"In addition to the change in accounting method, during the quarter, Simon experienced the highest driver turnover in its history. Turnover exacerbated recruiting costs and contributed to increased claims and repair expense, and low tractor utilization. In addition, high fuel prices continued to affect the truckload industry, including Simon."
To correct this problem, Simon's management increased driver pay by 2¢ per mile, an increased cost the company could hardly afford. Perhaps most disturbing of all, the company openly acknowledged in its 10k around the same time that it was in violation of its long term debt agreements.
"The Company's secured line of credit agreement contains various restrictive covenants including a minimum tangible net worth requirement and a fixed charge coverage covenant. As of September 30, 2000, the Company was in violation of the minimum tangible net worth requirement. The Company obtained a waiver of the violation and as discussed in Note 10 has amended the covenant subsequent to September 30, 2000."
In February of 2002, the company filed for Chapter 11 bankruptcy protection. Had an investor been able to analyze a balance sheet, they would have been warned in advance of the company's problems and possibly avoided huge losses to their portfolio.
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This page is part of Investing Lesson 3 - Understanding the Balance Sheet. To go back to the beginning, see the Table of Contents. If you have already read this lesson, you can skip directly to the Balance Sheet Quiz.
