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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1998
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)
(602) 269-2000
(Registrant's Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS Name of Exchange on Which Registered
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Common Stock, $0.01 par value NASDAQ-NMS
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 4, 1999, was $141,599,291 (based upon $21.0625 per share
being the closing sale price on that date as reported by the National
Association of Securities Dealers Automated Quotation System-National Market
System ("NASDAQ-NMS")). In making this calculation, the issuer has assumed,
without admitting for any purpose, that all executive officers and directors of
the company, and no other persons, are affiliates.
The number of shares outstanding of the registrant's common stock as of March 4,
1999 was 14,992,061.
The Information Statement for the Annual Meeting of Shareholders to be held on
May 12, 1999 is incorporated into this Form 10-K Part III by reference.
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TABLE OF CONTENTS
KNIGHT TRANSPORTATION, INC.
FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1998
Page
----
PART I.
Item 1. Business.......................................................1
Item 2. Properties.....................................................6
Item 3. Legal Proceedings..............................................7
Item 4. Submission of Matters to a Vote of Security Holders............7
PART II.
Item 5. Market for Company's Common Equity and Related
Shareholder Matters...........................................8
Item 6. Selected Financial Data........................................9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................10
Item 7A Quantitative and Qualitative Disclosures About
Market Risk..................................................17
Item 8. Financial Statements and Supplementary Data...................18
Item 9. Changes in and Disagreements on Accounting and
Financial Disclosure.........................................18
PART III.
Item 10. Directors and Executive Officers of the Company...............18
Item 11. Executive Compensation........................................18
Item 12. Security Ownership of Certain Beneficial Owners
and Management...............................................18
Item 13. Certain Relationships and Related Transactions................18
PART IV.
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K......................................19
SIGNATURES..................................................................22
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ...................................24
CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING NOTES....................25
INDEX TO EXHIBITS...........................................................38
PART I
ITEM 1. BUSINESS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE DISCUSSION
IN THIS ANNUAL REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS,
ASSUMPTIONS AND UNCERTAINTIES WHICH ARE DIFFICULT TO PREDICT. WORDS SUCH AS
"BELIEVE," "MAY," "COULD," "EXPECTS" AND "LIKELY" VARIATIONS OF THESE WORDS, AND
SIMILAR EXPRESSIONS, ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS.
THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED
HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT
ARE NOT LIMITED TO, THOSE DISCUSSED IN THE SECTIONS ENTITLED "FACTORS THAT MAY
AFFECT FUTURE RESULTS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS," AS WELL AS THOSE DISCUSSED IN THIS PART
AND ELSEWHERE IN THIS ANNUAL REPORT.
GENERAL
Knight Transportation, Inc. ("Knight" or the "Company") is a
short-to-medium haul, dry van truckload carrier headquartered in Phoenix,
Arizona. The Company transports general commodities, including consumer goods,
packaged foodstuffs, paper products, beverage containers and imported and
exported commodities. The Company provides truckload carrier service to the
Western United States out of its Phoenix, Arizona headquarters, in the Texas and
Louisiana region through its facility in Katy, Texas, and in the Midwest and on
the East Coast through its facility in Indianapolis, Indiana.
The Company's stock has been publicly traded since October 1994. From
1992 to 1998, Knight's revenue has grown to $125.0 million from $19.6 million,
and net income has increased to $13.3 million from $1.9 million. This growth
resulted from expansion of the Company's customer base and increased volume from
existing customers, and was facilitated by the continued expansion of the
Company's fleet, including an increase in the Company's independent contractor
fleet.
OPERATIONS
Knight's operating strategy focuses on four key elements: growth,
regional operations, customer service, and operating efficiencies.
o GROWTH. Knight's objective is to achieve significant growth through
the controlled growth of high quality service to existing customers and the
development of new customers in its expanded market areas. The Company has
developed an independent contractor program to increase its tractor fleet and
provide additional service to customers, while minimizing capital investment by
the Company. The Company believes that there are significant opportunities to
continue to increase its business in the short-to-medium haul market by pursuing
existing strategies and expanding its dedicated services.
o REGIONAL OPERATIONS. The Company's headquarters and facilities in
Phoenix, Arizona allow it to serve the Western region of the United States. The
Company has also established operations near Houston, Texas to serve customers
in the Louisiana and Texas region. In March 1999, the Company leased a facility
in Corsicana, Texas, in order to expand its operations in the Texas and
Louisiana region. The Company's operations in Corsicana are supervised through
its regional headquarters near Houston. The Company has also established
operations in Indianapolis, Indiana, from which it provides regional and
dedicated service in the Mid-West and on the East Coast. Knight expects that its
three regional operating bases will provide a platform for future growth, and
intends to expand its regional operations from those bases.
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o CUSTOMER SERVICE. Knight's operating strategy is to provide a high
level of service to customers, establishing the Company as a preferred or "core
carrier" for customers who have time sensitive, high volume or high weight
requirements. The Company's services include multiple pick-ups and deliveries,
dedicated equipment and personnel, on-time pickups and deliveries within narrow
time frames, specialized driver training, and other services tailored to meet
its customers' needs. The Company has adopted an equipment configuration that
meets a wide variety of customer needs and facilitates customer shipping
flexibility. The Company uses light weight tractors and high cube trailers
capable of handling both high volume and high weight shipments.
o OPERATING EFFICIENCIES. The Company employs a number of strategies
that it believes are instrumental to its efforts to achieve and maintain
operating efficiencies. Knight seeks to maintain a simplified operation that
focuses on operating dry vans in particular geographical and shipping markets.
This approach allows the Company to concentrate its marketing efforts to achieve
higher penetration of its targeted service areas. The Company seeks operating
economies by maintaining a generally compatible fleet of tractors and trailers
that facilitates Knight's ability to serve a broad range of customer needs and
thereby maximizes equipment utilization and efficiencies in equipment
maintenance and positioning.
MARKETING AND CUSTOMERS
The Company's sales and marketing function is led by its senior
management, who are assisted by other sales professionals. The Company's
marketing team emphasizes the Company's high level of service and ability to
accommodate a variety of customer needs. The Company's marketing efforts are
designed to take advantage of the trend among shippers toward private fleet
conversions, outsourcing transportation requirements, and the use of core
carriers to meet shippers' needs.
Knight has a diversified customer base. For the year ended December 31,
1998, the Company's 25 largest customers represented 51.4% of operating revenue;
its ten largest customers represented 34.5% of operating revenue; and its five
largest customers represented 22.0% of the Company's operating revenue. The
Company believes that a substantial majority of the Company's 25 largest
customers regard Knight as a preferred or "core carrier." Most of the Company's
truckload carriage contracts are cancelable on 30 days notice. The loss of one
or more large customers could have a materially adverse effect on the Company's
operating results.
Knight seeks to provide consistent, timely, flexible and cost efficient
service to shippers. The Company's objective is to develop and service specified
traffic lanes for customers who ship on a consistent basis, thereby providing a
sustained, predictable traffic flow and ensuring high equipment utilization. The
short-to-medium haul segment of the truckload carrier market demands timely
pickup and delivery and, in some cases, response on short notice. The Company
seeks to obtain a competitive advantage by providing high quality service to
customers at competitive prices. To be responsive to customers' and drivers'
needs, the Company often assigns particular drivers and equipment to prescribed
routes, providing better service to customers, while obtaining higher equipment
utilization.
Knight's standard dedicated fleet services also involve management of a
significant part of a customer's transportation operations. Under a dedicated
carriage service agreement, the Company provides drivers, equipment and
maintenance, and, in some instances, transportation management services that
supplement the customer's in-house transportation department. The Company's
primary arrangements for dedicated services in the Houston area obligate the
Company to provide a portion of its customer's transportation needs from one of
the customer's distribution centers. The Company furnishes these services
through Company provided revenue equipment and drivers.
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Each of the Company's two regional operations centers is linked to the
Company's Phoenix headquarters by an IBM AS/400 computer system. The
capabilities of this system enhance the Company's operating efficiency by
providing cost effective access to detailed information concerning equipment and
shipment status and specific customer requirements, and also permit the Company
to respond promptly and accurately to customer requests. The system also assists
the Company in matching available equipment and loads. The Company provides
electronic data interchange ("EDI") services to shippers requiring such service.
The Company has made an investment in a communications company that
provides two-way digital wireless communication services which enables customers
such as the Company to communicate with manned and unmanned transportation
assets via the Internet and through ground based wide-area networks. The
Company's investment is intended to assure access to low cost communication
services for the future which are capable of meeting the needs of the Company
and its customers.
DRIVERS, OTHER EMPLOYEES, AND INDEPENDENT CONTRACTORS
As of December 31, 1998, Knight employed 1,145 persons, including 933
drivers and 31 maintenance personnel. None of the Company's employees is
represented by a labor union.
The recruitment, training and retention of qualified drivers is
essential to support the Company's continued growth and to meet the service
requirements of the Company's customers. Drivers are selected in accordance with
specific objective Company quality guidelines relating primarily to safety
history, driving experience, road test evaluations, and other personal
evaluations, including physical examinations and mandatory drug and alcohol
testing.
The Company seeks to maintain a qualified driver force by providing
attractive and comfortable equipment, direct communication with senior
management, competitive wages and benefits, and other incentives designed to
encourage driver retention and long-term employment. Many drivers are assigned
to dedicated or semi-dedicated fleet operations, enhancing job predictability.
Drivers are recognized for providing superior service and developing good safety
records.
Knight's drivers are compensated on the basis of miles driven and
length of haul. Drivers also are compensated for additional flexible services
provided to the Company's customers. Drivers participate in Knight's 401(k)
program and in Company-sponsored health, life and dental plans. Knight's drivers
and other employees who meet eligibility criteria also participate in a stock
option plan and a cash employee incentive program.
The Company also maintains an independent contractor program. Because
independent contractors provide their own tractors, the independent contractor
program provides the Company an alternate method of obtaining additional revenue
equipment. The Company intends to continue its use of independent contractors.
As of December 31, 1998, the Company had 231 tractors owned and operated by
independent contractors. Each independent contractor enters into a contract with
the Company pursuant to which it is required to furnish a tractor and a driver
exclusively to transport, load and unload goods carried by the Company.
Independent contractors are paid a fixed level of compensation based on total of
trip-loaded and empty miles and are obligated to maintain their own tractors and
pay for their own fuel. The Company provides trailers for each independent
contractor. The Company also provides maintenance services for its independent
contractors for a charge. The Company also offers financing at market interest
rates to independent contractors to assist them in acquiring revenue equipment.
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Company loans are secured by a lien on the independent contractor's revenue
equipment. As of December 31, 1998, the Company had outstanding loans of
approximately $3.4 million to independent contractors.
