Simon Transportation Services Inc.

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Simon Transportation Services Inc.

5175 West 2100 South
West Valley City, Utah 84120-1252
U.S.A.
(801) 924-7000
(800) 777-9100
Fax: (800) 688-1152
Web site: http://www.simn.com

Public Company
Incorporated: 1972 as Dick Simon Trucking, Inc.
Employees: 2,135
Sales: $193.5 million (1998)
Stock Exchanges: NASDAQ
Ticker Symbol: SIMN
SICs: 4213 Trucking Except Local; 6719 Holding Companies, Not Elsewhere Classified; 5078 Refrigeration Equipment & Supplies

Simon Transportation Services Inc. serves customers throughout the lower 48 states and also Canada and Mexico. From its headquarters in the Salt Lake City suburb of West Valley City and five other terminals in the Los Angeles, Houston, Phoenix, Portland, and Atlanta areas, Simon ships mainly food products for firms such as North American Logistic Services (M&M Mars), Albertson’s, Nestle Frozen Food Company, and ConAgra Frozen Foods. Its fleet of 53-foot refrigerated trailers is the largest of its kind in the United States. Simon uses modern computers and telecommunications to manage its growing fleet and provide better customer relations. The company in 1999 remains a family firm (though publicly owned) under the leadership of founder Dick Simon and three sons.

Getting Started

Richard D. “Dick” Simon loved trucks from his early childhood. “All I ever wanted to be was a truck driver,” said Simon. Born in Provo, Utah, in 1937, Simon grew up on a ranch near Meridian, Idaho, where his grandfather and two uncles had trucks to haul timber from the mountains and then eventually to Provo and Springville, Utah, for house construction. On the return trip, the trucks hauled coke from Geneva Steel back to Idaho.

In 1955 Dick Simon traded his new car for a 2-ton tractor and 32-foot trailer. He made his first trip hauling feed from Provo to southern California ranchers and then returning with a load of fish meal from Long Beach. Other jobs followed, but his truck wore out, so he drove trucks owned by others.

Simon purchased his first diesel tractor with a refrigerated trailer in 1963 when he was 26 years old. He drove a route from Utah to Arizona and Los Angeles and then back home. “In those days I never slept. I was driving all the time,” said Simon in a typescript record. His wife Valene provided crucial support in those early years by doing the bookkeeping and occasionally driving for him, so he could get some sleep.

With his first driver, Simon established what he called the “Round Robin.” They picked up produce in Idaho, added vegetables and fruit in the border town of Nogales, Arizona, then hauled the refrigerated contents to Los Angeles and returned to Utah with California produce.

Early Expansion

Simon admitted that eventually his nonstop driving days had to end. “By the time I was 35 I couldn’t do it anymore,” said Simon. “However, I was in a position where I could bring on more drivers and equipment.” Thus Simon in 1972 ended his sole proprietorship and incorporated as Dick Simon Trucking, Inc.

To provide for his growing family, Simon decided to expand his fleet. He took his young children on the road with him, and they accepted various odd jobs around the company offices and gradually the second generation of the family business assumed more responsibility. By the time daughter Sherry was in high school and son Dick Simon, Jr. (”King”), was in junior high, son Lyn worked in the office, and son Kelle drove for the growing company. Kelle had begun working for the firm in the late 1970s when it had about 25 trucks.

About that time, Simon Trucking adopted its familiar “Sweet Simon” skunk logo. Since the firm hauled perfume and cosmetics in some trucks, they had a sweet smell. According to Dick Simon, one day he took his fragrant rig to a Salt Lake City detailer who was so good that Simon let him have his artistic way. At first he was angry with the skunks holding “Sweet Simon” flags painted on his truck. However, many people, including his wife, loved the skunk image, so Simon adopted it as the official company logo.

By the early 1980s, Simon Trucking operated 26 tractors. Then the grocery chain Smith’s Food King signed a contract that required Simon to quickly double the size of his fleet. For some time the company remained at about 65 trailers, but by 1988 Simon’s contract with Smith’s helped it grow to 97 tractors and 225 trailers.

One of the biggest challenges for all trucking firms was deregulation based on the Motor Carriers Act of 1980. Previously, the federal government strictly controlled interstate trucking, with the Interstate Commerce Commission giving permits to companies for designated routes. Under those circumstances, firms more or less were guaranteed a profit. With deregulation, more trucks were on the road but cargo amounts did not increase at the same rate, thus intensifying competition and reducing freight rates by about half.

