-----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, VLqiqJNS6hTucQdRvMxGVnFWyvEKBoH1O3pnol7yahfGlhejQLMHdeQyDvtpQ06T qNKHIRUuylWT3F0M8BEPMg== 0001008886-03-000223.txt : 20031113 0001008886-03-000223.hdr.sgml : 20031113 20031113171014 ACCESSION NUMBER: 0001008886-03-000223 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SMITHWAY MOTOR XPRESS CORP CENTRAL INDEX KEY: 0000941914 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 421433844 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20793 FILM NUMBER: 03999054 BUSINESS ADDRESS: STREET 1: 2031 QUAIL AVENUE CITY: FORT DODGE STATE: IA ZIP: 50501 BUSINESS PHONE: 5155767418 MAIL ADDRESS: STREET 1: 2031 QUAIL AVENUE CITY: FORT DODGE STATE: IA ZIP: 50501 10-Q 1 smx3rdqtr10q.txt SMITHWAY FORM 10-Q 3RD QUARTER 2003 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the Quarterly Period Ended September 30, 2003 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from ______________ to _________________ Commission file number 000-20793 SMITHWAY MOTOR XPRESS CORP. (Exact name of registrant as specified in its charter) Nevada 42-1433844 - --------------------------------- ----------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 2031 Quail Avenue Fort Dodge, Iowa 50501 - --------------------------------- ----------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: 515/576-7418 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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES [ ] NO [X] As of October 31, 2003, the registrant had 3,846,821 shares of Class A Common Stock and 1,000,000 shares of Class B Common Stock outstanding. 1 PART I FINANCIAL INFORMATION PAGE NUMBER Item 1 Financial Statements 3-10 Condensed Consolidated Balance Sheets as of December 31, 2002 and September 30, 2003 (unaudited)................................... 3-4 Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2002 and 2003 (unaudited).............. 5 Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and 2003 (unaudited).............. 6-7 Notes to Condensed Consolidated Financial Statements (unaudited)......... 8-10 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................. 11-20 Item 3 Quantitative and Qualitative Disclosures About Market Risk............... 20 Item 4 Controls and Procedures.................................................. 20 PART II OTHER INFORMATION Item 1 Legal Proceedings........................................................ 21 Item 2 Changes in Securities and Use of Proceeds................................ 21 Item 3 Defaults Upon Senior Securities.......................................... 21 Item 4 Submission of Matters to a Vote of Security Holders...................... 21 Item 5 Other Information........................................................ 21 Item 6 Exhibits and Reports on Form 8-K......................................... 22
2 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Dollars in thousands, except per share data) (unaudited) ------------------------------------------ December 31, September 30, 2002 2003 --------------------- ------------------- ASSETS Current assets: Cash and cash equivalents.............................. $ 105 $ 169 Receivables: Trade............................................... 13,496 15,590 Other............................................... 629 804 Inventories............................................ 868 1,029 Deposits, primarily with insurers...................... 753 928 Prepaid expenses....................................... 1,492 1,664 Deferred income taxes.................................. 2,263 2,313 --------------------- ------------------- Total current assets............................... 19,606 22,497 --------------------- ------------------- Property and equipment: Land................................................... 1,548 1,548 Buildings and improvements............................. 8,210 8,208 Tractors............................................... 71,221 69,727 Trailers............................................... 42,517 40,414 Other equipment........................................ 8,105 5,588 --------------------- ------------------- 131,601 125,485 Less accumulated depreciation.......................... 64,031 67,646 Net property and equipment......................... 67,570 57,839 --------------------- ------------------- Goodwill................................................. 1,745 1,745 Other assets............................................. 488 237 --------------------- ------------------- $ 89,409 $ 82,318 ===================== ===================
See accompanying notes to condensed consolidated financial statements. 3 SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Dollars in thousands, except per share data) (unaudited) -------------------------------------------- December 31, September 30, 2002 2003 ---------------------- --------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt................. $ 11,595 $ 11,197 Accounts payable..................................... 4,556 6,152 Accrued loss reserves................................ 3,882 4,972 Accrued compensation................................. 2,152 2,784 Checks in excess of cash balances.................... 1,086 1,310 Other accrued expenses............................... 463 439 ---------------------- --------------------- Total current liabilities...................... 23,734 26,854 Long-term debt, less current maturities................ 30,533 24,951 Deferred income taxes.................................. 10,257 9,063 Line of credit......................................... 1,692 578 ---------------------- --------------------- Total liabilities.............................. 66,216 61,446 ---------------------- --------------------- Stockholders' equity: Preferred stock...................................... - - Common stock: Class A............................................ 40 40 Class B............................................ 10 10 Additional paid-in capital........................... 11,393 11,393 Retained earnings.................................... 12,164 9,843 Reacquired shares, at cost........................... (414) (414) ---------------------- --------------------- Total stockholders' equity................. 23,193 20,872 Commitments ---------------------- --------------------- $ 89,409 $ 82,318 ====================== =====================
See accompanying notes to condensed consolidated financial statements. 4 SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Dollars in thousands, except per share data) (unaudited) Three months ended Nine months ended September 30, September 30, ----------------------------------------------------------------- 2002 2003 2002 2003 ---------------- -------------- ---------------- -------------- Operating revenue: Freight................................. $ 43,132 $ 42,325 $ 129,232 $ 124,056 Other................................... 140 136 499 532 ---------------- -------------- ---------------- -------------- Operating revenue.................... 43,272 42,461 129,731 124,588 ---------------- -------------- ---------------- -------------- Operating expenses: Purchased transportation................ 16,192 13,891 48,034 42,590 Compensation and employee benefits...... 12,138 12,885 39,282 37,912 Fuel, supplies, and maintenance......... 6,929 7,420 20,436 22,351 Insurance and claims.................... 1,620 1,670 5,072 4,168 Taxes and licenses...................... 872 893 2,628 2,573 General and administrative.............. 1,708 1,867 5,445 5,081 Communications and utilities............ 418 337 1,357 1,130 Depreciation and amortization........... 4,043 3,467 12,088 10,958 ---------------- -------------- ---------------- -------------- Total operating expenses............. 43,920 42,430 134,342 126,763 ---------------- -------------- ---------------- -------------- Income (loss) from operations........ (648) 31 (4,611) (2,175) Financial (expense) income Interest expense........................ (497) (443) (1,582) (1,389) Interest income......................... 5 21 22 25 ---------------- -------------- ---------------- -------------- Loss before income taxes............. (1,140) (391) (6,171) (3,539) Income tax benefit........................... (383) (86) (2,216) (1,218) ---------------- -------------- ---------------- -------------- Net loss............................. $ (757) $ (305) $ (3,955) $ (2,321) ================ ============== ================ ============== Basic and diluted loss per share............. $ (0.16) $ (0.06) $ (0.82) $ (0.48) ================ ============== ================ ============== Basic and diluted weighted average shares outstanding.................................. 4,846,021 4,846,821 4,845,528 4,846,821 ================ ============== ================ ==============
See accompanying notes to condensed consolidated financial statements. 5 SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Dollars in thousands) (unaudited) Nine months ended September 30, ------------------------------ 2002 2003 -------------- -------------- Cash flows from operating activities: Net loss......................................................... $ (3,955) $ (2,321) -------------- -------------- Adjustments to reconcile net loss to cash used by operating activities: Depreciation and amortization.................................. 12,088 10,958 Deferred income tax benefit.................................... (2,236) (1,244) Change in: Receivables................................................. (1,622) (2,269) Inventories................................................. 490 (161) Deposits, primarily with insurers........................... (212) (175) Prepaid expenses............................................ (741) (172) Accounts payable and other accrued liabilities.............. 2,754 3,294 -------------- -------------- Total adjustments......................................... 10,521 10,231 -------------- -------------- Net cash provided by operating activities............... 6,566 7,910 -------------- -------------- Cash flows from investing activities: Purchase of property and equipment............................... (1,076) (287) Proceeds from sale of property and equipment..................... 4,064 2,765 Other............................................................ 42 251 -------------- -------------- Net cash provided by investing activities................... 3,030 2,729 -------------- -------------- Cash flows from financing activities: Net borrowings (payments) on line of credit...................... 2,221 (1,114) Principal payments on long-term debt............................. (11,893) (9,685) Change in checks issued in excess of cash balances............... - 224 Treasury stock reissued.......................................... 6 - -------------- -------------- Net cash used in financing activities....................... (9,666) (10,575) -------------- -------------- Net (decrease) increase in cash and cash equivalents........ (70) 64 Cash and cash equivalents at beginning of period................... 722 105 -------------- -------------- Cash and cash equivalents at end of period......................... $ 652 $ 169 ============== ==============