REVENUE EQUIPMENT
The Company operates a fleet of 53-foot long, high cube trailers,
including 50 refrigerated trailers and 24 flatbed trailers in its fleet as of
March 4, 1999. The efficiency and flexibility provided by its fleet
configurations permit the Company to handle both high volume and high weight
shipments. Knight's fleet configuration also allows the Company to move freight
on a "drop-and-hook" basis, increasing asset utilization and providing better
service to customers. Knight maintains a high trailer to tractor ratio,
targeting a ratio of 2.7 to 1. Management believes maintaining this ratio
promotes efficiency and allows it to serve a large variety of customers' needs
without significantly changing or modifying equipment.
Growth of the Company's tractor and trailer fleets is determined by
market conditions, and the Company's experience and expectations regarding
equipment utilization. In acquiring revenue equipment, the Company considers a
number of factors, including economy, price, technology, warranty terms,
manufacturer support, driver comfort and resale value. As of December 31, 1998,
the Company operated 702 company tractors with an average age of 1.5 years and
2,809 trailers with an average age of 2.2 years. The Company also had under
contract, as of December 31, 1998, 231 tractors, operated by independent
contractors.
The Company seeks to minimize the operating costs of its tractors and
trailers by maintaining a relatively new fleet featuring cost saving
technologies. The Company's current policy is to replace most of its tractors
within 42 months after the date of purchase and to replace its trailers over a
five to seven year period. Actual replacement depends upon the condition of
particular equipment, its resale value and other factors. The Company employs a
continuous preventive maintenance program designed to minimize equipment down
time, facilitate customer service, and enhance trade value when equipment is
replaced. The Company believes that its equipment acquisition program allows it
to meet the needs of a wide range of customers in the dry van truckload market
while, at the same time, controlling costs relating to maintenance, driver
training and operations. As of December 31, 1998, the Company had purchase
commitments for additional tractors and trailers with an estimated purchase
price of approximately $41 million for delivery throughout 1999.
SAFETY AND RISK MANAGEMENT
The Company is committed to ensuring the safety of its operations. The
Company regularly communicates with drivers to promote safety and instill safe
work habits through Company media and safety review sessions. The Company
conducts quarterly safety training meetings for its drivers and independent
contractors. In addition, the Company has an innovative recognition program for
driver safety performance, and emphasizes safety through its equipment
specifications and maintenance programs. The Company's Safety Director is
involved in the review of all accidents.
The Company requires prospective drivers to meet higher qualification
standards than those required by the United States Department of Transportation
("DOT"). The DOT requires the Company's drivers to obtain national commercial
drivers' licenses pursuant to regulations promulgated by the DOT. The DOT also
requires that the Company implement a drug and alcohol testing program in
accordance with DOT regulations. The Company's program includes pre-employment,
random, and post-accident drug testing.
The Company's Chief Financial Officer and Vice President of Human
Resources and Administration are responsible for securing appropriate insurance
coverages at cost effective rates. The primary claims arising in the Company's
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business consist of cargo loss and damage and auto liability (personal injury
and property damage). The Company is self-insured for personal injury and
property damage up to a maximum limit of $100,000 per occurrence, for collision,
comprehensive, and cargo liability up to a combined limit of $12,500 per
occurrence, and for workers' compensation up to $250,000 per occurrence. The
Company maintains insurance to cover liabilities in excess of these amounts. The
Company's insurance policies provide for general liability coverage up to
$1,000,000 per occurrence and $2,000,000 in the aggregate; automobile liability
coverage up to $1,000,000 per occurrence; cargo insurance up to $2,500,000 per
occurrence; and additional umbrella liability coverage up to $25,000,000. The
Company also maintains primary and excess coverage for employee medical expenses
and hospitalization, and damage to physical properties. The Company carefully
monitors claims and participates actively in claims estimates and adjustments.
The estimated costs of the Company's self-insured claims, which include
estimates for incurred but unreported claims, are accrued as liabilities on the
Company's balance sheet. Management believes that the Company's insurance
coverages are adequate to protect the Company from any significant losses.
COMPETITION
The entire trucking industry is highly competitive and fragmented. The
Company competes primarily with other regional short-to-medium haul truckload
carriers, logistics providers and national carriers. Railroads and air freight
also provide competition, but to a lesser degree. Competition for the freight
transported by the Company is based on freight rates, service, and efficiency.
The Company also competes with other motor carriers for the services of drivers
and independent contractors. A number of the Company's competitors have greater
financial resources, own more equipment, and carry a larger volume of freight
than the Company. The Company believes that the principal competitive factors in
its business are service, pricing (rates), and the availability and
configuration of equipment that meets a variety of customers' needs. Knight, in
addressing its markets, believes that its principal competitive strength is its
ability to provide timely, flexible and cost-efficient service to shippers. In
general, increased competition has created downward pressure on rates and
increased the need to provide higher levels of service to customers.
REGULATION
Generally, the trucking industry is subject to regulatory and
legislative changes that can have a materially adverse effect on operations.
Historically, the Interstate Commerce Commission ("ICC") and various state
agencies regulated truckload carriers' operating rights, accounting systems,
rates and charges, safety, mergers and acquisitions, periodic financial
reporting and other matters. In 1995, federal legislation was passed that
preempted state regulation of prices, rates, and services of motor carriers and
eliminated the ICC. Several ICC functions were transferred to the Department of
Transportation ("DOT"), but a lack of regulations implementing such transfers
currently prevents the Company from assessing the full impact of this action.
Interstate motor carrier operations are subject to safety requirements
prescribed by the DOT. Matters such as weight and dimensions of equipment are
also subject to federal and state regulation. In 1988, the DOT began requiring
national commercial drivers' licenses for interstate truck drivers.
The Company's motor carrier operations are also subject to
environmental laws and regulations, including laws and regulations dealing with
underground fuel storage tanks, the transportation of hazardous materials and
other environmental matters. The Company has initiated programs to comply with
all applicable environmental regulations. As part of its safety and risk
management program, the Company periodically performs an internal environmental
-5-
review so that the Company can achieve environmental compliance and avoid
environmental risk. The Company's Phoenix and Indianapolis facility was
designed, after consultation with environmental advisors, to contain and
properly dispose of hazardous substances and petroleum products used in
connection with the Company's business. The Company transports a minimum amount
of environmentally hazardous substances and, to date, has experienced no
significant claims for hazardous substance shipments. If the Company should fail
to comply with applicable regulations, the Company could be subject to
substantial fines or penalties and to civil and criminal liability.
The Company's operations involve certain inherent environmental risks.
The Company's Phoenix facility is located on land identified as potentially
having groundwater contamination beneath it allegedly resulting from the release
of hazardous substances by persons who have operated in the general vicinity.
The area has been classified as a state superfund site. The Company has been
located at its present Phoenix facility since 1990 and, during such time, has
not been identified as a potentially responsible party with regard to the
groundwater contamination. The Company has installed a fuel island at its
Phoenix, Arizona headquarters and maintains above-ground bulk fuel storage to
provide fuel for this facility. The Company's Phoenix bulk fuel storage facility
has been designed to minimize environmental risk. There are two underground
storage tanks located on the Company's Indianapolis property. The tanks are
subject to regulation under both federal and state law and are currently being
leased to and operated by an independent, third party fuel distributor. The
Company assumed the lessor's interest in the lease, in connection with its
purchase of the property. The lessee has agreed to carry environmental
impairment liability insurance, naming the Company, as lessor, as an insured,
covering the spillage, seepage or other loss of petroleum products, hazardous
wastes, or similar materials onto the leased premises and has agreed to
indemnify the Company, as lessor, against damage from such occurrences. The
Indianapolis property is located approximately 0.1 mile east of Reilly Tar and
Chemical Corporation ("Reilly"), a federal superfund site listed on the National
Priorities List for clean-up. The Reilly site has known soil and groundwater
contamination. There are also other sites in the general vicinity of the
Company's Indianapolis property that have known contamination. Environmental
reports obtained by the Company have disclosed no evidence that activities on
the Company's Indianapolis property have caused or contributed to the area's
contamination.
The Company believes it is currently in material compliance with
applicable laws and regulations and that the cost of compliance has not
materially affected results of operations. See "Legal Proceedings" for
additional information regarding certain regulatory matters.
ITEM 2. PROPERTIES
The Company's headquarters and principal place of business is located
at 5601 West Buckeye Road, Phoenix, Arizona on approximately 43 acres. The
Company owns approximately 35 acres and the remaining 8 acres are leased from
Mr. L. Randy Knight, an officer and director of the Company and one of its
principal shareholders. See "Certain Relationships and Related Transactions,"
below, for additional information. In October 1997, the Company completed
construction of a bulk fuel storage facility and fueling islands at its Phoenix
headquarters to obtain greater operating efficiencies. In June of 1998, the
Company completed expansion of its headquarters facilities.
The Company owns and operates a 9.5 acre regional facility in
Indianapolis, Indiana. The facility includes a truck terminal, administrative
offices, and dispatching and maintenance services, as well as room for future
expansion, and will serve as a base for the Company's operations in the Midwest.
The Company completed its initial expansion of this facility in October, 1998.
The Company's operations near Houston are currently located on the
premises of one of the Company's significant customers, for whom it provides
dedicated services. These facilities also support the Company's non-dedicated
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operations in the Texas and Louisiana region. The Company has acquired property
in Katy, Texas for its regional headquarters and construction of the Company's
new facility is expected to be completed by January, 2000.
In March 1999, the Company entered into a lease for terminal facilities
in Corsicana, Texas, from which the Company will operate in order to provide
dedicated services to one of its larger customers. The Company's operations in
Corsicana, Texas will be coordinated through the Company's regional headquarters
located in Katy, Texas.
The Company leases office facilities in California, Oklahoma and Utah,
which it uses for fleet maintenance, record keeping and general operations. The
Company purchased property during 1998 in Fontana, California to serve as a
trailer drop and dispatching facility to support the Company's operations in
California. The Company also leases space in various locations for temporary
trailer storage. Management believes that replacement space comparable to these
facilities is readily obtainable, if necessary.
As of December 31, 1998, the Company's aggregate monthly rent for all
leased properties was approximately $35,000.
The Company believes that its current facilities and those under
expansion are suitable and adequate for its present needs. The Company
periodically seeks to improve its facilities or identify new favorable
locations. The Company has not encountered any significant impediments to the
location or addition of new facilities.
ITEM 3. 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
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 in amounts in excess of self-insured
retentions. See "Business -- Safety and Risk Management." 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter to a vote of its security holders
during the fourth quarter of 1998.
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PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's common stock is traded on the NASDAQ National Market tier
of The NASDAQ Stock Market under the symbol KNGT. The following table sets
forth, for the period indicated, the high and low bid information per share of
the Company's common stock as quoted through the NASDAQ-NMS. Such quotations
reflect inter-dealer prices, without retail markups, markdowns or commissions
and, therefore, may not necessarily represent actual transactions.
