<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1999
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
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
The number of shares outstanding of the registrant's common stock, $.01 par
value, as of November 5, 1999 was 6,071,365.
<PAGE> 2
TABLE OF CONTENTS
LANDAIR CORPORATION
<TABLE>
<CAPTION>
Page
Number
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -
September 30, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Income -
Three and nine months ended September 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows -
Nine months ended September 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements -
September 30, 1999 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
ITEM 3. Quantitative and Qualitative Disclosure of Market Risk 19
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 20
ITEM 2. Changes in Securities and Use of Proceeds 20
ITEM 3. Defaults Upon Senior Securities 20
ITEM 4. Submission of Matters to a Vote of Security Holders 20
ITEM 5. Other Information 20
ITEM 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
EXHIBIT INDEX 22
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Landair Corporation
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---------------------------------
(Unaudited) (Note 1)
(In thousands, except share data)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10 $ 1,783
Accounts receivable, less allowance of $536 in 1999 and $370 in 1998 19,506 15,805
Other current assets 9,298 7,112
-----------------------
Total current assets 28,814 24,700
Property and equipment 116,438 98,636
Less accumulated depreciation and amortization 29,130 31,242
-----------------------
87,308 67,394
Other assets 4,212 335
-----------------------
Total assets $ 120,334 $92,429
=======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,895 $ 3,338
Accrued expenses 9,509 9,056
Current portion of long-term debt 9,260 3,009
-----------------------
Total current liabilities 23,664 15,403
Long-term debt, less current portion 41,398 18,058
Deferred income taxes 13,165 13,715
Shareholders' equity:
Preferred stock -- --
Common stock, $.01 par value:
Authorized shares - 45,000,000
Issued and outstanding shares - 6,071,158 in 1999 and 6,293,441 in
1998 61 63
Additional paid-in capital 43,101 44,191
Retained earnings (deficit) (1,055) 999
-----------------------
Total shareholders' equity 42,107 45,253
-----------------------
Total liabilities and shareholders' equity $ 120,334 $92,429
=======================
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
Landair Corporation
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
---------------------------- ----------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
---------------------------- ----------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Operating revenue:
Forward Air, Inc. $ 715 $ 1,339 $ 2,175 $ 4,268
Other 32,272 26,306 95,147 74,920
----------------------- -----------------------
32,987 27,645 97,322 79,188
Operating expenses:
Salaries, wages and employee
benefits 10,998 9,391 33,982 26,679
Purchased transportation 9,350 6,893 26,215 19,388
Fuel and fuel taxes 3,709 3,010 10,778 8,969
Depreciation and amortization 3,488 2,349 10,103 6,965
Insurance and claims 1,323 1,050 4,516 3,668
Operating leases 414 252 1,220 681
Other operating expenses 4,182 2,982 11,815 8,027
----------------------- -----------------------
33,464 25,927 98,629 74,377
----------------------- -----------------------
Income (loss) from operations (477) 1,718 (1,307) 4,811
Other income (expense):
Interest expense (821) (458) (2,005) (1,382)
Other, net 125 18 181 44
----------------------- -----------------------
(696) (440) (1,824) (1,338)
Income (loss) before income taxes (1,173) 1,278 (3,131) 3,473
Income taxes (benefit) (424) 481 (1,077) 1,331
----------------------- -----------------------
Net income (loss) $ (749) $ 797 $ (2,054) $ 2,142
======================= =======================
Income (loss) per share (pro forma in 1998):
Basic $ (0.12) $ 0.13 $ (0.34) $ 0.34
======================= =======================
Diluted $ (0.12) $ 0.13 $ (0.34) $ 0.34
======================= =======================
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
Landair Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
----------------------------
September 30, September 30,
1999 1998
------------- -------------
(In thousands)
<S> <C> <C>
Cash provided by operations $ 3,240 $ 23,968
Investing activities:
Proceeds from disposal of property and
equipment 8,296 2,637
Purchases of property and equipment (28,442) (15,582)
Acquisition of assets of Laker Express, Inc. (12,894) --
Other (72) (24)
-----------------------
(33,112) (12,969)
Financing activities:
Proceeds from long-term debt 36,438 11,529
Payments of long-term debt (7,247) (20,825)
Payments of capital lease obligations -- (1,285)
Repurchase of common stock (1,127) --
Common stock issued under employee stock
purchase plan 23 --
Exercise of stock options 12 --
Contribution of capital by Forward Air -- 5,000
-----------------------
28,099 (5,581)
Increase (decrease) in cash and cash equivalents $ (1,773) $ 5,418
=======================
Non-cash transaction - Issuance of note payable to
Laker Express, Inc. for asset acquisition $ 400 $ --
=======================
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
Landair Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 30, 1999
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements for the three and
nine month periods ended September 30, 1999 include the accounts of Landair
Corporation and its subsidiaries. The unaudited condensed consolidated financial
statements for the three and nine month periods ended September 30, 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 condensed consolidated financial statements, the
term "Company" refers to Landair Corporation and its subsidiaries for the three
and nine month periods ended September 30, 1999 and to the truckload operations
of Forward Air for the three and nine month periods ended September 30, 1998.
