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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. 000-24615
LANDAIR CORPORATION
(Exact name of registrant as specified in its charter)
TENNESSEE 62-1743549
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
430 AIRPORT ROAD
GREENEVILLE, TENNESSEE 37745
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (423) 636-7000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of class)
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 the voting stock held by non-affiliates of the
registrant as of January 29, 1999 was approximately $20,597,598 based on the
closing price of such stock on such date of $6.75.
The number of shares outstanding of the registrant's common stock, $.01 par
value, as of February 25, 1999 was 6,295,517.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the 1999 annual meeting of
shareholders are incorporated by reference into Part III of this report. Such
definitive proxy statement will be filed with the Securities and Exchange
Commission not later than 120 days subsequent to December 31, 1998.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Number
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<S> <C>
Part I
Item 1. Business 3
Item 2. Properties 8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Executive Officers of the Registrant 9
Part II
Item 5. Market for Registrant's Common Stock and 12
Related Shareholder Matters
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial 14
Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 20
Item 8. Financial Statements and Supplementary Data 20
Item 9. Changes in and Disagreements with Accountants on 20
Accounting and Financial Disclosure
Part III
Item 10. Directors and Executive Officers of the Registrant 21
Item 11. Executive Compensation 21
Item 12. Security Ownership of Certain Beneficial 21
Owners and Management
Item 13. Certain Relationships and Related Transactions 21
Part IV
Item 14. Exhibits, Financial Statement Schedules and 22
Reports on Form 8-K
Signatures 23
Index to Financial Statements and Financial Statement Schedule F-2
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
Landair Corporation, through its operating subsidiaries (the "Company"),
is an irregular route truckload carrier that transports a wide range of
commodities in both intrastate and interstate commerce. The Company provides dry
van common carrier and dedicated contract carriage for shippers of a variety of
products in the medium- and short-haul markets. These products include, among
others, air freight, automotive parts and supplies, electronics, metal products,
paper products, retail and other consumer goods. The preponderance of the
Company's business involves providing high-quality, specialized services to
service-sensitive shippers. To assure the most efficient response to the
differing requirements of customers at numerous shipping locations, the Company
has a network of terminals where over-the-road tractors are based and drivers
are domiciled.
The Company utilizes a satellite-linked, computerized operations system
to monitor and facilitate the movement of freight. The Company's operating
philosophy is founded on maintaining the highest level of service at market
competitive prices in the most efficient manner possible.
On July 9, 1998, the Board of Directors of Forward Air Corporation
("Forward Air") authorized the separation of Forward Air into two publicly-held
corporations, one owning and operating the deferred air freight operations and
the other owning and operating the truckload operations (the "Spin-off"). The
Spin-off was effected on September 23, 1998 through the distribution to
shareholders of Forward Air of all the outstanding $.01 par value common stock
of the Company (the "Common Stock"), a truckload holding company incorporated
June 10, 1998 in Tennessee. Pursuant to the Spin-off, the Common Stock was
distributed on a pro rata basis of one share for every one share of Forward Air
$.01 par value common stock held. Effective with the Spin-off, the Company is
the legal entity that owns and operates the truckload operations through its
operating subsidiaries.
OPERATIONS
The Company currently conducts operations from seventeen terminals. Each
terminal is the base for certain over-the-road tractors and is the domicile of
the drivers who operate those tractors. These terminals have facilities and
staff to provide driver supervision, and five provide both fueling and routine
and heavy maintenance. The Company also operates facilities for its dedicated
operations. The Company believes this network of facilities enhances its ability
to provide responsive service to its customers in an efficient manner.
Each customer's shipment is accorded exclusive use of a trailer, with
most shipments being transported directly from customer pick-up locations to
destinations without a change of drivers,
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relays or circuitous routing via terminals. The Company operates a centralized
customer service and operations center in Greeneville, Tennessee. All facilities
and drivers are linked to a satellite communication and dispatch system which
provides interactive updates to its operations.
Since January 1998, the Company has recruited commission agents in
addition to its continuing efforts to recruit owner-operators. The Company
believes that the increased use of owner-operators and commission agents will
protect the Company during business downturns and will provide increased revenue
without adding proportionate fixed costs.
The Company's truckload carrier operations consist principally of common
carriage and dedicated contract carriage:
Common Carriage. The Company serves as a common carrier for a broad
array of customers with a variety of shipping needs. Common carriage primary
traffic consists of medium- and short-haul routes and is concentrated primarily
in the eastern two-thirds of the United States. Common carriage customers
include Fortune 500 companies who subscribe to a "core-carrier" strategy as well
as smaller companies with regional shipping needs. Services include just-in-time
delivery, satellite communications and electronic data interchange, as well as
tailored services required to meet specific customer needs such as dedicated
capacity, team operations and roller bed equipment used to serve its air cargo
industry customers.
Dedicated Contract Carriage. The Company's dedicated fleet provides
dedicated equipment and personnel on a contractual basis to each of its
customers for that customer's exclusive use, frequently as a lower cost
alternative to private carriage. While providing shippers with a higher level of
service, the implementation of a dedicated fleet program frees for other uses
that portion of a shipper's capital that would have been invested in a private
fleet. This ability to redeploy capital allows shippers to better utilize
resources in furtherance of their primary businesses. The dedicated fleet's
service also includes certain of the staffing requirements associated with
operating a private fleet.
The primary focus of the Company's marketing strategy is to increase
freight density within defined market areas that are consistent with the
Company's growth and profit objectives by capitalizing on the trend of shippers
to use a fewer number of truckload carriers in pursuit of a "core carrier"
partnership strategy and the trend to outsource private fleet transportation
requirements. The financial and operating goal of the Company is to maximize
profitability by achieving optimal equipment utilization and yield, while
meeting or exceeding customer service requirements.
REVENUE EQUIPMENT
The Company purchases high quality tractors to help attract and retain
drivers, promote safe operations and minimize maintenance and repair costs. When
purchasing new revenue equipment, the Company typically acquires standardized
tractors and trailers manufactured to the Company's
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specifications. Standardization enables the Company to simplify driver training,
control the cost of spare parts inventory and enhance its preventive maintenance
program.
The Company has purchased most of its tractors from Freightliner
Corporation and its trailers from Great Dane Corporation. The majority of the
tractors purchased are equipped with Series 60 Detroit Diesel electronic engines
which have contributed significantly to increased fuel efficiency. The Company's
purchase and lease agreements generally provide for a repurchase option by the
manufacturer at guaranteed predetermined trade values for tractors after four
years and for trailers after seven years.
As of December 31, 1998, the Company owned or leased 740 tractors and
contracted for 305 tractors from owner-operators. The average age of the
Company-owned tractor fleet was approximately 2.4 years at December 31, 1998. As
of December 31, 1998, the Company owned or leased 2,280 van trailers, of which
substantially all are 53' long and 135 include specialized roller bed equipment
required to serve air cargo industry customers. By having a majority of the
Company's trailer fleet equipped with 53' trailers, the Company is able to
provide its customers with more economy and convenience and increased driver
productivity. The average age of the trailer fleet was approximately 4.6 years
at December 31, 1998.
The Company has installed Qualcomm two-way satellite communication
systems in the majority of its tractors. The Qualcomm system provides the
Company with continuous communications capability in the event a driver
experiences a service delay or disruption. The Qualcomm system also allows the
Company to track the exact location and route of any particular shipment and
communicate instantly with drivers to improve operating efficiencies.
EMPLOYEES
As of December 31, 1998, the Company employed approximately 1,240
persons, 930 of whom were drivers.
Drivers. The Company has established several programs to increase driver
loyalty and to provide a greater stake in the Company to drivers. Drivers are
compensated on the basis of miles driven, and base pay for miles driven
increases with a driver's length of employment with the Company. The Company
maintains a 401(k) benefit plan and stock purchase plan for Company drivers and
other employees.
Safety and Training. The Company conducts comprehensive training
programs to promote safety, customer relations, service standards, productivity
and positive attitudes. Driver training and safety programs are developed by the
Company's safety department. Drivers meet or exceed Department of Transportation
("DOT") qualifications. Driver qualification files are updated at least annually
to maintain compliance with DOT regulations.
The Company's safety department focuses on (i) recruiting and
maintaining the most qualified drivers; (ii) improving driver and management
safety training; (iii) implementing
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periodic reviews of driving records; (iv) creating incentive bonuses for drivers
with good safety records and (v) raising awareness of safety-related issues on a
Company-wide basis.
In March 1998, the DOT initiated a safety audit of the Company, and in
May 1998, the Company was notified that it had retained its satisfactory rating.
OWNER-OPERATORS AND COMMISSION AGENTS
The Company intends to continue to expand its operations with
owner-operator equipment. The Company believes that the owner-operators with
whom it contracts are generally more experienced than the general driver
population and that they have a vested interest in protecting their own
equipment that motivates them to operate in a cautious manner. Typically, owner-
operators are responsible for paying all their operating expenses including
fuel, maintenance, equipment payments and all other equipment-related expenses.
Owner-operators are compensated by the Company on a rate per mile or percentage
of revenue basis. As of December 31, 1998, 71% of the Company's tractors in
service were contracted to the Company by owner-operators.
The Company has recently begun to recruit commission agents. These
commission agents typically have long-term relationships with an established
customer base. Management believes that the use of commission agents may provide
additional opportunities to diversify the Company's customer base and to
establish relationships with owner-operators affiliated with commission agents.
The Company intends in the future to expand the use of commission agents.
INSURANCE AND CLAIMS
Claims exposure in the transportation industry consists primarily of
cargo loss and damage, vehicle liability, property damage and workers'
compensation. The Company maintains a deductible for auto liability claims, for
physical damage claims and for cargo claims. The Company also is responsible for
a significant deductible for workers' compensation claims. The Company maintains
insurance with independent insurance carriers that provide certain coverage for
claims in excess of deductible amounts. Management believes that the Company's
insurance coverage is reasonable.
TRANSPORTATION REGULATIONS
Prior to 1996, the Company's operations in interstate commerce were
regulated by the Interstate Commerce Commission ("ICC"). Effective December 29,
1995, President Clinton signed into law the Interstate Commerce Commission
Termination Act of 1995 which closed the ICC and transferred its remaining
responsibilities to a new Surface Transportation Board and the Federal Highway
Administration. In addition, interstate motor carrier operations are subject to
safety requirements prescribed by the DOT and other relevant federal and state
agencies. Such matters as weight and dimension of equipment are also subject to
federal and state regulations. The Company's Canadian operations are subject to
similar requirements imposed by the laws and regulations of the Dominion of
Canada and various provincial laws and regulations. The
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Company is subject to various federal, state and local environmental laws and
regulations. Management believes that the Company is in substantial compliance
with applicable regulatory requirements relating to its operations. Failure of
the Company to comply with the applicable regulations could result in
substantial fines or revocation of the Company's operating permits.
ENVIRONMENTAL REGULATIONS
The Company has above-ground fuel storage tanks at its Atlanta, Georgia;
Indianapolis, Indiana; Greeneville, Tennessee; and Memphis, Tennessee facilities
and underground fuel storage tanks at its Columbus, Ohio facility. Such storage
tanks are subject to various federal and state environmental laws and
regulations. Management believes that the Company is in substantial compliance
with applicable environmental laws and regulations. No material increase for
expenditures for compliance with federal, state and local environmental laws and
regulations is anticipated in 1999.
COMPETITION AND INDUSTRY TRENDS
The Company competes with regional, inter-regional, national truckload
carriers and private fleets, and, to a lesser extent, with less-than-truckload
carriers, railroads and overnight delivery companies. Many of the Company's
competitors have greater financial resources, more equipment or larger freight
capacity than the Company. Service and price are the principal means of
competition in the transportation industry.
The Company's principal competitive strength is its ability to
consistently provide reliable service at a competitive price. Many of the
Company's customers are high volume, time-sensitive shippers which require a
flexible and dependable motor carrier service tailored to their specific needs,
including pick-up and delivery within specified delivery times.
SEASONALITY
In the trucking industry, revenue and operating results generally
reflect a seasonal pattern as customers reduce shipments during and after the
winter holiday season and during the month of July due to plant closings.