HIGH LOW
---- ---
1997
First Quarter $ 16.83 $ 12.50
Second Quarter $ 19.00 $ 13.67
Third Quarter $ 19.17 $ 14.33
Fourth Quarter $ 21.33 $ 15.17
1998
First Quarter $ 21.33 $ 16.33
Second Quarter $ 21.92 $ 15.00
Third Quarter $ 19.88 $ 12.88
Fourth Quarter $ 28.50 $ 14.75
As of March 4, 1999, the Company had 70 shareholders of record and
approximately 1,550 beneficial owners in security position listings of its
common stock.
The Company has never paid cash dividends on its common stock, and it
is the current intention of management to retain earnings to finance the growth
of the Company's business. Future payment of cash dividends will depend upon
financial condition, results of operations, cash requirements, and certain
corporate law requirements, as well as other factors deemed relevant by the
Board of Directors.
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ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below for, and as of
the end of, each of the years in the five-year period ended December 31, 1998,
are derived from the Company's Consolidated Financial Statements, which have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report. The information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," below, and the Consolidated Financial Statements and
Notes thereto included in Item 8 of this Form 10-K.
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OPERATING DATA)
STATEMENTS OF INCOME DATA:
Operating revenue $125,030 $99,428 $77,504 $56,170 $37,543
Operating expenses 102,049 81,948 64,347 45,569 29,431
Income from operations 22,981 17,480 13,157 10,601 8,112
Net interest expense and other (259) (18) (346) (196) (734)
Income before income taxes 22,722 17,462 12,810 10,406 7,378
Net income 13,346 10,252 7,510 5,806 4,094
Diluted net income per share (1) .87 .68 .52 .43 .33
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (deficit) $ 3,242 $ 2,044 $ 4,141 $ (293) $ 1,761
Total assets 116,958 82,690 64,118 43,099 32,588
Long-term obligations, net of current 7,920 -- 53 981 2,117
Shareholders' equity 70,646 56,798 45,963 24,732 18,903
OPERATING DATA (UNAUDITED):
Operating ratio(2) 81.6% 82.4% 83.0% 81.1% 78.4%
Average revenue per mile $ 1.24 $ 1.22 $ 1.24 $ 1.26 $ 1.29
Average length of haul (miles) 489 500 489 494 482
Empty mile factor 10.0% 9.6% 9.6% 10.3% 10.1%
Tractors operated at end of period(3) 933 772 575 425 291
Trailers operated at end of period 2,809 2,112 1,529 1,044 639
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(1) Net income per share for all periods presented has been restated in
accordance with Statement of Financial Accounting Standards No. 128,
"Earnings per Share".
(2) Operating expenses as a percentage of operating revenue.
(3) Includes 231 independent contractor operated vehicles at December 31, 1998;
includes 192 independent contractor operated vehicles at December 31, 1997;
158 independent contractor operated vehicles at December 31, 1996; 115
independent contractor operated vehicles at December 31, 1995; and 29
independent contractor operated vehicles at December 31, 1994.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION.
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE DISCUSSION
IN THIS ANNUAL REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS,
ASSUMPTIONS AND UNCERTAINTIES WHICH ARE DIFFICULT TO PREDICT. WORDS SUCH AS
"BELIEVE," "MAY," "COULD," "EXPECTS," "LIKELY" AND VARIATIONS OF THESE WORDS,
AND SIMILAR EXPRESSIONS, ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING
STATEMENTS. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW IN THE SECTION ENTITLED
"FACTORS THAT MAY AFFECT FUTURE RESULTS," AS WELL AS THOSE DISCUSSED IN THIS
ITEM AND ELSEWHERE IN THIS ANNUAL REPORT.
GENERAL
The following discussion of the Company's financial condition and
results of operations for the three-year period ended December 31, 1998, should
be read in conjunction with the Company's Consolidated Financial Statements and
Notes thereto contained elsewhere in this report.
Knight was incorporated in 1989 and commenced operations in July 1990.
For the five-year period ended December 31, 1998, the Company's operating
revenue grew at a 36.5% compounded annual rate, while net income increased at a
40.4% compounded annual rate.
The Company has established regional operations in Phoenix, Arizona;
Indianapolis, Indiana; and Katy, Texas. The Company's headquarters facilities in
Phoenix, Arizona, serve the Western United States. The Company's operations in
Indianapolis allow the Company to serve customers in the Midwest and on the East
Coast and provide a platform for the expansion of the Company's operations in
those regions. The Company's operations in Katy, Texas were undertaken to
provide dedicated service to a large customer and to provide a base for the
expansion of operations in the Texas and Louisiana regions.
To support its growth, the Company initiated an independent contractor
program in 1994. The Company's decision to utilize independent contractors as
part of the Company's fleet expansion was based on several factors, including
reduced Company capital requirements, since independent contractors provide
their own tractors. Use of independent contractors also resulted in a lower
turnover rate. Due to the use of independent contractors, the Company originally
experienced a decrease in salaries, wages and benefits, fuel and maintenance,
and other expenses, as a percentage of operating revenue, and a corresponding
increase in purchased transportation as a percentage of operating revenue. As of
December 31, 1998, the Company had 231 tractors owned and operated by
independent contractors. The Company expanded its Company-owed fleet during
1998. As the Company-owed fleet has expanded, purchased transportation has
decreased slightly as a percentage of operating revenue. Purchased
transportation represents the amount an independent contractor is paid to haul
freight for the Company on a mutually agreed per-mile basis.
-10-
RESULTS OF OPERATIONS
The following table sets forth the percentage relationships of the
Company's expense items to operating revenue for the three-year period indicated
below:
YEARS ENDED DECEMBER 31,
------------------------
1998 1997 1996
---- ---- ----
Operating revenue 100.0% 100.0% 100.0%
----- ----- -----
Operating expenses:
Salaries, wages and benefits 28.7 28.2 28.7
Fuel 9.7 10.2 10.2
Operations and maintenance 5.9 5.6 5.2
Insurance and claims 2.5 2.5 3.6
Operating taxes and licenses 4.2 4.1 3.9
Communications .8 .6 .6
Depreciation and amortization 10.0 9.6 9.7
Purchased transportation 17.4 19.2 18.6
Miscellaneous operating expenses 2.4 2.4 2.5
----- ----- -----
Total operating expenses 81.6 82.4 83.0
----- ----- -----
Income from operations 18.4 17.6 17.0
Net interest expense .2 -- .5
----- ----- -----
Income before income taxes 18.2 17.6 16.5
Income taxes 7.5 7.3 6.8
----- ----- -----
Net Income 10.7% 10.3% 9.7%
===== ===== =====
FISCAL 1998 COMPARED TO FISCAL 1997
Operating revenue increased by 25.7% to $125.0 million in 1998 from
$99.4 million in 1997. This increase resulted from expansion of the Company's
customer base and increased volume from existing customers and was facilitated
by a substantial increase in the Company's tractor and trailer fleet, including
an increase in the Company's independent contractor fleet, during 1998 compared
to 1997. The Company's fleet increased by 20.9% to 933 tractors (including 231
owned by independent contractors) as of December 31, 1998, from 772 tractors
(including 192 owned by independent contractors) as of December 31, 1997.
Average revenue per mile increased to $1.24 per mile for the year ended December
31, 1998, from $1.22 per mile for the same period in 1997, reflecting higher
demand for the Company's services resulting in continued upward pressure on
rates in all of the Company's operating regions. Equipment utilization averaged
120,500 miles per tractor in 1998, down slightly when compared to an average of
121,459 miles per tractor in 1997. This change reflects increased competition in
the short-to-medium truckload carrier business.
Salaries, wages and benefits expense increased as a percentage of
operating revenue to 28.7% for 1998 from 28.2% for 1997 primarily as the result
of the expansion of the Company-owned tractor/trailer fleet. For its drivers,
the Company records accruals for workers' compensation benefits as a component
of its claim accrual, and the related expense is reflected in salaries, wages
and benefits expenses in its consolidated statements of income.
Fuel expense decreased as a percentage of operating revenue to 9.7% for
1998 from 10.2% in 1997 due mainly to lower average fuel prices during 1998
compared to 1997. The Company cannot predict whether higher prices will return
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or the extent to which fuel surcharges could be collected from customers to
offset such increases if they occur.
Operations and maintenance expense increased as a percentage of
operating revenue to 5.9% for 1998 from 5.6% in 1997. This increase was the
result of the decrease in the number of independent contractors as a percentage
of the Company's entire fleet to 24.8 in 1998, compared to 24.9% in 1997, and
a decrease in equipment utilization during 1998.
Insurance and claims expense remained constant as a percentage of
operating revenue at 2.5% for both 1998 and 1997.
Operating taxes and license expense increased slightly as a percentage
of operating revenue to 4.2% for 1998 from 4.1% for 1997. The increase resulted
primarily from the decrease in the number of independent contractors as a
percentage of the Company's entire fleet during 1998 as independent contractors
are responsible for paying their own mileage taxes, the increased cost
associated with the licensing of trailers for use in states with higher
licensing fees, and a decrease in equipment utilization during 1998.
Communications expenses increased as a percentage of operating revenue
to 0.8% in 1998 compared to 0.6% in 1997. The increase resulted primarily from
an increase in the Company's overall business volume, and a decrease in
equipment utilization during 1998.
Depreciation and amortization expense increased to 10.0% for 1998 from
9.6% in 1997. The increase resulted from the decrease in the number of
independent contractors as a percentage at the Company's entire fleet during
1998, and a decrease in equipment utilization during 1998.
Purchased transportation expense decreased to 17.5% in 1998 from 19.2%
in 1997 due to a combination of the increase in the Company's revenue per mile
and the decrease in the number of independent contractors as a percentage of the
Company's entire fleet during 1998.
Miscellaneous operating expenses remained steady, with no significant
change taking place in 1998.
As a result of the above factors, the Company's operating ratio
(operating expenses expressed as a percentage of operating revenue) was 81.6%
for 1998, compared to 82.4% for 1997.
Net interest expense increased as a percentage of operating revenue to
0.2% for 1998 from less than 0.1% in 1997 as a result of the purchase during
1998 of debt financed revenue equipment to expand the Company's fleet.
Income taxes have been provided at the statutory federal and state
rates, adjusted for certain permanent differences in income for tax purposes.
Income tax expense increased as a percentage of revenue to 7.5% for the year
ended December 31, 1998 from 7.3% for the year ended December 31, 1997 primarily
due to the decrease in the Company's operating ratio.
As a result of the preceding changes, the Company's net income as a
percentage of operating revenue increased to 10.7% in 1998, from 10.3% in 1997.