These historical financial statements include the results of operations directly
related to the truckload operations of Forward Air for the period presented
prior to the Spin-off. Significant changes could have occurred in the funding
and operations of the Company had it been operated as an independent stand-alone
entity during that period, which could have had a significant impact on its
results of operations. As a result, the financial information included in these
financial statements for the three and nine month periods ended September 30,
1998 is not necessarily indicative of the 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-level truckload carrier that
transports a wide range of commodities in both intrastate and interstate
commerce. The Company provides dry van
6
<PAGE> 7
Landair Corporation
Notes to Condensed Consolidated Financial Statements (continued)
common carrier and dedicated contract carriage for shippers of a variety of
products in the medium- and short-haul markets.
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine month periods ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Landair Corporation annual report on Form 10-K for the year ended December 31,
1998.
The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date, but does not include all of the financial
information and footnotes required by generally accepted accounting principles
for complete financial statements.
2. PURCHASE OF ASSETS OF LAKER EXPRESS, INC.
On January 7, 1999, the Company acquired certain operating assets of Laker
Express, Inc. ("Laker"), a truckload dry van carrier based in Indianapolis,
Indiana which operated predominantly in the Midwest in the short- to medium-haul
markets. The purchase price for Laker consisted of approximately $12.9 million
in cash and the issuance of a note payable of $400,000. The source of funds for
the cash consideration paid to Laker was from borrowings under the Company's
credit facilities.
The acquisition was accounted for as a purchase. Identified intangible assets
acquired totaled approximately $1.5 million and are being amortized on a
straight-line basis over a life of five years. Goodwill totaled approximately
$2.6 million and is being amortized on a straight-line basis over a life of 20
years. Accumulated amortization of the identified intangible assets and goodwill
totaled $288,000 at September 30, 1999. The results of operations for the
acquired business are included in the condensed consolidated statement of income
from the acquisition date forward.
7
<PAGE> 8
Landair Corporation
Notes to Condensed Consolidated Financial Statements (continued)
The pro forma unaudited results of operations for the three and nine months
ended September 30, 1998, assuming the acquisition of Laker assets as of the
beginning of the periods presented, are as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, 1998 September 30, 1998
------------------ ------------------
(In thousands, except per share data)
<S> <C> <C>
Operating revenue $ 31,885 $ 91,839
Net income 816 2,185
Income per share:
Basic 0.13 0.35
Diluted 0.13 0.35
</TABLE>
The pro forma results of operations do not purport to represent what the
Company's results of operations would have been had the transaction, in fact,
occurred at the beginning of the periods presented or to project the Company's
results of operations in any future period.
3. LONG-TERM DEBT
In January 1999, the Company obtained an additional equipment financing
facility, providing borrowing capacity of up to $15 million. A portion of the
availability under this new line was immediately used to fund the acquisition of
assets from Laker. The facility bears interest at LIBOR plus 0.75% to 2.0% and
is secured by certain revenue equipment. Among other restrictions, the terms of
the line of credit require maintenance of certain levels of net worth and other
financial ratios.
4. SHAREHOLDERS' EQUITY
In February 1999, the Board of Directors authorized the repurchase of up to
500,000 shares of the Company's common stock in open market purchases. The
amount and timing of any repurchases are to be at such prices as management of
the Company from time to time approves. As of September 30, 1999, the Company
had repurchased 231,600 shares.
5. COMPREHENSIVE INCOME
The Company had no items of other comprehensive income in 1999 or 1998 and,
accordingly, comprehensive income is equivalent to net income.
8
<PAGE> 9
Landair Corporation
Notes to Condensed Consolidated Financial Statements (continued)
6. INCOME PER SHARE
The following table sets forth the computation of basic and diluted income per
share. Income per share for 1998 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
Landair Corporation (see Note 1) as if the Spin-off had occurred on January 1,
1998:
<TABLE>
<CAPTION>
Three months ended Nine months ended
--------------------------- ---------------------------
September 30, September 30,
September 30, 1998 September 30, 1998
1999 (Pro forma) 1999 (Pro forma)
--------------------------- ---------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic and diluted earnings per
share - net income (loss) $ (749) $ 797 $(2,054) $2,142
Denominator:
Denominator for basic earnings per share -
weighted-average shares 6,071 6,294 6,110 6,294
Effect of dilutive stock options 54 2 75 1
-------------------- --------------------
Denominator for diluted earnings per share -
adjusted weighted-average shares 6,125 6,296 6,185 6,295
==================== ====================
Basic earnings (loss) per share $ (0.12) $ 0.13 $ (0.34) $ 0.34
==================== ====================
Diluted earnings (loss) per share (1) $ (0.12) $ 0.13 $ (0.34) $ 0.34
==================== ====================
Securities that could potentially dilute basic
income (loss) per share in the future that were
not included in the computation of diluted
income per share because to do so would
have been antidilutive for the periods
presented 105 8 105 8
==================== ====================
</TABLE>
(1) Diluted loss per share amounts for 1999 have been calculated using the same
denominator as used in the basic loss per share calculation as the
inclusion of dilutive securities in the denominator would have an
anti-dilutive effect.
