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, 1999
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, 1999 was 15,097,507 shares.
<PAGE>
KNIGHT TRANSPORTATION, INC.
INDEX
PART I - FINANCIAL INFORMATION PAGE NUMBER
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of March 31, 1999
and December 31, 1998 1
Consolidated Statements of Income for the Three Months
Ended March 31, 1999 and March 31, 1998 3
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1999 and March 31, 1998 4
Notes to Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 14
ITEM 2. CHANGES IN SECURITIES 14
ITEM 3 DEFAULTS UPON SENIOR SECURITIES 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 14
ITEM 5. OTHER INFORMATION 14
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 15
SIGNATURES 16
INDEX TO EXHIBITS 18
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1999
(unaudited) December 31, 1998
------------- -----------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,682,903 $ 124,188
Accounts receivable, net 18,498,929 18,248,984
Notes Receivable 713,139 561,608
Inventories and supplies 1,337,537 1,329,329
Prepaid expenses 4,263,676 1,617,900
Deferred tax asset 2,260,700 2,740,200
------------- -------------
Total current assets 28,756,884 24,622,209
------------- -------------
PROPERTY AND EQUIPMENT:
Land and improvements 6,060,365 6,037,741
Buildings and improvements 6,137,357 5,970,919
Furniture and fixtures 3,420,086 3,169,514
Shop and service equipment 1,291,810 1,217,370
Revenue equipment 98,209,292 93,672,070
Leasehold improvements 506,214 469,037
------------- -------------
115,625,124 110,536,651
Less: Accumulated depreciation (28,439,837) (25,964,744)
------------- -------------
PROPERTY AND EQUIPMENT, net 87,185,287 84,571,907
------------- -------------
NOTES RECEIVABLE - Long-term 2,998,868 2,846,008
OTHER ASSETS 5,169,842 4,918,096
------------- -------------
$ 124,110,881 $ 116,958,220
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
1
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KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
March 31, 1999
(unaudited) December 31, 1998
------------ -----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 7,689,610 $ 7,143,476
Accrued liabilities 4,613,614 5,220,372
Claims accrual 3,814,204 3,724,385
Line of credit 4,000,000 3,500,000
Current portion of long-term debt 1,816,649 1,791,981
------------ ------------
Total current liabilities 21,934,077 21,380,214
LONG-TERM DEBT 7,454,899 7,919,647
DEFERRED INCOME TAXES 18,548,800 17,012,285
------------ ------------
Total liabilities 47,937,776 46,312,146
------------ ------------
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 15,097,507
and 14,981,482 shares, respectively 150,975 149,814
Additional paid-in capital 26,511,136 24,509,012
Retained earnings 49,510,994 45,987,248
------------ ------------
Total shareholders' equity 76,173,105 70,646,074
------------ ------------
$124,110,881 $116,958,220
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
2
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KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended
March 31
1999 1998
---- ----
OPERATING REVENUE $ 33,522,165 $ 28,258,506
------------ ------------
OPERATING EXPENSES:
Salaries, wages and benefits 9,955,745 8,330,096
Fuel 3,058,053 2,765,506
Operations and maintenance 1,920,755 1,701,094
Insurance and claims 947,562 803,895
Operating taxes and licenses 1,311,448 1,125,960
Communications 287,901 236,409
Depreciation and amortization 3,438,604 2,796,854
Purchased transportation 5,923,488 4,870,821
Miscellaneous operating expenses 764,680 604,290
------------ ------------
27,608,236 23,234,925
------------ ------------
Income from operations 5,913,929 5,023,581
------------ ------------
OTHER INCOME (EXPENSE):
Interest income 131,920 9,136
Interest expense (207,103) (48,382)
------------ ------------
(75,183) (39,246)
------------ ------------
Income before taxes 5,838,746 4,984,335
INCOME TAXES (2,315,000) (2,055,000)
------------ ------------
Net income $ 3,523,746 $ 2,929,335
============ ============
Net income per common share and common share
equivalent: Basic $ 0.23 $ 0.20
============ ============
Diluted $ 0.23 $ 0.19
============ ============
Weighted average number of common shares
and common share equivalents outstanding:
Basic 15,014,262 14,927,136
============ ============
Diluted 15,316,844 15,240,101
============ ============
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)
Three Months Ended
March 31
---------------------------
