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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1998
Commission File No. 000-22490
LANDAIR SERVICES, INC.
(Exact name of registrant as specified in its charter)
TENNESSEE 62-1120025
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
430 AIRPORT ROAD
GREENEVILLE, TENNESSEE 37745
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (423) 636-7000
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
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The number of shares outstanding of the registrant's common stock, $.01 par
value, as of April 27, 1998 was 6,146,891.
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TABLE OF CONTENTS
LANDAIR SERVICES, INC.
PART I. FINANCIAL INFORMATION
Page
Number
------
ITEM 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -
March 31, 1998 and December 31, 1997 3
Condensed Consolidated Statements of Income -
Three months ended March 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows -
Three months ended March 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements -
March 31, 1998 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 13
ITEM 2. Changes in Securities 13
ITEM 3. Defaults Upon Senior Securities 13
ITEM 4. Submission of Matters to a Vote of Security Holders 13
ITEM 5. Other Information 13
ITEM 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
EXHIBIT INDEX 15
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Landair Services, Inc.
Condensed Consolidated Balance Sheets
March 31, December 31,
1998 1997
---------------------
(Unaudited) (Note)
(In thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents $ 1,164 $ 686
Accounts receivable, less allowance of $1,111 in 1998 and $928 in 1997 28,998 28,771
Other current assets 8,560 6,372
---------------------
Total current assets 38,722 35,829
Property and equipment 120,446 115,130
Less accumulated depreciation and amortization 38,272 35,933
---------------------
82,174 79,197
Other assets 3,367 3,305
---------------------
Total assets $124,263 $118,331
=====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,040 $ 5,126
Accrued expenses 14,528 13,730
Current portion of long-term debt 10,475 11,120
Current portion of capital lease obligations 4,030 3,924
---------------------
Total current liabilities 33,073 33,900
Long-term debt, less current portion 19,816 16,347
Capital lease obligations, less current portion 5,327 6,058
Deferred income taxes 12,305 11,566
Shareholders' equity:
Preferred stock -- --
Common stock, $.01 par value:
Authorized shares - 20,000,000
Issued and outstanding shares - 6,146,578 in 1998 and
6,024,388 in 1997 61 60
Additional paid-in capital 27,844 26,804
Retained earnings 25,837 23,596
---------------------
Total shareholders' equity 53,742 50,460
---------------------
Total liabilities and shareholders' equity $124,263 $118,331
=====================
Note: The balance sheet at December 31, 1997 has been derived from the audited
financial statements at that date, but does not include all of the financial
information and footnotes required by generally accepted accounting principles
for complete financial statements.
See notes to condensed consolidated financial statements.
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Landair Services, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
Three months ended
--------------------------
March 31, March 31,
1998 1997
--------------------------
(In thousands, except per share data)
Operating revenue $ 52,855 $ 41,005
Operating expenses:
Purchased transportation 17,211 13,899
Salaries, wages, and employee benefits 15,390 11,669
Depreciation and amortization 3,206 2,559
Fuel and fuel taxes 3,270 2,583
Insurance and claims 2,246 2,512
Operating leases 1,778 1,481
Other operating expenses 5,391 4,380
--------------------------
48,492 39,083
Income from operations 4,363 1,922
Other income (expense):
Interest expense (677) (681)
Other, net 16 30
--------------------------
(661) (651)
Income before income taxes 3,702 1,271
Income taxes 1,461 500
--------------------------
Net income $ 2,241 $ 771
==========================
Net income per share:
Primary $ .37 $ .13
==========================
Diluted $ .35 $ .13
==========================
Dividends declared per share -- --
==========================
See notes to condensed consolidated financial statements.
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Landair Services, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three months ended
------------------------
March 31, March 31,
1998 1997
------------------------
(In thousands)
Cash from operations $ 3,458 $ 3,091
Investing activities:
Proceeds from disposal of property and equipment 521 106
Purchases of property and equipment (6,635) (4,967)
Other (106) (23)
------------------------
(6,220) (4,884)
Financing activities:
Proceeds from long-term debt 5,733 4,990
Payments of long-term debt (2,909) (1,842)
Payments of capital lease obligations (625) (845)
Proceeds from exercise of stock options 1,041 --
------------------------
3,240 2,303
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Increase in cash and cash equivalents $ 478 $ 510
========================
See notes to condensed consolidated financial statements.
