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 September 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 October 16, 2003 was 37,430,866 shares.
KNIGHT TRANSPORTATION, INC.
INDEX
PART I - FINANCIAL INFORMATION Page Number
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2003 1
and December 31, 2002
Condensed Consolidated Statements of Income for the Three 3
Months and Nine Months Ended September 30, 2003
and September 30, 2002
Condensed Consolidated Statements of Cash Flows for the Nine 4
Months ended September 30, 2003 and September 30, 2002
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition 10
And Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
Item 4. Controls and Procedures 18
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 20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 23
Part I - Financial Information
Item 1. Financial Statements
KNIGHT TRANSPORTATION, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
September 30, 2003 December 31, 2002
------------------------ -----------------------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 44,814 $ 36,198
Accounts receivable, net of allowance
for doubtful accounts of $1,740 and
$1,325, respectively 40,914 40,356
Notes receivable, net 628 956
Inventories and supplies 1,348 1,345
Prepaid expenses 9,103 9,653
Deferred tax asset 4,838 3,428
------------------------ -----------------------
Total current assets 101,645 91,936
------------------------ -----------------------
PROPERTY AND EQUIPMENT:
Land and improvements 13,860 14,158
Buildings and improvements 14,579 12,898
Furniture and fixtures 6,329 6,134
Shop and service equipment 2,351 1,975
Revenue equipment 249,152 211,184
Leasehold improvements 1,303 1,049
------------------------ -----------------------
287,574 247,398
Less: Accumulated depreciation
and amortization (79,211) (70,505)
------------------------ -----------------------
PROPERTY AND EQUIPMENT, net 208,363 176,893
------------------------ -----------------------
NOTES RECEIVABLE - long-term, net 524 1,487
------------------------ -----------------------
OTHER ASSETS 12,578 13,524
------------------------ -----------------------
$ 323,110 $ 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)
(In thousands, except par values)
September 30, 2003 December 31, 2002
------------------------ --------------------------
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 9,555 $ 7,749
Accrued payroll 3,909 3,571
Accrued liabilities 5,287 3,227
Current portion of long-term debt - 2,715
Claims accrual 13,541 10,419
------------------------ ---------------------------
Total current liabilities 32,292 27,681
LINE OF CREDIT 12,200 12,200
DEFERRED INCOME TAXES 49,934 44,302
------------------------ ---------------------------
Total liabilities 94,426 84,183
------------------------ ---------------------------
COMMITMENTS AND CONTINGENCIES (note 8)
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;
37,401 and 37,145 shares issued
and outstanding at September 30, 2003
and December 31, 2002, respectively 374 371
Additional paid-in capital 76,806 73,521
Retained earnings 151,638 126,148
Accumulated other comprehensive loss (134) (383)
------------------------ ---------------------------
Total shareholders' equity 228,684 199,657
------------------------ ---------------------------
$323,110 $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 Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
---- ---- ---- ----
REVENUE
Revenue, before fuel surcharge $84,445 $72,777 $239,786 $202,974
Fuel surcharge 3,194 1,785 10,171 3,756
---------------- ----------------- ------------------ ------------------
Total revenue 87,639 74,562 249,957 206,730
---------------- ----------------- ------------------ ------------------
OPERATING EXPENSES:
Salaries, wages and benefits 26,908 24,506 77,097 68,706
Fuel 14,277 11,633 42,142 31,343
Operations and maintenance 5,444 4,743 15,165 12,228
Insurance and claims 4,136 3,196 12,237 8,870
Operating taxes and licenses 2,342 1,921 6,758 5,705
Communications 769 577 2,236 1,750
Depreciation and amortization 7,744 5,793 21,796 16,672
Lease expense - revenue
equipment 1,920 2,304 5,843 6,904
Purchased transportation 6,465 5,607 18,519 16,134
Miscellaneous operating
expenses 1,816 1,784 5,535 5,195
---------------- ----------------- ------------------ ------------------
71,821 62,064 207,328 173,507
---------------- ----------------- ------------------ ------------------
Income from operations 15,818 12,498 42,629 33,223
---------------- ----------------- ------------------ ------------------
