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 JUNE 30, 2000
COMMISSION FILE NO. 0-24946
KNIGHT TRANSPORTATION, INC.
(Exact name of registrant as specified in its charter)
ARIZONA 86-0649974
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5601 WEST BUCKEYE ROAD
PHOENIX, ARIZONA 85043
(Address of Principal Executive Offices)
(Zip Code)
Registrant's telephone number, including area code: 602-269-2000
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 [ ]
The number of shares outstanding of registrant's Common Stock, par value $0.01
per share, as of August 11, 2000 was 14,940,897 shares.
KNIGHT TRANSPORTATION, INC.
INDEX
PART I - FINANCIAL INFORMATION Page Number
-----------
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of June 30, 2000
And December 31, 1999 1
Consolidated Statements of Income for the Three Months
And Six Months Ended June 30, 2000 and June 30, 1999 3
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2000 and June 30, 1999 4
Notes to Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ON MARKET RISK 15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 15
ITEM 2. CHANGES IN SECURITIES 16
ITEM 3 DEFAULTS UPON SENIOR SECURITIES 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 16
ITEM 5. OTHER INFORMATION 16
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURES 18
INDEX TO EXHIBITS 20
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2000 AND DECEMBER 31, 1999
June 30, 2000 December 31, 1999
------------- -------------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,913,084 $ 3,294,827
Accounts receivable, net 34,165,338 25,192,447
Notes receivable 206,582 1,558,950
Inventories and supplies 744,537 589,827
Prepaid expenses 5,497,941 1,570,023
Deferred tax asset 3,027,213 2,678,218
------------- -------------
Total current assets 45,554,695 34,884,292
------------- -------------
PROPERTY AND EQUIPMENT:
Land and improvements 9,316,289 6,123,958
Buildings and improvements 9,072,959 6,241,858
Furniture and fixtures 4,921,310 3,909,744
Shop and service equipment 1,275,637 1,292,536
Revenue equipment 152,118,196 127,265,376
Leasehold improvements 523,136 516,411
------------- -------------
177,227,527 145,349,883
Less: Accumulated depreciation (38,041,694) (32,150,943)
------------- -------------
PROPERTY AND EQUIPMENT, net 139,185,833 113,198,940
------------- -------------
NOTES RECEIVABLE - long-term 1,105,194 8,425,019
------------- -------------
OTHER ASSETS 14,736,645 8,036,333
------------- -------------
$ 200,582,367 $ 164,544,584
============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
1
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
AS OF JUNE 30, 2000 AND DECEMBER 31, 1999
June 30, 2000 December 31, 1999
------------- -----------------
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,598,874 $ 8,133,119
Accrued liabilities 6,019,897 3,450,147
Claims accrual 5,504,619 4,639,993
Line of credit 38,624,391 29,036,970
Current portion of long-term debt 5,765,284 2,733,688
------------- -------------
Total current liabilities 60,513,065 47,993,917
LONG - TERM DEBT, less current portion 17,788,913 11,735,651
DEFERRED INCOME TAXES 27,365,379 22,001,375
------------- -------------
Total liabilities 105,667,357 81,730,943
------------- -------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $0.01 par value; authorized
50,000,000 shares, none issued and outstanding -- --
Common stock, $0.01 par value; authorized
100,000,000 shares; issued and outstanding 15,191,956
and 15,115,955 shares respectively 151,919 151,160
Additional paid-in capital 27,979,936 27,025,315
Retained earnings 69,919,663 61,451,148
Less treasury stock, at cost (268,012
shares at June 30, 2000 and 496,800 shares at
December 31, 1999) (3,136,508) (5,813,982)
------------- -------------
Total shareholders' equity 94,915,010 82,813,641
------------- -------------
$ 200,582,367 $ 164,544,584
============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
2
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Six Months Ended
June 30 June 30
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
OPERATING REVENUE $ 51,675,992 $ 36,694,364 $ 95,244,826 $ 70,216,529
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Salaries, wages and benefits 17,493,054 10,725,756 31,569,049 20,681,501
