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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, 2000
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 10, 2000 was 15,236,423 shares.
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<PAGE>
KNIGHT TRANSPORTATION, INC.
INDEX
PART I - FINANCIAL INFORMATION Page Number
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September 30, 2000
and December 31, 1999 1
Consolidated Statements of Income for the Three Months And
Nine Months Ended September 30, 2000 and September 30, 1999 3
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2000 and September 30, 1999 4
Notes to Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ON MARKET RISK 15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 16
ITEM 2. CHANGES IN SECURITIES 16
ITEM 3 DEFAULTS UPON SENIOR SECURITIES 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 16
ITEM 5. OTHER INFORMATION 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURES 18
INDEX TO EXHIBITS 20
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
September 30, December 31,
2000 1999
------------- -------------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,310,627 $ 3,294,827
Accounts receivable, net 35,797,991 25,192,447
Notes receivable 29,760 1,558,950
Inventories and supplies 831,449 589,827
Prepaid expenses 6,447,883 1,570,023
Deferred tax asset 2,866,464 2,678,218
------------- -------------
Total current assets 47,284,174 34,884,292
------------- -------------
PROPERTY AND EQUIPMENT:
Land and improvements 9,371,092 6,123,958
Buildings and improvements 9,187,146 6,241,858
Furniture and fixtures 5,005,500 3,909,744
Shop and service equipment 1,439,940 1,292,536
Revenue equipment 155,417,310 127,265,376
Leasehold improvements 524,027 516,411
------------- -------------
180,945,015 145,349,883
Less: Accumulated depreciation (39,481,151) (32,150,943)
------------- -------------
PROPERTY AND EQUIPMENT, net 141,463,864 113,198,940
------------- -------------
NOTES RECEIVABLE - long-term 1,048,217 8,425,019
------------- -------------
OTHER ASSETS 15,242,476 8,036,333
------------- -------------
$ 205,038,731 $ 164,544,584
============= =============
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 SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
September 30, December 31,
2000 1999
------------- -------------
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,754,076 $ 8,133,119
Accrued liabilities 6,819,460 3,450,147
Claims accrual 5,598,877 4,639,993
Lines of credit 39,000,000 29,036,970
Current portion of long-term debt 5,498,744 2,733,688
------------- -------------
Total current liabilities 59,671,157 47,993,917
LONG - TERM DEBT, less current portion 16,349,555 11,735,651
DEFERRED INCOME TAXES 29,142,920 22,001,375
------------- -------------
Total liabilities 105,163,632 81,730,943
------------- -------------
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 15,236,048 and
15,115,955 at September 30, 2000 and
December 31, 1999; outstanding 14,968,036
and 14,619,155 at September 30, 2000 and
December 31, 1999, respectively 152,360 151,160
Additional paid-in capital 28,323,767 27,025,315
Retained earnings 74,535,480 61,451,148
Less treasury stock, at cost (268,012 shares
at September 30, 2000 and 496,800 shares
at December 31, 1999) (3,136,508) (5,813,982)
------------- -------------
Total shareholders' equity 99,875,099 82,813,641
------------- -------------
$ 205,038,731 $ 164,544,584
============= =============
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
------------------------------ ------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATING REVENUE $ 55,769,784 $ 38,054,052 $ 151,014,610 $ 108,270,581
------------- ------------- ------------- -------------
OPERATING EXPENSES:
Salaries, wages and benefits 18,865,147 11,233,318 50,434,195 31,914,819
Fuel, net of fuel surcharge 7,500,491 3,861,586 19,439,663 10,530,444
Operations and maintenance 2,982,781 2,254,981 8,144,932 6,318,185
Insurance and claims 1,289,216 996,989 3,252,325 2,781,985
Operating taxes and licenses 1,963,488 1,460,753 5,553,914 4,033,630
Communications 417,954 289,615 1,130,318 897,247
Depreciation and amortization 5,058,454 3,280,782 14,013,903 10,362,573
