------------------------------------------------------- Total operating expenses...................... 143,552 91,929 69,142 65,409 52,751 -------------------------------------------------------------- Operating earnings............................ 11,744 9,161 6,076 6,282 4,943 Gain on sale of real property............... 1,896 -- -- -- -- Interest expense and other, net................... (1,134) (2,758) (3,527) (3,136) (2,559) -------------------------------------------------------------- Earnings before provision for income 12,506 6,403 2,549 3,146 2,384 taxes.......... Provision for income taxes1....................... 4,727 5,454 -- -- -- -------------------------------------------------------------- Net earnings...................................... $ 7,779 $ 949 $ 2.549 $ 3,146 $ 2,384 ============================================================== Pro Forma Statement of Earnings Data: (1) Earnings before provision for income $ 12,506 $ 6,403 $ 2.549 $ 3,146 $ 2,384 taxes.......... Provision for income taxes........................ 4,727 2,536 1,010 1,246 944 -------------------------------------------------------------- Net earnings...................................... $ 7,779 $ 3,867 $ 1,539 $ 1,900 $ 1,440 ============================================================== Net earnings per common share..................... $ 1.36 $ 0.88 $ 0.67 $ 0.83 $ 0.63 ============================================================== Weighted average shares outstanding............... 5,707,642 4,417,643 2,300,000 2,300,000 2,300,000 Balance Sheet Data (at end of period): Net property and equipment........................ $71,154 $56,714 $52,200 $49,039 $45,409 Total assets...................................... 107,704 78,223 61,437 56,752 52,601 Long-term debt and capitalized leases, including current 32,791 37,428 47,903 44,525 43,181 portion......................................... Stockholders' equity.............................. 59,849 29,103 9,033 7,443 5,736 Operating Data: Operating ratio(2)................................ 92.4% 90.9% 91.9% 91.2% 91.4% Average revenue per loaded mile................... $1.25 $1.24 $1.26 $1.23 $1.23 Average revenue per total mile.................... $1.10 $1.10 $1.11 $1.10 $1.07 Average revenue per tractor per week.............. $2,627 $2,526 $2,417 $2,489 $2,471 Empty miles percentage............................ 11.9% 11.7% 11.3% 10.7% 12.6% Average length of haul in miles................... 1,001 984 949 725 677 Weighted average tractors during period........... 1,142 774 598 554 449 Tractors at end of period......................... 1,344 940 623 570 523 Trailers at end of period......................... 1,998 1,430 877 873 745 (1) The Company was treated as an S Corporation for federal and state income tax purposes from October 1, 1990 to November 16, 1995. As a result, the Company's taxable earnings for such period were taxed for federal and state income tax purposes directly to the Company's then-existing stockholders. The pro forma statement of earnings data give effect to an adjustment for a provision for federal and state income taxes as if the Company had been treated as a C Corporation during such periods. The pro forma statement of earnings data do not give effect to the one-time, non-cash charge of $2,980,115 in recognition of deferred income taxes that resulted from the termination of the Company's S Corporation status. The provision for income taxes for fiscal 1996 includes the one-time, non-cash charge of $2,980,115. Pro forma net earnings per share and pro forma weighted average shares outstanding give effect to the Company's August 1995 reverse stock split and all share issuances and contributions during 1995 as if they had been outstanding for all periods presented. See Note 1 and Note 3 to Consolidated Financial Statements. (2) Operating expenses as a percentage of revenue.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Founded by Richard D. Simon in 1955 with a single truck, Simon Transportation today provides nationwide, predominantly temperature-controlled truckload transportation for numerous major shippers. In recent years, much of the Company's growth has resulted from earning core carrier status with major shippers and meeting the demands of these shippers for additional equipment. The Company has grown to $155.3 million in revenue for its fiscal year ended September 30, 1997, from $57.7 million in revenue for fiscal 1993, a compounded annual growth rate of 28.1%. During the same period, operating earnings increased to $11.7 million from $4.9 million, a compounded annual growth rate of 24.2%. During fiscal years 1994 and 1995, the Company financed most of its tractors and trailers with debt and capitalized leases. In the 1996 and 1997 fiscal years, the Company financed most of this revenue equipment with operating leases rather than borrowing. Financing equipment with operating leases increases the Company's operating ratio because the implied interest component of the lease payments is reflected as an "above-the-line" operating expense rather than interest expense. The method of financing does not affect net income. The Company's operating ratio may fluctuate from time-to-time based upon the method of equipment financing. The Company operated as an S Corporation from October 1, 1990 to November 16, 1995. As a result, the Company's net taxable earnings were taxed directly to the Company's existing stockholders rather than to the Company. The pro forma statement of earnings data included in the "Selected Financial and Operating Data" set forth the Company's net earnings for such periods as if the Company had been subject to federal and state income taxes at a combined rate of 37.8% for fiscal year 1997 and a combined rate of 39.6% for fiscal years 1993 through 1996. In addition to the ongoing income tax effect, the termination of the Company's S Corporation status resulted in a one-time, non-cash charge of approximately $3.0 million during fiscal year 1996 in recognition of deferred income taxes. Results of Operations The following table sets forth the percentage relationship of certain items to operating revenue for the periods indicated:
Fiscal Years Ended September 30, --------------------------------- 1997 1996 1995 ---------- ---------------------- Operating revenue.............................................................. 100.0% 100.0% 100.0% Operating expenses: Salaries, wages, and benefits................................................ 39.0 39.6 37.3 Fuel and fuel taxes.......................................................... 19.4 20.1 18.8 Operating supplies and expenses.............................................. 12.4 13.6 14.4 Taxes and licenses........................................................... 3.3 3.3 3.6 Insurance and claims......................................................... 2.2 2.1 2.7 Communications and utilities................................................. 1.6 1.6 1.6 Depreciation and amortization................................................ 3.5 5.9 9.6 Rent......................................................................... 11.0 4.7 3.9 ---------- ---------------------- Total operating expenses 92.4 90.9 91.9 ---------- ---------------------- Operating earnings............................................................. 7.6 9.1 8.1 Gain on sale of real property................................................... 1.2 -- -- Interest expense and other, net................................................ (0.7) (2.8) (4.7) ---------- ---------------------- Earnings before provision for income taxes..................................... 8.1 6.3 3.4 Pro forma provision for income taxes........................................... (3.1) (2.5) (1.4) ---------- ---------------------- Pro forma net earnings......................................................... 5.0% 3.8% 2.0% ========== ======================