FISCAL 1997 COMPARED TO FISCAL 1996
Operating revenue increased by 28.3% to $99.4 million in 1997 from
$77.5 million in 1996. This increase resulted from expansion of the Company's
customer base and increased volume from existing customers and was facilitated
by a substantial increase in the Company's tractor and trailer fleet, including
-12-
an increase in the Company's independent contractor fleet, during 1997 compared
to 1996. The Company's fleet increased by 34.3% to 772 tractors (including 192
owned by independent contractors) as of December 31, 1997 from 575 tractors
(including 158 owned by independent contractors) as of December 31, 1996.
Average revenue per mile declined to $1.22 per mile for the year ended December
31, 1997 from $1.24 per mile for the same period in 1996, reflecting continued
pressure on rates and increased competition in all of the Company's operating
regions. Equipment utilization averaged 121,459 miles per tractor in 1997, down
slightly when compared to an average of 121,960 miles per tractor in 1996. This
change reflects increased competition in the short-to-medium truckload carrier
business.
Salaries, wages and benefits expense decreased as a percentage of
operating revenue to 28.2% for 1997 from 28.7% for 1996, primarily the result of
the increase in the ratio of tractors to non-driving employees. This ratio
measures productivity and efficiency of non-driving personnel. The Company
records accruals for workers' compensation as a component of its claim accrual,
and the related expense is reflected in salaries, wages and benefits expenses in
its consolidated statements of income.
Fuel expense remained constant as a percentage of operating revenue at
10.2% for both 1997 and 1996. Operations and maintenance expense increased as a
percentage of operating revenue to 5.6% for 1997 from 5.2% in 1996. This
increase was the result of lower revenue per mile and the decrease in the number
of independent contractors as a percentage of the Company's entire fleet to
24.8% in 1997, compared to 27.5% in 1996.
Insurance and claims expense decreased as a percentage of operating
revenue to 2.5% for 1997 compared to 3.6% for 1996. This decrease resulted from
lower insurance premiums and a decrease in the Company's accident rate.
Operating taxes and license expense increased as a percentage of
operating revenue to 4.1% for 1997 from 3.9% for 1996. The increase resulted
primarily from the increased cost associated with the licensing of trailers for
use in states with higher licensing fees.
Communications expenses remained constant, with no significant change
taking place in 1997 compared to 1996.
Depreciation and amortization expense decreased to 9.6% for 1997 from
9.7% in 1996. The small decrease resulted from an increase in revenue being
generated at each of the Company's facilities and the absence of large
expenditures for any additional facilities.
Purchased transportation expense increased to 19.2% in 1997 from 18.6%
in 1996 due to the decrease in the Company's revenue per mile. Independent
contractors are compensated at a fixed rate per mile.
Miscellaneous operating expenses remained steady, with no significant
change taking place in 1997.
As a result of the above factors, the Company's operating ratio
(operating expenses as a percentage of operating revenue) was 82.4% for 1997,
compared to 83.0% for 1996.
Net interest expense decreased as a percentage of operating revenue to
less than 0.1% for 1997 from 0.5% in 1996 as a result of the application of the
proceeds from the Company's secondary stock offering in July 1996, which were
used to reduce debt and to purchase revenue equipment.
-13-
Income taxes have been provided at the statutory federal and state
rates, adjusted for certain permanent differences in income for tax purposes.
Income tax expense increased as a percentage of revenue to 7.3% for the year
ended December 31, 1997 from 6.8% for the year ended December 31, 1996 primarily
due to the lower revenue per mile.
As a result of the preceding changes, the Company's net income as a
percentage of operating revenue was 10.3% in 1997, compared to 9.7% in 1996.
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 capital has
been funds provided by operations, term borrowings to finance equipment
purchases, the Company's line of credit, and the Company's initial and secondary
public offerings in 1994 and 1996, respectively. Net cash provided by operating
activities totaled approximately $29.3 million, $23.6 million and $14.3 million
for the years ended December 31, 1998, 1997 and 1996, respectively.
Capital expenditures for the purchase of revenue equipment, office
equipment and leasehold improvements totaled approximately $31.5 million, $26.3
million and $24.8 million for the years ended December 31, 1998, 1997 and 1996,
respectively. The Company anticipates that capital expenditures, net of
trade-ins, will be approximately $41 million for 1999, to be used primarily to
acquire new revenue equipment to expand the Company's fleet, to upgrade existing
facilities, and to acquire additional facilities.
Net cash provided by financing activities and net direct equipment
financing was approximately $8.9 million for the year ended December 31, 1998.
Net cash used in financing activities and net direct equipment financing was
$0.8 million for the year ended December 31, 1997. Net cash provided by
financing activities and net direct equipment financing was approximately $8.3
million for the year ended December 31, 1996. The change between 1998 and 1997
was due to the Company borrowing approximately $11.5 million during 1998. The
change between 1997 and 1996 was due to the Company's ability to offset the cost
of purchasing revenue equipment with the proceeds of the Company's secondary
stock offering during 1996.
The Company maintains a $10 million revolving line of credit with its
lender and uses that line to finance the acquisition of revenue equipment and
other corporate purposes to the extent the Company's need for capital is not
provided by funds from operations. Under the Company's line of credit, the
Company is obligated to comply with certain financial covenants. The rate of
interest on borrowings against the line of credit will vary depending upon the
interest rate election made by the Company, based on either the London Interbank
Offered Rate (LIBOR plus .625%), or the prime rate. At December 31, 1998, and
March 4, 1999, the Company had $3,500,000 in borrowings under its revolving line
of credit. The line of credit expires in May 1999. Management believes the
Company will be able to renew or renegotiate its line of credit on terms at
least as favorable as the current terms of the line of credit.
The Company borrowed $10 million during 1998 under a long-term
Promissory Note with its lender. The Note is unsecured and bears interest at a
fixed rate of 5.75% per annum. As of December 31, 1998, $9,711,628 was currently
owed under the Note, with monthly payments of $193,558 payable through October
2003.
Management believes that the cash flow from operating activities and
the availability of borrowings will be sufficient to meet the Company's capital
needs through the next 18 months. The Company will continue to have significant
capital requirements over the long term, which may require the Company to
-14-
incur additional debt or seek additional equity capital in the future. The
availability of this capital will depend upon prevailing market conditions, the
market price of the Company's Common Stock and other factors over which the
Company has no control, as well as the Company's financial condition and results
of operations.
SEASONALITY
To date, the Company's revenue has not shown any significant seasonal
pattern. Because the Company operates primarily in Arizona, California and the
Western United States, winter weather generally has not adversely affected the
Company's business. Expansion of the Company's operations in the Midwest, on the
East Coast, and in the Texas and Louisiana regions, could expose the Company to
greater operating variances due to seasonal weather in these regions.
INFLATION
Many of the Company's operating expenses, including fuel costs and fuel
taxes, are sensitive to the effects of inflation and changing prices, which
could result in higher operating costs and lower income from operations. The
effects of inflation on the Company's business during 1998, 1997 and 1996
generally was not significant. During 1998, the Company experienced historically
low fuel prices, as a result of conditions in the petroleum industry. The
conditions that created these historic low price conditions may not persist.
YEAR 2000 CAPABILITIES.
The "Year 2000 Issue" arose because many existing computer programs use
only the last two digits to refer to a year. Therefore, these computer programs
do not properly recognize a year that begins with "20" instead of the familiar
"19". If not corrected, many computer applications could fail or create
erroneous results.
The Company has implemented or is in the process of reviewing, testing,
and implementing various modifications to ensure that its computer equipment and
software will function properly in the Year 2000 and beyond. For this purpose,
the term "computer equipment and software" includes systems commonly referred to
as information technology systems ("IT systems"), such as data processing,
dispatch, accounting, telephone, and other miscellaneous systems as well as
systems that are not commonly referred to as IT systems, such as fax machines,
heating and air conditioning systems, and other miscellaneous systems. The
Company has been and will be in contact with its significant vendors, service
providers, and customers, particularly those with whom electronic data
information ("EDI") transactions are exchanged, to determine and resolve any
Year 2000 issues. The Company currently anticipates that all necessary Year 2000
modifications will be completed in the next six months, and that such efforts
will be completed prior to any anticipated impact on its computer equipment and
software.
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 issue will not have a material impact on its
financial position.
Since all major computerized systems and applications will have been
reviewed and tested as part of the Year 2000 project, the Company feels that it
has reasonably addressed all material risks that may effect its operations. The
Company presently believes that the Year 2000 issue will not pose significant
operational problems for the Company. However, if all year 2000 issues are not
properly identified and corrected, there can be no assurance that the Year 2000
issue will not materially effect the Company's relationships with vendors,
-15-
customers, and others. Also, there can be no assurance that the Year 2000 issues
of other entities with whom the Company deals will not have a material adverse
impact on the Company's operations.
The Company is in the process of evaluating and developing a
contingency plan to provide for the most reasonably likely worst case scenarios
regarding Year 2000 compliance. The contingency plan is expected to be completed
in 1999.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income. SFAS 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, gains and losses) in a full
set for general-purpose financial statements. SFAS 130 requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131 (SFAS No. 131), Disclosures About Segments of an Enterprise
and Related Information, which supersedes Statement of Financial Accounting
Standards No. 14, Financial Reporting for Segments of a Business Enterprise.
SFAS No. 131 establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. This statement is effective for financial
statements for periods beginning after December 15, 1997.
FACTORS THAT MAY AFFECT FUTURE RESULTS
A number of factors over which the Company has little or no control may
affect the Company's future results. Fuel prices, insurance costs, liability
claims, interest rates, the availability of qualified drivers, fluctuations in
the resale value of revenue equipment, and customers' business cycles and
shipping demands are economic factors over which the Company has little or no
control. Significant increases or rapid fluctuations in fuel prices, interest
rates or increases in insurance costs or liability claims, to the extent not
offset by increases in freight rates, would reduce the Company's profitability.
Although the Company's independent contractors are responsible for paying for
their own equipment, fuel and other operating costs, significant increases in
these costs could cause them to seek higher compensation from the Company or
other contractual opportunities. Difficulty in attracting or retaining qualified
drivers, including independent contractors, or a downturn in customers' business
cycles or shipping demands also could have a material adverse effect on the
growth and profitability of the Company. If a shortage of drivers should occur
in the future or if the Company were unable to continue to attract and contract
with independent contractors, the Company could be required to adjust its driver
compensation package, which could adversely affect the Company's profitability
if not offset by a corresponding increase in rates.
The Company's growth has been made possible through the addition of new
revenue equipment. Difficulty in financing or obtaining new revenue equipment
(for example, delivery delays from manufacturers or the unavailability of
independent contractors) could restrict future growth. If the resale value of
the Company's revenue equipment were to decline, the Company could be forced to
retain some of its equipment longer, with a resulting increase in operating
expenses for maintenance and repairs.
-16-
The Company has experienced significant and rapid growth in revenue and
profits since the inception of its business in 1990. There can be no assurance
that the Company's business will continue to grow in a similar fashion in the
future or that the Company can effectively adapt its management, administrative
and operational systems to respond to any future growth. Further, there can be
no assurance that the Company's operating margins will not be adversely affected
by future changes in and expansion of the Company's business or by changes in
economic conditions.