OTHER INCOME (EXPENSE):
Interest income 110 276 419 731
Interest expense (165) (237) (548) (750)
---------------- ----------------- ------------------ ------------------
(55) 39 (129) (19)
---------------- ----------------- ------------------ ------------------
Income before taxes 15,763 12,537 42,500 33,204
INCOME TAXES (6,300) (5,100) (17,010) (13,510)
---------------- ----------------- ------------------ ------------------
Net income $9,463 $7,437 $ 25,490 $ 19,694
================ ================= ================== ==================
Net income per common share and
common share equivalent:
Basic $0.25 $0.20 $0.68 $0.53
================ ================= ================== ==================
Diluted $0.25 $0.20 $0.67 $0.52
================ ================= ================== ==================
Weighted average number of common
shares and common share equivalents
outstanding:
Basic 37,388 37,047 37,305 36,981
================ ================= ================== ==================
Diluted 38,335 38,001 38,230 38,059
================ ================= ================== ==================
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)
Nine Months Ended
September 30,
2003 2002
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 25,490 $ 19,694
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation and amortization 21,796 16,672
Non-cash compensation expense for issuance of 23 --
stock to certain members of board of directors
Allowance for doubtful accounts 401 330
Interest rate swap agreement - fair value change 249 264
Tax benefit from exercise of stock options 1,638 974
Deferred income taxes 4,222 3,705
Changes in assets and liabilities:
Increase in trade receivables (973) (5,802)
(Increase) decrease in inventories and supplies (3) 728
Decrease (increase) in prepaid expenses 550 (1,153)
Increase in other assets (441) --
Increase in accounts payable 1,604 1,256
Increase in accrued liabilities and claims accrual 5,520 6,428
--------------------- ------------------
Net cash provided by operating activities 60,076 43,096
--------------------- ------------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (53,064) (23,297)
Investment in/advances to other companies (213) (925)
Cash received from advance to other company 1,600 -
Decrease in notes receivable, net 1,305 683
--------------------- ------------------
Net cash used in investing activities (50,372) (23,539)
--------------------- ------------------
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)
Nine Months Ended
September 30,
2003 2002
---- ----
CASH FLOW FROM FINANCING ACTIVITIES:
Payments on long-term debt (2,715) (2,614)
Proceeds from exercise of stock options 1,627 1,624
---------------------- ---------------------
Net cash used in financing activities (1,088) (990)
---------------------- ---------------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 8,616 18,567
CASH AND CASH EQUIVALENTS,
Beginning of period 36,198 24,136
---------------------- ---------------------
CASH AND CASH EQUIVALENTS, end of period $ 44,814 $ 42,703
====================== =====================
SUPPLEMENTAL DISCLOSURES:
Noncash investing and financing transactions:
Equipment acquired in accounts payable $ 4,476 $ -0-
Cash Flow Information:
Income taxes paid $ 9,911 $ 5,700
Interest paid 297 589
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 September 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 Financial Accounting Standards Board (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 Statement of Financial Accounting Standards (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 nine-month periods ended
September 30, 2003 and 2002 (in thousands, except per share data):
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
---- ---- ---- ----
Net income, as reported $ 9,463 $ 7,437 $ 25,490 $ 19,694
Deduct total stock-based
compensation expense determined
under fair-value based method for
all rewards, net of tax (256) (165) (767) (494)
---------------- ---------------- --------------- ----------------
Pro forma net income $ 9,207 $ 7,272 $ 24,723 $ 19,200
================ ================ =============== ================
Diluted earnings per share:
As reported $0.25 $0.20 $0.67 $0.52
================ ================ =============== ================
Pro forma $0.24 $0.19 $0.65 $0.50
================ ================ =============== ================
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 3.51%. 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 3.92%.