Comparison of fiscal year ended September 30, 1997, with fiscal year ended September 30, 1996. Operating revenue increased $54.2 million (53.6%), to $155.3 million during the 1997 fiscal year from $101.1 million during the 1996 fiscal year. The increase in revenue was primarily attributable to a 47.5% increase in the weighted average number of tractors, to 1,142 during the 1997 fiscal year from 774 during the 1996 fiscal year, an increase in the average revenue per tractor per week to $2,627 during the 1997 fiscal year from $2,526 during the 1996 fiscal year, and an increase in the Company's average revenue per loaded mile to $1.25 during the 1997 fiscal year from $1.24 during the 1996 fiscal year. These increases were partially offset by an increase in empty miles percentage to 11.9% during the 1997 fiscal year from 11.7% during the 1996 fiscal year. Salaries, wages and benefits increased $20.5 million (51.3%), to $60.5 million in the 1997 fiscal year from $40.0 million in the 1996 fiscal year. As a percentage of revenue, salaries, wages, and benefits decreased to 39.0% of revenue during the 1997 fiscal year from 39.6% during the 1996 fiscal year. The change is primarily attributable to a decrease in the ratio of administrative personnel to driving personnel and reduced workers' compensation premiums. Fuel and fuel taxes increased $9.7 million (47.5%), to $30.1 million in the 1997 fiscal year from $20.4 million in the 1996 fiscal year. As a percentage of revenue, fuel and fuel taxes decreased to 19.4% of revenue during the 1997 fiscal year from 20.1% during the 1996 fiscal year as a result of a decrease in fuel prices. The decrease in fuel expense as a percentage of revenue also was aided by an overall increase in the fuel efficiency of the Company's fleet. Operating supplies and expenses increased $5.6 million (40.9%), to $19.3 million in the 1997 fiscal year from $13.7 million in the 1996 fiscal year. As a percentage of revenue, operating supplies and expenses decreased to 12.4% of revenue during the 1997 fiscal year, from 13.6% during the 1996 fiscal year, primarily as a result of decreased parts costs, outside repairs, and maintenance expense associated with a decrease in the average age of the Company's tractor fleet. Most tractors are now covered by three-year, 500,000-mile warranties. Taxes and licenses increased $1.9 million (57.6%), to $5.2 million in the 1997 fiscal year from $3.3 million in the 1996 fiscal year. As a percentage of revenue, taxes and licenses remained constant at 3.3% of revenue during the 1997 and 1996 fiscal years. Insurance and claims increased $1.2 million (54.5%), to $3.4 million in the 1997 fiscal year from $2.2 million in the 1996 fiscal year. As a percentage of revenue, insurance and claims remained essentially unchanged at 2.2% of revenue during the 1997 fiscal year compared to 2.1% during the 1996 fiscal year. Communications and utilities increased $870,000 (51.8%), to $2.6 in the 1997 fiscal year from $1.7 million in the 1996 fiscal year. As a percentage of revenue, communications and utilities remained essentially unchanged at 1.6% of revenue during the 1997 and 1996 fiscal years. Depreciation and amortization decreased $523,000 (8.8%), to $5.4 million in the 1997 fiscal year from $5.9 million in the 1996 fiscal year. As a percentage of revenue, depreciation and amortization (adjusted for the net gain on sale of equipment) decreased to 3.5% of revenue during the 1997 fiscal year from 5.9% during the 1996 fiscal year. Depreciation and amortization (unadjusted for the net gain on sale of equipment) decreased to 4.5% of revenue ($7.0 million) during the 1997 fiscal year from 8.3% of revenue ($8.4 million) during the 1996 fiscal year as a result of a decrease in the percentage of the Company's revenue equipment that was owned or acquired under capitalized leases. This decrease in depreciation was adjusted for a $1.6 million net gain on the sale of revenue equipment during the 1997 fiscal year compared with a $2.4 million net gain during the 1996 fiscal year. Rent increased $12.3 million (256.3%), to $17.1 million in the 1997 fiscal year from $4.8 million in the 1996 fiscal year. As a percentage of revenue, rent increased to 11.0% of revenue during the 1997 fiscal year from 4.7% during the 1996 fiscal year as the Company added new equipment and replaced equipment that had been financed under capital lease arrangements with equipment financed under operating leases. The Company has utilized operating leases in the most recent year because of more favorable terms. If the Company continues to use operating lease financing, its operating ratio may be affected in future periods because the implied financing costs of such equipment are included as operating expenses instead of interest expense. As a result of the foregoing, the Company's operating ratio increased to 92.4% during the 1997 fiscal year from 90.9% during the 1996 fiscal year. The Company realized a gain of $1,896,025 on the sale of its former headquarter facilities during the 1997 fiscal year. This non-recurring transaction increased earnings before provision for income taxes by 1.2% of revenue during the period. Interest expense and other, net decreased $1.7 million (60.7%), to $1.1 million in the 1997 fiscal year from $2.8 million in the 1996 fiscal year. As a percentage of revenue, interest expense and other, net decreased to 0.7% of revenue during the 1997 fiscal year from 2.8% during the 1996 fiscal year. This resulted from application of $13.3 million in net proceeds from the Company's secondary public offering to purchase revenue equipment, a decrease in the Company's average interest rate in the 1997 fiscal year compared with the 1996 fiscal year, and an increase in the percentage of the Company's tractor and trailer fleets being obtained through operating leases. The Company's effective combined federal and state income tax rate for the 1997 fiscal year was 37.8%, compared with an estimated combined federal and state income tax rate of 39.6% used for fiscal year 1996. As a result of the factors described above, pro forma net earnings increased $3.9 million (100.0%) to $7.8 million ($6.6 million excluding the gain on the sale of the Company's former headquarters) during the 1997 fiscal year from $3.9 million during the 1996 fiscal year. As a percentage of revenue, pro forma net earnings increased to 5.0% (4.2% of revenue excluding the gain on the sale of the Company's former headquarters) of revenue in the 1997 fiscal year from 3.8% in the 1996 fiscal year. Comparison of fiscal year ended September 30, 1996, with fiscal year ended September 30, 1995. Operating revenue increased $25.9 million (34.4%), to $101.1 million during the 1996 fiscal year from $75.2 million during the 1995 fiscal year. The increase in revenue was primarily attributable to a 29.4% increase in the weighted average number of tractors, to 774 during the 1996 fiscal year from 598 during the 1995 fiscal year and an increase in the average revenue per tractor per week to $2,526 during the 1996 fiscal year from $2,417 during the 1995 fiscal year. These increases were partially offset by a decrease in the Company's average revenue per loaded mile to $1.24 during the 1996 fiscal year from $1.26 during the 1995 fiscal year, and an increase in empty miles percentage to 11.7% during the 1996 fiscal year from 11.3% during the 1995 fiscal year. Salaries, wages and benefits increased $12.0 million (42.9%), to $40.0 million in the 1996 fiscal year from $28.0 million in the 1995 fiscal year. As a percentage of revenue, salaries, wages, and benefits increased to 39.6% of revenue during the 1996 fiscal year from 37.3% during the 1995 fiscal year. The change was attributable to the full effect of an increase in driver base pay implemented during the 1995 fiscal year; the improvement of health insurance coverage to attract and retain qualified drivers and other personnel; an increase in the number of active participants in the 401(k) plan; and an increase in administrative personnel. The additional cost of these items was partially offset by reduced workers' compensation premiums and a reduction in workers' compensation claims. Fuel and fuel taxes increased $6.3 million (44.7%), to $20.4 million in the 1996 fiscal year from $14.1 million in the 1995 fiscal year. As a percentage of revenue, fuel and fuel taxes increased to 20.1% of revenue during the 1996 fiscal year from 18.8% during the 1995 fiscal year as a result of an increase in fuel prices. The increase in fuel prices was partially offset by an overall increase in the fuel efficiency of the Company's fleet. Operating supplies and expenses increased $2.9 million (26.9%), to $13.7 million in the 1996 fiscal year from $10.8 million in the 1995 fiscal year. As a percentage of revenue, operating supplies and expenses decreased to 13.6% of revenue during the 1996 fiscal year, from 14.4% during the 1995 fiscal year, primarily as a result of decreased parts costs, outside repairs, and maintenance expense associated with a decrease in the average age of the Company's tractor fleet. These savings were partially offset by retaining certain older tractors that had been scheduled for trade or sale in order to meet customer demand for more equipment. The Company upgraded its tractor fleet in fiscal year 1996 and reduced the average age of its fleet at September 30, 1996, to approximately 8 months from 30 months at September 30, 1995. All tractors are now covered by three-year, 500,000-mile warranties. Taxes and licenses increased $531,000 (19.3%), to $3.3 million in the 1996 fiscal year from $2.8 million in the 1995 fiscal year. As