-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UuJxxWSz6pqgSncfGscdPl/VOFj2tlEm8hK3jr40hQ2DBC+tK0zf7avRDJeh/EYJ FzT++asYiqKLFGjr5ZVWOw== 0000793765-97-000009.txt : 19970404 0000793765-97-000009.hdr.sgml : 19970404 ACCESSION NUMBER: 0000793765-97-000009 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970103 FILED AS OF DATE: 19970403 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: KLLM TRANSPORT SERVICES INC CENTRAL INDEX KEY: 0000793765 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 640412551 STATE OF INCORPORATION: DE FISCAL YEAR END: 1230 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-14759 FILM NUMBER: 97574260 BUSINESS ADDRESS: STREET 1: 3475 LAKELAND DR CITY: JACKSON STATE: MS ZIP: 39288 BUSINESS PHONE: 6019392545 MAIL ADDRESS: STREET 1: P.O.BOX 6098 CITY: JACKSON STATE: MS ZIP: 39288 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year Commission file number 0-14759 ended January 3, 1997 KLLM TRANSPORT SERVICES, INC. (Exact name of registrant as specified in its charter) Delaware 64-0412551 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 3475 Lakeland Drive Jackson, Mississippi 39208 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (601) 939-2545 Securities registered pursuant to Section 12(g) of the Act: Common Stock, $1.00 Value 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 ____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Aggregate market value of voting stock held by nonaffiliates of the registrant as of the close of business on March 17, 1997: $40,111,833. The number of shares outstanding of registrant's common stock as of March 17, 1997: 4,351,922. DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents are incorporated by reference: Document Part Annual Report to Shareholders for year ended January 3, 1997 II Definitive Proxy Statement for Annual Meeting of Shareholders to be held April 15, 1997 filed with the Securities and Exchange Commission pursuant to Regulation 14A III Only the portions of KLLM Transport Services, Inc.'s 1996 Annual Report to Shareholders and Proxy Statement which are expressly incorporated by reference in this Annual Report on Form 10-K are deemed filed as part of this report. KLLM TRANSPORT SERVICES, INC. FORM 10-K TABLE OF CONTENTS PART I PAGE 1.Business........................................................4 2.Properties......................................................6 3.Legal Proceedings...............................................7 4.Submission of Matters to a Vote of Security Holders...............................................7 PART II 5.Market for Registrant's Common Equity and Related Stockholder Matters.........................8 7.Management's Discussion and Analysis of Financial Condition and Results of Operations..................8 8.Financial Statements and Supplementary Data...........................................................8 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.........................8 PART III 10.Directors and Executive Officers of the Registrant.............................................8 11.Executive Compensation.........................................9 12.Security Ownership of Certain Beneficial Owners and Management.........................................9 13.Certain Relationships and Related Transactions..................................................9 PART IV 14.Exhibits, Financial Statement Schedules and Reports on Form 8-K...................................................10 PART I Item 1. Business. KLLM Transport Services, Inc. (through its wholly-owned subsidiary, KLLM, Inc., and KLLM, Inc.'s wholly-owned subsidiaries, KLLM Maintenance, Inc., Gulf Logistics, Inc., KLLM Contract Logistics, Inc., KLLM Trading Company, and Fresh International Transportation Services, Inc., hereinafter referred to as "the Company") is an irregular-route common carrier that specializes in providing high-quality transportation service in North America. The Company primarily serves the continental United States, Canada and Mexico. The Company, a Delaware corporation, is the successor by merger to KLLM Distributing, Inc. ("KLLM Distributing"), a Mississippi corporation, incorporated in 1964. The Company owns all of the outstanding shares of KLLM, Inc., a Texas corporation, which owns (either in fee or as lessee) and operates substantially all of the Company's tractors and trailers and holds all of the operating rights presently used in the Company's business. The Company offers transportation services for both temperature- controlled and dry commodities. It strives to provide dependable and timely service designed to meet the specialized needs of its customers. The majority of the Company's revenues, approximately 70%, are in the temperature- controlled sector. Protective service is provided on commodities such as food, medical supplies and cosmetics. Service offerings include over-the-road long haul, regional and intermodal transportation. These services are provided via: 1) the traditional over-the-road temperature- controlled freight operations with both Company-operated and owner-operated equipment, 2) the intermodal, or rail services, operation, which handles movement of freight in temperature-controlled trailers and containers on flat cars carried by the rail industry, and 3) the dry-van over-the-road truckload services, which began May 1, 1995 with the acquisition of substantially all of the assets of Vernon Sawyer, Inc., a regional dry-van truckload carrier based in Bastrop, Louisiana. During 1996, the Company reintegrated the rail operations with the truck operations and closed the freight brokerage division. The Company is now structured to comprise three core truckload operations: the Transport Group, Express Systems; and Vernon Sawyer. The Company currently owns (or leases) and operates substantially all of its fleet. On January 3, 1997, the Company's fleet consisted of 1,390 Company-operated tractors and 366 owner-operated tractors, 2,114 temperature- controlled trailers and 493 dry-van trailers, and 200 temperature-controlled rail containers. Capital resources required by the Company during 1996 continued to be less significant than in prior years as the Company continued to maintain the overall size of the fleet by decreasing Company-owned equipment and increasing owner-operated equipment. In 1996, the Company-owned fleet decreased by 95 tractors and 36 temperature controlled trailers, net of replacements. Capital