Currently, a significant portion of the Company's business is
concentrated in the Arizona and California markets and a general economic
decline or a natural disaster in either of these markets could have a material
adverse effect on the growth and profitability of the Company. If the Company is
successful in deriving a more significant portion of its revenues from markets
in the Texas and Louisiana regions and the Midwest and on the East Coast in the
near future, its growth and profitability could be materially adversely affected
by general economic declines or natural disasters in those markets. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations"; and "Business -- Operations and Marketing and Customers."
The Company has established operations near Houston, Texas to provide
dedicated services to one of its larger customers and to commence regional
service in the Texas and Louisiana regions and initiated operations in
Indianapolis, Indiana, in order to access markets in the Midwest and on the East
Coast. These operations will require the commitment of additional revenue
equipment and personnel, as well as management resources, for future
development. These initiatives represent the first established operations of the
Company in markets outside of its primary regional operations in the Western
United States. Should the growth in the Company's operations near Houston, Texas
or in Indianapolis, Indiana slow or stagnate, the results of Company operations
could be adversely affected. The Company may encounter operating conditions in
these new markets that differ substantially from those previously experienced in
its Western United States markets. There can be no assurance that the Company's
regional operating strategy, as employed in the Western United States, can be
duplicated successfully or that it will not take longer than expected or require
a more substantial financial commitment than anticipated in order for the
Company to generate positive operating results in these new markets.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Under 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 on 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
would not have a material adverse effect on the Company's financial condition,
based on the level of debt carried by the Company as of December 31, 1998.
Management does not foresee or expect any significant changes in exposure to
-17-
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
Phoenix, Arizona and Indianapolis facilities which enable it to purchase fuel at
"rack" prices, saving pumping charges. 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 customers through rate increases, such
increases could adversely affect the Company's results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Balance Sheets of Knight Transportation, Inc. and
Subsidiaries as of December 31, 1998 and 1997 and the related Consolidated
Statements of Income, Shareholders' Equity, and Cash Flows for each of the three
years in the period ended December 31, 1998, together with the related notes and
report of Arthur Andersen LLP, independent public accountants, are set forth at
pages 23 through 36, below.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The Company hereby incorporates by reference the information contained
under the heading "Election of Directors" from its definitive Information
Statement to be delivered to shareholders of the Company in connection with the
1999 Annual Meeting of Shareholders to be held May 12, 1999.
ITEM 11. EXECUTIVE COMPENSATION
The Company incorporates by reference the information contained under
the heading "Executive Compensation" from its definitive Information Statement
to be delivered to shareholders of the Company in connection with the 1999
Annual Meeting of Shareholders to be held May 12, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company incorporates by reference the information contained under
the heading "Security Ownership of Certain Beneficial Owners and Management"
from its definitive Information Statement to be delivered to shareholders of the
Company in connection with the 1999 Annual Meeting of Shareholders to be held
May 12, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company incorporates by reference the information contained under
the heading "Certain Relationships and Related Transactions" from its definitive
Information Statement to be delivered to shareholders of the Company in
-18-
connection with the 1999 Annual Meeting of Shareholders to be held May 12, 1999.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report on Form 10-K
at pages 23 through 36, below.
1. Consolidated Financial Statements:
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
Report of Arthur Andersen LLP, Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Income for the years ended December 31,
1998, 1997 and 1996
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
2. Consolidated Financial Statement Schedules required to be
filed by Item 8 and Paragraph (d) of Item 14:
Schedules not listed have been omitted because of the absence of
conditions under which they are required or because the required material
information is included in the Consolidated Financial Statements or Notes to the
Consolidated Financial Statements included herein.
3. Exhibits:
The Exhibits required by Item 601 of Regulation S-K are listed at
paragraph (c), below, and at the Exhibit Index beginning at page 38.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the last quarter of the period
covered by this report on Form 10-K.
(c) Exhibits:
The following exhibits are filed with this Form 10-K or incorporated
herein by reference to the document set forth next to the exhibit listed below:
-19-
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
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).
4.1 Articles 4, 10 and 11 of the Restated Articles of Incorporation of the
Company. (Incorporated by reference to Exhibit 3.1 to this Report on
Form 10-K.)
4.2 Sections 2 and 5 of the Amended and Restated Bylaws of the Company.
(Incorporated by reference to Exhibit 3.2 to this Report on Form 10-K.)
10.1 Purchase and Sale Agreement and Escrow Instructions (All Cash) dated as
of March 1, 1994, between Randy Knight, the Company, and Lawyers Title
of Arizona. (Incorporated by reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-1 No. 33-83534.)
10.1.1 Assignment and First Amendment to Purchase and Sale Agreement and
Escrow Instructions. (Incorporated by reference to Exhibit 10.1.1 to
Amendment No. 3 to the Company's Registration Statement on Form S-1 No.
33-83534.)
10.1.2 Second Amendment to Purchase and Sale Agreement and Escrow
Instructions. (Incorporated by reference to Exhibit 10.1.2 to Amendment
No. 3 to the Company's Registration Statement on Form S-1 No.
33-83534.)
10.2 Net Lease and Joint Use Agreement between Randy Knight and the Company
dated as of March 1, 1994. (Incorporated by reference to Exhibit 10.2
to the Company's Registration Statement on Form S-1 No. 33-83534.)
10.2.1 Assignment and First Amendment to Net Lease and Joint Use Payment
between L. Randy Knight, Trustee of the R. K. Trust dated April 1,
1993, and Knight Transportation, Inc. and certain other parties dated
March 11, 1994 (assigning the lessor's interest to the R. K. Trust).
10.2.2 Second Amendment to Net Lease and Joint Use Agreement between L. Randy
Knight, as Trustee of the R. K. Trust dated April 1, 1993 and Knight
Transportation, Inc., dated as of September 1, 1997.
10.3 Form of Purchase and Sale Agreement and Escrow Instructions (All Cash)
dated as of October 1994, between the Company and Knight Deer Valley,
L.L.C., an Arizona limited liability company. (Incorporated by
reference to Exhibit 10.4.1 to Amendment No. 3 to the Company's
Registration Statement on Form S-1 No. 33-83534.)
10.4 Loan Agreement and Revolving Promissory Note each dated March, 1996
between First Interstate Bank of Arizona, N.A. and Knight
Transportation, Inc. and Quad K Leasing, Inc. (superseding prior credit
facilities) (Incorporated by reference to Exhibit 10.4 to the Company's
report on Form 10-K for the period ending December 31, 1996).
-20-
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.4.1 Modification Agreement between Wells Fargo Bank, N.A., as successor by
merger to First Interstate Bank of Arizona, N.A., and the Company and
Quad-K Leasing, Inc. dated as of May 15, 1997. (Incorporated by
reference to Exhibit 4.1 to the Company's report on Form 10-K for the
period ending December 31, 1997.)
10.4.2* Loan Agreement and Revolving Line of Credit Note each dated July 14,
1998, between Wells Fargo Bank, N.A. and Knight Transportation, Inc.
(superseding prior credit facilities)
10.4.3* Term Note dated October 1, 1998, between Wells Fargo Bank, N.A. and
Knight Transportation, Inc.
10.5 Amended and Restated Knight Transportation, Inc. Stock Option Plan,
dated as of February 10, 1998. (Incorporated by reference to Exhibit 1
to the Company's Notice and Information Statement on Schedule 14(c) for
the period ending December 31, 1997.)
10.6 Amended Indemnification Agreements between the Company, Don Bliss,
Clark A. Jenkins, Gary J. Knight, Keith Knight, Kevin P. Knight, Randy
Knight, G. D. Madden, Minor Perkins and Keith Turley, and dated as of
February 5, 1997 (Incorporated by reference to Exhibit 10.6 to the
Company's report on Form 10-K for the period ending December 31, 1996).
10.7 Master Equipment Lease Agreement dated as of January 1, 1996, between
the Company and Quad-K Leasing, Inc. (Incorporated by reference to
Exhibit 10.7 to the Company's report on Form 10-K for the period ended
December 31, 1995.)
10.8 Purchase Agreement and Escrow Instructions dated as of July 13, 1995,
between the Company, Swift Transportation Co., Inc. and United Title
Agency of Arizona. (Incorporated by reference to Exhibit 10.8 to the
Company's report on Form 10-K for the period ended December 31, 1995.)
10.8.1 First Amendment to Purchase Agreement and Escrow Instructions.
(Incorporated by reference to Exhibit 10.8.1 to the Company's report on
Form 10-K for the period ended December 31, 1995.)
10.9 Purchase and Sale Agreement dated as of February 13, 1996, between the
Company and RR-1 Limited Partnership. (Incorporated by reference to
Exhibit 10.9 to the Company's report on Form 10-K for the period ended
December 31, 1995.)
10.10 Asset Purchase Agreement dated March 13, 1999, by and among Knight
Transportation, Inc., Knight Acquisition Corporation, Action Delivery
Service, Inc. Action Warehouse Services, Inc. and Bobby R. Ellis,
(Incorporated by reference to Exhibit 2.1 to the Company's report on
Form 8-K filed with the Securities and Exchange Commission on March 25,
1999.)
21.1 Subsidiaries of the Company. (Incorporated by reference to Exhibit 21.1
to the Company's report on Form 10-K for the period ending December 31,
1995.)
23* Consent of Arthur Andersen LLP
27* Financial Data Schedule
- ---------------
* Filed herewith.
-21-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Knight Transportation, Inc. has duly caused this report on
Form 10-K to be signed on its behalf by the undersigned, thereunto duly
authorized.
KNIGHT TRANSPORTATION, INC.
By /s/ Kevin P. Knight,
---------------------------------
Kevin P. Knight,
Date: March 30, 1999. Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report on Form 10-K has been signed below by the following persons on
behalf of the Company and in the capacities and on the dates indicated.
SIGNATURE AND TITLE DATE
/s/ Randy Knight March 30, 1999
- --------------------------------------------
Randy Knight
Chairman of the Board, Director
/s/ Kevin P. Knight March 30, 1999
- --------------------------------------------
Kevin P. Knight
Chief Executive Officer, Director
/s/ Gary J. Knight March 30, 1999
- --------------------------------------------
Gary J. Knight
President, Director
/s/ Keith T. Knight March 30, 1999
- --------------------------------------------
Keith T. Knight
Executive Vice President, Director
/s/ Clark A. Jenkins March 30, 1999
- --------------------------------------------
Clark A. Jenkins
Chief Financial Officer, Secretary, Director
Executive Vice President, Finance
/s/ Keith L. Turley March 30, 1999
- --------------------------------------------
Keith L. Turley
Director
/s/ Donald A. Bliss March 30, 1999
- --------------------------------------------
Donald A. Bliss
Director
/s/ G.D. Madden March 30, 1999
- --------------------------------------------
G.D. Madden
Director
-22-
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
-23-
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Knight Transportation, Inc.:
We have audited the accompanying consolidated balance sheets of KNIGHT
TRANSPORTATION, INC. (an Arizona corporation) and subsidiaries (collectively,
the Company) as of December 31, 1998 and 1997, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
1998 and 1997, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
January 19, 1999.