Lease expense - revenue
Equipment 1,264,933 -- 2,160,549 --
Purchased transportation 6,503,304 7,230,737 19,596,290 19,964,382
Miscellaneous operating
Expenses 1,490,906 953,014 3,909,767 2,581,403
------------- ------------- ------------- -------------
47,336,673 31,561,775 127,635,857 89,384,668
------------- ------------- ------------- -------------
Income from operations 8,433,111 6,492,277 23,378,753 18,885,913
------------- ------------- ------------- -------------
OTHER INCOME (EXPENSE):
Interest income 97,350 253,835 708,646 583,083
Interest expense (1,084,643) (265,267) (2,993,067) (696,258)
------------- ------------- ------------- -------------
(987,294) (11,432) (2,284,422) (113,175)
------------- ------------- ------------- -------------
Income before taxes 7,445,817 6,480,845 21,094,332 18,772,738
INCOME TAXES (2,830,000) (2,560,000) (8,010,000) (7,435,000)
------------- ------------- ------------- -------------
Net income $ 4,615,817 $ 3,920,845 $ 13,084,332 $ 11,337,738
============= ============= ============= =============
Net income per common share and
common share equivalent:
Basic $ 0.31 $ 0.26 $ 0.89 $ 0.75
============= ============= ============= =============
Diluted $ 0.26 $ 0.88 $ 0.74 $ 0.31
============= ============= ============= =============
Weighted average number of common
shares and common share equivalents
outstanding:
Basic 14,947,043 15,107,933 14,763,714 15,070,839
============= ============= ============= =============
Diluted 15,086,596 15,313,810 14,927,258 15,350,009
============= ============= ============= =============
</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)
Nine Months Ended
September 30
----------------------------
2000 1999
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 13,084,332 $ 11,337,738
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation and amortization 14,013,903 10,362,573
Allowance for doubtful accounts 220,827 163,308
Deferred income taxes 4,108,136 4,197,743
Changes in assets and liabilities,
net of businesses acquired:
Increase in trade receivables (6,466,817) (8,290,546)
Increase in notes receivable (1,185,176) --
(Increase) decrease in inventories
and supplies (190,028) 1,314,639
Increase in prepaid expenses (4,877,860) (1,439,603)
Increase in other assets (5,367,858) (228,131)
Decrease in accounts payable (2,000,972) (948,689)
Increase (decrease) in accrued liabilities
and claims accrual 3,132,547 (640,710)
------------ ------------
Net cash provided by operating activities 14,471,034 15,828,322
------------ ------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (27,698,414) (18,204,743)
Cash received from business acquired 2,528,420 64,501
------------ ------------
Net cash used in investing activities (25,169,994) (18,140,242)
------------ ------------
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)
Nine Months Ended
September 30
----------------------------
2000 1999
------------ ------------
CASH FLOW FROM FINANCING ACTIVITIES:
Borrowing on line of credit, net 9,963,030 6,000,000
Proceeds from sale of notes receivable 10,091,166 --
Payments of long-term debt (8,377,429) (1,333,862)
Decrease in accounts payable - equipment (4,261,659) (2,220,780)
Proceeds from exercise of stock options 1,299,652 261,308
------------ ------------
Net cash provided by
financing activities 8,714,760 2,706,666
------------ ------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (1,984,200) 394,746
CASH AND CASH EQUIVALENTS,
Beginning of period 3,294,827 124,188
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 1,310,627 $ 518,934
============ ============
SUPPLEMENTAL DISCLOSURES:
Non-cash investing and financing transactions:
Equipment acquired by
Accounts payable $ -- $ 6,483,909
Cash Flow Information:
Income taxes paid $ 4,736,067 $ 5,298,770
Interest paid 2,961,423 655,025
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, Knight
Administrative Services, Inc.; Quad-K Leasing, Inc.; KTTE Holdings, Inc., QKTE
Holdings, Inc., Knight Management Services, Inc., and Knight Transportation
Midwest, Inc.; Knight Transportation South Central Ltd.; and KTeCom, L.L.C.,
John Fayard Fast Freight, Inc. (hereinafter collectively called the "Company").
