SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
Commission File No. 0-24946
KNIGHT TRANSPORTATION, INC.
(Exact name of registrant as specified in its charter)
Arizona 86-0649974
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5601 West Buckeye Road
Phoenix, Arizona
85043
(Address of Principal Executive Offices)
(Zip Code)
Registrant's telephone number, including area code: 602-269-2000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------------- ------------
The number of shares outstanding of registrant's Common Stock, par value $0.01
per share, as of May 10, 1996 was 9,102,000 shares.
<PAGE>
KNIGHT TRANSPORTATION, INC.
INDEX
PART I - FINANCIAL INFORMATION Page
Number
Item 1. Financial Statements
Consolidated Balance Sheets as of 1
March 31, 1996 (unaudited) and December 31, 1995
Consolidated Statements of Income (unaudited) 3
for the Three Month Periods Ended
March 31, 1996 and March 31, 1995
Consolidated Statements of Cash Flows (unaudited) 4
for the Three Month Periods Ended
March 31, 1996 and March 31, 1995
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
Part II - OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
Index to Exhibits 14
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARY
Consolidated Balance Sheets
as of March 31, 1996 and December 31, 1995
March 31, December 31,
1996 1995
(unaudited)
ASSETS ------------- ------------
CURRENT ASSETS:
Cash and cash equivalents $ 137,790 $ 623,656
Accounts receivable, net 8,989,931 7,375,038
Inventories and supplies 570,891 422,589
Prepaid expenses 1,843,382 937,304
Deferred tax asset 1,574,000 1,420,000
----------- -----------
Total current assets 13,115,994 10,778,587
----------- -----------
PROPERTY AND EQUIPMENT:
Land and improvements 2,104,394 2,104,394
Buildings and improvements 246,384 246,384
Furniture and fixtures 1,260,801 1,158,140
Shop and service equipment 474,210 367,900
Revenue equipment 46,414,015 38,557,223
Leasehold improvements 527,654 469,854
----------- -----------
51,027,458 42,903,895
Less: Accumulated depreciation (11,898,687) (10,926,067)
----------- -----------
PROPERTY AND EQUIPMENT, net 39,128,771 31,977,828
OTHER ASSETS 545,740 343,079
----------- -----------
$52,790,505 $43,099,494
=========== ===========
The accompanying notes are an integral part of these consolidated balance
sheets.
1
<PAGE>
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARY
Consolidated Balance Sheets (continued)
as of March 31, 1996 and December 31, 1995
March 31, December 31,
1996 1995
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY ---------- -----------
CURRENT LIABILITIES:
Accounts payable $ 6,214,602 $ 3,202,258
Accrued liabilities 2,679,574 1,773,293
Claims accrual 3,452,989 3,093,513
Current portion of long-term debt 888,064 1,002,150
Notes payable 5,687,824 2,000,000
------------ ------------
Total current liabilities 18,923,053 11,071,214
LONG TERM DEBT, less current portion 753,760 980,787
DEFERRED INCOME TAXES 6,793,600 6,315,200
------------ ------------
Total liabilities 26,470,413 18,367,201
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $0.01 par value;
authorized 50,000,000 shares,
none issued and outstanding - -
Common stock, $0.01 par value;
authorized 100,000,000 shares,
issued and outstanding
9,102,000 shares 91,020 91,020
Additional paid-in capital 9,761,747 9,761,747
Retained earnings 16,467,325 14,879,526
------------ ------------
Total shareholders' equity 26,320,092 24,732,293
------------ ------------
$52,790,505 $43,099,494
============ ============
The accompanying notes are an integral part of these consolidated balance
sheets.