See accompanying notes to condensed consolidated financial statements. 6 SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows, continued (Dollars in thousands) (unaudited) Nine months ended September 30, ------------------------------ 2002 2003 -------------- -------------- Supplemental disclosure of cash flow information: Cash paid (received) during period for: Interest...................................................... $ 1,621 $ 1,353 Income taxes.................................................. (1,794) 23 ============== ============== Supplemental schedules of noncash investing and financing activities: Notes payable issued for tractors and trailers..................... $ 4,671 $ 3,705 ============== ==============
See accompanying notes to condensed consolidated financial statements. 7 SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1. Basis of Presentation The condensed consolidated financial statements include the accounts of Smithway Motor Xpress Corp., a Nevada holding company, and its four wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The condensed consolidated financial statements have been prepared, without audit, in accordance with accounting principles generally accepted in the United States of America, pursuant to the published rules and regulations of the Securities and Exchange Commission. In the opinion of management, the accompanying condensed consolidated financial statements include all adjustments which are necessary for a fair presentation of the results for the interim periods presented, such adjustments being of a normal recurring nature. Certain information and footnote disclosures have been condensed or omitted pursuant to such rules and regulations. The December 31, 2002, Condensed Consolidated Balance Sheet was derived from the audited balance sheet of the Company for the year then ended. It is suggested that these condensed consolidated financial statements and notes thereto be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Form 10-K for the year ended December 31, 2002. Results of operations in interim periods are not necessarily indicative of results to be expected for a full year. Note 2. Liquidity The Company incurred significant losses in 2001 and 2002, and has continued to incur losses in the first three quarters of 2003. In addition, working capital is a negative $4,128 and $4,357 at December 31, 2002 and September 30, 2003, respectively. The Company was in violation of its bank covenants at various times during the three months and nine months ended September 30, 2003, but has received waivers. Since the beginning of 2003, there have been several amendments to the financing arrangement. These amendments have decreased the maximum loan limit, increased the interest rate, and revised the financial covenants to reflect financial performance that management believed to be reasonably achievable, although in each case further amendments have been required and there can be no assurance that the required financial performance will be achieved in the future. During 2002, the Company's primary sources of liquidity were funds provided by operations and borrowings under credit arrangements with financial institutions and equipment manufacturers. The Company is experiencing a period of minimal cash flow as continuing losses and declining revenue have resulted in lower cash generated from operations and reduced borrowing capacity. As of the date of this report, management believes that the Company has adequate borrowing availability on its line of credit. The Company expects minimal capital expenditures during the remainder of 2003. The Company's ability to fund its cash requirements in future periods will depend on its ability to comply with covenants contained in financing arrangements and improve its operating results and cash flow. The Company's ability to achieve the required improvements will depend on general shipping demand of the Company's customers, fuel prices, the availability of drivers and independent contractors, insurance and claims experience, and other factors. Management is in the process of implementing several steps intended to return the Company to profitability, some of which were developed with the assistance of a consulting firm engaged by the board of directors, that are intended to improve the Company's operating results and achieve compliance with the financial covenants. These steps include: consolidating terminals; improving the utilization per tractor through the hiring of a full-time production manager; implementing a yield management program in which the Company seeks additional favorable freight while ceasing to haul less favorable freight; and identifying additional areas for cost containment, including, personnel costs and reducing the Company's excess insurance coverage limit effective July 1, 2003 to $2.0 million. Although management believes these steps have helped reduce the Company's losses compared with the same quarter and nine months in 2002, additional improvement is needed, and particularly considering seasonally slower shipping demand during the fourth and first quarters, there is no assurance that the improvements will occur as planned. Although there can be no assurance, management believes that cash generated by operations and available sources of financing for acquisitions of revenue equipment, although such sources are limited, will be adequate to meet its currently anticipated working capital requirements and other cash needs through September 30, 2004. To 8 the extent that actual results or events differ from management's financial projections or business plans, the Company's liquidity may be adversely affected. Specifically, the Company's liquidity may be adversely affected by one or more of the following factors: continuing weak freight demand or a loss in customer relationships or volume; the ability to attract and retain sufficient numbers of qualified drivers and owner-operators; elevated fuel prices and the ability to collect fuel surcharges; costs associated with insurance and claims; increased exposure with respect to accident claims as a result of a reduction of the Company's excess insurance coverage limit; inability to maintain compliance with, or negotiate amendments to, loan covenants; and the possibility of shortened payment terms by the Company's suppliers and vendors worried about the Company's ability to meet payment obligations. The Company expects to fund its cash requirements primarily with cash generated from operations and revolving borrowings under its bank financing. Note 3. Net earnings per common share Basic earnings per share have been computed by dividing net earnings by the weighted average outstanding Class A and Class B common shares during each of the quarters. Diluted earnings per share have been calculated by also including in the computation the effect of employee stock options, nonvested stock, and similar equity instruments granted to employees as potential common shares. Because the Company suffered a net loss for the three months and nine months ended September 30, 2002, and 2003, the effects of potential common shares were not included in the calculation as their effects would be anti-dilutive. Stock options outstanding at September 30, 2002, and 2003, totaled 594,525 and 299,150, respectively. Note 4. Stock Option Plans The Company has three stock-based employee compensation plans: (1) The Company has reserved 25,000 shares of Class A common stock for issuance pursuant to an outside director stock option plan. The term of each option granted under this plan is six years from the grant date. Options fully vest on the first anniversary of the grant date. The exercise price of each stock option is 85 percent of the fair market value of the common stock on the date of grant. In July 2000 the Company granted outside directors 12,000 stock options in the aggregate not covered by this plan. (2) The Company has reserved 500,000 shares of Class A common stock for issuance pursuant to an incentive stock option plan. Any shares which expire unexercised or are forfeited become available again for issuance under the plan. Under this plan, no awards of incentive stock options may be made after December 31, 2004. (3) The Company has reserved 400,000 shares of Class A common stock for issuance pursuant to a new employee incentive stock option plan adopted during 2001. Any shares which expire unexercised or are forfeited become available again for issuance under the plan. Under this plan, no award of incentive stock options may be made after August 6, 2011. The Company accounts for these plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. No stock-based employee compensation cost is reflected in the statement of operations, as all options granted to employees under these plans had an exercise price equal to the market value of the common stock on the date of the grant. 9 The following table illustrates the effect on net loss and loss per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation. The Company used the Black-Scholes option pricing model to determine the fair value of stock options for the three and nine months ended September 30, 2002, and 2003. The following assumptions were used in determining the fair value of these options: weighted average risk-free interest rate, 4.55% in 2002 and 2.54% in 2003; weighted average expected life, 5 years in 2002 and 2003; and weighted average expected volatility, 61% in 2002, , and 66% in 2003. There were no expected dividends. For purposes of pro forma disclosures, the estimated fair value of options is amortized to expense over the options' vesting periods. Three months ended Nine months ended September 30, September 30, ---------------------------- ----------------------------- 2002 2003 2002 2003 ----------- ------------ ------------ ------------ Net loss, as reported $ (757) $ (305) $(3,955) $(2,321) Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (1) (4) (4) (13) ----------- ------------ ------------ ------------ Pro forma net loss $ (758) $ (309) $(3,959) $(2,334) =========== ============ ============ ============ Loss per share Basic and Diluted - as reported $ (0.16) $ (0.06) $ (0.82) $ (0.48) Basic and Diluted - pro forma $ (0.16) $ (0.06) $ (0.82) $ (0.48)
