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 June 30, 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 July 11, 2003 was 37,373,650 shares.
KNIGHT TRANSPORTATION, INC.
INDEX
PART I - FINANCIAL INFORMATION PAGE NUMBER
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of June 30, 2003
and December 31, 2002 1
Condensed Consolidated Statements of Income for the Three
Months and Six Months Ended June 30, 2003 and June 30, 2002 3
Condensed Consolidated Statements of Cash Flows for the Six
Months ended June 30, 2003 and June 30, 2002 4
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 18
ITEM 4. CONTROLS AND PROCEDURES 19
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 20
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 20
ITEM 3 DEFAULTS UPON SENIOR SECURITIES 20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 20
ITEM 5. OTHER INFORMATION 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 21
SIGNATURES 24
CERTIFICATIONS 25
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2003 AND DECEMBER 31, 2002
(IN THOUSANDS)
June 30, December 31,
2003 2002
------------ ------------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 37,190 $ 36,198
Accounts receivable, net of allowance
for doubtful accounts of $1,659 and
$1,325, respectively 41,658 40,356
Notes receivable, net 976 956
Inventories and supplies 1,360 1,345
Prepaid expenses 10,005 9,653
Deferred tax asset 4,701 3,428
------------ ------------
Total current assets 95,890 91,936
------------ ------------
PROPERTY AND EQUIPMENT:
Land and improvements 14,626 14,158
Buildings and improvements 12,917 12,898
Furniture and fixtures 6,289 6,134
Shop and service equipment 2,088 1,975
Revenue equipment 236,258 211,184
Leasehold improvements 1,162 1,049
------------ ------------
273,340 247,398
Less: Accumulated depreciation
and amortization (75,715) (70,505)
------------ ------------
PROPERTY AND EQUIPMENT, net 197,625 176,893
------------ ------------
NOTES RECEIVABLE - long-term 602 1,487
------------ ------------
OTHER ASSETS 13,062 13,524
------------ ------------
$ 307,179 $ 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 JUNE 30, 2003 AND DECEMBER 31, 2002
(IN THOUSANDS, EXCEPT PAR VALUES)
June 30, December 31,
2003 2002
------------ ------------
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 6,578 $ 7,749
Accrued payroll 3,099 3,571
Accrued liabilities 5,158 3,227
Line of credit 12,200 --
Current portion of long-term debt 761 2,715
Claims accrual 13,286 10,419
------------ ------------
Total current liabilities 41,082 27,681
LINE OF CREDIT -- 12,200
DEFERRED INCOME TAXES 47,381 44,302
------------ ------------
Total liabilities 88,463 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;
37,373 and 37,145 shares issued
and outstanding at June 30, 2003 and
and December 31, 2002, respectively 374 371
Additional paid-in capital 76,383 73,521
Retained earnings
Accumulated other comprehensive loss 142,175 126,148
(216) (383)
------------ ------------
Total shareholders' equity 218,716 199,657
------------ ------------
$ 307,179 $ 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 Six Months Ended
June 30, June 30,
------------------------ ------------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
REVENUE
Revenue, before fuel surcharge $ 81,790 $ 68,307 $ 155,341 $ 130,197
Fuel surcharge 3,319 1,509 6,977 1,970
---------- ---------- ---------- ----------
Total revenue 85,109 69,816 162,318 132,167
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Salaries, wages and benefits 26,398 22,938 50,189 44,200
Fuel 13,638 10,729 27,866 19,709
Operations and maintenance 5,033 4,083 9,721 7,485
Insurance and claims 4,274 3,017 8,101 5,674
Operating taxes and licenses 2,289 1,914 4,415 3,784
Communications 747 557 1,467 1,173
Depreciation and amortization 7,266 5,523 14,052 10,878
Lease expense - revenue equipment 1,948 2,304 3,923 4,600
Purchased transportation 6,542 5,648 12,054 10,528
Miscellaneous operating expenses 2,016 1,788 3,719 3,410
---------- ---------- ---------- ----------
70,151 58,501 135,507 111,441
---------- ---------- ---------- ----------
Income from operations 14,958 11,315 26,811 20,726
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest income 173 236 309 455
Interest expense (181) (247) (383) (513)
---------- ---------- ---------- ----------
(8) (11) (74) (58)
---------- ---------- ---------- ----------
Income before taxes 14,950 11,304 26,737 20,668