2
<PAGE>
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARY
Consolidated Statements of Income
(unaudited)
Three Months Ended
March 31,
------------------------------
1996 1995
---- ----
OPERATING REVENUE $16,580,836 $11,907,641
---------- ----------
OPERATING EXPENSES:
Salaries, wages and benefits 4,729,893 3,725,292
Fuel 1,720,197 1,347,568
Operations and maintenance 832,574 872,944
Insurance and claims 617,961 564,921
Operating taxes and licenses 591,968 479,731
Communications 123,503 57,679
Depreciation and amortization 1,663,110 1,206,493
Purchased transportation 3,062,882 1,041,200
Miscellaneous operating expenses 403,500 249,720
----------- ----------
13,745,588 9,545,548
----------- ----------
Income from operations 2,835,248 2,362,093
OTHER INCOME (EXPENSE):
Interest income 1,935 16,879
Interest expense (99,384) (60,720)
----------- ----------
(97,449) (43,841)
----------- ----------
Income before income taxes 2,737,799 2,318,252
INCOME TAXES (1,150,000) (1,032,000)
----------- ----------
Net income $1,587,799 $1,286,252
=========== ==========
Net income per common share
and common share equivalent $.17 $.14
=========== ==========
Weighted average number of common
shares and common share
equivalents outstanding 9,151,222 9,354,083
=========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(unaudited)
Three Months Ended
March 31,
------------------
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,587,799 $1,286,252
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 1,662,601 1,206,493
Allowance for doubtful accounts 25,525 24,000
Deferred income taxes 324,400 430,800
Changes in assets and liabilities:
Increase in accounts receivable (1,640,418) (401,443)
Increase in inventories
and supplies (148,302) (33,556)
(Increase) decrease in prepaid expenses 195,122 (464,419)
(Increase) decrease in other assets (48,046) 19,341
Increase (decrease) in accounts
payable 225,815 (1,585,314)
Increase in accrued liabilities
and claims accruals 1,265,757 702,799
---------- ----------
Net cash provided by operating
activities 3,450,253 1,184,953
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (4,253,904) (1,102,055)
---------- ----------
Net cash used in investing
activities (4,253,904) (1,102,055)
---------- ----------
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows (continued)
(unaudited)
Three Months Ended
March 31,
------------------
1996 1995
---- ----
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable & borrowings under
revolving line of credit 2,459,509 -
Repayment of debt (213,998) (332,640)
Decrease in accounts payable-equipment (1,927,726) -
--------- ----------
Net cash provided by (used in) financing
activities 317,785 (332,640)
-------- ----------
NET (DECREASE) IN CASH AND CASH
EQUIVALENTS (485,866) (249,742)
CASH AND CASH EQUIVALENTS, beginning of period 623,656 2,146,797
-------- ----------
CASH AND CASH EQUIVALENTS, end of period $137,790 $1,897,055
======== ==========
SUPPLEMENTAL DISCLOSURES:
Noncash investing and financing transactions:
Insurance premium financed $ 1,101,200 $ -
Equipment acquired by accounts payable 4,714,255 1,885,190
Equipment trades receivable 229,900 -
Cash Flow Information:
Income taxes 4,400 -
Interest 90,774 61,401
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Financial Information
The accompanying consolidated financial statements include the parent company
Knight Transportation, Inc., and its wholly owned subsidiary, Quad-K Leasing,
Inc. (hereinafter collectively called the "Company"). All material intercompany
items and transactions have been eliminated in consolidation.
The consolidated financial statements included herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
The statements presented do not include all information and footnotes required
to be in conformity with generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Results of operations in interim periods are not necessarily
indicative of results for a full year. These consolidated financial statements
and notes thereto should be read in conjunction with the Company's consolidated
financial statements and notes thereto included in the Company's annual report
on Form 10-K for the year ended December 31, 1995.