expenditures, net of proceeds from trade-ins during 1996, were approximately $20,153,000. Net capital expenditures in 1995 were $8,724,000. Capital resources required by the Company during 1995 were much less significant primarily because KLLM, Inc., in January 1995, entered into an operating lease for the majority of its revenue equipment needs for 1995. The payment terms of the operating lease were more favorable than could have been obtained with financing or capital leasing. This was not the case for 1996. Net capital expenditures in 1997 are expected to be approximately $11,906,000. Marketing and Operations Because the Company specializes in temperature-controlled shipments, it constantly seeks to increase the percentage of its revenue derived from freight requiring controlled temperatures because rates on these loads are generally higher than dry freight (non-temperature-controlled) loads and result in higher returns on the Company's more expensive temperature-controlled equipment. For the year ended January 3, 1997, approximately 70% of the Company's revenues resulted from temperature- controlled loads. The remaining 30% resulted from dry freight loads that required special service or that positioned equipment for the next load. The Company seeks customers who need a number of trucks per week committed to long hauls and who require dependable service in meeting scheduling requirements. The Company's full-time staff of ten (10) salespersons, along with each division's executive, is responsible for developing new accounts. Once a customer relationship is established, the primary Company contact is one of eight (8) area managers. Working from the Company's corporate headquarters in Jackson, Mississippi, the area managers contact existing customers to solicit additional business. The Company has driver terminal operations in Georgia, Texas, Louisiana, California, Pennsylvania, Indiana, and Mississippi. Maintenance facilities are located in Mississippi, Georgia, and Texas. The Company's largest 25, 10 and 5 customers accounted for approximately 55%, 42%, and 32%, respectively, of its revenue for the year ended January 3, 1997. During 1996, no one customer accounted for more than 10% of the Company's revenues. Maintenance The Company has a comprehensive preventive maintenance program for its tractors and trailers, which is carried out at its Jackson, Mississippi, Dallas, Texas, and Atlanta, Georgia facilities. The Company's policy is to purchase standardized tractors and trailers manufactured to Company specifications. Standardization enables the Company to control the cost of its spare parts inventory and streamline its preventive maintenance program. Manufacturers of tractors are required to certify that new tractors meet federal emissions standards, and the Company receives this certification on each new tractor it acquires. Environmental protection measures require the Company to adhere to a fuel and oil spill prevention plan and to comply with regulations concerning the discharge of waste oil. The Company believes it is in compliance with all applicable provisions relating to the protection of the environment. Management does not anticipate that compliance with these provisions will have a material effect on the Company's capital expenditures, earnings or competitive position. Personnel Drivers are recruited at all driver terminal locations. On January 3, 1997, the Company employed 1,636 drivers and had a total of 2,082 employees. None of the Company's employees is represented by a collective bargaining unit. Competition The Company competes primarily with other long-haul temperature-controlled truckload carriers and with internal shipping conducted by existing and potential customers. The Company also competes with other irregular-route long-haul truckload carriers, and to a lesser extent, the railroads, for freight loads. Although the increased competition resulting from a combination of deregulation, weak market demand, and a shortage of qualified drivers has created some pressure to reduce rates, the Company competes primarily on the basis of its quality of service and efficiency. Trademark The Company's service mark, the KLLM logo, is registered with the United States Patent and Trademark Office. Seasonality In the freight transportation industry generally, results of operations show a seasonal pattern because customers reduce shipments during and after the winter holiday season with its attendant weather variations. The Company's operating expenses have historically been higher in the winter months primarily due to decreased fuel efficiency and increased maintenance costs in colder weather. Item 2. Properties. The Company's corporate office is situated on approximately seven acres of land and contains approximately 20,600 square feet of office space. Most of the Company's executive and administrative functions, except those that are driver-related, are housed in the corporate office. The corporate office is located in Flowood, Mississippi, a suburb of Jackson. In order to accommodate the growth of the Company, additional space is leased in the general vicinity of the corporate office for various executive and administrative functions. The Company also maintains a facility located in Richland, Mississippi, a suburb of Jackson, which houses all driver-related executive and administrative functions, including safety, driver training, maintenance, and driver recruiting. The Company owns a portion of the land on which this facility is located. The remainder is owned by Benjamin C. Lee, Jr. and the Estate of William J. Liles, Jr. The Company owns all of the improvements, consisting of approximately 31,200 square feet of office space and approximately 52,000 square feet of equipment repair and maintenance space. The Company has an option to purchase the Lee and Liles part of the land for $390,257. Mr. Lee and Mr. Liles' estate are principal shareholders of the Company and Mr. Lee is Chairman of the Company's Board of Directors. The Company owns a maintenance and driver terminal facility near Dallas, Texas. This facility, which consists of approximately 8,000 square feet of office space and 13,700 square feet of equipment repair and maintenance space, is located on approximately nine acres of land. The Company also owns a maintenance and driver terminal operation in Atlanta, Georgia. This facility, which includes two buildings containing approximately 5,000 square feet of office space and 20,000 square feet of maintenance space, is located on approximately eighteen acres of land. Additionally, with the purchase of substantially all of the assets of Vernon Sawyer, Inc., effective May 1, 1995, the Company acquired 19.715 acres of land with all improvements thereon. The facilities located thereon include approximately 8,054 square feet of office space and 36,484 square feet of maintenance space. The remaining driver terminal facilities are leased by the Company pursuant to various short-term leases. Item 3. Legal Proceedings. The Company is involved in various claims and routine litigation incidental to its business. Although the amount of ultimate liability, if any, with respect to these matters cannot be determined, management believes that these matters will not have a materially adverse effect on the Company's consolidated financial position. Item 4. Submission of Matters to a Vote of Security Holders. Not applicable. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. "Market and Dividend Information" on page 7 of the Company's 1996 Annual Report to Shareholders is incorporated herein by reference in response to this item. Item 6. Selected Financial Data. "Selected Financial and Operating Data" on page 6 of the Company's 1996 Annual Report to Shareholders is incorporated herein by reference in response to this item. Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition. "Management's Discussion and Analysis of Results of Operations and Financial Condition" on pages 8-11 of the Company's 1996 Annual Report to Shareholders is incorporated herein by reference in response to this item. Item 8. Financial Statements and Supplementary Data. The Report of Independent Auditors and the consolidated financial statements included on pages 12-23 of the Company's 1996 Annual Report to Shareholders are incorporated herein by reference in response to this item. "Selected Quarterly Data (Unaudited)" on page 7 of the Company's 1996 Annual Report to Shareholders is incorporated herein by reference in response to this item. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. PART III Item 10. Directors and Executive Officers of the Registrant. The information under the caption, "Election of Directors--Nominees for Director," of the Company's definitive proxy statement for its scheduled April 15, 1997 Annual Meeting of Shareholders filed with the Securities and Exchange Commission pursuant to Regulation 14A, is incorporated herein by reference in response to this item. The information under the caption, "Election of Directors--Management," of the Company's definitive proxy statement for its scheduled April 15, 1997 Annual Meeting of Shareholders filed with the Securities and Exchange Commission pursuant to Regulation 14A, is incorporated herein by reference in response to this item. The information under the caption, "Section 16(a) Beneficial Ownership Reporting Compliance" of the Company's definitive proxy statement for its scheduled April 15, 1997 Annual Meeting of Shareholders filed with the Securities and Exchange Commission pursuant to Regulation 14A, is incorporated herein by reference in response to this item. Item 11. Executive Compensation. The information under the captions, "Executive Compensation; Director Compensation; Compensation Committee Report on Executive Compensation; Compensation Committee Interlocks and Insider Participation; Stock Option Plan; Employee Stock Purchase Plan ("ESPP") and Performance Graph" of the Company's definitive proxy statement for its scheduled April 15, 1997 Annual Meeting of Shareholders filed with the Securities Exchange Commission pursuant to Regulation 14A, is incorporated herein by reference in response to this item. Item 12. Security Ownership of Certain Beneficial Owners and Management. The information under the caption "Election of Directors--Stock Ownership," of the Company's definitive proxy statement for its scheduled April 15, 1997 Annual Meeting of Shareholders filed with the Securities and Exchange Commission pursuant to Regulation 14A, is incorporated herein by reference in response to this item. Item 13. Certain Relationships and Related Transactions. The information contained in the section titled "Certain Transactions" on page 5 of the Company's definitive proxy statement for its scheduled April 15, 1997 Annual Meeting of Shareholders filed with the Securities and Exchange Commission pursuant to Regulation 14A, is incorporated herein by reference in response to this item. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. a. The following documents are filed, as part of this report or incorporated by reference herein: 1. Financial Statements The following consolidated financial statements of the Company and its subsidiaries, included in the Company's Annual Report, are incorporated by reference in Item 8: Consolidated Balance Sheets--December 29, 1995 and January 3, 1997. Consolidated Statements of Operations--Years ended December 30, 1994, December 29, 1995 and January 3, 1997. Consolidated Statements of Stockholders' Equity--Years ended December 30, 1994, December 29, 1995 and January 3, 1997. Consolidated Statements of Cash Flows--Years ended December 30, 1994, December 29, 1995 and January 3, 1997. Notes to Consolidated Financial Statements 2. Financial Statement Schedules The following consolidated financial statement schedule is included in Item 14(d): Schedule II - Valuation and Qualifying Accounts. All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. 3. Listing of Exhibits (i) Exhibits filed pursuant to Item 601 of Regulation S-K Exhibit Number Description 3.1 Bylaws of Registrant 1 3.2 Certificate of Incorporation (as amended) 2 10.1 Amended & Restated Stock Option Plan 3 10.2 KLLM, Inc. Retirement Plan and Trust (as amended) 4 10.3 1986 Lease with Mr. Lee and Mr. Liles Covering Corporate Headquarters 1 10.4 Employee Stock Purchase Plan (as amended) 5 10.5 Options granted to Mr. Young and Dr. Neely 6 - ---------------------- 1 Incorporated herein by reference to Registrant's Registration Statement on Form S-1 as filed on July 2, 1986 (Registration No. 33-5881, File No. 0-14759). 2 Incorporated herein by reference to Registrant's Annual Report on Form 10-K for the year ended January 1, 1989 (File No. 0-14759). 3 Incorporated herein by reference to Registrant's Annual Report on Form 10-K for the year ended December 31, 1989 (File No. 0-14759). 