INCOME TAXES (6,000) (4,600) (10,710) (8,410)
---------- ---------- ---------- ----------
Net income $ 8,950 $ 6,704 $ 16,027 $ 12,258
========== ========== ========== ==========
Net income per common share and
common share equivalent:
Basic $ 0.24 $ 0.18 $ 0.43 $ 0.33
========== ========== ========== ==========
Diluted $ 0.23 $ 0.18 $ 0.42 $ 0.32
========== ========== ========== ==========
Weighted average number of common
shares and common share equivalents
outstanding:
Basic 37,334 36,975 37,263 36,948
========== ========== ========== ==========
Diluted 38,228 38,060 38,165 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)
Six Months Ended
June 30,
------------------------
2003 2002
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 16,027 $ 12,258
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation and amortization
Non-cash compensation expense for issuance of 14,052 10,878
stock to certain members of board of directors 18 10
Allowance for doubtful accounts 314 190
Interest rate swap agreement - fair value change 167 177
Tax benefit from exercise of stock options 1,400 497
Deferred income taxes 1,806 (346)
Changes in assets and liabilities:
Increase in trade receivables (1,636) (2,144)
(Increase) decrease in inventories and supplies (15) 551
Increase in prepaid expenses (352) (862)
(Increase) decrease in other assets (925) 37
Increase in accounts payable 1,970 321
Increase in accrued liabilities and claims accrual 4,326 7,212
---------- ----------
Net cash provided by operating activities 37,152 28,779
---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (37,925) (12,725)
Investment in/advances to other companies (213) (650)
Cash received from advance to other company 1,600 --
Decrease in notes receivable, net 885 29
---------- ----------
Net cash used in investing activities (35,653) (13,346)
---------- ----------
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 (UNAUDITED) (CONTINUED)
(IN THOUSANDS)
Six Months Ended
June 30,
------------------------
2003 2002
---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES:
Payments on long-term debt (1,954) (2,077)
Proceeds from exercise of stock options 1,447 1,345
---------- ----------
Net cash used in financing activities (507) (732)
---------- ----------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 992 14,701
CASH AND CASH EQUIVALENTS,
Beginning of period 36,198 24,136
---------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 37,190 $ 38,837
========== ==========
SUPPLEMENTAL DISCLOSURES:
Noncash investing and financing transactions:
Equipment acquired in accounts payable $ 1,133 $ -0-
Cash Flow Information:
Income taxes paid $ 6,593 $ 3,995
Interest paid 214 453
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
5
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. FINANCIAL INFORMATION
The accompanying condensed consolidated financial statements include the
accounts of Knight Transportation, Inc., and its wholly owned subsidiaries (the
Company). All material inter-company balances and transactions have been
eliminated in consolidation.
The condensed consolidated financial statements included herein are unaudited
and 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 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, 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 condensed
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 June 30, 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 and
six-month periods ended June 30, 2003 and 2002 (in thousands, except per share
data):
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net income, as reported $ 8,950 $ 6,704 $ 16,027 $ 12,258
Deduct total stock-based compensation
expense determined under fair-value
based method for all rewards, net of tax (151) (165) (302) (330)
---------- ---------- ---------- ----------
Pro forma net income $ 8,799 $ 6,539 $ 15,725 $ 11,928
========== ========== ========== ==========
Diluted earnings per share:
As reported $ 0.23 $ 0.18 $ 0.42 $ 0.32
========== ========== ========== ==========
Pro forma $ 0.23 $ 0.17 $ 0.41 $ 0.31
========== ========== ========== ==========
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; risk free interest rate 3.36%; expected
life of six years; expected volatility of 51%; expected dividend yield rate of
zero, and expected forfeitures of 4.27%. The following weighted average
assumptions were used for grants in 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 3.04%.