Fuel 6,504,375 3,610,806 11,939,172 6,668,859
Operations and maintenance 2,767,002 2,142,449 5,162,152 4,063,204
Insurance and claims 1,239,795 837,434 1,963,109 1,784,996
Operating taxes and licenses 1,931,820 1,261,430 3,590,426 2,572,878
Communications 402,657 319,731 712,364 607,632
Depreciation and amortization 4,802,468 3,643,186 8,955,449 7,081,790
Lease expense - revenue equipment 811,719 -- 895,616 --
Purchased transportation 6,279,514 6,810,158 13,092,985 12,733,646
Miscellaneous operating expenses 1,371,673 863,710 2,418,861 1,628,390
------------ ------------ ------------ ------------
43,604,077 30,214,660 80,299,183 57,822,896
------------ ------------ ------------ ------------
Income from operations 8,071,915 6,479,704 14,945,643 12,393,633
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income 323,873 197,328 611,296 329,248
Interest expense (1,120,038) (223,888) (1,908,424) (430,991)
------------ ------------ ------------ ------------
(796,165) (26,560) (1,297,128) (101,743)
------------ ------------ ------------ ------------
Income before taxes 7,275,750 6,453,144 13,648,515 12,291,890
INCOME TAXES (2,680,000) (2,560,000) (5,180,000) (4,875,000)
------------ ------------ ------------ ------------
Net income $ 4,595,750 $ 3,893,144 $ 8,468,515 $ 7,416,890
============ ============ ============ ============
Net income per common share and
common share equivalent:
Basic $ 0.31 $ 0.26 $ 0.58 $ 0.49
============ ============ ============ ============
Diluted $ 0.31 $ 0.25 $ 0.57 $ 0.48
============ ============ ============ ============
Weighted average number of common
shares and common share equivalents
outstanding:
Basic 14,658,811 15,100,123 14,644,283 15,051,943
============ ============ ============ ============
Diluted 15,012,386 15,407,054 14,916,112 15,359,352
============ ============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
3
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
June 30
----------------------------
2000 1999
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 8,468,515 $ 7,416,890
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 8,955,449 7,081,790
Allowance for doubtful accounts 161,134 108,100
Deferred income taxes 2,169,846 2,463,460
Valuation allowance - notes receivable 635,902 --
Changes in assets and liabilities, net of businesses acquired:
Increase in trade receivables (4,774,105) (3,736,284)
Increase in notes receivable (2,054,875) --
Decrease (increase) in inventories and supplies (103,116) 553,644
Increase in prepaid expenses (3,927,918) (2,058,978)
Increase in other assets (4,766,525) (119,839)
Decrease in accounts payable (156,174) (1,514,974)
Increase (decrease) in accrued liabilities and claims accrual 2,238,725 (276,652)
------------ ------------
Net cash provided by operating activities 6,846,858 9,917,157
------------ ------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (20,457,798) (11,560,374)
Cash received from business acquired 2,528,420 64,501
------------ ------------
Net cash used in investing activities (17,929,378) (11,495,873)
------------ ------------
The accompanying notes are an integral part of these
consolidated financial statements.
4
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Six Months Ended
June 30
-----------------------------
2000 1999
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Borrowing on line of credit, net 9,587,421 4,861,650
Proceeds from sale of notes receivable 10,091,166 --
Payments of long-term debt (6,671,531) (883,681)
Decrease in accounts payable - equipment (4,261,659) (2,220,780)
Proceeds from exercise of stock options 955,380 245,260
----------- -----------
Net cash provided by financing activities 9,700,777 2,002,449
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,381,743) 423,733
CASH AND CASH EQUIVALENTS,
Beginning of period 3,294,827 124,188
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 1,913,084 $ 547,921
=========== ===========
SUPPLEMENTAL DISCLOSURES:
Non-cash investing and financing transactions:
Equipment acquired by Accounts payable $ -- $ 3,660,692
Cash Flow Information:
Income taxes paid $ 3,345,825 $ 4,004,259
Interest paid 1,881,949 400,679
The accompanying notes are an integral part of these
consolidated financial statements.