4 Incorporated herein by reference to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991 (File No. 0-14759). 5 Incorporated herein by reference from Fourth Post-Effective Amendment to Registration Statement on Form S-8 as filed on November 30, 1990 (Registration No. 33-14545). 6 Incorporated herein by reference to Registrant's Annual Report on Form 10-K for the year ended December 31, 1987 (File No. 0-14759). Exhibit Number Description 10.6 First Amendment to Options granted to Mr. Young and Dr. Neely 7 10.7 KLLM, Inc. Cafeteria Plan 7 10.8 KLLM Maintenance, Inc. Retirement Plan and Trust Agreement 7 10.9 Option to purchase real property on which terminal facility is located from Messrs. Liles and Lee 4 10.10 Stock Purchase Agreement by and between KLLM, Inc. and Fresh International Corp. 8 10.11 Revolving Credit Agreement by and among KLLM, Inc., NationsBank of Georgia, National Association, The First National Bank of Chicago, Deposit Guaranty National Bank, and ABN Amro Bank, N.V. 8 10.12 Employment Agreement between KLLM Transport Services, Inc. and Steven K. Bevilaqua 9 10.13 Options granted to Steven K. Bevilaqua 9 10.14 Asset Purchase Agreement by and among Vernon Sawyer, Inc. and Vernon and Nancy Sawyer as Sellers and KLLM, Inc. as Purchaser (schedules furnished upon request) 9
- -------------------- 7 Incorporated herein by reference to Registrant's Annual Report on Form 10-K for the year ended December 31, 1990 (File No. 0-14759). 8 Incorporated herein by reference to Registrant's Annual Report on Form 10-K for the year ended December 30, 1994 (File No. 0-14759). 9 Incorporated herein by reference to Registrant's Annual Report on Form 10-K for the year ended December 29, 1995 (File No. 0-14759). Exhibit Number Description 10.15 1996 Stock Option Plan 10.16 Amended and Restated 1996 Stock Purchase Plan 13 1996 Annual Report (only portions incorporated by reference are deemed filed) 21 List of Subsidiaries of the Registrant 8 23 Consent of Ernst & Young LLP 27 Financial Data Schedule
(b) Reports on Form 8-K filed in the fourth quarter of 1996: None (c) Exhibits--The response to this portion of Item 14 is submitted as a separate section of this report. (d) Financial Statements Schedules--The response to this portion of Item 14 is submitted as a separate section of this report. INFORMATION REGARDING THE COMPANY'S EMPLOYEE STOCK PURCHASE PLAN and THE COMPANY'S 1996 STOCK PURCHASE PLAN INCLUDED PURSUANT TO RULE 15d-21. 1. Full title of the Plans: KLLM Transport Services, Inc. Employee Stock Purchase Plan KLLM Transport Services, Inc. 1996 Stock Purchase Plan 2. Name of issuer of the securities held pursuant to the Plans and the address of its principal executive office: KLLM Transport Services, Inc. 3475 Lakeland Drive Jackson, Mississippi 39208 3. Financial Statements and Exhibits Not applicable. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this annual report to be signed on its behalf by the undersigned thereunto duly authorized. KLLM TRANSPORT SERVICES, INC. Date: March 31, 1997 By: /s/ Steven K. Bevilaqua Steven K. Bevilaqua President, Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Date: March 31, 1997 /s/ Benjamin C. Lee, Jr. Benjamin C. Lee, Jr. Chairman of the Board of Directors Date: March 31, 1997 /s/ Steven K. Bevilaqua Steven K. Bevilaqua President, Chief Executive Officer and Director Date: March 31, 1997 /s/ James Leon Young James Leon Young Secretary and Director Date: March 31, 1997 /s/ Walter P. Neely Walter P. Neely Director Date: March 31, 1997 /s/ Leland R. Speed Leland R. Speed Director Date: C. Tom Clowe, Jr. Director Date: March 31, 1997 /s/ Steven L. Dutro Steven L. Dutro Vice President-Finance and Acting Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, the Board of Directors, administrators of the KLLM Transport Services, Inc. Employee Stock Purchase Plan and the KLLM Transport Services, Inc. 1996 Stock Purchase Plan, have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized. KLLM TRANSPORT SERVICES, INC. EMPLOYEE STOCK PURCHASE PLAN and KLLM TRANSPORT SERVICES, INC. 1996 STOCK PURCHASE PLAN Date: March 31, 1997 By: /s/ Steven K. Bevilaqua Steven K. Bevilaqua President, Chief Executive Officer and Director
ITEM 14(a)(2) and (c) FINANCIAL STATEMENT SCHEDULES KLLM TRANSPORT SERVICES, INC. and SUBSIDIARIES SCHEDULE II - VALUATION and QUALIFYING ACCOUNTS Years Ended December 30, 1994, December 29, 1995, and January 3, 1997 BALANCE AT CHARGED TO WRITE-OFF BALANCE AT BEGINNING COST AND OF END DESCRIPTION OF PERIOD EXPENSES ACCOUNTS OF PERIOD (In Thousands) Accounts Receivable Allowance: Year ended December 30, 1994 $145 $ 954 $952 $147 Year ended December 29, 1995 $147 $1,239 $907 $479 Year ended January 3, 1997 $479 $ 520 $317 $682
EXHIBIT INDEX Exhibit Number Description Page 3.1 Bylaws of Registrant 1 3.2 Certificate of Incorporation (as amended) 2 10.1 Amended and Restated Stock Option Plan 3 10.2 KLLM, Inc. Retirement Plan and Trust (as amended) 4 10.3 1986 Lease with Mr. Lee and Mr. Liles Covering Corporate Headquarters 1 10.4 Employee Stock Purchase Plan (as amended) 5 10.5 Options granted to Mr. Young and Dr. Neely 6
- ----------------- 1 Incorporated herein by reference to Registrant's Registration Statement on Form S-1 as filed on July 2, 1986 (Registration No. 33-5881, File No. 0-14759). 2 Incorporated herein by reference to Registrant's Annual Report on Form 10-K for the year ended January 1, 1989 (File No. 0-14759). 3 Incorporated herein by reference to Registrant's Annual Report on Form 10-K for the year ended December 31, 1989 (File No. 0-14759). 4 Incorporated herein by reference to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991 (File No. 0-14759). 5 Incorporated herein by reference from Fourth Post-Effective Amendment to Registration Statement on Form S-8 as filed on November 30, 1990 (Registration No. 33-14545). 6 Incorporated herein by reference to Registrant's Annual Report on Form 10-K for the year ended December 31, 1987 (File No. 0-14759). EXHIBIT INDEX Exhibit Number Description Page 10.6 First Amendment to Options granted to Mr. Young and Dr. Neely 7 10.7 KLLM, Inc. Cafeteria Plan 7 10.8 KLLM Maintenance, Inc. Retirement Plan and Trust Agreement 7 10.9 Option to purchase real property on which terminal facility is located from Messrs. Liles and Lee 4 10.10 Stock Purchase Agreement by and between KLLM, Inc. and Fresh International Corp. 8 10.11 Revolving Credit Agreement by and among KLLM, Inc., NationsBank of Georgia, National Association, The First National Bank of Chicago, Deposit Guaranty National Bank, and ABN Amro Bank, N. V. 8 10.12 Employment Agreement between KLLM Transport Services, Inc. Steven K. Bevilaqua 9 10.13 Options granted to Steven K. Bevilaqua 9 Agreement by and among Vernon Sawyer, Inc. and Vernon and Nancy Sawyer as Sellers and KLLM, 10.14 Asset Purchase Agreement by and among Vernon Sawyer, Inc. and Vernon and Nancy Sawyer as Sellers and KLLM, Inc. as Purchaser (schedules furnished upon request) 9