Note 2. Income Tax Matters
Income taxes have been provided at the statutory federal and state rates
adjusted for certain permanent differences in income for tax purposes, primarily
resulting from the nondeductible portion of reimbursements to drivers for meals
and other expenses.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
- - ---------------------
Knight Transportation, Inc.'s (the "Company") operating revenue for the three
months ended March 31, 1996 increased by 39.2% to $16.6 million from $11.9
million over the same period in 1995. The increase in operating revenue resulted
from expansion of the Company's customer base and increased volume from existing
customers, and was facilitated by the continued expansion of the Company's
fleet, including an increase in the Company's owner-operator fleet. The
Company's fleet increased by 44.4% to 491 tractors (including 131 owner-operator
tractors) as of March 31, 1996, from 340 tractors (including 55 owner-operator
tractors) as of March 31, 1995. Despite increases in revenue, the Company's
revenue per mile declined to $1.24 per mile for the three months ended March 31,
1996 from $1.29 per mile for the same period in 1995 and equipment utilization
declined to an average of 29,815 miles per tractor for the three months ended
March 31, 1996 from an average of 30,534 miles per tractor for the same period
in 1995 due to competition driven primarily by additional capacity in the
marketplace. These decreases were offset by revenue increases resulting from the
growth of the Company's owner-operator program combined with additional revenues
generated by the Company's expansion of its operations with the opening of its
new terminal in Katy, Texas on February 1, 1996.
Salaries, wages and benefits decreased as a percentage of operating revenue to
28.5% for the three months ended March 31, 1996 from 31.3% for the same period
in 1995 as a result of the increase in the ratio of owner-operators to company
drivers.
Fuel expense decreased as a percentage of operating revenue to 10.4% for the
three months ended March 31, 1996 from 11.3% for the same period in 1995.
Although fuel costs increased slightly, the overall decrease resulted from the
growth of the Company's owner-operator program. Owner-operators are required to
pay their own fuel costs.
Operations and maintenance expense decreased as a percentage of operating
revenue to 5.0% for the three months ended March 31, 1996 from 7.3% for the
corresponding period in 1995. This change resulted from a substantial decline in
trailer lease costs incurred due to an increase in Company owned trailers during
the period and the continued growth in the Company's owner-operator program.
Insurance and claims expense decreased as a percentage of operating revenue to
3.7% for the three months ended March 31, 1996 from 4.7% for the same period in
1995. This decrease was due to a reduction in insurance premium costs and an
overall lower level of new claims reserves during the period. Although insurance
and claims expense decreased as a percentage of operating revenue, the Company's
claims accrual increased primarily due to the Company's self-insurance of its
Workers' Compensation in 1996 and the addition of revenue equipment.
7
<PAGE>
Operating taxes and licenses decreased as a percentage of revenue to 3.6% for
the three months ended March 31, 1996 from 4.0% for the same period in 1995.
This decrease resulted primarily from growth in the owner-operator program.
Owner-operators are required to pay their own mileage taxes.
For the three month period ended March 31, 1996, depreciation and amortization
expense decreased as a percentage of operating revenue to 10.0% from 10.1% for
the corresponding period in 1995. This decrease resulted from the continued
growth of the Company's owner-operator program. Although depreciation and
amortization expense decreased as a percentage of operating revenue,
depreciation expense increased due to the Company's expansion of its trailer
fleet during the period.
Purchased transportation increased as a percentage of operating revenue to 18.5%
for the three months ended March 31, 1996 from 8.7% for the same period in 1995.
This increase was due to the growth of the Company's owner-operator program from
55 owner-operators as of March 31, 1995 to 131 as of March 31, 1996.
Communications and miscellaneous operating expenses remained constant as a
percentage of revenues for the three months ended March 31, 1996 compared to the
same period in 1995.
The Company's operating ratio (operating expenses as a percentage of operating
revenue) for the three months ended March 31, 1996 increased to 82.9% from 80.2%
for the same period in 1995. Management believes the increase in the operating
ratio was due mainly to the competitive marketplace resulting in a lower revenue
per mile and lower tractor utilization.
For the three month period ended March 31, 1996, interest expense as a
percentage of revenue remained consistent with the same period in 1995.
Liquidity and Capital Resources
The growth of the Company's business has required a significant
investment in new revenue equipment. The Company's primary source of liquidity
has been funds provided by operations and term borrowings to finance equipment
purchases. Net cash provided by operating activities totaled approximately $3.5
million for the first three months of 1996 and $1.2 million for the
corresponding period in 1995.