a percentage of revenue, taxes and licenses decreased to 3.3% of revenue during the 1996 fiscal year from 3.6% during the 1995 fiscal year primarily as a result of greater efficiency in licensing new tractors being added to the fleet. Insurance and claims increased $169,000 (8.4%), to $2.2 million in the 1996 fiscal year from $2.0 million in the 1995 fiscal year. As a percentage of revenue, insurance and claims decreased to 2.1% of revenue during the 1996 fiscal year from 2.7% during the 1995 fiscal year because of reduced insurance premiums and claims. Communications and utilities increased $435,000 (34.9%), to $1.7 in the 1996 fiscal year from $1.2 million in the 1995 fiscal year. As a percentage of revenue, communications and utilities remained constant at 1.6% of revenue during the 1996 and 1995 fiscal years. Depreciation and amortization decreased $1.3 million (18.0%), to $5.9 million in the 1996 fiscal year from $7.2 million in the 1995 fiscal year. As a percentage of revenue, depreciation and amortization (adjusted for the net gain on sale of equipment) decreased to 5.9% of revenue during the 1996 fiscal year from 9.6% during the 1995 fiscal year. Depreciation and amortization (unadjusted for the net gain on sale of equipment) decreased to 8.3% of revenue ($8.4 million) during the 1996 fiscal year from 10.8% of revenue ($8.1 million) during the 1995 fiscal year as a result of a decrease in the percentage of the Company's revenue equipment that was owned or acquired under capitalized leases. This decrease in depreciation was adjusted for a $2.4 million net gain on the sale of revenue equipment during the 1996 fiscal year compared with an $885,000 net gain during the 1995 fiscal year. Rent increased $1.9 million (65.5%), to $4.8 million in the 1996 fiscal year from $2.9 million in the 1995 fiscal year. Rent increased to 4.7% of revenue during the 1996 fiscal year from 3.9% during the 1995 fiscal year as the Company increased its percentage of revenue equipment under operating leases. As a result of the foregoing, the Company's operating ratio decreased to 90.9% during the 1996 fiscal year from 91.9% during the 1995 fiscal year. Interest expense and other, net decreased $769,000 (21.8%), to $2.8 million in the 1996 fiscal year from $3.5 million in the 1995 fiscal year. As a percentage of revenue, interest expense and other, net decreased to 2.8% of revenue during the 1996 fiscal year from 4.7% during the 1995 fiscal year. This resulted from application of $17.2 million in net proceeds from the Company's initial public offering to decrease debt and capitalized lease balances, a decrease in the Company's average interest rate in the 1996 fiscal year compared with the 1995 fiscal year, and an increase in the percentage of the Company's tractor and trailer fleets being obtained through operating leases. As a result of the factors described above, pro forma net earnings increased $2.4 million (160.0%), to $3.9 million during the 1996 fiscal year from $1.5 million during the 1995 fiscal year. As a percentage of revenue, pro forma net earnings increased to 3.8% of revenue in the 1996 fiscal year from 2.0% in the 1995 fiscal year. Liquidity and Capital Resources The growth of the Company's business has required significant investment in new revenue equipment that the Company historically has financed with borrowings under installment notes payable to commercial lending institutions and equipment manufacturers, equipment leases from third-party lessors, borrowings under its line of credit, and cash flow from operations. The Company's primary sources of liquidity currently are funds provided by operations and borrowings and leases with financial institutions and equipment manufacturers. Net cash provided by operating activities was $7.9 million, $7.0 million, and $8.3 million, for the fiscal years ended September 30, 1997, 1996, and 1995, respectively. The Company's principal use of cash from operations is to service debt and capitalized leases incurred to purchase new revenue equipment and internally finance accounts receivable associated with growth in the business. Accounts receivable increased $6,362,000, $5,930,000, and $478,000 for the fiscal years ended September 30, 1997, 1996, and 1995, respectively. The average age of the Company's accounts receivable was 41, 39, and 36 days for the fiscal years ended September 30, 1997, 1996, and 1995, respectively. Net cash (used in) provided by investing activities was ($19.0 million), ($4.6 million), and $1.3 million for the fiscal years ended September 30, 1997, 1996, and 1995, respectively, and consisted of net purchases of property and equipment. The Company expects capital expenditures (primarily for revenue equipment, and satellite communications units), net of revenue equipment trade-ins, to be approximately $104 million in 1998 and 1999. The Company's projected capital expenditures will be funded mostly with operating leases, borrowings and cash flows from operations. Net cash provided by (used in) financing activities was $18.3 million, $2.9 million, and ($9.2 million) for the fiscal years ended September 30, 1997, 1996, and 1995, respectively, and consisted primarily of approximately $23.0 million in net proceeds from the Company's February 1997 secondary public offering, $19.7 million in net proceeds from the Company's November 1995 initial public offering, net payments on borrowings of $4.6 million, $12.0 million, and $10.2 million of principal under the Company's long-term debt and capitalized lease agreements and net payments (borrowings) of $0, $4.3 million, and ($2.6 million) under the Company's line of credit. In addition, the Company paid S Corporation dividends to its stockholders of $605,000 and $1.6 million for the fiscal years ended September 30, 1996, and 1995, respectively. The maximum amount committed under the Company's line of credit at September 30, 1997 was $5 million and no borrowings were outstanding. The interest rate on the line of credit is one-half percent (.5%) above the 30-day London Interbank Offered Rate ("LIBOR") in effect from time-to-time. At September 30, 1997, the Company had outstanding long-term debt and capitalized lease obligations (including current portions) of approximately $32.8 million, most of which comprised obligations for the purchase of revenue equipment. See Notes 4, 5 and 6 to Consolidated Financial Statements. Although the Company historically has experienced a working capital deficit common to many truckload carriers that have expanded by financing revenue equipment purchases, management believes its working capital deficits have had little impact upon liquidity. When the purchase of revenue equipment is financed through borrowing or capitalized lease obligations, a portion of the indebtedness is categorized as a current liability, although the revenue equipment is classified as a long-term asset. Consequently, each purchase of financed revenue equipment decreases working capital. The Company's working capital surplus at September 30, 1997 and 1996 was $15.9 million and $6.7 million, respectively. The Company's working capital deficit amounted to $16.7 million at September 30, 1995. Management believes that available borrowings under the line of credit, future borrowings under installment notes payable or lease arrangements for revenue equipment, and cash flow generated from operations, will allow the Company to continue to meet its working capital requirements, anticipated capital expenditures, and obligations under debt and capitalized and operating leases at least through fiscal year 1998. Inflation Inflation has had a minimal effect upon the Company's profitability in recent years. Most of the Company's operating expenses are inflation- sensitive, with inflation generally producing increased costs of operation. The Company expects that inflation will affect its costs no more than it affects those of other truckload carriers. Seasonality The Company experiences some seasonal fluctuations in freight volume, as shipments have historically decreased during the first calendar quarter. In addition, the Company's operating expenses historically have been higher in the winter months due to decreased fuel efficiency and increased maintenance costs in colder weather. Fuel Availability and Cost The Company actively manages its fuel costs by requiring drivers to fuel at Company terminals or, whenever possible en route, at service centers with which the Company has established volume purchasing arrangements. The Company controls fuel purchases by using its proprietary software and Qualcomm communications ability to schedule fueling stops and amounts purchased based upon fuel prices at locations on drivers' routes. The Company historically has been able to pass through most