<PAGE> 1
UNITED STATES
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 fiscal year ended December 31, 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
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 30, 1998 was approximately $76,100,351 based on the
closing price of such stock on such date of $27.75.
The number of shares outstanding of the registrant's common stock, $.01 par
value, as of January 30, 1998 was 6,024,388.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C> <C>
Part I
Item 1. Business 3
Item 2. Properties 8
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Part II
Item 5. Market for Registrant's Common Stock and 10
Related Shareholder Matters
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of Financial 12
Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data 17
Item 9. Changes in and Disagreements with Accountants on 17
Accounting and Financial Disclosure
Part III
Item 10. Directors and Executive Officers of the Registrant 18
Item 11. Executive Compensation 21
Item 12. Security Ownership of Certain Beneficial 25
Owners and Management
Item 13. Certain Relationships and Related Transactions 27
Part IV
Item 14. Exhibits, Financial Statement Schedules and 28
Reports on Form 8-K
Signatures 29
Index to Financial Statements and Financial Statement Schedule F-1
</TABLE>
2
<PAGE> 3
PART I
ITEM 1. BUSINESS
GENERAL
Landair Services, Inc. (the "Company") is a high-service level
truckload carrier and contractor to the air cargo industry providing
time-definite service in the United States and Canada. The Company was
incorporated in Tennessee in 1981.
The Company provides scheduled trucking services to air freight
forwarders, fully integrated air cargo carriers and domestic and international
airlines through its Forward Air operations. The Company services its air
freight forwarder, air cargo and airline customers primarily through a hub and
spoke network of 62 terminals, located at or near major airports in the United
States and Canada, and linked through a central sorting facility in Columbus,
Ohio.
Through its Truckload operations, the Company provides short- to
medium-haul delivery to the high-service segment of the general commodities
truckload market. The Truckload operations include a common carrier operation
that serves customers on an "on demand" basis and a dedicated fleet operation in
which trucks and drivers are dedicated to shippers with specific, high-service
requirements.
The Truckload and Forward Air operations constitute the business
segments of the Company. An analysis by business segment of operating revenue,
income from operations, assets, expenditures for long-lived assets and other
information as of and for the years ended December 31, 1997, 1996 and 1995 is
presented in Note 7 of the Notes to Consolidated Financial Statements beginning
on page F-20.
RECENT DEVELOPMENTS
On February 10, 1998, the Company's Board announced it had authorized
the creation of a special committee of independent directors to consider a plan
to separate the Company into two publicly-traded companies, one comprised of the
Truckload operations, and the other the Forward Air operations. There can be no
assurance as to whether any such transaction will occur or as to the timing or
terms of any such transaction. Under the plan currently being considered, the
transaction would be structured as a tax-free spin-off, subject, among other
things, to the receipt of a ruling as to tax-free status from the Internal
Revenue Service.
FORWARD AIR OPERATIONS
The Company's Forward Air operations serve the unique and growing
deferred air freight market. Unlike typical overnight letters and packages,
deferred air freight is comprised of freight and packages that will have
time-definite delivery in two to four days. Forward Air receives air
3
<PAGE> 4
freight from air freight forwarder, air cargo and airline customers at 62
terminal facilities and provides airport-to-airport transportation of the
freight to the terminal nearest to the freight's destination. The transportation
requirements of Forward Air are met through direct shuttles, some of which offer
overnight service, and through the Columbus central sorting facility.
The Company's freight forwarder customers vary in size from small
independent, single facility air freight forwarders to large, international
logistics companies. Since operations were commenced in November 1990, the
average weekly volume of freight carried through the Forward Air network has
grown from approximately 1.2 million pounds to approximately 13.3 million pounds
in 1997. Forward Air operations accounted for approximately 55% of the Company's
1997 operating revenue. The Company's strategy in its Forward Air operations is
to capitalize on the growing market for deferred air freight from both domestic
and international air cargo customers through its unique hub-and-spoke network.
TRUCKLOAD OPERATIONS
Common Carrier Services. The Company's common carrier operations
primarily consist of short- to medium-haul shipments, typically between 250 and
700 miles. Although serving the contiguous 48 states, the Company's Truckload
operations are primarily concentrated in the eastern half of the United States,
allowing the Company to focus on selected operating lanes. The Company's ability
to stay within these lanes allows it to maximize service for its customers while
minimizing such operating costs as empty miles and driver layovers. The common
carrier operations concentrate on providing a high level of consistent service
at market competitive prices with an emphasis on certain niche markets. For
example, these operations provide common carrier services to certain of the
integrated air carriers and for just-in-time manufacturers with narrow delivery
windows. The customers of the common carrier operations normally demand
scheduled pick-up and delivery and often give short notice for equipment needs.
The common carrier operations have been successful in meeting customer needs
with on-time performance in excess of 98% in its primary service area. The trend
of shippers over the past several years has been toward the use of a relatively
small number of financially stable "core carriers". The Company's strategy in
its common carrier operations is to take advantage of growth opportunities that
exist as a result of this trend. In addition, an important element in the
Company's strategy for expanding its core carrier operations lies in the
cross-utilization of its revenue equipment to satisfy peak demands in the
deferred air freight market.
Dedicated Contract Carriage Services. The Company's dedicated contract
carriage services involve management for all or a significant part of a
customer's transportation operations. Under a dedicated carriage service
agreement, the Company typically provides drivers, equipment and maintenance,
and, in some instances, transportation management that supplements the
customer's in-house transportation department. This service allows a customer to
reduce overall transportation costs by minimizing both capital expenditures and
personnel costs.
Management believes the dedicated contract carriage operations are well
positioned to capitalize on the increasing trend of many shippers to outsource
virtually all of their transportation
4
<PAGE> 5
requirements. The Company's strategy in its dedicated contract carriage
operations will be to continue to focus on expansion of services in this area,
including business with existing common carrier customers, so that the Company's
dedicated operations can ultimately manage most or all of a customer's
transportation needs on a dedicated fleet basis.
Truckload operations accounted for approximately 45% of the Company's
1997 operating revenue.
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 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. It is the
Company's current practice to trade in its tractors after three or four years
and its trailers after seven years. The Company's purchase and lease agreements
for tractors generally provide for a repurchase option by the manufacturer at
predetermined prices.
As of December 31, 1997, the Company owned or leased 670 tractors and
contracted for 425 tractors from owner-operators. The average age of the
Company-operated tractor fleet was approximately 2.7 years at December 31, 1997.
As of December 31, 1997, the Company owned or leased 2,290 van trailers, of
which substantially all are 53' long and 285 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 3.2 years
at December 31, 1997.
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 AND OWNER-OPERATOR DRIVERS
As of December 31, 1997, the Company employed approximately 2,000
persons. None of the Company's employees are covered by a collective bargaining
agreement. The Company considers its employee relations to be good.
5
<PAGE> 6
The Company recognizes that its professional driver workforce is one of
its most valuable assets. Drivers are selected by the Company in accordance with
guidelines relating to safety records, driving experience and personal
evaluations. Over the past several years, the Company has introduced several
driver retention programs including the creation of a pay package that more
fairly compensates drivers for the work associated with their job. The pay
package includes extra pay items in addition to the drivers' mileage-based pay.
The expense and cost of driver retention and recruitment has increased in recent
years. Recruitment is difficult due to Company standards and an industry
shortage of qualified drivers. See "Safety".
The Company also recognizes that the selection process for
owner-operators is equally as important as for Company drivers. As of December
31, 1997, approximately 41% of the tractors in service were contracted to the
Company by owner-operators. Approximately half of the December 31, 1997
owner-operators were utilized in each of the Forward Air and Truckload
operations. The use of owner-operators provides the Company with marketing,
operating, safety, driver recruiting, retention and financial advantages. The
Company focuses on the special needs of owner-operators through programs
designed to reduce their operating costs. The Company plans to continue its
emphasis on recruiting owner-operators.
SAFETY
The Company has an active safety and loss prevention program and has
established a driver qualification policy. Drivers who exceed the maximum
acceptable number of accidents or traffic citations within a specified time
period are reviewed and monitored by the safety department. The driving and
employment records of drivers are verified.
During the past three years, the Company enhanced its safety program
with a series of safe driving campaigns, safety contests, quarterly driver
terminal safety meetings, and communication of safety data to drivers and
management personnel. The program is designed to heighten awareness of, and
focus attention on, safety related issues.
INSURANCE
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.
REGULATION
Prior to December 29, 1995, the Company's operations in interstate
commerce were regulated by the Interstate Commerce Commission ("ICC"). Effective
December 29, 1995,
6
<PAGE> 7
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 Department of Transportation. Such matters as weight and
dimension of equipment are also subject to federal and state regulations. The
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.
The Company has aboveground fuel storage tanks at its Atlanta, Georgia;
Indianapolis, Indiana 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 1998.
COMPETITION AND INDUSTRY TRENDS
The Company competes with regional, inter-regional and national
truckload carriers 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.
Management believes the market for its Forward Air operations will be
less affected by competition than will most other segments of the transportation
industry because of its unique network. The transportation of air freight
requires significant capital assets, including a fleet of dependable equipment,
a large centrally located sorting facility, an extensive communication system, a
skilled workforce and a large sales operation. In order to effectively compete,
any new entrant would have to be able to immediately develop a comparable
network which would require it to dedicate a full complement of equipment and
establish multiple terminals in order to demonstrate the ability to handle a
large number of shipments destined for many geographically diverse locations and
to meet critical delivery deadlines.
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 shippers which require a flexible and
dependable motor carrier service tailored to their specific needs, including
pick-up and delivery within specified time frames.
During 1997, one customer of the Truckload operations, Federal Express
Corporation, accounted for more than 10% (approximately $27.0 million) of the
Company's consolidated
7
<PAGE> 8
operating revenue. No single customer accounted for more than 10% of the
Company's operating revenue in 1996 and 1995.
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 summer months. 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.
ITEM 2. PROPERTIES
The Company's headquarters, comprised of 37,500 square feet, are
located in Greeneville, Tennessee and are leased from the Greeneville-Greene
County Airport Authority under a lease expiring in 2006. The headquarters lease
is at a rate management believes is favorable. The Company leases, under a
capital lease agreement, a 100-door cross dock hub facility constructed in 1994
in Columbus, Ohio from the Director of Development of the State of Ohio. A
substantial portion of the cost of constructing the 83,800 square foot Columbus
facility shared by the Forward Air and Truckload operations was funded by the
State of Ohio through the sale of $6.3 million of revenue bonds. The Company is
responsible for all taxes, assessments and other costs of ownership under the
lease agreement. Certain terms of the lease include restrictions on the payment
of dividends and the maintenance of certain levels of net worth and other
financial ratios. After the bonds are paid in full, the Company will have an
option to purchase the terminal for a nominal amount.
