UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the Quarterly Period Ended March 31, 2003
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
Commission File Number: 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. [X] Yes [ ] No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). [X] Yes [ ] No
The number of shares outstanding of registrant's Common Stock, par value $0.01
per share, as of April 23, 2003 was 37,330,294 shares.
KNIGHT TRANSPORTATION, INC.
INDEX
PART I - FINANCIAL INFORMATION PAGE NUMBER
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of March 31, 2003
and December 31, 2002 1
Condensed Consolidated Statements of Income for the three
months ended March 31, 2003 and March 31, 2002 3
Condensed Consolidated Statements of Cash Flows for the
three months ended March 31, 2003 and March 31, 2002 4
Notes to Condensed 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 ABOUT MARKET RISK 17
ITEM 4. CONTROLS AND PROCEDURES 18
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 18
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 18
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 18
ITEM 5. OTHER INFORMATION 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 19
SIGNATURES 21
CERTIFICATIONS 22
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2003 AND DECEMBER 31, 2002
(IN THOUSANDS)
March 31, December 31,
2003 2002
--------- ---------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 33,584 $ 36,198
Accounts receivable, net 39,798 40,356
Notes receivable, net 952 956
Inventories and supplies 1,500 1,345
Prepaid expenses 12,167 9,653
Deferred tax asset 3,071 3,428
--------- ---------
Total current assets 91,072 91,936
--------- ---------
PROPERTY AND EQUIPMENT:
Land and improvements 14,626 14,158
Buildings and improvements 12,912 12,898
Furniture and fixtures 6,195 6,134
Shop and service equipment 2,065 1,975
Revenue equipment 231,711 211,184
Leasehold improvements 1,127 1,049
--------- ---------
268,636 247,398
Less: Accumulated depreciation
and amortization (74,964) (70,505)
--------- ---------
PROPERTY AND EQUIPMENT, net 193,672 176,893
--------- ---------
NOTES RECEIVABLE - long-term 1,206 1,487
--------- ---------
OTHER ASSETS 13,690 13,524
--------- ---------
$ 299,640 $ 283,840
========= =========
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
1
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
AS OF MARCH 31, 2003 AND DECEMBER 31, 2002
(IN THOUSANDS, EXCEPT PAR VALUES)
March 31, December 31,
2003 2002
--------- ---------
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 11,120 $ 7,749
Accrued payroll 2,622 3,571
Accrued liabilities 6,665 3,227
Current portion of long-term debt 1,322 2,715
Claims accrual 11,626 10,419
--------- ---------
Total current liabilities 33,355 27,681
LINE OF CREDIT 12,200 12,200
DEFERRED INCOME TAXES 46,088 44,302
--------- ---------
Total liabilities 91,643 84,183
--------- ---------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $0.01 par value;
authorized 50,000 shares;
none issued and outstanding -- --
Common stock, $0.01 par value; authorized
100,000 shares; 37,245 and 37,145 issued
and outstanding at March 31, 2003 and
December 31, 2002, respectively 373 371
Additional paid-in capital 74,698 73,521
Retained earnings 133,225 126,148
Accumulated other comprehensive loss (299) (383)
--------- ---------
Total shareholders' equity 207,997 199,657
--------- ---------
$ 299,640 $ 283,840
========= =========
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
2
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended
March 31,
--------------------
2003 2002
-------- --------
REVENUE:
Revenue, before fuel surcharge $ 73,551 $ 61,890
Fuel surcharge 3,658 461
-------- --------
Total revenue 77,209 62,351
-------- --------
OPERATING EXPENSES:
Salaries, wages and benefits 23,791 21,263
Fuel 14,228 8,980
Operations and maintenance 4,688 3,402
Insurance and claims 3,827 2,657
Operating taxes and licenses 2,126 1,871
Communications 720 616
Depreciation and amortization 6,786 5,355
Lease expense - revenue Equipment 1,975 2,296
Purchased transportation 5,512 4,879
Miscellaneous operating Expenses 1,703 1,622
-------- --------
65,356 52,941
-------- --------
Income from operations 11,853 9,410
-------- --------
OTHER INCOME (EXPENSE):
Interest income 136 219
Interest expense (202) (266)
-------- --------
(66) (47)
-------- --------
Income before taxes 11,787 9,363
INCOME TAXES (4,710) (3,810)
-------- --------
Net income $ 7,077 $ 5,553
======== ========
Net income per common share and
common share equivalent:
Basic $ 0.19 $ 0.15
======== ========
Diluted $ 0.19 $ 0.15
======== ========
Weighted average number of common shares
and common share equivalents outstanding:
Basic 37,192 36,894
======== ========
Diluted 38,087 38,082
======== ========
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
3
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
Three Months Ended
March 31,
--------------------
2003 2002
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 7,077 $ 5,553
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,786 5,355
Non-cash compensation expense for issuance of
common stock to certain members of board of
directors 18 10
Provision for allowance for doubtful accounts
and notes receivable 136 77
Interest rate swap agreement - fair value change 84 89
Tax benefit on stock option exercises 567 135
Deferred income taxes 2,143 661
Changes in assets and liabilities:
Decrease (increase) in trade receivables 426 (206)
(Increase) decrease in inventories and supplies (155) 121
Increase in prepaid expenses (2,514) (2,309)
(Increase) decrease in other assets (66) 61
Increase in accounts payable 304 608
Increase in accrued liabilities and claims accrual 3,696 3,623
-------- --------
Net cash provided by operating activities 18,502 13,778
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (20,498) (2,244)
Investment in/advances to other companies (100) (350)
Decrease in notes receivable, net 281 297
-------- --------
Net cash used in investing activities (20,317) (2,297)
