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, 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 May 12, 2000 was 14,649,624 shares.
<PAGE>
KNIGHT TRANSPORTATION, INC.
INDEX
PART I - FINANCIAL INFORMATION PAGE NUMBER
-----------
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of March 31, 2000
and December 31, 1999 1
Consolidated Statements of Income for the Three Months
Ended March 31, 2000 and March 31, 1999 3
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2000 and March 31, 1999 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 14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 15
ITEM 2. CHANGES IN SECURITIES 15
ITEM 3 DEFAULTS UPON SENIOR SECURITIES 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15
ITEM 5. OTHER INFORMATION 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURES 17
INDEX TO EXHIBITS 19
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
2000 1999
------------ ------------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 199,467 $ 3,294,827
Accounts receivable, net 29,723,994 25,192,447
Notes receivable, net 1,476,519 1,558,950
Inventories and supplies 602,911 589,827
Prepaid expenses 4,307,577 1,570,023
Deferred tax asset 2,785,909 2,678,218
------------ ------------
Total current assets 39,096,377 34,884,292
------------ ------------
PROPERTY AND EQUIPMENT:
Land and improvements 7,327,461 6,123,958
Buildings and improvements 6,967,221 6,241,858
Furniture and fixtures 4,063,146 3,909,744
Shop and service equipment 1,221,793 1,292,536
Revenue equipment 138,379,642 127,265,376
Leasehold improvements 516,411 516,411
------------ ------------
158,475,674 145,349,883
Less: Accumulated depreciation (34,490,774) (32,150,943)
------------ ------------
PROPERTY AND EQUIPMENT, net 123,984,900 113,198,940
------------ ------------
NOTES RECEIVABLE - Long-term 9,268,627 8,425,019
OTHER ASSETS 9,347,757 8,036,333
------------ ------------
$181,697,661 $164,544,584
============ ============
The accompanying notes are an integral part of these
consolidated balance sheets.
1
<PAGE>
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------- -------------
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 9,987,382 $ 8,133,119
Accrued liabilities 5,778,013 3,450,147
Claims accrual 5,288,309 4,639,993
Line of credit 35,759,302 29,036,970
Current portion of long-term debt 2,776,946 2,733,688
------------- -------------
Total current liabilities 59,589,952 47,993,917
LONG-TERM DEBT 11,005,597 11,735,651
DEFERRED INCOME TAXES 24,221,436 22,001,375
------------- -------------
Total liabilities 94,816,985 81,730,943
------------- -------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $0.01 par value; 50,000,000 shares
authorized none issued and outstanding -- --
Common Stock, $0.01 par value; 100,000,000 shares
authorized; 15,137,156 and 15,115,955 shares issued
at March 31, 2000 and December 31, 1999; 14,647,549
and 14,619,155 shares outstanding at March 31, 2000
and December 31, 1999 151,371 151,160
Additional paid-in capital 27,219,374 27,025,315
Retained earnings 65,323,913 61,451,148
Less - treasury stock, at cost (496,800 shares) (5,813,982) (5,813,982)
------------- -------------
Total shareholders' equity 86,880,676 82,813,641
------------- -------------
$ 181,697,661 $ 164,544,584
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
2
<PAGE>
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31
-----------------------------------
2000 1999
------------ ------------
<S> <C> <C>
OPERATING REVENUE $ 43,568,834 $ 33,522,165
------------ ------------
OPERATING EXPENSES:
Salaries, wages and benefits 14,075,995 9,955,745
Fuel 5,434,797 3,058,053
Operations and maintenance 2,479,047 1,920,755
Insurance and claims 723,314 947,562
Operating taxes and licenses 1,658,606 1,311,448
Communications 309,470 287,901
Depreciation and amortization 4,152,982 3,438,604
Purchased transportation 6,813,472 5,923,488
Miscellaneous operating expenses 1,047,424 764,680
------------ ------------
36,695,107 27,608,236
------------ ------------
Income from operations 6,873,727 5,913,929
------------ ------------
OTHER INCOME (EXPENSE):
Interest income 287,423 131,920
Interest expense (788,385) (207,103)
------------ ------------
(500,962) (75,183)
------------ ------------
Income before income taxes 6,372,765 5,838,746
INCOME TAXES (2,500,000) (2,315,000)
------------ ------------
Net income $ 3,872,765 $ 3,523,746
============ ============
Net income per common share and common share
equivalent: Basic $ 0.26 $ 0.23
============ ============
Diluted $ 0.26 $ 0.23
============ ============
Weighted average number of common shares and
common share equivalents outstanding:
Basic 14,629,175 15,014,262
============ ============
Diluted 14,818,505 15,316,844
============ ============
</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)
Three Months Ended
March 31
--------------------------
2000 1999
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,872,765 $ 3,523,745
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,152,982 3,438,604
Provision for doubtful accounts 57,491 54,002
Deferred income taxes 2,112,370 2,016,015
Changes in assets and liabilities, net of
the effect of assets and liabilities acquired:
Decrease (increase) in trade receivables (4,589,036) 102,556
Increase in notes receivable (761,177) (304,391)
Decrease (increase) in inventories and supplies (13,084) 30,716
Increase in prepaid expenses (2,737,554) (2,612,884)
Decrease (increase) in other assets (1,313,927) 209,365
Increase in accounts payable 4,219,361 511,011
(Decrease) increase in accrued liabilities
and claims accrual 2,976,181 (812,448)
------------ -----------
Net cash provided by operating Activities 7,976,372 6,156,291
------------ -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (13,039,879) (2,671,575)
------------ -----------
