UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 1996 Commission File No. 000-22490 LANDAIR SERVICES, INC. (Exact name of registrant as specified in its charter) TENNESSEE 62-1120025 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 430 AIRPORT ROAD GREENEVILLE, TENNESSEE 37745 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (423) 636-7000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ------ ------ The number of shares outstanding of the registrant's common stock, $.01 par value, as of November 8, 1996 was 5,949,382. TABLE OF CONTENTS LANDAIR SERVICES, INC. Page Number PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets - September 30, 1996 and December 31, 1995 3 Condensed Consolidated Statements of Income - Three month and nine month periods ended September 30, 1996 and September 30, 1995 4 Condensed Consolidated Statements of Cash Flows - Nine month periods ended September 30, 1996 and September 30, 1995 5 Notes to Condensed Consolidated Financial Statements - September 30, 1996 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings 11 ITEM 2. Changes in Securities 11 ITEM 3. Defaults Upon Senior Securities 11 ITEM 4. Submission of Matters to a Vote of Security Holders 11 ITEM 5. Other Information 11 ITEM 6. Exhibits and Reports on Form 8-K 11 SIGNATURES 12 EXHIBIT INDEX 13 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) LANDAIR SERVICES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31, 1996 1995 ------------- ------------ (Unaudited) (Note) (In thousands, except share data) ASSETS Current assets: Cash and cash equivalents $ 26 $ 3,834 Accounts receivable, less allowance of $199 in 1996 and $292 in 1995 22,815 17,788 Other current assets 3,620 4,136 -------- -------- Total current assets 26,461 25,758 Property and equipment 95,163 89,699 Less accumulated depreciation and amortization (24,735) (17,577) -------- -------- 70,428 72,122 Other assets 534 399 -------- -------- Total assets $ 97,423 $ 98,279 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 4,470 $ 5,074 Accrued expenses 6,505 5,637 Current portion of long-term debt 6,653 8,158 Current portion of capital lease obligations 1,955 1,089 -------- -------- Total current liabilities 19,583 19,958 Long-term debt, less current portion 22,080 27,030 Capital lease obligations, less current portion 8,937 8,825 Deferred income taxes 6,983 5,822 Shareholders' equity: Preferred stock -- -- Common stock, $.01 par value; Authorized shares - 20,000,000 Issued and outstanding shares - 5,949,382 in 1996 and 5,864,200 in 1995 59 59 Additional paid-in capital 26,141 25,562 Retained earnings 13,640 11,023 -------- -------- Total shareholders' equity 39,840 36,644 -------- -------- Total liabilities and shareholders' equity $ 97,423 $ 98,279 ======== ========
NOTE: The balance sheet at December 31, 1995 has been derived from the audited financial statements at that date, but does not include all of the financial information and footnotes required by generally accepted accounting principles for complete financial statements. See notes to condensed consolidated financial statements. 3 LANDAIR SERVICES, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three month periods ended Nine month periods ended ------------------------------ ---------------------------- September 30, September 30, September 30, September 30, 1996 1995 1996 1995 ------------- ------------- ------------- ------------- (In thousands, except per share data) Operating revenue $ 39,295 $ 37,451 $ 115,167 $ 109,640 Operating expenses: Purchased transportation 12,629 13,027 37,471 40,674 Salaries, wages, and employee benefits 10,911 9,556 31,898 27,546 Fuel and fuel taxes 2,573 2,284 8,175 6,384 Operating leases 1,603 1,468 4,374 4,619 Depreciation and amortization 2,687 2,142 7,909 6,296 Insurance and claims 2,440 1,950 6,153 5,224 Other operating expenses 4,326 4,211 12,692 11,472 --------- --------- --------- --------- 37,169 34,638 108,672 102,215 Income from operations 2,126 2,813 6,495 7,425 Other income (expense): Interest expense (694) (779) (2,288) (2,195) Other, net 0 46 26 252 --------- --------- --------- --------- (694) (733) (2,262) (1,943) Income before income taxes 1,432 2,080 4,233 5,482 Income taxes 545 900 1,616 2,362 --------- --------- --------- --------- Net income $ 887 $ 1,180 $ 2,617 $ 3,120 ========= ========= ========= ========= Net income per share: Primary $ .15 $ .20 $ .43 $ .52 ========= ========= ========= ========= Fully diluted $ .15 $ .20 $ .43 $ .52 ========= ========= ========= ========= Dividends declared per share $ -- $ -- $ -- $ -- ========= ========= ========= =========