Note 5. Long-Term Debt During November 2003, the Company amended its financing arrangement with LaSalle Bank. The Company was not in compliance with the fixed charge coverage ratio requirement at September 30, 2003. The November 2003 amendment revised the fixed charge coverage ratio requirement as of September 30, 2003 to prevent a covenant violation at such date, extended the expiration date of the agreement to January 1, 2005, adjusted the covenant requirements going forward, and reduced the maximum loan limit from $27,500 to $25,000. In addition, the Company amended its equipment financing arrangement to provide for adjustment of the tangible net worth requirement going forward. The Company believes the covenant compliance requirements for its financing agreements are reasonably achievable, although there can be no assurance that the required financial performance will be achieved. During July 2003, the Company amended its financing arrangement with LaSalle Bank. This amendment waived the covenant violation for the quarter ended June 30, 2003 and also as of July 31, 2003. The amendment also extended the expiration date of the agreement to July 1, 2004 and reduced the maximum loan limit from $32,500 to $27,500. During March and April 2003, the Company amended its financing arrangement with LaSalle Bank. These amendments waived covenant violation at March 31, 2003, adjusted the covenant requirements going forward, increased the interest rate from LaSalle's prime rate to prime rate plus two percent, and accelerated the expiration date of the agreement to April 1, 2004. In addition, the Company amended its equipment financing arrangement to provide for a waiver of a covenant violation at March 31, 2003, and the adjustment of the covenant requirement going forward. Note 6. Related Party Transactions In August 2003, the Company generated approximately $213 of cash and avoided future premium payments by selling one of its two life insurance policies covering its Chief Executive Officer to such officer for the cash surrender value. The transferred policy has a death benefit of $1,000 and the policy retained by the Company has a death benefit of $750. The transaction was approved by the disinterested directors. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction Except for the historical information contained herein, the discussion in this quarterly report on Form 10-Q contains forward-looking statements that involve risk, assumptions, and uncertainties that are difficult to predict. Words such as "anticipates," "believes," "estimates," "projects," "expects," variations of these words, and similar expressions, are intended to identify such forward-looking statements. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based upon the current beliefs and expectations of the Company's management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in forward-looking statements. The following factors, among others, could cause actual results to differ materially from those in forward-looking statements: failure to turn around continued operating losses, which could result in further violation of bank covenants and acceleration of indebtedness at several financial institutions; the ability to obtain financing on acceptable terms, and obtain waivers and amendments to current financing in the event of default; economic recessions or downturns in customers' business cycles; excessive increases in capacity within truckload markets; surplus inventories; decreased demand for transportation services offered by the Company; increases or rapid fluctuations in inflation, interest rates, fuel prices, and fuel hedging; the availability and costs of attracting and retaining qualified drivers and owner-operators; increases in insurance premiums and deductible amounts, or changes in excess coverage, relating to accident, cargo, workers' compensation, health, and other claims; increased exposure with respect to accident claims as a result of a reduction of the Company's excess insurance coverage limit; the resale value of used equipment and prices of new equipment; seasonal factors such as harsh weather conditions that increase operating costs; regulatory requirements that increase costs and decrease efficiency, including revised hours-of-service requirements for drivers; changes in management; and the ability to negotiate, consummate, and integrate acquisitions. Readers should review and consider the various disclosures made by the Company in its press releases, stockholder reports, and public filings, as well as the factors explained in greater detail in the Company's annual report on Form 10-K. The Company's fiscal year ends on December 31 of each year. Thus, this report discusses the third quarter and first nine months of the Company's 2002 and 2003 fiscal years. For the three months ended September 30, 2003, operating revenue decreased 1.9% to $42.5 million from $43.3 million during the same quarter in 2002. Net loss was $305,000, or ($0.06) per diluted share, compared with net loss of $757,000, or ($0.16) per diluted share, during the 2002 quarter. For the nine months ended September 30, 2003, operating revenue decreased 4.0% to $124.6 million from $129.7 million during the same period in 2002. Net loss was $2.3 million, or ($0.48) per diluted share, compared with net loss of $4.0 million, or ($0.82) per diluted share, during the 2002 period. The Company operates a tractor-trailer fleet comprised of both Company-owned vehicles and vehicles obtained under leases from independent contractors and third-party finance companies. Fluctuations among expense categories may occur as a result of changes in the relative percentage of the fleet obtained through equipment that is owned versus equipment that is leased from independent contractors or financing sources. Costs associated with revenue equipment acquired under operating leases or through agreements with independent contractors are expensed as "purchased transportation." For these categories of equipment the Company does not incur costs such as interest and depreciation as it might with owned equipment. In addition, independent contractor tractors, driver compensation, fuel, communications, and certain other expenses are borne by the independent contractors and are not incurred by the Company. Obtaining equipment from independent contractors and under operating leases reduces capital expenditures and on-balance sheet leverage and effectively shifts expenses from interest to "above the line" operating expenses. The fleet profile of acquired companies and the Company's relative recruiting and retention success with Company-employed drivers and independent contractors will cause fluctuations from time-to-time in the percentage of the Company's fleet that is owned versus obtained from independent contractors and under operating leases. 11 Results of Operations The following table sets forth the percentage relationship of certain items to revenue for the three and nine months ended September 30, 2002 and 2003: Three months ended Nine months ended September 30, September 30, ------------------------ ----------------------- 2002 2003 2002 2003 ----------- ----------- ---------- ----------- Operating revenue..................................... 100.0% 100.0% 100.0% 100.0% Operating expenses: Purchased transportation..................... 37.4 32.7 37.0 34.2 Compensation and employee benefits........... 28.1 30.3 30.3 30.4 Fuel, supplies, and maintenance.............. 16.0 17.5 15.8 17.9 Insurance and claims......................... 3.7 3.9 3.9 3.3 Taxes and licenses........................... 2.0 2.1 2.0 2.1 General and administrative................... 3.9 4.4 4.2 4.1 Communication and utilities.................. 1.0 0.8 1.0 0.9 Depreciation and amortization................ 9.3 8.2 9.3 8.8 ----------- ----------- ---------- ---------- Total operating expenses..................... 101.5 99.9 103.6 101.7 ----------- ----------- ---------- ---------- Income (Loss) from operations......................... (1.5) 0.1 (3.6) (1.7) Interest expense, net................................. 1.1 1.0 1.2 1.1 ----------- ----------- ---------- ---------- Loss before income taxes.............................. (2.6) (0.9) (4.8) (2.8) Income tax benefit.................................... (0.9) (0.2) (1.7) (0.9) ----------- ----------- ---------- ---------- Net loss.............................................. (1.7)% (0.7)% (3.0)% (1.9)% =========== =========== ========== ==========