5
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Financial Information
The accompanying consolidated financial statements include the parent company
Knight Transportation, Inc., and its wholly owned subsidiaries, Knight
Administrative Services, Inc.; Quad-K Leasing, Inc.; KTTE Holdings, Inc.; QKTE
Holdings, Inc.; Knight Management Services, Inc.; Knight Transportation Midwest,
Inc.; Knight Transportation South Central Ltd.; and KTeCom, L.L.C.; and John
Fayard Fast Freight, Inc. (hereinafter collectively called the "Company"). All
material inter-company items and transactions have been eliminated in
consolidation.
The consolidated financial statements included herein have been prepared in
accordance with generally accepted accounting principles ("GAAP"), pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures have been omitted or condensed pursuant to
such rules and regulations. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. Results of operations in interim periods are
not necessarily indicative of results for a full year. These consolidated
financial statements and notes thereto should be read in conjunction with the
Company's consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999. The
preparation of financial statements in accordance with GAAP requires management
to make estimates and assumptions. Such estimates and assumptions affect the
reported amounts of assets and liabilities as well as disclosure of contingent
assets and liabilities, at the date of the accompanying consolidated financial
statements, and the reported amounts of the revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
6
Note 2. Net Income Per Share
A reconciliation of the basic and diluted earnings per share computations for
the three months and six months ended June 30, 2000 and 1999 is as follows:
Three Months Ended Six Months Ended
June 30 June 30
---------------------------- ----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
Weighted average common shares
outstanding - Basic 14,658,811 15,100,123 14,644,283 15,051,943
Effect of stock options 353,575 306,931 271,829 307,409
----------- ----------- ----------- -----------
Weighted average common share and
common share equivalents outstanding -
Diluted 15,012,386 15,407,054 14,916,112 15,359,352
=========== =========== =========== ===========
Net income $ 4,595,750 $ 3,893,144 $ 8,468,515 $ 7,416,890
=========== =========== =========== ===========
Net income per common share and common
share equivalent
Basic $ 0.31 $ 0.26 $ 0.58 $ 0.49
=========== =========== =========== ===========
Diluted $ 0.31 $ 0.25 $ 0.57 $ 0.48
=========== =========== =========== ===========
7
Note 3. Acquisitions
The Company acquired the assets of a Texas-based truckload carrier during the
quarter ended March 31, 1999. The purchased assets and assumed liabilities were
recorded at their estimated fair values at the acquisition date in accordance
with Accounting Principles Board ("APB") Opinion No. 16. In conjunction with the
acquisition, the Company issued 97,561 shares of common stock.
The aggregate purchase price of the acquisition consisted of the following:
1999
-------
(in thousands)
Common Stock $ 1,833
Assumption of liabilities 331
-------
Total $ 2,164
=======
The fair value of the assets purchased has been allocated as follows:
1999
-------
(in thousands)
Cash $ 65
Accounts receivable 407
Property and equipment 1,149
Intangible assets 200
Other assets 343
-------
Total $ 2,164
=======
The Company acquired the stock of a Mississippi-based truckload carrier during
the quarter ended June 30, 2000. The acquired assets and assumed liabilities
were recorded at their estimated fair values at the acquisition date in
accordance with APB Opinion No. 16. In conjunction with the acquisition, the
Company issued 228,788 shares of common stock from its treasury shares. These
shares were valued at fair market value less a discount due the restricted
nature of these shares. Adjustments to the purchase price allocations, if any,
are not expected to have a material impact on the accompanying consolidated
financial statements. Terms of the purchase agreement set forth conditions upon
which an earn-out adjustment to the purchase price based upon earnings may be
necessary. This earn-out adjustment may be in the form of additional shares of
the Company's common stock and/or cash.
