<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, 1997
Commission File No. 000-22490
LANDAIR SERVICES, INC.
(Exact name of registrant as specified in its charter)
TENNESSEE 62-1120025
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
430 AIRPORT ROAD
GREENEVILLE, TENNESSEE 37745
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (423) 636-7000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
---- ----
The number of shares outstanding of the registrant's common stock, $.01 par
value, as of November 11, 1997 was 5,994,569.
<PAGE> 2
TABLE OF CONTENTS
LANDAIR SERVICES, INC.
<TABLE>
<CAPTION>
Page
Number
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Income -
Three months ended September 30, 1997 and 1996;
Nine months ended September 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows -
Nine months ended September 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements -
September 30, 1997 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 11
ITEM 2. Changes in Securities 11
ITEM 3. Defaults Upon Senior Securities 11
ITEM 4. Submission of Matters to a Vote of Security Holders 11
ITEM 5. Other Information 11
ITEM 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
EXHIBIT INDEX 13
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
LANDAIR SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
================================
(Unaudited) (Note)
(In thousands, except share data)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 148 $ 28
Accounts receivable, less allowance of $726 in 1997 and $415 in 1996 27,646 23,671
Other current assets 5,348 4,505
---------------------
Total current assets 33,142 28,204
Property and equipment 105,010 97,445
Less accumulated depreciation and amortization 33,552 27,166
---------------------
71,458 70,279
Other assets 587 591
---------------------
Total assets $105,187 $99,074
=====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,049 $ 5,525
Accrued expenses 12,294 7,391
Current portion of long-term debt 10,038 7,701
Current portion of capital lease obligations 2,087 1,797
---------------------
Total current liabilities 28,468 22,414
Long-term debt, less current portion 12,026 18,346
Capital lease obligations, less current portion 6,850 8,748
Deferred income taxes 10,555 8,302
Shareholders' equity:
Preferred stock -- --
Common stock, $.01 par value:
Authorized shares - 20,000,000
Issued and outstanding shares - 5,973,486 in 1997 and 5,952,880
in 1996 60 60
Additional paid-in capital 26,335 26,202
Retained earnings 20,893 15,002
---------------------
Total shareholders' equity 47,288 41,264
---------------------
Total liabilities and shareholders' equity $105,187 $99,074
=====================
</TABLE>
Note: The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date, but does not include all of the financial
information and footnotes required by generally accepted accounting principles
for complete financial statements.
See notes to condensed consolidated financial statements.
3
<PAGE> 4
LANDAIR SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------------------- ------------------------------
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
------------------------------ ------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Operating revenue $50,456 $39,295 $136,963 $115,167
Operating expenses:
Purchased transportation 15,843 12,629 44,118 37,471
Salaries, wages, and employee benefits 14,086 10,911 38,732 31,898
Depreciation and amortization 2,815 2,687 8,118 7,909
Fuel and fuel taxes 2,846 2,573 8,140 8,175
Insurance and claims 2,080 2,440 7,055 6,153
Operating leases 1,682 1,603 4,659 4,374
Other operating expenses 5,297 4,326 14,408 12,692
--------------------------------------------------------
44,649 37,169 125,230 108,672
Income from operations 5,807 2,126 11,733 6,495
Other income (expense):
Interest expense (651) (694) (1,990) (2,288)
Other, net 32 0 (97) 26
--------------------------------------------------------
(619) (694) (2,087) (2,262)
Income before income taxes 5,188 1,432 9,646 4,233
Income taxes 2,012 545 3,755 1,616
--------------------------------------------------------
Net income $ 3,176 $ 887 $ 5,891 $ 2,617
========================================================
Net income per share:
Primary $ .51 $ .15 $ .96 $ .43
========================================================
Fully diluted $ .51 $ .15 $ .94 $ .43
========================================================
Dividends declared per share $ -- $ -- $ -- $ --
========================================================
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
LANDAIR SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
----------------------------
September 30, September 30,
1997 1996
------------ -------------
(In thousands)
<S> <C> <C>
Cash from operations $ 15,114 $ 7,180
Investing activities:
Proceeds from disposal of property and equipment 980 2,700
Purchases of property and equipment (10,520) (6,028)
Other 4 (135)
-------- -------
(9,536) (3,463)
Financing activities:
Proceeds from long-term debt 4,990 1,664
Payments of long-term debt (8,973) (8,119)
Payments of capital lease obligations (1,608) (1,649)
Common Stock issued under Stock Purchase Plan 78 --
Proceeds from exercise of stock options 55 579
-------- -------
(5,458) (7,525)
-------- -------
Increase (decrease) in cash and cash equivalents $ 120 $(3,808)
======== =======
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
LANDAIR SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1997
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine month period ended September 30,
1997 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1997. For further information, refer to the
consolidated financial statements and footnotes thereto included in the Landair
Services, Inc. annual report on Form 10-K for the year ended December 31, 1996.