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Landair Services, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 31, 1998
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31, 1998
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1998. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Landair Services,
Inc. annual report on Form 10-K for the year ended December 31, 1997.
NOTE 2 - INCOME TAXES
For the three months ended March 31, 1998 and 1997, the effective income tax
rate varied from the statutory federal income tax rate of 34% primarily as a
result of the effect of state income taxes, net of the federal benefit, and
permanent differences.
NOTE 3 - EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings Per Share. Statement 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share and uses the treasury stock method in calculating dilution. All earnings
per share amounts for all periods have been presented and restated to conform to
Statement 128 requirements.
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Landair Services, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
NOTE 3 - EARNINGS PER SHARE (CONTINUED)
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data):
Three months ended
---------------------
March 31, March 31,
1998 1997
---------------------
Numerator:
Numerator for basic and diluted
earnings per share - net income $2,241 $ 771
=====================
Denominator:
Denominator for basic earnings per share-
weighted-average shares 6,076 5,953
Effect of dilutive stock options 306 101
---------------------
Denominator for diluted earnings per share-
adjusted weighted-average shares 6,382 6,054
=====================
Basic net income per share $ .37 $ .13
=====================
Diluted net income per share $ .35 $ .13
=====================
Securities that could potentially dilute basic net income per share in the
future that were not included in the computation of diluted net income per
share because to do so would have been antidilutive for the
periods presented -- 448
=====================
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Landair Services, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
NOTE 4 - BUSINESS SEGMENTS
A summary of information about the Company's operations by segment for the three
months ended March 31, 1998 and 1997 is as follows (in thousands):
Truckload Forward Air
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Three months ended March 31, 1998
Operating revenue from external customers $24,005 $28,850
Intersegment revenue 1,318 --
Segment income from operations 1,581 2,782
Three months ended March 31, 1997
Operating revenue from external customers $19,393 $21,612
Intersegment revenue 1,152 --
Segment income from operations 156 1,766
A reconciliation of reportable segment income from operations to the Company's
consolidated totals is as follows (in thousands):
Three months ended
----------------------
March 31, March 31,
1998 1997
-----------------------
Total income from operations for reportable
segments $4,363 $1,922
Other profit or loss -- --
-----------------------
Total consolidated income from operations $4,363 $1,922
=======================
There was no material change in total assets by segment, as of March 31, 1998,
from the amounts disclosed in the Company's annual report on Form 10-K for the
year ended December 31, 1997.
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Landair Services, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Company is, from time to time, a party to litigation arising in the normal
course of its business, most of which involve claims for personal injury and
property damage incurred in connection with the transportation of freight.
Management believes none of these actions, individually or in the aggregate,
will have a material adverse effect on the financial condition or results of
operations of the Company.
In connection with the Company's anticipated fuel requirements, the Company
periodically enters into forward contracts for the purchase of fuel as deemed
appropriate to reduce the risk of future fuel price increases. At March 31,
1998, the Company had commitments to purchase approximately 500,000 gallons of
fuel per month through February 1999. The price required to be paid under the
forward contracts is not materially different from the current market price at
March 31, 1998. The Company is exposed to loss in the event of nonperformance by
the other parties to the forward contracts; however, the Company does not
anticipate nonperformance by the counterparties.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following table sets forth the percentage relationship of expense items to
operating revenue for the periods indicated.
Three months ended
----------------------
March 31, March 31,
1998 1997
-----------------------
Operating revenue 100.0% 100.0%
Operating expenses:
Purchased transportation 32.6 33.9
Salaries, wages, and employee
benefits 29.1 28.5
Depreciation and amortization 6.0 6.2
Fuel and fuel taxes 6.2 6.3
Insurance and claims 4.2 6.1
Operating leases 3.4 3.6
Other operating expenses 10.2 10.7
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91.7 95.3
Income from operations 8.3 4.7
Other income (expense):
Interest expense (1.3) (1.7)
Other, net -- 0.1
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(1.3) (1.6)
---------------------
Income before income taxes 7.0 3.1
Income taxes 2.8 1.2
---------------------
Net income 4.2% 1.9%
=====================
Results of Operations
Operating revenue increased by $11.9 million, or 29%, to $52.9 million in the
first quarter of 1998 from $41.0 million in 1997.
Purchased transportation was 32.6% of operating revenue in the first three
months of 1998 compared to 33.9% in 1997. The decrease in purchased
transportation as a percentage of operating revenue between periods was
primarily attributable to a reduction in the ratio of owner- operator to
Company-operated equipment in 1998. During the first three months of 1998 and
1997, approximately 40.1% and 41.9% of the Company's total average tractors in
service were contracted through owner-operators.
Salaries, wages and benefits were 29.1% of operating revenue in the first three
months of 1998 compared to 28.5% in 1997. The increase as a percentage of
operating revenue in 1998 was due
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primarily to higher cargo handling wages and terminal managers' salaries
required to operate additional terminals and greater operating volumes in the
Company's Forward Air operations combined with an increase in the ratio of
Company-operated to owner-operator equipment. These factors were partially
offset by increased utilization of Company-operated equipment during the first
three months of 1998 compared to 1997.
Depreciation and amortization expense as a percentage of operating revenue was
6.0% in the first quarter of 1998, compared to 6.2% in 1997. The improvement in
depreciation and amortization expense as a percentage of operating revenue is
primarily attributed to increased utilization of operating assets partially
offset by additional depreciation and amortization as a result of a higher ratio
of Company-operated to owner-operator equipment during the first three months of
1998 compared to the prior year.
Fuel and fuel taxes were 6.2% of operating revenue in the first quarter of 1998,
compared to 6.3% in 1997. The decrease in fuel and fuel taxes as a percentage of
operating revenue during 1998 resulted from a lower average fuel price per
gallon coupled with improvements in the average miles per gallon and average
revenue per loaded mile of the Company-operated tractor fleet. The increase in
fuel and fuel taxes as a percentage of operating revenue during 1998 was also
attributed to an increase in the ratio of Company-operated to owner-operator
equipment.
Insurance and claims were 4.2% of operating revenue for the three months ended
March 31, 1998, compared with 6.1% in 1997. The decrease in insurance and claims
expense as a percentage of operating revenue is due primarily to a decrease in
the severity of accidents and lower premium costs during the first quarter of
1998 compared with 1997.
Operating leases were 3.4% of operating revenue in the first quarter of 1998,
compared to 3.6% in 1997. The decrease in operating lease expense as a
percentage of operating revenue is attributed to increased utilization of leased
operating equipment and facilities.
Other operating expenses were 10.2% of operating revenue in the first quarter of
1998 compared to 10.7% in 1997. The decrease in 1998 as a percentage of
operating revenue is attributed to both a reduced operating cost structure and
improvements in utilization levels in the Company's operations.
The effective tax rate for the first quarter of 1998 was 39.5% compared to 39.0%
for 1997.
Forward Air Segment - Operating revenue in the Company's Forward Air operations
increased by $7.2 million, or 33%, during the first three months of 1998 over
the prior-year quarter and represented approximately 54.6% and 52.7% of the
Company's total operating revenue for these periods, respectively. Operating
revenue increases in the Forward Air operations resulted from increasing the
number of operating terminals, enhancements to the Forward Air network and
greater volume from domestic and international air cargo customers. The
operating revenue increase in 1998 is also partially attributed to the
acquisition on October 27, 1997 of the air cargo operating assets of Adams Air
Cargo, Inc.
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Forward Air income from operations increased by $1.0 million during the first
three months of 1998 over the prior-year quarter. The increase in income from
operations resulted from higher operating revenue, which was reduced in part by
the incremental costs associated with such revenue.
Truckload Segment - Operating revenue in the Company's Truckload operations
increased by $4.8 million, or 23%, during the first three months of 1998 over
the prior-year quarter. The operating revenue increase in the Truckload
operations resulted primarily from increases in equipment utilization, yield and
additional tractors in service. During the first three months of 1998 and 1997,
the average tractors in service utilized by the Truckload operations, including
owner-operators, were 780 and 695, respectively.
Truckload income from operations increased by $1.4 million during the first
three months of 1998 over the prior-year quarter. The increase in income from
operations in 1998 was due mainly to a lower operating cost ratio resulting from
an increase in equipment utilization and yield during the year.
