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, 1997
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 12, 1997 was 9,904,500 shares.
<PAGE>
KNIGHT TRANSPORTATION, INC.
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page Number
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of 1
March 31, 1997 (unaudited) and December 31, 1996
Consolidated Statements of Income (unaudited) for the
Three 3 Month Periods Ended March 31, 1997 and March
31, 1996
Consolidated Statements of Cash Flows (unaudited) for the 4
Three Month Periods Ended March 31, 1997 and
March 31, 1996
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 9
Item 2. Changes in Securities 9
Item 3 Defaults Upon Senior Securities 9
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 10
Signatures 11
Index to Exhibits 13
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
as of March 31, 1997 and December 31, 1996
<TABLE>
<CAPTION>
March 31, 1997
(unaudited) December 31, 1996
------------ -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 3,801,821 1,244,745
Accounts receivable, net 9,845,878 10,414,133
Inventories and supplies 365,195 328,825
Prepaid expenses 1,853,118 509,085
Deferred tax asset 1,366,300 1,319,400
------------ ------------
Total current assets 17,232,312 13,816,188
------------ ------------
PROPERTY AND EQUIPMENT:
Land and improvements 4,297,837 4,297,837
Buildings and improvements 970,963 970,963
Furniture and fixtures 1,874,714 1,837,844
Shop and service equipment 890,518 859,592
Revenue equipment 56,673,007 55,172,272
Leasehold improvements 601,061 575,015
------------ ------------
65,308,100 63,713,523
Less: Accumulated depreciation (14,583,304) (14,186,781)
------------ ------------
PROPERTY AND EQUIPMENT, net 50,724,796 49,526,742
OTHER ASSETS 808,959 775,526
------------ ------------
$ 68,766,067 $ 64,118,456
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
1
<PAGE>
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (continued)
as of March 31, 1997 and December 31, 1996
<TABLE>
<CAPTION>
March 31, 1997
LIABILITIES AND SHAREHOLDERS EQUITY (unaudited) December 31, 1996
------------ -----------------
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable $ 5,105,369 $ 3,954,286
Accrued liabilities 2,918,523 2,286,099
Claims accrual 2,955,360 3,040,672
Current portion of long-term debt 186,821 394,191
----------- -----------
Total current liabilities 11,166,073 9,675,248
LONG TERM DEBT, less current portion -- 53,491
DEFERRED INCOME TAXES 9,544,830 8,426,558
----------- -----------
Total liabilities 20,710,903 18,155,297
----------- -----------
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; 99,045 99,045
authorized 100,000,000 shares; 9,904,500
issued and outstanding shares at December
31, 1996 and March 31, 1997
Additional paid-in capital 23,474,531 23,474,531
Retained earnings 24,481,588 22,389,583
----------- -----------
Total shareholders' equity 48,055,164 45,963,159
----------- -----------
$68,766,067 $64,118,456
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
OPERATING REVENUE $ 21,322,548 $ 16,580,836
------------ ------------
OPERATING EXPENSES:
Salaries, wages and benefits 6,045,096 4,729,893
Fuel 2,175,571 1,720,197
Operations and maintenance 1,236,119 832,574
Insurance and claims 486,744 617,961
Operating taxes and licenses 897,645 641,968
Communications 130,774 123,503
Depreciation and amortization 2,125,596 1,588,110
Purchased transportation 4,172,940 3,062,882
Miscellaneous operating expenses 522,585 428,500
------------ ------------
17,793,070 13,745,588
------------ ------------
Income from operations 3,529,478 2,835,248
------------ ------------
OTHER INCOME (EXPENSE):
Interest income 36,528 1,935
Interest expense (14,001) (99,384)
------------ ------------
22,527 (97,449)
------------ ------------
Income before taxes 3,552,005 2,737,799
INCOME TAXES (1,460,000) (1,150,000)
------------ ------------
Net Income $ 2,092,005 $ 1,587,799
============ ============
Net income per common share and common share equivalent:
Primary $ 0.21 $ 0.17
Fully Diluted $ 0.21 $ 0.17
Weighted average number of common shares and common share equivalents
outstanding:
Primary 10,074,767 9,151,222
Fully Diluted 10,077,258 9,153,567
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 2,092,005 $ 1,587,799
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,125,596 1,662,601
Allowance for doubtful accounts 36,780 25,525
Deferred income taxes 1,071,372 324,400
Changes in assets and liabilities:
(Increase) decrease in receivables 531,475 (1,640,418)
Increase in inventories and supplies (36,370) (148,302)
(Increase) decrease in prepaid expenses (1,344,033) 195,122
Increase in other assets (42,001) (48,046)
Increase in accounts payable 623,795 225,815
Increase in accrued liabilities and
claims accrual 547,112 1,265,757
----------- -----------
Net cash provided by operating
activities 5,605,731 3,450,253
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net of trade-ins 125,200 (4,253,904)
----------- -----------
Net cash provided by (used in) investing activities 125,200 (4,253,904)
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOW FROM FINANCING ACTIVITIES:
Borrowing on line of credit -- 3,000,000
Repayment of debt (260,861) (754,489)
Decrease in accounts payable - equipment (2,912,994) (1,927,726)
----------- -----------
Net cash provided by (used in)
financing activities (3,173,855) 317,785
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 2,557,076 (485,866)
CASH AND CASH EQUIVALENTS,
beginning of year 1,244,745 623,656
----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 3,801,821 $ 137,790