Manufacturers and consumers loved trucking deregulation, but the trucking industry did not. For example, there was a threefold increase in the number of bankruptcies in trucking and related industries by 1987, according to Otis Winn of the Utah Motor Transport Association in the September 20, 1987 Deseret News. By 1987, 33 of the nation’s 45 public trucking firms operating before deregulation had gone out of business. Furthermore, because many truckers made little if any money, maintenance was sometimes reduced, leading to serious safety concerns.

The 1990s

By the early 1990s Simon Trucking had survived deregulation and was growing rapidly. Gross revenues increased from $31 million in 1991 to almost $41 million in 1992, almost $58 million in 1993, and about $72 million in 1994. Since the company was paying huge amounts of interest to borrow money for its expansion, it reduced its growth rate in 1995 to just 4.9 percent.

Meanwhile, Dick Simon Trucking faced competitors, such as Frozen Food Express Industries, Inc., a Dallas-based public firm founded in 1945. With 1996 sales of $311.4 million, Frozen Food Express was in the mid-1990s North America’s largest temperature-controlled trucking firm. Other firms competing against Simon included KLLM Transport Services, Aasche Transportation, US 1 Industries, and Marten Transport.

Confronted by tough competition and internal financial difficulties, Kelle Simon, then vice-president of maintenance and fleet purchasing, and Lyn Simon, vice-president of sales and marketing, pushed their father to consider taking the firm public, but Dick Simon refused to budge. Finally he saw the necessity of such a major move, especially with the firm’s debt-to-capital ratio at 57 percent. Thus on November 17,1995, Simon Transportation Services Inc. was launched with its stock offered on the NASDAQ. Dick Simon Trucking remained a subsidiary. “Going public was the best thing we ever did,” said Dick Simon in his typescript manuscript. “Instead of paying $20,000 a month in interest on a line of credit, we now collect the money.”

In 1996 the new public corporation used some of the $19.7 million raised in its IPO to trade in 350 older tractors and buy over 650 new ones. According to Renee Weaver, a Wheat First Butcher Singer analyst in the August 1996 Investor’s Business Daily,”Any diesel engine since 1993 had a big advancement in their fuel efficiency, so it had fewer expenses for upkeep.”

Simon’s updated fleet helped attract new customers in 1996: Kellogg Company; M&M Mars, a division of Mars Inc.; Tootsie Roll Industries Inc.; and the baking division of CPC International Inc. In the summer of 1996 it shipped its first load to Mexico.

That purchase and others in the late 1990s resulted in Simon Transportation having a very young fleet. In 1998 the firm owned a total of 1,644 tractors made by Freightliner, Peterbilt, Volvo, and International. Every tractor was purchased in 1996, 1997, or 1998, and its average trailer age was just two years. Almost all of Simon’s over 2,500 trailers were refrigerated vans. In May 1998 the company announced that it had phased out its 48-foot refrigerated trailers, so all trailers were the 53-foot models. In 1998 the company also planned to purchase an additional 400 tractors and 800 trailers.

In July 1997 Simon Trucking moved to its new 60,000-square-foot headquarters and 70,000-square-foot maintenance facility in West Valley City, a suburb of Salt Lake City. Located on 55.2 acres, the new facilities included the latest technology in the trucking industry for repair, service, and communications. Simon sold its original property, including eight acres and some buildings, to the Murray City government for use as a public works complex.

CEO Dick Simon celebrated the opening by commissioning Dan Christensen, company artist and marketing representative, to paint a portrait of Shadrach Roundy, one of Utah’s original pioneers and Simon’s ancestor. Simon grew up hearing stories about Roundy, one of his heroes. Simon felt inspired to continue that pioneering spirit by using the latest technology in his business.

Company Perspectives:

Our mission is to provide the finest temperature-sensitive transportation in the country, without losing sight of our goals, our people, our stockholders, or our customers.

For example, each Simon truck included the QUALCOMM satellite communication system. In 1992 Simon Trucking became the 13th company in the world to completely install this global positioning system (GPS), which provided exact location of each truck and miles remaining for delivery. The QUALCOMM satellite transmitted positions to its headquarters in San Diego and then that data was transmitted via modem to Simon’s mainframe computer. If a truck was late, all parties would be notified electronically and sometimes alternative routes would be planned.

At Simon’s new headquarters, huge computer screens displayed the positions of its trucks, national weather data, load data, and other information. No wonder this central dispatch room was called the “War Room.” This high-tech approach to trucking earned Simon coverage on the popular television series “20/20” in early 1998. It also was a key component in maintaining the firm’s status as a core carrier for some large customers, resulting in fixed routes, higher profit margins, and first bids on upcoming projects.