Additionally, the volume of shipments is often affected by weather variations.
The Company's operating expenses also have historically been higher in the
winter months, due primarily to decreased fuel efficiency and increased
maintenance costs of revenue equipment in colder weather.
INFLATION
Significant increases in fuel prices, to the extent not offset by
increases in rates, would have a material adverse effect on the profitability of
the Company. Historically, the Company has responded to periods of sharply
higher fuel prices by implementing fuel surcharge programs or base rate
increases, or both, to recover additional costs, but there can be no assurance
that the
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Company will be able to successfully implement such surcharges or increases in
response to increased fuel costs in the future.
MAJOR CUSTOMER
One customer of the Company, Federal Express Corporation, accounted for
27% of consolidated operating revenue for the year ended December 31, 1998.
ITEM 2. PROPERTIES
All of the Company's offices and terminals were leased in 1998. The
Company's headquarters are located in Greeneville, Tennessee. The cost to the
Company of the headquarters is at a rate management believes approximates fair
market value.
The Company currently operates terminals at the following locations:
Atlanta, GA Greeneville, TN
Belpre, OH (near Parkersburg, WV) Indianapolis, IN
Birmingham, AL Johnson City, TN
Chicago, IL Lexington, NC
Clinton, NC Lugoff, SC
Columbus, OH North Wilkesboro, NC
Dallas, TX Olive Branch, MS
Detroit, MI Thomasville, NC
Goodlettsville, TN
ITEM 3. LEGAL PROCEEDINGS
The Company is, from time to time, a party to litigation arising in the
normal course of its business, most of which involve claims for personal injury
and property damage incurred in connection with the transportation of freight.
Management believes that none of these actions, individually or in the
aggregate, will have a material adverse effect on the financial condition or
results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year ended December 31, 1998,
no matters were submitted to a vote of security holders through the solicitation
of proxies or otherwise.
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EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to Instruction 3 to Item 401(b) of Regulation S-K and General
Instruction G(3) to Form 10-K, the following information is included in Part I
of this report.
The following are the Company's executive officers:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Scott M. Niswonger (1).........................51 Chairman of the Board and Chief Executive
Officer
Eddie R. Brown.................................48 President and Chief Operating Officer
Edward W. Cook (1).............................40 Chief Financial Officer, Senior Vice President
and Treasurer
Richard H. Roberts (1).........................44 Senior Vice President, General Counsel and
Secretary
N. Jeffrey Woods...............................40 Vice President, Operations
</TABLE>
- ----------------------------
(1) Also serves as an executive officer of Forward Air.
There are no family relationships between any of the executive officers
of the Company. All officers hold office at the pleasure of the Board of
Directors.
The following background material is provided for each executive
officer employed by the registrant, including employment history for at least
the last five years. Each executive officer has served in his current position
since July 1998.
Scott M. Niswonger serves as Chairman of the Board and Chief Executive
Officer of the Company. Mr. Niswonger has also served as an executive officer
and director of Forward Air since 1981 and serves as a director of the Regional
Advisory Board of First Tennessee Bank National Association.
Eddie R. Brown serves as President and Chief Operating Officer and as a
director of the Company. Mr. Brown began serving as President and Chief
Operating Officer of Landair Transport, Inc. ("Landair Transport") in January
1998. Since June 1991, Mr. Brown served in various management positions for
Landstar System, Inc., a $1.3 billion truckload carrier based in Jacksonville,
Florida. He was President of Landstar Ranger Transportation, Inc. from January
1996 and Executive Vice President and Chief Operating Officer of Landstar
System, Inc. from January 1995 until December 1997. Mr. Brown's first position
with Landstar System, Inc. was as President and Chief Executive Officer of
Landstar Poole, Inc. in Evergreen, Alabama from June 1991 to December 1994. From
January 1986 to June 1991, Mr. Brown served as President and Chief Executive
Officer for Bulldog Trucking Inc. From October 1980 until January 1986, while at
Builders Transport, Inc. ("Builders Transport"), he served in various
capacities, ranging from Terminal Manager to Vice President, Operations and
Sales.
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Edward W. Cook serves as Chief Financial Officer, Senior Vice President
and Treasurer of the Company. Mr. Cook was employed by Ernst & Young LLP for
eleven years, most recently as a senior manager in the Nashville, Tennessee
office. During the period of March 1986 through February 1988, Mr. Cook served
as Controller and Assistant Secretary of Ryder-Temperature Controlled Carriage
in Nashville, Tennessee. Mr. Cook has served as a director of Forward Air since
September 1994.
Richard H. Roberts serves as Senior Vice President, General Counsel and
Secretary and as a director of the Company. Mr. Roberts was a partner with the
Baker, Worthington, Crossley & Stansberry law firm from January 1991, and an
associate of the firm from June 1985. Mr. Roberts has served as an executive
officer of Forward Air since July 1994 and director since May 1995. He has also
served as a director of Miller Industries, Inc. since April 1994.
N. Jeffrey Woods serves as Vice President of Operations of the Company.
Mr. Woods served as Vice President of Truckload Operations for Forward Air from
July 1991 until August 1998. From April 1985 to June 1990, Mr. Woods served in
various capacities with Ryder Systems, Inc., including Director of Operations
Planning and Director of Central Operations of Ryder-Temperature Controlled
Carriage in Nashville, Tennessee.
OTHER KEY EMPLOYEES
Harry O. Crabtree joined Landair Transport as Vice President, Safety,
in January 1998. Prior to joining Landair Transport, he served as Vice
President, Safety and Quality of Landstar Inway, Inc., a position he held from
January 1997. Mr. Crabtree was Vice President, Risk Management, for Landstar
TLC, Inc. from March 1995 to January 1997, and was Director of Safety for
Landstar Poole, Inc. from March 1989 until March 1995. From June 1979 to March
1989, Mr. Crabtree held various management positions at Landstar Poole, Inc.
advancing through the maintenance, operations, claims and safety departments.
P. Michael Davis joined Landair Transport in July 1998 as Vice
President of Dedicated Operations. Mr. Davis previously served as Vice President
of the Dedicated Fleet Division of Builders Transport in Camden, South Carolina
from February 1989 to July 1998 and as Vice President of Sales from March 1986
to January 1989. Prior to March 1986, Mr. Davis spent 23 years with McLean
Trucking Company.
Jeffrey S. Kleiber joined Landair Transport in June 1996 as Director of
Claims and served as Vice President, Safety and Risk Management, of Landair
Transport from January 1997 until March 1998, when he was appointed Vice
President, Risk Management. Prior to joining Landair Transport, he served as
President of Mid Atlantic Claims, Inc. in York, Pennsylvania, a third-party
administration company which primarily handled transportation losses and claims
for Goodway Transport, Inc., where he also served as Vice President of Safety
and Risk Management from January 1992 until May 1996. From June 1978 until
January 1992, Mr. Kleiber served as Vice President of Safety at Shaffer
Trucking, Inc. in New Kingstown, Pennsylvania.
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Jeffrey W. Maddison joined Landair Transport as Vice President,
Maintenance and Purchasing, in January 1996 and held the same position with
Forward Air from February 1996 until August 1998. Mr. Maddison served as
Executive Vice President for Erin Truckways, Ltd., d/b/a Digby Truck Lines from
January 1992, and was Vice President of Maintenance for Crete Carrier Corp.,
Shaffer Trucking, Inc., Sunflower Carriers, Inc. and HTL Truck Lines, Inc. from
September 1987 until December 1991.
John R. Morris began serving as President of Dedicated Operations for
Landair Transport in July 1998. Mr. Morris was President and Chief Operating
Officer of Builders Transport from January 1989 until December 1993 and from
December 1995 before joining Landair Transport. Mr. Morris served as director of
Builders Transport from January 1989 until September 1990 and from October 1990
until July 1998. Also while at Builders Transport, Mr. Morris filled the
position of President of Dedicated Services and Contract Logistics Group from
December 1993 until December 1995. He was also Chief Executive Officer for
Builders Transport on two occasions between June 1990 and November 1992. Mr.
Morris was in charge of the Dedicated Fleet operations for Builders Transport
from January 1986 until January 1989. He also spent 23 years with McLean
Trucking Company before joining Builders Transport.
Greg R. Smith joined Landair Transport in July 1998 as Vice President
of its Dedicated Operations. Mr. Smith was employed with Builders Transport as
Vice President Sales, Dedicated Services, from January 1989 until joining
Landair Transport. From April 1987 until August 1988, he served as Vice
President, Sales and Marketing, for Poole Truckline, Inc. Mr. Smith served in
various positions at Schneider National, Inc., the last being Area Vice
President, Sales and Marketing, from July 1980 until April 1987.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
Since the pro rata distribution to the shareholders of Forward Air of
all of the outstanding Common Stock on September 23, 1998, the Common Stock has
traded on The Nasdaq Stock Market under the symbol "LAND." The following table
sets forth the high and low sales prices for the Common Stock as reported by The
Nasdaq Stock Market from September 24, 1998 until September 30, 1998, and for
the entire fourth quarter of 1998:
<TABLE>
<CAPTION>
1998 High Low
---- ---- ---
<S> <C> <C>
September 24-30.......................$6.50 $4.00
Fourth Quarter........................$8.50 $3.00
</TABLE>
There were approximately 1,200 shareholders of record (including
brokerage firms and other nominees) of the Common Stock as of December 31, 1998.
The Company has not paid cash dividends on the 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 dividends will depend upon the
financial condition, results of operations, contractual restrictions and capital
requirements of the Company, as well as other factors deemed relevant by the
Board of Directors.
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data of the Company.
The selected financial data should be read in conjunction with the Company's
financial statements and notes thereto, included elsewhere in this report.
<TABLE>
<CAPTION>
Year ended December 31
-------- -------- -------- -------- --------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA: (1)
Operating revenue $110,353 $ 91,398 $ 82,242 $ 87,764 $ 80,934
Income from operations 6,453 3,739 825 4,104 3,642
Operating ratio (2) 94.2% 95.9% 99.0% 95.3% 95.5%
Net income (loss) 3,075 1,150 (905) 937 1,404
Pro forma income (loss) per share -
basic (3) .49 .18 (.14) .15 .22
Pro forma income (loss) per share -
diluted (3) .49 .18 (.14) .15 .22
Cash dividends declared per
common share -- -- -- -- --
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets $ 92,429 $ 97,208 $ 89,292 $ 95,200 $ 77,719
Long-term obligations, net of
current portion 18,058 14,151 19,771 29,990 21,713
Shareholders' equity 45,253 39,558 38,408 39,313 38,376
</TABLE>
(1) Results for 1994 lack comparability to other periods because 1994
includes an $805,000 loss on the sale and winding down of refrigerated
trucking operations.
(2) Operating expenses as a percentage of operating revenue.
(3) Income (loss) per share is presented on a pro forma basis to reflect
the 6,293,542 share issuance of Common Stock as a result of the
Spin-off of the Company in September 1998, as if the Spin-off had
occurred on January 1, 1994.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The financial information presented in this annual report on Form 10-K
includes the assets and liabilities and results of operations directly related
to the truckload operations of Forward Air for all periods presented prior to
the Spin-off, and of the Company subsequent to the Spin-off. (See Note 1 of
Notes to Consolidated Financial Statements.) Significant changes could have
occurred in the funding and operations of the Company had it been operated as an
independent stand-alone entity during the periods prior to the Spin-off, which
could have had a significant impact on its financial position and results of
operations. As a result, the financial information included in these financial
statements is not necessarily indicative of the financial position and results
of operations of the Company which might have occurred had it been an
independent stand-alone entity.
