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 March 31, 1997 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 May 9, 1997 was 5,952,880. TABLE OF CONTENTS LANDAIR SERVICES, INC.
Page Number PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets - March 31, 1997 and December 31, 1996 3 Condensed Consolidated Statements of Income - Three month periods ended March 31, 1997 and March 31, 1996 4 Condensed Consolidated Statements of Cash Flows - Three month periods ended March 31, 1997 and March 31, 1996 5 Notes to Condensed Consolidated Financial Statements - March 31, 1997 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings 10 ITEM 2. Changes in Securities 10 ITEM 3. Defaults Upon Senior Securities 10 ITEM 4. Submission of Matters to a Vote of Security Holders 10 ITEM 5. Other Information 10 ITEM 6. Exhibits and Reports on Form 8-K 10 SIGNATURES 11 EXHIBIT INDEX 12
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) LANDAIR SERVICES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31, 1997 1996 ------------------------------------ (Unaudited) (Note) (In thousands, except share data) ASSETS Current assets: Cash and cash equivalents $ 538 $ 28 Accounts receivable, less allowance of $560 in 1997 and $415 in 1996 23,367 23,671 Other current assets 4,904 4,505 ------------------------------------ Total current assets 28,809 28,204 Property and equipment 102,196 97,445 Less accumulated depreciation and amortization 29,637 27,166 ------------------------------------ 72,559 70,279 Other assets 614 591 ------------------------------------ Total assets $ 101,982 $ 99,074 ==================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 4,280 $ 5,525 Accrued expenses 8,170 7,391 Current portion of long-term debt 8,693 7,701 Current portion of capital lease obligations 2,022 1,797 ------------------------------------ Total current liabilities 23,165 22,414 Long-term debt, less current portion 20,502 18,346 Capital lease obligations, less current portion 7,678 8,748 Deferred income taxes 8,602 8,302 Shareholders' equity: Preferred stock -- -- Common stock, $.01 par value; Authorized shares - 20,000,000 Issued and outstanding shares - 5,952,880 in 1997 and 1996 60 60 Additional paid-in capital 26,202 26,202 Retained earnings 15,773 15,002 ------------------------------------ Total shareholders' equity 42,035 41,264 ------------------------------------ Total liabilities and shareholders' equity $ 101,982 $ 99,074 ====================================
Note: The balance sheet at December 31, 1996 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 -------------------------------------------------------- March 31, 1997 March 31, 1996 -------------------------------------------------------- (In thousands, except per share data) Operating revenue $ 41,005 $ 36,979 Operating expenses: Purchased transportation 13,899 12,298 Salaries, wages, and employee benefits 11,669 10,375 Fuel and fuel taxes 2,583 2,765 Operating leases 1,481 1,298 Depreciation and amortization 2,559 2,612 Insurance and claims 2,512 1,797 Other operating expenses 4,380 4,168 -------------------------------------------------------- 39,083 35,313 Income from operations 1,922 1,666 Other income (expense): Interest expense (681) (806) Other, net 30 10 -------------------------------------------------------- (651) (796) Income before income taxes 1,271 870 Income taxes 500 339 -------------------------------------------------------- Net income $ 771 $ 531 ======================================================== Net income per share: Primary $ .13 $ .09 ======================================================== Fully diluted $ .13 $ .09 ======================================================== Dividends declared per share -- -- ========================================================
See notes to condensed consolidated financial statements. 4 LANDAIR SERVICES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three month periods ended -------------------------------------------- March 31, March 31, 1997 1996 --------------- ----------------- (In thousands) Cash from operations $ 3,091 $ 1,752 Investing activities: Proceeds from disposal of property and equipment 106 520 Purchases of property and equipment (4,967) (1,705) Other (23) (1) --------------- ----------------- 4,884 (1,186) Financing activities: Proceeds from long-term debt 4,990 1,479 Payments of long-term debt (1,842) (5,995) Payments of capital lease obligations (845) (271) Proceeds from exercise of stock options -- 413 --------------- ----------------- 2,303 (4,374) --------------- ----------------- Increase (decrease) in cash and cash equivalents $ 510 $ (3,808) =============== =================