By 1997 each Simon truck also carried its individual “radio frequency identification (RFID) tag.” The SmartPass RFID System was developed by Amtech Systems Corporation. Using RFID readers, which cost about $2,500 each, terminal managers could tell when a truck entered the terminal. The RFID also provided automated fueling that improved record-keeping and kept fuel costs to a minimum.

In addition, inhouse software linked to the RFID system provided even more data. “With our vehicle maintenance software, when this vehicle enters the yard, it (the system) says, ’It needs this type of service, it needs an oil change, the tires need to be checked,’” said Bob Slaughter, Simon Trucking’s director of management information systems in the May 25, 1997 Deseret News. “Every single person here, even our mechanics, are on the computer. All the information is shared. It’s hard to measure those things in terms of dollars, but I don’t know what price tag you put on things when information is available to everybody.”

Terminal operations in West Valley City demonstrated the efficiency of Simon Trucking’s high-tech approach. Every day an average of 225 trucks received oil changes, which took only 15 minutes, during which other routine maintenance checks and lubrication were completed. Simon also recapped its own tires, completing between 60 and 80 daily.

In the unregulated trucking industry, firms like Simon that could afford the latest technology naturally gained the upper hand competing against the nation’s 25,000 small trucking companies. Manufacturers wanted to save transportation expenses, which ranged from three to six percent of their total costs.

Simon’s largest customers from January to July 1998 included the following: North American Logistic Services, Albertson’s, Inc., Nestle Frozen Food Company, ConAgra Frozen Foods, Hunt Wesson, Inc., Kraft Foods, Inc., Coors Brewing Company, Foster Farms, Lamb-Weston, Inc., Proctor & Gamble, The Pillsbury Company, Fred Meyer, Kellogg Company, Tropicana Products, Pilgrim’s Pride, The Kroger Company, Costco, and Hershey. Other Salt Lake City trucking firms besides Simon expanded in the late 1990s, including C.R. England, which built a 65,000-square-foot facility that included a theater, library, gym, and sleeping quarters for 200. According to the Utah Department of Transportation, the state’s commercial trucking industry increased by 11 percent in 1995 and 1996. Most expansions occurred along 2100 South, a main east-west route close to interstate highways. This growth, part of the state’s booming economy, helped Salt Lake City continue its tradition as the “Crossroads of the West.”

In June 1998 the company started the Simon Driver School to train its own drivers, including those with no experience, to reduce the number of tractors sitting idly without drivers. Like more and more companies, applicants could apply online.

Simon also raised its driver wages in 1998. “The wage increases cut our operating margin substantially, but we believe it was necessary to remain competitive in a very tight market for drivers,” said Dick Simon in his firm’s November 1998 online newsletter Simon Says.

Simon Transportation experienced a mixed fiscal year 1998, ending September 30. Revenue increased 25 percent from fiscal 1997 to almost $194 million. In its November 1998 newsletter, the company emphasized its positive finances, such as having $60 million in net worth and reduced long-term debt and no liens on any of its properties. CFO Alban Lang concluded that “the company is financially very strong, probably stronger than over 95% of the trucking companies across the country.”

The bad news was that Simon Transportation’s stock price per share declined significantly. By early December 1998 it had fallen to about $6, far below its recent high of about $25 per share in early October 1997. The company blamed its stock decline on an unusually high number of accidents, a delayed order for new Freightliner tractors, and its new Atlanta terminal costing more than expected.

Simon Transportation’s poor stock performance in 1998 influenced some company shareholders and their Los Angeles attorney Lionel Z. Glancy in December 1998 to file a lawsuit in Utah federal court against Dick Simon, Kelle Simon, and Alban Lang. The three were accused in this proposed class-action lawsuit of insider trading when they sold almost $3 million worth of company stock between January 15 and February 12, 1998, just before the stock value started to plummet. CFO Lang said those stock sales had been planned months earlier, long before any knowledge of financial problems.

In 1998 Simon Transportation continued as a family business. Founder Dick Simon owned about 22 percent of Simon Transportation’s stock, and he remained at the helm as its board chairman, president, and CEO. Kelle Simon, age 36, served as vice-president of maintenance and fleet purchasing, while Lyn Simon, age 33, was the firm’s vice-president of sales and marketing, and Richard D. Simon, Jr., age 26, served as vice-president of operations.