The following table sets forth the percentage relationship of expense
items to operating revenue for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Operating revenue:
Forward Air 4.0% 6.7% 7.1%
Other 96.0 93.3 92.9
----- ----- -----
100.0 100.0 100.0
Operating expenses:
Salaries, wages and employee benefits 34.2 34.2 33.4
Purchased transportation 24.6 23.5 26.0
Fuel and fuel taxes 11.0 12.3 12.6
Depreciation and amortization 8.8 9.1 10.3
Insurance and claims 4.5 5.8 5.3
Operating leases 1.0 0.7 1.3
Other operating expenses 10.1 10.3 10.1
----- ----- -----
Total operating expenses 94.2 95.9 99.0
----- ----- -----
Income from operations 5.8 4.1 1.0
Interest expense (1.4) (2.0) (2.7)
Other income, net 0.1 -- 0.1
----- ----- -----
Income (loss) before income taxes 4.5 2.1 (1.6)
Income taxes (benefit) 1.7 0.8 (0.5)
----- ----- -----
Net income (loss) 2.8% 1.3% (1.1)%
===== ===== =====
</TABLE>
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Operating revenue increased by $19.0 million, or 20.8%, to $110.4
million for 1998 from $91.4 million in 1997. The increase in operating revenue
resulted primarily from an increase in equipment utilization. Average tractors
in service were 835 during 1998 and 699 in 1997.
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The operating ratio for 1998 was 94.2% compared to 95.9% for 1997. The
improved operating ratio in 1998 was due primarily to a lower operating cost
structure resulting from an increase in equipment utilization during the period
and lower fuel and insurance costs.
Salaries, wages and employee benefits were constant at 34.2% of
operating revenue in 1998 compared to 34.2% in 1997 due to a decrease in the
ratio of Company drivers to owner- operators, which were offset by an increase
in driver wages. The average number of Company-operated tractors in service was
589 in 1998 and 501 in 1997.
Purchased transportation was 24.6% of operating revenue in 1998
compared to 23.5% in 1997. The increase in purchased transportation as a
percentage of operating revenue was primarily attributable to a higher ratio of
owner-operator to Company equipment during 1998 as compared to 1997. During 1998
and 1997, approximately 246 and 198, respectively, of Truckload's average
tractors in service were contracted through owner-operators.
Fuel and fuel taxes were 11.0% of operating revenue in 1998 compared to
12.3% in 1997. The decrease in fuel and fuel taxes as a percentage of operating
revenue during 1998 resulted from a 9.1% decrease in the average fuel price per
gallon, a 2.7% increase in the average miles per gallon and a decrease in the
ratio of Company drivers to owner-operators.
Depreciation and amortization expense as a percentage of operating
revenue was 8.8% in 1998 compared to 9.1% in 1997. The decrease in depreciation
and amortization as a percentage of operating revenue is attributable to
improvements in equipment utilization during 1998 coupled with a decrease in the
ratio of Company drivers to owner-operators.
Insurance and claims were 4.5% of operating revenue in 1998 compared to
5.8% in 1997. The improvement in insurance and claims expense during 1998 as
compared to 1997 resulted from a decrease in the frequency and severity of
accidents between years coupled with improvements in claims development trends
and premium costs.
Operating leases were 1.0% of operating revenue in 1998 compared to
0.7% in 1997. The increase in operating leases as a percentage of operating
revenue is attributable to increased office rent for terminal facilities.
Other operating expenses, a large component of which relates to
equipment maintenance, were 10.1% of operating revenue in 1998 compared to 10.3%
in 1997. The decrease in other operating expenses as a percentage of operating
revenue is attributed to a decrease in the ratio of Company-operated to
owner-operator equipment.
Interest expense was $1.6 million, or 1.4% of operating revenue, in
1998 compared to $1.8 million, or 2.0%, in 1997. The decrease in interest
expense during 1998 was due to lower average net borrowing during 1998 primarily
due to a $5.0 million capital contribution by Forward Air and the settlement of
intercompany balances with Forward Air which were used to pay down long-term
obligations subsequent to the Spin-off.
15
<PAGE> 16
The combined federal and state effective tax rate for 1998 was 38.2%
compared to 39.5% for 1997. For information concerning income taxes, as well as
information regarding differences between effective tax rates and statutory
rates, see Note 5 of the Notes to Consolidated Financial Statements.
As a result of the foregoing factors, net income increased by $1.9
million to $3.1 million for 1998 from $1.2 million in 1997.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Operating revenue increased by $9.2 million, or 11%, to $91.4 million
for 1997 from $82.2 million in 1998. The increase in operating revenue resulted
primarily from an increase in equipment utilization and yield. Average tractors
in service were 699 during 1997 and 695 in 1996.
The operating ratio for 1997 was 95.9% compared to 99.0% for 1996. The
improved operating ratio in 1997 was due primarily to a lower operating cost
structure resulting from an increase in equipment utilization and yield during
the period.
Salaries, wages and employee benefits were 34.2% of operating revenue
in 1997 compared to 33.4% in 1996. The increase in expense as a percentage of
operating revenue in 1997 was due primarily to an increase in the ratio of
Company drivers to owner-operators. The average number of Company-operated
tractors in service was 501 in 1997 and 472 in 1996.
Purchased transportation was 23.5% of operating revenue in 1997
compared to 26.0% in 1996. The decrease in purchased transportation as a
percentage of operating revenue was primarily attributable to a lower ratio of
owner-operator to Company equipment during 1997 as compared to 1996. During 1997
and 1996, approximately 198 and 223, respectively, of Truckload's average
tractors in service were contracted through owner-operators.
Fuel and fuel taxes were 12.3% of operating revenue in 1997 compared to
12.6% in 1996. The decrease in fuel and fuel taxes as a percentage of operating
revenue during 1997 resulted from an 0.8% decrease in the average fuel price per
gallon coupled with a 2.3% increase in the average miles per gallon and a 3.5%
increase in average revenue per loaded mile of the Company-operated tractor
fleet. The decrease in fuel and fuel taxes during 1997 was partially offset from
an increase in the ratio of Company drivers to owner-operators.
Depreciation and amortization expense as a percentage of operating
revenue was 9.1% in 1997 compared to 10.3% in 1996. The decrease in depreciation
and amortization as a percentage of operating revenue is attributable to
substantial improvements in equipment utilization during 1997, partially offset
by increased ownership of revenue equipment.
Insurance and claims were 5.8% of operating revenue in 1997 compared to
5.3% in 1996. The increase in insurance and claims expense as a percentage of
operating revenue during 1997
16
<PAGE> 17
as compared to 1996 resulted from an increase in the frequency and severity of
accidents between years coupled with improvements in premium costs.
Operating leases were 0.7% of operating revenue in 1997 compared to
1.3% in 1996. The decrease in operating leases as a percentage of operating
revenue is attributable to increased ownership, rather than leasing, of revenue
equipment.
Other operating expenses, a large component of which relates to
equipment maintenance, were 10.3% of operating revenue in 1997 compared to 10.1%
in 1996. The increase in other operating expenses as a percentage of operating
revenue is attributed to an increase in the ratio of Company-operated to
owner-operator equipment.
Interest expense was $1.8 million, or 2.0% of operating revenue, in
1997 compared to $2.2 million, or 2.7%, in 1996. The decrease in interest
expense during 1997 was due to lower average net borrowing during 1997.
The combined federal and state effective tax rate for 1997 was 39.5%
compared to a tax benefit at the rate of 32.3% for 1996. For information
concerning income taxes, as well as information regarding differences between
effective tax rates and statutory rates, see Note 5 of the Notes to Consolidated
Financial Statements.
As a result of the foregoing factors, net income increased by $2.1
million to $1.2 million for 1997 from a loss of $905,000 in 1996.
Liquidity and Capital Resources
The continued growth of the Company, and the nature of its operations,
have required significant investment in new equipment. The Company has
historically financed revenue equipment purchases with cash flows from
operations, and through borrowing under credit agreements with financial
institutions. Working capital needs have generally been met with cash flows from
operations and borrowings under the Forward Air line of credit. Net cash
provided by operating activities of the Company totaled approximately $20.0
million, $16.9 million and $9.5 million in 1998, 1997 and 1996, respectively.
Net cash used in investing activities was approximately $21.2 million
in 1998, $14.6 million in 1997 and $3.4 in 1996. Investing activities consisted
primarily of the acquisition of additional revenue equipment and enhanced
management information systems during 1998, 1997 and 1996.
Net cash provided by financing activities was $2.3 million in 1998. Net
cash used in financing activities was $1.7 million in 1997 and $9.8 million in
1996. These financing activities included a $5.0 million capital contribution by
Forward Air prior to the Spin-off coupled with the continued financing of
revenue equipment coupled with repayment of long-term debt and capital leases.
17
<PAGE> 18
The Company expects net capital expenditures in 1999 for revenue
equipment and management information systems, excluding acquisitions, to be less
than $25.0 million. The Company expects to fund these expenditures through cash
provided by operating activities and borrowing under credit facilities. On
January 7, 1999, the Company completed an asset purchase transaction in which it
acquired certain assets of Laker Express, Inc. ("Laker"). Laker is a truckload
dry van carrier based in Indianapolis, Indiana and operates predominantly in the
Midwest in the short- to medium-haul market. The aggregate consideration paid to
Laker consisted of approximately $14 million in cash. The source of funds for
the cash consideration paid to Laker was from borrowings under the Company's
credit facilities. Additional funds may be required to fund acquisitions
subsequent to Laker. While the Company expects to be able to borrow funds to
finance acquisitions, no assurance can be given that such financings can be
completed on terms satisfactory to the Company.
The Company's credit facilities include a working capital line of
credit and an equipment financing facility. Subject to maintenance of financial
covenants and ratios, these credit facilities permit the Company to borrow up to
$15.0 million under the working capital line of credit and $10.0 million under
equipment financing facilities. Interest rates for advances under the facilities
vary based on covenants related to total indebtedness, cash flows, results of
operations and other ratios. The facilities bear interest at LIBOR plus 1.0% to
1.6%, expire in September 2000, and are secured by accounts receivable and
certain revenue equipment. Availability under the line of credit is reduced by
the amount of outstanding letters of credit. Among other restrictions, the terms
of the line of credit require maintenance of certain levels of net worth and
other financial ratios.
Impact of Year 2000
Some of the Company's older computer programs and systems were written
using two digits rather than four to define the applicable year. As a result,
those computer programs have time-sensitive software that recognize a date using
"00" as the year 1900 rather than the year 2000. This could cause a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Company is in the process of replacing the majority of its key
financial and operational systems as a part of upgrading its systems in the
normal course of business. Management believes that this program will
substantially meet or address its Year 2000 issues. In addition to its
replacement program, the Company will modify some of its software and hardware
so that its computer systems will function properly with respect to dates in the
Year 2000 and thereafter. The Company has spent less than $50,000 to date to
address the Year 2000 issues. The cost of the remaining replacement and
modification for the Year 2000 issue is estimated to be less than $100,000.
18
<PAGE> 19
The Company has initiated a formal communication process with all its
significant suppliers and large customers to determine the extent to which the
Company's interface systems are vulnerable to the failure of any third party to
remediate its own Year 2000 issues, and expects to complete such process during
the second quarter of 1999. Once the Company has completed the process mentioned
above and has determined the extent to which the Company's interface systems are
vulnerable to the failure of any third party to remediate its own Year 2000
issues, the Company expects to develop its plans (including contingency plans)
and budgets to perform any necessary remediation actions. There is no guarantee
that the systems of such other companies will be timely converted and would not
have an adverse effect on the Company.
The system replacements and upgrades are estimated to be completed not
later than June 30, 1999, which is prior to any anticipated impact of Year 2000
issues on the Company's operating systems. The Company believes that with the
completion of such replacements and upgrades, the Year 2000 issue will not pose
significant operational problems for its computer systems. However, if such
replacements and upgrades are not made, or are not completed timely, or if third
parties with which the Company's systems interface are not replaced or upgraded,
the Year 2000 issue could have a material impact on the operations of the
Company.
Impact of Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. The Statement
is required to be adopted by the Company in 2000. Management does not anticipate
that the adoption of the Statement will have a significant effect on the
financial position or results of operations of the Company.