Comparison of three months ended September 30, 2003, with three months ended September 30, 2002. Operating revenue decreased $811,000 (1.9%), to $42.5 million in the 2003 quarter from $43.3 million in the 2002 quarter. Lower weighted average tractors, partially offset by increased average revenue per tractor per week and increased fuel surcharge revenue, were responsible for the decrease in operating revenue. Weighted average tractors decreased to 1,208 in the 2003 quarter from 1,359 in the 2002 quarter as the Company disposed of a portion of its unseated company owned tractors and contracted with fewer independent contractor providers of equipment. The Company does not plan to increase the number of tractors in its fleet in the near term unless its number of independent contractors increases. Average operating revenue per tractor per week increased to $2,704 in the 2003 quarter from $2,449 in the 2002 quarter. Operating revenue includes revenue from operating our trucks as well as other, more volatile, revenue items, including fuel surcharge, brokerage, and other revenue. The Company believes the analysis of tractor productivity is more meaningful if fuel surcharge, brokerage, and other revenue are excluded from the computation. Revenue per tractor per week (excluding fuel surcharge, brokerage, and other revenue) increased to $2,495 in the 2003 quarter from $2,273 in the 2002 quarter, primarily due to increased production from our seated company tractors and a lower number of unseated company tractors. Revenue per loaded mile (excluding fuel surcharge, brokerage, and other revenue) increased to $1.39 in the 2003 quarter from $1.38 in the 2002 quarter. Finally, fuel surcharge revenue increased $399,000 to $1.3 million in the 2003 quarter from $942,000 in the 2002 quarter. During the 2003 and 2002 quarters, approximately $942,000 and $537,000, respectively, of the fuel surcharge revenue collected helped to offset Company fuel costs. The remainder was passed through to independent contractors. Purchased transportation consists primarily of payments to independent contractor providers of revenue equipment, expenses related to brokerage activities, and payments under operating leases of revenue equipment. Purchased transportation decreased $2.3 million (14.2%), to $13.9 million in the 2003 quarter from $16.2 million in the 2002 quarter. As a percentage of revenue, purchased transportation decreased to 32.7% of revenue in the 2003 quarter compared with 37.4% in the 2002 quarter. These changes reflect a decrease in the percentage of the fleet supplied by independent contractors and in the number of independent contractors. Management believes the decline in independent contractors as a percentage of the Company's fleet is attributable to high fuel costs, high insurance costs, tighter credit standards, and slow freight demand, which have diminished the pool of drivers interested in becoming or remaining independent contractors. The percentage of total operating revenue provided by independent contractors decreased to 36.0% in the 2003 quarter from 40.7% in the 2002 quarter. 12 Compensation and employee benefits increased $746,000 (6.1%), to $12.9 million in the 2003 quarter from $12.1 million in the 2002 quarter. As a percentage of revenue, compensation and employee benefits increased to 30.3% in the 2003 quarter from 28.1% in the 2002 quarter reflecting an increase in the percentage of the fleet comprised of company owned tractors, and higher fuel prices, an increase in health and workers' compensation claims paid and reserved, and additional wages paid to new drivers for sign-on bonuses implemented to enhance driver recruiting. These factors were partially offset by a decrease in wages paid to non-driver employees resulting from staff reductions. Fuel, supplies, and maintenance increased $491,000 (7.1%), to $7.4 million in the 2003 quarter from $6.9 million in the 2002 quarter. As a percentage of revenue, fuel, supplies, and maintenance increased to 17.5% of revenue in the 2003 quarter compared with 16.0% in the 2002 quarter. This reflects an increase in the percentage of the fleet comprised of company owned tractors and higher fuel prices. Although fuel prices increased approximately 7% to an average of $1.39 per gallon in the 2003 quarter from $1.30 per gallon in the 2002 quarter, the increase in fuel prices was partially offset by a $405,000 increase in fuel surcharge revenue which is included in operating revenue. Insurance and claims increased $50,000 (3.1%), to $1.7 million in the 2003 quarter from $1.6 million in the 2002 quarter. As a percentage of revenue, insurance and claims increased to 3.9% of revenue in the 2003 quarter from 3.7% in the 2002 quarter. The Company's insurance coverage was renewed on July 1, 2003 without modification to the self-retention level ($250,000), but the Company's excess insurance coverage limit was reduced to $2.0 million. Management expects insurance and claims expense, as a percentage of revenue, will remain at current levels in future periods unless the Company were to experience an increase in the number or severity of accidents over the reduced excess policy coverage limit, which could result in a substantial increase in this expense category as a percentage of revenue. Taxes and licenses increased $21,000 (2.4%), to $893,000 in the 2003 quarter from $872,000 in the 2002 quarter reflecting an increase in the need for over-dimensional permits, partially offset by a decrease in the weighted average number of tractors in the fleet. As a percentage of revenue, taxes and licenses remained relatively constant at 2.1% of revenue in the 2003 quarter compared with 2.0% in the 2002 quarter. General and administrative expenses increased $159,000 (9.3%), to $1.9 million in the 2003 quarter from $1.7 million in the 2002 quarter. As a percentage of revenue, general and administrative expenses increased to 4.4% of revenue in the 2003 quarter compared with 3.9% of revenue in the 2002 quarter. During the quarter, decreases attributable to successful cost cutting measures and the elimination of commissioned agents at two locations were offset by a $252,000 increase in professional and consulting fees. Communications and utilities decreased $81,000 (19.4%), to $337,000 in the 2003 quarter from $418,000 in the 2002 quarter reflecting a decrease in the weighted average number of tractors in the fleet and the closing of five operating terminals and two maintenance facilities. As a percentage of revenue, communications and utilities decreased to 0.8% of revenue in the 2003 quarter compared with 1.0% of revenue in the 2002 quarter. Depreciation and amortization decreased $575,000 (14.2%), to $3.5 million in the 2003 quarter from $4.0 million in the 2002 quarter. The gain or loss on retirement, sale, or write-down of equipment is included in depreciation and amortization. In the 2003 and 2002 quarter, depreciation and amortization included net gains from the sale of equipment of $76,000 and $88,000, respectively. As a percentage of revenue, depreciation and amortization decreased to 8.2% of revenue in the 2003 quarter compared with 9.3% of revenue in the 2002 quarter because of higher revenue per seated tractor, which more effectively spread this cost, and a decrease in the number of tractors and trailers being depreciated. Interest expense, net, decreased $69,000 (14.0%), to $423,000 in the 2003 quarter from $492,000 in the 2002 quarter reflecting lower average debt outstanding, partially offset by higher interest rates. As a percentage of revenue, interest expense, net, remained relatively constant at 1.0% of revenue in the 2003 quarter compared with 1.1% of revenue in the 2002 quarter. As a result of the foregoing, the Company's pre-tax margin was (0.9%) in the 2003 quarter versus (2.6%) in the 2002 quarter. The Company's income tax benefit in the 2003 quarter was $86,000, or 22.0% of loss before income taxes. 13 The Company's income tax benefit in the 2002 quarter was $383,000, or 33.6% of loss before income taxes. In both quarters, the effective tax rate is different from the expected combined tax rate for a company headquartered in Iowa because of the cost of nondeductible driver per diem expense absorbed by the Company. The impact of the Company's paying per diem travel expenses varies depending upon the ratio of drivers to independent contractors and the level of the Company's pre-tax earnings. As a result of the factors described above, net loss was $305,000 in the 2003 quarter (0.7% of revenue), compared with net loss of $757,000 in the 2002 quarter (1.7% of revenue). Comparison of nine months ended September 30, 2003, with nine months ended September 30, 2002. Operating revenue decreased $5.1 million (4.0%), to $124.6 million in the 2003 period from $129.7 million in the 2002 period. Lower weighted average tractors, partially offset by increased average revenue per tractor per week and increased fuel surcharge revenue, were responsible for the decrease in operating revenue. Weighted average tractors decreased to 1,250 in the 2003 period from 1,447 in the 2002 period as the Company disposed of a portion of its unseated company owned tractors and contracted with fewer independent contractor providers of equipment. The Company does not plan to increase the number of tractors in its fleet in the near term unless its number of independent contractors increases. Average operating revenue per tractor per week increased to $2,556 in the 2003 period from $2,299 in the 2002 period. Operating revenue includes revenue from operating our trucks as well as other, more volatile, revenue items, including fuel surcharge, brokerage, and other revenue. The Company believes the analysis of tractor productivity is more meaningful if fuel surcharge, brokerage, and other revenue are excluded from the computation. Average revenue per tractor per week (excluding fuel surcharge, brokerage, and other revenue) increased to $2,345 in the 2003 period from $2,157 in the 2002 period, primarily due to a lower number of unseated company tractors. Revenue per loaded mile (excluding fuel surcharge, brokerage, and other revenue) increased to $1.37 in the 2003 period from $1.36 in the 2002 period. Finally, fuel surcharge revenue increased $2.7 million to $4.5 million in the 2003 period from $1.8 million in the 2002 period. During the 2003 and 2002 periods, approximately $3.0 million and $1.0 million, respectively, of