7
Note 3. Net Income Per Share
A reconciliation of the basic and diluted earnings per share computations for
the three months and nine months ended September 30, 2003 and 2002 was as
follows: (in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
---- ---- ---- ----
Weighted average common
shares outstanding - Basic 37,388 37,047 37,305 36,981
Effect of stock options 947 954 925 1,078
---------------- ---------------- --------------- ----------------
Weighted average common
share and common share
equivalents outstanding -
Diluted 38,335 38,001 38,230 38,059
================ ================ =============== ================
Net income $ 9,463 $ 7,437 $ 25,490 $ 19,694
================ ================ =============== ================
Net income per common share
and common share equivalent
Basic $0.25 $0.20 $0.68 $0.53
================ ================ =============== ================
Diluted $0.25 $0.20 $0.67 $0.52
================ ================ =============== ================
Note 4. Comprehensive Income
Comprehensive income for the three and nine-month periods ended September 30,
2003 and 2002 was as follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
---- ---- ---- ----
Net Income $9,463 $7,437 $25,490 $19,694
Other comprehensive income:
Interest rate swap agreement - fair
market value adjustment 82 86 249 263
---------------- ---------------- --------------- ----------------
Comprehensive income $9,545 $7,523 $25,739 $19,957
================ ================ =============== ================
Note 5. Segment Information
Although we have fifteen operating divisions, we have determined that we have
one reportable segment. Fourteen of the divisions are managed based on regions
in the United States in which we operate. Each of these divisions 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 division exhibits similar financial performance, including
average revenue per mile and operating ratio. The remaining
8
division is not reported because it does not meet the materiality thresholds in
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
information". 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 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal
Activities." 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 the 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.
9
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 December 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. The adoption of SFAS No. 149 did not have a material impact 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. The adoption of SFAS No. 150 did not have a material impact 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 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.
10
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 eleven
operating centers. 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 September 30, 2003, our revenue, before fuel surcharge,
increased 16.0% to $84.4 million from $72.8 million for the same quarter of
2002. Net income increased 28.4% to $9.5 million from $7.4 million, and net
income per diluted share increased to $0.25 from $0.20. The main factors
contributing to the improvement were a 14.8% increase in average tractors and a
1.0% 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 $44.8 million in cash and $12.2 million in borrowings.
Our shareholders' equity was $228.7 million.
Note Regarding Revenue and Expenses
Our total revenue for the three months ended September 30, 2003, increased to
$87.7 million from $74.6 million for the same period in 2002. Total revenue
included $3.2 million of fuel surcharge revenue in the 2003 period and $1.8
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 nine months ended September 30,
2003, increased by 18.1% to $240.0 million from $203.0 million for the same
period in 2002. For the three months ended September 30, 2003, revenue, before
fuel surcharge, increased by 16.0% to $84.4 million from $72.8 million for the
same period in 2002. The increase in revenue, before fuel surcharge, for the
first nine months of 2003 resulted primarily from a 14.8% increase in average
tractors as we expanded our geographic coverage and increased our business in
existing territories, as well as a 1.0% increase in revenue per average tractor.
The increase in our revenue per tractor primarily was attributable to increased
revenue per mile resulting from our sales efforts and a market that was more
receptive to rate increases.
Salaries, wages and benefits decreased as a percentage of revenue, before fuel
surcharge, to 32.2% for the nine months ended September 30, 2003, from 33.8% for
the same period in 2002. For the three months ended September 30, 2003,
salaries, wages and benefits decreased as a percentage of revenue, before fuel
surcharge, to 31.9% from 33.7% 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, along with continued efforts at improving efficiencies
throughout back-office functions. During this quarter we increased our driver
pay scale by $0.01 per mile, and plan to make an additional $0.01 per mile
available for our higher performing driving associates by the end of the first
quarter of 2004. 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.
11
Fuel expense, net of fuel surcharge, decreased as a percentage of revenue,
before fuel surcharge, to 13.3% for the nine months ended September 30, 2003,
compared to 13.6% for the same period in 2002. For the three months ended
September 30, 2003, fuel expense, net of fuel surcharges, as a percentage of
revenue, before fuel surcharge, decreased to 13.1% from 13.5% for the same
period in 2002. These decreases were primarily the result of increases in
revenue per mile. Our 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 nine months ended September 30, 2003 from 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.
For the three months ended September 30, 2003, operations and maintenance
expense remained relatively unchanged as a percentage of revenue, before fuel
surcharge, at 6.4% compared to 6.5% for the same period in 2002.
Insurance and claims expense increased as a percentage of revenue, before fuel
surcharge, to 5.1% for the nine months ended September 30, 2003, from 4.4% for
the same period in 2002. For the three months ended September 30, 2003,
insurance and claims expense increased as a percentage of revenue, before fuel
surcharge, to 4.9% 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 remained constant as a percentage of revenue,
before fuel surcharge, at 2.8% for the nine months ended September 30, 2003 and
for the same period in 2002. For the three months ended September 30, 2003,
operating taxes and licenses as a percentage of revenue, before fuel surcharge,
increased slightly to 2.8% from 2.6% for the same period of 2002.