7. INCOME TAXES
For the three and nine months ended September 30, 1999 and 1998, the effective
income tax rate varied from the statutory federal income tax rate of 34%
primarily as a result of the effect of state income taxes, net of the federal
benefit, and permanent differences.
9
<PAGE> 10
Landair Corporation
Notes to Condensed Consolidated Financial Statements (continued)
8. CONTINGENCIES
The Company is, from time to time, a party to litigation arising in the normal
course of its business, most of which involve claims for personal injury and
property damage incurred in connection with the transportation of freight.
Management believes none of these actions, individually or in the aggregate,
will have a material adverse effect on the financial condition or results of
operations of the Company.
9. RECLASSIFICATIONS
Certain reclassifications have been made to the 1998 financial statements to
conform to the 1999 presentation. These reclassifications had no effect on net
income as previously reported.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following table sets forth the percentage relationship of expense items to
operating revenue for the periods indicated.
<TABLE>
<CAPTION>
Three months ended Nine months ended
----------------------------------- --------------------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
----------------------------------- --------------------------------------
<S> <C> <C> <C> <C>
Operating revenue:
Forward Air, Inc. 2.2% 4.8% 2.2% 5.4%
Other 97.8 95.2 97.8 94.6
----------------------------------- --------------------------------------
100.0 100.0 100.0 100.0
Operating expenses:
Salaries, wages and employee
benefits 33.4 34.0 34.9 33.7
Purchased transportation 28.3 24.9 26.9 24.4
Fuel and fuel taxes 11.2 10.9 11.1 11.3
Depreciation and amortization 10.6 8.5 10.4 8.8
Insurance and claims 4.0 3.8 4.6 4.7
Operating leases 1.3 0.9 1.3 0.9
Other operating expenses 12.7 10.8 12.1 10.1
----------------------------------- --------------------------------------
101.5 93.8 101.3 93.9
Income (loss) from operations (1.5) 6.2 (1.3) 6.1
Other income (expense):
Interest expense (2.5) (1.7) (2.1) (1.8)
Other, net 0.4 0.1 0.2 0.1
----------------------------------- --------------------------------------
(2.1) (1.6) (1.9) (1.7)
----------------------------------- --------------------------------------
Income (loss) before income taxes (3.6) 4.6 (3.2) 4.4
Income taxes (benefit) (1.3) 1.7 (1.1) 1.7
----------------------------------- --------------------------------------
Net income (loss) (2.3)% 2.9% (2.1)% 2.7%
=================================== ======================================
</TABLE>
Results of Operations
Three Months Ended September 30, 1999 Compared to Three Months Ended
September 30, 1998
Operating revenue increased by $5.4 million, or 19.6%, to $33.0 million in the
third quarter of 1999 from $27.6 million in 1998. During the third quarters of
1999 and 1998, the average tractors in service, including owner-operators, were
1,109 and 835, respectively.
11
<PAGE> 12
The sources of the Company's operating revenue within the Company's one
reportable segment were as follows:
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------
September 30, September 30,
1999 1998
------------- -------------
(In thousands)
<S> <C> <C>
Truckload fleet $ 24,593 $ 22,987
Dedicated fleet 8,418 5,022
Intrasegment eliminations (24) (364)
-------- --------
Total operating revenue $ 32,987 $ 27,645
======== ========
</TABLE>
The operating ratio (operating expenses as a percentage of operating revenue)
was 101.5% for the third quarter of 1999 compared to 93.8% for 1998. The
increase in the operating ratio in 1999 was due primarily to a higher operating
cost structure resulting from a decrease in equipment utilization between
periods and other factors as discussed below. The decrease in equipment
utilization was attributable to our truckload fleet's operating performance. The
truckload fleet's equipment utilization was negatively impacted by the Laker
asset acquisition in January and integration of the assets into the Company's
operations during the first quarter of 1999. The unfavorable increase in the
operating ratio was also attributable to higher than expected driver turnover,
which was further compounded by a tight supply of qualified drivers. As a result
of the unfavorable results attributed to the Company's expansion efforts,
management plans to restrict capital investment in our truckload fleet until we
return equipment utilization and operating profitability to acceptable levels.