increases in fuel prices and taxes to customers in the form of higher rates and fuel surcharges. Cautionary Statement Regarding Forward Looking Statements 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: Economic Factors; Fuel Prices. Negative economic factors such as recessions, downturns in customers' business cycles, surplus inventories, inflation, and higher interest rates could impair the Company's operating results by decreasing equipment utilization or increasing costs of operations. Increases in fuel prices usually are not fully recoverable. Accordingly, high fuel prices can have a negative impact on the Company's profitability. Recruitment, Retention, and Compensation of Qualified Drivers. Competition for drivers is intense in the trucking industry. There is, and historically has been, an industry-wide shortage of qualified drivers. This shortage could force the Company to significantly increase the compensation it pays to drivers or curtail the Company's growth. Delay in Delivery of Revenue Equipment. The Company has scheduled delivery of approximately 1,400 tractors during the next two years. The inability of revenue equipment manufacturers to make delivery as scheduled could impede the Company's ability to meet customer demands for revenue equipment and force the Company to retain its present fleet of revenue equipment for a longer period of time with potential higher operating expenses associated with an older fleet. Item 8. . FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's audited financial statements, including its consolidated balance sheets and consolidated statements of earnings, cash flows, and stockholders' equity, and notes related thereto, are included at pages 21 to 34 of this report. The supplementary quarterly financial data (unadjusted for the pro forma effects of income taxes as if the Company had always been a C corporation) follow: Quarterly Financial Data: Fourth Quarter Third Quarter Second Quarter First Quarter 1997 1997 1997 1997 ------------------ ---------------- ------------------- ---------------- Revenue $44,175 $41,191 $35,765 $34,166 Operating earnings 3,571 3,278 2,462 2,433 Earnings before taxes 3,375 4,919 2,225 1,987 Income taxes 1,276 1,859 841 751 Net earnings 2,099 3,060 1,384 1,236 Net earnings per share $ 0.33 $ 0.49 $ 0.25 $ 0.26 Fourth Quarter Third Quarter Second Quarter First Quarter 1996 1996 1996 1996 ------------------ ---------------- ------------------- ---------------- Revenue $31,068 $27,225 $22,208 $20,588 Operating earnings 2,697 2,568 2,235 1,661 Earnings before taxes 2,140 1,812 1,596 855 Income taxes 848 718 632 3,257 Net earnings 1,292 1,095 964 (2,402) Net earnings per share $ 0.27 $ 0.23 $ 0.20 $ (0.70)
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 September 30, 1997, 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" on pages 3, 4, and 7 of Registrant's Proxy Statement for the 1997 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. Item 11. EXECUTIVE COMPENSATION The information respecting executive compensation set forth under the caption "Executive Compensation" on pages 5 and 6 of 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" on page 9 of the Proxy Statement is incorporated herein by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information respecting certain relationships and transactions of management set forth under the captions "Compensation Committee Interlocks and Insider Participation" and "Certain Transactions" on page 4 of 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 Consolidated Statement of Earnings......................................... 21 Consolidated Statement of Financial Position............................... 22 Consolidated Statements of Stockholders' Equity............................ 23 Consolidated Statements of Cash Flows...................................... 24 Notes to Consolidated Financial Statements................................. 25 Report of Independent Public Accountants................................... 34 2. Financial Statement Schedules. Financial statement schedules are not required because all required information is included in the financial statements. (b) Reports on Form 8-K There were no reports on Form 8-K filed during the fourth quarter ended September 30, 1997. (c) Exhibits Number Description 1 + Form of Underwriting Agreement. 3.1 + Articles of Incorporation. 3.2 + Bylaws. 4.1 + Articles of Incorporation. 4.2 + Bylaws. 10.2+ Outside Director Stock Option Plan. 10.3+ Incentive Stock Plan. 10.4+ 401(k) Plan. 10.1# Loan Agreement (Line of Credit) dated April 29, 1996 (replaced loan agreement dated December 1, 1995) between U.S. Bank of Utah and Simon Transportation Services Inc. 10.1# Loan Agreement (Headquarter's Loan)dated May 23, 1996 between U.S. Bank of Utah and Dick Simon Trucking, Inc. 21 + List of subsidiaries. 23 Consent of Arthur Andersen LLP, independent public accountants. 27 Financial Data Schedule + Filed as an exhibit to the registrant's Registration Statement on Form S-1, Registration No. 33-96876, effective November 17, 1995, and incorporated herein by reference. # Filed as an exhibit to the registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1996, Commission File No. 0-27208, dated August 9, 1996, and incorporated herein by reference. 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. SIMON TRANSPORATION SERVICES, INC. Date: November 18, 1997 By: /s/ Alban B. Lang ----------------- ----------------- Alban B. Lang Treasurer and Chief Financial 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 --------- -------- ---- /s/ Richard D. Simon Chairman of the Board, President, and Chief November 18, 1997 - -------------------------------------- Executive Officer (principal executive officer) Richard D. Simon /s/ Alban B. Lang Treasurer and Chief Financial Officer November 18, 1997 - -------------------------------------- (principal financial and accounting officer); Alban B. Lang Director /s/ Kelle A. Simon Vice President of Maintenance; Director November 18, 1997 - -------------------------------------- Kelle A. Simon /s/ A. Lyn Simon Vice President of Sales; Director November 18, 1997 - -------------------------------------- A. Lyn Simon /s/ Richard D. Simon, Jr. Vice President of Operations; Director November 18, 1997 - -------------------------------------- Richard D. Simon, Jr. /s/ Sherry L. Bokovoy Assistant Secretary/Treasurer; Director November 18, 1997 - -------------------------------------- Sherry L. Bokovoy /s/ Irene Warr Director November 18, 1997 - -------------------------------------- Irene Warr /s/ H.J. Frazier Director November 18, 1997 - -------------------------------------- H.J. Frazier
SIMON TRANSPORTATION SERVICES INC. CONSOLIDATED STATEMENT OF EARNINGS For the Years Ended September 30, ---------------------------------------------------------- 1997 1996 1995 ---------------------------------------------------------- Operating Revenue $155,296,354 $101,089,530 $ 75,218,184 ---------------------------------------------------------- Operating Expenses: Salaries, wages, and benefits 60,504,236 40,014,702 28,035,318 Fuel and fuel taxes 30,068,552 20,359,375 14,115,283 Operating supplies and expenses 19,288,560 13,701,428 10,839,485 Taxes and licenses 5,197,086 3,287,833 2,756,587 Insurance and claims 3,404,550 2,172,308 2,002,505 Communications and utilities 2,550,301 1,679,967 1,244,650 Depreciation and amortization 5,396,198 5,919,494 7,222,887 Rent 17,142,835 4,793,804 2,925,541 ---------------------------------------------------------- Total operating expenses 143,552,318 91,928,911 69,142,256 ---------------------------------------------------------- Operating earnings 11,744,036 9,160,619 6,075,928 Other (Expense) Earnings: Gain on sale of real property 1,896,025 -- -- Interest expense (1,761,939) (2,849,549) (3,558,932) Other, net 627,769 92,025 31,751 ---------------------------------------------------------- Earnings before provision for income taxes 12,505,891 6,403,095 2,548,747 Provision for income taxes (Note 11) 4,727,227 5,454,170 -- ---------------------------------------------------------- Net Earnings $ 7,778,664 $ 948,925 $ 2,548,747 ========================================================== Unaudited Pro Forma Information: (Note 11) Earnings before provision for income taxes $ 12,505,891 $ 6,403,095 $ 2,548,747 Provision for income taxes 4,727,227 2,535,626 1,009,304 ---------------------------------------------------------- Net earnings $ 7,778,664 $ 3,867,469 $ 1,539,443 ========================================================== Net earnings per common share $ 1.36 $ 0.88 $ 0.67 ========================================================== Weighted average common shares outstanding 5,707,642 4,417,643 2,300,000 ==========================================================