The Company owns a 46,000 square foot 68-door cross dock terminal
facility in Atlanta, Georgia, which houses both the Atlanta Truckload and
Forward Air operations. The Company also acquired 27.3 acres of land in Mosheim,
Tennessee in 1997 on which it is constructing a facility for its Truckload
operations.
The Company leases a 15,200 square foot facility for its Truckload and
Forward Air operations in Indianapolis, Indiana and leases two separate
facilities for its Memphis, Tennessee Forward Air and Truckload operations which
total approximately 19,875 square feet.
The Company leases 49 additional terminal facilities for its Forward
Air operations, which are typically leased on a short-term (three to five year)
basis. Management believes that replacement space comparable to these terminal
facilities is readily obtainable, if necessary. Management believes that its
facilities are adequate to support its current operations. The balance of the
Forward Air terminals are agent stations leased and operated by independent
agents who generally handle the Company's freight on a commission basis.
8
<PAGE> 9
ITEM 3. LEGAL PROCEEDINGS
LITIGATION
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, 1997,
no matters were submitted to a vote of security holders through the solicitation
of proxies or otherwise.
9
<PAGE> 10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The Company's common stock trades on The Nasdaq Stock Market under the
symbol "LAND". The following table sets forth the high and low sales prices for
the Company's common stock as reported by The Nasdaq Stock Market for each full
quarterly period within the two most recent fiscal years.
<TABLE>
<CAPTION>
1997 High Low
---- ---- ---
<S> <C> <C>
First Quarter.................................. $12.00 $ 9.75
Second Quarter................................. $14.75 $11.00
Third Quarter.................................. $22.00 $14.375
Fourth Quarter................................. $30.00 $19.50
1996 ....................................... High Low
---- ---- ---
First Quarter.................................. $16.50 $12.50
Second Quarter................................. $16.25 $13.25
Third Quarter.................................. $16.50 $10.00
Fourth Quarter................................. $11.75 $ 6.50
</TABLE>
There were approximately 1,200 shareholders of record (including
brokerage firms and other nominees) of the Company's common stock as of January
30, 1998.
The Company has not paid cash dividends on its common stock in the two
preceding fiscal years, 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.
10
<PAGE> 11
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
------------------------------------------------------------
1997 1996 1995 1994 1993
-------- --------- ------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA: (1) (2)
Operating revenue $190,402 $157,098 $148,083 $135,032 $95,281
Income from operations 16,803 9,341 10,501 8,164 4,309
Operating ratio (3) 91.2% 94.1% 92.9% 94.0% 95.5%
Net income 8,594 3,979 4,517 4,017 1,963
Net income per share - basic (4) 1.44 0.67 0.77 0.70 0.49
Net income per share - diluted (4) 1.39 0.66 0.75 0.66 0.46
Cash dividends declared per
common share -- -- -- -- --
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets $118,331 $99,074 $ 98,279 $ 78,044 $49,027
Long-term obligations, net of
current portion 22,405 27,094 35,855 28,305 12,024
Shareholders' equity 50,460 41,264 36,644 31,778 27,295
</TABLE>
(1) Results for 1994 and 1993 lack comparability to other periods because (i)
1994 included a charge relating to the sale and winding down of the
Company's refrigerated trucking operations of $805,000, and (ii) 1993
included special management bonuses of $1.7 million. In addition, 1994
results consist of 53 weeks of operations while 1997, 1996, 1995 and 1993
results consist of approximately 52 weeks of operations.
(2) Net income and net income per share for 1993 reflect pro forma income tax
provisions as if the Company, previously an S Corporation prior to its
initial public offering of common stock in November 1993, had been subject
to income taxes for all of 1993. Historical net income for 1993 was $2.2
million.
(3) Operating expenses as a percentage of operating revenue.
(4) The net income per share amounts prior to 1997 have been restated to comply
with Statement of Financial Accounting Standards No. 128, Earnings Per
Share. For further discussion of net income per share and the adoption of
Statement 128, see Notes 1 and 4 of the Notes to Consolidated Financial
Statements included elsewhere herein.
11
<PAGE> 12
ITEM 7. 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>
YEAR ENDED DECEMBER 31
-------------------------------------
1997 1996 1995
-------------------------------------
<S> <C> <C> <C>
Operating revenue 100.0% 100.0% 100.0%
Operating expenses:
Purchased transportation 32.1 32.8 36.1
Salaries, wages and employee benefits 28.4 27.6 25.4
Fuel and fuel taxes 6.1 6.9 6.0
Depreciation and amortization 5.9 6.7 5.9
Insurance and claims 5.0 5.3 4.8
Operating leases 3.4 3.8 4.0
Other operating expenses 10.3 11.0 10.7
-------------------------------------
Total operating expenses 91.2 94.1 92.9
-------------------------------------
Income from operations 8.8 5.9 7.1
Interest expense (1.4) (1.8) (2.0)
Other income (expense), net -- -- 0.2
-------------------------------------
Income before income taxes 7.4 4.1 5.3
Income taxes 2.9 1.6 2.2
-------------------------------------
Net income 4.5% 2.5% 3.1%
=====================================
</TABLE>
RESULTS OF OPERATIONS
Operating revenue for 1997 increased to a record $190.4 million
compared to $157.1 million in 1996 and $148.1 million in 1995. The increases in
operating revenue for 1997 and 1996 were 21.2% and 6.1%, respectively.
Purchased transportation was 32.1% of operating revenue in 1997
compared to 32.8% in 1996 and 36.1% in 1995. The decrease in purchased
transportation as a percentage of operating revenue between these years was
primarily attributable to a reduction in the ratio of owner-operators to Company
drivers during 1997 and 1996. During 1997, 1996 and 1995, approximately 41.0%,
42.0% and 46.0% of the Company's average tractors in service were contracted
through owner-operators.
Salaries, wages and benefits were 28.4% of operating revenue in 1997
compared to 27.6% in 1996 and 25.4% in 1995. The increase as a percentage of
operating revenue in 1997 and 1996 were due primarily to higher cargo handling
wages and terminal managers' salaries required to operate additional terminals
and greater operating volumes in the Company's Forward Air operations combined
with an increase in the ratio of Company drivers to owner-operators.
12
<PAGE> 13
Fuel and fuel taxes were 6.1% of operating revenue in 1997 compared to
6.9% in 1996 and 6.0% in 1995. The decrease in fuel and fuel taxes as a
percentage of operating revenue during 1997 resulted from a lower average fuel
price per gallon coupled with improvements in the average miles per gallon and
average revenue per loaded mile of the Company-operated tractor fleet. The
increase in fuel and fuel taxes as a percentage of operating revenue during 1996
was primarily attributed to an increase in fuel prices and an increase in the
ratio of Company drivers to owner-operators. Approximately 60.0% of the increase
in fuel prices during 1996 was passed on to customers in the form of a fuel
surcharge.
Operating leases were 3.4%, 3.8% and 4.0% of operating revenue during
1997, 1996 and 1995, respectively, while depreciation and amortization were
5.9%, 6.7% and 5.9% during the same periods. The decrease in operating leases as
a percentage of operating revenue during 1997 and 1996 resulted from increased
ownership, rather than leasing, of revenue equipment. 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. The increase in
depreciation and amortization as a percentage of operating revenue during 1996
is attributable to an increase in the ratio of Company drivers to
owner-operators and increased ownership of revenue equipment.
Insurance and claims were 5.0% of operating revenue in 1997 compared to
5.3% in 1996 and 4.8% in 1995. The changes in insurance and claims expense
during 1997 and 1996 resulted from fluctuations in the frequency and severity of
accidents between years coupled with changes in claims development trends and
lower premium costs.
Other operating expenses were 10.3% of operating revenue in 1997
compared to 11.0% in 1996 and 10.7% in 1995. The decrease in 1997 as a
percentage of operating revenue is attributed to both a reduced operating cost
structure and improvements in utilization levels in the Company's Truckload
operations. Gains (losses) on the sale of revenue equipment (which are netted
against other operating expenses) were $(109,000), $413,000, and $503,000 during
1997, 1996 and 1995, respectively.
Interest expense was $2.6 million in 1997 compared to $3.0 million in
1996 and 1995. The decrease in interest expense during 1997 is due to lower
average net borrowing during the period.
Other income (expense), net, includes a loss on the disposal of
non-operating equipment of $276,000, $0 and $0 during 1997, 1996 and 1995,
respectively.
The combined federal and state effective tax rates for 1997, 1996 and
1995 were 39.0%, 38.2% and 42.0%, respectively. For information concerning the
provision for 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.
13
<PAGE> 14
Forward Air Segment: Operating revenue in the Company's Forward Air
operations increased by $24.4 and $17.2 million in 1997 and 1996, respectively,
and represented approximately 55.0% and 51.0% of the Company's operating revenue
for these periods. Operating revenue increases in the Forward Air operations
resulted from increasing the number of operating terminals, enhancements to the
Forward Air network and greater volume from domestic and international air cargo
customers. The operating revenue increase in 1997 is also partially attributed
to the acquisition on October 27, 1997 of the air cargo operating assets of
Adams Air Cargo, Inc.
Forward Air income from operations increased by $4.5 and $2.1 million
in 1997 and 1996, respectively. The increase in income from operations resulted
from higher operating revenue, which was reduced in part by the incremental
costs associated with such revenue. In addition, during the third quarter of
1997, the Forward Air operations benefited from non-recurring revenue that
resulted from the United Parcel Service strike. This additional revenue, net of
variable costs, resulted in an estimated additional $1.2 million of income from
operations.
Truckload Segment: Operating revenue in the Company's Truckload
operations, including intersegment revenue, increased (decreased) by $9.6 and
$(6.0) million in 1997 and 1996, respectively. Operating revenue increases
(decreases) in the Truckload operations resulted primarily from fluctuations in
equipment utilization and yield. During 1997, 1996 and 1995, the Truckload
operations utilized average tractors of 699, 695 and 685, respectively.
Truckload income from operations increased (decreased) by $2.9 and
$(3.3) million in 1997 and 1996, respectively. The increase in income from
operations in 1997 was due mainly to a lower operating cost ratio resulting from
an increase in equipment utilization and yield during the year. The decrease in
income from operations in 1996 was due primarily to a higher operating ratio
resulting from a decrease in equipment utilization and yield during the year. In
addition, during the third quarter of 1997, the Truckload operations benefited
from non-recurring revenue generated from the United Parcel Service strike. This
additional revenue, net of variable costs, resulted in an estimated additional
$200,000 of income from operations.