Forward-Looking Statements
The Company, or its executive officers and directors on behalf of the
Company, may from time to time make written or oral "forward-looking
statements." Written forward-looking statements may appear in documents filed
with the Securities and Exchange Commission (the "Commission"), in press
releases and in reports to shareholders. Oral forward-looking statements may be
made by the Company's executive officers and directors on behalf of the Company
to the press, potential investors, securities analysts and others. The Private
Securities Litigation Reform Act of 1995 contains a safe harbor for
forward-looking statements. The Company relies on this safe harbor in making
such disclosures. In connection with this safe harbor provision, the Company is
hereby identifying important factors that could cause actual results to differ
materially from those contained in any forward-looking statement made by or on
behalf of the Company. Without limitation, factors that might cause such a
difference include economic factors such as recessions, inflation, higher
interest rates, downturns in customer business cycles, competition, surplus
inventories, loss of a major customer, fuel price increases, the Company's lack
of prior operating history as an independent entity, the ability of the
Company's information systems to handle increased volume of freight, and the
availability and compensation of qualified drivers and independent owner-
19
<PAGE> 20
operators. The Company disclaims any intent or obligation to update these
forward-looking statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates and
commodity prices. To reduce such risks, the Company selectively uses forward
purchase contracts for fuel. All such forward purchase transactions are
authorized and executed pursuant to clearly defined procedures.
Interest Rates
At December 31, 1998, the fair value of the Company's total variable rate debt
was estimated to be $21.1 million, which approximated carrying value based on
the Company's current incremental borrowing rates for similar types of borrowing
arrangements. At this borrowing level, a hypothetical 10% adverse change in
interest rates on the debt would increase interest expense and decrease income
before income taxes by approximately $130,000. This amount was determined by
considering the impact of the hypothetical interest rate increase on the
Company's borrowing cost at the December 31, 1998 borrowing level.
Commodities
The availability and price of fuel are subject to fluctuations due to factors
such as seasonality, weather, government programs and policies, and changes in
global production. To reduce price sensitivity caused by market fluctuations,
the Company from time to time will enter into forward purchase contracts. At
December 31, 1998, the Company had commitments to purchase approximately
$750,000 of fuel through December 1999 representing approximately 8% of
estimated 1999 requirements.
The above market risk discussion and the estimated amounts presented are
forward-looking statements of market risk based on the assumed occurrence of
certain adverse market conditions. Actual results in the future may differ
materially from those projected due to actual developments in the market.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is submitted in a separate section of this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
20
<PAGE> 21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item with respect to directors of the
Company is incorporated herein by reference to the Company's definitive proxy
statement for its 1999 Annual Meeting of Shareholders (the "1999 Proxy
Statement"). The 1999 Proxy Statement will be filed with the Commission not
later than 120 days subsequent to December 31, 1998.
Pursuant to Item 401(b) of Regulation S-K, the information required by
this item with respect to executive officers of the Company is set forth in Part
I of this report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by
reference to the 1999 Proxy Statement, which will be filed with the Commission
not later than 120 days subsequent to December 31, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by
reference to the 1999 Proxy Statement, which will be filed with the Commission
not later than 120 days subsequent to December 31, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by
reference to the 1999 Proxy Statement, which will be filed with the Commission
not later than 120 days subsequent to December 31, 1998.
21
<PAGE> 22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) and (2) List of Financial Statements and Financial Statement
Schedules.
The response to this portion of Item 14 is
submitted as a separate section of this report.
(a)(3) List of Exhibits.
The response to this portion of Item 14 is
submitted as a separate section of this report.
(b) Reports on Form 8-K.
The Company filed a report on Form 8-K on December
22, 1998, announcing that on December 10, 1998 one
of the Company's subsidiaries entered into an
Asset Purchase Agreement with Laker Express, Inc.
to acquire certain assets. A copy of the Asset
Purchase Agreement and related press release were
filed as exhibits to the report.
(c) Exhibits.
The response to this portion of Item 14 is
submitted as a separate section of this report.
(d) Financial Statement Schedules.
The response to this portion of Item 14 is
submitted as a separate section of this report.
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Landair Corporation has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
LANDAIR CORPORATION
By: /s/ Scott M. Niswonger
-------------------------------------
Scott M. Niswonger, Chairman
and Chief Executive Officer
Date: February 28, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME CAPACITY DATE
<S> <C> <C>
/s/ Scott M. Niswonger Chairman and Chief Executive February 28, 1999
- ----------------------------------- Officer (Principal Executive Officer)
Scott M. Niswonger
/s/ Edward W. Cook Chief Financial Officer, February 28, 1999
- ----------------------------------- Senior Vice President and Treasurer
Edward W. Cook (Principal Financial
and Accounting Officer)
/s/ Eddie R. Brown President, Chief Operating February 28, 1999
- ----------------------------------- Officer and Director
Eddie R. Brown
/s/ Richard H. Roberts Senior Vice President, General February 28, 1999
- ----------------------------------- Counsel, Secretary and Director
Richard H. Roberts
/s/ Jerry T. Armstrong Director February 28, 1999
- -----------------------------------
Jerry T. Armstrong
/s/ Duane H. Cassidy Director February 28, 1999
- -----------------------------------
Gen. Duane H. Cassidy
/s/ C. John Langley, Jr. Director February 28, 1999
- -----------------------------------
C. John Langley, Jr.
</TABLE>
23
<PAGE> 24
Annual Report on Form 10-K
Item 8, Item 14(a)(1) and (2), (c) and (d)
List of Financial Statements and Financial Statement Schedule
Financial Statements and Supplementary Data
Certain Exhibits
Financial Statement Schedule
Year Ended December 31, 1998
Landair Corporation
Greeneville, Tennessee
<PAGE> 25
Landair Corporation
Form 10-K -- Item 8 and Item 14(a)(1) and (2)
Index to Financial Statements and Financial Statement Schedule
The following consolidated financial statements of Landair Corporation are
included as a separate section of this report:
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Report of Ernst & Young LLP, Independent Auditors............................................................F-3
Consolidated Balance Sheets - December 31, 1998 and 1997.....................................................F-4
Consolidated Statements of Income - Years Ended December 31, 1998,
1997 and 1996.............................................................................................F-6
Consolidated Statements of Shareholders' Equity - Years Ended
December 31, 1998, 1997 and 1996..........................................................................F-7
Consolidated Statements of Cash Flows - Years Ended December 31, 1998,
1997 and 1996.............................................................................................F-8
Notes to Consolidated Financial Statements - December 31, 1998...............................................F-9
The following financial statement schedule of Landair Corporation is included as
a separate section of this report.
Schedule II - Valuation and Qualifying Accounts..............................................................S-1
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.
F-2
<PAGE> 26
Report of Independent Auditors
The Board of Directors and Shareholders
Landair Corporation
We have audited the accompanying consolidated balance sheets of Landair
Corporation 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. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule 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 consolidated financial position of Landair
Corporation at December 31, 1998 and 1997, and the consolidated 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.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
Ernst & Young LLP
Nashville, Tennessee
February 2, 1999
F-3
<PAGE> 27
Landair Corporation
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
1998 1997
------- -------
(In thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,783 $ 614
Accounts receivable, less allowance of $370 in
1998 and $175 in 1997 15,805 11,100
Inventories 998 421
Prepaid expenses 3,893 2,827
Income taxes receivable 350 --
Deferred income taxes 1,871 1,372
Receivable from Forward Air -- 17,447
------- -------
Total current assets 24,700 33,781
Property and equipment:
Land 109 --
Buildings 2,023 --
Revenue equipment 89,395 88,600
Other equipment 6,688 6,075
Leasehold improvements 421 915
------- -------
98,636 95,590
Accumulated depreciation and amortization 31,242 32,178
------- -------
67,394 63,412
Other assets 335 15
------- -------
Total assets $92,429 $97,208
======= =======
</TABLE>
F-4
<PAGE> 28
<TABLE>
<CAPTION>
December 31
1998 1997
------- -------
(In thousands)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,338 $ 5,877
Accrued payroll and related items 1,475 3,394
Insurance and claims accruals 5,296 5,542
Income taxes payable -- 44
Other accrued expenses 2,285 3,059
Current portion of long-term debt 3,009 10,495
Current portion of capital lease obligations -- 2,950
------- -------
Total current liabilities 15,403 31,361
Long-term debt, less current portion 18,058 12,839
Capital lease obligations, less current portion -- 1,312
Deferred income taxes 13,715 12,138
Commitments and contingencies -- --
Shareholders' equity:
Preferred stock, $.01 par value:
Authorized shares - 5,000,000
No shares issued -- --
Common stock, $.01 par value:
Authorized shares - 45,000,000
Issued and outstanding shares - 6,293,441
in 1998 63 --
Additional paid-in capital 44,191 --
Retained earnings 999 --
Shareholder's investment -- 39,558
------- -------
Total shareholders' equity 45,253 39,558
------- -------
Total liabilities and shareholders' equity $92,429 $97,208
======= =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 29
Landair Corporation
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year ended December 31
1998 1997 1996
--------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C>
Operating revenue:
Forward Air $ 4,431 $ 6,137 $ 5,881
Other 105,922 85,261 76,361
--------- -------- --------
110,353 91,398 82,242
Operating expenses:
Salaries, wages and employee benefits 37,681 31,225 27,454
Purchased transportation 27,101 21,471 21,352
Fuel and fuel taxes 12,193 11,272 10,385
Depreciation and amortization 9,723 8,308 8,438
Insurance and claims 4,999 5,312 4,362
Operating leases 1,076 674 1,061
Other operating expenses 11,127 9,397 8,365
--------- -------- --------
103,900 87,659 81,417
--------- -------- --------
Income from operations 6,453 3,739 825
Other income (expense):
Interest expense (1,600) (1,826) (2,221)
Other, net 121 (12) 59
--------- -------- --------
(1,479) (1,838) (2,162)
--------- -------- --------
Income (loss) before income taxes 4,974 1,901 (1,337)
Income taxes (benefit) 1,899 751 (432)
--------- -------- --------
Net income (loss) $ 3,075 $ 1,150 $ (905)
========= ======== ========
Pro forma income (loss) per share:
Basic $ .49 $ .18 $ (.14)
Diluted $ .49 $ .18 $ (.14)
</TABLE>
See accompanying notes.
F-6
<PAGE> 30
Landair Corporation
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock Additional Total
------------------- Paid-in Retained Shareholder's Shareholders'
Shares Amount Capital Earnings Investment Equity
------ ------ ------- -------- ---------- ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 -- $-- $ -- $ -- $ 39,313 $ 39,313
Net loss for 1996 -- -- -- -- (905) (905)
----- --- ------- ---- -------- --------
Balance at December 31, 1996 -- -- -- -- 38,408 38,408
Net income for 1997 -- -- -- -- 1,150 1,150
----- --- ------- ---- -------- --------
Balance at December 31, 1997 -- -- -- -- 39,558 39,558
Net income for 1998 -- -- -- 999 2,076 3,075
Contribution of capital by
Forward Air -- -- -- -- 5,000 5,000
Contribution of assets to
Forward Air -- -- -- -- (2,380) (2,380)
Spin-off of Landair
Corporation 6,293 63 44,191 -- (44,254) --
----- --- ------- ---- -------- --------
Balance at December 31, 1998 6,293 $63 $44,191 $999 $ -- $ 45,253
===== === ======= ==== ======== ========
</TABLE>
See accompanying notes.
F-7
<PAGE> 31
Landair Corporation
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 3,075 $ 1,150 $ (905)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 9,723 8,308 8,438
Loss (gain) on sale of property and
equipment 81 385 (92)
Provision for losses on receivables 205 88 45
Provision for revenue adjustments 514 226 447
Deferred income taxes 1,078 866 1,998
Changes in operating assets and liabilities:
Accounts receivable (5,424) (1,740) (893)
Inventories (577) (81) (194)
Prepaid expenses (1,332) (265) (67)
Receivable from Forward Air 17,447 1,980 (2,044)
Accounts payable and accrued expenses (5,478) 5,913 2,117
Income taxes 734 79 671
-------- -------- --------
Net cash provided by operating activities 20,046 16,909 9,521
INVESTING ACTIVITIES
Purchases of property and equipment (24,076) (15,841) (4,677)
Proceeds from disposal of property and equipment 3,180 1,259 1,259
Other (320) (5) 5
-------- -------- --------
Net cash used in investing activities (21,216) (14,587) (3,413)
FINANCING ACTIVITIES
Proceeds from long-term debt 25,768 6,873 1,837
Payments of long-term debt (25,398) (8,078) (10,820)
Payments of capital lease obligations (3,031) (531) (784)
Contribution of capital by Forward Air 5,000 -- --
-------- -------- --------
Net cash provided by (used in) financing activities 2,339 (1,736) (9,767)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 1,169 586 (3,659)
Cash and cash equivalents at beginning of year 614 28 3,687
-------- -------- --------
Cash and cash equivalents at end of year $ 1,783 $ 614 $ 28
======== ======== ========
</TABLE>
See accompanying notes.
