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 June 30, 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 August 5, 1997 was 5,959,186.
TABLE OF CONTENTS
LANDAIR SERVICES, INC.
Page
Number
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -
June 30, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Income -
Three months ended June 30, 1997 and 1996;
Six months ended June 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows -
Six months ended June 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements -
June 30, 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 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
June 30, December 31,
1997 1996
--------------------------------
(Unaudited) (Note)
(In thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents $ 99 $ 28
Accounts receivable, less allowance of $688 in 1997 and $415 in 1996 24,458 23,671
Other current assets 4,749 4,505
--------------------------------
Total current assets 29,306 28,204
Property and equipment 102,226 97,445
Less accumulated depreciation and amortization 31,266 27,166
--------------------------------
70,960 70,279
Other assets 617 591
--------------------------------
Total assets $100,883 $99,074
================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,657 $ 5,525
Accrued expenses 10,227 7,391
Current portion of long-term debt 10,079 7,701
Current portion of capital lease obligations 2,054 1,797
--------------------------------
Total current liabilities 26,017 22,414
Long-term debt, less current portion 14,213 18,346
Capital lease obligations, less current portion 7,271 8,748
Deferred income taxes 9,348 8,302
Shareholders' equity:
Preferred stock -- --
Common stock, $.01 par value;
Authorized shares - 20,000,000
Issued and outstanding shares - 5,959,186 in 1997 and 5,952,880 in 60 60
1996
Additional paid-in capital 26,257 26,202
Retained earnings 17,717 15,002
--------------------------------
Total shareholders' equity 44,034 41,264
--------------------------------
Total liabilities and shareholders' equity $100,883 $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 months ended Six months ended
------------------------------- -------------------------------
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
------------------------------- -------------------------------
(In thousands, except per share data)
Operating revenue $ 45,502 $ 38,893 $ 86,507 $ 75,872
Operating expenses:
Purchased transportation 14,376 12,544 28,275 24,842
Salaries, wages, and employee benefits 12,977 10,612 24,646 20,987
Depreciation and amortization 2,744 2,610 5,303 5,222
Fuel and fuel taxes 2,711 2,837 5,294 5,602
Insurance and claims 2,463 1,916 4,975 3,713
Operating leases 1,496 1,473 2,977 2,771
Other operating expenses 4,731 4,198 9,111 8,366
------------------------------- -------------------------------
41,498 36,190 80,581 71,503
Income from operations 4,004 2,703 5,926 4,369
Other income (expense):
Interest expense (658) (788) (1,339) (1,594)
Other, net (159) 16 (129) 26
------------------------------- -------------------------------
(817) (772) (1,468) (1,568)
Income before income taxes 3,187 1,931 4,458 2,801
Income taxes 1,243 732 1,743 1,071
------------------------------- -------------------------------
Net income $ 1,944 $ 1,199 $ 2,715 $ 1,730
=============================== ===============================
Net income per share:
Primary $ .32 $ .20 $ .45 $ .29
=============================== ===============================
Fully diluted $ .32 $ .20 $ .44 $ .29
=============================== ===============================
Dividends declared per share $ -- $ -- $ -- $ --
=============================== ===============================
See notes to condensed consolidated financial statements.
4
LANDAIR SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended
-------------------------------
June 30, 1997 June 30, 1996
------------- -------------
(In thousands)
Cash from operations $ 9,233 $ 4,838
Investing activities:
Proceeds from disposal of property and equipment 804 894
Purchases of property and equipment (7,020) (4,012)
Other (26) (147)
------------- -------------
(6,242) (3,265)
Financing activities:
Proceeds from long-term debt 1,769 1,479
Payments of long-term debt (3,524) (6,563)
Payments of capital lease obligations (1,220) (876)
Common Stock issued under Stock Purchase Plan 55 --
Proceeds from exercise of stock options -- 579
------------- -------------
(2,920) (5,381)
------------- -------------
Increase (decrease) in cash and cash equivalents $ 71 $(3,808)
============= =============
See notes to condensed consolidated financial statements.