-------- --------
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
4
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
Three Months Ended
March 31,
--------------------
2003 2002
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Payments on long-term debt (1,393) (1,548)
Proceeds from exercise of stock options 594 770
-------- --------
Net cash used in financing activities (799) (778)
-------- --------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (2,614) 10,703
CASH AND CASH EQUIVALENTS,
beginning of period 36,198 24,135
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 33,584 $ 34,838
======== ========
SUPPLEMENTAL DISCLOSURES:
Noncash investing and financing transactions:
Equipment acquired in accounts payable $ 7,341 $ --
Cash flow information:
Income taxes paid $ 216 $ 132
Interest paid 169 218
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
5
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. FINANCIAL INFORMATION
The accompanying condensed consolidated financial statements include the parent
company Knight Transportation, Inc., and its wholly owned subsidiaries, Knight
Transportation Services, Inc. (formerly Knight Administrative Services, Inc.);
Quad-K Leasing, Inc.; KTTE Holdings, Inc., QKTE Holdings, Inc.; Knight
Management Services, Inc.; Knight Transportation South Central Ltd.; and KTeCom,
L.L.C. All material inter-company items and transactions have been eliminated in
consolidation.
The condensed consolidated financial statements included herein have been
prepared in accordance with accounting principles generally accepted in the
United States of America ("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 condensed consolidated financial statements and
notes thereto should be read in conjunction with our consolidated financial
statements and notes thereto included in our Annual Report on Form 10-K for the
year ended December 31, 2002.
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
NOTE 2. STOCK-BASED COMPENSATION
Stock-Based Compensation - At March 31, 2003, the Company had one stock-based
employee compensation plan. The Company applies the intrinsic-value-based method
of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations
including FASB Interpretation No. 44, "Accounting for Certain Transactions
involving Stock Compensation, an interpretation of APB Opinion No. 25," issued
in March 2000, to account for its fixed-plan stock options. Under this method,
compensation expense is recorded on the date of grant only if the current market
price of the underlying stock exceeded the exercise price. No stock-based
employee compensation cost is reflected in net income, as all options granted
under the plan had an exercise price equal to the market value of the underlying
common stock on the date of the grant. SFAS No. 123, "Accounting for Stock-Based
Compensation," as amended by SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure," established accounting and disclosure
requirements using a fair-value-based method of accounting for stock-based
employee compensation plans. As allowed by SFAS No. 123, the Company has elected
to continue to apply the intrinsic-value-based method of accounting described
above, and has adopted only the disclosure requirements of SFAS No. 123. The
following table illustrates the effect on net income if the fair-value-based
method had been applied to all outstanding and unvested awards for the three
month periods ended March 31 (in thousands, except per share data):
2003 2002
------- -------
Net income, as reported $ 7,077 $ 5,553
Deduct total stock-based employee compensation
expense determined under fair-value-based method
for all rewards, net of tax (147) (137)
------- -------
Pro forma net income $ 6,930 $ 5,416
======= =======
Diluted earnings per share - as reported $ 0.19 $ 0.15
======= =======
Diluted earnings per share - pro forma $ 0.18 $ 0.14
======= =======
The fair value of each option grant is estimated on the date of the grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 2003 and 2002; risk free interest rate 3.36%;
expected life of six years; expected volatility of 52%; expected dividend yield
rate of zero, and expected forfeitures of 3.92%.
7
NOTE 3. NET INCOME PER SHARE
A reconciliation of the basic and diluted earnings per share computations for
the three months ended March 31, 2003 and 2002, is as follows:
Three Months Ended
March 31,
-------------------
2003 2002
-------- --------
Weighted average common
shares outstanding - basic 37,192 36,894
Effect of stock options 895 1,188
-------- --------
Weighted average common
share and common share
equivalents outstanding - diluted 38,087 38,082
======== ========
Net income $ 7,077 $ 5,553
======== ========
Net income per common share and
common share equivalent
Basic $ 0.19 $ 0.15
======== ========
Diluted $ 0.19 $ 0.15
======== ========
NOTE 4. COMPREHENSIVE INCOME
Comprehensive income for the period was as follows:
Three Months Ended
March 31,
-------------------
2003 2002
-------- --------
Net income $ 7,077 $ 5,553
Other comprehensive income:
Interest rate swap agreement - fair
market value adjustment 84 89
-------- --------
Comprehensive income $ 7,161 $ 5,642
======== ========
8
NOTE 5. SEGMENT INFORMATION
Although we have ten operating segments, we have determined that we have one
reportable segment. Nine of the segments are managed based on regions in the
United States in which we operate. Each of these segments have similar economic
characteristics as they all provide 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. The remaining segment is not reported because it
does not meet the materiality thresholds in Statement of Financial Accounting
Standards (SFAS) No. 131. As a result, we have determined that it is appropriate
to aggregate our operating divisions into one reportable segment consistent with
the guidance in SFAS No. 131. Accordingly, we have not presented separate
financial information for each of our operating divisions as our consolidated
financial statements present our one reportable segment.