All material inter-company 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, 1999. The
preparation of financial statements in accordance with GAAP 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>
NOTE 2. NET INCOME PER SHARE
A reconciliation of the basic and diluted earnings per share computations for
the three months and nine months ended September 30, 2000 and 1999 is as
follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Weighted average common
shares outstanding - Basic 14,947,043 15,107,933 14,763,714 15,070,839
Effect of stock options 139,553 205,877 163,544 279,170
----------- ----------- ----------- -----------
Weighted average common
share and common share
equivalents outstanding -
Diluted 15,086,596 15,313,810 14,927,258 15,350,009
=========== =========== =========== ===========
Net income $ 4,615,817 $ 3,920,845 $13,084,332 $11,337,738
=========== =========== =========== ===========
Net income per common share
and common share equivalent
Basic $ 0.31 $ 0.26 $ 0.89 $ 0.75
=========== =========== =========== ===========
Diluted $ 0.31 $ 0.26 $ 0.88 $ 0.74
=========== =========== =========== ===========
</TABLE>
7
<PAGE>
NOTE 3. ACQUISITIONS
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 Accounting Principles Board ("APB") Opinion No. 16. In conjunction with the
acquisition, the Company issued 97,561 shares of common stock.
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
======
The Company acquired the stock of a Mississippi-based truckload carrier during
the quarter ended June 30, 2000. The acquired 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 228,788 shares of common stock from its treasury shares. These
shares were valued at fair market value less a discount due the restricted
nature of these shares. Adjustments to the purchase price allocations, if any,
are not expected to have a material impact on the accompanying consolidated
financial statements. Terms of the purchase agreement set forth conditions upon
which an earn-out adjustment to the purchase price based upon earnings may be
necessary. This earn-out adjustment may be in the form of additional shares of
the Company's common stock and/or cash.
8
<PAGE>
The aggregate purchase price of the acquisition consisted of the following:
2000
-------
(in thousands)
Cash $ 3,686
Common stock 2,949
Assumption of liabilities 20,830
-------
Total $27,465
=======
The fair value of the assets and liabilities purchased has been allocated as
follows:
2000
-------
(in thousands)
Cash $ 2,528
Accounts receivable 4,360
Property and equipment 14,400
Intangible assets 5,566
Other assets 611
-------
Total assets $27,465
=======
NOTE 4. SEGMENT INFORMATION
The Company has seven operating segments; however, it has determined that it has
one reportable segment. Six of the segments are managed based on similar
economic characteristics. Each of the six regional operating divisions provides
short to medium-haul truckload carrier services of general commodities to a
similar class of customers. In addition, each division exhibits similar
financial performance, including average revenue per mile and operating ratio.
The remaining segment is not reported because it does not meet the materiality
thresholds in SFAS No. 131. As a result of the foregoing, the Company has
determined that it is appropriate to aggregate its operating divisions 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 divisions as the Company's consolidated financial statements present
its one reportable segment.
9
<PAGE>
NOTE 5. RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In June, 1998 the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. This
statement establishes accounting and reporting standards for derivative
instruments, including derivative instruments embedded in other contracts, and
for hedging activities.
In June 1999, the FASB issued SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of SFAS No.
133. This statement deferred the effective date of SFAS No. 133 to the Company's
quarter ending March 31, 2001. The Company is currently evaluating the impact of
SFAS 133 on its future results of operations and financial position.
On December 3, 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial
Statements, which provides additional guidance in applying generally accepted
accounting principles for revenue recognition in consolidated financial
statements. Subsequent to the issuance of SAB No. 101 the SEC staff elected to
defer the required implementation date. The Company will be required to adopt
SAB No. 101 during the fourth quarter of 2000, effective as of 1/01/00.
Management believes that the adoption of SAB No. 101 will not have a material
impact on the Company's financial position or results of operations.