The accompanying notes to consolidated financial statements are an integral part of this consolidated financial statement. SIMON TRANSPORTATION SERVICES INC. CONSOLIDATED STATEMENT OF FINANCIAL POSITION ASSETS September 30, ---------------------------------- 1997 1996 ---------------------------------- Current Assets: Cash $ 12,766,001 $ 5,571,431 Receivables, net of allowance for doubtful accounts of $62,000 and $66,000, respectively 20,712,286 13,261,974 Operating supplies 752,213 428,123 Prepaid expenses and other 1,558,923 1,302,492 Deferred tax asset 635,027 627,883 ---------------------------------- Total current assets 36,424,450 21,191,903 ---------------------------------- Property and Equipment, at cost: Land 7,632,711 2,918,804 Revenue equipment 59,392,072 58,779,032 Buildings and improvements 14,321,869 8,639,875 Office furniture and equipment 5,974,291 2,766,218 ---------------------------------- 87,320,943 73,103,929 Less accumulated depreciation and amortization (16,166,473) (16,390,209) ---------------------------------- 71,154,470 56,713,720 ---------------------------------- Other Assets 125,450 317,645 ---------------------------------- $ 107,704,370 $ 78,223,268 ================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt $ 6,382,697 $ 2,892,300 Current portion of capitalized lease obligations 5,346,645 3,760,250 Accounts payable 3,593,420 1,691,900 Income taxes payable 631,776 2,191,984 Accrued liabilities 3,325,279 2,324,918 Accrued claims payable 1,259,674 1,602,344 ---------------------------------- Total current liabilities 20,539,491 14,463,696 ---------------------------------- Long-Term Debt, net of current portion 14,638,389 15,433,145 ---------------------------------- Capitalized Lease Obligations, net of current portion 6,423,385 15,342,293 ---------------------------------- Deferred Income Taxes 6,254,445 3,880,653 ---------------------------------- Commitments (Note 7) Stockholders' Equity: Preferred stock, $.01 par value, 5,000,000 shares authorized, none issued -- -- Class A Common Stock, $.01 par value, 20,000,000 shares authorized, 5,320,313 and 2,870,507 shares issued, respectively 53,203 28,705 Class B Common Stock, $.01 par value, 5,000,000 shares authorized, 962,661 and 1,872,161 shares issued, respectively 9,627 18,722 Additional paid-in capital 48,233,608 25,282,496 Retained earnings 11,552,222 3,773,558 ---------------------------------- Total stockholders' equity 59,848,660 29,103,481 ---------------------------------- $ 107,704,370 $ 78,223,268 ==================================
The accompanying notes to consolidated financial statements are an integral part of this consolidated financial statement. SIMON TRANSPORTATION SERVICES INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Class A Class B Additional Total Common Common Common Paid-in Retained Treasury Stockholders' Stock Stock Stock Capital Earnings Stock Equity ------------------------------------------------------------------------------ Balance, September 30, 1994 $ 149,852 $ -- $ -- $ -- $ 7,319,150 $(25,764) $ 7,443,238 Distributions to (1,593,611) (1,593,611) stockholders of S corporation Acquisition of Freight 160,000 160,000 Sales, Inc. through issuance of 22,308 shares of common stock (Note 1) Payment of notes payable 474,204 474,204 to stockholders through issuance of 66,225 shares of common stock (Note 9) Recapitalization of (784,056) 7,000 28,500 722,792 25,764 -- capital stock, 700,000 Class A shares and 2,850,000 Class B shares of Common Stock issued for 3,550,000 shares of common stock (Note 1) Pro rata contribution of (2,722) (9,778) 12,500 -- 272,161 shares of Class A Common Stock and 977,839 shares of Class B Common Stock by stockholders (Note 1) Net earnings 2,548,747 2,548,747 ------------------------------------------------------------------------------ Balance, September 30, 1995 -- 4,278 18,722 735,292 8,274,286 -- 9,032,578 Distributions to (605,060) (605,060) stockholders of S corporation Sale of Common Stock in 24,420 19,696,318 19,720,738 initial public offering, net of issuance costs Change in tax status 4,844,593 (4,844,593) -- Exercise of stock options 7 6,293 6,300 Net earnings 948,925 948,925 ------------------------------------------------------------------------------ Balance, September 30, 1996 -- 28,705 18,722 25,282,496 3,773,558 -- 29,103,481 Sale of common stock in 24,445 (9,095) 22,903,411 22,918,761 secondary public offering, net of issuance costs Exercise of stock options 53 47,701 47,754 Net earnings 7,778,664 7,778,664 ------------------------------------------------------------------------------ Balance, September 30, 1997 $ -- $ 53,203 $ 9,627 $48,233,608 $11,552,222 $ -- $59,848,660 ==============================================================================
The accompanying notes to consolidated financial statements are an integral part of this consolidated financial statement. SIMON TRANSPORTATION SERVICES INC. CONSOLIDATED STATEMENT OF CASH FLOWS For the Years Ended September 30, ------------------------------------------------------- 1997 1996 1995 ------------------------------------------------------- Cash Flows From Operating Activities: Net earnings $ 7,778,664 $ 948,925 $ 2,548,747 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 5,396,198 5,919,494 7,222,887 Gain on sale of real property (1,896,025) -- -- Changes in operating assets and liabilities: Increase in receivables, net (6,361,812) (5,930,273) (477,913) (Increase) decrease in operating supplies (324,090) 211,792 (166,726) Increase in prepaid expenses and other (256,431) (885,547) (117,628) Increase in deferred tax asset (7,144) (627,883) -- Decrease (increase) in other assets 192,195 180,828 (464,990) Increase (decrease) in accounts payable 1,901,521 322,648 (577,613) (Decrease) increase in income taxes payable (1,560,208) 2,191,984 -- Increase in accrued liabilities 1,000,361 489,298 17,700 (Decrease) increase in accrued claims payable (342,670) 305,769 277,903 Increase in deferred income taxes 2,373,792 3,880,653 -- ------------------------------------------------------- Net cash provided by operating activities 7,894,351 7,007,688 8,262,367 ------------------------------------------------------- Cash Flows From Investing Activities: Purchase of property and equipment (31,815,000) (23,149,090) (6,338,014) Proceeds from the sale of property and equipment 12,785,576 18,499,863 7,594,684 ------------------------------------------------------- Net cash (used in) provided by investing activities (19,029,424) (4,649,227) 1,256,670 ------------------------------------------------------- Cash Flows From Financing Activities: Proceeds from issuance of long-term debt 15,894,391 19,666,814 3,764,916 Principal payments on long-term debt (13,198,750) (12,775,333) (4,653,591) Net (payments) borrowings under line-of-credit agreement -- (4,279,741) 2,570,529 Principal payments under capitalized lease obligations (7,332,513) (18,871,127) (9,309,717) Net proceeds from issuance of common stock 22,966,515 19,727,037 -- Distributions to S corporation stockholders -- (605,060) (1,593,611) ------------------------------------------------------- Net cash provided by (used in) financing activities 18,329,643 2,862,590 (9,221,474) ------------------------------------------------------- Net Increase In Cash 7,194,570 5,221,051 297,563 Cash at Beginning of Year 5,571,431 350,380 52,817 ------------------------------------------------------- Cash at End of Year $ 12,766,001 $ 5,571,431 $ 350,380 ======================================================= Supplemental Disclosure of Cash Flow Information: Cash paid during the year for interest $ 1,761,939 $ 2,847,583 $ 3,440,685 Cash paid during the year for income taxes 4,631,593 -- -- Supplemental Schedule of Noncash Investing and Financing Activities: Equipment acquired through capitalized lease obligations $ -- $ 5,784,405 $11,479,970
