SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
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 November 11, 1998 was 14,953,739 shares.
<PAGE>
KNIGHT TRANSPORTATION, INC.
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NUMBER
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September 30, 1998 1
and December 31, 1997
Consolidated Statements of Income for the Three Months 3
and Nine Months Ended September 30, 1998 and September 30,
1997
Consolidated Statements of Cash Flows for the Nine Months 4
Ended September30, 1998 and September 30, 1997
Notes to Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 8
AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 13
ITEM 2. CHANGES IN SECURITIES 13
ITEM 3 DEFAULTS UPON SENIOR SECURITIES 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 13
ITEM 5. OTHER INFORMATION 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15
INDEX TO EXHIBITS 17
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1998
(unaudited) December 31, 1997
------------------ ------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 114,783 $ 512,339
Accounts receivable, net 16,034,296 11,934,364
Notes Receivable 323,124 --
Inventories and supplies 1,551,293 402,076
Prepaid expenses 2,379,991 694,434
Deferred tax asset 2,646,100 1,907,800
------------------ ------------------
Total current assets 23,049,587 15,451,013
------------------ ------------------
PROPERTY AND EQUIPMENT:
Land and improvements 5,299,837 4,322,837
Buildings and improvements 4,525,396 1,855,092
Furniture and fixtures 2,970,576 2,146,637
Shop and service equipment 1,113,847 1,018,636
Revenue equipment 93,944,211 75,695,123
Leasehold improvements 459,564 432,467
------------------ ------------------
108,313,431 85,470,792
Less: Accumulated depreciation (24,313,324) (20,025,293)
------------------ ------------------
PROPERTY AND EQUIPMENT, net 84,000,107 65,445,499
------------------ ------------------
NOTES RECEIVABLE - Long-term 1,680,457 --
OTHER ASSETS 1,469,976 1,793,284
------------------ ------------------
$ 110,200,127 $ 82,689,796
================== ==================
The accompanying notes are an integral part of these consolidated financial
statements.
1
<PAGE>
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
September 30, 1998
(unaudited) December 31, 1997
------------------ ------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 10,230,759 $ 4,847,070
Accrued liabilities 5,272,102 3,082,413
Claims accrual 4,057,375 3,463,322
Line of credit 7,644,844 2,000,000
Current portion of long-term debt -- 14,171
------------------ ------------------
Total current liabilities 27,205,080 13,406,976
DEFERRED INCOME TAXES 16,146,685 12,485,085
------------------ ------------------
Total liabilities 43,351,765 25,892,061
------------------ ------------------
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 14,949,867 and 14,924,423
shares, respectively 149,499 149,244
Additional paid-in capital 24,256,887 24,007,385
Retained earnings 42,441,976 32,641,106
------------------ ------------------
Total shareholders' equity 66,848,362 56,797,735
------------------ ------------------
$ 110,200,127 $ 82,689,796
================== ==================
</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 Nine Months Ended
September 30 September 30
------------ ------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING REVENUE $ 32,861,739 $ 25,682,179 $ 91,489,378 $ 71,245,395
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Salaries, wages and benefits 9,346,431 7,138,729 26,197,664 19,803,606
Fuel 3,331,291 2,586,702 9,052,947 7,268,926
Operations and maintenance 2,090,818 1,551,171 5,519,352 3,987,488
Insurance and claims 745,378 573,281 2,454,207 1,771,962
Operating taxes and licenses 1,386,575 1,041,106 3,741,833 2,919,419
Communications 249,584 152,522 697,760 409,117
Depreciation and amortization 3,244,731 2,430,082 9,051,981 6,822,965
Purchased transportation 5,591,984 5,015,100 15,842,763 14,040,383
Miscellaneous operating expenses 802,992 552,916 2,099,709 1,654,876
------------ ------------ ------------ ------------
26,789,784 21,041,609 74,658,216 58,678,742
------------ ------------ ------------ ------------
Income from operations 6,071,955 4,640,570 16,831,162 12,566,653
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income 34,772 2,937 55,910 48,116
Interest expense (113,369) (17,781) (196,202) (39,288)
------------ ------------ ------------ ------------
(78,597) (14,844) (140,292) 8,828
------------ ------------ ------------ ------------