the fuel surcharge revenue collected helped to offset Company fuel costs. The remainder was passed through to independent contractors. Purchased transportation consists primarily of payments to independent contractor providers of revenue equipment, expenses related to brokerage activities, and payments under operating leases of revenue equipment. Purchased transportation decreased $5.4 million (11.3%), to $42.6 million in the 2003 period from $48.0 million in the 2002 period. As a percentage of revenue, purchased transportation decreased to 34.2% of revenue in the 2003 period compared with 37.0% in the 2002 period. These changes reflect a decrease in the percentage of the fleet supplied by independent contractors and in the number of independent contractors. Management believes the decline in independent contractors as a percentage of the Company's fleet is attributable to high fuel costs, high insurance costs, tighter credit standards, and slow freight demand, which have diminished the pool of drivers interested in becoming or remaining independent contractors. The percentage of total operating revenue provided by independent contractors decreased to 37.8% in the 2003 period from 40.8% in the 2002 period. Compensation and employee benefits decreased $1.4 million (3.5%), to $37.9 million in the 2003 period from $39.3 million in the 2002 period. As a percentage of revenue, compensation and employee benefits remained relatively constant at 30.4% in the 2003 period compared to 30.3% in the 2002 period. Decreases in wages paid to non-driver employees resulting from staff reductions and a decrease in workers' compensation claims paid and reserved were offset by additional wages paid to new drivers for sign-on bonuses implemented to enhance driver recruiting and increased health claims and premiums in the 2003 period. Fuel, supplies, and maintenance increased $1.9 million (9.4%), to $22.4 million in the 2003 period from $20.4 million in the 2002 period. As a percentage of revenue, fuel, supplies, and maintenance increased to 17.9% of revenue in the 2003 period compared with 15.8% in the 2002 period. This reflects an increase in the percentage of the fleet comprised of company owned tractors and higher fuel prices. Although fuel prices increased approximately 17% to an average of $1.43 per gallon in the 2003 period from $1.22 per gallon in the 2002 period, the increase in fuel prices was partially offset by a $2.0 million increase in fuel surcharge revenue which is included in operating revenue. Insurance and claims decreased $904,000 (17.8%), to $4.2 million in the 2003 period from $5.1 million in the 2002 period. As a percentage of revenue, insurance and claims decreased to 3.3% of revenue in the 2003 period compared with 3.9% in the 2002 period, primarily due to a net premium refund of $467,000 for the policy year 14 ended June 30, 2002, upon accepting a $75,000 increase in self-insured retention for such policy year. The cost of insurance and claims increased substantially on July 1, 2002, when the Company increased its self-insured retention from $50,000 to $250,000 per occurrence, without a premium reduction that fully offset the increase in retention. The higher self-insured retention increases the Company's risk associated with frequency and severity of accidents and could increase the Company's expenses or make them more volatile from period to period. The insurance policies were renewed on July 1, 2003 without modification to the self-retention level, but the Company's excess insurance coverage limit was reduced to $2.0 million. Management expects insurance and claims expense, as a percentage of revenue, will remain at current levels in future periods unless the Company were to experience an increase in the number or severity of accidents over the reduced excess policy coverage limit, which could result in a substantial increase in this expense category as a percentage of revenue. Taxes and licenses decreased $55,000 (2.1%), to $2.6 million in the 2003 period from $2.6 million in the 2002 period reflecting a decrease in the weighted average number of tractors in the fleet, partially offset by an increase in the need for over-dimensional permits. As a percentage of revenue, taxes and licenses remained relatively constant at 2.1% of revenue in the 2003 compared with 2.0% of revenue in the 2002 period. General and administrative expenses decreased $364,000 (6.7%), to $5.1 million in the 2003 period from $5.4 million in the 2002 period. As a percentage of revenue, general and administrative expenses remained relatively constant at 4.1% of revenue in the 2003 period compared with 4.2% of revenue in the 2002 period. During the period, decreases attributable to successful cost cutting measures and the elimination of commissioned agents at two locations were partially offset by a $604,000 increase in professional and consulting fees in the 2003 period. Communications and utilities decreased $227,000 (16.7%), to $1.1 million in the 2003 period from $1.4 million in the 2002 period reflecting a decrease in the weighted average number of tractors in the fleet and the closing of five operating terminals and two maintenance facilities. As a percentage of revenue, communications and utilities remained relatively constant at 0.9% of revenue in the 2003 period compared with 1.0% of revenue in the 2002 period. Depreciation and amortization decreased $1.1 million (9.3%), to $11.0 million in the 2003 period from $12.1 million in the 2002 period. The gain or loss on retirement, sale, or write-down of equipment is included in depreciation and amortization. In the 2003 and 2002 period, depreciation and amortization included net gains from the sale of equipment of $355,000 and $791,000, respectively. As a percentage of revenue, depreciation and amortization decreased to 8.8% of revenue in the 2003 period compared with 9.3% of revenue in the 2002 period because of higher revenue per seated tractor, which more effectively spread this cost, and a decrease in the number of tractors and trailers being depreciated. Interest expense, net, decreased $196,000 (12.6%), to $1.4 million in the 2003 period from $1.6 million in the 2002 period reflecting lower average debt outstanding, partially offset by higher interest rates. As a percentage of revenue, interest expense, net, decreased to 1.1% of revenue in the 2003 period compared with 1.2% in the 2002 period. As a result of the foregoing, the Company's pre-tax margin was (2.8%) in the 2003 period versus (4.8%) in the 2002 period. The Company's income tax benefit was $1.2 million in the 2003 period, or 34.4% of loss before income taxes. The Company's income tax benefit in the 2002 period was $2.2 million, or 35.9% of loss before income taxes. In both periods, the effective tax rate is different from the expected combined tax rate for a company headquartered in Iowa because of the cost of nondeductible driver per diem expense absorbed by the Company. The impact of the Company's paying per diem travel expenses varies depending upon the ratio of drivers to independent contractors and the level of the Company's pre-tax earnings. As a result of the factors described above, net loss was $2.3 million in the 2003 period (1.9% of revenue), compared with net loss of $4.0 million in the 2002 period (3.0% of revenue). 15 Liquidity and Capital Resources Uses and Sources of Cash The Company requires cash to fund working capital requirements and to service its debt. The Company has historically financed acquisitions of new equipment with borrowings under installment notes payable to commercial lending institutions and equipment manufacturers, borrowings under lines of credit, cash flow from operations, and equipment leases from third-party lessors. The Company also has obtained a portion of its revenue equipment fleet from independent contractors who own and operate the equipment, which reduces overall capital expenditure requirements compared with providing a fleet of entirely company owned equipment. The Company's primary sources of liquidity have been funds provided by operations and borrowings under credit arrangements with financial institutions and equipment manufacturers. The Company's ability to fund its cash requirements in future periods will depend on its ability to comply with covenants contained in financing arrangements, and will require improvement in its operating results and cash flow. The Company's ability to achieve the required improvements will depend on general shipping demand of the Company's customers, fuel prices, the availability of drivers and independent contractors, insurance and claims experience, and other factors. Management is in the process of implementing several steps, some of which were developed with the assistance of a consulting firm engaged by the board of directors, that are intended to improve the Company's operating results and achieve compliance with the financial covenants. These steps include: consolidating terminals; improving the utilization per tractor through a full-time production manager; implementing a yield management program in which the Company seeks additional favorable freight while ceasing to haul less favorable freight; and identifying additional areas for cost containment, including, personnel costs and reducing the Company's excess insurance coverage limit effective July 1, 2003 to $2.0 million. Although management believes these steps have helped reduce the Company's losses compared with the same quarter and nine months in 2002, additional improvement is needed, and particularly considering seasonally slower shipping demand during the fourth and first quarters, there is no assurance that the improvements will occur as planned. Although there can be no assurance, management believes that cash generated by operations and available sources of financing for acquisitions of revenue equipment, although such sources are limited, will be adequate to meet its currently anticipated working capital requirements and other cash needs through September 30, 2004. To the extent that actual results or events differ from management's financial projections or business plans, the Company's liquidity may be adversely affected. Specifically, the Company's liquidity may be adversely affected by one or more of the following factors: continuing weak freight demand or a loss in customer relationships or volume; the ability to attract and retain sufficient numbers of qualified drivers and owner-operators; elevated fuel prices and the ability to collect fuel surcharges; costs associated with insurance and claims; increased exposure with respect to accident claims as a result of a reduction of the Company's excess insurance coverage limit; inability to maintain compliance with, or negotiate amendments to, loan covenants; and the possibility of shortened payment terms by the Company's suppliers and vendors worried about the Company's ability to meet payment obligations. The Company expects to fund its cash requirements primarily with cash generated from operations and revolving borrowings under its bank financing. Net cash provided by operating activities was $7.9 million for the nine months ended September 30, 2003, compared with $6.6 million for the 2002 period. The increase in net cash provided by operating activities was primarily due to improved operating results. Historically, the Company's principal use of cash from operations is to service debt and to internally finance acquisitions of revenue equipment. Total receivables increased $2.3 million for the nine months ended September 30, 2003. The average age of the Company's trade accounts receivable was approximately 33.8 days in the 2002 period and 34.0 days in the 2003 period. Net cash provided by investing activities was $2.7 million for the nine months ended September 30, 2003 compared with $3.0 million for the 2002 period. Such amounts related primarily to sales of revenue equipment and other fixed assets. Net cash used in financing activities was $10.6 million for the nine months ended September 30, 2003 compared with $9.7 million for the 2002 period. Net cash used in financing primarily consisted of net payments of principal under the Company's long-term debt agreements. 16 The Company has a financing arrangement with LaSalle Bank, which expires on January 1, 2005, and provides for automatic month-to-month renewals under certain conditions. LaSalle may terminate the arrangement prior to January 1, 2005, in the event of default, and may terminate at anytime during the renewal terms. The arrangement provides for a term loan, a revolving line of credit, a capital expenditure loan, and financing for letters of credit. The combination of all loans with LaSalle Bank cannot exceed the lesser of $25.0 million or a specified borrowing base. At September 30, 2003, the term loan had a principal balance of $10.3 million, payable in equal monthly principal installments of $202,678. The revolving line of credit allows for borrowings up to 85 percent of eligible receivables. At September 30, 2003, total borrowings under the revolving line were $578,000. The capital expenditure loan allows for borrowing up to 80 percent of the purchase price of revenue equipment purchased with such advances, provided borrowings under the capital expenditure loan are limited to $2.0 million annually, and $4.0 million over the term of the arrangement. At September 30, 2003, the amount owed under capital expenditure notes was $1.0 million. At September 30, 2003, the Company had outstanding letters of credit totaling $7.4 million for self-insured amounts under its insurance programs. These letters of credit directly reduce the amount of potential borrowings available under the financing arrangement. Any increase in self-insured retention, as well as increases in claim reserves, may require additional letters of credit to be posted, which would negatively affect the Company's liquidity. At September 30, 2003, the Company's borrowing limit under the financing arrangement was $23.1 million, leaving approximately $3.8 million in remaining availability at such date. The Company is required to pay a facility fee on the LaSalle financing arrangement of .25% of the maximum loan limit. In order to reduce costs, the maximum loan limit was reduced from $32.5 million to $27.5 million in March 2003, and from $27.5 million to $25.0 million in November 2003, as the Company's actual borrowing capacity is not expected to exceed $25.0 million. Borrowings under the arrangement are secured by liens on revenue equipment, accounts receivable, and certain other assets. In connection with the March 2003 amendment, the interest rate on outstanding borrowings under the arrangement was increased from LaSalle's prime rate to the prime rate plus two percent. The LaSalle financing arrangement requires compliance with certain financial covenants, including compliance with a minimum tangible net worth, capital expenditure limits, and a fixed charge coverage ratio. The Company was in compliance with the tangible net worth covenant at September 30, 2003. The Company was not in compliance with the fixed charge coverage ratio requirement at September 30, 2003. However, the financing arrangement was amended, which revised the fixed charge coverage ratio requirement as of September 30, 2003 to prevent a covenant violation at such date, extended the expiration date of the agreement to January 1, 2005, adjusted the covenant requirements going forward, and reduced the maximum loan limit from $27,500 to $25,000. In addition, equipment financing provided by a manufacturer contains a minimum tangible net worth requirement. The Company was in compliance with the required minimum tangible net worth requirement at September 30, 2003. Although there can be no assurance, management expects to remain in compliance with the various financial covenants under its financing arrangements going forward. If the Company fails to maintain compliance with these financial covenants, or to obtain a waiver of any noncompliance, the lenders will have the right to declare all sums immediately due and pursue other remedies. In such an event, the Company's liquidity would be materially and adversely impacted, and the Company's ability to continue as a going concern could be called into question if alternative financing could not be found. 17 Contractual Obligations and Commercial Commitments The following tables set forth the contractual obligations and other commercial commitments as of September 30, 2003: Principal Payments Due by Year (In Thousands) Less than After Contractual Obligations Total One year 2-3 years 4-5 years 5 years ------------------------------------------------------------------------------------------------------------------ Long-term debt $36,148 $11,197 $15,598 $9,353 $ - Line of credit 578 - 578 - - Operating leases 1,056 351 404 316 88 -------------------------------------------------------------------- Total contractual cash obligations $37,782 $11,548 $16,580 $9,669 $88 ====================================================================
The Company had no other commercial commitments at September 30, 2003. Long-term debt payment dates assume continued compliance with debt covenants. 18 Critical Accounting Policies The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make decisions based upon estimates, assumptions, and factors it considers as relevant to the circumstances. Such decisions include the selection of applicable accounting principles and the use of judgment in their application, the results of which impact reported amounts and disclosures. Changes in future economic conditions or other business circumstances may affect the outcomes of management's estimates and assumptions. Accordingly, actual results could differ from those anticipated. A summary of the significant accounting policies followed in preparation of the financial statements included in this Form 10-Q is contained in Note 1 of the consolidated financial statements included in the Company's Form 10-K for the year ended December 31, 2002. Other footnotes in the Form 10-K describe various elements of the financial statements included in this Form 10-Q and the assumptions on which specific amounts were determined. The Company's critical accounting policies include the following: Revenue Recognition The Company generally recognizes operating revenue when the freight to be transported has been loaded. The Company operates primarily in the short-to-medium length haul category of the trucking industry; therefore, the Company's typical customer delivery is completed one day after pickup. Accordingly, this method of revenue recognition is not materially different from recognizing revenue based on completion of delivery. The Company recognizes operating revenue when the freight is delivered for longer haul loads where delivery is completed more than one day after pickup. Amounts payable to independent contractors for purchased transportation, to Company drivers for wages, and other direct expenses are accrued when the related revenue is recognized. Property and Equipment Property and equipment are recorded at cost. Depreciation is provided by use of the straight-line and declining-balance methods over lives of 5 to 39 years for buildings and improvements, 5 years for tractors, 7 years for trailers, and 3 to 10 years for other equipment. Tires purchased as part of revenue equipment are capitalized as a cost of the equipment. Replacement tires are expensed when placed in service. Expenditures for maintenance and minor repairs are charged to operations, and expenditures for major replacements and betterments are capitalized. The cost and related accumulated depreciation on property and equipment retired, traded, or sold are eliminated from the property accounts at the time of retirement, trade, or sale. The gain or loss on retirement or sale is included in depreciation and amortization in the consolidated statements of operation. Gains or losses on trade-ins are included in the basis of the new asset. Estimated Liability for Insurance Claims Losses resulting from auto liability, physical damage, workers' compensation, and cargo loss and damage are covered by insurance subject to certain deductibles. Losses resulting from uninsured claims are recognized when such losses are known and can be estimated. The Company estimates and accrues a liability for its share of ultimate settlements using all available information. The Company accrues for claims reported, as well as for claims incurred but not reported, based upon the Company's past experience. Expenses depend on actual loss experience and changes in estimates of settlement amounts for open claims which have not been fully resolved. However, final settlement of these claims could differ materially from the amounts the Company has accrued at year-end. Management's judgment concerning the ultimate cost of claims and modification of initial reserved amounts is an important part of establishing claims reserves, and is of increasing significance with higher self-insured retention. Impairment of Long-Lived Assets Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset. Management's judgment concerning future cash flows is an important part of this determination. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less the costs to sell. The Company has decided to maintain its revenue 19 equipment for the foreseeable future and not replace aging tractors. If resale values remain at current levels or decline, the Company may incur increased maintenance costs and a lower gain or loss on sale resulting from retaining equipment even longer. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risks from changes in certain interest rates on its debt. In connection with the March 2003 amendment, the Company's financing arrangement with LaSalle Bank was amended to provide a variable interest rate based on LaSalle's prime rate plus two percent, provided there has been no default. Prior to the amendment the variable interest rate was LaSalle's prime rate. In addition, approximately $23.3 million of the Company's other debt carries variable interest rates. This variable interest exposes the Company to the risk that interest rates may rise. Assuming borrowing levels at September 30, 2003, a one-point increase in the prime rate would increase annual interest expense by approximately $352,000. The remainder of the Company's other debt carries fixed interest rates and exposes the Company to the risk that interest rates may fall. At September 30, 2003, approximately 96% of the Company's debt carries a variable interest rate and the remainder is fixed. ITEM 4. CONTROLS AND PROCEDURES As required by Rule 13a-15 under the Exchange Act, the Company has carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of the end of the period covered by this report. This evaluation was carried out under the supervision and with the participation of the Company's management, including its Chief Executive Officer and its Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our controls and procedures were effective as of the end of the period covered by this report. There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected or that are reasonably likely to materially affect the Company's internal control over financial reporting. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in the Company's reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company's Chief Executive Officer as appropriate, to allow timely decisions regarding disclosures. The Company has confidence in its internal controls and procedures. Nevertheless, the Company's management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure procedures and controls or our internal controls will prevent all errors or intentional fraud. An internal control system, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of such internal controls are met. Further, the design of an internal control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all internal control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. 20 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS No reportable events or material changes occurred during the quarter for which this report is filed. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES The Company's financing arrangement with LaSalle Bank requires compliance with certain financial covenants, including compliance with a minimum tangible net worth, capital expenditure limits, and a fixed charge coverage ratio. The Company was in compliance with the tangible net worth covenant at September 30, 2003. The Company was not in compliance with the fixed charge coverage ratio requirement at September 30, 2003. However, the financing arrangement was amended, which revised the fixed charge coverage ratio requirement as of September 30, 2003 to prevent a covenant violation at such date, extended the expiration date of the agreement to January 1, 2005, adjusted the covenant requirements going forward, and reduced the maximum loan limit from $27,500 to $25,000. Although there can be no assurance, management expects to remain in compliance with the various financial covenants under its financing arrangements going forward. If the Company fails to maintain compliance with these financial covenants, or to obtain a waiver of any noncompliance, the lenders will have the right to declare all sums immediately due and pursue other remedies. In such an event, the Company's liquidity would be materially and adversely impacted, and the Company's ability to continue as a going concern could be called into question if alternative financing could not be found. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. 21 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit Number Description 3.1 * Articles of Incorporation. 3.2 * Bylaws. 4.1 * Articles of Incorporation. 4.2 * Bylaws. 10.16 # Sixth Amendment to Amended and Restated Loan and Security Agreement dated July 31, 2003, between LaSalle Bank National Association, Smithway Motor Xpress, Inc., as Borrower, and East West Motor Express, Inc., as Borrower. 31.1 # Certification pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by William G. Smith, the Company's Chief Executive Officer 31.2 # Certification pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by G. Larry Owens, the Company's Chief Financial Officer 32.1 # Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by William G. Smith, the Company's Chief Executive Officer 32.2 # Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by G. Larry Owens, the Company's Chief Financial Officer - -------------------------- * Incorporated by reference from the Company's Registration Statement on Form S-1, Registration No. 33-90356, effective June 27, 1996. # Filed herewith. (b) Reports on Form 8-K. During the quarter ended September 30, 2003, the Company filed with, or furnished to, the Securities and Exchange Commission (the "Commission") the following Current Report on Form 8-K: Current Report on Form 8-K dated August 1, 2003 (filed with the Commission on August 8, 2003) reporting the Company's issuance of a press release to announce financial and operating results for the quarter ended June 30, 2003.
22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SMITHWAY MOTOR XPRESS CORP. Date: November 13, 2003 By: /s/ G. Larry Owens --------------------------------------- G. Larry Owens Executive Vice President, Chief Administrative Officer, and Chief Financial Officer, in his capacity as such and on behalf of the issuer 23 EX-10 3 ex10-16lasalleamendmt.txt EX 10.16 LASALLE SEVENTH AMENDMENT July 29, 2003 Smithway Motor Xpress, Inc. 2031 Quail Avenue Fort Dodge, Iowa 50501 And East West Motor Express, Inc. 1170 JB Drive Black Hawk, South Dakota 57718 Re: Sixth Amendment to Amended and Restated Loan and Security Agreement Gentlemen: Smithway Motor Xpress, Inc., an Iowa corporation ("Smithway Inc.") and East West Motor Express, Inc., a South Dakota corporation ("East West") (Smithway Inc. and East West each a "Borrower" and collectively the "Borrowers") and LaSalle Bank National Association, a national banking association ("Bank") have entered into that certain Amended and Restated Loan and Security Agreement dated December 28, 2001 (the "Security Agreement"). From time to time thereafter, Borrowers and Bank may have executed various amendments (each an "Amendment" and collectively the "Amendments") to the Security Agreement (the Security Agreement and the Amendments hereinafter are referred to, collectively, as the "Agreement"). Borrowers and Bank now desire to further amend the Agreement as provided herein, subject to the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the foregoing recitals, the mutual covenants and agreements set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. The Agreement hereby is amended as follows: (a) The definition of "Maximum Loan Limit" set forth in Paragraph 1 of the Agreement is deleted in its entirety and the following is substituted in its place: "Maximum Loan Limit" shall mean Twenty-Seven Million Five Hundred Thousand and No/100 Dollars ($27,500,000.00). Smithway Motor Xpress, Inc. East West Motor Express, Inc. July 29, 2003 Page 2 (b) Subsection 2(a) of the Agreement is deleted in its entirety and the following is substituted in its place: 2. LOANS. (a) Revolving Loans. Subject to the terms and conditions of this Agreement and the Other Agreements, during the Original Term and any Renewal Term, Lender shall, absent the occurrence of an Event of Default, make revolving loans and advances to Borrowers' (the "Revolving Loans") in an amount up to the sum of the following sublimits (the "Revolving Loan Limit"): (i) Up to eighty-five percent (85%), or such lesser percentage as determined by Lender in its sole discretion determined in good faith, of the face amount (less maximum discounts, credits and allowances which may be taken by or granted to Account Debtors in connection therewith in the ordinary course of Borrowers' business) of Borrowers' Eligible Accounts (consisting solely of Eligible Accounts other than those set forth at subsection (ii) immediately below); plus (ii) Up to eighty-five percent (85%), or such lesser percentage as determined by Lender in its sole discretion determined in