NOTE 6. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
All derivatives are recognized on the balance sheet at their fair value. On the
date the derivative contract is entered into, we designate the derivative as
either a hedge of the fair value of a recognized asset or liability or of an
unrecognized firm commitment ("fair value" hedge), a hedge of a forecasted
transaction or the variability of cash flows to be received or paid related to a
recognized asset or liability ("cash flow" hedge), a foreign-currency fair-value
or cash-flow hedge ("foreign currency" hedge), or a hedge of a net investment in
a foreign operation. We formally assess, both at the hedge's inception and on an
ongoing basis, whether the derivatives that are used in hedging transactions are
highly effective in offsetting changes in fair values or cash flows of hedged
items. When it is determined that a derivative is not highly effective as a
hedge or that it has ceased to be a highly effective hedge, we discontinue hedge
accounting prospectively.
In August and September 2000, and in July 2001, we entered into three
agreements, respectively, which are designated as derivative contracts. These
three contracts relate to the price of heating oil on the New York Merchantile
Exchange ("NYMX") and were entered into in connection with volume diesel fuel
purchases between October 2000 and February 2002. The three agreements described
above are stated at their fair market value, based on an option provided by the
issuer of the agreements to dissolve the agreements for $750,000, which expires
on July 7, 2003.
During 2001, we entered into an interest rate swap agreement on the $12.2
million outstanding on our line of credit for purposes of better managing cash
flow. On November 7, 2001, we paid $762,500 to settle this swap agreement. The
amount is included in other comprehensive income and is being amortized to
interest expense over the original 36-month term of the swap agreement.
NOTE 7. RECENTLY ADOPTED AND TO BE ADOPTED ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations" (SFAS No. 143). SFAS No. 143 requires the Company to record the
fair value of an asset retirement obligation as a liability in the period in
which it incurs a legal obligation associated with the retirement of tangible
long-lived assets that result from the acquisition, construction, development
and/or normal use of the assets. The Company also records a corresponding asset
which is depreciated over the life of the asset. Subsequent to the initial
measurement of the asset retirement obligation, the obligation will be adjusted
at the end of each period to reflect the passage of time and changes in the
estimated future cash flows underlying the obligation. The Company adopted SFAS
No. 143 on January 1, 2003. The adoption of SFAS No. 143 did not have a material
impact on our consolidated financial statements.
9
In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal
Activities" (SFAS No. 146). SFAS No. 146 addresses the recognition, measurement
and reporting of costs associated with exit and disposal activities, including
restructuring activities. SFAS No. 146 also addresses recognition of certain
costs related to terminating a contract that is not a capital lease, recognition
of costs to consolidate facilities or relocate employees and recognition of
costs for termination of benefits provided to employees that are involuntarily
terminated under the terms of a one-time benefit arrangement that is not an
ongoing benefit arrangement or an individual deferred compensation contract.
SFAS No. 146 is effective for exit or disposal activities that are initiated
after December 31, 2002. The adoption of SFAS No. 146 did not have a material
impact on our consolidated financial statements.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others, an interpretation of FASB Statements No. 5, 57 and 107
and a rescission of FASB Interpretation No. 34." This interpretation elaborates
on the disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under guarantees issued. This interpretation
also clarifies that a guarantor is required to recognize at inception of a
guarantee, a liability for the fair value of the obligation undertaken. The
initial recognition and measurement provisions of this interpretation are
applicable to guarantees issued or modified after December 31, 2002, and are not
expected to have a material effect on our consolidated financial statements. The
disclosure requirements are effective for financial statements of interim and
annual periods ending after December 31, 2002. The application of this
interpretation did not have a material effect on our consolidated financial
statements.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51." This
interpretation addresses the consolidation by business enterprises of variable
interest entities as defined in this interpretation. This interpretation applies
immediately to variable interests in variable interest entities created after
January 31, 2003, and to variable interests in variable interest entities
obtained after January 31, 2003. For public enterprises with a variable interest
in a variable interest entity created before February l, 2003, this
interpretation applies to that enterprise no later than the beginning of the
first interim or annual reporting period beginning after June 15, 2003. The
application of this interpretation did not have a material effect on our
consolidated financial statements.