NOTE 6. COMMITMENTS AND CONTINGENCIES
The Company is involved in certain legal proceedings arising in the normal
course of business. In the opinion of management, the Company's potential
exposure under pending legal proceedings is adequately provided for in the
accompanying consolidated financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements. The
words "believes," "may", "likely" "expects," "anticipates'" 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, 2000,
increased by 39.5% to $151.0 million from $108.3 million over the same period in
1999. For the three months ended September 30, 2000, operating revenue increased
by 46.6% to $55.8 million from $38.1 million over the same period in 1999.
10
<PAGE>
The increase in operating revenue resulted from expansion of the Company's
customer base and increased volume from existing customers. This was facilitated
by the continued expansion of the Company's fleet, including approximately 225
tractors acquired in the April 19, 2000 acquisition of John Fayard Fast Freight,
Inc., and approximately 50 tractors acquired in the March 13, 1999 acquisition
of Action Delivery Services, Inc. The Company's fleet increased by 41.5% to
1,616 tractors (including 228 owned by independent contractors) as of September
30, 2000, from 1,142 tractors (including 275 owned by independent contractors)
as of September 30, 1999.
Salaries, wages and benefits increased as a percentage of operating revenue to
33.4% for the nine months ended September 30, 2000, from 29.5% for the same
period in 1999. For the three months ended September 30, 2000, salaries, wages
and benefits increased as a percentage of operating revenue to 33.8% from 29.5%
for the same period in 1999. These increases were primarily the result of the
increase in the ratio of company drivers to independent contractors. At
September 30, 2000, 86% of the Company's fleet was operated by Company drivers,
compared to 76% at September 30, 1999. These increases were also due to
adjustments implemented in the driver pay rate structure for new drivers during
the 2000 periods compared to the 1999 periods, along with regular pay rate
increases for non-driving employees. The Company's insurance program for medical
claims involves self insurance with risk retention levels. Claims in excess of
these retention levels are covered by insurance which management considers
adequate. The Company records the cost of this medical insurance coverage, along
with the uninsured portion, to salaries, wages and benefits expense. This
component was higher for the 2000 periods compared to the 1999 periods. For
Company drivers and non-driving employees, the Company records accruals for
worker's 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 increased as a percentage of operating revenue to 12.9% for the
nine months ended September 30, 2000, from 9.7% for the same period in 1999. For
the three months ended September 30, 2000, fuel expense as a percentage of
operating revenue increased to 13.4% from 10.1% for the same period in 1999.
This increase was primarily the result of recent higher fuel costs per gallon,
as well as the increase in the ratio of Company vehicles to independent
contractors.
Operations and maintenance expense decreased as a percentage of operating
revenue to 5.4% for the nine months ended September 30, 2000 from 5.8% for the
same period in 1999. For the three months ended September 30, 2000, operations
and maintenance expense as a percentage of operating revenue decreased to 5.3%
from 5.9% for the same period in 1999. These decreases were due to increased
utilization of the Company's fleet and continued improvements in the Company's
maintenance programs.
The Company's insurance program for 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 decreased as a percentage of operating revenue to 2.2% for the nine
months ended September 30, 2000, from 2.6% for the same period in 1999. For the
three months ended September 30, 2000, insurance and claims expense decreased as
a percentage of operating revenue to 2.3% from 2.6% for the same period in 1999.
These variations reflect the effect of the changes in frequency and severity of
claims activity during the period.
11
<PAGE>
Operating taxes and licenses remained consistent as a percentage of operating
revenue at 3.7% for the nine months ended September 30, 2000 and 1999. For the
three months ended September 30, 2000, operating taxes and licenses as a
percentage of operating revenue decreased to 3.5% compared to 3.8% for the same
period in 1999. These decreases were due to increased utilization of the
Company's fleet and improved management of these expenses.
Communications expense as a percentage of operating revenue for both the nine
months and three months ended September 30, 2000 was slightly lower than the
same periods in 1999.