See notes to condensed consolidated financial statements. 5 LANDAIR SERVICES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) March 31, 1997 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 three month period ended March 31, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. 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, 1996. 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. See Note 6. NOTE 3 - INCOME TAXES For the three month periods ended March 31, 1997 and March 31, 1996, 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. 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 Effective July 1, 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 expenses of $140,000, an increase in net earnings of $87,000 and an increase in earnings per share of $0.01 for the three month period ended March 31, 1997. NOTE 6 - ADOPTION OF NEW ACCOUNTING RULES In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings Per Share, which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. The impact of Statement 128 on the calculation of primary and fully diluted earnings per share for the first quarters ended March 31, 1997 and March 31, 1996 is not expected to be material. 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 ------------------------------------------- March 31, 1997 March 31, 1996 ------------------------------------------- Operating revenue 100.0% 100.0% Operating expenses: Purchased transportation 33.9 33.2 Salaries, wages, and employee benefits 28.5 28.1 Fuel and fuel taxes 6.3 7.5 Operating leases 3.6 3.5 Depreciation and amortization 6.2 7.1 Insurance and claims 6.1 4.9 Other operating expenses 10.7 11.2 ------------------------------------------- 95.3 95.5 Income from operations 4.7 4.5 Other income (expense): Interest expense (1.7) (2.2) Other, net 0.1 -- ------------------------------------------- (1.6) (2.2) ------------------------------------------- Income before income taxes 3.1 2.3 Income taxes 1.2 0.9 ------------------------------------------- Net income 1.9% 1.4% ===========================================
Results of Operations Operating revenue increased by $4.0 million, or 11%, to $41.0 million in the first quarter of 1997 from $37.0 million in 1996. The increase in operating revenue is primarily attributable to additional volume from the Company's Forward Air operations, which increased 25% during the first quarter of 1997 compared to the prior-year period. The operating ratio (operating expenses as a percent of operating revenue) for the three month period ended March 31, 1997 was 95.3% compared to 95.5% for the respective period in 1996. Except as explained below, operating expenses in the aggregate generally reflect increases proportionate to the increased level of operations. 8 The components of operating expenses fluctuate between periods primarily because of the ratio of owner-operators to Company-operated equipment. Insurance and claims were 6.1% of operating revenue for the three month period ended March 31, 1997, compared to 4.9% for the same period in 1996. The increase in costs during 1997 is due primarily to an increase in the frequency and severity of accidents coupled with increased estimated liability related to claims incurred in prior years. 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. Interest expense was $681,000 for the three month period ended March 31, 1997, compared to $806,000 for the same period in 1996. The decrease in interest costs during 1997 is due to lower average net borrowings in 1997. The effective tax rate for the first quarter of 1997 was 39% compared to 38% for the same period in 1996. Liquidity and Sources of Capital Cash flows from operations were $3.1 million for the first three months of 1997 compared with $1.8 million in the same period of 1996. The $1.3 million increase in cash flows from operations was attributable to increased business volumes and collection of accounts receivable 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 the Company's cash needs and anticipated capital expenditures over the near term. 9 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 March 31, 1997. 10 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: May 14, 1997 By: /s/ Edward W. Cook ----------------------------- Edward W. Cook Chief Financial Officer and Senior Vice President 11 EXHIBIT INDEX
Exhibit Number Exhibit ------- 10.1 Second Amendment to Line of Credit Loan Agreement and to Amended and Restated Security Agreement, dated as of January 28, 1997, among First Tennessee Bank National Association, the registrant, Landair Transport, Inc., Landair International Airlines, Inc., Transportation Properties, Inc., and Forward Air, Inc. 10.2 $15,000,000 Restated, Amended and Replacement Promissory Note (Line of Credit), dated as of January 28, 1997, among the registrant, Landair Transport, Inc., Landair International Airlines, Inc., Transportation Properties, Inc., Forward Air, Inc. and First Tennessee Bank National Association 11 Statement Re: Computation of Per Share Earnings 27 Financial Data Schedule (Electronic Filing Only)
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