Communications expense as a percentage of revenue, before fuel surcharge, for
both the nine months and three months ended September 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 9.1% for the nine month period ended September 30, 2003,
from 8.2% for the same period in 2002. For the three months ended September 30,
2003, depreciation and amortization increased as a percentage of revenue, before
fuel surcharge, to 9.2% from 8.0% for the same period in 2002. These increases
were primarily related to an increase in the percentage of our company fleet
comprised of purchased vehicles. Our company fleet includes purchased vehicles
and vehicles acquired under operating lease agreements, while our total fleet
includes vehicles in our company fleet and vehicles provided by independent
contractors.
Lease expense for revenue equipment as percentage of revenue, before fuel
surcharge, was 2.4% for the nine months ended September 30, 2003, compared to
3.4% for the same period in 2002. For the three months ended September 30, 2003,
lease expense for revenue equipment as a percentage of revenue, before fuel
surcharge, was 2.3% compared to 3.2% for the same period in 2002. These
decreases were primarily due to the increase in purchased vehicles, and the
associated decrease in operating lease vehicles, as a percentage of our company
fleet, as discussed above.
Purchased transportation decreased as a percentage of revenue, before fuel
surcharge, to 7.7% for the nine months ended September 30, 2003, from 7.9% for
the same period in 2002. This decrease was primarily due to the increase in
revenue per mile. For the three months ended September 30, 2003, and for the
same period of 2002, purchased transportation as a percentage of revenue, before
fuel surcharge, remained constant at 7.7%. Our independent contractors provided
9.8% of our total fleet at September
12
30, 2003, compared to 9.4% for the same period in 2002. Independent contractors
pay their own operating expenses and are compensated at a fixed rate per mile.
Miscellaneous operating expenses decreased as a percentage of revenue, before
fuel surcharge, to 2.3% for the nine months ended September 30, 2003, from 2.6%
for the same period in 2002. For the three months ended September 30, 2003,
miscellaneous operating expenses as a percentage of revenue, before fuel
surcharge, decreased to 2.2% from 2.5% for the same period in 2002. These
decreases as a percentage of revenue were attributable to higher revenue per
mile, which more efficiently spread these costs over greater revenue.
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
nine months ended September 30, 2003, decreased to 82.2% from 83.6% for the same
period in 2002. Our operating ratio decreased to 81.3% for the three months
ended September 30, 2003, compared to 82.8% for the same period in 2002.
For the nine months and three months ended September 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 10.6% for the nine months ended September 30, 2003,
compared to 9.7% for the same period in 2002. For the three months ended
September 30, 2003, net income as a percentage of revenue, before fuel
surcharge, was 11.2%, compared to 10.2% 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 $60.1 million for the first nine months of 2003, compared to $43.1
million for the corresponding period in 2002.
Net cash used in investing activities totaled $50.4 million for the first nine
months of 2003 compared to $23.5 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
$10.0 million for the remainder of 2003.
Net cash used in financing activities remained relatively consistent at
approximately $1.1 million for the first nine months of 2003, compared to $1.0
million for the same period in 2002. Net cash used in financing activities
during the first nine months of 2003 and 2002 was primarily for the payment of
interest on long-term debt.
We currently maintain a line of credit totaling $22.2 million. Historically this
line of credit had been maintained at $50.0 million. Due to our continued strong
positive cash position, and in an effort to minimize bank fees, we feel it is
currently only necessary to maintain a line of credit equal to our current
outstanding balance on that line, along with the letter of credit subfacility.
We believe any necessary increase in our line of credit could be accomplished
quickly as needed. We are obligated to comply with certain financial covenants
under our line of credit and were in compliance with these covenants at
13
September 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 September 30, 2003. The line of credit expires in September 2005. The
line of credit contains a letter of credit subfacility of $10.0 million that
directly reduces available borrowing. At September 30, 2003, the total amount of
issued but unused letters of credit was $7.7 million.
Through our subsidiaries, we have entered into lease agreements under which we
lease revenue equipment. The total amount outstanding under these off-balance
sheet operating leases as of September 30, 2003, was $8.7 million, with $4.3
million due in the next 12 months.