8
The aggregate purchase price of the acquisition consisted of the following:
2000
-------
(in thousands)
Cash $ 3,686
Common stock 2,949
Assumption of liabilities 20,830
-------
Total $27,465
=======
The fair value of the assets and liabilities purchased has been allocated as
follows:
2000
-------
(in thousands)
Cash $ 2,528
Accounts receivable 4,360
Property and equipment 14,400
Intangible assets 5,566
Other assets 611
-------
Total assets $27,465
=======
Note 4. Segment Information
In January, 1998, the Company adopted Statement of Financial Accounting
Standards No. 131 (SFAS No. 131), Disclosures About Segments of an Enterprise
and Related Information, which establishes revised standards for the reporting
of financial and descriptive information about operating segments in financial
statements.
Although the Company has seven operating segments, it has determined that it has
one reportable segment. Six of the segments are managed based on similar
economic characteristics. Each of the six regional operating divisions provides
short to medium-haul truckload carrier services of general commodities to a
similar class of customers. In addition, each division exhibits similar
financial performance, including average revenue per mile and operating ratio.
The remaining segment is not reported because it does not meet the materiality
thresholds in SFAS No. 131. As a result of the foregoing, the Company has
determined that it is appropriate to aggregate its operating divisions into one
reportable segment consistent with the guidance in SFAS No. 131. Accordingly,
the Company has not presented separate financial information for each of its
operating divisions as the Company's consolidated financial statements present
its one reportable segment.
9
Note 5. Recently Adopted Accounting Pronouncements
In June, 1998 the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. This
statement establishes accounting and reporting standards for derivative
instruments, including derivative instruments embedded in other contracts, and
for hedging activities.
In June 1999, the FASB issued SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of SFAS No.
133. This statement deferred the effective date of SFAS No. 133 to the Company's
quarter ending March 31, 2001. The Company is currently evaluating the impact of
SFAS 133 on its future results of operations and financial position.
On December 3, 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 101, Revenue Recognition, which provides
additional guidance in applying generally accepted accounting principles for
revenue recognition in consolidated financial statements. Subsequent to the
issuance of SAB No. 101 the SEC staff elected to defer the required
implementation date. The Company will be required to adopt SAB No. 101 during
the fourth quarter of 2000. Management believes that the adoption of SAB No. 101
will not have a material impact on the Company's financial position or results
of operations.
Note 6. Commitments and Contingencies
The Company is involved in certain legal proceedings arising in the normal
course of business. In the opinion of management, the Company's potential
exposure under pending legal proceedings is adequately provided for in the
accompanying consolidated financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. The
words "believes," "may", "likely" "expects," "anticipates'" and similar
expressions identify forward-looking statements, which speak only as of the date
the statement was made. Such forward-looking statements are within the meaning
of that term in Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such statements
may include, but are not limited to, projections of revenues, income, or loss,
capital expenditures, plans for future operations, financing needs or plans, the
impact of inflation and plans relating to the foregoing. Statements in the
Company's Annual Report on Form 10-K, including Notes to the Consolidated
Financial Statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," describe factors, among others, that could
contribute to or cause such differences. Additional factors that could cause
actual results to differ materially from those expressed in such forward-looking
statements are set forth in "Business" and "Market for the Company's Common
Equity and Related Stockholder Matters" in the Company's Annual Report on Form
10-K.
RESULTS OF OPERATIONS
The Company's operating revenue for the six months ended June 30, 2000,
increased by 35.6% to $95.2 million from $70.2 million over the same period in
1999. For the three months ended June 30, 2000, operating revenue increased by
40.8% to $51.7 million from $36.7 million over the same period in 1999.