NOTE 8. COMMITMENTS AND CONTINGENCIES
We are involved in certain legal proceedings arising in the normal course of
business. In the opinion of management, our 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
Except for certain historical information contained herein, this Quarterly
Report on Form 10-Q contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
involve risks, assumptions and uncertainties which are difficult to predict. All
statements, other than statements of historical fact, are statements that could
be deemed forward-looking statements, including any projections of earnings,
revenues, or other financial items, any statement of plans, strategies, and
objectives of management for future operations; any statements concerning
proposed new strategies or developments; any statements regarding future
economic conditions or performance; any statements of belief and any statement
of assumptions underlying any of
10
the foregoing. Words such as "believe," "may," "could" "expects," "anticipates'"
and "likely," and variations of these words, or similar expressions, are
intended to identify such forward-looking statements. Our actual results could
differ materially from those discussed in forward-looking statements. Factors
that could cause or contribute to such differences include, but are not limited
to, those items discussed in the section entitled "Factors That May Affect
Future Results," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" set forth in our Annual Report on Form
10-K, which is by this reference incorporated herein. We do not assume, and
specifically disclaim, any obligation to update any forward-looking statement
contained in this Quarterly Report.
OVERVIEW
We are a dry van truckload carrier based in Phoenix, Arizona. We transport
general commodities for shippers throughout the United States, generally
focusing our operations on short-to-medium lengths of haul in our ten operating
regions. Over the past five years we have achieved substantial growth from
$125.0 million in revenue, before fuel surcharge, and $13.3 million in net
income in 1998 to $279.3 million in revenue, before fuel surcharge, and $27.9
million in net income in 2002. The main factors that affect our results are the
number of tractors we operate, our revenue per tractor (which includes primarily
our revenue per total mile and our number of miles per tractor), and our ability
to control our costs.
For the quarter ended March 31, 2003, our revenue, before fuel surcharge,
increased 18.8% to $73.6 million from $61.9 million for the same quarter of
2002. Net income increased 27.4% to $7.1 million from $5.6 million, and net
income per diluted share increased 26.7% to $0.19 from $0.15. The main factors
contributing to the improvement were a 13.8% increase in average tractors and a
4.8% increase in revenue per tractor versus the 2002 quarter. We expanded our
business geographically and increased our volume in existing territories. These
factors more than offset higher costs of insurance, maintenance and fuel. We
ended the quarter with $33.6 million in cash and $13.5 million in borrowings.
Our shareholders' equity was $208.0 million.
NOTE REGARDING REVENUE AND EXPENSES
Our total revenue for the three months ended March 31, 2003, increased to $77.2
million from $62.4 million for the same period in 2002. Total revenue included
$3.7 million of fuel surcharge revenue in the 2003 period and $461,000 of fuel
surcharge revenue in the 2002 period. In discussing our results of operations we
use revenue, before fuel surcharge, (and fuel expense, net of surcharge,)
because we believe that eliminating this sometimes volatile source of revenue
and expense affords a more consistent basis for comparing our results of
operations from period to period. We also discuss the changes in our expenses as
a percentage of revenue, before fuel surcharge, rather than absolute dollar
changes. We do this because we believe the high variable cost nature of our
business makes a comparison of changes in expenses as a percentage of revenue
more meaningful than absolute changes.
RESULTS OF OPERATIONS
Our revenue, before fuel surcharge, for the three months ended March 31, 2003,
increased by 18.8% to $73.6 million from $61.9 million for the same period in
2002. The increase in revenue, before fuel surcharge, resulted primarily from a
13.7% increase in average tractors as we expanded our geographic coverage and
increased our business in existing territories, as well as a 4.5% increase in
revenue per average tractor. A significant increase in our revenue per tractor
was accomplished from increased revenue per mile resulting from our sales
efforts, a market that was more receptive to rate increases, and a lower
percentage of non-revenue miles was partially offset by lower miles per tractor.
Although it is our goal to improve revenue per mile over time, we do not expect
our improvement in revenue per mile versus the same period last year to continue
at the same level because we believe revenue per mile for the first half of 2002
was at a low base.
11
Salaries, wages and benefits decreased as a percentage of revenue, before fuel
surcharge, to 32.3% for the three months ended March 31, 2003, from 34.4% for
the same period in 2002. This decrease was primarily the result of an increase
in revenue per mile, which increased the revenue generated per tractor without
an increase in the miles for which our drivers were compensated. Our cost of
health and workers' compensation programs, which are included in salaries,
wages, and benefits, remained relatively constant as a percentage of revenue
between the two periods.
Fuel expense, net of fuel surcharge, increased as a percentage of revenue,
before fuel surcharge, to 14.4% for the three months ended March 31, 2003, from
13.8% for the same period in 2002. This increase was primarily the result of
higher fuel costs per gallon. Independent contractors pay their own fuel costs.
Operations and maintenance expense increased as a percentage of revenue, before
fuel surcharge, to 6.4% for the three months ended March 31, 2003 from 5.5% for
the same period in 2002. This increase resulted from increased tire expenses and
increased maintenance expenses due to the aging of our fleet, along with the
increase in the ratio of Company operated vehicles to independent contractor
operated vehicles.