Income before taxes 5,993,358 4,625,726 16,690,870 12,575,481
INCOME TAXES (2,475,000) (1,910,000) (6,890,000) (5,190,000)
------------ ------------ ------------ ------------
Net income $ 3,518,358 $ 2,715,726 $ 9,800,870 $ 7,385,481
============ ============ ============ ============
Net income per common share and common
share equivalent:
Basic $ 0.24 $ 0.18 $ 0.66 $ 0.50
============ ============ ============ ============
Diluted $ 0.23 $ 0.18 $ 0.64 $ 0.49
============ ============ ============ ============
Weighted average number of common shares
and common share equivalents outstanding:
Basic 14,946,820 14,879,844 14,938,433 14,864,826
============ ============ ============ ============
Diluted 15,206,761 15,161,588 15,236,805 15,133,670
============ ============ ============ ============
</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>
Nine Months Ended
September 30
------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 9,800,870 $ 7,385,481
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,051,981 6,901,367
Allowance for doubtful accounts 46,068 95,245
Deferred income taxes 2,248,815 2,554,362
Changes in assets and liabilities:
Increase in receivables (6,149,581) (1,084,234)
Increase in inventories and supplies (1,149,217) (232,234)
Increase in prepaid expenses (1,685,557) (794,160)
Decrease (increase) in other assets 297,466 (549,378)
Increase in accounts payable 1,672,609 970,567
Increase in accrued liabilities and
claims accrual 3,458,227 1,150,748
------------ ------------
Net cash provided by operating
activities 17,591,681 16,397,764
------------ ------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (21,134,552) (15,938,094)
------------ ------------
Net cash used in investing activities $(21,134,552) $ (8,859,345)
------------ ------------
</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 (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOW FROM FINANCING ACTIVITIES:
Borrowing on line of credit, net 5,644,844 1,500,000
Repayments of debt (14,171) (387,057)
Decrease in accounts payable - equipment (2,735,115) (2,929,800)
Proceeds from exercise of stock options 249,757 206,924
----------- -----------
Net cash provided by (used in)
Financing activities 3,145,315 (1,609,933)
----------- -----------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (397,556) (1,150,263)
CASH AND CASH EQUIVALENTS,
Beginning of period 512,339 1,244,745
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 114,783 $ 94,482
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Noncash investing and financing transactions:
Equipment acquired by
accounts payable $ 6,446,198 $ 2,148,018
Cash paid during the period for:
Income taxes $ 3,439,916 $ 2,984,367
Interest 196,255 40,926
</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 (UNAUDITED)
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.; Knight Management Services,
Inc.; and Knight Dedicated Services Limited Partnership (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 in
accordance with generally accepted accounting principles ("GAAP"), pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures have been omitted or condensed pursuant to
such rules and regulations. 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, 1997. 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.
Note 2. Recapitalization and Stock Split
On April 22, 1998, the Company's Board of Directors approved a three for two
stock split, effected in the form of a 50 percent stock dividend. The stock
dividend was paid on May 18, 1998, to stockholders of record as of the close of
business on May 1, 1998.
This stock split has been given retroactive recognition for all periods
presented in the accompanying consolidated financial statements. All share
amounts, share prices and earnings per share have been retroactively adjusted to
reflect the stock split.
Note 3. Net Income Per Share
In February, 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share,
which supersedes Accounting Principles Board (APB) Opinion No. 15, the existing
authoritative guidance. SFAS 128 modifies the calculation of primary and fully
diluted earnings per share (EPS) and replaces them with basic and diluted EPS.
SFAS 128 is effective for financial statements for both interim and annual
periods presented after December 15, 1997, and as a result, all prior period EPS
data presented has been restated.
6
<PAGE>
A reconciliation of the basic and diluted EPS computations for the three months
and nine months ended September 30, 1998 and 1997 is as follows:
KNIGHT TRANSPORTATION, INC.