10
The increase in operating revenue resulted from expansion of the Company's
customer base and increased volume from existing customers. This was facilitated
by the continued expansion of the Company's fleet, including approximately 225
tractors acquired in the April 19, 2000 acquisition of John Fayard Fast Freight,
Inc., and approximately 50 tractors acquired in the March 13, 1999 acquisition
of Action Delivery Services, Inc., and an increase in the Company's independent
contractor fleet. The Company's fleet increased by 48.7% to 1,557 tractors
(including 243 owned by independent contractors) as of June 30, 2000, from 1,047
tractors (including 272 owned by independent contractors) as of June 30, 1999.
Salaries, wages and benefits increased as a percentage of operating revenue to
33.1% for the six months ended June 30, 2000, from 29.5% for the same period in
1999. For the three months ended June 30, 2000, salaries, wages and benefits
increased as a percentage of operating revenue to 33.9% from 29.2% for the same
period in 1999. These increases were primarily the result of the increase in the
ratio of company drivers to independent contractors. At March 31, 2000, 80% of
the Company's fleet was operated by Company drivers, compared to 74% at March
31, 1999. At June 30, 2000, 84% of the Company's fleet was operated by Company
drivers, compared to 74% at June 30, 1999. These increases were also due to
adjustments implemented in the driver payroll rate structure for new drivers
during the 2000 period compared to the 1999 period, which resulted in an
approximate $0.02 per mile increase in payroll costs. For Company drivers, the
Company records accruals for worker's compensation as a component of its claims
accrual, and the related expense is reflected in salaries, wages and benefits
expense in its consolidated statements of income.
Fuel expense increased as a percentage of operating revenue to 12.5% for the six
months ended June 30, 2000, from 9.5% for the same period in 1999. For the three
months ended June 30, 2000, fuel expense as a percentage of operating revenue
increased to 12.6% from 9.8% for the same period in 1999. This increase was
primarily the result of recent higher fuel costs per gallon, as well as the
increase in the ratio of Company vehicles to independent contractors.
Operations and maintenance expense decreased as a percentage of operating
revenue to 5.4% for the six months ended June 30, 2000 from 5.8% for the same
period in 1999. For the three months ended June 30, 2000, operations and
maintenance expense as a percentage of operating revenue decreased to 5.4% from
5.8% for the same period in 1999. These decreases were due to continued
improvements in the Company's maintenance programs.
The Company's insurance program for medical, liability, physical damage and
cargo damage involves self-insurance with varying risk retention levels. Claims
in excess of these risk retention levels are covered by insurance which
management considers adequate. The Company accrues the estimated cost of the
uninsured portion of pending claims. These accruals are estimated based on
management's evaluation of the nature and severity of individual claims and
estimates of future claims development based on historical claims development
trends. Insurance and claims expense decreased as a percentage of operating
revenue to 2.1% for the six months ended June 30, 2000, from 2.5% for the same
period in 1999. For the three months ended June 30, 2000, insurance and claims
expense increased as a percentage of operating revenue to 2.4% from 2.3% for the
same period in 1999. These variations reflect the effect of the changes in
frequency and severity of claims activity during the period.
Operating taxes and licenses increased as a percentage of operating revenue to
3.8% for the six months ended June 30, 2000, from 3.7% for the same period in
1999. For the three months ended June 30, 2000, operating taxes and licenses as
11
a percentage of operating revenue increased to 3.7% compared to 3.4% for the
same period in 1999. These increases were due to the decrease in the number of
independent contractors as a percentage of the Company's entire fleet to 16% as
of June 30, 2000, from 26% as of June 30, 1999. Independent contractors are
required to pay their own mileage taxes.
Communications expense as a percentage of operating revenue for both the six
months and three months ended June 30, 2000 was slightly lower than the same
periods in 1999.