NOTE 2 - NET INCOME PER SHARE
Net income per share is based on the weighted average number of shares of common
stock and common stock equivalents outstanding during the period. Common stock
equivalents consist of outstanding stock options and have been included in the
calculation of net income per share using the treasury stock method. See Note 6.
NOTE 3 - INCOME TAXES
For the three months and nine months ended September 30, 1997 and 1996, the
effective income tax rate varied from the statutory federal income tax rate of
34% primarily as a result of the effect of state income taxes, net of the
federal benefit, and permanent differences.
NOTE 4 - 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.
6
<PAGE> 7
NOTE 5 - CHANGE IN ACCOUNTING ESTIMATE
Effective July 1, 1996, the Company changed the estimated useful life of tires
in service to reflect the increased warranty periods provided by the tire
manufacturers. The change resulted in a decrease in other expenses of $280,000,
an increase in net earnings of $171,000 and an increase in earnings per share of
$.03 for the nine months ended September 30, 1997.
NOTE 6 - ADOPTION OF NEW ACCOUNTING RULES
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings Per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact of Statement No. 128 on the
calculation of primary earnings per share for the three months and nine months
ended September 30, 1997 is expected to result in an increase of $.02 and $.03
per share, respectively.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following table sets forth expenses as a percentage of operating revenue for
the periods indicated.
<TABLE>
<CAPTION>
Three months ended Nine months ended
----------------------------- ----------------------------
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Operating revenue 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Purchased transportation 31.4 32.1 32.2 32.5
Salaries, wages, and employee
benefits 27.9 27.8 28.3 27.7
Depreciation and amortization 5.6 6.8 5.9 6.9
Fuel and fuel taxes 5.7 6.5 5.9 7.1
Insurance and claims 4.1 6.2 5.2 5.3
Operating leases 3.3 4.1 3.4 3.8
Other operating expenses 10.5 11.1 10.5 11.1
--------------------- -----------------------
88.5 94.6 91.4 94.4
Income from operations 11.5 5.4 8.6 5.6
Other income (expense):
Interest expense (1.3) (1.8) (1.5) (2.0)
Other, net 0.1 0.0 (0.1) 0.0
--------------------- -----------------------
(1.2) (1.8) (1.6) (2.0)
--------------------- -----------------------
Income before income taxes 10.3 3.6 7.0 3.6
Income taxes 4.0 1.3 2.7 1.3
--------------------- -----------------------
Net income 6.3% 2.3% 4.3% 2.3%
===================== =======================
</TABLE>
Results of Operations
Operating revenue increased by $11.2 million, or 28%, to $50.5 million in the
third quarter of 1997 from $39.3 million in 1996. For the first nine months of
1997, operating revenue of $137.0 million was $21.8 million, or 19%, higher than
the same period of 1996. The increase in operating revenue compared to the
prior-year periods is attributable to additional volume from the Company's
Forward Air operations, which increased 40% and 31% during the third quarter and
first nine months of 1997, respectively, coupled with increased revenue in the
Company's Truckload operations, which increased 15% and 7%, respectively, due to
improvements in utilization and yield and additional tractors in service. The
Forward Air and Truckload operations also benefited from the disruption to the
national transportation system brought about by the UPS strike which contributed
approximately $2.3 million and $500,000 of additional revenue, respectively,
during the third quarter of 1997.
8
<PAGE> 9
The operating ratio (operating expenses as a percentage of operating revenue)
for the three months and nine months ended September 30, 1997 was 88.5% and
91.4%, respectively, compared to 94.6% and 94.4% for the respective periods in
1996. Except as explained below, operating expenses in the aggregate generally
reflect increases proportionate to the increased level of operations.
The improvement in the operating ratio for the third quarter of 1997 was
partially attributed to the non-recurring revenue that resulted from the UPS
strike. This additional revenue net of variable costs and income taxes, but not
allocated fixed costs, resulted in an estimated additional $1.4 million of
pre-tax income from operations and $.14 of earnings per share during the
quarter. On a pro forma basis, excluding the impact of the UPS strike, the
Company's operating ratio for the three months and nine months ended September
30, 1997 would have been 91.3% and 92.5%, respectively.
The components of operating expenses fluctuate between periods primarily because
of the ratio of owner-operators to Company-operated equipment. For the quarters
ended September 30, 1997 and 1996, respectively, the Company operated 551 and
523 Company-owned tractors and leased 382 and 376 tractors from owner-operators.
Depreciation and amortization expense as a percentage of operating revenue was
5.6% and 5.9% in the third quarter and first nine months of 1997, respectively,
compared to 6.8% and 6.9% for the respective periods in 1996. The improvement
in depreciation and amortization expense as a percentage of operating revenue
is primarily attributed to increased utilization of operating assets.
Fuel and fuel taxes were 5.7% and 5.9% of operating revenue in the third
quarter and first nine months of 1997, respectively, compared to 6.5% and 7.1%
for the respective periods in 1996. The decrease in fuel and fuel taxes as a
percentage of operating revenue during 1997 is partially attributed to a
decrease in fuel costs, net of surcharges passed on to customers, of
approximately 7% during the third quarter and first nine months of 1997.