F-8
<PAGE> 32
Landair Corporation
Notes to Consolidated Financial Statements
December 31, 1998
1. ACCOUNTING POLICIES
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements for periods
subsequent to September 23, 1998 include the accounts of Landair Corporation and
its subsidiaries. The consolidated financial statements for periods through
September 23, 1998 include the accounts comprising the truckload operations of
Forward Air Corporation (formerly known as Landair Services, Inc.) ("Forward
Air"), and are based on historical amounts included in the consolidated
financial statements of Forward Air. On July 9, 1998, the Board of Directors of
Forward Air authorized the separation of Forward Air into two publicly-held
corporations, one owning and operating the deferred air freight operations and
the other owning and operating the truckload operations (the "Spin-off").
The Spin-off was effected on September 23, 1998 through the distribution to
shareholders of Forward Air of all the outstanding stock of a new truckload
holding company, Landair Corporation. Pursuant to the Spin-off, the common stock
of Landair Corporation was distributed on a pro rata basis of one share of
Landair Corporation common stock for every one share of Forward Air common stock
held. Effective with the Spin-off, Landair Corporation is the legal entity that
owns and operates the truckload operations through its operating subsidiaries,
and Forward Air is the legal entity that continues to own and operate the
deferred air freight operations through its operating subsidiaries.
As used in the accompanying consolidated financial statements, the term
"Company" refers to Landair Corporation and its subsidiaries for periods
subsequent to September 23, 1998 and to the truckload operations of Forward Air
for periods through September 23, 1998.
These historical financial statements include the assets and liabilities and
results of operations directly related to the truckload operations of Forward
Air for all periods presented through September 23, 1998. Significant changes
could have occurred in the funding and operations of the Company had it been
operated as an independent stand-alone entity during those periods, which could
have had a significant impact on its financial position and results of
operations. As a result, the financial information included in these financial
statements is not necessarily indicative of the financial position and results
of operations of the Company which might have occurred had it been an
independent stand-alone entity.
The Company is an irregular route, high-service truckload carrier that
transports a wide range of commodities in both intrastate and interstate
commerce. The Company provides dry van common
F-9
<PAGE> 33
Landair Corporation
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
carrier and dedicated contract carriage for shippers of a variety of products in
the medium- and short-haul markets. All significant intercompany transactions
and accounts have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
OWNERSHIP
Scott M. Niswonger (Chairman and Chief Executive Officer) was the majority owner
of the Company during all periods presented.
OPERATING REVENUE
Operating revenue and related costs are recognized as of the date shipments are
completed.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
INVENTORIES
Inventories of tires, replacement parts, supplies and fuel for revenue equipment
are stated at the lower of cost or market utilizing the FIFO (first-in,
first-out) method of determining cost.
F-10
<PAGE> 34
Landair Corporation
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation of property and
equipment is calculated based upon the cost of the asset, reduced by its
estimated salvage value, using the straight-line method over the estimated
useful lives as follows:
Buildings 30-40 years
Revenue equipment 3-7 years
Other equipment 3-10 years
Leasehold improvements 1-15 years
Interest payments during 1998, 1997 and 1996 were $1,627,000, $1,806,000 and
$2,265,000, respectively. The Company capitalized net interest costs of $42,000
in 1998, $-0- in 1997 and $-0- in 1996. During 1998, 1997 and 1996,
respectively, the Company added revenue and other equipment of $-0-, $1,563,000
and $-0- through capital leases.
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. The measurement of possible impairment is based upon determining
whether projected undiscounted future cash flows from the use of the asset over
the remaining depreciation or amortization period is less than the carrying
value of the asset. As of December 31, 1998, in the opinion of management, there
has been no such impairment.
INSURANCE AND CLAIMS ACCRUALS
The primary claims in the Company's business are workers' compensation, property
damage, auto liability and medical benefits. Most of the Company's insurance
coverage provides for self-insurance levels with primary and excess coverage
which management believes is sufficient to adequately protect the Company from
catastrophic claims. In the opinion of management, adequate provision has been
made for all incurred claims up to the self-insured limits.
NET INCOME PER SHARE
The Company calculates income per share in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128, Earnings Per Share. Under SFAS
No. 128, basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted income per share includes any
dilutive effects of options, warrants and convertible securities, and uses the
treasury stock method in calculating dilution. Earnings per share for 1998, 1997
and 1996 are presented on a pro forma basis to reflect the 6,293,542 share
issuance of common stock as a result of the Spin-off of the Company as if the
Spin-off had occurred on January 1, 1996 (see Note 4).
F-11
<PAGE> 35
Landair Corporation
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
EMPLOYEE STOCK OPTIONS
The Company grants options for a fixed number of shares to employees with an
exercise price generally equal to the fair value of the shares at the grant
date. The Company accounts for employee stock option grants in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and, accordingly, recognizes no compensation expense for the stock
option grants.
MAJOR CUSTOMER
One customer of the Company, Federal Express Corporation, accounted for 26.8%,
29.4% and 17.1% of consolidated operating revenue for the years ended December
31, 1998, 1997 and 1996, respectively.
COMMON EXPENSES
Prior to 1998, certain administrative expenses consisting of payroll, legal,
accounting, rent and depreciation for shared facilities, and other common
expenses which could not be specifically identified to either the deferred air
freight operations or the truckload operations have been allocated by Forward
Air to the Company based on its relative percentage of consolidated operating
revenue. These administrative expenses, which were allocated to the Company and
which would have been incurred by the Company if it had been operated as an
independent stand-alone entity, totaled $3,208,000, $4,420,000 and $3,225,000
for the period January 1, 1998 through September 23,1998, and 1997 and 1996,
respectively. Subsequent to the Spin-off, certain administrative and back office
functions continue to be shared by both the Company and Forward Air. The
expenses related to these services are addressed by a Transition Services
Agreement as more fully discussed in Note 2.
Interest expense of $1,382,000, $1,826,000 and $2,221,000 for the period January
1, 1998 through September 23, 1998, and 1997 and 1996, respectively, has been
allocated by Forward Air to the Company based upon the pro rata share of average
operating assets of the Company and Forward Air.
Management believes these allocation methods are reasonable.
F-12
<PAGE> 36
Landair Corporation
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICES (CONTINUED)
ACCOUNTING PRONOUNCEMENTS
In 1998, the Company adopted a new disclosure pronouncement, SFAS No. 130,
Reporting Comprehensive Income. The Company had no items of other comprehensive
income and, accordingly, adoption of the Statement had no effect on the
consolidated financial statements.
In 1998, the Company also adopted another new disclosure pronouncement, SFAS No.
131, Disclosures About Segments of an Enterprise and Related Information. SFAS
No. 131 requires companies to report selected segment information when certain
size tests are met. Management has determined that the Company operates in only
one segment meeting the applicable tests.
In 1998, the Company early-adopted Statement of Position (SOP) 98-1, Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use. SOP
98-1 requires capitalization of certain costs to purchase or develop
internal-use software, and amortization of these costs over the estimated useful
life of the software. During 1998, the Company capitalized approximately $99,000
of internal-use software development costs. In years prior to 1998, the Company
did not incur significant software development costs. Costs related to software
developed for internal use will be amortized using the straight-line method over
an estimated five year life. No amortization of capitalized software development
costs was recorded in 1998 since the projects were under development throughout
the period.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 is
required to be adopted by the Company in 2000. Management does not anticipate
that the adoption of SFAS No. 133 will have a significant effect on the
financial position or results of operations of the Company.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial statements
to conform to the 1998 presentation. These reclassifications had no effect on
net income (loss) as previously reported.
F-13
<PAGE> 37
Landair Corporation
Notes to Consolidated Financial Statements (continued)
2. TRANSACTIONS WITH FORWARD AIR
The Company and Forward Air routinely engage in transactions where the Company
hauls deferred air freight shipments for Forward Air which are in excess of
Forward Air's scheduled capacity. The Company's operating revenue from these
shipments is shown separately in the accompanying statements of income.
The Receivable from Forward Air in the accompanying December 31, 1997 balance
sheet represented the net balance resulting from various intercompany
transactions between the Company and Forward Air. There were no terms of
settlement or interest charges associated with the account balance. The balance
was primarily the result of the Company's participation in Forward Air's central
cash management program, wherein all of Forward Air's cash receipts were
remitted to a subsidiary of the Company and all cash disbursements were funded
by a subsidiary of the Company. Other transactions included intercompany freight
transactions as discussed above, the federal income tax benefit provided by the
Company to the consolidated tax liability of Forward Air, and miscellaneous
other common expenses incurred between the Company and Forward Air. In
connection with the Spin-off, Forward Air settled all intercompany balances for
cash, which was then used for payments on the long-term debt of the Company.
An analysis of transactions in the Receivable from Forward Air account follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 17,447 $ 19,427 $ 17,383
Net cash remitted from Forward Air (17,366) (2,065) (1,492)
Net intercompany freight transactions 4,431 6,137 5,881
Current federal income tax benefit
provided to Forward Air 78 194 3,101
Net administrative expenses and
interest allocated from Forward Air (4,590) (6,246) (5,446)
-------- -------- --------
Balance at end of year $ -- $ 17,447 $ 19,427
======== ======== ========
</TABLE>
F-14
<PAGE> 38
Landair Corporation
Notes to Consolidated Financial Statements (continued)
2. TRANSACTIONS WITH FORWARD AIR (CONTINUED)
In connection with the Spin-off, the Company and Forward Air entered into
certain agreements which were effective upon the actual separation of the two
companies. The agreements were entered into to facilitate orderly changes from
an integrated transportation company to separate deferred air freight and
truckload operations companies in a way which is minimally disruptive to each
entity. Following are summaries of the principal agreements:
DISTRIBUTION AGREEMENT
The Distribution Agreement provides for, among other things, the principal
corporate transactions required to effect the Spin-off and the allocation of
certain assets and liabilities between the Company and Forward Air. The
Distribution Agreement provides that the Company and Forward Air each have sole
responsibility for claims arising out of their respective activities after the
Spin-off. It also provides that each party will indemnify the other in the
event of certain liabilities arising under the federal securities laws, and
that, for a period of three years after the Spin-off, neither the Company nor
Forward Air will directly solicit the employment of any employee of the other
company or its affiliates without the prior written consent of such other
company.
TRANSITION SERVICES AGREEMENT
The Transition Services Agreement describes the services which the
Company and Forward Air will provide to each other following the Spin-off.
Services performed under the Transition Services Agreement are negotiated and
paid for on an arm's-length basis. The Transition Services Agreement has an
eighteen-month term, except that information technology services to be provided
by Forward Air to the Company have a thirty-six month term. Notwithstanding the
stated term of the Transition Services Agreement, the Company or Forward Air, as
recipients of the services, may terminate any or all such services at any time
on thirty days' irrevocable written notice, and the Company or Forward Air, as
providers of the services, may at any time after the first anniversary of the
Spin-off, terminate any or all of the services, other than the information
technology services, on three months' irrevocable notice.
EMPLOYEE BENEFIT MATTERS AGREEMENT
The Employee Benefit Matters Agreement provides for the treatment of employee
benefit matters and other compensation arrangements for the employees of the
Company and Forward Air after the Spin-off. Pursuant to this agreement, Forward
Air is continuing sponsorship of the various employee benefit plans and welfare
plans of Forward Air with respect to Forward Air's employees after the Spin-off,
and the Company is required to establish such similar plans which will allow the
Company to provide to its employees after the Spin-off substantially the same
benefits
F-15
<PAGE> 39
Landair Corporation
Notes to Consolidated Financial Statements (continued)
2. TRANSACTIONS WITH FORWARD AIR (CONTINUED)
previously provided to them as employees of Forward Air. The Employee Benefit
Matters Agreement also provided for the adjustment and conversion of the
existing non-exercisable stock options of Forward Air into options of the
Company for those employees that continued employment with the Company after the
Spin-off (see Note 4).