LIQUIDITY AND CAPITAL RESOURCES
The continued growth of the Company's business, 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, through borrowing under credit agreements with financial
institutions and from proceeds of the initial public offering in November 1993.
Working capital needs have generally been met with cash flows from operations
and borrowing under the Company's line of credit. Net cash provided by operating
activities totaled approximately $22.6, $12.5 and $15.8 million in 1997, 1996
and 1995, respectively.
Net cash used in investment activities was approximately $19.0, $6.0
and $21.5 million in 1997, 1996 and 1995, respectively. Investing activities
consisted primarily of the acquisition of additional revenue equipment and
enhanced management information systems during 1997,
14
<PAGE> 15
1996 and 1995, the acquisition of a business in 1997 and the acquisition of a
terminal facility in 1996.
Net cash provided by (used in) financing activities was approximately
$(2.9), $(10.3) and $8.6 million in 1997, 1996 and 1995, respectively. These
financing activities included the Company's continued financing of additional
revenue equipment, based upon capital expenditure requirements, coupled with
repayment of long-term debt and capital leases with cash generated from
operations.
The Company expects net capital expenditures in 1998 for revenue
equipment and management information systems, excluding acquisitions, to be less
than $25 million. The Company expects to fund these expenditures through cash
provided by operating activities. See Note 3 of the Notes to Consolidated
Financial Statements for more information concerning credit arrangements. At
December 31, 1997, the Company had a line of credit with a bank in the amount of
$15.0 million, which expires in May 1999. At December 31, 1997, approximately
$4.7 million was available for borrowing under the credit line. At December 31,
1997, the Company also had equipment loan agreements which permit the Company to
borrow up to $30.0 million for the purchase of revenue equipment. At December
31, 1997, approximately $15.9 million was available for borrowing under the
equipment loan agreements. Management believes that available borrowings under
the line of credit agreement, equipment loan agreements, future borrowings under
installment notes for revenue equipment, and cash generated by operations will
be sufficient to fund its cash needs and anticipated capital expenditures
through at least 1998.
IMPACT OF INFLATION
Inflation has not had a material effect on the Company's results of
operations or financial condition during the past three years. However,
inflation higher than experienced during the past three years could have an
adverse effect on the Company's future results.
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 has been in the process of replacing the majority of its
key financial and operational systems as a part of upgrading its legacy systems
in the normal course of business. This replacement has been a planned approach
for the last two years to enhance or better meet its functional business and
operational requirements. Management believes that this program will
substantially meet or address its Year 2000 issues. In addition to its
replacement program, the Company will require modifying some of its software and
hardware so that its computer systems
15
<PAGE> 16
will function properly with respect to dates in the year 2000 and thereafter.
The estimated cost of the remaining replacement and modification for the Year
2000 issue is not considered material to the Company's earnings or financial
position.
The Company also plans to initiate 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 those third parties'
failure to remediate their own Year 2000 issues. There is no guarantee that the
systems of other companies on which the Company's systems rely will be timely
converted and would not have an adverse effect on the Company's system.
The project is estimated to be completed not later than December 31,
1998, which is prior to any anticipated impact on its operating systems. The
Company believes that with modifications to existing software and hardware and
conversions to new software, the Year 2000 issue will not pose significant
operational problems for its computer systems. However, if such modifications
and conversions are not made, or are not completed timely, the Year 2000 issue
could have a material impact on the operations of the Company.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, Reporting Comprehensive Income. The
Statement is effective for the Company beginning in 1998, and establishes
standards for the reporting and display of comprehensive income and its
components. The Statement requires that all items that are income be reported in
a financial statement that is displayed with the same prominence as other
financial statements. The Company does not expect the effect of adoption of
Statement 130 to be material to the consolidated financial statements.
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 ("SEC"), 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, downturns in customer
business cycles, competition, surplus inventories, inflation, the loss of a
major customer, fuel price increases, higher interest rates, the resale value of
the Company's used equipment and the availability and compensation of qualified
drivers. The Company disclaims any intent or obligation to update these
forward-looking statements.
16
<PAGE> 17
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.
17
<PAGE> 18
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following persons serve as directors and executive officers of the
Company as of the date hereof. There are no family relationships between any
director or executive officer.
BRUCE A. CAMPBELL Director
Greeneville, Tennessee Executive Vice President and
Chief Operating Officer
Age 46
Mr. Campbell has been Executive Vice President and Chief Operating Officer of
the Company since April 1990 and a director of the Company since April 1993.
Prior to joining the Company in 1990, Mr. Campbell served as Vice President of
Ryder-Temperature Controlled Carriage in Nashville, Tennessee from September
1985 until December 1989.
EDWARD W. COOK Director
Greeneville, Tennessee Chief Financial Officer,
Senior Vice President and Treasurer
Age 39
Mr. Cook joined the Company as Chief Financial Officer, Senior Vice President
and director in September 1994. Since May 1995, he has also served as Treasurer.
Prior to joining 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 March 1986 through February 1988, Mr. Cook served as
Controller and Assistant Secretary of Ryder-Temperature Controlled Carriage in
Nashville, Tennessee.
JAMES A. CRONIN, III Director
Aurora, Colorado Age 43
Mr. Cronin has served as director of the Company since 1993. Since June 1996,
Mr. Cronin has served as Chief Operating Officer, Executive Vice President,
Finance and director of Ascent Entertainment Group, Inc., and director of On
Command Corp., both multimedia entertainment companies. From June 1992 until
June 1996, he was a private investor. Mr. Cronin was a partner in Alfred Checchi
Associates, a private investment firm in Los Angeles, California from September
1989 to June 1992. Mr. Cronin served as President and Chief Executive Officer of
Tiger International, Inc. and The Flying Tiger Line from September 1987 to
August 1989.
18
<PAGE> 19
THE HON. ROBERT K. GRAY Director
Miami, Florida Age 72
Mr. Gray has served as director of the Company since 1993. Mr. Gray is Chairman
and Chief Executive Officer of Gray and Company II, a public relations company,
a position he has held since November 1992. From 1981 to the present, Mr. Gray
has also been Chairman of Gray Investment Companies and Powerhouse Leasing Corp.
From 1991 to 1992, Mr. Gray was Chairman of Hill & Knowlton Public Affairs
Worldwide/USA and was its Chief Executive Officer from 1986 to 1991. Mr. Gray
has served as Appointment Secretary to the President and was a member of the
Eisenhower Cabinet.
SCOTT M. NISWONGER Director
Greeneville, Tennessee Chairman, President and
Chief Executive Officer
Age 50
Mr. Niswonger is a co-founder of the Company and has served as director and
President of the Company since its founding in 1981, and as Chairman of the
Board and Chief Executive Officer since February 1988. Mr. Niswonger also serves
as a director of the Regional Advisory Board of First Tennessee Bank National
Association.
DAVID E. QUEEN Senior Vice President,
Columbus, Ohio Forward Air Operations
Age 51
Mr. Queen became Senior Vice President, Forward Air Operations in October 1997
after serving as Vice President of Operations and General Manager of the Forward
Air operations from November 1987. From 1984 to 1987, Mr. Queen was Manager of
the Company's hub in Columbus, Ohio for the Flying Tigers operation.
MICHAEL A. ROBERTS Senior Vice President,
Greeneville, Tennessee Forward Air Sales and Marketing
Age 53
Mr. Roberts has been Senior Vice President, Forward Air Sales and Marketing of
the Company since April 1990 and was Vice President of Marketing from November
1987. Mr. Roberts served as a consultant to the Company from 1982 to 1987.
19
<PAGE> 20
RICHARD H. ROBERTS Director
Greeneville, Tennessee Senior Vice President,
General Counsel and Secretary
Age 43
Mr. Roberts has served as Senior Vice President and General Counsel of the
Company since July 1994, and as Secretary and director of the Company since May
1995. Prior to joining 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 also served as a director of Miller
Industries, Inc. since April 1994.
JAMES R. WEILAND Senior Vice President,
Charlotte, North Carolina Forward Air Sales
Age 53
Mr. Weiland became Senior Vice President, Forward Air Sales in October 1997
after serving as Vice President of Forward Air Sales from November 1990. From
May 1984 to October 1990, Mr. Weiland served the Company in various capacities,
including Regional Operations Manager and Director of Sales and Marketing.
SECTION 16(a) BENEFICIAL OWNERSHIP COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") and the disclosure requirements of Item 405 of Regulation S-K require the
directors and executive officers of the Company, and any persons who
beneficially own more than ten percent of any registered class of equity
securities of the Company, to report their ownership of such equity securities
and any subsequent changes in that ownership to the SEC, The Nasdaq Stock Market
and the Company. Based solely on a review of the written statements and copies
of such reports furnished to the Company by its executive officers and
directors, the Company believes that during fiscal 1997 all Section 16(a) filing
requirements applicable to its executive officers, directors and shareholders
were timely satisfied, except that Bruce A. Campbell inadvertently filed a late
Form 4 in connection with the sale of 2,600 shares in July 1997.
20
<PAGE> 21
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the cash and non-cash compensation paid
or to be paid by the Company to the Chief Executive Officer and the four other
highest paid executive officers of the Company (the "Named Executive Officers")
for the years shown in all capacities in which they served.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
=========================================================================================================
Long-Term
Compensation
Annual Compensation Awards
----------------------------------- ------------
Other Number of
Annual Securities All Other
Fiscal Compen- Underlying Compen-
Name and Principal Position Year Salary Bonus sation Options sation(1)
- --------------------------- ----- -------- -------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Scott M. Niswonger 1997 $269,377 $169,250 $ -- -- $10,600
Chairman, President and 1996 268,781 -- -- -- 16,061
Chief Executive Officer 1995 262,080 -- -- -- 16,768
Bruce A. Campbell 1997 147,100 117,075 -- 15,000 10,561
Executive Vice President and 1996 146,521 -- -- 20,000 7,356
Chief Operating Officer 1995 142,315 -- -- -- 5,302
Edward W. Cook 1997 104,300 84,975 -- 10,000 10,133
Chief Financial Officer, 1996 103,753 -- -- 10,000 8,919
Senior Vice President and 1995 100,750 -- -- -- 6,359
Treasurer
Michael A. Roberts 1997 108,200 26,018 -- 5,000 10,172
Senior Vice President, 1996 107,831 -- -- 10,000 10,004
Forward Air Sales 1995 105,000 -- -- -- 6,496
and Marketing
Richard H. Roberts 1997 90,000 89,250 -- 10,000 9,952
Senior Vice President, 1996 89,173 -- -- 10,000 10,327
General Counsel and 1995 79,892 -- -- -- 10,301
Secretary
=========================================================================================================
</TABLE>
(1) Includes car allowance and employer matching portion of 401(k)
contributions.