During the third quarter, the Company commenced operation of a four year $60
million dedicated fleet contract. This dedicated contract enabled us to shift
under-utilized revenue equipment from our truckload division. Start-up costs,
which were expensed during the quarter, were incurred in connection with this
new dedicated fleet contract. Such costs totaled an estimated $500,000 on a
pre-tax basis, or $.05 per share.
Salaries, wages and employee benefits were 33.4% of operating revenue in the
third quarter of 1999 compared to 34.0% in 1998. The decrease in salaries, wages
and employee benefits as a percentage of operating revenue was due primarily to
a decrease in the ratio of Company-operated tractors to owner-operator tractors,
which was partially offset by a decrease in the equipment utilization between
periods. During the third quarter of 1999, average Company-operated tractors in
service were 759 compared to 583 in 1998.
Purchased transportation was 28.3% of operating revenue in the third quarter of
1999 compared to 24.9% in 1998. The increase in purchased transportation as a
percentage of operating revenue in the third quarter of 1999 was primarily
attributable to an increase in the ratio of owner-operator tractors to
Company-operated tractors. During the third quarters of 1999 and 1998,
approximately 350 and 252, respectively, of the Company's average tractors in
service were contracted through owner-operators.
12
<PAGE> 13
Fuel and fuel taxes were 11.2% of operating revenue in the third quarter of 1999
compared to 10.9% in 1998. The increase in fuel and fuel taxes as a percentage
of operating revenue during the third quarter of 1999 resulted primarily from a
9.5% increase in the average fuel price per gallon between periods partially
offset by a decrease in the ratio of Company-operated tractors to owner-operator
tractors during the period.
Depreciation and amortization expense as a percentage of operating revenue was
10.6% in the third quarter of 1999 compared to 8.5% in 1998. The increase in
depreciation and amortization as a percentage of operating revenue is
attributable to a decrease in equipment utilization coupled with the
amortization of identified intangible assets and goodwill associated with the
Laker acquisition which totaled $107,000, or 0.3% of revenue, during the third
quarter of 1999 and higher unit tractor depreciation as the Company decreased
the average age of its fleet during 1999. These factors were partially offset by
a decrease in the ratio of Company-operated tractors to owner-operator tractors
during the third quarter of 1999 compared to the prior-year quarter.
Insurance and claims were 4.0% of operating revenue in the third quarter of 1999
compared to 3.8% in 1998. The increase in insurance and claims expense is due
primarily to an increase in the frequency and severity of accidents during the
third quarter of 1999 compared with 1998.
Operating leases were 1.3% of operating revenue in the third quarter of 1999
compared to 0.9% in 1998. The increase in operating leases as a percentage of
operating revenue during 1999 is attributed to an increase in rent for revenue
equipment between periods.
Other operating expenses, a large component of which relates to equipment
maintenance, were 12.7% of operating revenue in the third quarter of 1999
compared to 10.8% in 1998. The increase in other operating expenses as a
percentage of operating revenue is attributed to a decrease in equipment
utilization between periods coupled with an increase in commissions paid to
sales agents.
Interest expense was $821,000 or 2.5% of operating revenue in the third quarter
of 1999 compared to $458,000 or 1.7% in 1998. The increase was due to higher
average net borrowings during 1999 primarily resulting from the acquisition of
assets from Laker in January 1999.
The combined federal and state effective rate for the third quarter of 1999 was
a benefit rate of 36.1% compared to a tax rate of 37.6% for 1998.
As a result of the foregoing factors, net income decreased by $1.5 million to a
loss of $749,000 for the third quarter of 1999.
Nine Months Ended September 30, 1999 Compared to Nine Months Ended
September 30, 1998
Operating revenue increased by $18.1 million, or 22.9%, to $97.3 million in the
first nine months of 1999 from $79.2 million in 1998. During the first nine
months of 1999 and 1998, the average tractors in service, including
owner-operators, were 1,090 and 804, respectively.
13
<PAGE> 14
The sources of the Company's operating revenue within the Company's one
reportable segment were as follows:
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------------
September 30, September 30,
1999 1998
------------- -------------
(In thousands)
<S> <C> <C>
Truckload fleet $ 75,346 $ 68,441
Dedicated fleet 22,279 11,685
Intrasegment eliminations (303) (938)
-------- --------
Total operating revenue $ 97,322 $ 79,188
======== ========
</TABLE>
The operating ratio (operating expenses as a percentage of operating revenue)
was 101.3% for the first nine months of 1999 compared to 93.9% for 1998. The
increase in the operating ratio in 1999 was due primarily to a higher operating
cost structure resulting from a decrease in equipment utilization between
periods and other factors as discussed below. The decrease in equipment
utilization was attributable to our truckload fleet's operating performance. The
truckload fleet's equipment utilization was negatively impacted by the Laker
asset acquisition in January and integration of the assets into the Company's
operations during the first quarter of 1999. The unfavorable increase in the
operating ratio was also attributable to higher than expected driver turnover,
which was further compounded by a tight supply of qualified drivers. As a result
of the unfavorable results attributed to the Company's expansion efforts,
management plans to restrict capital investment in our truckload fleet until we
return equipment utilization and operating profitability to acceptable levels.