Net cash used in investing activities $(13,039,879) $(2,671,575)
------------ -----------
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>
Three Months Ended
March 31
---------------------------------
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOW FROM FINANCING ACTIVITIES:
Borrowing on line of credit, net 6,722,332 500,000
Repayments of debt, net (686,796) (440,080)
Decrease in accounts payable - equipment (4,261,659) (2,220,780)
Proceeds from exercise of stock options 194,270 170,358
----------- -----------
Net cash provided by (used in) financing activities 1,968,147 (1,990,502)
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,095,360) 1,494,214
CASH AND CASH EQUIVALENTS, Beginning of period 3,294,827 124,188
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 199,467 $ 1,618,402
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Noncash investing and financing transactions:
Equipment acquired by accounts payable $ 1,896,561 $ 4,435,718
Cash paid during the period for:
Income taxes $ 865,450 $ 896,500
Interest 778,730 193,912
</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, 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, 1999. 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, 2000 and 1999 is as follows:
Three Months Ended
March 31
-----------------------------
2000 1999
----------- -----------
Weighted average common
shares outstanding - basic 14,629,175 15,014,262
Effect of stock options 189,330 302,582
----------- -----------
Weighted average common share and common share
equivalents outstanding - diluted 14,818,505 15,316,844
=========== ===========
Net income $ 3,872,765 $ 3,523,746
Net income per common share and common share
equivalent - Basic $ .26 $ .23
=========== ===========
Diluted $ .26 $ .23
=========== ===========
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.
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. Segment Information
In 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.
Although the Company has six operating segments, it has determined that it has
one reportable segment. Five of the segments are managed based on the regions of
the United States in which each operates; each segment has similar economic
characteristics. Each of the five regional operating segments provides short to
medium haul truckload carrier service 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. The remaining segment is
not reported because it does not meet the materiality thresholds in SFAS No.
131. As a result, 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>
Note 6. 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. The statement, to be applied prospectively, is effective
for the Company's quarter ending March 31, 2000. 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 No. 133 on its future
results of operations and financial position.
Note 7. 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.
Note 8. Subsequent Events
Acquisition
In April 2000, the Company acquired 100% of the issued and outstanding common
stock of a Mississippi based trucking company. The purchase price consisted of
primarily of $4,000,000 cash and 228,788 shares of Knight Transportation, Inc
common stock.
Operating Lease
In April 2000, the Company entered into an operating lease for financing
approximately $6.7 million of revenue equipment. Terms of the lease call for
monthly payments of varying amounts through April 2005.
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 "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.
9
<PAGE>
RESULTS OF OPERATIONS
The Company's operating revenue for the three months ended March 31, 2000,
increased by 30.0% to $43.6 million from $33.5 million during the same period in
1999. 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 33.4% to 1,297
tractors (including 259 owned by independent contractors) as of March 31, 2000,
from 972 tractors (including 253 owned by independent contractors) as of March
31, 1999. The Company's revenue per mile remained consistent at $1.24 per mile
for the three months ended March 31, 2000 and 1999.
Salaries, wages and benefits increased as a percentage of operating revenue to
32.3% for the three months ended March 31, 2000, from 29.7% for the same period
in 1999. This increase was primarily the result of market adjustments
implemented in the driver payroll rate structure during in the three months
ended March 31, 2000 compared to the same period in 1999. This increase was also
due to the increase in the ratio of Company drivers to independent contractors.
As of March 31, 2000, 80% of the Company's fleet was operated by Company
drivers, compared to 74% at March 31, 1999. 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 increased as a percentage of operating revenue to 12.5% for the
three months ended March 31, 2000, from 9.1% for the same period in 1999. This
increase was primarily the result of higher fuel costs per gallon.
Operations and maintenance expense remained consistent as a percentage of
operating revenue at 5.7% for the three months ended March 31, 2000 and 1999.
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 decreased as a percentage of operating
revenue to 1.7% for the three months ended March 31, 2000, from 2.8% for the
same period in 1999. This decrease reflects the effect of the changes in
frequency and severity of claims activity during these periods.
For the three months ended March 31, 2000, operating taxes and licenses as a
percentage of operating revenue decreased to 3.8% from 3.9% for the same period
in 1999. The decrease was due to an increase in miles driven in states with
lower tax rates for the three months ended March 31, 2000 compared to the same
period in 1999.
Communications expense as a percentage of operating revenue for the three months
ended March 31, 2000, was relatively consistent with same period in 1999.