7
NOTE 3. NET INCOME PER SHARE
A reconciliation of the basic and diluted earnings per share computations for
the three months and six months ended June 30, 2003 and 2002 was as follows: (in
thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Weighted average common
shares outstanding - Basic 37,334 36,975 37,263 36,948
Effect of stock options 894 1,085 902 1,134
---------- ---------- ---------- ----------
Weighted average common
share and common share
equivalents outstanding -
Diluted 38,228 38,060 38,165 38,082
========== ========== ========== ==========
Net income $ 8,950 $ 6,704 $ 16,027 $ 12,258
========== ========== ========== ==========
Net income per common share and
common share equivalent
Basic $ 0.24 $ 0.18 $ 0.43 $ 0.33
========== ========== ========== ==========
Diluted $ 0.23 $ 0.18 $ 0.42 $ 0.32
========== ========== ========== ==========
NOTE 4. COMPREHENSIVE INCOME
Comprehensive income for the three and six-month periods ended June 30, 2003 and
2002 was as follows (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net Income $ 8,950 $ 6,704 $ 16,027 $ 12,258
Other comprehensive income:
Interest rate swap agreement - fair
market value adjustment 83 88 167 177
---------- ---------- ---------- ----------
Comprehensive income $ 9,033 $ 6,792 $ 16,194 $ 12,435
========== ========== ========== ==========
8
NOTE 5. SEGMENT INFORMATION
Although we have eleven operating segments, we have determined that we have one
reportable segment. Ten of the segments are managed based on regions in the
United States in which we operate. Each of these segments has 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
effective in offsetting changes in fair values or cash flows of hedged items.
When it is determined that a derivative is not effective as a hedge or that it
has ceased to be an 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 in the accompanying condensed
consolidated financial statements.
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 is not expected to have a material effect on
our consolidated financial statements.
In April, 2003, the Financial Accounting Standards Board issued SFAS No. 149,
"Amendment of Statement 133 on Derivative Instruments and Hedging Activities."
SFAS No. 149 amends and clarifies financial accounting and reporting for
derivative instruments embedded in other contracts and for hedging activities
under SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." It is effective for contracts entered into or modified after June
30, 2003, except as stated within the statement, and should be applied
prospectively. We do not expect this statement to have a material effect on our
consolidated financial statements.
On May 15, 2003, the Financial Accounting Standards Board issued SFAS No. 150,
"Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity." SFAS No. 150 requires issuers to classify as
liabilities (or assets in some circumstances) three classes of freestanding
financial instruments that embody obligations for the issuer. Generally, SFAS
No. 150 is effective for financial instruments entered into or modified after
May 31, 2003 and is otherwise effective at the beginning of the first interim
period beginning after June 15, 2003. We adopted the provisions of SFAS No. 150
on July 1, 2003. We did not enter into any financial instruments within the
scope of the SFAS No. 150 during June 2003.
10
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 condensed
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 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 June 30, 2003, our revenue, before fuel surcharge,
increased 19.7% to $81.8 million from $68.3 million for the same quarter of
2002. Net income increased 33.5% to $8.9 million from $6.7 million, and net
income per diluted share increased to $0.23 from $0.18. The main factors
contributing to the improvement were a 15.9% increase in average tractors and a
3.3% 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 $37.2 million in cash and $13.0 million in borrowings.
Our shareholders' equity was $218.7 million.
11
NOTE REGARDING REVENUE AND EXPENSES
Our total revenue for the three months ended June 30, 2003, increased to $85.1
million from $69.8 million for the same period in 2002. Total revenue included
$3.3 million of fuel surcharge revenue in the 2003 period and $1.5 million 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 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 six months ended June 30, 2003,
increased by 19.3% to $155.3 million from $130.2 million for the same period in
2002. For the three months ended June 30, 2003, revenue, before fuel surcharge,
increased by 19.7% to $81.8 million from $68.3 million for the same period in
2002. The increase in revenue, before fuel surcharge, for the first six months
of 2003 resulted primarily from a 14.9% increase in average tractors as we
expanded our geographic coverage and increased our business in existing
territories, as well as a 3.8% 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 and a market that was more
receptive to rate increases. 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.