21
<PAGE> 22
FISCAL 1997 OPTION GRANTS, AGGREGATED OPTION EXERCISES AND OPTION VALUES
Options granted during the last year to the Named Executive Officers
are set forth in the following table.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST YEAR
=====================================================================================================
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for Option
Individual Grants Term
- ------------------------------------------------------------------------------------------------------
Percent of
Number of Total Options
Securities Granted to
Underlying Employees Exercise or
Options in Last Base Price Expiration
Name (1) Granted Year ($/Share) Date 5% 10%
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Bruce A. Campbell 15,000 13.54% $10.00 01/31/07 $ 94,334 $239,061
Edward W. Cook 10,000 9.03 10.00 01/31/07 62,889 159,374
Michael A. Roberts 5,000 4.51 10.00 01/31/07 31,445 79,687
Richard H. Roberts 10,000 9.03 10.00 01/31/07 62,889 159,374
======================================================================================================
</TABLE>
(1) Mr. Niswonger has not been granted any options for the purchase of common
stock.
The following table sets forth the year-end aggregated option exercises
by the Named Executive Officers and the fiscal year-end value of unexercised
options held by the Named Executive Officers.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST YEAR
AND YEAR-END OPTION VALUES
======================================================================================================
Option Exercises Number of
in Last Year Securities Underlying Value of Unexercised
--------------------- Unexercised Options In-the-Money Options
Shares at Year-End at Year-End (2)
Acquired Value -------------------------- --------------------------
Name (1) on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ----------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bruce A. Campbell 5,000 $67,500 48,400 36,300 $732,725 $483,150
Edward W. Cook -- -- 25,000 25,000 165,313 263,438
Michael A. Roberts -- -- 23,385 17,540 354,049 242,333
Richard H. Roberts -- -- 25,000 25,000 154,063 259,688
======================================================================================================
</TABLE>
(1) Mr. Niswonger has not been granted any options for the purchase of common
stock.
(2) Represents the closing price for the common stock on December 31, 1997 of
$24.25 less the exercise price for all outstanding exercisable and
unexercisable options for which the exercise price is less than the
December 31, 1997 closing price. Exercisable options have been held at
least one year from the date of grant.
22
<PAGE> 23
COMPENSATION OF DIRECTORS
Employee directors of the Company do not receive additional
compensation for Board or committee service. In lieu of an annual retainer,
non-employee directors are paid a fee of $1,500 for each Board meeting and
$1,500 for each committee meeting attended, together with reasonable traveling
expenses. No additional fee is paid for committee meetings held on the same day
as Board meetings.
Each of the non-employee directors of the Company was granted upon the
effectiveness of the Company's initial public offering options to purchase
15,000 shares of the common stock pursuant to a non-qualified option agreement
at an exercise price equal to the then applicable fair market value ($14.00 per
share). In May 1995, at the Chairman's request, the Board of Directors approved,
subject to appropriate shareholder approval obtained at the May 1996 Annual
Meeting, adoption of a Non-Employee Director Stock Option Plan which provided
that the existing non-employee directors receive an option for the purchase of
7,500 shares at an exercise price equal to the closing sales price of the common
stock on May 16, 1995 ($13.625 per share). Thereafter, the Plan provides that on
the first business day following each annual meeting of shareholders (beginning
with the May 1996 Annual Meeting) each non-employee director be granted an
option for the purchase of 7,500 shares of common stock at an exercise price
equal to the closing sales price of the common stock on the date of grant.
Accordingly, on May 22, 1996 and May 21, 1997, each non-employee director
received an option to purchase 7,500 shares at an exercise price of $15.00 and
$14.00 per share, respectively. Each individual who subsequently becomes a
non-employee director shall automatically be granted an option to purchase 7,500
shares of common stock on the first business day after becoming a director.
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
The Company's Employment Agreement with Edward W. Cook expired December
31, 1997. Pursuant to the Employment Agreement, Mr. Cook's base salary was
$100,000 per annum, subject to increases approved by the Company's Board of
Directors, and Mr. Cook agreed not to engage in certain activities in
competition with the Company for a period of one year following termination of
his employment.
Upon the occurrence of a Change in Control or Potential Change in
Control (as such terms are described below) under the Company's Stock Option and
Incentive Plan, all outstanding options and any stock appreciation rights that
have been outstanding for at least six months will become fully exercisable and
vested, and the restrictions applicable to the benefits available under any
other award under the Stock Option and Incentive Plan will lapse, unless
otherwise determined by the Compensation Committee (the "Committee") of the
Board of Directors. Unless otherwise determined by the Committee at or after
grant but prior to the occurrence of any Change in Control, the value of all
vested options and other awards granted under the Stock Option and Incentive
Plan will be cashed out at the Change in Control Price upon the occurrence of a
Change in Control or Potential Change in Control. Options and other awards
granted to executive
23
<PAGE> 24
officers, directors and other persons who are subject to Section 16 of the
Exchange Act will only be cashed out if they have been held for at least six
months and, unless otherwise determined by the Committee, the Change in Control
or Potential Change in Control was outside the control of the holder of the
option or other award.
Under the Stock Option and Incentive Plan, a "Change in Control" is
defined to include (i) any change in control that would be required to be
reported in response to any form or report to the SEC, or any stock exchange on
which the Company's shares are listed, (ii) the acquisition by any person (other
than the Company, a subsidiary of the Company or any employee benefit plan of
the Company or any of its subsidiaries) of beneficial ownership of securities of
the Company representing twenty percent or more of the combined voting power of
the Company or (iii) a change in the Board of Directors of the Company if, as a
result of such change, the persons who were the members of the Board of
Directors two years prior to such change cease to constitute at least a majority
of the members of the Board of Directors. Persons who were elected by or on the
recommendation or approval of at least three-quarters of the members of the
Board of Directors who were in office at the beginning of such period are deemed
to have been in office during such two year period for purposes of this
provision. A Change in Control is also deemed to occur if a majority of the
members of the Committee in office prior to the happening of any event
determines in its sole discretion that as a result of such event there has been
a change in control. A "Potential Change in Control" is deemed to occur upon (i)
the approval by shareholders of any agreement which, if consummated, would
result in a Change in Control, or (ii) the acquisition by any person (other than
the Company, a subsidiary of the Company or any employee benefit plan of the
Company or any of its subsidiaries) of beneficial ownership of securities of the
Company representing five percent or more of the combined voting power of the
Company's securities and the adoption by the Committee of a resolution to the
effect that a Potential Change in Control of the Company has occurred. The
"Change in Control Price" is defined as the highest price per share paid for the
common stock in any transaction reported on The Nasdaq Stock Market or any other
exchange or market that is the principal trading market for the common stock or
any other bona fide transaction related to such Change in Control or Potential
Change in Control at any time during the sixty day period prior to the Change in
Control or Potential Change in Control. In the case of incentive stock options
and stock appreciation rights related thereto, the Change in Control Price is
determined based solely on transactions reported for the date on which the
cash-out or the exercise of the stock appreciation right occurs.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1997, the Compensation Committee of the Company was
comprised of two non-employee directors, Messrs. Cronin and Gray, and Mr.
Niswonger. There were no Compensation Committee interlocks. See Item 13,
"Certain Relationships and Related Transactions".
24
<PAGE> 25
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of January 30, 1998, certain
information with respect to the common stock "beneficially owned" (i) by each of
the Named Executive Officers and (ii) by all directors and executive officers,
both individually and as a group. Except as otherwise indicated, the
shareholders listed in the table have sole voting and investment powers with
respect to the common stock owned by them.
<TABLE>
<CAPTION>
======================================================================================
Aggregate Number Percentage of
of Shares Common Shares
Name and Address of Beneficial Owner (1) Beneficially Owned (2) Outstanding (2)
- ---------------------------------------- ---------------------- ---------------
<S> <C> <C>
Bruce A. Campbell 68,450 (3) 1%
Edward W. Cook 33,428 (4) *
James A. Cronin, III 26,250 (5) *
Hon. Robert K. Gray 43,850 (5) *
Scott M. Niswonger 3,229,520 (6) 54%
David E. Queen 19,740 (7) *
Michael A. Roberts 53,895 (8) *
Richard H. Roberts 32,054 (9) *
James R. Weiland 53,275(10) *
All directors and executive officers
as a group (11 persons) 3,636,248(11) 60%
========================================================================================
</TABLE>
* Less than one percent
(1) The business address of each listed executive officer and director is
c/o Landair Services, Inc., 430 Airport Road, Greeneville, Tennessee
37745.
(2) For the purpose of determining "beneficial ownership", the rules of the
SEC require that every person who has or shares the power to vote or
dispose of shares of stock be reported as a "beneficial owner" of all
shares as to which such power exists. As a consequence, many persons may
be deemed to be the "beneficial owners" of the same securities. The SEC
rules also require that certain shares of stock that a beneficial owner
has the right to acquire within sixty days of the date set forth above
pursuant to the exercise of stock options are deemed to be outstanding
for the purpose of calculating the percentage ownership of such owner,
but are not deemed outstanding for the purpose of calculating the
percentage ownership of any other person.
(3) Includes 63,450 shares which are issuable pursuant to options which are
exercisable within sixty days of the date set forth above.
(4) Includes 1,000 shares held by Mr. Cook's spouse and 30,000 shares which
are issuable pursuant to options which are exercisable within sixty days
of the date set forth above.
25
<PAGE> 26
(5) Includes 26,250 shares which are issuable pursuant to options which are
exercisable within sixty days of the date set forth above.
(6) Includes 300 shares held by Mr. Niswonger as custodian for his grandson
and 300 shares which are held by Mr. Niswonger's spouse as custodian for
one of her children.
(7) Includes 19,365 shares which are issuable pursuant to options which are
exercisable within sixty days of the date set forth above.
(8) Includes 1,185 shares held by Mr. Roberts' spouse and 32,175 shares
which are issuable pursuant to options which are exercisable within
sixty days of the date set forth above.
(9) Includes 30,000 shares which are issuable pursuant to options which are
exercisable within sixty days of the date set forth above.
(10) Includes 53,275 shares which are issuable pursuant to options which are
exercisable within sixty days of the date set forth above.
(11) Includes 354,215 shares which are issuable pursuant to options which are
exercisable within sixty days of the date set forth above.
Based on information provided to the Company, in addition to Mr.