Depreciation and amortization expense as a percentage of operating revenue
decreased to 9.4% for the six month period ended June 30, 2000, from 10.1% for
the same period in 1999. For the three months ended June 30, 2000, depreciation
and amortization decreased as a percentage of operating revenue to 9.3% from
9.9% for the same period in 1999. These decreases were related to the increase
in Lease Expense - Revenue Equipment which reflects expenses incurred for
revenue equipment acquired under operating lease agreements. These decreases
were also related to certain dedicated opportunities which do not require the
use of certain Company revenue equipment. Lease Expense - Revenue Equipment as
percentage of operating revenue was 0.9% for the six months ended June 30, 2000
compared to 0.0% for the same period in 1999. For the three months ended June
30, 2000 Lease Expense Revenue Equipment as a percentage of operating revenue
was 1.6% compared to 0.0% for the same period in 1999. These increase reflect
new operating lease agreements entered into.
Purchased transportation decreased as a percentage of operating revenue to 13.7%
for the six months ended June 30, 2000, from 18.1% for the same period in 1999.
For the three months ended June 30, 2000, purchased transportation as a
percentage of operating revenue decreased to 12.2% from 18.6% for the same
period in 1999. These decreases were due to the decrease in the ratio of
independent contractors to company drivers to 16% as of June 30, 2000, from 26%
as of June 30, 1999. Independent contractors are compensated at a fixed rate per
mile.
Miscellaneous operating expenses, as a percentage of operating revenue, were
slightly higher for the three and six months ending June 30, 2000 compared to
the same periods in 1999. These increases were due to decreased utilization of
the Company's fleet.
As a result of the above factors, the Company's operating ratio (operating
expenses as a percentage of operating revenues) for the six months ended June
30, 2000, increased to 84.3% from 82.4% for the same period in 1999. The
Company's operating ratio for the three months ended June 30, 2000, increased to
84.4% from 82.3% for the same period in 1999. Management believes the increase
in the operating ratio was mainly due to increased fuel costs.
For both the six months and three months ended June 30, 2000, net interest
expense increased as a percentage of revenue compared to the same periods in
1999. These increases were primarily the result of the purchase of revenue
equipment, stock repurchases, and the acquisition of John Fayard Fast Freight
Inc., financed by long-term debt and the Company's revolving line of credit.
Income taxes have been provided at the statutory federal and state rates,
adjusted for certain permanent differences between financial statement and
income tax reporting.
As a result of the preceding, the Company's net income as a percentage of
operating revenue was 8.9% for the three and six months ended June 30, 2000,
compared to 10.6% for the same periods in 1999.
12
LIQUIDITY AND CAPITAL RESOURCES
The growth of the Company's business has required a significant investment in
new revenue equipment. The Company's primary source of liquidity has been funds
provided by operations and the Company's lines of credit with its primary
lender. Net cash provided by operating activities was approximately $6.8 million
for the first six months of 2000, compared to $9.9 million for the corresponding
period in 1999.
Capital expenditures for the purchase of revenue equipment, net of trade-ins,
office equipment and leasehold improvements totaled $20.5 million for the first
six months of 2000 compared to $15.2 million for the same period in 1999.
Net cash provided by financing activities was approximately $9.7 million for the
first six months of 2000 compared to net cash provided by financing activities
of $2.0 million for the same period in 1999. Net cash financing activities
during the first six months of 2000 was the result of the Company receiving cash
for the sale of notes receivable.
The Company maintains lines of credit totaling $60 million with its lender and
uses these lines to finance the acquisition of revenue equipment and other
corporate uses to the extent the Company's need for capital is not provided by
funds from operations. The Company is obligated to comply with certain financial
covenants under its lines of credit.
The rate of interest on borrowings against the lines of credit will vary
depending upon the interest rate election made by the Company, based upon either
the London Interbank Offered Rate ("Libor") plus an adjustment factor, or the
prime rate. Borrowings under the lines amounted to $38.6 million at June 30,
2000. The lines expire in July 2001. Management believes the Company will be
able to renew or renegotiate its lines of credit on terms at least as favorable
as the current terms on the lines of credit, subject to adjustments for any
interest rate increases.
In October, 1998, the Company entered into a $10 million term loan with its
primary lender which will mature in 60 months. The interest is at a fixed
percentage of 5.75%. The note is unsecured and has an outstanding balance of
$6,984,474 as of June 30, 2000, with $1,955,098 due in the next 12 months.