Salaries, wages and benefits decreased as a percentage of revenue, before fuel
surcharge, to 32.3% for the six months ended June 30, 2003, from 33.9% for the
same period in 2002. For the three months ended June 30, 2003, salaries, wages
and benefits decreased as a percentage of revenue, before fuel surcharge, to
32.3% from 33.6% for the same period in 2002. These decreases were primarily the
result of increased 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 insurance and worker's 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, decreased as a percentage of revenue,
before fuel surcharge, to 13.4% for the six months ended June 30, 2003, compared
to 13.6% for the same period in 2002. For the three months ended June 30, 2003,
fuel expense as a percentage of revenue, before fuel surcharge, decreased to
12.6% from 13.5% for the same period in 2002. These decreases were primarily the
result of increases in revenue per mile. Independent contractors pay their own
fuel costs.
Operations and maintenance expense increased as a percentage of revenue, before
fuel surcharge, to 6.3% for the six months ended June 30, 2003 from 5.7% for the
same period in 2002. For the three months ended June 30, 2003, operations and
maintenance expense increased as a percentage of revenue, before fuel surcharge,
to 6.2% compared to 6.0% for the same period in 2002. These increases were
primarily due to increased tire expenses and increased maintenance expenses due
to the aging of our fleet.
12
Insurance and claims expense increased as a percentage of revenue, before fuel
surcharge, to 5.2% for the six months ended June 30, 2003, from 4.4% for the
same period in 2002. For the three months ended June 30, 2003, insurance and
claims expense increased as a percentage of revenue, before fuel surcharge, to
5.2% from 4.4% 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
assuming the absence of 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 decreased as a percentage of revenue, before fuel
surcharge, to 2.8% for the six months ended June 30, 2003, from 2.9% for the
same period in 2002. These decreases were primarily due to increase in revenue
per mile. For the three months ended June 30, 2003, operating taxes and licenses
as a percentage of revenue, before fuel surcharge, remained relatively
consistent at 2.8% for both the 2003 and 2002 periods.
Communications expense as a percentage of revenue, before fuel surcharge, for
both the six months and three months ended June 30, 2003, remained relatively
consistent with the same periods in 2002, at less than 1.0% of revenue.
Depreciation and amortization expense as a percentage of revenue, before fuel
surcharge, increased to 9.0% for the six month period ended June 30, 2003, from
8.4% for the same period in 2002. For the three months ended June 30, 2003,
depreciation and amortization increased as a percentage of revenue, before fuel
surcharge, to 8.9% from 8.1% for the same period in 2002. These increases were
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 percentage of revenue, before fuel
surcharge, was 2.5% for the six months ended June 30, 2003, compared to 3.5% for
the same period in 2002. For the three months ended June 30, 2003 Lease Expense
- - revenue equipment as a percentage of revenue, before fuel surcharge, was 2.4%
compared to 3.4% for the same period in 2002. These decreases were 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 7.8% for the six months ended June 30, 2003, from 8.1% for the
same period in 2002. For the three months ended June 30, 2003, purchased
transportation as a percentage of revenue, before fuel surcharge, decreased to
8.0% from 8.3% for the same period in 2002. These decreases were due to the
increase in revenue per mile. Our independent contractors provided 10.3% of our
total fleet at June 30, 2003, compared to 10.2% for the same period in 2002.
Independent contractors pay their own expenses and are compensated at a fixed
rate per mile.
Miscellaneous operating expenses decreased as a percentage of revenue, before
fuel surcharge, to 2.4% for the six months ended June 30, 2003, from 2.6% for
the same period in 2002. For the three months ended June 30, 2003, miscellaneous
operating expenses as a percentage of revenue, before fuel surcharge, decreased
to 2.5% from 2.6% for the same period in 2002. These decreases as a percentage
of revenue were attributable to higher revenue per tractor, which more
efficiently spread these costs over greater revenue.