5
LANDAIR SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 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 six month period ended June 30, 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 months and six months ended June 30, 1997 and 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
and $280,000, an increase in net earnings of $85,000 and $171,000 and an
increase in earnings per share of $0.01 and $0.03 for the three months and six
months ended June 30, 1997, respectively.
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 three months and six
months ended June 30, 1997 and 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 months ended Six months ended
-------------------------------- --------------------------------
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
-------------------------------- --------------------------------
Operating revenue 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Purchased transportation 31.6 32.3 32.7 32.7
Salaries, wages, and employee
benefits 28.5 27.3 28.5 27.7
Depreciation and amortization 6.0 6.7 6.1 6.9
Fuel and fuel taxes 6.0 7.3 6.1 7.4
Insurance and claims 5.4 4.9 5.8 4.9
Operating leases 3.3 3.8 3.4 3.6
Other operating expenses 10.4 10.8 10.5 11.0
-------------------------------- --------------------------------
91.2 93.1 93.1 94.2
Income from operations 8.8 6.9 6.9 5.8
Other income (expense):
Interest expense (1.4) (2.0) (1.5) (2.1)
Other, net (0.4) 0.0 (0.2) 0.0
-------------------------------- --------------------------------
(1.8) (2.0) (1.7) (2.1)
-------------------------------- --------------------------------
Income before income taxes 7.0 4.9 5.2 3.7
Income taxes 2.7 1.8 2.1 1.4
-------------------------------- --------------------------------
Net income 4.3% 3.1% 3.1% 2.3%
================================ ================================
Results of Operations
Operating revenue increased by $6.6 million, or 17%, to $45.5 million in the
second quarter of 1997 from $38.9 million in 1996. For the first six months of
1997, operating revenue of $86.5 million was $10.6 million, or 14%, higher than
the same period of 1996. The increase in operating revenue compared to the
prior-year periods is attributable to additional volume from the Company's
Forward Air operations, which increased 25% during the second quarter and first
six months of 1997, coupled with increased revenue in the Company's Truckload
operations, which increased 8% and 4%, respectively, due to improvements in
utilization and yield.
The operating ratio (operating expenses as a percentage of operating revenue)
for the three months and six months ended June 30, 1997 was 91.2% and 93.1%,
respectively, compared to 93.1% and 94.2% for the respective periods 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 5.4% and 5.8% of operating revenue for the three
months and six months ended June 30, 1997, respectively, compared to 4.9% for
the same periods 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 $658,000 and $1,339,000, respectively, for the three months
and six months ended June 30, 1997, compared to $788,000 and $1,594,000 for the
same periods in 1996. The decrease in interest costs during 1997 is due to lower
average net borrowings in 1997.
The effective tax rate for the second quarter and first six months of 1997 was
39% compared to 38% for the same periods in 1996.
Liquidity and Sources of Capital
Cash flows from operations were $9.2 million for the first six months of 1997
compared with $4.8 million in the same period of 1996. The $4.4 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
The annual meeting of shareholders of the Company was held on May 20, 1997.
Directors were elected at the meeting for a one (1) year term until the annual
meeting of shareholders to be held in 1998 following the fiscal year ending
December 31, 1997, or until successors shall be duly elected and qualified. The
nominees and votes cast with respect to each are as follows:
Name For Withheld
---- --- --------
Bruce A. Campbell 5,592,827 8,595
Edward W. Cook 5,593,251 8,171
James A. Cronin, III 5,593,266 8,156
Robert K. Gray 5,591,526 9,896
Scott M. Niswonger 5,593,236 8,186
Richard H. Roberts 5,593,236 8,146
10
In addition, the shareholders voted in favor of ratification of the appointment
of Ernst & Young LLP as the Company's independent auditors for the fiscal year
ending December 31, 1997 and the votes as cast are as follows:
For Against Abstain
--- ------- -------
5,597,437 1,396 2,589
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 June 30, 1997.
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: August 13, 1997 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