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,523,745 $ 2,929,335
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,438,606 2,796,853
Provision for doubtful accounts 54,000 25,322
Deferred income taxes 2,016,015 896,473
Changes in assets and liabilities, net of the
effect of assets and liabilities acquired:
Decrease (increase) in trade receivables 102,556 (225,638)
Increase in notes receivable (304,391) --
Decrease (increase) in inventories and supplies 30,716 (1,029,021)
Increase in prepaid expenses (2,612,884) (1,960,044)
Decrease (increase) in other assets 209,365 (1,204,930)
Increase in accounts payable 511,011 1,759,407
(Decrease) increase in accrued liabilities
and claims accrual (812,448) 1,718,128
----------- -----------
Net cash provided by operating
activities 6,156,291 5,705,885
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (2,671,575) (2,646,204)
----------- -----------
Net cash used in investing activities $(2,671,575) $(2,646,204)
----------- -----------
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)
Three Months Ended
March 31
---------------------------
1999 1998
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Borrowing on line of credit, net 500,000 --
Repayments of debt (440,080) (14,171)
Decrease in accounts payable - equipment (2,220,780) (2,753,115)
Proceeds from exercise of stock options 170,358 98,467
----------- -----------
Net cash used in financing
activities (1,990,502) (2,668,819)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,494,214 390,862
CASH AND CASH EQUIVALENTS,
Beginning of period 124,188 512,339
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 1,618,402 $ 903,201
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Noncash investing and financing transactions:
Equipment acquired by
accounts payable $ 4,435,718 $ 1,830,629
Cash paid during the period for:
Income taxes $ 896,500 $ 326,776
Interest 193,912 48,428
The accompanying notes are an integral part of these consolidated financial
statements.
5
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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, Knight
Administrative Services, Inc.; Quad-K Leasing, Inc.; KTTE Holdings, Inc.; QKTE
Holdings, Inc.; Knight Management Services, Inc.; Knight Transportation Midwest,
Inc.; Knight Transportation South Central Ltd. Partnership; and KTeCom, L.L.C.
(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, 1998. The
preparation of financial statements in accordance with (GAAP) requires
management to make certain 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.
6
<PAGE>
Note 3. Net Income Per Share
A reconciliation of the basic and diluted earnings per share computations for
the three months ended March 31, 1999 and 1998 is as follows:
Three Months Ended
March 31
-------------------------
1999 1998
---- ----
Weighted average common
shares outstanding - basic 15,014,262 14,927,136
Effect of stock options 302,582 312,965
----------- -----------
Weighted average common
share and common share
equivalents outstanding -
diluted 15,316,844 15,240,101
=========== ===========
Net income $ 3,523,746 $ 2,929,335
Net income per common share and
common share equivalent
Basic $ .23 $ .20
=========== ===========
Diluted $ .23 $ .19
=========== ===========
7
<PAGE>
Note 4. Acquisition
The Company acquired the assets of a Texas based truckload carrier during the
quarter ended March 31, 1999. The purchased assets and assumed liabilities were
recorded at their estimated fair values at the acquisition date in accordance
with APB Opinion No. 16. In conjunction with the acquisition, the Company issued
97,561 shares of common stock. Adjustments, if any, to the purchase price
allocations are not expected to have a material impact on the accompanying
consolidated financial statements.
The aggregate purchase price of the acquisition consisted of the following:
1999
(in thousands)
Common Stock $1,833
Assumption of liabilities 331
------
Total $2,164
======
The fair value of the assets purchased has been allocated as follows:
1999
(in thousands)
Cash $ 65
Accounts receivable 407
Property and equipment 1,149
Intangible assets 200
Other assets 343
------
Total $2,164
======
Note 5. Recently Adopted Accounting Pronouncement
Effective January 1998, the Company adopted Statement of Financial Accounting
Standards No. 131 (SFAS No. 131), Disclosures About Segments of an Enterprise
and Related Information, which establishes revised standards for the reporting
of financial and descriptive information about operating segments in financial
statements.