-24-
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
1998 1997
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 124,188 $ 512,339
Trade receivables, net of allowance for
doubtful accounts of approximately
$662,700 and $457,600, respectively 18,248,984 11,934,364
Notes receivable 561,608 --
Inventories and supplies 1,329,329 402,076
Prepaid expenses 1,617,900 694,434
Deferred tax assets (Note 2) 2,740,200 1,907,800
------------ -----------
Total current assets 24,622,209 15,451,013
------------ -----------
PROPERTY AND EQUIPMENT:
Land and improvements 6,037,741 4,322,837
Buildings and improvements 5,970,919 1,855,092
Furniture and fixtures 3,169,514 2,146,637
Shop and service equipment 1,217,370 1,018,636
Revenue equipment 93,672,070 75,695,123
Leasehold improvements 469,037 432,467
------------ -----------
110,536,651 85,470,792
Less: accumulated depreciation (25,964,744) 20,025,293)
------------ -----------
PROPERTY AND EQUIPMENT, net 84,571,907 65,445,499
------------ -----------
NOTES RECEIVABLE 2,846,008 --
OTHER ASSETS (Note 6) 4,918,096 1,793,284
------------ -----------
$116,958,220 $82,689,796
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 7,143,476 $ 4,847,070
Accrued liabilities 5,220,372 3,082,413
Current portion of long-term debt (Note 3) 1,791,981 14,171
Line of credit (Note 3) 3,500,000 2,000,000
Claims accrual (Note 5) 3,724,385 3,463,322
------------ -----------
Total current liabilities 21,380,214 13,406,976
LONG-TERM DEBT, less current portion (Note 3) 7,919,647 --
DEFERRED INCOME TAXES (Note 2) 17,012,285 12,485,085
------------ -----------
46,312,146 25,892,061
------------ -----------
COMMITMENTS AND CONTINGENCIES (Notes 4, 5, 6 and 8)
SHAREHOLDERS' EQUITY (Notes 7 and 8):
Preferred stock -- --
Common stock 149,814 149,243
Additional paid-in capital 24,509,012 24,007,386
Retained earnings 45,987,248 32,641,106
------------ -----------
Total shareholders' equity 70,646,074 56,797,735
------------ -----------
$116,958,220 $82,689,796
============ ===========
The accompanying notes are an integral part of
these consolidated balance sheets.
-25-
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
------------ ------------ ------------
OPERATING REVENUE $125,030,245 $ 99,428,693 $ 77,503,786
------------ ------------ ------------
OPERATING EXPENSES:
Salaries, wages and benefits 35,890,806 27,990,073 22,217,900
Fuel 12,156,740 10,182,487 7,890,607
Operations and maintenance 7,438,511 5,584,178 4,017,698
Insurance and claims 3,092,169 2,524,823 2,820,086
Operating taxes and licenses 5,236,401 4,114,145 3,018,999
Communications 965,019 597,728 509,411
Depreciation and amortization 12,446,438 9,560,569 7,520,905
Purchased transportation 21,771,073 19,038,834 14,378,518
Miscellaneous operating expenses 3,051,911 2,355,504 1,973,131
------------ ------------ ------------
102,049,068 81,948,341 64,347,255
------------ ------------ ------------
Income from operations 22,981,177 17,480,352 13,156,531
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income 160,228 49,747 51,730
Interest expense (419,263) (67,576) (398,204)
------------ ------------ ------------
(259,035) (17,829) (346,474)
------------ ------------ ------------
Income before income taxes 22,722,142 17,462,523 12,810,057
INCOME TAXES (9,376,000) (7,211,000) (5,300,000)
------------ ------------ ------------
Net income $ 13,346,142 $ 10,251,523 $ 7,510,057
============ ============ ============
BASIC EARNINGS PER SHARE $ .89 $ .69 $ .53
============ ============ ============
DILUTED EARNINGS PER SHARE $ .87 $ .68 $ .52
============ ============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC 14,968,967 14,875,746 14,197,968
============ ============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING - DILUTED 15,262,865 15,150,510 14,377,747
============ ============ ============
The accompanying notes are an integral part of
these consolidated balance sheets.
-26-
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Common Stock Additional
---------------------- Paid-in Retained
Shares Amount Capital Earnings Total
----------- -------- ----------- ----------- -----------
BALANCE, December 31, 1995 13,653,000 $136,530 $ 9,716,237 $14,879,526 $24,732,293
Exercise of stock options 3,750 37 29,963 -- 30,000
Issuance of 1,200,000 shares of
common stock, net of offering
costs of $1,109,191 (Note 7) 1,200,000 12,000 13,678,809 -- 13,690,809
Net income -- -- -- 7,510,057 7,510,057
----------- -------- ----------- ----------- -----------
BALANCE, December 31, 1996 14,856,750 148,567 23,425,009 22,389,583 45,963,159
Exercise of stock options 67,078 670 572,333 -- 573,003
Issuance of 594 shares of
common stock (Note 7) 594 6 10,044 -- 10,050
Net income -- -- -- 10,251,523 10,251,523
----------- -------- ----------- ----------- -----------
BALANCE, December 31, 1997 14,924,422 149,243 24,007,386 32,641,106 56,797,735
Exercise of stock options 56,100 561 484,137 -- 484,698
Issuance of 960 shares of
common stock (Note 7) 960 10 17,489 -- 17,499
Net income -- -- -- 13,346,142 13,346,142
----------- -------- ----------- ----------- -----------
BALANCE, December 31, 1998 14,981,482 $149,814 $24,509,012 $45,987,248 $70,646,074
=========== ======== =========== =========== ===========
The accompanying notes are an integral part of
these consolidated balance sheets.
-27-
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,346,142 $ 10,251,523 $ 7,510,057
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 12,446,438 9,560,569 7,520,905
Non-cash compensation expense for issuance of
common stock to certain members of board of
directors 17,499 10,050 --
Provision for doubtful accounts 205,100 139,600 23,000
Deferred income taxes, net 3,694,800 3,470,127 2,211,958
Changes in assets and liabilities-
Increase in trade receivables (6,519,721) (1,659,831) (3,062,094)
Increase in notes receivable (3,407,616) -- --
(Increase) decrease in inventories and supplies (927,253) (73,251) 93,764
(Increase) decrease in prepaid expenses (923,466) (185,349) 428,219
Increase in other assets (3,150,654) (195,811) (652,693)
Increase (decrease) in accounts payable 2,828,741 1,069,469 (250,046)
Increase in accrued liabilities and claims accrual 2,399,022 1,218,964 459,965
------------ ------------ ------------
Net cash provided by operating activities 20,009,032 23,606,060 14,283,035
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (29,326,223) (23,548,158) (21,919,774)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing (payments) on line of credit, net 1,500,000 2,000,000 (2,000,000)
Borrowing of debt 10,000,000 -- 759,200
Payments of debt (302,543) (433,511) (2,294,455)
Payments of accounts payable - equipment (2,753,115) (2,929,800) (1,927,726)
Proceeds from sale of common stock -- -- 13,690,809
Proceeds from exercise of stock options 484,698 573,003 30,000
------------ ------------ ------------
Net cash provided by (used in)
financing activities 8,929,040 (790,308) 8,257,828
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (388,151) (732,406) 621,089
CASH AND CASH EQUIVALENTS, beginning of year 512,339 1,244,745 623,656
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of year $ 124,188 $ 512,339 $ 1,244,745
============ ============ ============
SUPPLEMENTAL DISCLOSURES:
Noncash investing and financing transactions:
Equipment acquired by accounts payable $ 2,220,780 $ 2,753,115 $ 2,929,800
Issuance of common stock to certain
members of board of directors 17,499 10,050 --
Cash Flow Information:
Income taxes paid $ 4,898,131 $ 3,945,579 $ 2,459,144
Interest paid 372,009 69,161 408,138
The accompanying notes are an integral part of
these consolidated balance sheets.
-28-
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS
Knight Transportation, Inc. and subsidiaries (the Company) is a short to
medium-haul, truckload carrier of general commodities. The operations are based
in Phoenix, Arizona, where the Company has its corporate offices, fuel island,
truck terminal, dispatching and maintenance services. During 1996, the Company
expanded its operations by opening new facilities in Katy, Texas and
Indianapolis, Indiana. The Company operates in one industry, road
transportation, which is subject to regulation by the Department of
Transportation and various state regulatory authorities.
The Company continues to develop its owner-operator program. Owner-operators are
independent contractors who provide their own tractors. The Company views
owner-operators as an alternative method of obtaining additional revenue
equipment. The Company had 231 and 192 owner-operators at December 31, 1998 and
1997, respectively. This represents approximately 25% of the Company's tractor
fleet at December 31, 1998 and 1997.
SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - 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., KTeCom, L.L.C., and Knight Transportation South
Central Ltd. Partnership. All material intercompany items and transactions have
been eliminated in consolidation.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS - The Company considers all highly liquid instruments purchased
with original maturities of three months or less to be cash equivalents.
INVENTORIES AND SUPPLIES - Inventories and supplies consist of tires and spare
parts which are stated at the lower of cost, using the first-in, first-out
(FIFO) method, or net realizable value.
-29-
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Depreciation
on property and equipment is calculated by the straight-line method over the
following estimated useful lives:
YEARS
-----
Land improvements 5
Buildings and improvements 20-30
Furniture and fixtures 5
Shop and service equipment 5-10
Revenue equipment 5-7
Leasehold improvements 10
The Company expenses repairs and maintenance as incurred. For the years ended
December 31, 1998, 1997 and 1996, repairs and maintenance expense totaled
approximately $3,446,000, $2,442,000 and $1,883,000, respectively and is
included in operations and maintenance expense in the accompanying consolidated
statements of income.
Revenue equipment is depreciated to a salvage value of 15% for all tractors.
Trailers are depreciated to salvage values of 10% to 40%. The Company
periodically reviews its estimates related to useful lives and salvage values
for revenue equipment.
TIRES - Tires on revenue equipment purchased are capitalized as a part of the
equipment cost and depreciated over the life of the vehicle. Replacement tires
and recapping costs are expensed when placed in service.
OTHER ASSETS - Included in other assets for 1998 is an investment in a company
with advanced communications technology which the Company anticipates utilizing
in 1999. This investment has been recorded at a cost of $4,000,000 and
represents approximately a 4.6% ownership interest at December 31, 1998. There
were no material intercompany transactions between this communications company
and Knight during 1998.