Insurance and claims expense increased as a percentage of revenue, before fuel
surcharge, to 5.2% for the three months ended March 31, 2003, from 4.3% for the
same period in 2002. The primary reasons for these increases were higher
insurance premiums and an increase in our self-insurance retention level. Based
on our current insurance policies and experience, and excluding any catastrophic
events, we expect our insurance and claims expense to be approximately 4.7% to
5.3% of revenue, before fuel surcharge, for the next several quarters.
Operating taxes and licenses as a percentage of revenue, before fuel surcharge,
for the three months ended March 31, 2003, remained essentially constant at 2.9%
compared to 3.0% for the same period in 2002.
Communications expense as a percentage of revenue, before fuel surcharge,
remained at 1.0% for the three months ended March 31, 2003 and for the same
period in 2002.
Depreciation and amortization expense as a percentage of revenue, before fuel
surcharge, increased to 9.2% for the three months ended March 31, 2003, from
8.7% for the same period in 2002. This increase was primarily related to the
increase in the ratio of purchased vehicles as a percentage of total vehicles in
our fleet. Our total fleet includes purchased vehicles, vehicles acquired under
operating lease agreements, and vehicles provided by independent contractors.
Lease expense - revenue equipment as a percentage of revenue, before fuel
surcharge, was 2.7% for the three months ended March 31, 2003 compared to 3.7%
for the same period in 2002. This decrease was primarily due to the increase in
purchased vehicles as a percentage of total vehicles in our fleet, as discussed
above.
Purchased transportation decreased as a percentage of revenue, before fuel
surcharge, to 7.5% for the three months ended March 31, 2003, from 7.9% for the
same period in 2002. This decrease was primarily due to the growth of our
Company fleet. Our independent contractors provided 9.8% of our total fleet at
March 31, 2003, compared to 10.3% for the same period in 2002. Independent
contractors pay their own expenses and are compensated at a fixed rate per mile.
Miscellaneous operating expenses as a percentage of revenue, before fuel
surcharge, decreased to 2.3% for the three months ending March 31, 2003 compared
to 2.6% for the same period in 2002. The decrease was primarily the result of
increased revenue.
12
As a result of the above factors, our operating ratio (operating expenses, net
of fuel surcharge, as a percentage of revenue, before fuel surcharge) for the
three months ended March 31, 2003, was 83.9% compared to 84.8% for the same
period in 2002.
For the three months ended March 31, 2003, and for the same period in 2002, net
interest expense remained at 0.1% as a percentage of revenue, before fuel
surcharge.
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 changes, our net income as a percentage of revenue,
before fuel surcharge, was 9.6% for the three months ended March 31, 2003,
compared to 9.0% for the same period in 2002.
LIQUIDITY AND CAPITAL RESOURCES
The growth of our business has required significant investment in new revenue
equipment. Our primary sources of liquidity have been funds provided by
operations and our line of credit. Net cash provided by operating activities was
approximately $18.5 million for the first three months of 2003, compared to
$13.8 million for the corresponding period in 2002.
Net cash used in investing activities totaled 20.3 million for the first three
months of 2003 compared to $2.3 million for the same period in 2002. The
increase was the result of an increase in delivery or payment for revenue
equipment in the 2003 period, compared to the 2002 period. The 2002 period was
an unusually low period for deliveries for us.
Net cash used in financing activities remained consistent at approximately $0.8
million for the first three months of 2003 and for the same period in 2002. Net
cash used in financing activities during the first three months of 2003 and 2002
was primarily for the payment of long-term debt.
We maintain a line of credit totaling $50.0 million. We are obligated to comply
with certain financial covenants under our line of credit and were in compliance
with these covenants at March 31, 2003. The rate of interest on borrowings
against the line of credit will vary depending upon the interest rate election
made by us, based upon either the London Interbank Offered Rate ("Libor") plus
an applicable margin, or the prime rate. Borrowings under the line of credit
amounted to $12.2 million at March 31, 2003. The line of credit expires in July
2004. The line of credit contains a letter of credit subfacility that directly
reduces available borrowing. At March 31, 2003, the letter of credit subfacility
was $10.0 million.
Through our subsidiaries, we have entered into lease agreements under which we
lease revenue equipment. The total amount outstanding under these agreements as
of March 31, 2003, was $10.9 million, with $5.1 million due in the next 12
months.
As of March 31, 2003, we held $33.6 million in cash and cash equivalents. We
believe we will be able to finance our near term needs for working capital, as
well as acquisitions of revenue equipment, with cash flows from operations,
borrowings available under the line of credit, and operating lease financing
believed to be available to finance revenue equipment. We will continue to have
significant capital requirements over the long term, which may require us 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 we have limited control, as well as
our financial condition and results of operations.