See notes to condensed consolidated financial statements. 4 LANDAIR SERVICES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine month periods ended ----------------------------- September 30, September 30, 1996 1995 ------------- ------------- (In thousands) Cash from operations $ 7,180 $ 11,587 Investing activities: Proceeds from disposal of property and equipment 2,700 2,188 Purchases of property and equipment (6,028) (21,886) Decrease in restricted capital lease funds -- 156 Other (135) (59) -------- -------- (3,463) (19,601) Financing activities: Proceeds from long-term debt 1,664 13,504 Payments of long-term debt (8,119) (5,881) Payments of capital lease obligations (1,649) (900) Proceeds from exercise of stock options 579 349 -------- -------- (7,525) 7,072 -------- -------- Increase (decrease) in cash and cash equivalents $ (3,808) $ (942) ======== ========
See notes to condensed consolidated financial statements. 5 LANDAIR SERVICES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) September 30, 1996 NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine month period ended September 30, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. For further information, refer to the consolidated financial statements and footnotes thereto included in the Landair Services, Inc. annual report on Form 10-K for the year ended December 31, 1995. NOTE 2 - NET INCOME PER SHARE Net income per share is based on the weighted average number of shares of common stock and common stock equivalents outstanding during the period. Common stock equivalents consist of outstanding stock options and have been included in the calculation of net income per share using the treasury stock method. NOTE 3 - INCOME TAXES For the three month and nine month periods ended September 30, 1996 and September 30, 1995, the effective income tax rate varied from the statutory federal income tax rate of 34% primarily due to the effect of state income taxes, net of the federal benefit, and permanent differences (principally meals and entertainment). NOTE 4 - CONTINGENCIES The Company is, from time to time, a party to litigation arising in the normal course of its business, most of which involve claims for personal injury and property damage incurred in connection with the transportation of freight. Management believes none of these actions, individually or in the aggregate, will have a material adverse effect on the financial condition or results of operations of the Company. 6 NOTE 5 - CHANGE IN ACCOUNTING ESTIMATE During 1996, the Company changed the estimated useful life of tires in service to reflect the increased warranty periods provided by the tire manufacturers. The change resulted in a decrease in other operating expenses of $140,000 and $280,000, an increase in net earnings of $87,000 and $173,000 and an increase in earnings per share of $0.01 and $0.03 for the three month and nine month periods ended September 30, 1996, respectively. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table sets forth expenses as a percentage of operating revenue for the periods indicated.
Three month periods ended Nine month periods ended ----------------------------- --------------------------- September 30, September 30, September 30, September 30, 1996 1995 1996 1995 ------------- ------------- ------------- ------------- Operating revenue 100.0% 100.0% 100.0% 100.0% Operating expenses: Purchased transportation 32.1 34.8 32.5 37.1 Salaries, wages, and employee benefits 27.8 25.5 27.7 25.1 Fuel and fuel taxes 6.5 6.1 7.1 5.8 Operating leases 4.1 3.9 3.8 4.2 Depreciation and amortization 6.8 5.7 6.9 5.7 Insurance and claims 6.2 5.2 5.3 4.8 Other operating expenses 11.1 11.3 11.1 10.5 ----- ----- ----- ---- 94.6 92.5 94.4 93.2 Income from operations 5.4 7.5 5.6 6.8 Other income (expense): Interest expense (1.8) (2.1) (2.0) (2.0) Other, net 0.0 0.1 0.0 0.2 ----- ----- ----- ---- (1.8) (2.0) (2.0) (1.8) ----- ----- ----- ---- Income before income taxes 3.6 5.5 3.6 5.0 Income taxes 1.3 2.3 1.3 2.2 ----- ----- ----- ---- Net income 2.3% 3.2% 2.3% 2.8% ===== ===== ===== ====
Results of Operations Operating revenue increased by $1.8 million, or 5%, to $39.3 million in the third quarter of 1996 from $37.5 million in 1995. For the first nine months of 1996, operating revenue of $115.2 million was $5.5 million, or 5%, higher than the same period in 1995. The Company's increased operating revenue reflects additional volume from its Forward Air operations, which increased 30% and 24%, respectively, during the third quarter and first nine months of 1996 compared to the prior-year periods. The increase in Forward Air operating revenue was partially offset by a decrease in Truckload and Dedicated operating revenue of 10% and 6% during the third quarter and first nine months of 1996, respectively, because of fewer tractors in service and lower equipment utilization in the Truckload operations. The operating ratio (operating expenses as a percent of operating revenue) for the three month and nine month periods ended September 30, 1996, was 94.6% and 94.4%, respectively, 8 compared to 92.5% and 93.2% for the respective periods in 1995. Except as explained below, operating