Depreciation and amortization expense as a percentage of operating revenue
decreased to 9.3% for the nine month period ended September 30, 2000, from 9.6%
for the same period in 1999. For the three months ended September 30, 2000,
depreciation and amortization increased as a percentage of operating revenue to
9.1% from 8.6% for the same period in 1999. These changes were related to the
increase in Lease Expense - Revenue Equipment which reflects expenses incurred
for revenue equipment under operating lease agreements. These changes were also
related to certain dedicated opportunities which do not require the use of
certain Company revenue equipment. Lease Expense - Revenue Equipment as
percentage of operating revenue was 1.4% for the nine months ended September 30,
2000 compared to 0.0% for the same period in 1999. For the three months ended
September 30, 2000 Lease Expense - Revenue Equipment as a percentage of
operating revenue was 2.3% compared to 0.0% for the same period in 1999. These
increases reflect new operating lease agreements entered into.
Purchased transportation decreased as a percentage of operating revenue to 13.0%
for the nine months ended September 30, 2000, from 18.4% for the same period in
1999. For the three months ended September 30, 2000, purchased transportation as
a percentage of operating revenue decreased to 11.7% from 19.0% for the same
period in 1999. These decreases were due to the decrease in the ratio of
independent contractors to Company drivers to 14% as of September 30, 2000, from
24% as of September 30, 1999. Independent contractors are compensated at a fixed
rate per mile.
Miscellaneous operating expenses, as a percentage of operating revenue, were
relatively consistent for the three and nine months ending September 30, 2000
compared to the same periods in 1999.
As a result of the above factors, the Company's operating ratio (operating
expenses as a percentage of operating revenues) for the nine months ended
September 30, 2000, increased to 84.5% from 82.6% for the same period in 1999.
The Company's operating ratio for the three months ended September 30, 2000,
increased to 84.9% from 82.9% for the same period in 1999.
For both the nine months and three months ended September 30, 2000, net interest
expense increased as a percentage of revenue compared to the same periods in
1999. These increases were primarily the result of the purchase of revenue
equipment, stock repurchases, and the acquisition of John Fayard Fast Freight
Inc., financed by long-term debt and the Company's revolving line of credit.
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 8.7% for the nine months ended September 30, 2000,
compared to 10.5% for the same period in 1999 and 8.3% for the three months
ended September 30, 2000 compared to 10.3% for the same period in 1999.
12
<PAGE>
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 lines of credit with its primary
lender. Net cash provided by operating activities was approximately $14.5
million for the first nine months of 2000, compared to $15.8 million for the
corresponding period in 1999.
Capital expenditures for the purchase of revenue equipment, net of trade-ins,
office equipment and leasehold improvements totaled $27.7 million for the first
nine months of 2000 compared to $24.7 million for the same period in 1999.
Net cash provided by financing activities was approximately $8.7 million for the
first nine months of 2000 compared to $2.7 million for the same period in 1999.
Net cash provided by financing activities during the first nine months of 2000
was primarily the result of the proceeds from the sale of notes receivable.
The Company maintains lines of credit totaling $50 million with its lender and
uses these lines to finance the acquisition of revenue equipment and other
corporate uses to the extent the Company's need for capital is not provided by
funds from operations. The Company is obligated to comply with certain financial
covenants under its lines of credit.
The rate of interest on borrowings against the lines of credit will vary
depending upon the interest rate election made by the Company, based upon either
the London Interbank Offered Rate ("Libor") plus an adjustment factor, or the
prime rate. Borrowings under the lines amounted to $39 million at September 30,
2000. The lines expire in July 2001. Management believes the Company will be
able to renew or renegotiate its lines of credit on terms at least as favorable
as the current terms on the lines of credit, subject to adjustments for any
interest rate increases.
In October, 1998, the Company entered into a $10 million term loan with its
primary lender which will mature in September 2003. The interest is at a fixed
percentage of 5.75%. The note is unsecured and has an outstanding balance of
$6,507,071 as of September 30, 2000, with $1,983,968 due in the next 12 months.
During 1999 the Company entered into notes payable agreements with a commercial
lender which will mature in November 2002. The notes are secured by certain
revenue equipment with interest rates from 6.95% to 6.99%. The notes had
outstanding balances totaling $5,909,986 at September 30, 2000, with $880,326
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 several other
factors over which the Company has limited control, as well as the Company's
financial condition and results of operations.