Salaries, wages and employee benefits were 34.9% of operating revenue in the
first nine months of 1999 compared to 33.7% in 1998. The increase in salaries,
wages and employee benefits as a percentage of operating revenue was due
primarily to a decrease in equipment utilization between periods, which was
partially offset by a decrease in the ratio of Company-operated tractors to
owner-operator tractors. The increase was also attributed to workers'
compensation expense being 1.1% of revenue higher during the first nine months
of 1999 compared to the prior-year period due to higher claims and claim
development trends. In addition, the 1999 period included severance benefits in
the amount of approximately $200,000. During the first nine months of 1999,
average Company-operated tractors in service were 755 compared to 571 in 1998.
Purchased transportation was 26.9% of operating revenue in the first nine months
of 1999 compared to 24.4% in 1998. The increase in purchased transportation as a
percentage of operating revenue in the first nine months of 1999 was primarily
attributable to an increase in the ratio of owner-operator tractors to
Company-operated tractors. During the first nine months of 1999 and 1998,
approximately 335 and 233, respectively, of the Company's average tractors in
service were contracted through owner-operators.
14
<PAGE> 15
Fuel and fuel taxes were 11.1% of operating revenue in the first nine months of
1999 compared to 11.3% in 1998. The decrease in fuel and fuel taxes as a
percentage of operating revenue during the first nine months of 1999 resulted
primarily from a decrease in the ratio of Company-operated tractors to
owner-operator tractors during the period.
Depreciation and amortization expense as a percentage of operating revenue was
10.4% in the first nine months of 1999 compared to 8.8% in 1998. The increase in
depreciation and amortization as a percentage of operating revenue is
attributable to a decrease in equipment utilization coupled with the
amortization of identified intangible assets and goodwill associated with the
Laker acquisition which totaled $288,000, or 0.4% of revenue, during the first
nine months of 1999 and higher unit tractor depreciation as the Company
decreased the average age of its fleet during 1999. These factors were partially
offset by a decrease in the ratio of Company-operated tractors to owner-operator
tractors during the first nine months of 1999 compared to the prior-year
quarter.
Insurance and claims were 4.6% of operating revenue in the first nine months of
1999 compared to 4.7% in 1998. The improvement in insurance and claims expense
is due primarily to a decrease in the frequency and severity of accidents and
lower premium costs during the first nine months of 1999 compared with 1998.
Operating leases were 1.3% of operating revenue in the first nine months of 1999
compared to 0.9% in 1998. The increase in operating leases as a percentage of
operating revenue during 1999 is attributed to an increase in rent for revenue
equipment between periods.
Other operating expenses, a large component of which relates to equipment
maintenance, were 12.1% of operating revenue in the first nine months of 1999
compared to 10.1% in 1998. The increase in other operating expenses as a
percentage of operating revenue is attributed to a decrease in equipment
utilization between periods coupled with an increase in commissions paid to
sales agents as the Company expanded its agent relationships during the first
nine months of 1999. In addition, (gains) losses on the sale of revenue
equipment (which were netted against other operating expenses) were $268,000 or
0.3% of operating revenue during the first nine months of 1999 compared to
$38,000 or 0.1% of operating revenue during the same period of 1998.
Interest expense was $2.0 million or 2.1% of operating revenue in the first nine
months of 1999 compared to $1.4 million or 1.8% in 1998. The increase was due to
higher average net borrowings during 1999 primarily resulting from the
acquisition of assets from Laker in January 1999.
The combined federal and state effective tax rate for the first nine months of
1999 was a benefit rate of 34.4% compared to a tax rate of 38.3% for 1998.
As a result of the foregoing factors, net income decreased by $4.2 million to a
loss of $2.1 million for the first nine months of 1999.
15
<PAGE> 16
Liquidity and Sources of Capital
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 credit agreements. Net cash provided by operating activities of
the Company was $3.2 million for the first nine months of 1999 compared with
$24.0 million in the same period of 1998.
Net cash used in investing activities was approximately $33.1 million in the
first nine months of 1999 compared with $13.0 million in the same period of
1998. Investing activities consisted primarily of the acquisition of revenue
equipment and enhanced management information systems during the first nine
months of 1999 and 1998, the acquisition of assets from Laker, and the purchase
of a terminal facility during the first nine months of 1999.