TAX SHARING AGREEMENT
The Tax Sharing Agreement describes the responsibilities of the Company and
Forward Air with respect to all tax matters occurring prior to and after the
Spin-off. The Tax Sharing Agreement provides for the allocation of tax expense,
assessments, refunds and other tax benefits. The Agreement also sets forth the
responsibility for filing tax returns and provides for reasonable cooperation in
the event of any audit, litigation or other proceeding with respect to any
federal, state or local tax.
In accordance with the terms included in the Transition Services Agreement,
subsequent to the Spin-off in 1998, the Company provided safety, licensing,
permitting and fuel tax, insurance and claims services, recruiting and retention
services, and driver training center services to Forward Air. The Company
charged Forward Air $193,000 during the period September 24, 1998 through
December 31, 1998 for these services. In addition, Forward Air provided accounts
payable, payroll, human resources, employee benefit plan administration,
owner-operator settlement, central purchasing, accounting and legal, general
administrative, and information technology services to the Company. Forward Air
charged the Company $797,000 during the period September 24, 1998 through
December 31, 1998 for these services.
At December 31, 1998, accounts receivable included $687,000 of amounts due from
Forward Air related to services covered under the Transition Services Agreement
and various other transactions between both entities.
F-16
<PAGE> 40
Landair Corporation
Notes to Consolidated Financial Statements (continued)
3. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31
1998 1997
------- -------
(In thousands)
<S> <C> <C>
Line of credit $ 6,921 $ --
Equipment Loan Agreement 5,923 13,457
Installment notes payable with a finance company
through 1999, including interest at the 30-day
commercial paper rate plus 1.8% (6.7% and 7.6% at
December 31, 1998 and 1997, respectively) and
interest ranging from 6.4% to 7.4%, collateralized
by revenue equipment 3,721 7,823
Other notes payable, including interest
ranging from 6.4% to 7.9% 4,502 2,054
------- -------
21,067 23,334
Less current portion 3,009 10,495
------- -------
$18,058 $12,839
======= =======
</TABLE>
Effective with the Spin-off from Forward Air on September 23, 1998, the Company
entered into a $15.0 million line of credit agreement with a Tennessee bank
which expires in September 2000. Interest rates for advances under the
facilities vary from LIBOR plus 1.0% to 1.6% based upon covenants related to
total indebtedness, cash flows, results of operations and other ratios. Advances
are collateralized primarily by accounts receivable. The agreement contains,
among other things, restrictions that do not allow the payment of dividends, and
requires the maintenance of certain levels of net worth and other financial
ratios. At December 31, 1998, the Company had $6,921,000 outstanding under the
line and had utilized $6,657,000 of availability for outstanding letters of
credit.
Prior to the Spin-off, Forward Air had a $15.0 million line of credit agreement
with a Tennessee bank. At December 31, 1997, no borrowings were outstanding
under the line applicable to the Company and $5,182,000 of availability had been
used for outstanding letters of credit for the Company.
Effective with the Spin-off, the Company entered into an equipment loan
agreement (the "Equipment Loan Agreement") with a Tennessee bank which permits
the Company to borrow up to $10.0 million for the purchase of revenue equipment.
The equipment loan agreement expires in September 2000. Interest rates for
advances under the facility vary from LIBOR plus 1.0% to
F-17
<PAGE> 41
Landair Corporation
Notes to Consolidated Financial Statements (continued)
3. LONG-TERM DEBT (CONTINUED)
1.6% based upon covenants related to total indebtedness, cash flows, results of
operations and other ratios (6.1% to 6.7% at December 31, 1998). The advances
are collateralized by revenue equipment purchased with the proceeds from the
Equipment Loan Agreement, and contain restrictions and covenants similar to the
line of credit agreement described above. At December 31, 1998, the Company had
additional borrowing capacity available of $4,077,000 under the Equipment Loan
Agreement.
Prior to the Spin-off, Forward Air had equipment loan agreements with two
Tennessee banks which permitted Forward Air to borrow up to $30.0 million for
the purchase of revenue equipment. Outstanding advances carried interest at the
30-day LIBOR rate plus 1.0% to 1.6% (6.7% to 7.3% at December 31, 1997). The
advances were collateralized by revenue equipment purchased with the proceeds
from the equipment loan agreements. At December 31, 1997, $13,457,000 of
borrowings were outstanding under the equipment loan agreements applicable to
the Company.
Revenue equipment collateralizing these agreements has a carrying value of
approximately $13,650,000 at December 31, 1998.
Maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
1999 $ 3,009
2000 9,981
2001 3,113
2002 2,919
2003 1,403
Thereafter 642
-------
$21,067
=======
</TABLE>
4. SHAREHOLDERS' EQUITY AND STOCK OPTIONS
Shareholder's Investment -- For accounting purposes, the historical equity
(shareholder's investment) of the Company through September 23, 1998 consists of
the contributed capital and the accumulated retained earnings of the truckload
operations of Forward Air.
Preferred Stock -- The Board of Directors is authorized to issue, at its
discretion, up to 5,000,000 shares of preferred stock, par value $.01. The terms
and conditions of the preferred shares are to be determined by the Board of
Directors. No shares have been issued to date.
F-18
<PAGE> 42
Landair Corporation
Notes to Consolidated Financial Statements (continued)
4. SHAREHOLDERS' EQUITY AND STOCK OPTIONS (CONTINUED)
Employee Stock Option and Incentive Plan -- The Company follows Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and
related Interpretations in accounting for its employee stock options. Under
Opinion No. 25, when the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Under the provisions of Forward Air's stock option plan, options to purchase
shares of Forward Air's common stock that were exercisable at the time of the
Spin-off and that were held by those employees who terminated employment with
Forward Air and became employees of the Company upon the Spin-off, were
cancelled if not exercised prior to such employees' termination of employment
with Forward Air. Accordingly, employees that were leaving Forward Air and
continuing as employees of the Company exercised their vested options prior to
the Spin-off. Unexercisable options held by employees of Forward Air who
remained or became employees of the Company upon consummation of the Spin-off
were converted into 169,000 options to purchase Company common stock under the
Company's Stock Option and Incentive Plan. Such conversion was on the basis of a
formula designed to preserve the fair market value of such converted options on
the date of the Spin-off.
Subsequent to the Spin-off, the Company reserved 500,000 shares of common stock
under a Stock Option and Incentive Plan. Options issued under the Plan have a
ten year term and vest over a four year period. Prior to the Spin-off, the
Company had no outstanding common stock or options to purchase common stock.
Pro forma information regarding net income and earnings per share is required by
Statement No. 123, Accounting for Stock-Based Compensation, which also requires
that the information be determined as if the Company has accounted for its
employee stock options granted under the fair value method of that Statement.
The fair value for these options was estimated at the date of grant in 1998
using a Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rates of 4.7%; dividend ratio of zero;
volatility factors of the expected market price of the common stock of 0.5; and
a weighted-average expected life of the option of seven years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its stock options.
F-19
<PAGE> 43
Landair Corporation
Notes to Consolidated Financial Statements (continued)
4. SHAREHOLDERS' EQUITY AND STOCK OPTIONS (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the stock
options is amortized to expense over the options' vesting period. The Company's
pro forma information for 1998 follows (in thousands, except per share data):
<TABLE>
<S> <C>
Pro forma net income $ 2,950
Pro forma net income per share:
Basic $ .47
Diluted $ .47
</TABLE>
A summary of the Company's employee stock option activity and related
information for the year ended December 31, 1998 follows:
<TABLE>
<CAPTION>
Options Weighted-Average
(000) Exercise Price
----- --------------
<S> <C> <C>
Outstanding - beginning of year -- $ --
Granted/Converted 333 4
Exercised -- --
Forfeited 12 4
----- -----
Outstanding - end of year 321 $ 4
===== =====
Exercisable at end of year 2 $ 8
===== =====
Options available for grant 179
=====
Weighted-average fair value of options granted
during the year $2.34
=====
</TABLE>
Exercise prices for options outstanding, as of December 31, 1998, ranged from
$3.01 to $7.71.
Non-Employee Director Options -- In October 1998, options to purchase 45,000
shares of common stock were granted to the non-employee directors of the Company
at an option price of $4.25 per share. The options have terms of ten years and
are exercisable in installments which vest over two-year periods from the date
of grant. At December 31, 1998, 45,000 options are outstanding and will expire
in October 2008, unless a non-employee director resigns or is not re-elected, in
which event the options expire 90 days after the option holder is no longer a
non-employee director.
Employee Stock Purchase Plan -- The Company implemented an employee stock
purchase plan effective January 1, 1999 at which time participating employees
became entitled to purchase common stock through payroll deduction of up to 10%
of the employee's annual compensation. The issue price of the common stock is
equal to the lesser of (1) 85% of market price on the first trading day of the
semi-annual enrollment period or (2) 85% of market price on the last trading day
of the semi-annual enrollment period. The Company has reserved 300,000 shares of
common stock for issuance pursuant to the plan.
F-20
<PAGE> 44
Landair Corporation
Notes to Consolidated Financial Statements (continued)
4. SHAREHOLDERS' EQUITY AND STOCK OPTIONS (CONTINUED)
Pro Forma Earnings (Loss) Per Share -- Earnings (loss) per share are presented
on a pro forma basis to reflect the 6,293,542 share issuance of common stock as
a result of the Spin-off of the Company (see Note 1) as if the Spin-off had
occurred on January 1, 1996. The following table sets forth the computation of
pro forma basic and diluted earnings (loss) per share (in thousands, except per
share data):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ -------
<S> <C> <C> <C>
Numerator:
Numerator for pro forma basic and diluted
earnings per share - net income (loss) $3,075 $1,150 $ (905)
====== ====== =======
Denominator:
Denominator for pro forma basic earnings per share
- weighted-average shares 6,293 6,293 6,293
Effect of dilutive stock options 20 -- --
------ ------ -------
Denominator for pro forma diluted earnings per
share - adjusted weighted-average shares 6,313 6,293 6,293
====== ====== =======
Pro forma basic net income (loss) per share $ .49 $ .18 $ (.14)
====== ====== =======
Pro forma diluted net income (loss) per share $ .49 $ .18 $ (.14)
====== ====== =======
Securities that could potentially dilute pro forma basic
net income per share in the future that were not
included in the computation of diluted net income
per share because to do so would have been
antidilutive for the periods presented 8 -- --
====== ====== =======
</TABLE>
5. INCOME TAXES
The operations of the Company have been included in the consolidated federal
income tax return of Forward Air for periods prior to September 23, 1998. For
the periods prior to September 23, 1998, the provision (benefit) for income
taxes reflects an allocation of federal income taxes computed on a separate
return basis. For the periods subsequent to September 23, 1998, the Company will
file its own consolidated federal income tax return. The Company and Forward Air
entered into a Tax Sharing Agreement in connection with the Spin-off (see Note
2). The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ -------
(In thousands)
<S> <C> <C> <C>
Current:
Federal $ 703 $ (94) $(2,172)
State 118 (21) (258)
------ ------ -------
821 (115) (2,430)
Deferred:
Federal 996 748 1,759
State 82 118 239
------ ------ -------
1,078 866 1,998
------ ------ -------
$1,899 $ 751 $ (432)
====== ====== =======
</TABLE>
F-21
<PAGE> 45
Landair Corporation
Notes to Consolidated Financial Statements (continued)
5. INCOME TAXES (CONTINUED)
The historical income tax expense (benefit) differs from the amounts computed by
applying the federal statutory rate of 34% to income before income taxes as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ -------
(In thousands)
<S> <C> <C> <C>
Tax expense (benefit) at the statutory rate $1,691 $ 646 $ (455)
State income taxes (benefit), net of
federal benefit 191 86 (32)
Meals and entertainment 17 19 55
------ ------ -------
$1,899 $ 751 $ (432)
====== ====== =======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
December 31
1998 1997
------- -------
(In thousands)
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation $13,470 $11,970
Prepaid expenses deductible when paid 472 1,024
Other 292 169
------- -------
Total deferred tax liabilities 14,234 13,163
Deferred tax assets:
Accrued expenses 2,255 2,333
Allowance for doubtful accounts 135 64
------- -------
Total deferred tax assets 2,390 2,397
------- -------
Net deferred tax liabilities $11,844 $10,766
======= =======
</TABLE>
The balance sheet classification of deferred income taxes is as follows:
<TABLE>
<CAPTION>
December 31
1998 1997
------- -------
(In thousands)
<S> <C> <C>
Current assets $(1,871) $(1,372)
Noncurrent liabilities 13,715 12,138
------- -------
$11,844 $10,766
======= =======
</TABLE>
F-22
<PAGE> 46
Landair Corporation
Notes to Consolidated Financial Statements (continued)
5. INCOME TAXES (CONTINUED)
Total income tax payments, including payments to (from) Forward Air for the
Company's allocated share of federal taxes (benefit), during 1998, 1997 and 1996
were $414,000, $(194,000) and $(3,101,000), respectively.