Niswonger, the Company believes the following table sets forth the beneficial
owners of five percent or more of the outstanding common stock at December 31,
1997.
<TABLE>
<CAPTION>
=======================================================================================
Percentage of
Amount and Nature Common Stock
of Outstanding at
Name and Address of Beneficial Owner Beneficial Ownership December 31, 1997
- ------------------------------------ -------------------- -----------------
<S> <C> <C>
Princeton Services, Inc. (1) 527,500 8.8%
Wellington Management Company, LLP (2) 435,600 7.3%
=======================================================================================
</TABLE>
(1) According to the Schedule 13G dated January 29, 1998 jointly filed with
the SEC by Princeton Services, Inc. ("PSI"), Fund Asset Management,
L.P. (d/b/a Fund Asset Management) ("FAM") and Merrill Lynch Special
Value Fund, Inc. ("the Fund"), each located at 800 Scudders Mill Road,
Plainsboro, New Jersey 08536, neither entity had sole voting power
over the shares, each had shared voting power over the shares, neither
had sole dispositive power over the shares and each had shared
dispositive power over the shares. PSI disclaimed beneficial ownership
of the shares. PSI is a corporate managing general partner of FAM and
Merrill Lynch Asset Management, L.P. ("MLAM"). MLAM and FAM, both
investment advisers registered under Section 203 of the Investment
Advisers Act of 1940, may be deemed to be beneficial owners of certain
of the shares by virtue of acting
26
<PAGE> 27
as investment advisers to one or more investment companies registered
under Section 8 of the Investment Company Act of 1940 and to private
accounts. The Fund, as a registered investment company advised by FAM,
was beneficial owner of more than five percent of the shares.
(2) According to the Schedule 13G dated January 14, 1998 filed with the SEC
by Wellington Management Company, LLP ("WMC"), 75 State Street, Boston,
Massachusetts 02109, WMC, in its capacity as investment adviser under
Section 203 of the Investment Advisers Act of 1940, beneficially owned
shares which were held of record by clients of WMC. As to such shares,
WMC had, through its wholly owned subsidiary and bank as defined in
Section 3(a)(6) of the Exchange Act, Wellington Trust Company, NA, no
sole power to vote or direct any shares, shared power to vote or direct
261,000 shares, no power to dispose of or to direct disposition of any
shares and shared power to dispose of or direct disposition of 435,600
shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company incurred $280,000 in rent expense in 1997 for an aircraft
leased from Sky Night, L.L.C., which is owned by Mr. Niswonger. The Company and
its subsidiaries had no further transactions in which any director or executive
officer, or any member of the immediate family of any director or executive
officer, had a material direct interest reportable under applicable rules of the
SEC.
27
<PAGE> 28
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.
There were no reports filed on Form 8-K during the
fourth quarter of the year ended December 31, 1997.
(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.
28
<PAGE> 29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Landair Services, Inc. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
LANDAIR SERVICES, INC.
By: /s/ Scott M. Niswonger
---------------------------------------
Scott M. Niswonger, Chairman, President
and Chief Executive Officer
Date: February 26, 1998
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, President and February 26, 1998
- ------------------------------- Chief Executive Officer
Scott M. Niswonger (Principal Executive Officer)
/s/ Edward W. Cook Chief Financial Officer, February 26, 1998
- ------------------------------- Senior Vice President, Treasurer
Edward W. Cook and Director (Principal Financial
and Accounting Officer)
/s/ Bruce A. Campbell Executive Vice President, February 26, 1998
- ------------------------------- Chief Operating Officer
Bruce A. Campbell and Director
/s/ Richard H. Roberts Senior Vice President, General February 26, 1998
- ------------------------------- Counsel, Secretary and Director
Richard H. Roberts
/s/ James A. Cronin, III Director February 26, 1998
- -------------------------------
James A. Cronin, III
/s/ Robert K. Gray Director February 26, 1998
- -------------------------------
Hon. Robert K. Gray
</TABLE>
29
<PAGE> 30
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, 1997
Landair Services, Inc.
Greeneville, Tennessee
<PAGE> 31
Landair Services, Inc.
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 Services, Inc. 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, 1997 and 1996.....................F-4
Consolidated Statements of Income - Years Ended December 31, 1997,
1996 and 1995.............................................................F-6
Consolidated Statements of Shareholders' Equity - Years Ended
December 31, 1997, 1996 and 1995..........................................F-7
Consolidated Statements of Cash Flows - Years Ended December 31, 1997,
1996 and 1995.............................................................F-8
Notes to Consolidated Financial Statements - December 31, 1997...............F-9
The following financial statement schedule of Landair Services, Inc. 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> 32
Report of Independent Auditors
The Board of Directors and Shareholders
Landair Services, Inc.
We have audited the accompanying consolidated balance sheets of Landair
Services, Inc. as of December 31, 1997 and 1996, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 1997. 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 Services,
Inc. at December 31, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, 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
January 30, 1998
F-3
<PAGE> 33
Landair Services, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
1997 1996
---------------------
(In thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 686 $ 28
Accounts receivable, less allowance of $928 in
1997 and $415 in 1996 28,771 23,671
Inventories 721 552
Prepaid expenses 3,915 2,868
Deferred income taxes 1,736 1,085
---------------------
Total current assets 35,829 28,204
Property and equipment:
Land 3,477 3,199
Buildings 7,167 6,298
Revenue equipment 88,600 75,578
Other equipment 15,073 11,480
Leasehold improvements 813 890
---------------------
115,130 97,445
Accumulated depreciation and amortization 35,933 27,166
---------------------
79,197 70,279
Other assets 3,305 591
---------------------
Total assets $118,331 $99,074
=====================
</TABLE>
F-4
<PAGE> 34
<TABLE>
<CAPTION>
December 31
1997 1996
---------------------
(In thousands)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,126 $ 3,924
Accrued payroll and related items 3,394 1,677
Insurance and claims accruals 6,871 4,435
Income taxes payable 194 168
Other accrued expenses 3,271 2,712
Current portion of long-term debt 11,120 7,701
Current portion of capital lease obligations 3,924 1,797
---------------------
Total current liabilities 33,900 22,414
Long-term debt, less current portion 16,347 18,346
Capital lease obligations, less current portion 6,058 8,748
Deferred income taxes 11,566 8,302
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 - 20,000,000
Issued and outstanding shares - 6,024,388
in 1997 and 5,952,880 in 1996 60 60
Additional paid-in capital 26,804 26,202
Retained earnings 23,596 15,002
---------------------
Total shareholders' equity 50,460 41,264
---------------------
Total liabilities and shareholders' equity $118,331 $99,074
=====================
</TABLE>
See accompanying notes.
F-5
<PAGE> 35
Landair Services, Inc.
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year ended December 31
1997 1996 1995
------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C>
Operating revenue $190,402 $157,098 $148,083
Operating expenses:
Purchased transportation 61,118 51,393 53,488
Salaries, wages and employee benefits 53,951 43,355 37,774
Fuel and fuel taxes 11,690 10,837 8,941
Depreciation and amortization 11,210 10,523 8,687
Insurance and claims 9,483 8,381 7,040
Operating leases 6,541 5,950 5,859
Other operating expenses 19,606 17,318 15,793
---------------------------------
173,599 147,757 137,582
---------------------------------
Income from operations 16,803 9,341 10,501
Other income (expense):
Interest expense (2,622) (2,964) (3,020)
Other, net (96) 61 309
---------------------------------
(2,718) (2,903) (2,711)
---------------------------------
Income before income taxes 14,085 6,438 7,790
Income taxes 5,491 2,459 3,273
---------------------------------
Net income $ 8,594 $ 3,979 $ 4,517
=================================
Net income per share:
Basic $ 1.44 $ 0.67 $ 0.77
Diluted $ 1.39 $ 0.66 $ 0.75
Weighted average shares outstanding:
Basic 5,968 5,928 5,850
Diluted 6,177 6,049 6,027
</TABLE>
See accompanying notes.
F-6
<PAGE> 36
Landair Services, Inc.
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock Additional Total
-------------------------- Paid-in Retained Shareholders'
Shares Amount Capital Earnings Equity
------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 5,811 $ 58 $ 25,214 $ 6,506 $ 31,778
Net income for 1995 -- -- -- 4,517 4,517
Exercise of stock options 53 1 348 -- 349
------------------------------------------------------------------------------
Balance at December 31, 1995 5,864 59 25,562 11,023 36,644
Net income for 1996 -- -- -- 3,979 3,979
Exercise of stock options 83 1 580 -- 581
Common stock issued under
employee stock purchase plan 6 -- 60 -- 60
------------------------------------------------------------------------------
Balance at December 31, 1996 5,953 60 26,202 15,002 41,264
Net income for 1997 -- -- -- 8,594 8,594
Exercise of stock options 61 -- 490 -- 490
Common stock issued under
employee stock purchase plan 10 -- 112 -- 112
------------------------------------------------------------------------------
Balance at December 31, 1997 6,024 $ 60 $ 26,804 $ 23,596 $ 50,460
==============================================================================
</TABLE>
See accompanying notes.
F-7
<PAGE> 37
Landair Services, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
1997 1996 1995
-----------------------------------
(In thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 8,594 $ 3,979 $ 4,517
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 11,210 10,523 8,687
(Gain) loss on sale of property and
equipment 385 (413) (503)
Provision for losses on receivables 603 540 445
Deferred income taxes 2,613 1,747 2,800
Changes in operating assets and liabilities,
net of effects from acquisition of business:
Accounts receivable (5,703) (6,423) (86)
Inventories (169) (192) (29)
Prepaid expenses (909) (151) (1,483)
Income taxes 26 875 (425)
Accounts payable and accrued
expenses 5,914 2,037 1,843
-----------------------------------
Net cash provided by operating activities 22,564 12,522 15,766
INVESTING ACTIVITIES
Purchases of property and equipment (19,074) (8,763) (24,670)
Acquisition of business (1,209) -- --
Proceeds from disposal of property and equipment 1,259 2,913 3,062
Other (11) (192) 75
-----------------------------------
Net cash used in investing activities (19,035) (6,042) (21,533)
FINANCING ACTIVITIES
Proceeds from long-term debt 6,782 2,734 16,940
Payments of long-term debt (8,129) (11,875) (7,546)
Payments of capital lease obligations (2,126) (1,786) (1,109)
Proceeds from exercise of stock options 490 581 349
Proceeds from common stock issued under
employee stock purchase plan 112 60 --
-----------------------------------
Net cash provided by (used in) financing
activities (2,871) (10,286) 8,634
-----------------------------------
Net increase (decrease) in cash and cash
equivalents 658 (3,806) 2,867
Cash and cash equivalents at beginning of year 28 3,834 967
-----------------------------------
Cash and cash equivalents at end of year $ 686 $ 28 $ 3,834
===================================
</TABLE>
See accompanying notes.