- ----------------- 7 Incorporated herein by reference to Registrant's Annual Report on Form 10-K for the year ended December 31, 1990 (File No. 0-14759). 8 Incorporated herein by reference to Registrant's Annual Report on Form 10-K for the year ended December 30, 1994 (File No. 0-14759). 9 Incorporated herein by reference to Registrant's Annual Report on Form 10-K for the year ended December 29, 1995 (File No. 0-14759). EXHIBIT INDEX Exhibit Number Description Page 10.15 1996 Stock Option Plan 10.16 Amended and Restated 1996 Stock Purchase Plan 13 1996 Annual Report (Only portions incorporated by reference are deemed filed) 21 List of Subsidiaries of the Registrant 8 23 Consent of Ernst & Young LLP 27 Financial Data Schedule
EX-10 2 EXHIBIT 10.15 KLLM Transport Services, Inc. 1996 Stock Option Plan ________________________ ARTICLE I GENERAL 1.1 Purposes of the Plan. The purposes of the 1996 Stock Option Plan are to assist KLLM Transport Services, Inc. (the "Company") (and its subsidiaries) in attracting and retaining key employees of outstanding ability by offering them an increased incentive to join or continue in the service of the Company, to increase their efforts for its welfare by participating in the ownership and growth of the Company, and to associate the interests of such employees with those of the Company's stockholders. 1.2 Definitions. (a) "Acceleration Event" means any event which in the opinion of the Board of Directors of the Company is likely to lead to changes in control of share ownership of the Company, whether or not such change in control actually occurs; (b) "Board of Directors" or "Board" means the Board of Directors of the Company; (c) "Code" means the Internal Revenue Code of 1986, as amended; (d) "Common Stock" means voting common stock of the Company; (e) "Fair Market Value" means such price as is set by the Company's Board of Directors unless and until the Company sells stock pursuant to a registration statement under the Securities Act of 1933, or the Company is registered with the Securities and Exchange Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934. Thereafter, it shall mean the closing "asked" price of the shares in the over-the-counter market on the day on which such value is to be determined or, if such "asked" price is not available, the last sales price on such day or, if no shares were traded on such day, on the next preceding day on which the shares were traded, as reported by the National Association of Securities Dealers Automatic Quotation System (NASDAQ) or other national quotation service. If the shares are listed on a National Securities Exchange, "fair market value" means the closing price of the shares on such National Securities Exchange on the day on which such value is to be determined or, if no shares were traded on such day, on the next preceding day on which shares were traded, as reported by National Quotation Bureau, Inc. or other national quotation service. If the shares are traded on the NASDAQ National Market System, "fair market value" means the closing price of the shares on the National Market System on the day on which such value is to be determined or, if no shares were traded on such day, on the next preceding day on which shares were traded, as reported by the NASDAQ National Market System; (f) "Incentive Stock Option" means an option to purchase shares of Common Stock which is intended to qualify as an incentive stock option as defined in Section 422 of the Code; (g) "Key Employee" means any person, including officers and directors, in the regular full-time employment of the Company or its Subsidiaries who, is designated a Key Employee by the Committee referred to in Section 1.3, and is or is expected to be primarily responsible for the management, growth, or supervision of some part or all of the business of the Company or its Subsidiaries. The power to determine who is and who is not a Key Employee is reserved solely for the Committee; (h) "Nonqualified Stock Option" means an option to purchase shares of Common Stock which is not intended to qualify as an Incentive Stock Option as defined in Section 422 of the Code; (i) "Option" means an Incentive Stock Option or a Nonqualified Stock Option; (j) "Optionee" means a Key Employee to whom an Option is granted under the Plan; (k) "Parent" means any corporation which qualifies as a parent of a corporation under the definition of "parent corporation" contained in Section 424(e) of the Code; (l) "Stock Appreciation Right" shall have the meaning stated in Article IV of the Plan; (m) "Subsidiary" means any corporation which qualifies as a subsidiary of a corporation under the definition of "subsidiary corporation" contained in Section 424(f) of the Code; (n) "Term" means the period during which a particular Option may be exercised as determined by the Committee and as provided in the option agreement; 1.3 Administration of the Plan. The Plan shall be administered by the Stock Option Committee (the "Committee") appointed by the Board of Directors consisting of at least three members from the Board of Directors. No person while a member of the Committee shall be eligible to participate in the Plan. Subject to the control of the Board, and without limiting the generality thereof, the Committee shall have the power to interpret and apply the Plan and to make regulations for carrying out its purpose. More particularly, the Committee shall determine which Key Employees shall be granted Options under the Plan, the number of shares subject to each Option, the price per share under each Option, the Term of each Option, and any restrictions on the exercise of each Option. When granting Options, the Committee shall designate the Option as either an Incentive Stock Option or a Nonqualified Stock Option. The Committee shall also designate whether the Option is granted with Stock Appreciation Rights. Determinations by the Committee under the Plan (including, without limitation, determinations of the person to receive Options, the form, amount and timing of such Options, and the terms and provisions of such Options and the agreements evidencing same) need not be uniform and may be made by it selectively among persons who receive, or are eligible to receive, Options under the Plan, whether or not such persons are similarly situated. 