10
<PAGE>
Depreciation and amortization expense as a percentage of operating revenue
decreased to 9.5% for the three months ended March 31, 2000 compared to 10.3%
for the same period in 1999. This decrease resulted from adjustments to residual
value estimates on certain equipment during the period ended March 31, 2000,
compared to the same period in 1999.
Purchased transportation decreased as a percentage of operating revenue to 15.6%
for the three months ended March 31, 2000, from 17.7% for the same period in
1999. This decrease was due the decrease in the ratio of independent contractors
to company drivers to 20% as of March 31, 2000, from 26% as of March 31, 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 months ending March 31, 2000 compared to the
same period in 1999.
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, 2000, increased to 84.2% from 82.3% for the same period in 1999.
For the three months ended March 31, 2000, net interest expense increased to
1.1% as a percentage of operating revenue compared to 0.2% for the same period
in 1999. This increase was primarily a result of the purchase of revenue
equipment 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 8.9% for the three months ended March 31, 2000, compared
to 10.5% for the same period in 1999.
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 loans. Net cash
provided by operating activities was approximately $8.0 million for the first
three months of 2000, compared to $6.2 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 $14.9 million for
the first three months of 2000 compared to $7.1 million for the same period in
1999. This increase in capital expenditures during the first three months of
2000 was the result of the Company expanding its fleet.
Net cash provided by financing activities and direct financing was approximately
$2.0 million for the first three months of 2000 compared to net cash used in
financing activities of approximately $2.0 million for the same period in 1999.
Net cash provided by financing activities during the first three months of 2000
was the result of the Company borrowing cash to fund the expansion of its fleet.
11
<PAGE>
The Company has a $40 million revolving line of credit with its lender and uses
that line to finance the acquisition of revenue equipment and other corporate
purposes 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 line of credit. The rate of interest on borrowings against
the line 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. At March 31, 2000, the Company had
$35.8 million in borrowings under its revolving line of credit. The line expires
in July 2001. Management believes the Company will be able to renew or
renegotiate its line of credit on terms at least as favorable as the current
terms on the line of credit, subject to adjustments for any interest rate
increases.
In October, 1998, the Company entered into a $10 million long-term unsecured
Promissory Note with its lender, 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 $7,458,739 as of March 31, 2000, with $1,926,548 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 $6,323,804 at March 31, 2000, with $850,398 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 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 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.
12
<PAGE>
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
prices, as a result of conditions in the petroleum industry. The Company has
also begun to experience some wage increases for drivers. Increases in fuel
costs and driver compensation are expected to continue during 2000 and may
effect 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.
YEAR 2000 ISSUE
For the three months ended March 31, 2000 the "Year 2000 issue" did not present
any significant operational problems for the Company and did not materially
effect the Company's relationships with customers, vendors, and others. 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 implemented various modifications to ensure that its computer
equipment and software will functioned 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 contacted significant vendors, service providers, and
customers, particularly those with whom electronic data information ("EDI")
transactions are exchanged, to resolve any Year 2000 related issues.
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 did not have a material impact on its
financial position or results of operations.
FACTORS THAT MAY EFFECT FUTURE RESULTS
Factors that may affect the Company's future results are described at page 18 of
the Company's Annual Report on Form 10-K for the period ended December 31, 1999.
See Part II, Item 7, Management's Discussion and Analysis of Financial
Conditions and Results of Operations - Factors That May Affect Future Results.
13
<PAGE>
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 interest rates could have a material
effect on the Company's financial condition if the Company's debt levels
increase and if interest rate increases are not offset by freight rate increases
or other items. The Company seeks to manage its interest rate exposure by
managing the amount of indebtedness the Company incurs. 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 financial position or results of operations.
14
<PAGE>
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
15
<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
March 31, 2000.)
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the Company during the
quarter ended March 31, 2000.
16
<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, 2000 By: /s/ Kevin P. Knight
------------------------------------
Kevin P. Knight
Chief Executive Officer
Date: May 12, 2000 By: /s/ Clark Jenkins
------------------------------------
Clark Jenkins
Chief Financial Officer and
Principal Financial Officer
17
<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, 2000
Commission File No. 0-24946
18
<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, 2000.)
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.
19
<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>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 199,467
<SECURITIES> 0
<RECEIVABLES> 31,200,513
<ALLOWANCES> 859,639
<INVENTORY> 602,911
<CURRENT-ASSETS> 39,096,377
<PP&E> 158,475,674
<DEPRECIATION> (34,490,774)
<TOTAL-ASSETS> 181,697,661
<CURRENT-LIABILITIES> 59,589,952
<BONDS> 0
0
0
<COMMON> 151,371
<OTHER-SE> 86,729,305
<TOTAL-LIABILITY-AND-EQUITY> 181,697,661
<SALES> 0
<TOTAL-REVENUES> 43,568,834
<CGS> 0
<TOTAL-COSTS> 36,695,107
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 500,962
<INCOME-PRETAX> 6,372,765
<INCOME-TAX> 2,500,000
<INCOME-CONTINUING> 3,872,765
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,872,765
<EPS-BASIC> .26
<EPS-DILUTED> .26
</TABLE>