13
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
six months ended June 30, 2003, decreased to 82.7% from 84.1% for the same
period in 2002. Our operating ratio decreased to 81.7% for the three months
ended June 30, 2003, compared to 83.4% for the same period in 2002.
For the six months and three months ended June 30, 2003, net interest expense as
a percentage of revenue, before fuel surcharge, remained at less than 0.1%,
consistent with net interest expense levels for the same periods in 2002.
Income taxes have been provided at the statutory federal and state rates,
adjusted for certain permanent differences between financial statement and
income tax reporting. Our effective tax rate declined from 40.7% to 40.0% from
the 2002 periods to the 2003 periods as a result of certain tax management
techniques.
As a result of the preceding changes, our net income as a percentage of revenue,
before fuel surcharge, was 10.3% for the six months ended June 30, 2003,
compared to 9.4% for the same period in 2002. For the three months ended June
30, 2003, net income as a percentage of revenue, before fuel surcharge, was
10.9%, compared to 9.8% 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 $37.2 million for the first six months of 2003, compared to $28.8
million for the corresponding period in 2002.
Net cash used in investing activities totaled $35.7 million for the first six
months of 2003 compared to $13.3 million for the same period in 2002. The
increase was the result of an increase in delivery and payment for revenue
equipment in the 2003 period, compared to the 2002 period. The 2002 period was
an unusually low period for us with respect to deliveries of revenue equipment.
We expect our capital expenditures, net of dispositions, to be approximately
$20.0 million for the remainder of 2003.
Net cash used in financing activities remained relatively consistent at
approximately $0.5 million for the first six months of 2003, compared to $0.7
for the same period in 2002. Net cash used in financing activities during the
first six 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 June 30, 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 June 30, 2003. The line of credit expires in June
2004. The line of credit contains a letter of credit subfacility of $10.0
million that directly reduces available borrowing. At June 30, 2003, the total
amount of issued but unused letters of credit was $8.4 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 June 30, 2003, was $9.7 million, with $4.9 million due in the next 12 months.
14
As of June 30, 2003, we held $37.2 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 our line of credit or other sources, 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.
CRITICAL ACCOUNTING POLICIES
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 were no
significant changes in our critical accounting policies during the first six
months 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.
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.
15
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 workers'
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 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 the terms of our agreements with them. 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 have eliminated or sharply
reduced the price of repurchase commitments.
Our business plan takes into account new equipment price increases due to engine
design requirements imposed effective October 1, 2002, by the EPA, and
potentially lower equipment repurchase prices. 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. Additionally, the cost of operating new engines is expected to be
somewhat higher than the cost of operating older engines, due primarily to lower
anticipated fuel efficiency and higher anticipated maintenance expenses. If our
fuel or maintenance expenses were to increase as a result of our use of the new,
EPA-compliant engines, and we are unable to offset such increases with fuel
surcharges or higher freight rates, our results of operations would be adversely
affected.
16
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; Memphis, Tennessee; and Atlanta, Georgia in order to serve
markets in these regions. Additionally, we established operations in Denver,
Colorado, subsequent to June 30, 2003. These regional operations require the
commitment of additional revenue equipment and personnel, as 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 six 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.
17
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.
In addition, substantially all of our tractors are equipped with the Qualcomm
tracking and communications system. If the Qualcomm system were to fail or
experience significant disruptions in service, our tractor utilization might
suffer, we may be forced to incur the expense of implementing a new satellite
tracking and communications system or to operate without this technology, and
our driver turnover could increase as a result of dissatisfaction with the level
or quality of satellite communications service available in our trucks.
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.
INVESTMENTS. We have invested in and/or loaned to Concentrek, Inc.,
("Concentrek") a transportation logistics company $2.2 million on a secured
basis. Of this $2.2 million, $1.2 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.