The accompanying notes to consolidated financial statements are an integral part of this consolidated financial statement. SIMON TRANSPORTATION SERVICES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) DESCRIPTION OF THE COMPANY, ACQUISITIONS, AND RECAPITALIZATION Simon Transportation Services Inc. was incorporated in Nevada on August 15, 1995 to acquire all of the outstanding capital stock of Dick Simon Trucking, Inc., a Utah corporation, through a transaction intended to qualify as a transfer to a controlled corporation. The accompanying consolidated financial statements present the consolidated financial position and results of operations of Simon Transportation Services Inc. and Dick Simon Trucking, Inc., its wholly owned subsidiary (collectively, the "Company"). All intercompany accounts and transactions have been eliminated in consolidation. The Company is a truckload carrier that specializes in premium service, primarily through temperature-controlled transportation predominantly for major shippers in the U.S. food industry. R. D. Simon Trucking Historically, the accompanying financial statements included the combined accounts of Dick Simon Trucking, Inc. and R. D. Simon Trucking (the "Affiliate"). The Affiliate was a sole proprietorship owned by Richard D. Simon, the majority stockholder of the Company. The Affiliate leased tractors, trailers and terminal and shop facilities to the Company. On April 19, 1995, the Company entered into an exchange agreement with its majority stockholder to acquire all of the assets and liabilities of the Affiliate in exchange for 753,135 shares of Common Stock of the Company. In exchange for the issuance of the common stock, the Company assumed ownership of assets with an estimated fair value of approximately $8,500,000 and liabilities of approximately $3,100,000. The Company has accounted for the acquisition of the Affiliate as a reorganization of entities under common control and, accordingly, the financial statements for all periods presented have been adjusted to reflect the combination of the entities at their historical bases. Freight Sales, Inc. In connection with the above mentioned exchange agreement, the Company also acquired Freight Sales, Inc. ("Freight Sales"), a company owned by the adult children of the majority stockholder of the Company, which children are also minority stockholders of the Company. The Company issued 22,308 shares of common stock in exchange for all of the outstanding stock of Freight Sales. The Company has accounted for the acquisition of Freight Sales under the purchase method of accounting and, accordingly, the acquired asset values of $160,000 are presented in these financial statements as of the acquisition date at their respective fair values in relation to the purchase price. No intangible assets were recorded in this acquisition. As part of the transaction, Freight Sales was merged into the Company and ceased to exist as a legal entity. Recapitalization In August 1995, the Board of Directors approved a reverse stock split of one-for-3.37 shares of common stock, and a recapitalization of the Company. All references in the consolidated financial statements to the number of shares of common stock have been restated to reflect this reverse stock split. The post-recapitalization authorized capital stock for the Company consists of 20,000,000 shares of $.01 par value Class A Common Stock with one vote per share voting rights; 5,000,000 shares of $.01 par value Class B Common Stock with two votes per share voting rights; and 5,000,000 shares $.01 par value preferred stock. In connection with this recapitalization, the Company issued 700,000 shares of Class A and 2,850,000 shares of Class B Common Stock in exchange for all of the previously outstanding shares of common stock. All of the Class B and 39,641 shares of Class A Common Stock were issued to the majority stockholder of the Company. On September 30, 1995, the Company's stockholders contributed on a pro rata basis 272,161 shares of Class A and 977,839 shares of Class B Common Stock to the Company. This contribution was made to reduce the number of shares of the Company's common stock prior to its initial public offering. All contributed shares were retired by the Company. Immediately prior to the effective date of the Company's initial public offering, the Company issued 427,839 shares of Class A and 1,872,161 shares of Class B common stock of Simon Transportation Services Inc. to the existing shareholders of Dick Simon Trucking, Inc. in exchange for all of the outstanding capital stock of Dick Simon Trucking, Inc. in a transaction intended to qualify as a transfer to a controlled corporation under Section 351 of the Internal Revenue Code. This transaction was consummated on November 17, 1995. On November 17, 1995, the Company completed its initial public offering of 2,441,968 shares of Class A Common Stock which generated net proceeds of $19,720,738 after deducting underwriting commissions and other expenses. A majority of the proceeds were used to pay off certain long-term debt. On February 13, 1997, the Company completed a public offering of 2,530,000 shares of Class A Common Stock. Selling stockholders offered and received net proceeds for 995,000 of these shares (85,500 shares of Class A Common Stock and 909,500 shares of Class B Common Stock reclassified as Class A Common Stock upon completion of the offering). The sale of the 1,535,000 shares of Class A Common Stock offered by the Company generated net proceeds of $22,918,761 after deducting underwriting commissions and other expenses. A majority of the proceeds were used to purchase new revenue equipment. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expense during the reporting period. Actual results could differ from these estimates. Revenue Recognition and Significant Customers Freight charges and related direct freight expenses are recognized as revenue and operating expense when freight is delivered at a destination point. One customer accounted for approximately 12, 18, and 19 percent of operating revenue in fiscal years 1997, 1996, and 1995, respectively. At September 30, 1997, the Company had accounts receivable outstanding with this customer totaling $956,464. Another customer accounted for approximately 12 percent of operating revenue in fiscal year 1995. No other customer accounted for more than 10% of revenue during fiscal years 1997, 1996 and 1995. Operating Supplies Operating supplies consist primarily of tires, fuel and maintenance parts for revenue equipment which are stated at the lower of first-in, first-out (FIFO) cost or market value. Property and Equipment Property and equipment are recorded at cost and depreciated based on the straight-line method over their estimated useful lives, taking into consideration salvage values for purchased property and residual values for equipment held under capitalized leases. Leasehold improvements are amortized over the terms of the respective lease or the lives of the assets, whichever is shorter. Expenditures for routine maintenance and repairs are charged to operating expense as incurred. Major renewals and betterments are capitalized and depreciated over their estimated useful lives. Upon retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from the accounts, and any gain or loss is recorded as an adjustment to depreciation and amortization. Net gains from the disposition of equipment in the amounts of $1,563,524, $2,447,765, and $885,439 for the fiscal years ended September 30, 1997, 1996, and 1995, respectively, have been included in depreciation and amortization in the accompanying statements of earnings and cash flows. The estimated useful lives of property and equipment are as follows: Revenue equipment 3 - 7 years Buildings and improvements 30 years Office furniture and equipment 5 - 10 years Tires purchased as part of revenue equipment are capitalized as a cost of the equipment. Replacement tires are expensed when placed in service. Fair Value of Financial Instruments The carrying amounts reported in the accompanying statements of financial position for cash, accounts receivable, and accounts payable approximate fair values because of the immediate or short-term maturities of these financial instruments. The carrying amounts of the Company's long-term debt also approximate fair values based on current rates for similar debt. Insurance Coverage and Accrued Claims Payable The Company acts as a self-insurer for auto liability, workers' compensation, tractor physical damage, trailer physical damage, and cargo damage claims up to $100,000, $100,000, $25,000, $10,000 and $10,000, respectively, per single occurrence. Liability in excess of these amounts is assumed by the insurance underwriter up to applicable policy limits. The Company maintains loss prevention programs in an effort to minimize this risk. The Company estimates and accrues a liability for its share of ultimate settlements using all available information including the services of a third-party insurance risk claims administrator to assist in establishing reserve levels for each occurrence based on the facts and circumstances of the occurrence coupled with the Company's past history of such claims. The Company accrues for workers' compensation and automobile liabilities when reported, typically the same day as the occurrence. Additionally, the Company accrues an estimated liability for incurred but not reported claims. Expense depends upon actual loss experience and changes in estimates of settlement amounts for open claims which have not been fully resolved. The Company provides for adverse