Net cash provided by financing activities was $28.1 million in the first nine
months of 1999 compared with cash used in financing activities of $5.6 in the
same period of 1998. These financing activities for the first nine months of
1999 and 1998 included the continued financing of revenue equipment coupled with
repayment of long-term debt and capital leases. In addition, the first nine
months of 1999 included the financing related to the acquisition of assets from
Laker, the $1.1 million repurchase of common stock of the Company and proceeds
from the exercise of stock options and common stock issued under an employee
stock purchase plan.
The Company's credit facilities include a working capital line of credit and two
equipment financing facilities. 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 $28.0 million under the
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 0.75% to
2.0%, expire in October and December 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. As of September 30, 1999, the
Company had $8.2 million of borrowings and $5.0 million of letters of credit
outstanding under the working capital line of credit facility and $27.7 million
of borrowings outstanding under the equipment financing facilities. As a result
of the unfavorable results of operations during the first nine months of 1999,
management plans to restrict capital investment in our truckload fleet until we
return equipment utilization and operating profitability to acceptable levels.
The Company expects to finance its normal operating requirements and planned
revenue equipment purchases through available borrowing capacity under existing
lines of credit, future borrowings under installment notes for revenue
equipment, operating lease financing and cash generated by operations. In the
future, the Company will continue to have significant capital
16
<PAGE> 17
requirements, which may require the Company to seek additional borrowings or to
access capital markets. The availability of debt financing or equity capital
will depend upon the Company's financial condition and results of operations as
well as prevailing market conditions and other factors over which the Company
has little or no control.
Year 2000 Issues
The Company continues to assess the potential impact of the Year 2000 on our
internal information technology ("IT") systems and operations. The Company's
Year 2000 initiatives include (i) testing and upgrading internal systems; (ii)
contacting technology vendors to determine their Year 2000 compliance status;
(iii) interface testing of the Company's internal systems with the systems of
its principal technology vendors; and (iv) contingency planning. The scope of
these efforts includes business systems, systems software, computer hardware,
local networking and external telecommunications services.
The Company's State of Readiness
The Company has completed its assessment of its IT systems for Year 2000
compliance. During this assessment, the Company identified certain software
applications that required modifications or updates for IT systems to be Year
2000 compliant. The Company has obtained or will obtain such modifications and
updates. Based upon its assessment, the Company believes that substantially all
of its critical IT systems are Year 2000 compliant or can be made Year 2000
compliant with minor modifications. The Company anticipates all critical IT
systems will be Year 2000 compliant by November 15, 1999.
As an integral part of its Year 2000 compliance effort, the Company has been
testing the interfacing of its IT systems with the systems of certain of its IT
vendors with whom the Company has material relationships. The Company will
continue this testing in an effort to minimize operations disruptions due to
Year 2000 issues. At present, the Company has not identified any material IT
vendor which will not be Year 2000 compliant.
Estimated Cost to Address Year 2000 Issues
To date, costs incurred in connection with Year 2000 issues have not been
material. Management estimates that the total Year 2000 project costs will not
have a material impact on the Company's results of operations, liquidity, or
financial condition. Except for expenditures for capital items, Year 2000
project costs are being expensed and are funded through cash from operations.
The Company has not yet deferred any IT project due to its Year 2000 efforts.
Risks of the Company's Year 2000 Issues
Virtually every aspect of the Company's operations might be disrupted if our
systems or the systems of our material vendors are not Year 2000 compliant.
While the Company is attempting to minimize any negative consequences arising
from Year 2000 issues, there can be no assurance
17
<PAGE> 18
that Year 2000 issues will not have a material adverse impact on our business,
operations or financial condition. Moreover, while the Company expects that
upgrades to its IT systems will be completed in a timely manner, there can be no
assurances that the Company will not encounter unexpected costs or delays.
Moreover, if any of the Company's significant vendors or customers experience
business disruptions due to Year 2000 issues, the Company might be adversely
affected. In certain instances, primarily telecommunications vendors or vendors
materially dependent on telecommunications, the Company is limited in its
ability to verify Year 2000 compliance and must rely on vendor representations
which may not provide unqualified Year 2000 compliance assurances. The Company's
efforts with respect to its customers have been focused on electronic data
interface ("EDI") support. The Company is contacting each customer with whom
there is an EDI relationship to offer conversion to the Year 2000 compliant
version of EDI standards. In certain cases, customers have elected not to
upgrade.
At present, the Company is not able to determine whether there would be a
material impact on the Company's results of operations, liquidity or financial
condition if the Company's material systems, vendors and customers are not Year
2000 compliant. A worst-case scenario would result in the short-term inability
of the Company to deliver freight for its shippers. This would result in lost
revenue; however, the amount would be dependent on the length and nature of the
disruption which cannot be predicted or estimated.
Contingency Plans
The Company will formulate detailed contingency plans at that point in time when
the Company believes that a material vendor will not be Year 2000 compliant. As
the Company anticipates that all its material vendors will be Year 2000
compliant, the Company has not yet established detailed contingency plans.