AND SUBSIDIARIES
SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------ ------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average common
shares outstanding - basic 14,946,820 14,879,844 14,938,433 14,864,826
Effect of stock options (1) 259,941 281,744 298,372 268,844
----------- ----------- ----------- -----------
Weighted average common
share and common share
equivalents outstanding -
diluted 15,206,761 15,161,588 15,236,805 15,133,670
=========== =========== =========== ===========
Net income $ 3,518,358 $ 2,715,726 $ 9,800,870 $ 7,385,481
Net income per common share and
common share equivalent
Basic $ .24 $ .18 $ .66 $ .50
=========== =========== =========== ===========
Diluted $ .23 $ .18 $ .64 $ .49
=========== =========== =========== ===========
</TABLE>
(1) Amount calculated using the treasury stock method.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements. The
words "believe," "expect," "anticipate'" and similar expressions identify
forward-looking statements, which speak only as of the date the statement was
made. Such forward-looking statements are within the meaning of that term in
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Such statements may include, but
are not limited to, projections of revenues, income, or loss, capital
expenditures, plans for future operations, financing needs or plans, the impact
of inflation and plans relating to the foregoing. Statements in the Company's
Annual Report on Form 10-K, including Notes to the Consolidated Financial
Statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," describe factors, among others, that could contribute to
or cause such differences. Additional factors that could cause actual results to
differ materially from those expressed in such forward-looking statements are
set forth in "Business" and "Market for the Company's Common Equity and Related
Stockholder Matters" in the Company's Annual Report on Form 10-K.
RESULTS OF OPERATIONS
The Company's operating revenue for the nine months ended September 30, 1998,
increased by 28.4% to $91.5 million from $71.2 million over the same period in
1997. For the three months ended September 30, 1998, operating revenue increased
by 28.0% to $32.9 million from $25.7 million over the same period in 1997.
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 25.4%
to 918 tractors (including 216 owned by independent contractors) as of September
30, 1998, from 732 tractors (including 191 owned by independent contractors) as
of September 30, 1997. Along with increases in revenue, the Company's revenue
per mile increased to $1.24 per mile for the nine months ended September 30,
1998, from $1.21 per mile for the same period in 1997. The increase in revenue
per mile was primarily the result of tightened capacity in the marketplace.
Salaries, wages and benefits increased as a percentage of operating revenue to
28.7% for the nine months ended September 30, 1998, from 27.8% for the same
period in 1997. For the three months ended September 30, 1998, salaries, wages
and benefits increased as a percentage of operating revenue to 28.4% from 27.8%
for the same period in 1997. These increases were primarily the result of the
ratio of company drivers to independent contractors increasing to 76% as of
September 30, 1998 from 74% as of September 30, 1997. For Company drivers, the
Company records accruals for worker's compensation benefits 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 9.9% for the nine
months ended September 30, 1998, from 10.2% for the same period in 1997. This
decrease was primarily the result of lower fuel costs per gallon. For the three
months ended September 30, 1998 and 1997, fuel expenses as a percentage of
revenue remained consistent at 10.1%.
8
<PAGE>
Operations and maintenance expense increased as a percentage of operating
revenue to 6.0% for the nine months ended September 30, 1998, from 5.6% for the
corresponding period in 1997. For the three months ended September 30, 1998,
operations and maintenance expense as a percentage of operating revenue
increased to 6.4% from 6.0% for the same period in 1997. These increases
resulted from the relative increase in the ratio of company drivers to
independent contractors as well as slightly higher maintenance costs related to
the age of the Company's fleet.
The Company's insurance program for medical, liability, physical damage and
cargo damage involves self-insurance with varying risk retention levels. Claims
in excess of these risk retention levels are covered by insurance which
management considers adequate. The Company accrues the estimated cost of the
uninsured portion of pending claims. These accruals are estimated based on
management's evaluation of the nature and severity of individual claims and
estimate of future claims development based on historical claims development
trends. Insurance and claims expense increased as a percentage of operating
revenue to 2.7% for the nine months ended September 30, 1998, from 2.5% for the
same period in 1997. For the three months ended September 30, 1998, insurance
and claims expense increased as a percentage of operating revenue to 2.3% from
2.2% for the same period in 1997. These increases were due to a slight increase
in the amount of claims incurred during the period.