The Company has determined that it has one reportable operating segment.
Although the Company has three operating segments which are managed based on the
regions of the United States in which each operates; each segment has similar
economic characteristics. Each regional operating segment provides short to
medium haul truckload carrier services of general commodities to a similar class
of customers. In addition, each segment exhibits similar financial performance,
including average revenue per mile and operating ratio. As a result of the
foregoing, the Company has determined that it is appropriate to aggregate its
operating segments into one reportable segment consistent with the guidance in
SFAS No. 131. Accordingly, the Company has not presented separate financial
information for each of its operating segments as the Company's consolidated
financial statements present its one reportable segment.
8
<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 three months ended March 31, 1999,
increased by 18.6% to $33.4 million from $28.3 million during the same period in
1998. 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 approximately 50
tractors acquired in the March 13, 1999 acquisition of Action Delivery Service,
Inc. and Action Warehouse Services, Inc. and an increase in the Company's
independent contractor fleet. The Company's fleet increased by 23.4% to 972
tractors (including 253 owned by independent contractors) as of March 31, 1999,
from 788 tractors (including 202 owned by independent contractors) as of March
31, 1998. The Company's revenue per mile remained consistent at $1.24 per mile
for the three months ended March 31, 1999 and 1998.
Salaries, wages and benefits increased as a percentage of operating revenue to
29.7% for the three months ended March 31, 1999, from 29.5% for the same period
in 1998. This increase was primarily the result of a decrease in the utilization
of the Company's fleet. 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 9.1% for the
three months ended March 31, 1999, from 9.8% for the same period in 1998. This
decrease was primarily the result of lower fuel costs per gallon.
Operations and maintenance expense decreased as a percentage of operating
revenue to 5.7% for the three months ended March 31, 1999, from 6.0% for the
corresponding period in 1998. This decrease resulted from the relative decrease
in the ratio of company drivers to independent contractors in the Company's
fleet and slightly lower maintenance costs.
9
<PAGE>
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
estimates of future claims development based on historical claims development
trends. Insurance and claims expense remained consistent as a percentage of
operating revenue at 2.8% for the three months ended March 31, 1999 and 1998.
For the three months ended March 31, 1999, operating taxes and licenses as a
percentage of operating revenue decreased to 3.9% from 4.0% for the same period
in 1998. The decrease was due to the slight increase in the number of
independent contractors as a percentage of the Company's entire fleet to 26.0%
as of March 31, 1999, from 25.6% as of March 31, 1998.
Communications expense as a percentage of operating revenue for the three months
ended March 31, 1999, was slightly higher than the same period in 1998 as a
result of an increase in the overall business volume.
Depreciation and amortization expense as a percentage of operating revenue
increased to 10.3% for the three months ended March 31, 1999, from 9.9% for the
same period in 1998. This increase was due to reduced utilization of the
Company's fleet.
Purchased transportation increased as a percentage of operating revenue to 17.7%
for the three months ended March 31, 1999, from 17.2% for the same period in
1998. This increase was due the increase in the ratio of independent contractors
to company drivers to 26.0% as of March 31, 1999, from 25.6% as of March 31,
1998. Independent contractors are compensated at a fixed rate per mile.
Miscellaneous operating expenses, as a percentage of operating revenue, were
slightly higher for the three months ending March 31, 1999 compared to the same
period in 1998. This increase was due to reduced utilization of the Company's
fleet.
As a result of the above factors, the Company's operating ratio (operating
expenses as a percentage of operating revenues) for the three months ended March
31, 1999, increased slightly to 82.4% from 82.2% for the same period in 1998.
For the three months ended March 31, 1999, net interest expense increased to
0.6% as a percentage of revenue compared to 0.2% for the same period in 1998.
This increase was primarily a result of the purchase of revenue equipment
financed by long-term debt.
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 10.5% for the three months ended March 31, 1999, compared
to 10.4% for the same period in 1998.
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, the Company's line of credit, and term loan. Net cash
provided by operating activities was approximately $6.2 million for the first
three months of 1999, compared to $5.7 million for the corresponding period in
1998.