=========== ===========
SUPPLEMENTAL DISCLOSURES:
Noncash investing and financing transactions:
Insurance premium financed $ -- $ 1,101,200
Equipment acquired by accounts
payable 3,440,282 4,714,255
Equipment traded-receivable 229,900
Cash Flow Information:
Income taxes paid $ 275,500 $ 4,400
Interest paid 3,842 90,774
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
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 subsidiaries, Quad-K Leasing,
Inc.; KTTE Holdings, Inc., QKTE Holdings, Inc., and Knight Dedicated Services
Limited Partnership which is comprised of KTTE Holdings, Inc. as general partner
and QKTE Holdings, Inc. as sole limited partner (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, 1996. The preparation of financial
statements in accordance with generally accepted accounting principles requires
management to make estimates and assumptions. Such estimates and assumptions
affect the reported amounts of assets and liabilities as well as disclosure of
contingent assets and liabilities at the date of the accompanying consolidated
financial statements, and the reported amounts of the revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
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, 1997 increased by 28.6% to approximately $21.3 million
from approximately $16.6 million over the same period in 1996. 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
independent contractor fleet. The Company's fleet increased by 28.1% to 629
tractors (including 181 owned by independent contractors) as of March 31, 1997,
from 491 tractors (including 131 owned by independent contractors) as of March
31, 1996. Despite increases in revenue, the Company's revenue per mile decreased
to $1.23 per mile for the three months ended March 31, 1997 from $1.24 per mile
for the same period in 1996 as a result of increased competition driven
primarily by additional capacity in the market place. The decrease in the
Company's revenue per mile was offset by revenue increases resulting from the
growth of the Company's independent contractor program combined with additional
revenues generated by the Company's expansion of its operations with the
commencement of dedicated service and regional operations near Houston, Texas
and in Indianapolis, Indiana.
Salaries, wages and benefits decreased as a percentage of operating revenue to
28.4% for the three months ended March 31, 1996 from 28.5% for the same period
in 1996. These decreases were primarily the result of the increase in the ratio
of independent contractors to company drivers. The Company records accruals for
workers' compensation as a component of its claims accrual, and the related
expense is reflected in salaries, wages and benefits expense in its consolidated
statements of income.
Fuel expense decreased as a percentage of operating revenue to 10.2% for the
three months ended March 31, 1997 from 10.4% for the same period in 1996.
Although fuel costs increased slightly, the Company was able to recoup a portion
of the incremental increase with the implementation of a fuel surcharge.
Additionally, an increase in the Company's independent contractor fleet
contributed to the decrease in the Company's cost of fuel as a percentage of
revenue. Independent contractors are required to pay their own fuel costs.
Operations and maintenance expense increased as a percentage of operating
revenue to 5.8% for the three months ended March 31, 1997 from 5.0% for the
corresponding period in 1996. This increase resulted from slightly higher
maintenance costs related to the age of the Company's fleet.
Insurance and claims expense decreased as a percentage of operating revenue to
2.3% for the three months ended March 31, 1997 from 3.7% for the same period in
1996. This decrease was due to a reduction in insurance premium costs and a
reduced amount of claims incurred during the period.
Operating taxes and licenses increased as a percentage of revenue to 4.2% for
the three months ended March 31, 1997 from 3.9% for the same period in 1996.
This increase was due to higher trailer licensing costs in California.
Depreciation and amortization expense increased as a percentage of revenue to
10.0% for the three month period ended March 31, 1997, from 9.6% for the same
period in 1996 due to the Company's addition of a significant number of trailers
with the expansion of operations near Houston and in Indiana.
Purchased transportation increased as a percentage of operating revenue to 19.6%
for the three months ended March 31, 1997 from 18.5% for the same period in
1996. This increase was due to the growth in the
7
<PAGE>
Company's independent contractor program from 131 tractors as of March 31, 1996
to 181 as of March 31, 1997.
Communications and miscellaneous operating expenses, as a percentage of revenue,
were slightly lower for the three months ended March 31, 1997 as compared to the
same period in 1996.
The Company's operating ratio (operating expenses as a percentage of operating
revenue) for the three months ended March 31, 1997 increased to 83.4% from 82.9%
for the same period in 1996. Management believes the increase in the operating
ratio was mainly due to competitive market conditions that resulted in lower
utilization and a corresponding decrease in revenue per mile.
For the three month period ended March 31, 1997, net interest expense decreased
as a percentage of revenue compared to the same period in 1996, primarily as a
result of the application of the proceeds from the Company's secondary stock
offering to reduce debt and to purchase revenue equipment.