Operating taxes and licenses as a percentage of operating revenue remained
consistent at 4.1% for the nine months ended September 30, 1998 and 1997. For
the three months ended September 30, 1998, operating taxes and licenses as a
percentage of operating revenue increased to 4.2% from 4.0% for the same period
in 1997. The increase for the three months ended September 30, 1998 was due to
the decrease in the ratio of independent contractors to company drivers.
Independent contractors are required to pay their own mileage taxes.
Communications expense as a percentage of operating revenue for both the nine
months and three months ended September 30, 1998, was slightly higher than the
same periods in 1997 as a result of an increase in the overall business volume.
Depreciation and amortization expense as a percentage of operating revenue
increased to 9.9% for the nine month period ended September 30, 1998, from 9.6%
for the same period in 1997. For the three months ended September 30, 1998,
depreciation and amortization expense increased as a percentage of operating
revenue to 9.9% from 9.5% for the same period in 1997. These increases were due
primarily to the increase in the ratio of Company drivers to independent
contractors.
Purchased transportation decreased as a percentage of operating revenue to 17.3%
for the nine months ended September 30, 1998, from 19.7% for the same period in
1997. For the three months ended September 30, 1998, purchased transportation
decreased to 17.0% from 19.5% for the same period in 1997. These decreases were
partially due to a combination of the increase in the Company's revenue per mile
and the decrease in the ratio of independent contractors to company drivers to
24% as of September 30, 1998, from 26% as of September 30, 1997. Independent
contractors are compensated at a fixed rate per mile.
Miscellaneous operating expenses, as a percentage of operating revenue, were
slightly lower for the nine months ending September 30, 1998 compared to the
same period in 1997. These decreases were due to improved utilization of the
Company's fleet. For the three months ended September 30, 1998, miscellaneous
operating expenses increased as a percentage of operating revenue to 2.4% from
2.2% for the same period in 1997.
9
<PAGE>
The Company's operating ratio (operating expenses as a percentage of operating
revenues) for the nine months ended September 30, 1998, decreased to 81.6% from
82.4% for the same period in 1997. The Company's operating ratio for the three
months ended September 30, 1998, decreased to 81.5% from 81.9% for the same
period in 1997. Management believes the decrease in the operating ratio was
mainly due to tightened market capacity that resulted in an increase in revenue
per mile.
For both the nine months and three months ended September 30, 1998, net interest
expense increased as a percentage of revenue compared to the same periods in
1997. These increases were primarily a result of the purchase of revenue
equipment related to the growth of the Company's fleet.
Income taxes have been provided at the statutory federal and state rates,
adjusted for certain permanent differences between financial statement and
income tax reporting.
As a result of the preceding, the Company's net income as a percentage of
operating revenue was 10.7% for the nine months ended September 30, 1998,
compared to 10.4% for the same period in 1997 and 10.7% for the three months
ended September 30, 1998, compared to 10.6% for the same period in 1997.
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 the Company's line of credit. Net cash provided by
operating activities was approximately $17.6 million for the first nine months
of 1998, compared to $16.4 million for the corresponding period in 1997.
Capital expenditures for the purchase of revenue equipment, net of trade-ins,
office equipment and leasehold improvements totaled $27.6 million for the first
nine months of 1998 compared to $18.1 million for the same period in 1997.
Net cash provided by financing activities and direct financing was approximately
$3.1 million for the first nine months of 1998 compared to net cash used in
financing activities of $1.6 million for the same period in 1997. Net cash used
in financing activities during the first nine months of 1997 was the result of
the Company paying cash to fund the expansion of its equipment fleet.
The Company has a $10 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 elected by
the Company; the Company may elect the London Interbank Offered Rate (LIBOR),
the prime rate, or the lender's certificate of deposit rate. At September 30,
1998, the Company had elected the LIBOR and had $7.6 million of outstanding
borrowings under the revolving line of credit.
In October, 1998, the Company entered into a $10 million term loan with a bank
which will mature in 60 months. The interest is at a fixed percentage as defined
in the note agreement. The note is unsecured.
Management believes the Company 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.
10
<PAGE>
SEASONALITY
In the transportation industry, results of operation frequently show a seasonal
pattern. Seasonal variations may result from weather or from customer's reduced
shipments after the busy winter holiday season. 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 the midwest, on the east coast, and in the Texas and
Louisiana regions, 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
nine months ended September 30, 1998, were not significant.