Capital expenditures for the purchase of revenue equipment, office
equipment and leasehold improvements totaled $9.0 million for the first three
months of 1996 and $3.0 million for the same period in 1995.
Net cash provided by financing activities and direct financing was $1.4
million for the first three months of 1996 compared to net cash used in
financing activities of $0.3 million for the same period in 1995. Net cash
provided by financing activities during the first three months of 1996 was
primarily the result of increased borrowings under the Company's revolving line
of credit to fund expansion of the Company's tractor and trailer fleet in
addition to the Company's financing of its 1996 insurance premiums.
8
<PAGE>
The Company has a $15 million line of credit from its lender and uses
that line to finance the acquisition of revenue equipment and other corporate
purposes to the extent the cost of such acquisitions are not provided by funds
from operations. Under the Company's line of credit, the Company is obligated to
comply with certain financial covenants. The rate of interest on borrowings
against the line of credit will vary depending upon the interest rate election
made by the Company, based on either the London Interbank Offered Rate (LIBOR),
the prime rate, or the lender's certificate of deposit rate. At March 31, 1996,
the Company had borrowings under the revolving line of credit totaling $5.0
million.
Management of the Company believes it has adequate liquidity to meet
its current needs. The Company will continue to have significant capital
requirements over the long term, which may require the Company to incur debt or
seek additional equity capital. The availability of this capital will depend
upon prevailing market conditions, the market price of the common stock and
other factors over which the Company has no control, as well as the Company's
financial condition and results of operations.
Seasonality
To date, the Company's revenues have not shown any significant seasonal
pattern. Because the Company operates primarily in Arizona, California and the
southwestern United States, winter weather generally does not adversely affect
the Company's business. Expansion of the Company's operations in the Midwest and
on the East Coast could expose the Company to greater operating variances due to
seasonal weather.
Inflation
Many of the Company's operating expenses, including fuel costs and fuel
taxes, are sensitive to the effects of inflation, which could result in higher
operating costs. The effects of inflation on the Company's business during the
three months ended March 31, 1996 were not significant. Fuel prices, especially
in the Western United States, have increased during the first quarter of 1996
and such increases may continue for a time. Increases in the cost of fuel may
affect the Company's results of operations if the Company is unable to pass such
increased costs to its customers.
9
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is party to ordinary routine litigation incidental to its
business primarily involving claims for personal injury or property damage
incurred in the transportation of freight. The company maintains insurance to
cover liabilities in amounts in excess of self-insured retentions.
In 1994, the Company received notice from the Equal Employment
Opportunity Commission ("EEOC") of charges of race discrimination filed by
two drivers seeking employment as dispatchers. The EEOC found reasonable
cause to believe the Company had discriminated against the individuals and a
class of similarly situated individuals based on race. The EEOC also
determined that the Company had engaged in retaliatory conduct against a
charging party. The Company has been notified by the EEOC that conciliation
has failed with respect to the two charges, including the class charge, and
the EEOC has filed suit against the Company alleging unlawful employment
practices on the basis of race and unlawful retaliation. The EEOC is seeking
damages on behalf of the individuals involved and a class of persons the
Company is alleged to have failed to hire as dispatchers. The EEOC is also
seeking injunctive relief against alleged unlawful employment practices, the
institution of policies providing for equal employment, pecuniary relief for
the affected class, including back pay, pre-judgment interest and
compensation for past and future services, and punitive damages. It is the
Company's policy to comply with all applicable laws relating to equal
employment opportunity. The Company believes that the EEOC claims are without
merit and that it has defenses to all claims. The Company intends to
vigorously defend the claims.