Income taxes have been provided at the statutory federal and state rates,
adjusted for certain permanent differences in income for tax purposes.
As a result of the preceding, the Company's net income as a percentage of
operating revenue was 9.8% for the three months ended March 31, 1997 as compared
to 9.6% for the same period in 1996.
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, term borrowings to finance equipment purchases, the
Company's line of credit, and proceeds received from the Company's sale of
Common Stock in an offering completed on July 18, 1996. Net cash provided by
operating activities totaled approximately $5.6 million for the first three
months of 1997 and approximately $3.5 million for the corresponding period in
1996.
Capital expenditures for the purchase of revenue equipment, net of trade-ins,
office equipment and leasehold improvements totaled approximately $3.3 million
for the first three months of 1997 and approximately $9.0 million for the same
period in 1996.
Net cash used in financing activities and direct financing was approximately
$3.2 million for the first three months of 1997 compared to net cash provided by
financing activities of approximately $1.4 million for the same period in 1996.
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. At March 31, 1997, the Company had no
outstanding borrowings under the revolving line of credit.
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.
8
<PAGE>
Seasonality
To date, the Company's revenues have not shown any significant seasonal pattern.
Because the Company has operated primarily in Arizona, California and the
western United States, winter weather has not adversely affected the Company's
business. Expansion of the Company's operations into Texas and Louisiana, as
well as 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, 1997 were not significant.
Recently Issued Accounting Pronouncements
The Financial Accounting Standards Board has issued Statement of Accounting
Financial Standard No. 128, (SFAS No. 128) Earnings Per Share, which established
a new accounting principle for accounting for earnings per share. The standard
is effective for fiscal year ended December 31, 1997. When adopted, SFAS No. 128
will require restatement of prior years' earnings per share. The effect of SFAS
No. 128 is not significant for all periods presented.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a party to ordinary, routine litigation and administrative
proceedings incidental to its business. These proceedings primarily involve
personnel matters, including EEO claims and claims for personal injury or
property damage incurred in the transportation of freight. The Company maintains
insurance to cover liabilities arising from the transportation of freight in
amounts in excess of self-insured retentions. It is the Company's policy to
comply with applicable equal employment opportunity laws and the Company
periodically reviews its policies and practices for equal employment opportunity
compliance.
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
9
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(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 Incorporation 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, 1997.
10
<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 12, 1997 By: /s/ Kevin P. Knight
-------------------------------------
Kevin P. Knight
Chief Executive Officer
Date: May 12, 1997 By: /s/ Clark Jenkins
-------------------------------------
Clark Jenkins
Chief Financial Officer and
Principal Financial Officer
11
<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, 1997
Commission File No. 0-24946
12
<PAGE>
KNIGHT TRANSPORTATION, INC.
INDEX TO EXHIBITS TO FORM 10-Q
<TABLE>
<CAPTION>
Sequentially
Exhibit No. Description Numbered Pages(1)
- ----------- ----------- -----------------
<S> <C>
Exhibit 4 Instruments defining the rights of security holders,
including indentures
(a) Articles 4, 10 and 11 of the Restated Articles of
Incorporation 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
</TABLE>
(1) The page numbers where exhibits (other than those incorporated by
reference) may be found are indicated only on the manually signed
report.
13
KNIGHT TRANSPORTATION, INC.
AND SUBSIDIARIES
SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE
(unaudited)
Three Months Ended
March 31,
1997 1996
----------- -----------
Primary and Fully diluted:
Common shares outstanding
beginning of period 9,904,500 9,102,000
Common share equivalents:
Employee stock options outstanding &
canceled (1)
Primary 170,267 49,222
Fully diluted 172,758 51,567
Employee stock options exercised (1)
Primary -- --
Fully diluted -- --
Number of common share and common share
equivalents outstanding
Primary 10,074,767 9,151,222
Fully diluted 10,077,258 9,153,567
=========== ===========
$ 2,092,005 $ 1,587,799
Net Income
Net income per common share and common
share equivalent
Primary $ .21 $ .17
=========== ===========
Fully diluted $ .21 $ .17
=========== ===========
Notes:
(1) Amount calculated using the treasury stock method.
EXHIBIT 11
14
<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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 3,801,821
<SECURITIES> 0
<RECEIVABLES> 10,200,736
<ALLOWANCES> 354,858
<INVENTORY> 365,195
<CURRENT-ASSETS> 17,232,312
<PP&E> 65,308,100
<DEPRECIATION> 14,583,304
<TOTAL-ASSETS> 68,766,067
<CURRENT-LIABILITIES> 11,166,073
<BONDS> 0
0
0
<COMMON> 99,045
<OTHER-SE> 47,956,119
<TOTAL-LIABILITY-AND-EQUITY> 68,766,067
<SALES> 0
<TOTAL-REVENUES> 21,322,548
<CGS> 0
<TOTAL-COSTS> 17,793,070
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,527
<INCOME-PRETAX> 3,552,005
<INCOME-TAX> 1,460,000
<INCOME-CONTINUING> 2,092,005
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,092,005
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