13
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires that management make
a number of assumptions and estimates that affect the reported amounts of
assets, liabilities, revenue and expenses in our consolidated financial
statements and accompanying notes. Our critical accounting policies are those
that affect our financial statements materially and involve a significant level
of judgment by management. Our critical accounting policies include revenue
recognition, insurance and claims reserves, depreciation and amortization,
valuation of long-lived assets and accounting for income taxes. For additional
information, please refer to the discussion of Critical Accounting Policies
contained in our most recent annual report on Form 10-K under "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Critical Accounting Policies and Estimates" and in the footnotes to our
consolidated financial statements, particularly note 1. There have been no
significant changes in our Company's critical accounting policies during the
first quarter of 2003.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Our future results may be affected by a number of factors over which we have
little or no control. Fuel prices, insurance and claims costs, liability claims,
interest rates, the availability of qualified drivers, fluctuations in the
resale value of revenue equipment, economic and customer business cycles and
shipping demands are factors over which we have little or no control.
Significant increases or rapid fluctuations in fuel prices, interest rates or
insurance costs or liability claims, to the extent not offset by fuel surcharges
and increases in freight rates, and the resale value of revenue equipment, could
reduce our profitability. Weakness in the general economy, including a weakness
in consumer demand for goods and services, could adversely affect our customers
and our growth and revenues, if customers reduce their demand for transportation
services. Weakness in customer demand for our services or in the general rate
environment may also restrain our ability to increase rates or obtain fuel
surcharges. It is also not possible to predict the effects of terrorist attacks
and subsequent events on the economy or on customer confidence in the United
States, or the impact, if any, on our future results of operations.
The following issues and uncertainties, among others, should be considered in
evaluating our growth outlook:
BUSINESS UNCERTAINTIES. We have experienced significant and rapid growth in
revenue and profits since the inception of our business in 1990. There can be no
assurance that our business will continue to grow in a similar fashion in the
future or that we can effectively adapt our management, administrative, and
operational systems to respond to any future growth. Further, there can be no
assurance that our operating margins will not be adversely affected by future
changes in and expansion of our business or by changes in economic conditions.
INSURANCE. Our future insurance and claims expenses might exceed historical
levels, which could reduce our earnings. During 2002, we were self-insured for
personal injury and property damage liability, cargo liability, collision and
comprehensive up to a maximum limit of $1.75 million per occurrence. We were
self-insured for workers' compensation up to a maximum limit of $500,000 per
occurrence. In the first quarter of 2003, we amended our self-insurance
retention levels to a combined $2.0 million for personal injury and property
damage liability, cargo liability, collision, comprehensive and worker's
compensation per occurrence. Our maximum self-retention for workers'
compensation where a traffic accident is not involved remains $500,000 per
occurrence. We maintain insurance with licensed insurance companies above the
amounts for which we self-insure. Following changes made in the first quarter of
2003, our
14
insurance policies now provide for excess personal injury and property damage
liability up to a total of $35.0 million per occurrence, compared to $30.0
million per occurrence for 2002, and cargo liability, collision, comprehensive
and workers' compensation coverage up to a total of $10.0 million per
occurrence. Our personal injury and property damage policies also include
coverage for punitive damages where such coverage is allowed.
If the number of claims for which we are self-insured increases, our operating
results could be adversely affected. After several years of aggressive pricing
in the 1990s, insurance carriers raised premiums which increased our insurance
and claims expense. The terrorist attacks of September 11, 2001, exacerbated
already difficult conditions in the United States insurance market resulting in
additional increases in our insurance expenses. If these expenses continue to
increase, or if the severity or number of claims increase or exceed our
self-retention limits, and if we are unable to offset the resulting increases
with higher freight rates, our earnings could be materially and adversely
affected.
REVENUE EQUIPMENT. Our growth has been made possible through the addition of new
revenue equipment. Difficulty in financing or obtaining new revenue equipment
(for example, delivery delays from manufacturers or the unavailability of
independent contractors) could restrict future growth.
In the past we have acquired new tractors and trailers at favorable prices,
including agreements with the manufacturers to repurchase the tractors from us
at agreed prices. Current developments in the secondary tractor and trailer
resale market have resulted in a large supply of used tractors and trailers on
the market. This has depressed the market value of used equipment to levels
significantly below the prices at which the manufacturers have agreed to
repurchase the equipment. Accordingly, some manufacturers may refuse or be
financially unable to keep their commitments to repurchase equipment according
to their repurchase agreement terms. Some manufacturers have significantly
increased new equipment prices, in part to meet new engine design requirements
imposed, effective October 1, 2002, by the EPA and eliminate or sharply reduce
the price of repurchase commitments.
Our business plan and current contract take into account new equipment price
increases due to engine design requirements imposed effective October 1, 2002,
by the EPA. The cost of operating new engines is expected to be somewhat higher
than the cost of operating older engines. If new equipment prices were to
increase more than anticipated, or if the price of repurchase commitments were
to decrease or fail to be honored by equipment manufacturers, we may be required
to increase our depreciation and financing costs, write down the value of used
equipment, and/or retain some of our equipment longer, with a resulting increase
in maintenance expenses. If our resulting cost of revenue equipment were to
increase, and/or prices of used revenue equipment were to decline, our operating
costs could increase, which could materially and adversely affect our earnings
and cash flows, if we are unable to obtain commensurate rate increases or cost
savings.