1.4 Shares Subject to the Plan. The total number of shares that may be purchased pursuant to Options or transferred pursuant to the exercise of Stock Appreciation Rights under the Plan shall not exceed 200,000 shares of Common Stock. Shares subject to the Options which terminate or expire prior to exercise shall be available for future Options. Shares represented by an unexercised Option surrendered upon exercise of Stock Appreciation Rights including, without duplication, any shares issued in payment of any Stock Appreciation Rights, shall be deducted from the aggregate and shall not be available for further Options hereunder. Shares issued pursuant to the Plan may be either unissued shares of Common Stock or reacquired shares of Common Stock held in treasury. 1.5 Terms and Conditions of Options. All Options shall be evidenced by agreements in such form as the Committee shall approve from time to time subject to the provisions of Article II or Article III, as appropriate, and the following provisions: (a) Exercise Price. The exercise price of the Option shall not be less than the Fair Market Value (as determined by the Committee) of the Common Stock at the time the Option is granted. (b) Exercise. The Committee shall determine whether the Option shall be exercisable in full at any time during the Term or in cumulative or noncumulative installments during the Term. (c) Termination of Employment. An Optionee's Option shall expire on the earlier of the expiration of (i) three months after the termination of the Optionee's employment for any reason other than death or disability (as defined in Section 422(c)(6) of the Code), or (ii) the Term specified in Section 2.1(a) or 3.1(a) as the case may be. In the event of exercise of the Option after termination of employment the Optionee may exercise the Option only with respect to the shares which could have been purchased by the Optionee at the date of termination of employment. However, the Committee may, but is not required to, waive any requirements made pursuant to Section 1.5(b) so that some or all of the shares subject to the Option may be exercised within the time limitation described in this subsection. An Optionee's employment shall be deemed to terminate on the last date for which he receives a regular wage or salary payment. (d) Death or Disability. Upon termination of an Optionee's employment by reason of death or disability (as determined by the Committee consistent with the definition of Section 422(c)(6) of the Code), the Option shall expire unless exercised upon the earlier of the expiration of (i) 12 months of the date of such termination, or (ii) the Term specified in Section 2.1(a) or 3.1(a) as the case may be. The Optionee or his successor in interest, as the case may be, may exercise the Option only as to the shares which could have been purchased by the Optionee at the date of his termination of employment. However, the Committee may, but is not required to, waive any requirements made pursuant to Section 1.5(b) so that some or all of the shares subject to the Option may be exercised within the time limitation described in this subsection. (e) Payment. Payment for shares as to which an Option is exercised shall be made in such manner and at such time or times as shall be provided in the option agreement, including cash, Common Stock of the Company which was previously acquired by the Optionee, or any combination thereof. The Fair Market Value of the surrendered Common Stock as of the date of exercise shall be used in valuing Common Stock used in payment for Options. (f) Nontransferability. Options granted under the Plan shall not be transferable other than by will or by the laws of descent and distribution. During the lifetime of the Optionee, an Option shall be exercisable only by the Optionee. (g) Additional Provisions. Each option agreement may contain such other terms and conditions not inconsistent with the provisions of the Plan as the Committee may deem appropriate from time to time. 1.6 Stock Adjustments; Mergers. (a) Notwithstanding Section 1.4, in the event the outstanding shares are increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company or of any other corporation by reason of any merger, sale of stock, consolidation, liquidation, recapitalization, reclassification, stock split up, combination of shares, or stock dividend, the total number of shares set forth in Section 1.4 shall be proportionately and appropriately adjusted by the Committee. If the Company continues in existence, (i) the number and kind of shares that are subject to any Option and the option price per share shall be proportionately and appropriately adjusted without any change in the aggregate price to be paid therefor upon exercise of the Option, and (ii) the Committee may make such adjustments in the number and kind of Stock Appreciation Rights as it shall deem appropriate in the circumstances. If the Company will not remain in existence or substantially all of its voting Common Stock and Common Stock will be purchased by a single purchaser or group of purchasers acting together, then the Committee may (i) declare that all Options and Stock Appreciation Rights shall terminate 30 days after the Committee gives written notice to all Optionees of their immediate right to exercise all Options and Stock Appreciation Rights then outstanding (without regard to limitations on exercise otherwise contained in the Options), or (ii) notify all Optionees that all Options and Stock Appreciation Rights granted under the Plan shall apply with appropriate adjustments as determined by the Committee to the securities of the successor corporation to which holders of the numbers of shares subject to such Options and Stock Appreciation Rights would have been entitled, or (iii) some combination of aspects of (i) and (ii). The determination by the Committee as to the terms of any of the foregoing adjustments shall be conclusive and binding. Any fractional shares resulting from any of the foregoing adjustments under this section shall be disregarded and eliminated. 