However, as a general precaution, the Company will document manual procedures to
be implemented if the IT systems of certain of its material vendors, primarily
telecommunications vendors, fail. It is recognized that these procedures would
provide limited support in the event of a material vendor failure and would only
partially mitigate the impact of the failure on Company operations.
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, 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
18
<PAGE> 19
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-operators. The Company disclaims any
intent or obligation to update these forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
At the September 30, 1999 borrowing levels, a hypothetical 10% adverse change in
interest rates on the Company's variable rate long-term debt would reduce
pre-tax income for the nine-month period ended September 30, 1999 by
approximately $210,000. Actual changes in rates may differ from the hypothetical
assumptions used in computing this exposure.
19
<PAGE> 20
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is, from time to time, a party to litigation arising in the normal
course of its business, most of which involve claims for personal injury and
property damage incurred in connection with the transportation of freight.
Management believes that none of these actions, individually or in the
aggregate, will have a material adverse effect on the financial condition or
results of operations of the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company did not comply with certain financial covenants at September 30,
1999 under a $15.0 million working capital line of credit and a $10.0 million
equipment financing facility and, accordingly, received a waiver and amendment
to such covenants.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are included herein:
(a) Exhibits - The response to this portion of Item 6 is submitted as a
separate section of this report.
(b) Reports on Form 8-K - The Company did not file any reports on Form 8-K
during the three months ended September 30, 1999.
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Landair Corporation
Date: November 12, 1999 By: /s/ Edward W. Cook
-------------------------
Edward W. Cook
Chief Financial Officer
and Senior Vice President
21
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No.
-----------
<S> <C>
10.1 First Amendment to Loan and Security Agreement
among SunTrust Bank, Nashville, N.A., the
Registrant and Landair Transport, Inc.
dated July 28, 1999
10.2 Second Amendment to Loan and Security Agreement
among SunTrust Bank, Nashville, N.A., the
Registrant and Landair Transport, Inc.
dated August 26, 1999
27.1 Financial Data Schedule - Period Ended
September 30, 1999 (Electronic Filing Only)
</TABLE>
22
<PAGE> 1
EXHIBIT 10.1
FIRST AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "Amendment")
is made this the 28 day of July, 1999 by and among SUNTRUST BANK, NASHVILLE,
N.A. (the "Lender") and LANDAIR CORPORATION and LANDAIR TRANSPORT, INC.
(collectively, the "Borrower").
RECITALS:
A. Borrower and Lender entered into that certain Loan and Security
Agreement dated January 5, 1999 (the "Agreement").
B. The Borrower and the Lender are desirous of amending the Agreement
to temporarily waive compliance with certain financial covenants and to increase
the interest rate.
C. Terms not defined herein shall have the meanings ascribed to such
terms in the Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
and obligations herein, the parties hereto agree that the Agreement is hereby
amended and modified as follows:
Section 1. Compliance with Sections 4.1 (EBITR divided by IR Ratio),
4.2 (Adjusted Funded Debt to EBITDAR Ratio), 4.3 (Capitalization Ratio), and 4.4
(Tangible Net Worth) of the Agreement are waived until the fiscal quarter ending
September 30, 1999.
Section 2. Section 1.4 of the Agreement concerning "Interest" is
amended so that the Applicable Margin during the term of the Agreement shall be
two percent (2%) per annum.
Section 3. The Borrower, concurrently with the execution hereof, shall
pay Lender a waiver fee of $15,000.
Section 4. All other applicable provisions of the Agreement are hereby
amended to conform to the amendments as expressed in this Amendment.
Section 5. Except as provided herein, the Agreement shall remain
unamended and shall be in full force and effect.
Section 6. This modification shall be governed by and construed in
accordance with the laws of the State of Tennessee.
<PAGE> 2
IN WITNESS WHEREOF, the undersigned by and through their duly
authorized officers hereby execute this Amendment as of the day and date first
set forth above.
SUNTRUST BANK, NASHVILLE, N.A. LANDAIR CORPORATION
By: /s/ Roger D. Osborne By: /s/ Edward W. Cook
----------------------- ----------------------------
Title: Vice President Title: CFO
--------------------- -------------------------
LANDAIR TRANSPORT, INC.
By: /s/ Edward W. Cook
---------------------------
Title: CFO
------------------------
2
<PAGE> 1
EXHIBIT 10.2
SECOND AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "Amendment")
is made this the 26 day of August, 1999 by and among SUNTRUST BANK, NASHVILLE,
N.A. (the "Lender") and LANDAIR CORPORATION and LANDAIR TRANSPORT, INC.
(collectively, the "Borrower").
RECITALS:
A. Borrower and Lender entered into that certain Loan and Security
Agreement dated January 5, 1999, as amended by a First Amendment to Loan and
Security Agreement (as amended from time to time, the "Agreement").