good faith, of the face amount (less maximum discounts, credits and allowances which may be taken by or granted to Account Debtors in connection therewith in the ordinary course of Borrowers' business) of Borrowers' Eligible Accounts (consisting solely of Accounts which are unbilled for three (3) days or less) or Two Million Five Hundred Thousand and No/100 Dollars ($2,500,000.00), whichever is less; plus (iii) Intentionally Omitted; minus (iv) such reserves as Lender elects, in its sole discretion determined in good faith to establish from time to time; provided, that the Revolving Loan Limit shall in no event exceed Twenty-Seven Million Five Hundred Thousand and No/100 Dollars ($27,500,000.00) less the then-outstanding principal balance of the Term Loans (the "Maximum Revolving Loan Limit") except as such amount may be increased or, following the Smithway Motor Xpress, Inc. East West Motor Express, Inc. July 29, 2003 Page 3 occurrence of an Event of Default, decreased by Lender, in its sole discretion. The aggregate unpaid principal balance of the Revolving Loans shall not at any time exceed the lesser of the (i) Revolving Loan Limit minus the Letter of Credit Obligations and (ii) the Maximum Revolving Loan Limit minus the Letter of Credit Obligations. If at any time the outstanding Revolving Loans exceeds either the Revolving Loan Limit or the Maximum Revolving Loan Limit, in each case minus the Letter of Credit Obligations, or any portion of the Revolving Loans and Letter of Credit Obligations exceeds any applicable sublimit within the Revolving Loan Limit, Borrowers shall immediately, and without the necessity of demand by Lender, pay to Lender such amount as may be necessary to eliminate such excess and Lender shall apply such payment to the Revolving Loans to eliminate such excess. Each Borrower hereby authorizes Lender, in its sole discretion, to charge any of such Borrower's accounts or advance Revolving Loans to make any payments of principal, interest, fees, costs or expenses required to be made under this Agreement or the Other Agreements. A request for a Revolving Loan shall be made or shall be deemed to be made, each in the following manner: the Borrower requesting such Revolving Loan shall give Lender same day notice, no later than 10:30 A.M. (Chicago time) for such day, of its request for a Revolving Loan as a Prime Rate Loan. In the event that a Borrower maintains a controlled disbursement account at Lender, each check presented for payment against such controlled disbursement account and any other charge or request for payment against such controlled disbursement account shall constitute a request for a Revolving Loan as a Prime Rate Loan. As an accommodation to Borrowers, Lender may permit telephone requests for Revolving Loans and electronic transmittal of instructions, authorizations, agreements or reports to Lender by Borrowers. Unless a Borrower specifically directs Lender in writing not to accept or act upon telephonic or electronic communications from such Borrower, Lender shall have no liability to Borrowers for any loss or damage suffered by a Borrower as a result of Lender's honoring of any requests, execution of any instructions, authorizations or agreements or reliance on any Smithway Motor Xpress, Inc. East West Motor Express, Inc. July 29, 2003 Page 4 reports communicated to it telephonically or electronically and purporting to have been sent to Lender by a Borrower and Lender shall have no duty to verify the origin of any such communication or the authority of the Person sending it. Each Borrower hereby irrevocably authorizes Lender to disburse the proceeds of each Revolving Loan requested by such Borrower, or deemed to be requested by such Borrower, as follows: the proceeds of each Revolving Loan requested under Section 2(a) shall be disbursed by Lender in lawful money of the United States of America in immediately available funds, by wire transfer or Automated Clearing House (ACH) transfer to such bank account as may be agreed upon by such Borrower and Lender from time to time, or elsewhere if pursuant to a written direction from such Borrower. (c) Subsection 4(b) of the Agreement is deleted in its entirety and the following is substituted in its place: (iv) One-Time Fee: Borrowers shall pay to Lender a one-time fee of Ten Thousand and No/100 Dollars ($10,000.00), which fee shall be fully earned and payable upon execution of this Amendment. (d) Section 10 of the Agreement is deleted in its entirety and the following is substituted in its place: 10. TERMINATION: AUTOMATIC RENEWAL. THIS AGREEMENT SHALL BE IN EFFECT UPON EXECUTION OF THIS AMENDMENT UNTIL JULY 1, 2004 (THE "ORIGINAL TERM") AND SHALL AUTOMATICALLY RENEW ITSELF FROM MONTH TO MONTH THEREAFTER (EACH SUCH ONE-MONTH RENEWAL BEING REFERRED TO HEREIN AS A "RENEWAL TERM") unless (A) THE DUE DATE OF THE LIABILITIES IS ACCELERATED PURSUANT TO SECTION 16 HEREOF; OR (B) A BORROWER OR LENDER ELECTS TO TERMINATE THIS AGREEMENT AT THE END OF THE ORIGINAL TERM OR AT THE END OF ANY RENEWAL TERM BY GIVING THE OTHER PARTY WRITTEN NOTICE OF SUCH ELECTION AT Smithway Motor Xpress, Inc. East West Motor Express, Inc. July 29, 2003 Page 5 LEAST FIFTEEN (15) DAYS PRIOR TO THE END OF THE ORIGINAL TERM OR THE THEN CURRENT RENEWAL TERM IN WHICH CASE BORROWERS SHALL PAY ALL OF THE LIABILITIES IN FULL ON THE LAST DAY OF SUCH TERM. If one or more of the events specified in clauses (a) and (b) occurs, then (i) Lender shall not make any additional Loans on or after the date identified as the date on which the Liabilities are to be repaid; and (ii) this Agreement shall terminate on the date thereafter that the Liabilities are paid in full. At such time as Borrowers have repaid all of the Liabilities and this Agreement has terminated, Borrowers shall deliver to Lender a release, in form and substance satisfactory to Lender, of all obligations and liabilities of Lender and its officers, directors, employees, agents, parents, subsidiaries and affiliates to such Borrowers, and if Borrowers are obtaining new financing from another lender, Borrowers shall deliver such lender's indemnification of Lender, in form and substance satisfactory to Lender, for checks which Lender has credited to such Borrower's account, but which subsequently are dishonored for any reason or for automatic clearinghouse or wire transfers not yet posted to such Borrower's account. (e) Exhibit A of the Agreement is amended and restated as the First Amended and Restated Exhibit A as attached hereto and made a part hereof. 2. This Amendment shall not become effective until fully executed by all parties hereto. 3. Except as expressly amended hereby and by any other supplemental documents or instruments executed by either party hereto in order to effectuate the transactions contemplated hereby, the Agreement and Exhibit A thereto hereby are ratified and confirmed by the parties hereto and remain in full force and effect in accordance with the terms thereof. Smithway Motor Xpress, Inc. East West Motor Express, Inc. July 29, 2003 Page 6 LASALLE BANK NATIONAL ASSOCIATION By /s/ John Mostofi --------------------------------- Title Sr VP ------------------------------ ACKNOWLEDGED AND AGREED TO this 31st day of July, 2003: SMITHWAY MOTOR XPRESS, INC. By /s/ William G. Smith ----------------------------------- William G. Smith Title President EAST WEST MOTOR EXPRESS, INC. By /s/ William G. Smith ----------------------------------- William G. Smith Title President Consented and agreed to by the following guarantor(s) of the obligations of Smithway Motor Xpress, Inc. and East West Motor Express, Inc. to LaSalle Bank National Association. SMSD Acquisition Corp. By: /s/ G. Larry Owens ----------------------------------- G. Larry Owens Title: Vice President Date: July 31st, 2003 Smithway Motor Xpress, Inc. East West Motor Express, Inc. July 29, 2003 Page 7 Smithway Motor Xpress Corp. By: /s/ G. Larry Owens ----------------------------------- G. Larry Owens Title: Vice President Date: July 31st, 2003 Exhibits available upon request. EX-31 4 ex31-1smithcert.txt EX 31.1 WILLIAM SMITH CERTIFICATION Exhibit 31.1 CERTIFICATION I, William G. Smith, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Smithway Motor Xpress Corp.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 13, 2003 /s/ William G. Smith CEO ------------------------------ William G. Smith Chief Executive Officer EX-31 5 ex31-2owenscert.txt EX 31.2 LARRY OWENS CERTIFICATION Exhibit 31.2 CERTIFICATION I, G. Larry Owens, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Smithway Motor Xpress Corp.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 13, 2003 /s/ G. Larry Owens ----------------------------------- G. Larry Owens Chief Financial Officer EX-32 6 ex32-1smithcert.txt EX 32.1 WILLIAM SMITH CERTIFICATION Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Smithway Motor Xpress Corp. (the "Company") on Form 10-Q for the period ended September 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, William G. Smith, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ William G. Smith CEO -------------------------------------------- William G. Smith Chief Executive Officer November 13, 2003 A signed original of this written statement required by Section 906 has been provided to Smithway Motor Xpress Corp. and will be retained by Smithway Motor Xpress Corp. and furnished to the Securities and Exchange Commission or its staff upon request. EX-32 7 ex32-2owenscert.txt EX 32.2 LARRY OWENS CERTIFICATION Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Smithway Motor Xpress Corp. (the "Company") on Form 10-Q for the period ended September 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, G. Larry Owens, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ G. Larry Owens ---------------------------------------- G. Larry Owens Chief Financial Officer November 13, 2003 A signed original of this written statement required by Section 906 has been provided to Smithway Motor Xpress Corp. and will be retained by Smithway Motor Xpress Corp. and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----