During 1999 the Company entered into notes payable agreements with a commercial
lender which will mature in November 2002. The notes are secured by certain
revenue equipment with interest rates from 6.95% to 6.99%. The notes had
outstanding balances totaling $6,120,570 at June 30, 2000, with $865,182 due in
the next 12 months.
Management believes the Company has adequate liquidity to meet its current
needs. The Company will continue to have significant capital requirements over
the long term, which may require the Company to incur debt or seek additional
equity capital. The availability of this capital will depend upon prevailing
market conditions, the market price of the common stock and other factors over
which the Company has no control, as well as the Company's financial condition
and results of operations.
13
SEASONALITY
In the transportation industry, results of operations frequently show a seasonal
pattern. Seasonal variations may result from weather or from customer's reduced
shipments after the busy winter holiday season.
To date, the Company's revenues have not shown any significant seasonal pattern.
Because the Company has operated primarily in Arizona, California and the
western United States, winter weather conditions have not adversely affected the
Company's business. The current expansion of the Company's operations into the
Midwest, on the East Coast, and the Southeast regions, could expose the Company
to greater operating variances due to seasonal weather.
INFLATION
Many of the Company's operating expenses, including fuel costs and fuel taxes,
are sensitive to the effects of inflation, which could result in higher
operating costs. In late 1999 the Company began to experience increases in fuel
costs, as a result of conditions in the petroleum industry. The Company has also
recently experienced some wage increases for drivers. Increases in fuel costs
and driver compensation are expected to continue during 2000 and may affect the
Company's operating income, unless the Company is able to pass those increased
costs to customers through rate increases or fuel surcharges. The Company has
initiated an aggressive program to obtain rate increases and fuel surcharges
from customers in order to cover increased costs due to these increases in fuel
prices, driver compensation and other expenses and has been successful in
implementing some fuel surcharges.
YEAR 2000
For the six months ended June 30, 2000 the "Year 2000 Issue" did not present any
significant operational problems for the Company and did not materially effect
the Company's relationships with customers, vendors, and others.
The Company implemented various modifications to ensure that its computer
equipment and software will function properly in the Year 2000 and beyond. All
internal and external costs associated with the Company's Year 2000 compliance
activities are expensed as incurred. The Company believes that the costs of
addressing the Year 2000 did not have a material impact on its financial
position or results of operations.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Pursuant to Financial Accounting Reporting Release Number 48 issued by the
Securities and Exchange Commission in January 1997, the Company is required to
disclose information concerning market risk with respect to foreign exchange
rates, interest rates, and commodity prices. The Company has elected to make
such disclosures, to the extent applicable, using a sensitivity analysis
approach, based upon hypothetical changes in interest rates and commodity
prices.
The Company has not had occasion to use derivative financial instruments for
risk management purposes and does not use them for either speculation or
trading. Because the Company's operations are confined to the United States, the
Company is not subject to foreign currency risk.
The Company is subject to interest rate risk, to the extent it borrows against
its line of credit or incurs additional debt in the acquisition of revenue
equipment. The Company attempts to manage its interest rate risk by carrying as
little debt as possible. The Company has not entered into interest rate swaps or
other strategies designed to protect it against interest rate risk. In the
opinion of management, an increase in short-term interest rates could have a
material effect on the Company's financial condition if the Company's debt
levels increase and if interest rates increases are not offset by freight rate
increases or other items. The Company seeks to manage its interest rate exposure
by managing the amount of indebtedness the Company incurs. Management does not
foresee or expect any significant changes in exposure to interest rate
fluctuations or in how that exposure is managed by the Company in the near
future. The Company has not issued corporate debt instruments.