B. The Borrower and the Lender are desirous of amending the Agreement
as set forth below.
C. Terms not defined herein shall have the meanings ascribed to such
terms in the Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
and obligations herein, the parties hereto agree that the Agreement is hereby
amended and modified as follows:
Section 1. Section 1.4 of the Agreement concerning "Interest" is
amended to the extent that the Applicable Margin through December 31, 1999 shall
be two percent (2%) per annum. Thereafter, the Applicable Rate shall be
determined in accordance with the following pricing matrix:
<TABLE>
<CAPTION>
Ratio of Adjusted Funded Applicable
Debt to EBITDAR Margin
--------------- ------
<S> <C>
> 2.5 1.75%
-
> 2.0 and < 2.5 1.50%
-
> 1.5 and < 2.0 1.25%
-
> 1.0 and < 1.5 1.00%
-
< 1.0 0.75%
</TABLE>
Section 2. Sections 4.1 through 4.4 of the Agreement are deleted and
the following Sections are substituted in lieu thereof:
Section 4.1. EBITR Divided by IR Ratio. While any of the
Indebtedness is outstanding, Landair Corporation will maintain (on a
consolidated basis) a ratio of earnings (before interest and rent
expense and taxes) to interest and rent expense, of no less than .50 to
1.0 from the date of this Amendment through September 30, 2000, 1.30 to
1.0 from December 31, 2000 through September 30, 2001 and 1.60 to 1.0
thereafter, calculated on an annualized rolling four fiscal quarter
basis and measured at the end of each fiscal quarter.
<PAGE> 2
Section 4.2. Adjusted Funded Debt to EBITDAR Ratio. While any
of the Indebtedness is outstanding, Landair Corporation will maintain
(on a consolidated basis) a ratio of Adjusted Funded Debt to earnings
before interest, taxes, depreciation, amortization and rents
("EBITDAR") of no greater than 4.25 to 1.0 from the date of this
Amendment through September 30, 1999, 3.75 to 1.0 from December 31,
1999 through September 30, 2000 and 3.0 to 1.0 thereafter, calculated
on an annualized rolling four fiscal quarter basis and measured at the
end of each fiscal quarter commencing December 31, 1998.
Section 4.3. Capitalization Ratio. While any of the
Indebtedness is outstanding, Landair Corporation will maintain at all
times (on a consolidated basis) a ratio of Adjusted Funded Debt to
Adjusted Capitalization not to exceed .65 to 1.0 from the date of this
Amendment through September 30, 2000 and .55 thereafter.
Section 4.4. Tangible Net Worth. While any of the Indebtedness
is outstanding, Landair Corporation will maintain (on a consolidated
basis) at all times a Tangible Net Worth equal to $37,000,000
commencing September 30, 1999. Commencing December 31, 1999, Tangible
Net Worth shall increase after each fiscal quarter by: (i) at least 75%
of net income, without any deduction for losses; and (ii) 100% of the
net proceeds of any equity offering.
Section 3. All other applicable provisions of the Agreement are hereby
amended to conform to the amendments as expressed in this Amendment.
Section 4. Except as provided herein, the Agreement shall remain
unamended and shall be in full force and effect.
Section 5. This modification shall be governed by and construed in
accordance with the laws of the State of Tennessee.
IN WITNESS WHEREOF, the undersigned by and through their duly
authorized officers hereby execute this Amendment as of the day and date first
set forth above.
SUNTRUST BANK, NASHVILLE, N.A. LANDAIR CORPORATION
By: /s/ Roger D. Osborne By: /s/ Edward W. Cook
---------------------------- --------------------------
Title: Vice President Title: CFO
------------------------- -----------------------
LANDAIR TRANSPORT, INC.
By: /s/ Edward W. Cook
--------------------------
Title: CFO
-----------------------
2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LANDAIR CORPORATION FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0001065932
<NAME> LANDAIR CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 10
<SECURITIES> 0
<RECEIVABLES> 20,042
<ALLOWANCES> 536
<INVENTORY> 0
<CURRENT-ASSETS> 28,814
<PP&E> 116,438
<DEPRECIATION> 29,130
<TOTAL-ASSETS> 120,334
<CURRENT-LIABILITIES> 23,664
<BONDS> 0
0
0
<COMMON> 61
<OTHER-SE> 42,046
<TOTAL-LIABILITY-AND-EQUITY> 120,334
<SALES> 0
<TOTAL-REVENUES> 97,322
<CGS> 0
<TOTAL-COSTS> 98,629
<OTHER-EXPENSES> (181)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,005
<INCOME-PRETAX> (3,131)
<INCOME-TAX> (1,077)
<INCOME-CONTINUING> (2,054)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,054)
<EPS-BASIC> (0.34)
<EPS-DILUTED> (0.34)
</TABLE>