YEAR 2000 ISSUE
The "Year 2000 Issue" arose because many existing computer programs use only the
last two digits to refer to a year. Therefore, these computer programs do not
properly recognize a year that begins with "20" instead of the familiar "19". If
not corrected, many computer applications could fail or create erroneous
results.
The Company is in the process of reviewing, testing, and implementing various
modifications to ensure that its computer equipment and software will function
properly in the Year 2000 and beyond. For this purpose, the term "computer
equipment and software" includes systems commonly referred to as information
technology systems ("IT systems"), such as data processing, dispatch,
accounting, telephone, and other miscellaneous systems as well as systems that
are not commonly referred to as IT systems, such as fax machines, heating and
air conditioning systems, and other miscellaneous systems. The Company has been
and will be in contact with significant vendors, service providers, and
customers, particularly those with whom electronic data information ("EDI")
transactions are exchanged, to determine and resolve any Year 2000 related
issues. The Company currently anticipates that all necessary Year 2000
modifications will be completed in the next six months, and that such efforts
will be completed prior to any anticipated impact on its computer equipment and
software.
All internal and external costs associated with the Company's Year 2000
compliance activities are expensed as incurred. The Company believes that the
costs of addressing the Year 2000 issue will not have a material impact on its
financial position.
Since all major computerized systems and applications will have been reviewed
and tested as part of the Year 2000 project, the Company feels that it has
reasonably addressed all material risks that may effect its operations. The
Company presently believes that the Year 2000 issue will not pose significant
operational problems for the Company. However, if all Year 2000 issues are not
properly identified and corrected, there can be no assurance that the Year 2000
issue will not materially effect the Company's relationships with vendors,
customers, and others. Also, there can be no assurance that the Year 2000 issues
of other entities with whom the Company deals will not have a material adverse
impact on the Company's operations.
11
<PAGE>
The Company is in the process of evaluating and developing a contingency plan to
provide for the most reasonably likely worst case scenarios regarding Year 2000
compliance. This contingency plan is expected to be completed in 1999.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June, 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
SFAS 130 establishes standards for reporting and display of comprehensive income
and its components (revenues, gains, and losses) in a full set of
general-purpose financial statements. SFAS 130 requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
Total comprehensive income was $3,518,358 and $2,715,726 for the three-month
periods ending September 30, 1998 and 1997, respectively. Total comprehensive
income was $9,800,870 and $7,385,481 for the nine-month periods ending September
30, 1998 and 1997, respectively.
In June, 1997, the FASB issued SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, which supersedes SFAS No. 14, Reporting for
Segments of a Business Enterprise. SFAS 131 establishes standards for the way
that 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 issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. This statement is
effective for financial statement periods beginning after December 15, 1997.
However, SFAS 131 need not be applied to interim financial statements in the
initial year of adoption.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Pursuant to Financial Accounting Reporting Release Number 48 issued by the
Securities and Exchange Commission in January, 1997, the Company is required to
disclose information concerning market risk with respect to foreign exchange
rates, interest rates, and commodity prices. The Company has elected to make
such disclosures, to the extent applicable, using a sensitivity analysis
approach, based upon hypothetical changes in interest rates and commodity
prices.
The Company has not had occasion to use derivative financial instruments for
risk management purposes and does not use them for either speculation or
trading. Because the Company's operations are confined to the United States, the
Company is not subject to foreign currency risk.
The Company is subject to interest rate risk, to the extent it borrows against
its line of credit or incurs additional debt in the acquisition of revenue
equipment. The company attempts to manage its interest rate risk by carrying as
little debt as possible. The Company has not entered into interest rate swaps or
other strategies designed to protect it against interest rate risk. In the
opinion of management, an increase in short-term interest rates would not have a
material effect on the Company's financial condition, based upon the level of
debt carried by the Company as of September 30, 1998. Management does not
foresee or expect any significant changes in exposure to interest rate
fluctuations or in how that exposure is managed by the Company in the near
future. The Company has not issued corporate debt instruments.