REGIONAL OPERATIONS. Currently, a significant portion of our business is
concentrated in the Arizona and California markets and a general economic
decline or a natural disaster in either of these markets could have a materially
adverse effect on our growth and profitability. If we do not continue to be
successful at deriving a more significant portion of our revenues from markets
throughout the United States, our growth and profitability could be materially
and adversely affected by general economic declines or natural disasters in
those markets.
In addition to our headquarters in Phoenix, Arizona, we have established
regional operations in Katy, Texas; Indianapolis, Indiana; Charlotte, North
Carolina; Gulfport, Mississippi; Salt Lake City, Utah; Kansas City, Kansas;
Portland, Oregon; and Memphis, Tennessee, in order to serve markets in these
regions. Additionally, we established operations in Atlanta, Georgia, subsequent
to March 31, 2003. These regional operations require the commitment of
additional revenue equipment and personnel, as
15
well as management resources, for future development. Should the growth of our
regional operations throughout the United States slow or stagnate, the results
of our operations could be adversely affected. We may encounter operating
conditions in these new markets that differ substantially from those previously
experienced in our western United States markets. There can be no assurance that
our regional operating strategy, as employed in the western United States, can
be duplicated successfully in the other areas of the United States or that it
will not take longer than expected or require a more substantial financial
commitment than anticipated.
INFLATION. Many of our operating expenses, including fuel costs and fuel taxes,
are sensitive to the effects of inflation, which could result in higher
operating costs. During 2002 and the first three months of 2003, we experienced
fluctuations in fuel costs, as a result of conditions in the petroleum industry.
We also have periodically experienced some wage increases for drivers. Increases
in fuel costs and driver compensation could continue during 2003 and may affect
our operating income, unless we are able to pass those increased costs to
customers through rate increases or fuel surcharges. We have 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 have been successful in implementing some
fuel surcharges. Competitive conditions in the transportation industry,
including lower demand for transportation services, could limit our ability to
continue to obtain rate increases or fuel surcharges.
DRIVER RETENTION. Difficulty in attracting or retaining qualified drivers,
including independent contractors, or a downturn in customer business cycles or
shipping demands also could have a materially adverse effect on our growth and
profitability. If a shortage of drivers should occur in the future, or if we
were unable to continue to attract and contract with independent contractors, we
could be required to adjust our driver compensation package, which could
adversely affect our profitability if not offset by a corresponding increase in
rates.
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, our
revenue has not shown any significant seasonal pattern. Because we have
significant operations in Arizona, California and the western United States,
winter weather generally has not adversely affected our business. The continued
expansion of our operations throughout the United States could expose us to
greater operating variances due to seasonal weather in these regions. Shortage
of energy issues in California and elsewhere in the Western United States could
result in an adverse effect on our operations and demand for our services should
these shortages continue or increase. This risk may exist in the other regions
in which we operate, depending upon availability of energy.
TECHNOLOGY. We utilize Terion's trailer-tracking technology to assist with
monitoring the majority of our trailers. Terion has emerged from a Chapter 11
bankruptcy and a plan of reorganization has been approved by the Bankruptcy
Court. If Terion ceases operations or abandons that trailer-tracking technology,
we would be required to incur the cost of replacing that technology or could be
forced to operate without this technology, which could adversely affect our
trailer utilization and our ability to assess detention charges.
STOCK PRICE VOLATILITY. The market price of our common stock could be subject to
significant fluctuations in response to certain factors, such as variations in
our anticipated or actual results of operations or in the anticipated or actual
results of operations of other companies in the transportation industry, changes
in conditions affecting the economy generally, including incidents of military
action or terrorism, analyst reports, general trends in the industry, sales of
common stock by insiders, as well as other factors unrelated to our operating
results. Volatility in the market price of our common stock may prevent you from
being able to sell your shares at or above the price you paid for your shares.
16
INVESTMENTS. We have invested in and/or loaned to Concentrek, Inc.,
("Concentrek") a transportation logistics company $3.7 million on a secured
basis. Of this $3.7 million, $2.6 million is personally guaranteed by members of
the Knight family. We own approximately 17% of Concentrek, and the remainder is
owned by members of the Knight family and Concentrek's management. If
Concentrek's financial position does not continue to improve, or if it is unable
to raise additional capital, we could be forced to write down all or part of
this investment.
For other risks and uncertainties that might affect our future operations,
please review Part II of our Annual Report on Form 10-K - "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS -
FACTORS THAT MAY AFFECT FUTURE RESULTS."
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates on debt and
from changes in commodity prices. Under Financial Accounting Reporting Release
Number 48, we are required to disclose information concerning market risk with
respect to foreign exchange rates, interest rates, and commodity prices. We have
determined that market risk for interest rates and currency fluctuations are not
material because of our low level of debt and because all of our transactions
are in Unites States dollars. We have not used derivative instruments for
speculation or trading. We have elected to make the disclosures concerning
commodity price risk using a sensitivity analysis approach, based on
hypothetical changes in commodity prices.