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SEASONALITY
In the transportation industry, results of operations 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 conditions have not adversely affected the
Company's business. The current expansion of the Company's operations into the
Midwest, on the East Coast, and the Southeast 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. In late 1999 the Company began to experience increases in fuel
costs, as a result of conditions in the petroleum industry. The Company has also
recently experienced some wage increases for drivers. Increases in fuel costs
and driver compensation are expected to continue during 2000 and may affect the
Company's operating income, unless the Company is able to pass those increased
costs to customers through rate increases or fuel surcharges. The Company has
initiated an aggressive program to obtain rate increases and fuel surcharges
from customers in order to cover increased costs due to these increases in fuel
prices, driver compensation and other expenses and has been successful in
implementing some fuel surcharges.
14
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risk changes in interest rate on debt and from
changes in commodity prices.
INTEREST RATE RISK
The Company is subject to interest rate risk to the extent it borrows against
its line of credit or incurs debt in the acquisition of revenue equipment. The
Company attempts to manage its interest rate risk by managing the amount of debt
the Company carries. The Company has not entered into interest rate swaps or
other strategies designed to protect it against interest rate risk, other than
described above. In the opinion of management, an increase in short-term
interest rates could have a material adverse effect on the Company's financial
condition if the Company's debt levels increase and if the interest rate
increases are not offset by freight rate increases or other items. Management
does not foresee or expect in the near future any significant changes in the
Company's exposure to interest rate fluctuation or in how that exposure is
managed by the Company. The Company has not issued corporate debt instruments.
COMMODITY PRICE RISK
The Company is also subject to commodity price risk with respect to purchases of
fuel. Prices and availability of petroleum products are subject to political,
economic and market factors that are generally outside the Company's control.
Because the Company's operations are dependent upon diesel fuel, significant
increases in diesel fuel costs could materially and adversely affect the
Company's results of operations and financial condition if the Company is unable
to pass increase costs on to customers through rate increases or fuel
surcharges. Historically, the Company has sought to recover a portion of its
short-term fuel price increases from customers through fuel surcharges. Fuel
surcharges that can be collected do not always offset the increase in the cost
of diesel fuel.
For the nine-month period ended September 30, 2000, fuel represented 12.9% of
the Company's operating expenses, compared to 9.7% for the same period ending in
1999. In August, 2000, the Company entered into an agreement to obtain price
protection to reduce a portion of the Company's exposure to fuel price
fluctuations. Under that arrangement, the Company is obligated to purchase
certain minimum volumes of diesel fuel, with a price protection component, for
the period beginning October 1, 2000 though March 31, 2001. If during the 48th
month following March 31, 2001, the price of the heating oil on the New York
Mercantile Exchange ("NY MX HO") falls below $.58 per gallon, the Company is
obligated to pay, for a minimum of twelve different months selected by the
contract holder during the 48-month period, the difference between $.58 per
gallon and the NY MX HO average price for the minimum volume commitment.
15
<PAGE>
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 Equal Employment Opportunity Commission ("EEOC")
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 for 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
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.)
16
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(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,
2000.)
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
A report on Form 8-K was filed by the Company on May 4, 2000, during
the quarter ended on June 30, 2000, that updated the Company's
acquisition of Fayard Fast Freight, Inc., on April 19, 2000. No
financial statements or proforma financial information were filed with
the Form 8-K since Fayard Fast Freight, Inc., did not constitute a
"significant subsidiary" under Regulation SK, promulgated pursuant to
the Securities Exchange Act of 1934.
17
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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 10, 2000 By: /s/ Kevin P. Knight
------------------------------------
Kevin P. Knight
Chief Executive Officer
Date: November 10, 2000 By: /s/ Tim Kohl
------------------------------------
Tim Kohl
Chief Financial Officer and
Principal Financial Officer
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS TO
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
Commission File No. 0-24946
<PAGE>
KNIGHT TRANSPORTATION, INC.
INDEX TO EXHIBITS TO FORM 10-Q
Sequentially
Exhibit No. Description Numbered Pages(1)
----------- ----------- -----------------
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 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.