6. LEASES
Prior to December 31, 1998, the Company leased certain revenue and other
equipment under capital leases. Property and equipment include the following
amounts for leases that were capitalized:
<TABLE>
<CAPTION>
December 31
1998 1997
------- -------
(In thousands)
<S> <C> <C>
Revenue equipment $ -- $ 6,659
Less accumulated amortization -- 2,596
------- -------
$ -- $ 4,063
======= =======
</TABLE>
Amortization of leased assets is included in depreciation and amortization
expense.
The Company also leases certain facilities and revenue equipment under
noncancellable operating leases that expire in various years through 2003.
Certain of these leases may be renewed for a one year term. The Company also
shares certain facilities leased by Forward Air and has been allocated a portion
of the rent expense related thereto (see Note 1 - Common Expenses). As discussed
below, the Company has entered into lease or sublease agreements with Forward
Air related to certain facilities.
Included in operating leases is a motorcoach leased from a limited liability
corporation owned by the Company's majority shareholder which expires in
September 1999. The total amount of rent expense for this lease was $20,000,
$-0- and $-0- in 1998, 1997 and 1996, respectively.
F-23
<PAGE> 47
Landair Corporation
Notes to Consolidated Financial Statements (continued)
6. LEASES (CONTINUED)
On or prior to the date of the Spin-off, Forward Air entered into subleases with
the Company pursuant to which Forward Air subleases to the Company (i) a portion
of its terminal facility in Columbus, Ohio that is leased by Forward Air from
the Director of Development of the State of Ohio; (ii) a portion of its terminal
facility in Atlanta, Georgia; (iii) a portion of its facility in Indianapolis,
Indiana; (iv) a portion of its terminal facility in Chicago, Illinois; (v) a
portion of its terminal facility in Detroit, Michigan; and (vi) a portion of the
headquarters of Forward Air in Greeneville, Tennessee that is leased from the
Greeneville-Greene County Airport Authority. Forward Air subleases the Columbus
and Atlanta terminal facilities for consideration based upon the cost of such
facilities to Forward Air and an agreed upon percentage of usage. Forward Air
subleases the Indianapolis, Chicago, Detroit and Greeneville facilities for
consideration based upon an agreed upon percentage of usage.
Future minimum rental payments under noncancelable operating leases with initial
terms of one year or more consisted of the following at December 31, 1998 (in
thousands):
<TABLE>
<S> <C>
1999 $ 707
2000 326
2001 301
2002 297
2003 223
Thereafter --
-------
Total $ 1,854
=======
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
The Company is, from time to time, a party to litigation arising in the normal
course of its business, most of which involve claims for personal injury and
property damage incurred in connection with the transportation of freight.
Management believes that none of these actions, individually or in the
aggregate, will have a material adverse effect on the financial condition or
results of operations of the Company.
8. EMPLOYEE BENEFIT PLAN
Effective January 1, 1999, the Company adopted a retirement savings plan (the
"401(k) Plan") with terms similar to the existing retirement savings plan of
Forward Air. Employees of the Company who participated in Forward Air's 401(k)
Plan were entitled to transfer their participation into the Company's 401(k)
Plan. The 401(k) Plan is a defined contribution plan whereby employees who have
completed one year of service, a minimum of 1,000 hours of service and are age
21 or older are eligible to participate. The 401(k) Plan allows eligible
employees to make contributions of 2% to 10% of their annual compensation.
Employer
F-24
<PAGE> 48
Landair Corporation
Notes to Consolidated Financial Statements (continued)
8. EMPLOYEE BENEFIT PLAN (CONTINUED)
contributions will be made at 25% of the employee's contribution up to a maximum
of 4% of total annual compensation. Employer contributions vest 20% after two
years of service and continue vesting 20% per year until fully vested. The
matching contribution by the Company to the Forward Air plan for 1998, 1997 and
1996 was approximately $67,000, $76,000 and $78,000, respectively.
9. FINANCIAL INSTRUMENTS
Off Balance Sheet Risk
At December 31, 1998, the Company had letters of credit outstanding totaling
$6,657,000, all of which relate to obligations carried on the balance sheet.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and trade
accounts receivable. The Company does not generally require collateral from its
customers. One customer, Federal Express Corporation, accounted for 14.3% and
22.8% of total trade accounts receivable at December 31, 1998 and 1997,
respectively. Concentrations of credit risk with respect to trade accounts
receivable are otherwise limited due to the large number of entities comprising
the Company's customer base and their dispersion across many different
industries.
Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
Accounts receivable and accounts payable: The carrying amounts
reported in the balance sheet for accounts receivable and accounts
payable approximate their fair value.
Long-and short-term debt: The carrying amounts of the Company's
borrowings under its revolving credit arrangement approximate fair
value. The fair value of the Company's long-term debt and capital
lease obligations is estimated using discounted cash flow analyses,
based on the Company's current incremental borrowing rates for similar
types of borrowing arrangements.
F-25
<PAGE> 49
Landair Corporation
Notes to Consolidated Financial Statements (continued)
9. FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amounts and fair values of the Company's financial instruments at
December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------ -----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
(In thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 1,783 $ 1,783 $ 614 $ 614
Accounts receivable 15,805 15,805 11,100 11,100
Accounts payable 3,338 3,338 5,877 5,877
Long-term debt and capital lease
obligations 21,067 21,067 27,596 27,596
</TABLE>
10. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the years
ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998
----------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Operating revenue $25,323 $26,220 $27,645 $31,165
Income from operations 1,578 1,515 1,718 1,642
Net income 676 669 797 933
Pro forma net income per
common share:
Basic $ .11 $ .11 $ .13 $ .15
Diluted $ .11 $ .11 $ .13 $ .15
</TABLE>
<TABLE>
<CAPTION>
1997
----------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Operating revenue $20,545 $22,081 $23,367 $25,405
Income from operations 155 814 1,254 1,516
Net income (loss) (194) 171 566 607
Pro forma net income (loss) per
common share:
Basic $ (.03) $ .03 $ .09 $ .10
Diluted $ (.03) $ .03 $ .09 $ .10
</TABLE>
F-26
<PAGE> 50
Landair Corporation
Notes to Consolidated Financial Statements (continued)
10. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (CONTINUED)
During the third quarter of 1997, the Company benefited from non-recurring
revenue that resulted from the United Parcel Service strike. This additional
revenue net of variable costs, but not allocated fixed costs, resulted in an
estimated additional $235,000 of pre-tax income from operations and $.02 of
diluted earnings per share during the quarter.
11. SUBSEQUENT EVENT
On January 7, 1999, the Company completed an asset purchase transaction in which
it acquired certain assets of Laker Express, Inc. ("Laker"). Laker is a
truckload dry van carrier based in Indianapolis, Indiana and operates
predominantly in the Midwest in the short- to medium-haul market. The aggregate
consideration paid to Laker consisted of approximately $14 million in cash. The
source of funds for the cash consideration paid to Laker was from borrowings
under the Company's credit facilities. The acquisition will be accounted for
using the purchase method of accounting.
F-27
<PAGE> 51
Landair Corporation
Schedule II -- Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
- -------------------------------------------------------------------------------------------------------------------------
Additions
--------------------------
(1) (2)
Charged Charged
Balance at to Costs to Other Balance at
Beginning and Accounts- Deductions- End of
Description of Period Expenses Describe Describe Period
----------- --------- -------- -------- -------- ------
(In thousands)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998:
Allowance for doubtful accounts $ 125 $ 205 $ -- $ 43 (2) $ 287
Allowance for revenue
adjustments (1) 50 514 -- 481 (3) 83
------- ------- ------- ------ ------
175 719 -- 524 370
Year ended December 31, 1997:
Allowance for doubtful accounts 53 88 -- 16 (2) 125
Allowance for revenue
adjustments (1) 25 226 -- 201 (3) 50
------- ------- ------- ------ ------
78 314 -- 217 175
Year ended December 31, 1996:
Allowance for doubtful accounts 33 45 -- 25 (2) 53
Allowance for revenue
adjustments (1) 20 447 -- 442 (3) 25
------- ------- ------- ------ ------
53 492 -- 467 78
</TABLE>
(1) Represents an allowance for adjustments to accounts receivable due to
disputed rates, accessorial charges and other aspects of previously
billed shipments.
(2) Uncollectible accounts written off, net of recoveries.
(3) Adjustments to billed accounts receivable.
S-1
<PAGE> 52
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. in
Exhibit No. Under Document Where
Item 601 of Incorporated by
Regulation S-K Reference
-------------- ---------
<S> <C> <C>
2.1(c) - Distribution Agreement between the 2.1
registrant and Forward Air Corporation
2.2(d) - Asset Purchase Agreement between 2.1
Landair Transport, Inc., Laker Express, Inc.
and Dennis Pressler (Schedules and other
exhibits to this document are omitted from
this filing but the registrant will furnish
supplemental copies of the omitted
materials to the Commission upon
request.)
3.1(b) - Charter of the registrant 3.1
3.2(c) - Bylaws of the registrant 3.1
4.1(b) - Form of Common Stock Certificate 4.1
10.1(c) - Transition Services Agreement between the 10.1
registrant and Forward Air Corporation
10.2(c) - Employee Benefit Matters Agreement 10.2
between the registrant and Forward Air
Corporation
10.3(c) - Tax Sharing Agreement between the 10.3
registrant and Forward Air Corporation
10.4(b) - Stock Option and Incentive Plan 10.4
10.5(b) - Non-Employee Director Stock Option Plan 10.5
10.6(c) - First Amendment to the Non-Employee 10.4
Director Stock Option Plan
10.7(b) - Employee Stock Purchase Plan 10.6
10.8(b) - Cash Incentive Plan 10.7
</TABLE>
<PAGE> 53
<TABLE>
<S> <C> <C>
10.9(c) - Loan and Security Agreement, dated as of 10.5
September 10, 1998, between First Tennessee
Bank National Association and the registrant
10.10(c) - $15.0 million Master Secured Promissory Note 10.6
(Line of Credit), dated as of September 10,
1998, to First Tennessee Bank National
Association
10.11(c) - $10.0 million Secured Promissory Note 10.7
(Equipment Loan), dated as of September 10,
1998, to First Tennessee Bank National
Association
10.12(a) - Employment Agreement between Landair --
Transport, Inc. and Eddie R. Brown
21.1(b) - Subsidiaries of the registrant 21.1
23.1(a) - Consent of Ernst & Young LLP --
27.1(a) - Financial Data Schedule (Electronic Filing Only) --
</TABLE>
(a) Filed herewith.
(b) Filed as an exhibit to the registrant's Registration Statement
on Form 10, filed with the Commission on July 13, 1998, as amended.
(c) Filed as an exhibit to the registrant's Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 1998, filed with the
Commission on November 16, 1998.
(d) Filed as an exhibit to the registrant's Form 8-K, filed with
the Commission on December 22, 1998.
<PAGE> 1
Exhibit 10.12
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement"), dated as of
November 25, 1997, is made and entered into by and between Landair Transport,
Inc., a Tennessee corporation (the "Company"), and Eddie R. Brown ("Employee").
WITNESSETH:
WHEREAS, the Company desires to employ Employee, and Employee
desires to accept employment with the Company on terms and conditions set forth
herein; and
WHEREAS, the Company and Employee desire to set forth in
writing the terms and conditions of their agreements and understandings.