COMMODITY PRICE RISK. We are 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 our control.
Because our operations are dependent upon diesel fuel, significant increases in
diesel fuel costs could materially and adversely affect our results of
operations and financial condition if we are unable to pass increased costs on
to customers through rate increases or fuel surcharges. Historically, we have
sought to recover a portion of our 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.
We are party to three contracts relating to the price of heating oil on the New
York Merchantile Exchange ("NYMX") that we entered into in connection with
volume diesel fuel purchases between October 2000 and February 2002. If the
price of heating oil on the NYMX falls below $0.58 per gallon we may be required
to pay the difference between $0.58 and the index price (1) for 1.0 million
gallons per month for any twelve months between April 1, 2003 and March 31,
2005, and (2) for 750,000 gallons per month for the twelve months of 2005. At
May 5, 2003, the price of heating oil on the NYMX was $0.70 for June 2003
contracts. For each $0.05 per gallon the price of heating oil would fall below
$0.58 per gallon during the relevant periods, our potential loss on the
contracts would be approximately $1.0 million. However, our net savings on fuel
costs from lower contracts would be approximately $700,000 after taking the loss
on the contracts into consideration. We have valued these items at fair value in
the accompanying March 31, 2003, condensed consolidated financial statements.
17
ITEM 4. CONTROLS AND PROCEDURES
As required by Rule 13a-14 under the Exchange Act, within 90 days prior to the
filing date of this report, the Company carried out an evaluation of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. This evaluation was carried on under the supervision and with
the participation of the Company's management, including our Chief Executive
Officer and our Chief
Financial Officer. Based upon that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that our controls and procedures are
effective. There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect internal controls
subsequent to the date the Company carried out this evaluation.
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in the Company's
reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include controls and procedures designed to ensure that information required to
be disclosed in Company reports filed under the Exchange Act is accumulated and
communicated to management, including the Company's Chief Executive Officer as
appropriate, to allow timely decisions regarding disclosures.
The Company has confidence in its internal controls and procedures.
Nevertheless, the Company's management, including the Chief Executive Officer
and Chief Financial Officer, does not expect that our disclosure procedures and
controls or our internal controls will prevent all errors or intentional fraud.
An internal control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the objectives of such
internal controls are met. Further, the design of an internal control system
must reflect the fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Because of the inherent
limitations in all internal control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are a party to ordinary, routine litigation and administrative proceedings
incidental to our business. These proceedings primarily involve claims for
personal injury or property damage incurred in the transportation of freight and
for personnel matters.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
18
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 Articles of Incorporation and Bylaws
(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.)
(3.1.1) First Amendment to Restated Articles of Incorporation of the
Company (Incorporated by reference to Exhibit 3.1.1 to the
Company's report on Form 10-K for the period ending December
31, 2000.)
(3.1.2) Second Amendment to Restated Articles of Incorporation of
the Company (Incorporated by reference to Exhibit 3.1.2 to
the Company's Registration Statement on Form S-3 No.
333-72130.)
(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.)
(3.21) Amendment to Amended and Restated Bylaws of the Company
(Incorporated by reference to Exhibit 99.1 to the Company's
Current Report on Form 8-K dated February 6, 2003.)
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 Bylaws 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.)
19
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, 2003.)
(b) Reports on Form 8-K
During the quarter ended March 31, 2003, the Company filed with, or
furnished to, the Securities and Exchange Commission (the "Commission") the
following Current Reports on Form 8-K:
Current Report on Form 8-K dated February 6, 2003 (filed with the Commission on
February 10, 2003) reporting an adoption of an amendment to the Company's Bylaws
and announcing the date of the Company's Annual Meeting of Shareholders;
Current Report on Form 8-K dated March 14, 2003 (filed with the Commission on
March 14, 2003) reporting that the Company's President and Chief Executive
Officer and Chief Financial Officer had provided to the Commission the
certifications required by Section 906 of the Sarbanes-Oxley Act in connection
with the filing of the Company's Annual Report on Form 10-K;
20
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, 2003 By: /s/ Kevin P. Knight
------------------------------------
Kevin P. Knight
Chief Executive Officer, in his
capacity as such and on behalf of
the registrant
Date: May 12, 2003 By: /s/ Timothy Kohl
------------------------------------
Timothy Kohl
Chief Financial Officer and
Principal Financial Officer, in his
capacity as such and on behalf of
the registrant
21
CERTIFICATIONS
I, Kevin P. Knight, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Knight
Transportation, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 12, 2003 /s/ Kevin P. Knight
----------------------------------------
Kevin P. Knight
Chief Executive Officer
I, Timothy M. Kohl, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Knight
Transportation, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 12, 2003 /s/ Timothy M. Kohl
----------------------------------------
Timothy M. Kohl
Chief Financial Officer