12
<PAGE>
The Company is subject to commodity price risk with respect to purchases of fuel
and tires. The Company has not used derivative financial instruments to manage
these risks. The Company has installed fuel islands at its Phoenix and
Indianapolis facilities that enable it to purchase fuel at "rack" prices, saving
pump charges. Where possible, the Company seeks to participate in tire testing
programs to reduce the cost of tires. It is the Company's policy to pass on
price increases in fuel, tires, or other commodities through rate increases or
surcharges, to the extent the existing market will permit such costs to be
passed through to the customer. If the Company were unable to pass increased
costs on to the customers through rate increases, such increases could adversely
affect the Company's results of operations.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is party to ordinary, routine litigation and administrative
proceedings incidental to its business. These proceedings primarily involving
personnel matters, including Equal Employment Opportunity Commission 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
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
13
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K
Exhibit No. Description
----------- -----------
Exhibit 3 Instruments defining the rights of security
holders, including indentures
(3.1) Restated Articles of Incorporation of the
Company (Incorporated by reference to
Exhibit 3.1 to the Company's Registration
Statement on Form S-1. No 33-83534.)
(3.2) Amended and Restated Bylaws of the Company
(Incorporated by reference to Exhibit 3.2 to
the Company's report on Form 10-K for the
period ending December 31, 1996.)
Exhibit 4 Instruments defining the rights of security
holders, including indentures
(4.1) 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.)
(4.2) 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 (Incorporated by reference from Note
3, Net Income Per Share, in the Notes To
Consolidated Financial Statements on Form
10-Q, for the quarter ended September 30,
1998.)
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 September 30, 1998.
14
<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: November 11, 1998 By: /s/ Kevin P. Knight
-------------------------------------
Kevin P. Knight
Chief Executive Officer
Date: November 11, 1998 By: /s/ Clark Jenkins
-------------------------------------
Clark Jenkins
Chief Financial Officer and
Principal Financial Officer
15
<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 September 30, 1998
Commission File No. 0-24946
16
<PAGE>
KNIGHT TRANSPORTATION, INC.
INDEX TO EXHIBITS TO FORM 10-Q
<TABLE>
<CAPTION>
Sequentially
Exhibit No. Description Numbered Pages(1)
- ----------- ----------- -----------------
<S> <C> <C>
Exhibit 3 Instrument defining the rights of security holders,
including indentures
(3.1) Restated Articles of Incorporation of the Company
(Incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-1. No
33-83534.)
(3.2) Amended and Restated Bylaws of the Company
(Incorporated by reference to Exhibit 3.2 to the
Company's report on Form 10-K for the period ending
December 31, 1996.)
Exhibit 4 Instruments defining the rights of security holders,
including indentures
(4.1) 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.)
(4.2) 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 (Incorporated
by reference from Note 3, Net Income Per Share, in the Notes
To Consolidated Financial Statements on Form 10-Q, for the
quarter ended September 30, 1998)
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.
17
<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 114,783
<SECURITIES> 0
<RECEIVABLES> 16,917,934
<ALLOWANCES> 560,514
<INVENTORY> 1,551,293
<CURRENT-ASSETS> 23,049,587
<PP&E> 108,313,431
<DEPRECIATION> (24,313,324)
<TOTAL-ASSETS> 110,200,127
<CURRENT-LIABILITIES> 27,205,080
<BONDS> 0
0
0
<COMMON> 149,499
<OTHER-SE> 66,698,863
<TOTAL-LIABILITY-AND-EQUITY> 110,200,127
<SALES> 0
<TOTAL-REVENUES> 91,489,378
<CGS> 0
<TOTAL-COSTS> 74,658,216
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 140,292
<INCOME-PRETAX> 16,690,870
<INCOME-TAX> 6,890,000
<INCOME-CONTINUING> 9,800,870
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,800,870
<EPS-PRIMARY> .66
<EPS-DILUTED> .64
<FN>
RECAPITALIZATION AND STOCK SPLIT
On April 22,1998 the Company's Board of Directors approved a three for two stock
split, effected in the form of a 50 percent stock dividend. The stock dividend
was paid on May 18, 1998 to stockholders of record as of the close of business
on May 1, 1998. Prior Financial Data Schedules have not been restated for this
recapitalization and stock split.
</FN>
</TABLE>