The Company is subject to commodity price risk with respect to purchases of fuel
and tires. The Company has not used derivative financial instruments to manage
these risks. The Company has installed fuel islands at its various locations
that enable it to purchase fuel at "rack" prices, thereby saving pumping
charges. In the ordinary course of business, the Company purchases fuel in bulk
quantities, which it maintains in inventory. These purchases are not designed as
hedging transactions. Where possible, the Company seeks to participate in tire
testing programs to reduce the cost of tires. It is the Company's policy to pass
on price increases in fuel, tires, or other commodities through rate increases
or surcharges, to the extent the existing market will permit such costs to be
passed through to the customer. If the Company were unable to pass increased
costs on to the customers through rate increases, such increases could adversely
affect the Company's financial position or results of operations.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to ordinary, routine litigation and administrative
proceedings incidental to its business. These proceedings primarily involve
personnel matters, including Equal Employment Opportunity Commission ("EEOC")
claims and claims for personal injury or property damage incurred in the
transportation of freight. The Company maintains insurance to cover liabilities
arising from the transportation of freight for amounts in excess of self-insured
retentions. It is the Company's policy to comply with applicable equal
employment opportunity laws and the Company periodically reviews its policies
and practices for equal employment opportunity compliance.
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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
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K
Exhibit No. Description
----------- -----------
Exhibit 3 Instruments defining the rights of security holders,
including indentures
(3.1) Restated Articles of Incorporation of the Company
(Incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-1.
No 33-83534.)
(3.2) Amended and Restated Bylaws of the Company
(Incorporated by reference to Exhibit 3.2 to the
Company's report on Form 10-K for the period ending
December 31, 1996.)
Exhibit 4 Instruments defining the rights of security holders,
including indentures
(4.1) Articles 4, 10 and 11 of the Restated Articles of
Incorporation of the Company. (Incorporated by
reference to Exhibit 3.1 to the Company's Report on
Form 10-K for the fiscal year ended December 31, 1994.)
16
(4.2) Sections 2 and 5 of the Amended and Restated By-laws of
the Company. (Incorporated by reference to Exhibit 3.2
to the Company's Report on Form 10-K for the fiscal
year ended December 31, 1995.)
Exhibit 11 Schedule of Computation of Net Income Per Share
(Incorporated by reference from Note 3, Net Income
Per Share, in the Notes To Consolidated Financial
Statements on Form 10-Q, for the quarter ended
June 30, 2000.)
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
A report on Form 8-K was filed by the Company on May 4, 2000, during
the quarter ended on June 30, 2000, that updated the Company's
acquisition of Fayard Fast Freight, Inc., on April 19, 2000. No
financial statements or proforma financial information were filed with
the Form 8-K since Fayard Fast Freight, Inc., did not constitute a
"significant subsidiary" under Regulation SK, promulgated pursuant to
the Securities Exchange Act of 1934.
17
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.
KNIGHT TRANSPORTATION, INC.
Date: August 11, 2000 By: /s/ Kevin P. Knight
------------------------------------
Kevin P. Knight
Chief Executive Officer
Date: August 11, 2000 By: /s/ Gregg A. Sharp
------------------------------------
Gregg A. Sharp
Chief Financial Officer and
Principal Financial Officer
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS TO
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
Commission File No. 0-24946
19
KNIGHT TRANSPORTATION, INC.
INDEX TO EXHIBITS TO FORM 10-Q
Sequentially
Exhibit No. Description Numbered Pages(1)
- ----------- ----------- -----------------
Exhibit 4 Instruments defining the rights of
security holders, including indentures
(a) Articles 4, 10 and 11 of the Restated
Articles of Incorporation of the Company.
(Incorporated by reference to Exhibit 3.1
to the Company's Report on Form 10-K for
the fiscal year ended December 31, 1994.)
(b) Sections 2 and 5 of the Amended and
Restated By-laws of the Company.
(Incorporated by reference to Exhibit 3.2
to the Company's Report on Form 10-K for
the fiscal year ended December 31, 1995.)
Exhibit 27 Financial Data Schedule
- ----------
(1) The page numbers where exhibits (other than those incorporated by
reference) may be found are indicated only on the manually signed report.
20