18
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
July 4, 2003, the price of heating oil on the NYMX was $0.79 for October 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 June 30, 2003, condensed consolidated financial statements.
ITEM 4. CONTROLS AND PROCEDURES
As required by Rule 13a-15 under the Exchange Act, the Company has carried out
an evaluation of the effectiveness of the design and operation of the Company's
disclosure controls and procedures as of the end of the period covered by this
report. This evaluation was carried out 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
were effective as of the end of the period covered by this report. There were no
changes in the Company's internal control over financial reporting that occurred
during the period covered by this report that have materially affected, or that
are reasonably likely to materially affect, the Company's internal control over
financial reporting.
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 controls and
procedures 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.
19
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
The Company's Annual Meeting of Shareholders was held on May 21, 2003. At the
Annual Meeting, the shareholders elected Gary Knight, G.D. Madden, and Matt
Salmon to serve as Class II Directors for three-year terms. Kevin Knight, Keith
Knight, Timothy Kohl, Donald Bliss, Randy Knight, and Mark Scudder also
continued as Directors of the Company after the Annual Meeting. Additionally, at
the Annual Meeting, the shareholders (i) approved the adoption of the Knight
Transportation, Inc. 2003 Stock Option Plan, and (ii) approved and ratified the
selection of KPMG LLP as the Company's independent public accountants for 2003.
Shareholders representing 33,499,530 shares, or 90%, of the outstanding shares
of the Company's Common Stock were present in person or by proxy at the Annual
Meeting. A tabulation of the vote with respect to each nominee and the other
proposals follows:
ABSTENTIONS
VOTES VOTES AGAINST AND BROKER
CAST VOTES FOR OR WITHHELD NON-VOTES
---------- ---------- ----------- ---------
Gary Knight 33,499,530 31,935,941 1,563,589 -0-
G.D. Madden 33,499,530 25,558,461 7,941,069 -0-
Matt Salmon 33,499,530 24,940,211 8,559,319 -0-
Adoption of 2003 Stock
Option Plan 33,499,530 28,415,990 4,938,341 145,199
Selection of KMPG LLP
as Independent Public
Accountants 33,499,530 25,452,529 7,918,316 128,685
20
ITEM 5. OTHER INFORMATION
None
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.) (3.2.1)
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.)
21
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 June 30, 2003.)
Exhibit 99 Additional Exhibits
(99.1) Certification pursuant to Item 601(b)(31) of Regulation S-K, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by
Kevin P. Knight, the Company's Chief Executive Officer
(99.2) Certification pursuant to Item 601(b)(31) of Regulation S-K, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, by
Timothy M. Kohl, the Company's Chief Financial Officer
(99.3) Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, by Kevin P. Knight,
the Company's Chief Executive Officer
(99.4) Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, by Timothy M. Kohl,
the Company's Chief Financial Officer
22
(b) Reports on Form 8-K
During the quarter ended June 30, 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 April 14, 2003 (filed with the
Commission on April 14, 2003) reporting the dates on which the Company
planned to (i) issue a press release to report its earnings for the
first quarter of 2003 and (ii) hold a conference call to discuss first
quarter earnings;
Current Report on Form 8-K dated April 16, 2003 (filed with the
Commission on April 18, 2003) reporting (i) the issuance of a press
release to report the Company's first quarter earnings and (ii)
comments regarding mean earnings per share estimates of securities
analysts for the quarter ended June 30, 2003 and the year ended
December 31, 2003 made by the Company's Chief Executive Officer during
the Company's first quarter conference call; and
Current Report on Form 8-K dated May 12, 2003 (filed with the
Commission on May 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
Quarterly Report on Form 10-Q for the quarter ended March 31, 2003.
23
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: July 25, 2003 By: /s/ Kevin P. Knight
------------------------------------
Kevin P. Knight
Chief Executive Officer, in his
capacity as such and on behalf of
the registrant
Date: July 25, 2003 By: /s/ Timothy Kohl
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Timothy Kohl
Chief Financial Officer and
Principal Financial Officer, in his
capacity as such and on behalf of
the registrant
24