NOW, THEREFORE, in consideration of the premises, and of the
mutual covenants and agreements hereinafter set forth, the parties agree as
follows:
1. Term. Subject to the terms hereof, the term of Employee's
employment by the Company hereunder (the "Employment Period") shall be for a
period beginning January 1, 1998 and extending until December 31, 1999.
2. Salary and Benefits. During the Employment Period, for all
services rendered by Employee under this Agreement, the Company shall pay
Employee a base salary at the rate of $156,100 and a car allowance of $9,000 per
annum beginning January 1, 1998, or at such greater rate as the Board designates
from time to time, payable in accordance with the customary payroll policy of
the Company in effect at the time such payment is made, or as may otherwise be
mutually agreed upon. In the event Employee voluntarily terminates his
employment with the Company, no further compensation shall be paid or payable
hereunder except for compensation due through the date upon which such
termination occurs. In addition to the other benefits expressly set forth in
this Agreement, Employee shall be entitled to such expense accounts, vacation
time, sick leave, perquisites of office, fringe benefits, insurance coverage,
and other terms and conditions of employment as the Company generally provides
to its employees having rank and seniority at the Company comparable to
Employee.
3. Duties. Employee shall serve the Company as a its President
and Chief Operating Officer. During the term of this Agreement, Employee shall
devote his
<PAGE> 2
principal time, attention and skill to his duties hereunder; faithfully and
diligently perform such duties and exercise such powers as may be from time to
time assigned to or vested in him by the Company's Board of Directors (the
"Board"); obey the directions of the Board; and use his best efforts to promote
the interests of the Company. Employee may be required in pursuance of his
duties hereunder, to perform services for any company controlling, controlled by
or under common control with the Company (such companies hereinafter
collectively called "Affiliates") for some period of time or from time to time;
provided, however, Employee shall not be required to relocate out of the
Greeneville, Tennessee area. Employee shall obey all policies of the Company and
of its Affiliates.
4. Termination. Unless terminated in accordance with the
following provisions to this Section 4, the Company shall continue to employ
Employee and Employee shall continue to work for the Company, during the term of
this Agreement.
4.1 The Company may terminate this Agreement, without
cause, at any time upon payment to Employee of an amount equal to any then
remaining payment under this Agreement; provided, however, such amount shall not
be less than six months base salary, at the then existing rate. Each of the
Company and Employee agree that payment by the Company shall constitute full and
complete satisfaction of the Company's obligations hereunder.
4.2 The Company may terminate Employee's employment at any
time for Cause; "Cause" shall mean (i) willful malfeasance or gross negligence
or (ii) knowingly engaging in wrongful conduct resulting in detriment to the
good will of the Company or damage to the Company's relationships with its
customers, suppliers or employees. Upon termination pursuant to this Section
4.2, the Company shall pay Employee any salary earned and unpaid to the date of
termination, and any outstanding funds advanced by the Company to or on behalf
of Employee shall become immediately due and payable.
4.3 In the event of the death of Employee during the
Employment Period, this Agreement shall automatically terminate.
5. Stock Options. Effective upon the first day of employment
pursuant to this Agreement, the Company agrees to grant to Employee an option to
acquire 100,000 shares of the $.01 par value Common Stock of the Company (based
on an estimated 6.2 million expected total outstanding). The grant of such
options shall be effected as soon as reasonably possible following the spin out
of the Company in connection with the planned restructuring as described below
(the "Restructuring").
2
<PAGE> 3
Employee understands and agrees that such options will be non-qualified and will
be granted pursuant an agreement in substantially the form attached hereto as
Exhibit A. Company and Employee further agree that the option price for such
shares shall be equal to the book value of shares of the common stock of the
Company as of January 1, 1998 and shall be exercisable in increments of twenty
five percent (25%) per year with the first 25% exercisable immediately and the
balance in three annual installments beginning January 1, 1999. Subsequent to
1998 and during the period of employment hereunder, Employee shall be eligible
to participate in such other incentive programs as are offered to other officers
of the Company.
6. COBRA Payments. The Company agrees to reimburse Employee
for the cost and expense of all COBRA payments made on behalf of Employee for
continued coverage under the health insurance program presently covering
Employee; provided, however, Company shall not be obligated to make any
reimbursements following the date upon which the Company certifies in writing
that Employee has been included in the Company's health insurance program
without consideration of any pre-existing condition, and; provided, further,
Company shall at all times have the option to require Employee to continue
Employee's coverage for as long as he shall be entitled by law to be included
under his prior employer's insurance plans. Employee covenants and agrees to use
his best efforts to maintain and preserve all of his COBRA rights and will
provide Company with notice of any communications from his former employer and
the insurance company insuring Employee.
7. Restructuring. Company has disclosed to Employee that its
parent, Landair Services, Inc. ("Services"), is presently evaluating various
options pursuant to which it may elect to separate the truckload business and
Forward Air business. While Services has not yet obligated to the separation of
these businesses, it is undertaking an analysis and based on the analysis to
date, contemplates spinning off the Company or, alternatively, spinning off the
Forward Air business. For purposes of this Agreement, Employee understands that
his employment will be with the Company and accordingly that he will be involved
with the truckload business and not with the Forward Air business. In the event
Services should elect not to proceed with the separation of the truckload
business and the Forward Air business, Employee and the Company agree to
negotiate in good faith to convert any options granted to Employee into an
option to acquire shares of Services common stock.
8. Moving Expenses. The Company will pay the reasonable and
customary expenses of moving Employee's household goods from Jacksonville,
Florida to Greeneville, Tennessee. In addition to moving costs, Company agrees
to pay Employee's mortgage payment of $2,500.00 for up to a six month period
beginning January 1, 1998
3
<PAGE> 4
or until Employee completes the sale of his present residence in Florida.
Company agrees to reimburse Employee for up to $6,000.00 of Closing cost on a
new residence in the Greeneville area and, in the event the sale of Employee's
residence in Jacksonville, FL brings less than $620,000 the Company will
reimburse Employee for the difference in the sales proceeds received by Employee
and $620,000; provided, however, Employee agrees not to offer or agree to sell
the Florida residence for less than $620,000 without first giving the Company
notice of such intentions and the opportunity to purchase the residence for
$620,000.
9. Non-Disclosure. In connection with the performance of his
duties hereunder, it is understood that Employee will have access to
Confidential Documents (hereinafter defined) and will have knowledge of
Confidential Information (hereinafter defined) of the Company and/or its
Affiliates. In connection therewith, Employee agrees that, during the Employment
Period and thereafter, he will not disclose, or permit to be disclosed, in any
manner whatsoever, to any person, firm, partnership or entity, other than to
such officers of the Company or its Affiliates as may be designated by the
Boards of Directors of the Company and/or its Affiliates, such Confidential
Documents or Confidential Information. Employee acknowledges that the
restrictions contained in this Section 9 are a reasonable and necessary
protection of the legitimate interests of the Company and/or its Affiliates and
that any violation thereof would cause substantial injury to the Company and/or
its Affiliates. Accordingly, in addition to any other remedies available to the
Company and/or its Affiliates, in law, at equity, or otherwise, the Company
and/or its Affiliates shall be entitled to preliminary and permanent injunctive
relief in the event of Employee's violation of any of the provisions of this
Section 9. As used herein, (a) the term "Confidential Documents" means any and
all documents which are not public records and which, if disclosed, would cause
harm to the business or financial condition of the Company, (b) the term
"Confidential Information" means any and all material information concerning
and/or pertaining to the Company and/or its Affiliates which is not generally
known in the business community or communities in which the Company and/or its
Affiliates transact business and the communication of which is outside the scope
of authority directly or indirectly given to Employee by the Company and which,
if disclosed, would cause harm to the financial condition of the Company.
10. Miscellaneous.
10.1 Notice. Any notice or other communication required or
permitted under this Agreement shall be effective only if it is in writing and
delivered personally or sent by registered or certified mail, postage prepaid,
addressed as follows:
4
<PAGE> 5
IF TO THE COMPANY: Landair Transport, Inc.
P. O. Box 1058
Greeneville, TN 37744
IF TO EMPLOYEE: Eddie R. Brown
P. O. Box 1058
Greeneville, TN 37744
or to such other address as either party may
designate by notice to the other, and shall be deemed to have been given upon
receipt.
10.2 Entire Agreement. This Agreement constitutes the
entire agreement between the parties hereto with respect to Employee's
employment by the Company, and supersedes and is in full substitution for any
and all prior understandings or agreements with respect to Employee's
employment.
10.3 Amendment. This Agreement may be amended only by
an instrument in writing signed by the parties hereto, and any provision hereof
may be waived only by an instrument in writing signed by the party or parties
against whom or which enforcement of such waiver is sought. The failure of
either party hereto at any time to require the performance by the other party
hereto of any provision hereof shall in no way affect the full right to require
such performance at any time thereafter, nor shall the waiver by either party
hereto of a breach of any provision hereof be taken or held to be a waiver of
any succeeding breach of such provision or a waiver of the provision itself or a
waiver of any other provision of this Agreement.
10.4 Binding Effect. This Agreement is binding on and
is for the benefit of the parties hereto and their respective successors, heirs,
executors, administrators and other legal representatives. Neither this
Agreement nor any right or obligation hereunder may be assigned by the Company
or by Employee.
10.5 Severability and Modification. If any provision
of this Agreement, or portion thereof is so broad, in scope or duration, so as
to be unenforceable, such provision or portion thereof shall be interpreted to
be only so broad as is enforceable. In addition, to the extent that any
provision of this Agreement as applied to either party or to any circumstances
shall be adjudged by a court of competent jurisdiction to be void or
unenforceable, the same shall in no way affect any other provision of this
Agreement or the validity or enforceability of this Agreement.
5
<PAGE> 6
10.6 Cost of Litigation. In the event there is any
litigation between the Company or its successors or assigns and Employee or his
heirs or representatives concerning or arising out of this Agreement, the party
prevailing in such litigation shall be reimbursed for all costs and expenses
(including, but not limited to, reasonable attorneys' fees) incurred in
connection with such litigation.
10.7 Interpretation. This Agreement shall be
interpreted, construed and governed by and under the laws of the State of
Tennessee.
10.8 Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same instrument.
10.9 No Conflicting Agreement. Employee represents
and warrants that he is not party to any agreement, contract or understanding
which would prohibit him from entering into this Agreement or performing fully
his obligations hereunder.
IN WITNESS WHEREOF, the Company and Employee have executed
this Agreement as of the date first written above.
/s/ Eddie R. Brown
----------------------------------
Eddie R. Brown
Landair Transport, Inc.
By: /s/ Scott M. Niswonger
------------------------------
Its: Chairman
---------
6
<PAGE> 1
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-69357) pertaining to the Landair Corporation Stock Option and
Incentive Plan, the Landair Corporation Non-Employee Director Stock Option Plan,
and the Landair Corporation Employee Stock Purchase Plan, of our report dated
February 2, 1999, with respect to the consolidated financial statements and
schedule of Landair Corporation included in its Annual Report (Form 10-K) for
the year ended December 31, 1998, filed with the Securities and Exchange
Commission.
Ernst & Young LLP
Nashville, Tennessee
March 3, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LANDAIR CORPORATION FOR THE YEAR ENDED DECEMBER 31, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 1,783
<SECURITIES> 0
<RECEIVABLES> 16,175
<ALLOWANCES> 370
<INVENTORY> 0
<CURRENT-ASSETS> 24,700
<PP&E> 98,636
<DEPRECIATION> 31,242
<TOTAL-ASSETS> 92,429
<CURRENT-LIABILITIES> 15,403
<BONDS> 0
0
0
<COMMON> 63
<OTHER-SE> 45,190
<TOTAL-LIABILITY-AND-EQUITY> 92,429
<SALES> 0
<TOTAL-REVENUES> 110,353
<CGS> 0
<TOTAL-COSTS> 103,900
<OTHER-EXPENSES> (121)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,600
<INCOME-PRETAX> 4,974
<INCOME-TAX> 1,899
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,075
<EPS-PRIMARY> .49
<EPS-DILUTED> .49
</TABLE>