REVENUE RECOGNITION - The Company's typical customer delivery is completed one
day after pickup. The Company recognizes operating revenues when the freight is
picked up for delivery and accrues the estimated direct costs to complete the
delivery. This method of revenue recognition is not materially different from
recognizing revenue based on completion of delivery as the hauls are primarily
short-term.
INCOME TAXES - The Company uses the asset and liability method of accounting for
income taxes. Under the asset and liability method of Statement of Financial
Accounting Standards No. 109 (SFAS No. 109), ACCOUNTING FOR INCOME TAXES,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amount of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS No. 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in the period that includes the enactment date.
CONCENTRATION OF CREDIT RISK - Financial instruments that potentially subject
the Company to credit risk consist principally of trade receivables. The
Company's three largest customers for each of the years 1998, 1997 and 1996,
represent 15%, 17% and 17% of operating revenues, respectively. The single
largest customer's revenues represent 6%, 8% and 9% of operating revenues for
the years 1998, 1997 and 1996, respectively.
Notes receivable represent amounts due from independent contractors under a
program whereby the Company finances tractor purchases for its independent
contractors. These notes receivable are collateralized by revenue
-30-
equipment and are due in monthly installments, including principal and interest,
over periods generally ranging from three to five years.
RECAPITALIZATION AND STOCK SPLIT
On April 22, 1998, the Company's Board of Directors approved a three for two
stock split, effected in the form of a 50 percent stock dividend. The stock
dividend was paid on May 18, 1998, to stockholders of record as of the close of
business on May 1, 1998.
This stock split has been given retroactive recognition for all periods
presented in the accompanying consolidated financial statements. All share
amounts and earnings per share have been retroactively adjusted to reflect the
stock split.
EARNINGS PER SHARE - In February 1997, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No. 128 (SFAS No.
128), EARNINGS PER SHARE, which supersedes Accounting Principles Board (APB)
Opinion No. 15, the previous authoritative guidance. SFAS No. 128 modifies the
calculation of primary and fully diluted earnings per share (EPS) and replaces
them with basic and diluted EPS. SFAS No. 128 is effective for financial
statements for both interim and annual periods presented after December 15,
1997, and as a result, all prior period EPS data presented has been restated.
A reconciliation of the numerators (net income) and denominators (weighted
average number of shares outstanding) of the basic and diluted EPS computations
for 1998, 1997 and 1996, is as follows:
1998 1997 1996
----------------------------------- ----------------------------------- -----------------------------------
Net Income Shares Per Share Net Income Shares Per Share Net Income Shares Per Share
(numerator) (denominator) Amount (numerator) (denominator) Amount (numerator) (denominator) Amount
----------- ------------- --------- ----------- ------------- --------- ----------- ------------- ---------
Basic EPS $13,346,142 14,968,967 $ .89 $10,251,523 14,875,746 $ .69 $ 7,510,057 14,197,968 $ .53
====== ====== ======
Effect of stock
options -- 293,898 -- 274,764 -- 179,779
----------- ---------- ----------- ---------- ----------- ----------
Diluted EPS $13,346,142 15,262,865 $ .87 $10,251,523 15,150,510 $ .68 $ 7,510,057 14,377,747 $ .52
=========== ========== ====== =========== ========== ====== =========== ========== ======
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENT - Effective 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
established revised standards for the reporting of financial and descriptive
information about operating segments in financial statements.
The Company has determined that it has one reportable operating segment.
Although the Company has three operating segments which are managed based on the
regions of the United States in which each operates; each segment has similar
economic characteristics. Each regional operating segment provides short to
medium haul truckload carrier services of general commodities to a similar class
of customers. In addition, each segment exhibits similar financial performance,
including average revenue per mile and operating ratio. As a result of the
foregoing, the Company has determined that it is appropriate to aggregate its
operating segments 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 segments as the Company's consolidated
financial statements present its one reportable segment.
-31-
(2) INCOME TAXES:
Income tax expense consists of the following:
1998 1997 1996
---------- ---------- ----------
Current income taxes:
Federal $4,464,200 $2,904,400 $2,429,100
State 1,217,000 836,473 658,900
---------- ---------- ----------
5,681,200 3,740,873 3,088,000
---------- ---------- ----------
Deferred income taxes:
Federal 3,040,700 2,840,200 1,805,300
State 654,100 629,927 406,700
---------- ---------- ----------
3,694,800 3,470,127 2,212,000
---------- ---------- ----------
Total income tax expense $9,376,000 $7,211,000 $5,300,000
========== ========== ==========
The effective income tax rate is different than the amount which would be
computed by applying statutory corporate income tax rates to income before
income taxes. The differences are summarized as follows:
1998 1997 1996
---------- ---------- ----------
Tax at the statutory rate (34%) $7,725,500 $5,937,300 $4,355,400
State income taxes, net of
federal benefit 1,234,900 967,800 703,300
Other 415,600 305,900 241,300
---------- ---------- ----------
$9,376,000 $7,211,000 $5,300,000
========== ========== ==========
The net effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1998 and
1997, are as follows:
1998 1997
----------- -----------
Short-term deferred tax assets:
Claims accrual $ 1,549,800 $ 1,383,400
Other 1,190,400 524,400
----------- -----------
Total short-term deferred tax assets $ 2,740,200 $ 1,907,800
=========== ===========
Long-term deferred tax liabilities:
Property and equipment depreciation $16,314,885 $11,904,300
Prepaid expenses deducted for tax
purposes 697,400 580,785
----------- -----------
Total long-term deferred tax
liabilities $17,012,285 $12,485,085
=========== ===========
-32-
(3) LINE OF CREDIT AND LONG-TERM DEBT:
Long-term debt consists of the following at December 31:
1998 1997
----------- -----------
Note payable to financial institution
with monthly principal and interest
payments of $192,558 through October
2003, the note is unsecured with
interest at a fixed rate of 5.75% $ 9,711,628 $ --
Notes payable, paid in full in 1998 -- 14,171
----------- -----------
9,711,628 14,171
Less - current portion (1,791,981) (14,171)
----------- -----------
$ 7,919,647 $ --
=========== ===========
Long-term debt maturities are as follows:
1999 $ 1,791,981
2000 1,898,018
2001 2,012,945
2002 2,133,484
2003 1,875,200
-----------
$ 9,711,628
===========
The Company has a $10,000,000 revolving line of credit (see Note 5) with
principal due at maturity, July 2000, and interest payable monthly at two
options (prime or LIBOR plus .625%). In management's opinion, the Company will
have sufficient liquidity to pay off, or will be able to renew, its line of
credit at maturity. Borrowings under the line of credit are limited to 80% of
eligible accounts receivable, as defined, and 50% of net fixed assets, as
defined and amounted to $3,500,000 at December 31, 1998.
Under the terms of the line of credit, the Company is required to maintain
certain financial ratios. These ratios include; total liabilities to net worth
ratio, current ratio, and certain debt service ratios. The Company is also
required to maintain certain other covenants relating to corporate structure,
ownership and management.
(4) COMMITMENTS AND CONTINGENCIES:
PURCHASE COMMITMENTS
As of December 31, 1998, the Company had purchase commitments for additional
tractors and trailers with an estimated purchase price, net of estimated
trade-in values, of approximately $41 million for delivery throughout 1999.
Although the Company expects to take delivery of this revenue equipment, delays
in the availability of equipment could occur due to factors beyond the Company's
control. Any future delay or interruption in the availability of equipment could
have a material adverse effect on the Company.
DISABILITY PLAN
The Company has a disability plan for certain of its key employees. The plan
provides disability benefits of $75,000 annually for five years if a key
employee terminates employment by reason of disability. The plan is subject to
termination at any time by the Board of Directors.
-33-
OTHER
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.
(5) CLAIMS ACCRUAL:
The Company acts as a self-insurer for bodily injury and property damage claims
up to $100,000 per occurrence. The Company is self-insured for workers'
compensation claims up to $250,000 per occurrence. The Company is also
self-insured for loss of revenue equipment up to $12,500 per occurrence and
cargo liability up to $12,500 per occurrence. Liability in excess of these
amounts is covered by a third party underwriter up to $25 million.
The claims accrual represents accruals for the estimated uninsured portion of
pending claims including adverse development of known claims and incurred but
not reported claims. These estimates are based on historical information along
with certain assumptions about future events. Changes in assumptions as well as
changes in actual experience could cause these estimates to change in the near
term. Liabilities in excess of the self insured amounts are collateralized by
letters of credit totaling $992,000. These letters of credit reduce the
available borrowings under the Company's line of credit (see Note 3).
(6) RELATED PARTY TRANSACTIONS:
The Company leases approximately eight acres and facilities from a shareholder
and officer, (the Shareholder) under a five year lease, with an option to extend
for two additional five-year terms. The lease terms include base rent of $4,828
per month for the initial three years of the lease, and increases of 3% on the
third anniversary of the commencement date, the first day of each option term,
and the third anniversary of the commencement date of each option term. In
September 1997, the lease was amended to include additional acreage and the
monthly payment was increased to approximately $5,923. In March 1999, the first
renewal option will be exercised and the monthly payment will increase to
$6,100. In addition to base rent, the lease requires the Company to pay its
share of all expenses, utilities, taxes and other charges. Rent expense paid to
the Shareholder was approximately $75,000, $60,200 and $59,000 during 1998, 1997
and 1996, respectively.
The Company paid approximately $90,000, $80,000 and $80,000 for certain of its
key employees' life insurance premiums during 1998, 1997 and 1996, respectively.
A portion of the premiums paid are included in other assets in the accompanying
consolidated balance sheets. The life insurance policies provide for cash
distributions to the beneficiaries of the policyholders upon death of the key
employee. The Company is entitled to receive the total premiums paid on the
policies at distribution prior to any beneficiary distributions.
The Company provided maintenance and shipping for Total Warehousing, Inc.
(Total), a company owned by a shareholder of the Company, of approximately
$16,000 for the year ended December 31, 1996. No services were provided during
1998 or 1997. Total provided general warehousing services to the Company in the
amount of approximately $9,000, $11,000 and $14,000 for the years ended December
31, 1998, 1997 and 1996, respectively.
(7) SHAREHOLDERS' EQUITY:
The Company's authorized capital stock consists of 100,000,000 shares of $.01
par value common stock; 14,981,482 and 14,924,422 shares of common stock were
issued and outstanding at December 31, 1998 and 1997, respectively. In addition,
the Company has authorized 50,000,000 shares of $.01 par value preferred stock,
none of which was outstanding at December 31, 1998 or 1997.
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In July 1996, the Company issued 1,200,000 shares of common stock at $12.33 per
share (the Offering). The Offering consisted of 2,400,000 shares of common stock
comprised of 1,200,000 newly-issued Company shares and 1,200,000 shares from
existing shareholders.