F-8
<PAGE> 38
Landair Services, Inc.
Notes to Consolidated Financial Statements
December 31, 1997
1. ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly owned. Significant intercompany
accounts and transactions have been eliminated in consolidation.
BUSINESS SEGMENTS
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 131, Disclosures about Segments of an Enterprise and
Related Information. Statement 131 superseded Statement No. 14, Financial
Reporting for Segments of a Business Enterprise. Statement 131 establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports. Statement 131 also establishes standards for related
disclosures about products and services, geographic areas and major customers.
The adoption of Statement 131 did not affect results of operations or financial
position, but did affect the disclosure of segment information. Segment
information for all periods has been presented to conform to Statement 131
requirements. See Note 7.
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, President and Chief Executive Officer) was the
majority owner of the Company's common stock during all periods presented.
OPERATING REVENUE
Operating revenue and related costs are recognized as of the date shipments are
completed.
F-9
<PAGE> 39
Landair Services, Inc.
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
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.
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 1997, 1996 and 1995 were $2,631,000, $3,011,000 and
$2,981,000, respectively. No interest was capitalized during the three years
ended December 31, 1997. During 1997, 1996 and 1995, the Company added to
revenue and other equipment $1,563,000, $2,417,000 and $2,682,000 of capital
leases, respectively.
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.
F-10
<PAGE> 40
Landair Services, Inc.
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
NET INCOME PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings Per Share. Statement 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share, and uses the treasury stock method in calculating dilution. All earnings
per share amounts for all periods have been presented and restated to conform to
Statement 128 requirements.
STOCK OPTIONS
The Company grants options for a fixed number of shares to employees and outside
directors with an exercise price equal to the fair value of the shares at the
grant date. The Company accounts for 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.
ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement No. 130,
Reporting Comprehensive Income. The Statement is effective for the Company
beginning in 1998, and establishes standards for the reporting and display of
comprehensive income and its components. The Statement requires that all items
that are income be reported in a financial statement that is displayed with the
same prominence as other financial statements. The Company does not expect the
effect of adoption of Statement 130 to be material to the consolidated financial
statements.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial statements
to conform to the 1997 presentation. These reclassifications had no effect on
net income.
F-11
<PAGE> 41
Landair Services, Inc.
Notes to Consolidated Financial Statements (continued)
2. ACQUISITION OF BUSINESS
On October 27, 1997, the Company acquired the air cargo operating assets of
Adams Air Cargo, Inc., a surface transportation contractor to the air cargo
industry based in Arbuckle, California. The Company paid approximately
$1,209,000 in cash, issued a note payable of $1,800,000, and assumed debt and
capital lease obligations of $967,000 and $1,563,000, respectively. The
acquisition was accounted for as a purchase. Accordingly, the purchase price was
allocated on the basis of the estimated fair value of the net assets acquired,
resulting in goodwill of approximately $2,764,000. The goodwill is being
amortized on a straight-line basis over a life of 20 years. Accumulated
amortization of the goodwill totaled $23,000 at December 31, 1997. The results
of operations for the acquired business were included in the consolidated
statement of income from the acquisition date forward. Pro forma results of
operations for 1997 and 1996 would not differ materially from the Company's
historical results.
3. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31
1997 1996
--------------------
(In thousands)
<S> <C> <C>
Line of credit $ 2,163 $ 1,508
Installment Equipment Loan Agreements 13,457 11,387
Installment notes payable with a finance company
through 1999, including interest at the 30-day
commercial paper rate plus 1.8% (7.6% and 7.8% at
December 31, 1997 and 1996, respectively) and interest
ranging from 6.7% to 7.3%, collateralized by revenue
equipment 7,823 12,025
Other notes payable, including interest ranging from
6.9% to 7.9% 4,024 1,127
--------------------
27,467 26,047
Less current portion 11,120 7,701
--------------------
$16,347 $18,346
====================
</TABLE>
F-12
<PAGE> 42
Landair Services, Inc.
Notes to Consolidated Financial Statements (continued)
3. LONG-TERM DEBT (CONTINUED)
The Company has a $15 million line of credit agreement with a Tennessee bank
which expires in May 1999. Advances outstanding under the line bear interest at
the bank's base rate less 1.0% (7.5% and 7.3% at December 31, 1997 and 1996,
respectively) and 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, 1997, the Company had
$2,163,000 outstanding under the line and had utilized $8,104,000 of
availability for outstanding letters of credit.
The Company has equipment loan agreements (the "Equipment Loan Agreements") with
two Tennessee banks which permit the Company to borrow up to $30 million for the
purchase of revenue equipment. Advances outstanding under the Equipment Loan
Agreements bear interest at the 30-day LIBOR rate plus 1.0% to 1.6% (6.7% to
7.3% and 6.4% to 7.0% at December 31, 1997 and 1996, respectively). The advances
are collateralized by revenue equipment purchased with the proceeds from the
Equipment Loan Agreements, and contain restrictions and covenants similar to the
line of credit agreement described above. At December 31, 1997, the Company had
additional borrowing capacity available of $15,893,000 under the Equipment Loan
Agreements.
Revenue equipment collateralizing these agreements has a carrying value of
approximately $27,678,000 and $27,221,000 at December 31, 1997 and 1996,
respectively.
Maturities of long-term debt are as follows (in thousands):
1998 $11,120
1999 9,439
2000 3,282
2001 1,474
2002 755
Thereafter 1,397
-------
$27,467
=======
4. SHAREHOLDERS' EQUITY AND STOCK OPTIONS
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-13
<PAGE> 43
Landair Services, Inc.
Notes to Consolidated Financial Statements (continued)
4. SHAREHOLDERS' EQUITY AND STOCK OPTIONS (CONTINUED)
Employee Stock Option and Incentive Plan -- The Company has elected to follow
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations in accounting for its employee stock
options because, as discussed below, the alternative fair value accounting
provided for under Statement No. 123, Accounting for Stock-Based Compensation,
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under Opinion No. 25, because 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.
At December 31, 1997, 1996 and 1995, the Company had reserved 1,000,000 shares
of common stock under a Stock Option and Incentive Plan. Options issued under
the Plan have eight to ten year terms and vest over a four to five year period.
Pro forma information regarding net income and earnings per share is required by
Statement 123, which also requires that the information be determined as if the
Company has accounted for its employee and non-employee director stock options
granted subsequent to December 31, 1994 under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1997, 1996 and 1995, respectively: risk-free interest rates of
5.8%, 6.4% and 5.5%; dividend ratio of zero; volatility factors of the expected
market price of the Company's common stock of .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 employee and non-employee director 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 employee
and non-employee director stock options.
F-14
<PAGE> 44
Landair Services, Inc.
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 employee
and non-employee director options is amortized to expense over the options'
vesting period. The Company's pro forma information follows (in thousands,
except per share data):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Pro forma net income $7,980 $3,506 $4,464
Pro forma net income per share:
Basic $ 1.34 $ 0.59 $ 0.76
Diluted $ 1.29 $ 0.58 $ 0.74
</TABLE>
Because Statement 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect is not fully reflected above.
A summary of the Company's employee stock option activity and related
information for the years ended December 31 follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
OPTIONS WEIGHTED-AVERAGE Options Weighted-Average Options Weighted-Average
(000) EXERCISE PRICE (000) Exercise Price (000) Exercise Price
------- ---------------- ------- ---------------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding - beginning
of year 575 $ 12 421 $ 9 507 $ 9
Granted 111 11 285 14 -- --
Exercised (61) 8 (83) 7 (53) 7
Forfeited (21) 14 (48) 11 (33) 10
------ ---- ------ --- ----- ---
Outstanding - end of year 604 $ 12 575 $12 421 $ 9
====== ==== ====== === ===== ===
Exercisable at end of year 268 $ 11 199 $10 185 $ 9
====== ==== ====== === ===== ===
Options available for
grant 118 209 445
====== ====== =====
Weighted-average fair
value of options
granted during the
year $6.14 $6.00 $ --
====== ====== ======
</TABLE>
Exercise prices for options outstanding, as of December 31, 1997, 1996 and 1995
ranged from $5.00 to $25.625.
Non-Employee Director Options -- In May 1997, 1996 and 1995, options to purchase
15,000, 22,500 and 30,000 shares of common stock, respectively, were granted to
the non-employee directors of the Company at option prices of $14.00, $15.00 and
$13.625 per share, respectively.
F-15
<PAGE> 45
Landair Services, Inc.
Notes to Consolidated Financial Statements (continued)
4. SHAREHOLDERS' EQUITY AND STOCK OPTIONS (CONTINUED)
The options have terms of five to ten years and are exercisable in installments
which vest over two-year periods from the date of grant. At December 31, 1997,
75,000 options are outstanding and will expire on September 1, 1998 through May
1, 2007, 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, 1996 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. At December 31, 1997,
approximately 16,000 shares had been issued under the Plan.
Earnings Per Share -- The following table sets forth the computation of basic
and diluted earnings per share (in thousands, except per share data):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Numerator:
Numerator for basic and diluted
earnings per share - net income $8,594 $3,979 $4,517
==============================
Denominator:
Denominator for basic earnings per share-
weighted-average shares 5,968 5,928 5,850
Effect of dilutive stock options 209 121 177
------------------------------
Denominator for diluted earnings per share-
adjusted weighted-average shares 6,177 6,049 6,027
==============================
Basic net income per share $ 1.44 $ 0.67 $ 0.77
==============================
Diluted net income per share $ 1.39 $ 0.66 $ 0.75
==============================
Securities that could potentially dilute 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 19 451 249
==============================
</TABLE>
F-16
<PAGE> 46
Landair Services, Inc.
Notes to Consolidated Financial Statements (continued)
5. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------------
(In thousands)
<S> <C> <C> <C>
Current:
Federal $2,274 $ 536 $ 275
State 604 176 198
--------------------------------------
2,878 712 473
Deferred:
Federal 2,258 1,538 2,451
State 355 209 349
--------------------------------------
2,613 1,747 2,800
--------------------------------------
$5,491 $2,459 $3,273
======================================
</TABLE>
The historical income tax expense differs from the amounts computed by applying
the federal statutory rate of 34% to income before income taxes as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------
(In thousands)
<S> <C> <C> <C>
Tax expense at the statutory rate $4,788 $2,189 $2,649
State income taxes, net of federal benefit 633 177 230
Meals and entertainment 70 93 316
Other -- -- 78
------------------------------
$5,491 $2,459 $3,273
==============================
</TABLE>
F-17
<PAGE> 47
Landair Services, Inc.