loss developments in the period when new information so dictates. The Company had outstanding letters of credit related to insurance coverage totaling $950,000 at September 30, 1997. These letters of credit mature at various times through November 1997 and renew annually unless terminated by either party. Recent Accounting Pronouncements In March 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS No. 121 establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. The Company adopted SFAS No. 121 for fiscal year 1997, which had no impact on the Company's financial position or results of operations. In February 1997, the FASB released SFAS No. 128 "Earnings per Share". SFAS No. 128 specifies the computation, presentation, and disclosure requirements for earnings per share ("EPS") for financial statements issued for all periods ending after December 15, 1997. SFAS No. 128 simplifies the standards for computing EPS previously found in APB Opinion No. 15 and replaces the presentation for primary EPS and fully diluted EPS. The adoption of SFAS No. 128 is not expected to have a significant impact on the Company's calculation of its net earnings per common share. (3) INCOME TAXES Effective October 1, 1990, Dick Simon Trucking, Inc. elected for federal and state income tax purposes to include its taxable earnings with that of its stockholders (an S corporation election). Accordingly, from that date to November 16, 1995, the Company made no provision for income taxes in its financial statements. The Company's policy was to make distributions to its stockholders in amounts at least equal to the stockholders' income taxes that were attributable to the net earnings of the Company. The Company recorded such distributions when they were declared to the stockholders. Concurrently with the acquisition of all of the capital stock of Dick Simon Trucking, Inc. by Simon Transportation Services Inc. (see Note 1), the S corporation status of the Company terminated and the Company became subject to federal and state income taxes. Upon termination of the Company's S corporation status, the Company recognized deferred income tax assets and liabilities in accordance with SFAS No. 109, "Accounting for Income Taxes." The Company recorded, in accordance with SFAS No. 109, a net deferred income tax liability and the related deferred income tax expense in the quarter in which the change occurred. Additionally, in connection with the termination of the S corporation election, the Company reclassified its retained earnings to additional paid-in capital. The provision for income taxes includes the following components for the years ended September 30, 1997 and 1996: 1997 1996 ------------------ ------------------ Current tax provision: Federal $ 1,993,941 $ 1,758,933 State 366,638 442,467 ------------------ ------------------ 2,360,579 2,201,400 ------------------ ------------------ Deferred tax provision: Federal 2,062,976 254,592 State 303,672 18,063 Net deferred tax liability upon termination of S corporation status -- 2,980,115 ------------------ ------------------ 2,366,648 3,252,770 ------------------ ------------------ Provision for income taxes $ 4,727,227 $ 5,454,170 ================== ==================
The following is a reconciliation between the statutory Federal income tax rate of 34 percent and the effective rate which is derived by dividing the provision for income taxes by earnings before provision for income taxes for the years ended September 30, 1997 and 1996: 1997 1996 ------------------ ------------------ Computed "expected" provision for income taxes at the statutory rate $ 4,252,003 $ 2,177,053 Increase (decrease) in income taxes resulting from: Net deferred tax liability upon termination of S corporation status -- 2,980,115 State income taxes, net of federal income tax benefit 479,466 303,950 Other, net (4,242) (6,948) ------------------ ------------------ Provision for income taxes $ 4,727,227 $ 5,454,170 ================== ==================
The significant components of the net deferred tax assets and liabilities as of September 30, 1997, and 1996 are as follows: 1997 1996 ------------------ ------------------ Deferred tax assets: Claims reserve $ 278,834 $ 423,768 Other reserves and accruals 356,193 204,115 ------------------ ------------------ Total deferred tax assets 635,027 627,883 Deferred tax liability: Difference between book and tax basis of property and equipment (6,254,445) (3,880,653) ------------------ ------------------ Net deferred tax liability $ (5,619,418) $ (3,252,770) ================== ==================
(4) LONG-TERM DEBT Long-term debt consists of the following and the construction loan discussed in Note 5: September 30, -------------------------------------- 1997 1996 -------------------------------------- Notes payable to a bank, interest ranging from 6.24 percent to 7.20 percent, $ 9,871,320 $12,331,568 payable in monthly installments through April 2001, secured by revenue equipment Note payable to a bank, interest at Eurodollar rate (6.69 percent at 9,722,222 -- September 30, 1997), payable in monthly installments through August 2000, unsecured Note payable to a bank for headquarters loan, interest at LIBOR plus 1.1 1,427,544 1,816,874 percent (6.73 percent at September 30, 1997), payable in monthly installments through May 2001, secured by revenue equipment Other -- 7,126 -------------------------------------- 21,021,086 14,155,568 Less current portion (6,382,697) (2,892,300) -------------------------------------- $ 14,638,389 $11,263,268 ======================================
Scheduled principal payments of long-term debt as of September 30, 1997 are as follows: Years Ending September 30, Amount - ------------------------------------------------------ ------------------- 1998 $ 6,382,697 1999 6,502,407 2000 6,417,402 2001 1,718,580 2002 -- ------------------- $ 21,021,086 =================== (5) CONSTRUCTION LOAN AND LINE OF CREDIT The Company entered into a construction loan agreement with a bank to finance the construction of the Company's new headquarters, shop, terminal and driver recruitment and orientation center. The agreement provided a $10 million credit facility that would convert to a term loan upon completion of the facility. Until construction was complete, no payments were due and all accrued interest was added to the loan balance. As of September 30, 1996, the Company had borrowed $4,169,877 under the agreement. During fiscal year 1997, the Company refinanced this construction loan with a term loan from another bank (see Note 4). The refinanced loan contains various restrictive covenants including maximum debt to tangible net worth and minimum tangible net worth requirements. As of September 30, 1997, the Company was in compliance with all covenants under the loan agreement. The Company has an unsecured line of credit for $5,000,000. As of September 30, 1997, the Company had not drawn on this line of credit. (6) CAPITALIZED LEASE OBLIGATIONS Certain revenue equipment is leased under capitalized lease obligations. The following is a summary of assets held under capital lease agreements: September 30, ---------------------------------------------- 1997 1996 ---------------------------------------------- Revenue equipment $ 20,098,048 $ 28,823,541 Less accumulated amortization (6,276,894) (7,313,862) ---------------------------------------------- $ 13,821,154 $ 21,509,679 ============================================== The following is a schedule by year of future minimum lease payments under capitalized leases together with the present value of the minimum lease payments at September 30, 1997: Years Ending September 30, Amount - --------------------------------------------------- -------------------- 1998 $ 5,930,430 1999 1,841,768 2000 3,452,808 2001 1,805,394 2002 -- -------------------- Total minimum lease payments 13,030,400 Less amount representing interest (1,260,370) -------------------- Present value of minimum lease payments 11,770,030 Less current portion (5,346,645) -------------------- $ 6,423,385 ==================== (7) COMMITMENTS Operating Leases The Company is committed under noncancelable operating leases involving certain revenue equipment. Rent expense for noncancelable operating leases was $15,595,123, $3,997,352, and $2,562,440 for fiscal years 1997, 1996, and 1995, respectively. Aggregate future lease commitments are $20,827,654, $17,789,670, $9,219,164, $5,004,686, and $2,078,659 for the years ending September 30, 1998, 1999, 2000, 2001 and 2002, respectively. Orders for Revenue Equipment As of September 30, 1997, the Company had placed orders for fiscal years 1998 and 1999 to purchase revenue equipment at an estimated total purchase price of $168,700,000. The revenue equipment is to be delivered during fiscal