1.7 Acceleration Event. If an Acceleration Event occurs in the opinion of the Board of Directors, based on circumstances known to it, the Board of Directors may direct the Committee to declare that all Options and Stock Appreciation Rights granted under the Plan shall become exercisable immediately notwithstanding the provisions of the respective Option agreements regarding exercisability. 1.8 Notification of Exercise. Options shall be exercised by written notice directed to the Secretary of the Company at the principal executive offices of the Company. Such written notice shall be accompanied by any payment required pursuant to Section 1.5(e). Exercise by an Optionee's heir or the representative of his estate shall be accompanied by evidence of his authority to so act in form reasonably satisfactory to the Company. ARTICLE II INCENTIVE STOCK OPTIONS 2.1 Terms and Conditions of Incentive Stock Options. In addition to the requirements of Section 1.5, Incentive Stock Options granted shall be subject to the following requirements: (a) Term. Each Incentive Stock Option granted under the Plan shall be exercisable only during a Term fixed by the Committee; provided, however, that the Term shall end no later than 10 years after the date the Incentive Stock Option is granted. (b) Exercise. Each Incentive Stock Option agreement shall provide that the aggregate Fair Market Value (determined at the time the Incentive Stock Option is granted) of the stock with respect to which Incentive Stock Options are exercisable for the first time by an Optionee during any calendar year (under all plans of the Optionee's employer corporation and its parent and subsidiary corporations) shall not exceed $100,000. 2.2 Continued Employment. Whether military, government or other service or other leave of absence shall constitute a termination of employment shall be determined in each case by the Committee at its discretion, and any determination by the Committee shall be final and conclusive. A termination of employment shall not occur where the Optionee transfers from the Company to one of its Subsidiaries or transfers from a Subsidiary to the Company. 2.3 Special Rule for Ten Percent Shareholder. If at the time an Incentive Stock Option is granted, an employee owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of his employer corporation or of its Parent or any of its Subsidiaries, as determined using the attribution rules of Section 424(d) of the Code, then the terms of the Incentive Stock Option shall specify that the option price shall be at least 110% of the Fair Market Value of the stock subject to the Incentive Stock Option and such Incentive Stock Option shall not be exercisable after the expiration of five years from the date such Incentive Stock Option is granted. 2.4 Interpretation. In interpreting this Article II of the Plan, the Committee and the Board shall be governed by the principles and requirements of Sections 421, 422 and 424 of the Code, and applicable Treasury Regulations. ARTICLE III NONQUALIFIED STOCK OPTIONS 3.1 Terms and Conditions of Options. In addition to the requirements of Section 1.5, Nonqualified Stock Options shall be subject to the following provisions: (a) Term. Each Nonqualified Stock Option granted under the Plan shall be exercisable only during a Term fixed by the Committee; provided, however, that the Term shall end no later than ten years and one day after the date the Nonqualified Stock Option is granted. (b) Termination of Employment. Notwithstanding the provisions of Sections 1.5(c) and 1.5(d), the Stock Option Committee in its discretion may provide, either upon the original grant of an Option or in an amendment to an Incentive or Nonqualified Stock Option, that an Option may be exercisable during a Term that does not expire upon the expiration of three months following an Optionee's termination of employment (one year in the case of termination as a result of death or disability), but in no event later than the Term specified in Section 3.1(a) above. 3.2 Section 83(b) Election. The Company recognizes that certain persons who receive Nonqualified Stock Options may be subject to restrictions regarding their right to trade Common Stock under applicable securities laws. Such restrictions may cause Optionees exercising such Options not to be taxable under the provisions of Section 83(c) of the Code. Accordingly Optionees exercising such Nonqualified Stock Options may consider making an election to be taxed upon exercise of the Option under Section 83(b) of the Code and to effect such election will file such election with the Internal Revenue Service within thirty (30) days of exercise of the Option and otherwise in accordance with applicable Treasury Regulations. ARTICLE IV STOCK APPRECIATION RIGHTS 4.1 Terms and Conditions of Stock Appreciation Rights. Stock Appreciation Rights ("SAR") may be granted by the Committee in connection with the grant of an Option but shall not be granted unrelated to an Option. All SARs shall be in such form as the Committee may from time to time determine and shall be subject to the following terms and conditions: (a) Term and Exercise. An SAR shall be exercisable only (i) with the approval of the Committee, (ii) during the Term of the Option to which it relates, (iii) at such times as the Option to which it relates is exercisable, and (iv) if the Fair Market Value of the Common Stock subject to the Option surrendered (on the date surrendered) minus the aggregate option price of the Common Stock subject to the Option surrendered is a positive amount. (b) Payment. In the event the Committee agrees to permit exercise of the SAR, the Optionee shall surrender to the Company the right to exercise the Option with respect to a specified number of shares as to which the Option is then exercisable. In return, the Optionee shall receive from the Company no more than an amount payable in cash and/or in shares (as determined by the Committee after considering the request of the Optionee) equal to the difference between the Fair Market Value of Common Stock as to which the Optionee has surrendered the Option and the exercise price with respect thereto. In the event the Committee determines to tender shares in full or partial payment of the SAR, the number of shares to be issued to the Optionee shall be based on the Fair Market Value of the shares as of the date of exercise of the SAR. No fractional shares shall be issued to Optionees upon exercise of an SAR. Instead, the Company shall pay the Optionee the value of such fractional share based upon the Fair Market Value of a share on the date the SAR is exercised. (c) Nontransferability. An SAR granted under the Plan shall be transferable only when the Option to which it relates is transferable. 