Insurance and claims were 4.1% and 5.2% of operating revenue for the three
months and nine months ended September 30, 1997, respectively, compared to 6.2%
and 5.3% for the respective periods in 1996. The decrease in costs during the
third quarter of 1997 is due primarily to a decrease in the severity of
accidents compared to the corresponding quarter of 1996.
Operating leases were 3.3% and 3.4% of operating revenue in the third quarter
and first nine months of 1997, respectively, compared to 4.1% and 3.8% for the
respective periods in 1996. The decrease in operating lease expense as a
percentage of operating revenue is attributed to increased utilization of
leased operating equipment and facilities.
9
<PAGE> 10
Included in income from operations for the third quarter and first nine months
of 1997 were gains (losses) on the sale of revenue equipment in the amount of
$(60,000) and $(40,000), respectively, compared to $216,000 and $386,000 for the
respective periods in 1996. See Note 5 to the September 30, 1997 Condensed
Consolidated Financial Statements for the current year financial impact of a
change in the estimated useful life of tires in service.
Interest expense was $651,000 and $2.0 million, respectively, for the three
months and nine months ended September 30, 1997, compared to $694,000 and $2.3
million for the respective periods in 1996. The decrease in interest costs
during 1997 is due to lower average net borrowings in 1997.
The effective tax rate for the third quarter and first nine months of 1997 was
39% compared to 38% for the respective periods in 1996.
Liquidity and Sources of Capital
Cash flows from operations were $15.1 million for the first nine months of 1997
compared with $7.2 million in the same period of 1996. The $7.9 million increase
in cash flows from operations was principally attributable to increased business
volumes and collection of the related accounts receivable.
Management believes available borrowing under existing lines of credit, future
borrowing under installment notes for revenue equipment, and cash generated by
operations will be sufficient to fund the Company's cash needs and anticipated
capital expenditures over the near term.
10
<PAGE> 11
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is, from time to time, a party to litigation arising in the normal
course of its business, most of which involve claims for personal injury and
property damage incurred in connection with the transportation of freight.
Management believes that none of these actions, individually or in the
aggregate, will have a material adverse effect on the financial condition or
results of operations of the Company.
ITEM 2. CHANGES IN SECURITIES
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6 . EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are included herein:
(a) Exhibits - The response to this portion of Item 6 is submitted as a
separate section of this report.
(b) Reports on Form 8-K - The Company did not file any reports on Form 8-K
during the three months ended September 30, 1997.
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Landair Services, Inc.
Date: November 14, 1997 By: /s/ Edward W. Cook
----------------------
Edward W. Cook
Chief Financial Officer
and Senior Vice President
12
<PAGE> 13
EXHIBIT INDEX
Exhibit
Number Exhibit
------- -------
11 Statement Re: Computation of Per Share Earnings
27 Financial Data Schedule (Electronic Filing Only)
13
<PAGE> 1
Exhibit 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------------------- --------------------------------
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
------ ------ ------ ------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Primary:
Average outstanding shares 5,967 5,949 5,958 5,922
Net effect of dilutive stock options - based
on the treasury stock method using the
average market price 251 108 164 135
------ ------ ------ ------
Totals 6,218 6,057 6,122 6,057
====== ====== ====== ======
Net income $3,176 $ 887 $5,891 $2,617
====== ====== ====== ======
Per share amount $ .51 $ .15 $ .96 $ .43
====== ====== ====== ======
Fully diluted:
Average shares outstanding 5,967 5,949 5,958 5,922
Net effect of dilutive stock options - based
on the treasury stock method using the
quarter-end market price if higher than
the average market price 296 108 296 141
------ ------ ------ ------
Totals 6,263 6,057 6,254 6,063
====== ====== ====== ======
Net income $3,176 $ 887 $5,891 $2,617
====== ====== ====== ======
Per share amount $ .51 $ .15 $ .94 $ .43
====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LANDAIR SERVICES, INC. FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000912728
<NAME> LANDAIR SERVICES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 148
<SECURITIES> 0
<RECEIVABLES> 28,372
<ALLOWANCES> 726
<INVENTORY> 0
<CURRENT-ASSETS> 33,142
<PP&E> 105,010
<DEPRECIATION> 33,552
<TOTAL-ASSETS> 105,187
<CURRENT-LIABILITIES> 28,468
<BONDS> 0
0
0
<COMMON> 60
<OTHER-SE> 47,228
<TOTAL-LIABILITY-AND-EQUITY> 105,187
<SALES> 0
<TOTAL-REVENUES> 136,963
<CGS> 0
<TOTAL-COSTS> 125,230
<OTHER-EXPENSES> 97
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,990
<INCOME-PRETAX> 9,646
<INCOME-TAX> 3,755
<INCOME-CONTINUING> 5,891
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,891
<EPS-PRIMARY> .96
<EPS-DILUTED> .94
</TABLE>