Notes to Consolidated Financial Statements (continued)
5. INCOME TAXES (CONTINUED)
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
1997 1996
--------------------
(In thousands)
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation $12,233 $10,820
Prepaid expenses deductible when paid 1,420 1,048
Other 353 349
--------------------
Total deferred tax liabilities 14,006 12,217
Deferred tax assets:
Accrued expenses 2,816 1,981
Alternative minimum tax 1,020 1,708
Net operating loss carryforward -- 1,134
Allowance for doubtful accounts 340 152
Other -- 25
--------------------
Total deferred tax assets 4,176 5,000
--------------------
Net deferred tax liabilities $ 9,830 $ 7,217
====================
</TABLE>
Management believes that the deferred tax assets will ultimately be realized.
Management's conclusion is based on future taxable income that will result from
the reversal of the existing temporary differences. Additionally, management
expects future taxable income from operations, exclusive of the reversal of
temporary differences.
The balance sheet classification of deferred income taxes is as follows:
<TABLE>
<CAPTION>
December 31
1997 1996
--------------------
(In thousands)
<S> <C> <C>
Current assets $(1,736) $(1,085)
Noncurrent liabilities 11,566 8,302
--------------------
$ 9,830 $ 7,217
====================
</TABLE>
Total income tax payments, net of refunds, during fiscal 1997, 1996 and 1995
were $2,852,000, $(162,000) and $898,000, respectively.
F-18
<PAGE> 48
Landair Services, Inc.
Notes to Consolidated Financial Statements (continued)
6. LEASES
During October 1993, the Company entered into a capital lease agreement (with a
bargain purchase option) with the Director of Development of the State of Ohio
for the construction of a terminal facility located in Columbus, Ohio. To fund
the construction of the new facility, the State of Ohio sold revenue bonds in
the amount of $6,280,000. The amounts due under the lease have been included in
capital lease obligations. The Company is responsible for all taxes, assessments
and other costs of ownership under the lease agreement. The lease also requires,
among other things, restrictions on the payment of dividends and the maintenance
of certain levels of net worth and other financial ratios.
The Company leases certain revenue and other equipment under capital leases.
These leases expire in various years through 2001. Certain of the revenue
equipment leases contain guarantees of residual values which have been included
in minimum lease payments.
Property and equipment include the following amounts for leases that have been
capitalized:
<TABLE>
<CAPTION>
December 31
1997 1996
--------------------
(In thousands)
<S> <C> <C>
Land $ 2,605 $ 2,605
Building 3,675 3,675
Revenue equipment 6,659 5,465
Other equipment 2,417 2,417
--------------------
15,356 14,162
Less accumulated amortization 3,569 2,561
--------------------
$11,787 $11,601
====================
</TABLE>
Amortization of leased assets is included in depreciation and amortization
expense.
The Company also leases certain facilities and revenue equipment under
noncancelable operating leases that expire in various years through 2006.
Certain of these leases may be renewed for periods varying from one to ten
years.
Included in operating leases is a terminal facility leased from a company
wholly-owned by the Company's majority shareholder which expired in January 1997
and the lease was not renewed. Also included in operating leases is an aircraft
leased, under a dry lease agreement, from the Company's majority shareholder
which expires in July 1998 and may be renewed for an additional
F-19
<PAGE> 49
Landair Services, Inc.
Notes to Consolidated Financial Statements (continued)
6. LEASES (CONTINUED)
one year period. The total net amount of rent expense for these leases was
$280,000, $180,000 and $84,000 in 1997, 1996 and 1995, respectively.
Future minimum rental payments under capital leases and noncancelable operating
leases with initial terms of one year or more consisted of the following at
December 31, 1997:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
----------------------------
Fiscal Year (In thousands)
-----------
<S> <C> <C>
1998 $ 4,544 $ 6,206
1999 1,422 4,292
2000 1,311 2,338
2001 899 922
2002 731 252
Thereafter 3,846 179
------- -------
Total minimum lease payments 12,753 $14,189
=======
Amounts representing interest (2,771)
-------
Present value of net minimum lease payments
(including current portion of $3,924) $ 9,982
=======
</TABLE>
7. BUSINESS SEGMENTS
DESCRIPTION OF THE TYPES OF SERVICES FROM WHICH EACH REPORTABLE SEGMENT DERIVES
ITS REVENUE
The Truckload and Forward Air operating divisions constitute the operating
segments of the Company.
The Forward Air operations provide scheduled trucking services to air freight
forwarders, fully integrated air cargo carriers and domestic and international
airlines. The Forward Air operation services its air freight forwarders, air
cargo and airline customers primarily through a hub and spoke network of
terminals located at or near major airports in the United States and Canada and
linked through a central sorting facility in Columbus, Ohio.
The Truckload operations provide short- to medium-haul delivery to the
high-service segment of the general commodities truckload market. The Truckload
operation includes a common carrier
F-20
<PAGE> 50
Landair Services, Inc.
Notes to Consolidated Financial Statements (continued)
7. BUSINESS SEGMENTS (CONTINUED)
operation that serves customers on an "on demand" basis and a dedicated fleet
operation in which trucks and drivers are dedicated to shippers with specific,
high-service requirements.
MEASUREMENT OF SEGMENT INCOME FROM OPERATIONS AND SEGMENT ASSETS
The accounting policies of the reportable segments are the same as those
described in Note 1. The Company evaluates performance and allocates resources
based on operating income. The Company does not allocate interest expense to
reportable segments.
Intersegment revenue is accounted for at rates comparable to unaffiliated
customers.
FACTORS MANAGEMENT USED TO IDENTIFY THE COMPANY'S REPORTABLE SEGMENTS
The Company's reportable segments are strategic business units that offer
different services. The reportable segments are each managed separately because
they provide different services with different operating processes and marketing
strategies.
A summary of information about the Company's operations by segment for the years
ended December 31, 1997, 1996 and 1995 is as follows (in thousands):
<TABLE>
<CAPTION>
Truckload Forward Air Total
--------------------------------------------
<S> <C> <C> <C>
1997
- ----
Operating revenue from external customers $ 85,261 $105,141 $190,402
Intersegment revenue 6,790 -- 6,790
Depreciation and amortization 8,309 2,901 11,210
Segment income from operations 3,739 13,064 16,803
Segment assets 66,923 49,672 116,595
Expenditures for long-lived assets 13,558 5,466 19,024
1996
- ----
Operating revenue from external customers $ 76,361 $ 80,737 $157,098
Intersegment revenue 6,094 -- 6,094
Depreciation and amortization 8,438 2,085 10,523
Segment income from operations 825 8,516 9,341
Segment assets 60,508 37,481 97,989
Expenditures for long-lived assets 468 5,382 5,850
1995
- ----
Operating revenue from external customers $ 84,526 $ 63,557 $148,083
Intersegment revenue 3,897 -- 3,897
Depreciation and amortization 7,205 1,482 8,687
Segment income from operations 4,105 6,396 10,501
Segment assets 70,451 26,769 97,220
Expenditures for long-lived assets 21,655 (47) 21,608
</TABLE>
F-21
<PAGE> 51
Landair Services, Inc.
Notes to Consolidated Financial Statements (continued)
7. BUSINESS SEGMENTS (CONTINUED)
A reconciliation of reportable segment operating revenue, income from
operations, and assets to the Company's consolidated totals is as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------------
<S> <C> <C> <C>
Operating revenue
-----------------
Total operating revenue for reportable
segments $ 197,192 $ 163,192 $ 151,980
Elimination of intersegment revenue (6,790) (6,094) (3,897)
-----------------------------------------
Total consolidated operating revenue $ 190,402 $ 157,098 $ 148,083
=========================================
Income from operations
----------------------
Total income from operations for
reportable segments $ 16,803 $ 9,341 $ 10,501
Other profit or loss -- -- --
-----------------------------------------
Total consolidated income from
operations $ 16,803 $ 9,341 $ 10,501
=========================================
Assets
------
Total assets for reportable segments $ 116,595 $ 97,989 $ 97,220
Other assets 1,736 1,085 1,059
-----------------------------------------
Total consolidated assets $ 118,331 $ 99,074 $ 98,279
=========================================
OTHER SIGNIFICANT ITEMS
Segment Consolidated
Totals Adjustments Totals
--------------------------------------------
1997
----
Expenditures for long-lived assets $ -- $ -- $ 19,074
Depreciation and amortization 11,210 -- 11,210
1996
----
Expenditures for long-lived assets $ -- $ -- $ 8,763
Depreciation and amortization 10,523 -- 10,523
1995
----
Expenditures for long-lived assets $ -- $ -- $ 24,670
Depreciation and amortization 8,687 -- 8,687
</TABLE>
F-22
<PAGE> 52
Landair Services, Inc.
Notes to Consolidated Financial Statements (continued)
7. BUSINESS SEGMENTS (CONTINUED)
The reconciling item to adjust total assets is the amount of income tax
assets, which are not included in segment information.
MAJOR CUSTOMER
One customer of the Truckload segment, Federal Express Corporation, accounted
for more than 10% (approximately $27,050,000) of the Company's consolidated
operating revenue for the year ended December 31, 1997. No single customer
accounted for more than 10% of operating revenue in 1996 and 1995.
8. 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.
9. EMPLOYEE BENEFIT PLAN
Effective July 1, 1994, the Company adopted a retirement savings plan (the
"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 contributions are 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 Company's matching contribution for 1997, 1996 and 1995 was approximately
$145,000, $131,000 and $119,000, respectively.
F-23
<PAGE> 53
Landair Services, Inc.
Notes to Consolidated Financial Statements (continued)
10. FINANCIAL INSTRUMENTS
Off Balance Sheet Risk
At December 31, 1997, the Company had letters of credit outstanding totaling
$8,104,000, all of which guarantee 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. Concentrations of credit risk with respect to trade accounts
receivable are 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-24
<PAGE> 54
Landair Services, Inc.