As of September 30, 2003, we held $44.8 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 nine
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,
regulating requirements that may increase costs or decrease efficiency,
including revised hours-of-service requirements for drivers, the availability of
qualified drivers, interest rates, 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, and increases in costs of compliance with, or decreases in efficiency
resulting from, regulatory requirements, to the extent not offset by fuel
surcharges and increases in freight rates, as well as downward changes in 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.
14
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 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.
Regulatory Requirements. The United States Department of Transportation (the
"DOT") and various state and local agencies exercise broad powers over our
business, generally governing such activities as authorization to engage in
motor carrier operations, safety, and insurance requirements. The DOT adopted
revised hours-of-service regulations for drivers on April 28, 2003. Although the
regulations have been adopted, motor carriers are not required to comply until
January 4, 2004. The revised regulations could reduce the potential or practical
amount of time that drivers can spend driving, if we are unable to limit their
other on-duty activities. These changes could adversely affect our profitability
if shippers are unwilling to assist in managing the drivers' non-driving
activities, such as loading, unloading, and waiting. If the revised regulations
increase our costs and we cannot pass the additional costs through to shippers,
our operating results could be materially and adversely affected. Our company
drivers and independent contractors also must comply with the safety and fitness
regulations promulgated by the DOT, including those relating to drug and alcohol
testing. We also may become subject to new or more restrictive regulations
relating to ergonomics or other matters. In addition to direct regulation by the
DOT and other agencies, our business also is subject to the effects of new
tractor engine design requirements implemented by the Environmental Protection
Agency (the "EPA") effective October 1, 2002, which are discussed below in the
paragraph entitled "Revenue Equipment." Additional changes in the laws and
regulations governing or impacting our industry could affect the economics of
the industry by requiring changes in operating practices or by influencing the
demand for, and the costs of providing, services to shippers.
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.
15
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.
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 operating centers in Katy, Texas; Indianapolis, Indiana; Charlotte,
North Carolina; Gulfport, Mississippi; Salt Lake City, Utah; Kansas City,
Kansas; Portland, Oregon; Memphis, Tennessee; Atlanta, Georgia; and Denver,
Colorado in order to serve markets in these regions. 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.
16
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 nine 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 a
substantial amount of 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 further adjust our driver compensation package, which could
adversely affect our profitability if not offset by a corresponding increase in
rates. During this quarter we increased our driver pay scale by $0.01 per mile,
and plan to make an additional $0.01 available for our higher performing driving
associates by the end of the first quarter of 2004.
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.
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.
17
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. 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 United 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 selected twelve months through March 31, 2005, and (2)
for 750,000 gallons per month for the twelve months of 2005. At October 10,
2003, the price of heating oil on the NYMX was $0.89 for January 2004 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
September 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 disclosure 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 quarter ended September 30, 2003 that have materially
affected, or that are reasonably likely to materially affect, the Company's
internal control over financial reporting.
18
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
Not Applicable
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.)
20
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.)
Exhibit 11 Schedule of Computation of Net Income Per Share (Incorporated
by reference from Note 3, Net Income Per Share, in the Notes To
Consolidated Financial Statements on Form 10-Q, for the quarter
ended September 30, 2003.)
Exhibit 31 Section 302 Certifications
(31.1) 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
(31.2) 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
Exhibit 32 Section 906 Certifications
(32.1) 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
(32.2) 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
(b) Reports on Form 8-K
During the quarter ended September 30, 2003, the Company
filed with, or furnished to, the Securities and Exchange Commission (the "Commission")
the following Current Reports on Form 8-K:
21
Current Report on Form 8-K dated July 16, 2003 (furnished to the Commission on
July 17, 2003) regarding the issuance of a press release to report the Company's
financial results for the quarter and six months ended June 30, 2003; and
Current Report on Form 8-K dated September 19, 2003 (filed with the Commission on
September 23, 2003) regarding the appointment of Mr. Michael Garnreiter to the
Company's Board of Directors, as a Class III director.
22
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: October 31, 2003 By: /s/ Kevin P. Knight
-----------------------------------
Kevin P. Knight
Chief Executive Officer, in his capacity as such and
on behalf of the registrant
Date: October 31, 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
23