expenses in the aggregate generally reflect increases proportionate to the increased level of operations. The components of operating expenses fluctuate between periods primarily because of the ratio of owner-operators to Company-operated equipment. Effective February 1996, the Company no longer pays per diem to line-haul drivers as reimbursement for expenses incurred for out-of-town travel. Instead, these drivers now receive a higher pay rate per mile. The effect of this change caused a slight increase in the Company's salaries, wages and employee benefits expense during the third quarter and first nine months of 1996. During the first nine months of 1996, fuel prices increased by approximately 12% over the prior year, which increased fuel and fuel taxes by approximately $850,000. Approximately 30% of the increase in fuel prices was passed on to customers in the form of a fuel surcharge during the third quarter and first nine months of 1996. Operating leases decreased from 4.2% of operating revenue during the first nine months of 1995 to 3.8% during the same period of 1996, while depreciation and amortization increased from 5.7% of operating revenue during the first nine months of 1995 to 6.9% in the same period of 1996. The decrease in operating leases and increase in depreciation and amortization during the first nine months of 1996 from the prior year resulted from increased ownership, rather than leasing, of revenue equipment. The increase in depreciation and amortization during the current year was also attributed to an increase in the ratio of Company-operated equipment to owner-operators. The decrease in operating leases during the first nine months of 1996, attributable to increased ownership of revenue equipment, was partially offset by increased rent for Forward Air terminals, which were upgraded or added during the year to facilitate the Forward Air operation's growth. Insurance and claims for the three month and nine month periods ended September 30, 1996, was 6.2% and 5.3%, respectively, compared to 5.2% and 4.8% for the same period of 1995. The increase in insurance and claims is attributed to an increase in accident costs over the prior year. Included in income from operations for the third quarter and first nine months of 1995 were gains on the sale of revenue equipment in the amount of $101,000 and $453,000, respectively, compared to $216,000 and $386,000 for the same periods in 1996. Also, see Note 5 to the Condensed Consolidated Financial Statements for the current year financial impact of a change in the estimated useful life of tires in service. 9 The effective tax rate for the third quarter and first nine months of 1996 was 38% compared to 43% for the same periods in 1995. The decrease in 1996 is primarily due to a significant reduction in the Company's nondeductible meals and entertainment expense (which were only partially deductible by the Company for federal income tax purposes) resulting from discontinuance of the per diem pay to line-haul drivers coupled with a reduction in the Company's effective state income tax rate during 1996. Liquidity and Sources of Capital Cash flow from operations was $7.2 million for the first nine months of 1996 compared with $11.6 million in the same period of 1995. The $4.4 million decrease was a result of increases in working capital accounts. Management believes available borrowing under existing lines of credit, future borrowing under installment notes for revenue equipment, and cash generated by operations will be sufficient to fund its cash needs and anticipated capital expenditures over the near term. 10 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is, from time to time, a party to litigation arising in the normal course of its business, most of which involve claims for personal injury and property damage incurred in connection with the transportation of freight. Management believes that none of these actions, individually or in the aggregate, will have a material adverse effect on the financial condition or results of operations of the Company. ITEM 2. CHANGES IN SECURITIES Not Applicable ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable. ITEM 5. OTHER INFORMATION Not Applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K The following exhibits are included herein: (a) Exhibits - The response to this portion of Item 6 is submitted as a separate section of this report. (b) Reports on Form 8-K - The Company did not file any reports on Form 8-K during the three months ended September 30, 1996. 11 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. Landair Services, Inc. Date: November 12, 1996 By: /s/ Edward W. Cook --------------------- Edward W. Cook Chief Financial Officer and Senior Vice President 12 EXHIBIT INDEX Exhibit Number Exhibit ------- ------- 11 Statement Re: Computation of Per Share Earnings 27 Financial Data Schedule (Electronic Filing Only) 13