Notes to Consolidated Financial Statements (continued)
10. FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amounts and fair values of the Company's financial instruments are
as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------- ---------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------------------- ---------------------------
(In thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 686 $ 686 $ 28 $ 28
Accounts receivable 28,771 28,771 23,671 23,671
Accounts payable 5,126 5,126 5,525 5,525
Long-term debt and capital lease
obligations 37,449 37,449 36,592 36,592
</TABLE>
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the years
ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997
------------------------------------------------------------------------
March 31 June 30 September 30 December 31
------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Operating revenue $ 41,005 $ 45,502 $ 50,456 $ 53,439
Income from operations 1,922 4,004 5,807 5,070
Net income 771 1,944 3,176 2,703
Net income per common share:
Basic $ 0.13 $ 0.33 $ 0.53 $ 0.45
Diluted $ 0.13 $ 0.32 $ 0.51 $ 0.43
1996
------------------------------------------------------------------------
March 31 June 30 September 30 December 31
------------------------------------------------------------------------
(In thousands, except per share data)
Operating revenue $ 36,979 $ 38,893 $ 39,295 $ 41,931
Income from operations 1,666 2,703 2,126 2,846
Net income 531 1,199 887 1,362
Net income per common share:
Basic $ 0.09 $ 0.20 $ 0.15 $ 0.23
Diluted $ 0.09 $ 0.20 $ 0.15 $ 0.23
</TABLE>
F-25
<PAGE> 55
Landair Services, Inc.
Notes to Consolidated Financial Statements (continued)
11. 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 and income taxes, but not allocated fixed costs,
resulted in an estimated additional $1.4 million of pre-tax income from
operations and $0.14 of diluted earnings per share during the quarter.
The 1996 and first three quarters of 1997 earnings per share amounts have been
restated to comply with Statement of Financial Accounting Standards No. 128,
Earnings Per Share.
F-26
<PAGE> 56
Landair Services, Inc.
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, 1997:
Allowance for doubtful accounts $ 240 $ 603 $ -- $ 278(1) $ 565
Allowance for revenue adjustments 175 1,714 -- 1,526(2) 363
---------------------------------------------------------------------
415 2,317 -- 1,804 928
Year ended December 31, 1996:
Allowance for doubtful accounts $ 150 $ 540 $ -- $ 450(1) $ 240
Allowance for revenue adjustments 142 1,207 -- 1,174(2) 175
---------------------------------------------------------------------
292 1,747 -- 1,624 415
Year ended December 31, 1995:
Allowance for doubtful accounts $ 144 $ 445 $ -- $ 439(1) $ 150
Allowance for revenue adjustments 250 945 -- 1,053(2) 142
---------------------------------------------------------------------
394 1,390 -- 1,492 292
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
(2) Adjustments to billed accounts receivable.
S-1
<PAGE> 57
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. in
Exhibit No. Under Document Where
Item 601 of Incorporated by
Regulation S-K Reference
- --------------- ---------------
<S> <C> <C> <C>
(a)3.1 - Restated Charter of the registrant 3.1
(a)3.2 - Bylaws of the registrant, as amended 3.2
(a)4 - Specimen of Stock Certificate 4.1
(e)10.1 - Registrant's Restated Employee Stock 10
Purchase Plan
(d)10.2 - Registrant's Amended and Restated 10.1
Stock Option and Incentive Plan
(a,h)10.3 - Form of registrant's Director Stock Option 10.3
Agreement
(a)10.4 - Lease Agreement, dated July 27, 1981, 10.18
between the Greeneville-Greene County
Airport Authority and General Aviation
of Tennessee, Inc., as assumed by the
registrant by agreement, dated May 10,
1988
(a)10.5 - Assignment, Assumption and Release 10.19
Agreement, dated May 10, 1988,
between Greeneville-Greene County
Airport, General Aviation, Inc., and
the registrant
(a)10.6 - Air Carrier Certificate, effective 10.21
September 9, 1993
(b)10.7 - Lease between the Director of 10.24
Development of the State of Ohio and
the registrant dated as of October 1,
1993
</TABLE>
<PAGE> 58
<TABLE>
<S> <C> <C> <C>
(c)10.8 - $5,062,250 Term Loan and Security 10.25
Agreement, dated as of July 13, 1994,
among Third National Bank in
Nashville, the registrant and Landair
Transport, Inc.
(c)10.9 - $5,062,250 Term Promissory Note, 10.26
dated July 13, 1994, among Third
National Bank in Nashville, the
registrant and Landair Transport, Inc.
(c)10.10 - $5,500,000 Line of Credit Loan 10.27
Agreement, dated as of October 17,
1994, among First Tennessee Bank
National Association, the registrant,
and each of its Tennessee subsidiaries
(c)10.11 - $11,152,000 Equipment Loan 10.30
Agreement, dated as of October 17,
1994, among First Tennessee Bank
National Association, the registrant,
Landair Transport, Inc. and Landair
International Airlines, Inc.
(c)10.12 - First Amendment to Loan and Security 10.33
Agreements, dated as of October
20, 1994, among First Tennessee Bank
National Association, the registrant,
Landair Transport, Inc. and Landair
International Airlines, Inc.
(c)10.13 - Second Amendment to Loan and 10.35
Security Agreements, dated as of
December 23, 1994, among First
Tennessee Bank National Association,
the registrant, Landair Transport, Inc.
and Landair International Airlines, Inc.
(d,h)10.14 - Registrant's Non-Employee Director 10.2
Stock Option Plan
</TABLE>
<PAGE> 59
<TABLE>
<S> <C> <C> <C>
(d)10.15 - Third Amendment to Loan and Security 10.3
Agreements, dated as of May 24, 1995,
among First Tennessee Bank National
Association, the registrant, Landair
Transport, Inc. and Landair
International Airlines, Inc.
(d)10.16 - First Amendment to Line of Credit 10.4
Loan Agreement and to Amended and
Restated Security Agreement, dated as of
May 31, 1995, among First
Tennessee Bank National Association,
the registrant, and each of its Tennessee
subsidiaries
(d)10.17 - $15,000,000 Restated, Amended and 10.5
Replacement Promissory Note (Line
of Credit), dated as of May 31, 1995,
between the registrant and First
Tennessee Bank National Association
(d)10.18 - $15,000,000 Restated, Amended and 10.6
Replacement Promissory Note,
(Equipment Loan) dated as
of May 31, 1995, between the
registrant and First Tennessee Bank
National Association
(d)10.19 - Fourth Amendment to Loan and 10.7
Security Agreements, dated as of May
31, 1995, among First Tennessee
Bank National Association, the
registrant, Landair Transport, Inc. and
Landair International Airlines, Inc.
(d)10.20 - Term Loan and Security Agreement, 10.8
dated as of June 16, 1995, between
Third National Bank in Nashville,
the registrant and Landair Transport, Inc.
</TABLE>
<PAGE> 60
<TABLE>
<S> <C> <C> <C>
(d)10.21 - $4,118,700 Promissory Note, dated 10.9
July 3, 1995, between the registrant,
Landair Transport, Inc. and Third
National Bank in Nashville
(d)10.22 - First Amendment to Term Loan and 10.10
Security Agreement, dated as of June
16, 1995, among Third National Bank
in Nashville, the registrant and Landair
Transport, Inc.
(f)10.23 Second Amendment to Line of Credit Loan 10.1
Agreement and to Amended and Restated Security
Agreement, dated as of January 28, 1997, among
First Tennessee Bank National Association, the
registrant, Landair Transport, Inc., Landair
International Airlines, Inc., Transportation
Properties, Inc. and Forward Air, Inc.
(f)10.24 $15,000,000 Restated, Amended and Replacement 10.2
Promissory Note (Line of Credit), dated as of
January 28, 1997, among the registrant, Landair
Transport, Inc., Landair International Airlines,
Inc., Transportation Properties, Inc., Forward
Air, Inc. and First Tennessee Bank National
Association
(g)21 - Subsidiaries of the registrant
(g)23 - Consent of Ernst & Young LLP
(g)27 - Financial Data Schedule (Electronic Filing Only)
</TABLE>
(a) Filed as an exhibit to the registrant's Registration Statement
of Form S-1, filed with the Commission on September 27, 1993.
(b) Filed as an exhibit to the registrant's Annual Report on Form
10-K for the fiscal year ended December 25, 1993, filed with the Commission on
March 25, 1994.
(c) Filed as an exhibit to the registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1994, filed with the Commission on
March 31, 1995.
(d) Filed as an exhibit to the registrant's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1995, filed with the
Commission on August 14, 1995.
<PAGE> 61
(e) Filed as an exhibit to the registrant's Quarterly Report on
Form 10-Q for the quarterly period ended September 30, 1995, filed with the
Commission on November 14, 1995.
(f) Filed as an exhibit to the registrant's Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 1997, filed with the
Commission on May 14, 1997.
(g) Filed herewith.
(h) Management contract or compensatory plan.
<PAGE> 1
Exhibit 21
LANDAIR SERVICES, INC. SUBSIDIARIES
Landair Transport, Inc.
Forward Air, Inc.
Landair International Airlines, Inc.
Transportation Properties, Inc.
Transportation Properties (Texas), Inc.
Forward Air Royalty Company
Forward Air Licensing Company
Volunteer Adjustment, Inc.
<PAGE> 1
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in: (1) the Registration Statement
on Form S-8 (No. 33-77944) pertaining to the Landair Services, Inc. Stock Option
and Incentive Plan and the Employee Stock Purchase Plan, (2) the Registration
Statement on Form S-8 (no. 333-03891) pertaining to the Landair Services, Inc.
Amended and Restated Stock Option and Incentive Plan, and (3) the Registration
Statement on Form S-8 (no. 333-03893) pertaining to the Landair Services, Inc.
Non-Employee Director Stock Option Award and Non-Employee Director Stock Option
Plan, of our report dated January 30, 1998, with respect to the consolidated
financial statements and schedule of Landair Services, Inc. included in its
Annual Report (Form 10-K) for the year ended December 31, 1997.
ERNST & YOUNG LLP
Nashville, Tennessee
February 25, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LANDAIR SERVICES, INC. FOR THE 12 MONTH PERIOD ENDED
DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 686
<SECURITIES> 0
<RECEIVABLES> 29,699
<ALLOWANCES> 928
<INVENTORY> 721
<CURRENT-ASSETS> 35,829
<PP&E> 115,130
<DEPRECIATION> 35,933
<TOTAL-ASSETS> 118,331
<CURRENT-LIABILITIES> 33,900
<BONDS> 0
0
0
<COMMON> 60
<OTHER-SE> 50,400
<TOTAL-LIABILITY-AND-EQUITY> 118,331
<SALES> 0
<TOTAL-REVENUES> 190,402
<CGS> 0
<TOTAL-COSTS> 173,599
<OTHER-EXPENSES> (2,718)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,622
<INCOME-PRETAX> 14,085
<INCOME-TAX> 5,491
<INCOME-CONTINUING> 8,594
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,594
<EPS-PRIMARY> 1.44
<EPS-DILUTED> 1.39
</TABLE>