Two of the Company's officers, Kevin P. Knight and Gary J. Knight, are
engaged in arbitration proceedings with their former employer, Swift
Transportation, Inc. ("Swift") with respect to claims by Swift for damages
and injunctive relief in connection with disputes related to their departure
in March 1990 from employment with Swift. The matter has been submitted to
the Superior Court of the State of Arizona for definition of issues and
referral for further arbitration proceedings. The Company is not a party to
any of these proceedings and does not believe these proceedings will affect
its business or financial condition.
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
10
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K
No. Description
Exhibit 4 Instruments defining the rights of
security holders, including
indentures:
a. Articles 4, 10 and 11 of the
Restated Articles of In-
corporation of the Company.
(Incorporated by reference
to Exhibit 3.1 to the
Company's Report on Form
10-K for the fiscal year
ended December 31, 1994.)
b. Sections 2 and 5 of the
Amended and Restated By-
laws of the Company.
(Incorporated by reference
to Exhibit 3.2 to the
Company's Report on Form
10-K for the fiscal year
ended December 31, 1995.)
Exhibit 11 Schedule of Computation of Net
Income Per Share
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the three month
period ended March 31, 1996.
11
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KNIGHT TRANSPORTATION, INC.
Date: May 10, 1996 By /s/ Kevin P. Knight
---------------------------
Kevin P. Knight
Chief Executive Officer
Date: May 10, 1996 By /s/ Clark Jenkins
---------------------------
Clark Jenkins
Chief Financial Officer and
Principal Financial Officer
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS TO
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
Commission File No. 0-24946
KNIGHT TRANSPORTATION, INC.
13
<PAGE>
KNIGHT TRANSPORTATION, INC.
INDEX TO EXHIBITS TO FORM 10-Q
Sequentially (1)
Exhibit No. Description Number Pages
- - ----------- ----------- ------------
Exhibit 4 Instruments defining the rights of
security holders, including indentures:
a. Articles 4, 10 and 11 of the Restated
Articles of In- corporation of the
Company. (Incorporated by reference to
Exhibit 3.1 to the Company's Report on
Form 10-K for the fiscal year ended
December 31, 1994.)
b. Sections 2 and 5 of the Amended and
Restated By-laws of the Company.
(Incorporated by reference to Exhibit
3.2 to the Company's Report on Form 10-K
for the fiscal year ended December 31,
1995.)
Exhibit 11 Schedule of Computation of Net Income
Per Share
Exhibit 27 (2) Financial Data Schedule
(1) The page numbers where exhibits (other than those incorporated by
reference) may be found are indicated only on the manually signed report.
(2) Not included with paper copy of filing.
14
KNIGHT TRANSPORTATION, INC.
AND SUBSIDIARY
SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE
(unaudited)
Primary and Fully diluted:
Common shares outstanding
beginning of period 9,102,000 9,100,000
Common share equivalents:
Employee stock options outstanding & cancelled (1) 49,222 254,083
Employee stock options exercised (1) - -
---------- ----------
Number of common share and common share
equivalents outstanding 9,151,222 9,354,083
========== ==========
Net Income $1,587,799 $1,286,252
---------- ----------
Net income per common share and common share
equivalent $.17 $.14
========== ==========
Notes:
(1) Amount calculated using the treasury stock method
EXHIBIT 11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 137,790
<SECURITIES> 0
<RECEIVABLES> 9,310,404
<ALLOWANCES> 320,473
<INVENTORY> 570,891
<CURRENT-ASSETS> 13,115,994
<PP&E> 51,027,458
<DEPRECIATION> 11,898,687
<TOTAL-ASSETS> 52,790,505
<CURRENT-LIABILITIES> 18,923,053
<BONDS> 0
0
0
<COMMON> 91,020
<OTHER-SE> 26,229,072
<TOTAL-LIABILITY-AND-EQUITY> 52,790,505
<SALES> 0
<TOTAL-REVENUES> 16,580,836
<CGS> 0
<TOTAL-COSTS> 13,745,588
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 97,449
<INCOME-PRETAX> 2,737,799
<INCOME-TAX> 1,150,000
<INCOME-CONTINUING> 1,587,799
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,587,799
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