Liquidity and Sources of Capital
Cash flows from operations were $3.5 million for the first three months of 1998
compared with $3.1 million in the same period of 1997. The $400,000 increase in
cash flows from operations was principally attributable to increased business
volumes and collection of the related accounts receivable.
Management believes available borrowing under existing lines of credit, future
borrowing under installment notes for revenue equipment, and cash generated by
operations will be sufficient to fund the Company's cash needs and anticipated
capital expenditures over the near term.
Recent Developments
On February 10, 1998, the Company's Board announced it had authorized the
creation of a special committee of independent directors to consider a plan to
separate the Company into two publicly-traded companies, one comprised of the
Truckload operations, and the other the Forward Air operations. There can be no
assurance as to whether any such transaction will occur or as to the timing or
terms of any such transaction. Under the plan currently being considered, the
transaction would be structured as a tax-free spin-off, subject, among other
things, to the receipt of a ruling as to tax-free status from the Internal
Revenue Service.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is, from time to time, a party to litigation arising in the normal
course of its business, most of which involve claims for personal injury and
property damage incurred in connection with the transportation of freight.
Management believes that none of these actions, individually or in the
aggregate, will have a material adverse effect on the financial condition or
results of operations of the Company.
ITEM 2. CHANGES IN SECURITIES
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are included herein:
(a) Exhibits - The response to this portion of Item 6 is submitted as a
separate section of this report.
(b) Reports on Form 8-K - The Company did not file any reports on Form 8-K
during the three months ended March 31, 1998.
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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.
Landair Services, Inc.
Date: May 8, 1998 By: /s/ Edward W. Cook
------------------------------
Edward W. Cook
Chief Financial Officer
and Senior Vice President
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EXHIBIT INDEX
Exhibit
Number Exhibit
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10.1 $15,000,000 Restated, Amended and Replacement Promissory Note (Line
of Credit), dated as of January 30, 1998, among First Tennessee Bank
National Association, the registrant, Landair Transport, Inc., Landair
International Airlines, Inc., Transportation Properties, Inc. and Forward
Air, Inc.
10.2 Third Amendment to Line of Credit Loan Agreement and to Amended and Restated
Security Agreement, dated as of January 30, 1998, among First Tennessee Bank
National Association, the registrant, Landair Transport, Inc., Landair
International Airlines, Inc., Transportation Properties, Inc., and Forward Air,
Inc.
10.3 $15,000,000 Restated, Amended and Replacement Promissory Note
(Equipment Loan), dated as of January 30, 1998, among First Tennessee
Bank National Association, the registrant, Landair Transport, Inc., Landair
International Airlines, Inc., Transportation Properties, Inc. and Forward
Air, Inc.
10.4 Sixth Amendment to Loan and Security Agreements, dated as of January
30, 1998, among First Tennessee Bank National Association, the registrant,
Landair Transport, Inc., Landair International Airlines, Inc.,
Transportation Properties, Inc. and Forward Air, Inc.
10.5 Seventh Amendment to Loan and Security Agreements, dated as of January
30, 1998, among First Tennessee Bank National Association, the registrant,
Landair Transport, Inc., Landair International Airlines, Inc.,
Transportation Properties, Inc. and Forward Air, Inc.
10.6 Eighth Amendment to Loan and Security Agreements, dated as of February
24, 1998, among First Tennessee Bank National Association, the registrant,
Landair Transport, Inc., Landair International Airlines, Inc.,
Transportation Properties, Inc. and Forward Air, Inc.
10.7 Ninth Amendment to Loan and Security Agreements, dated as of March 24,
1998, among First Tennessee Bank National Association, the registrant,
Landair Transport, Inc., Landair International Airlines, Inc.,
Transportation Properties, Inc. and Forward Air, Inc.
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Exhibit
Number Exhibit
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27.1 Financial Data Schedule - Period Ended March 31, 1998 (Electronic Filing
Only)
27.2 Financial Data Schedule (Restated) - Year Ended December 31, 1996
(Electronic Filing Only)
27.3 Financial Data Schedule (Restated) - Period Ended June 30, 1997
(Electronic Filing Only)
27.4 Financial Data Schedule (Restated) - Period Ended September 30, 1997
(Electronic Filing Only)
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