During 1997, all Board of Director members received their director fees of
$2,500 through the issuance of common stock in equivalent shares to each board
member. The Company issued a total of 594 shares of common stock during 1997 to
certain directors.
During 1998, all Board of Director members received their director fees of
$5,000 through the issuance of common stock in equivalent shares to each board
member. The Company issued a total of 960 shares of common stock during 1998 to
certain directors.
(8) EMPLOYEE BENEFIT PLANS:
1994 STOCK OPTION PLAN
The Company established the 1994 Stock Option Plan (1994 Plan) with 975,000
shares of common stock reserved for issuance thereunder. In February 1998, the
1994 Plan was amended and restated to increase the number of shares reserved for
issuance to 1,500,000. The 1994 Plan will terminate on August 31, 2004. The
Compensation Committee of the Board of Directors administers the 1994 Plan and
has the discretion to determine the employees, officers and independent
directors who receive awards, the type of awards to be granted (incentive stock
options, nonqualified stock options and restricted stock grants) and the term,
vesting and exercise price. Incentive stock options are designed to comply with
the applicable provisions of the Internal Revenue Code (the Code) and are
subject to restrictions contained in the Code, including a requirement that
exercise prices are equal to at least 100% of the fair market value of the
common shares on the grant date and a ten-year restriction on the option term.
Independent directors are not permitted to receive incentive stock options.
Non-qualified stock options may be granted to directors, including independent
directors, officers, and employees and provide for the right to purchase common
stock at a specified price, which may not be less than 85% of the fair market
value on the date of grant, and usually become exercisable in installments after
the grant date. Non-qualified stock options may be granted for any reasonable
term. The 1994 Plan provides that each independent director may receive, on the
date of appointment to the Board of Directors, non-qualified stock options to
purchase not less than 2,500 nor more than 5,000 shares of common stock, at an
exercise price equal to the fair market value of the common stock on the date of
the grant.
As permitted under Statement of Financial Accounting Standards No. 123 (SFAS No.
123), ACCOUNTING FOR STOCK-BASED COMPENSATION, the Company has elected to
account for stock transactions with employees and directors pursuant to the
provisions of APB No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. Had
compensation cost for the 1994 Plan been recorded consistent with SFAS No. 123,
the Company's net income and EPS amounts would have been reduced to the
following pro forma amounts for the years ended December 31:
1998 1997 1996
----------- ----------- ----------
Net income:
As reported $13,346,142 $10,251,523 $7,510,057
Pro forma 13,060,131 10,052,945 7,338,132
Earnings per share:
As reported - Diluted EPS $ .87 $ .68 $ .52
Pro forma - Diluted EPS .86 .66 .51
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The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1996; risk free interest rate of 6.73%, expected
life of six years, expected volatility of 36%, expected dividend rate of zero,
and expected forfeitures of 0%. The following weighted average assumptions were
used for grants in 1997; risk free interest rate of 5.77%, expected life of six
years, expected volatility of 42%, expected dividend rate of zero, and expected
forfeitures of 15.68%. The following weighted average assumptions were used for
grants in 1998; risk free interest rate of 5.75%, expected life of six years,
expected volatility of 45%, expected dividend rate of zero, and expected
forfeitures of 23.36%.
Because SFAS No. 123 has not been applied to options granted prior to January 1,
1995, the pro forma compensation cost disclosed above may not be representative
of that had such options been considered.
1998 1997 1996
----------------- ----------------- -----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- ----- ------- ----- ------- -----
Outstanding at beginning of year 791,396 $11.25 540,000 $ 8.51 393,375 $ 8.04
Granted 39,750 18.58 380,325 14.38 208,875 9.32
Exercised (56,100) 8.47 (67,078) 8.53 (3,750) 8.00
Forfeited (70,896) 13.49 (61,851) 9.43 (58,500) 8.32
------- ------ ------- ------ ------- ------
Outstanding at end of year 704,150 $11.69 791,396 $11.25 540,000 $ 8.51
======= ====== ======= ====== ======= ======
Exercisable at end of year 129,129 $ 8.20 71,834 $ 8.06 11,250 $ 8.38
======= ====== ======= ====== ======= ======
Weighted average fair value of
options granted during the period $ 9.65 $ 7.08 $ 4.43
======= ======= =======
Options outstanding at December 31, 1998, have exercise prices between $8.00 and
$21.33. There are 345,050 options outstanding with exercise prices ranging from
$8.00 to $9.25 with weighted average exercise prices of $8.43 and weighted
average remaining contractual lives of 6.39 years. There are 359,100 options
outstanding with exercise prices ranging from $9.26 to $21.33 with weighted
average exercise prices of $14.80 and weighted average contractual lives of 8.92
years.
401(K) PROFIT SHARING PLAN
The Company has a 401(k) profit sharing plan (the Plan) for all employees who
are 19 years of age or older and have completed one year of service with the
Company. The Plan, as amended in 1995, provides for a mandatory matching
contribution equal to 50% of the amount of the employee's salary deduction not
to exceed $625 annually per employee. The Plan also provides for a discretionary
matching contribution. In 1998, 1997 and 1996, there were no discretionary
contributions. Employees' rights to employer contributions vest after five years
from their date of employment. The Company's matching contribution, included in
accrued liabilities in the accompanying consolidated balance sheets, was
approximately $125,000, $93,000 and $69,000 for 1998, 1997 and 1996,
respectively.
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EXHIBITS TO
KNIGHT TRANSPORTATION, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1998
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KNIGHT EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
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).
4.1 Articles 4, 10 and 11 of the Restated Articles of Incorporation of the
Company. (Incorporated by reference to Exhibit 3.1 to this Report on
Form 10-K.)
4.2 Sections 2 and 5 of the Amended and Restated Bylaws of the Company.
(Incorporated by reference to Exhibit 3.2 to this Report on Form 10-K.)
10.1 Purchase and Sale Agreement and Escrow Instructions (All Cash) dated as
of March 1, 1994, between Randy Knight, the Company, and Lawyers Title
of Arizona. (Incorporated by reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-1 No. 33-83534.)
10.1.1 Assignment and First Amendment to Purchase and Sale Agreement and
Escrow Instructions. (Incorporated by reference to Exhibit 10.1.1 to
Amendment No. 3 to the Company's Registration Statement on Form S-1 No.
33-83534.)
10.1.2 Second Amendment to Purchase and Sale Agreement and Escrow
Instructions. (Incorporated by reference to Exhibit 10.1.2 to Amendment
No. 3 to the Company's Registration Statement on Form S-1 No.
33-83534.)
10.2 Net Lease and Joint Use Agreement between Randy Knight and the Company
dated as of March 1, 1994. (Incorporated by reference to Exhibit 10.2
to the Company's Registration Statement on Form S-1 No. 33-83534.)
10.2.1 Assignment and First Amendment to Net Lease and Joint Use Payment
between L. Randy Knight, Trustee of the R. K. Trust dated April 1,
1993, and Knight Transportation, Inc. and certain other parties dated
March 11, 1994 (assigning the lessor's interest to the R. K. Trust).
10.2.2 Second Amendment to Net Lease and Joint Use Agreement between L. Randy
Knight, as Trustee of the R. K. Trust dated April 1, 1993 and Knight
Transportation, Inc., dated as of September 1, 1997.
10.3 Form of Purchase and Sale Agreement and Escrow Instructions (All Cash)
dated as of October 1994, between the Company and Knight Deer Valley,
L.L.C., an Arizona limited liability company. (Incorporated by
reference to Exhibit 10.4.1 to Amendment No. 3 to the Company's
Registration Statement on Form S-1 No. 33-83534.)
10.4 Loan Agreement and Revolving Promissory Note each dated March, 1996
between First Interstate Bank of Arizona, N.A. and Knight
Transportation, Inc. and Quad K Leasing, Inc. (superseding prior credit
facilities) (Incorporated by reference to Exhibit 10.4 to the Company's
report on Form 10-K for the period ending December 31, 1996).
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EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
10.4.1 Modification Agreement between Wells Fargo Bank, N.A., as successor by
merger to First Interstate Bank of Arizona, N.A., and the Company and
Quad-K Leasing, Inc. dated as of May 15, 1997. (Incorporated by
reference to Exhibit 4.1 to the Company's report on Form 10-K for the
period ending December 31, 1997.)
10.4.2* Loan Agreement and Revolving Line of Credit Note each dated July 14,
1998, between Wells Fargo Bank, N.A. and Knight Transportation, Inc.
(superseding prior credit facilities)
10.4.3* Term Note dated October 1, 1998, between Wells Fargo Bank, N.A. and
Knight Transportation, Inc.
10.5 Amended and Restated Knight Transportation, Inc. Stock Option Plan,
dated as of February 10, 1998. (Incorporated by reference to Exhibit 1
to the Company's Notice and Information Statement on Schedule 14(c) for
the period ending December 31, 1997.)
10.6 Amended Indemnification Agreements between the Company, Don Bliss,
Clark A. Jenkins, Gary J. Knight, Keith Knight, Kevin P. Knight, Randy
Knight, G.D. Madden, Minor Perkins and Keith Turley, and dated as of
February 5, 1997 (Incorporated by reference to Exhibit 10.6 to the
Company's report on Form 10-K for the period ending December 31, 1996).
10.7 Master Equipment Lease Agreement dated as of January 1, 1996, between
the Company and Quad-K Leasing, Inc. (Incorporated by reference to
Exhibit 10.7 to the Company's report on Form 10-K for the period ended
December 31, 1995.)
10.8 Purchase Agreement and Escrow Instructions dated as of July 13, 1995,
between the Company, Swift Transportation Co., Inc. and United Title
Agency of Arizona. (Incorporated by reference to Exhibit 10.8 to the
Company's report on Form 10-K for the period ended December 31, 1995.)
10.8.1 First Amendment to Purchase Agreement and Escrow Instructions.
(Incorporated by reference to Exhibit 10.8.1 to the Company's report on
Form 10-K for the period ended December 31, 1995.)
10.9 Purchase and Sale Agreement dated as of February 13, 1996, between the
Company and RR-1 Limited Partnership. (Incorporated by reference to
Exhibit 10.9 to the Company's report on Form 10-K for the period ended
December 31, 1995.)
10.10 Asset Purchase Agreement dated March 13, 1999, by and among Knight
Transportation, Inc., Knight Acquisition Corporation, Action Delivery
Service, Inc. Action Warehouse Services, Inc. and Bobby R. Ellis,
(Incorporated by reference to Exhibit 2.1 to the Company's report on
Form 8-K filed with the Securities and Exchange Commission on March 25,
1999.)
21.1 Subsidiaries of the Company. (Incorporated by reference to Exhibit 21.1
to the Company's report on Form 10-K for the period ending December 31,
1995.)
23* Consent of Arthur Andersen LLP
27* Financial Data Schedule
- ------------
* Filed herewith.
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