years 1998 and 1999. Approximately $64,700,000 of the new revenue equipment will be used to replace older revenue equipment and the balance represents incremental additions to the Company's fleet. These orders may be canceled by the Company without penalty upon written notification any time prior to 85 days before the revenue equipment's scheduled delivery. (8) STOCK PLANS Incentive Stock Plan On May 31, 1995, the Board of Directors and stockholders approved and adopted the Dick Simon Trucking, Inc. Incentive Stock Plan (the "Plan"). The Plan reserves 400,000 shares of Class A Common Stock for issuance thereunder. The Board of Directors or its designated committee administers the Plan and has the discretion to determine the employees and officers who will receive awards, the type of awards (incentive stock options, non-statutory stock options, restricted stock awards, reload options, other stock based awards, and other benefits) to be granted and the term, vesting provisions and exercise prices. Outside Director Stock Plan On August 16, 1995, the Company adopted an Outside Director Stock Plan, under which each director who is not an employee of the Company will receive an annual option to purchase 1,000 shares of the Company's Class A Common Stock at 85% of the market price at the grant date, except for 1995, in which the exercise price was $9.00. The Company has reserved 25,000 shares of Class A Common Stock for issuance under the Outside Director Stock Plan. The following table summarizes the combined stock option activity for both plans from inception of the plans through the year ended September 30, 1997: Number of Options Price Per Share -------------------- ------------------------- Outstanding at September 30, 1994 -- Granted 230,900 $ 9.00 -------------------- ------------------------- Outstanding at September 30, 1995 230,900 9.00 Granted 3,000 9.00 Exercised (700) 9.00 Forfeited (5,500) 9.00 -------------------- ------------------------- Outstanding at September 30, 1996 227,700 9.00 Granted 141,000 13.70 - 16.00 Exercised (5,306) 9.00 Forfeited (14,160) 9.00 - 16.00 -------------------- ------------------------- Outstanding at September 30, 1997 349,234 $9.00 - $16.00 ==================== ========================= As of September 30, 1997, approximately 81,800 options are exercisable. Stock-Based Compensation The Company has elected to continue to apply Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its stock-based compensation plans as they relate to employees and directors. SFAS No. 123, "Accounting for Stock-Based Compensation," requires pro forma information regarding net income as if the Company had accounted for its stock options granted to employees and directors subsequent to September 30, 1995 under the fair value method of SFAS No. 123. The fair value of these stock options was estimated at the grant date using the Black-Scholes option pricing model with the following assumptions: average risk-free interest rates of 6.15% and 5.07% in 1997 and 1996, respectively, a dividend yield of 0%, a volatility factor of the expected common stock price of 25.4%, and a weighted average expected life of approximately 9.7 years for the stock options. For purposes of pro forma disclosures, the estimated fair value of the stock options is amortized over the estimated life of the respective stock options. Following are the pro forma disclosures and the related impact on net income for the years ended September 30, 1997 and 1996: September 30, --------------------------------------------- 1997 1996 --------------------------------------------- Net earnings: As reported $ 7,778,664 $ 3,867,469 Pro forma 7,683,084 3,865,720 Net earnings per share: As reported $ 1.36 $ 0.88 Pro forma 1.35 0.88 (9) RELATED PARTY TRANSACTIONS Historically the Company maintained life insurance policies on certain officers (other than Richard D. Simon) and an employee. The Company was named as the beneficiary under each of the policies. The cash surrender value for each policy accrued to the insured officer or employee. During February 1995, the Company canceled the policies and issued notes payable totaling $475,000 to the insured individuals for the amount of the cash surrender value of the policies. During April 1995, the Company issued 66,225 shares of common stock to these individuals as satisfaction of the notes payable. During fiscal year 1995 the Company paid lease payments of $30,000 to Freight Sales. Prior to the reorganization described in Note 1, the Company leased certain real estate and revenue equipment from the Affiliate. During fiscal year 1995, the Company paid rent of approximately $532,000 to the Affiliate. All such amounts have been eliminated in the accompanying consolidated financial statements because of related ownership and the single purpose of the entities. (10) EMPLOYEE BENEFIT PLAN The Company has adopted a defined contribution plan, the Dick Simon Trucking, Inc. 401(k) Profit Sharing Plan (the "401(k) Plan"). All employees who have completed one year of service and have reached age 21 are eligible to participate in the 401(k) Plan. Newly eligible employees may first begin participating in the 401(k) Plan on the earlier of January 1 or July 1 after meeting the eligibility requirements. Under the 401(k) Plan, employees are allowed to make contributions of up to 15 percent of their annual compensation; the Company may make matching contributions equal to a discretionary percentage, to be determined by the Company, of the employee's salary reductions. The Company may also make additional discretionary contributions to the 401(k) Plan. All amounts contributed by a participant are fully vested at all times. The participant becomes 20 percent vested in any matching or discretionary contributions after two years of service. This vesting percentage increases to 100 percent after six years of service. During fiscal years 1997, 1996, and 1995, the Company contributed $301,078, $192,389, and $141,240, respectively, to the 401(k) Plan. (11) PRO FORMA INFORMATION (UNAUDITED) Pro Forma Provision for Income Taxes Contemporaneously with the November 17, 1995 effective date of the Company's initial public offering, the S corporation stockholders terminated their S corporation election. Accordingly, the pro forma provision for income taxes has been determined in accordance with SFAS No. 109, assuming the Company had been taxed as a C corporation for federal and state income tax purposes using an effective income tax rate of 39.6 percent. The pro forma provision for income taxes does not reflect the $2,980,115 one-time, non-cash charge to earnings for deferred taxes the Company recorded upon termination of its S corporation status. Pro Forma Net Earnings Per Common Share and Weighted Average Common Shares Outstanding As discussed in Note 1, in 1995, the Company recapitalized its capital stock. Accordingly, the historical presentation of net earnings per common share would not present a meaningful comparison due to the recapitalization. However, pro forma net earnings per common share is reflected in the accompanying consolidated financial statements in order to present net earnings per common share as if the recapitalization, contribution of Common Stock, and all Common Stock issuances through September 30, 1995 had been effective for fiscal year 1995. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Simon Transportation Services Inc.: We have audited the accompanying consolidated statements of financial position of Simon Transportation Services Inc. (a Nevada corporation) and subsidiary as of September 30, 1997 and 1996, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the three years in the period ended September 30, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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 financial statements referred to above present fairly, in all material respects, the financial position of Simon Transportation Services Inc. and subsidiary as of September 30, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1997 in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Salt Lake City, Utah October 15, 1997 EX-23 2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated October 15, 1997 included in this Form 10-K, into the Company's previously filed Registration Statements on Form S-8, file numbers 33-80389, 33-80391, and 33-80409. /s/ Arthur Andersen LLP Salt Lake City, Utah November 17, 1997 EX-27 3 FINANCIAL DATA SCHEDULE
5 YEAR SEP-30-1997 SEP-30-1997 12,766,001 0 20,774,049 (61,763) 320,664 36,424,450 87,320,943 (16,166,473) 107,704,370 20,539,491 0 0 0 62,830 59,785,830 107,704,370 0 155,296,354 0 143,552,318 0 0 1,134,170 12,505,891 4,727,227 0 0 0 0 7,778,664 1.36 1.36
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