10
<PAGE>
Capital expenditures for the purchase of revenue equipment, net of trade-ins,
office equipment and leasehold improvements totaled $7.1 million for the first
three months of 1999 compared to $4.5 million for the same period in 1998. This
increase in capital expenditures during the first three months of 1999 was the
result of the Company expanding its fleet.
Net cash used in financing activities and direct financing was approximately
$2.0 million for the first three months of 1999 compared to net cash used in
financing activities of approximately $2.7 million for the same period in 1998.
Net cash used in financing activities during the first three months of 1999 was
the result of the Company paying cash to fund the expansion of its fleet.
The Company has a $10 million revolving line of credit with principal due at
maturity, July 2000, and interest payable monthly at two options (prime or Libor
plus .625%). In management's opinion, the Company will have sufficient liquidity
to pay off, or will be able to renew, its line of credit at maturity. Borrowings
under the line of credit are limited to 80% of eligible accounts receivable, as
defined, and 50% of net fixed assets, as defined and amounted to $4.0 million at
March 31, 1999. Under the terms of the line of credit, the Company is required
to maintain certain financial ratios. These ratios include; total liabilities to
net worth ratio; current ratio, and certain debt service ratios. The Company is
also required to maintain other covenants relating to corporate structure,
ownership, and management.
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 of 5.75%.
The note is unsecured and has an outstanding balance of $9,271,548 as of March
31, 1999, with $1,816,649 due in the next 12 months.
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.
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. The current 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
three months ended March 31, 1999, were not significant.
11
<PAGE>
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.
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 will be completed in the second half of 1999.
12
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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 March 31, 1999. 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.
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 facility that
enable it to purchase fuel at "rack" prices, thereby saving pumping charges. In
the ordinary course of business, the Company purchases fuel in bulk quantities,
which it maintains in inventory. These purchases are not designed as hedging
transactions. 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.
13
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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
During April 1999, the Company acquired a minority interest in a logistics
company with the intent of developing synergies to assist in developing the
Company's asset-based truckload business. The Company is also in the process of
establishing a fourth regional operating base in Charlotte, North Carolina. This
center is expected to open in June of 1999.
14
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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 March 31, 1999.)
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
A Form 8-K was filed on March 25, 1999, pertaining to the acquisition
of all of the assets and assumption of selected liabilities of Action
Delivery Services, Inc. and its affiliated company, Action Warehouse
Services, Inc.
15
<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, 1999 By: /s/ Kevin P. Knight
-------------------------------
Kevin P. Knight
Chief Executive Officer
Date: May 12, 1999 By: /s/ Clark Jenkins
-------------------------------
Clark Jenkins
Chief Financial Officer and
Principal Financial Officer
16
<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, 1999
Commission File No. 0-24946
<PAGE>
KNIGHT TRANSPORTATION, INC.
INDEX TO EXHIBITS TO FORM 10-Q
Sequentially
Exhibit No. Description Numbered Pages(1)
- ----------- ----------- -----------------
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 March 31, 1999.)
Exhibit 27 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.
<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-31-1998
<PERIOD-START> Jan-01-1999
<PERIOD-END> Mar-31-1999
<EXCHANGE-RATE> 1
<CASH> 1,682,903
<SECURITIES> 0
<RECEIVABLES> 19,151,725
<ALLOWANCES> 652,796
<INVENTORY> 1,337,537
<CURRENT-ASSETS> 29,236,384
<PP&E> 115,625,124
<DEPRECIATION> (28,439,837)
<TOTAL-ASSETS> 124,590,381
<CURRENT-LIABILITIES> 21,635,092
<BONDS> 0
0
0
<COMMON> 150,975
<OTHER-SE> 76,022,130
<TOTAL-LIABILITY-AND-EQUITY> 124,590,381
<SALES> 0
<TOTAL-REVENUES> 33,363,839
<CGS> 0
<TOTAL-COSTS> 27,449,910
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 75,183
<INCOME-PRETAX> 5,838,746
<INCOME-TAX> 2,315,000
<INCOME-CONTINUING> 3,523,746
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,523,746
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</TABLE>