4.2 Other Terms and Conditions. Option agreements reflecting Stock Appreciation Rights which are granted under the Plan may contain such other conditions not inconsistent with the provisions of the Plan as the Committee may deem appropriate from time to time. 4.3 Notification of Request to Exercise. The Optionee shall request the Committee's approval to exercise a Stock Appreciation Right by written notice to the Secretary of the Company at the principal executive offices of the Company. Such written notice shall state the number of shares subject to the Option for which approval of the exercise of the SAR is requested and the Optionee's preferred form of payment of the SAR, as hereinafter provided. The Optionee may indicate his or her preference to receive payment of the SAR in cash or in Common Stock or in a combination thereof. Notwithstanding anything to the contrary contained herein, the Committee shall have absolute discretion in determining whether the request for approval of the exercise of the SAR shall be approved and, if such approval is given, whether payment shall be made in cash or Common Stock or in a combination thereof. Within 30 days after the delivery to the Secretary of the Optionee's request to exercise the SAR as provided above, the Committee shall inform the Optionee in writing of its determination by personal delivery of such written determination to the Optionee or by mailing its written determination to the Optionee by certified or registered mail, return receipt requested. The Optionee must act on any approved exercise of an SAR within 30 days after the date of such determination by the Committee (or such longer period as may be permitted by the Committee) and in accordance with the terms approved by the Committee. Exercise shall be by written notice actually delivered, or mailed by certified or registered mail, return receipt requested, to the Secretary of the Company at the principal executive offices of the Company. 4.4 Effect of Exercise. Upon exercise of a Stock Appreciation Right, the Option to which it relates shall lapse with respect to the shares as to which the SAR is exercised, and such shares shall not be available for further grant of Options, as provided in Section 1.4. ARTICLE V ADDITIONAL PROVISIONS 5.1 Stockholder Approval. The Plan shall be submitted for the approval of the stockholders of the Company at the first meeting of stockholders held subsequent to the adoption of the Plan and in all events within one year of its approval by the Board of Directors. If at said meeting the stockholders of the Company do not approve the Plan, the Plan shall terminate. 5.2 Compliance with Other Laws and Regulations. The Plan, the grant and exercise of Options hereunder, and the obligation of the Company to sell and deliver shares under such Options, shall be subject to all applicable Federal and state laws, rules, and regulations and to such approvals by any government or regulatory agency as may be required. The Company shall not be required to issue or deliver any certificates for shares of Common Stock prior to (a) the listing of such shares on any stock exchange on which the Common Stock may then be listed and (b) the completion of any registration or qualification of such shares under any Federal or state law, or any ruling or regulation of any government body which the Company shall, in its sole discretion, determine to be necessary or advisable. 5.3 Amendments. The Board of Directors may discontinue the Plan at any time, and may amend it from time to time, but no amendment, without approval by stockholders, may (a) increase the total number of shares which may be issued under the Plan or to any individual under the Plan, (b) reduce the Option price for shares which may be purchased pursuant to Options under Articles II and III of the Plan, (c) extend the period during which Options may be granted, or (d) change the class of employees to whom Options may be granted, except as provided in Section 1.6. Other than as expressly permitted under the Plan, no outstanding Option may be revoked or altered in a manner unfavorable to the Optionee without the consent of the Optionee. 5.4 No Rights As Shareholder. No Optionee shall have any rights as a shareholder with respect to any Share subject to his or her Option prior to the date of issuance to him or her of a certificate or certificates for such shares. 5.5 Withholding. Whenever the Company proposes or is required to issue or transfer shares of Common Stock under the Plan, the Company shall have the right to require the Optionee to remit to the Company an amount sufficient to satisfy any Federal, state or local withholding tax liability prior to the delivery of any certificate or certificates for such shares. Whenever under the Plan payments are to be made in cash, such payments shall be made net of an amount sufficient to satisfy any Federal, state, or local withholding tax liability. 5.6 Continued Employment Not Presumed. This Plan and any document describing this Plan and the grant of any stock Option or Stock Appreciation Right hereunder shall not give any Optionee or other employee a right to continued employment by the Company or its Subsidiaries or affect the right of the Company or its Subsidiaries to terminate the employment of any such person with or without cause. 5.7 Effective Date; Duration. The Plan shall be effective as of the date of its adoption by the Board of Directors, subject to stockholder approval pursuant to Section 5.1 and shall expire on April 15, 2006. No Options may be granted under the Plan after April 15, 2006, but Options granted on or before that date may be exercised according to the terms of the option agreements and shall continue to be governed by and interpreted consistent with the terms hereof. EX-10 3 EXHIBIT 10.16 KLLM Transport Services, Inc. Amended and Restated 1996 Stock Purchase Plan ________________________ ARTICLE I GENERAL 1.1 Purpose of the Plan. The purpose of the KLLM Transport Services, Inc. 1996 Stock Purchase Plan (the "Plan") is to encourage key personnel, consultants, advisors, and the like of KLLM Transport Services, Inc. (the "Company") and its subsidiaries, to purchase stock of the Company, through contractual arrangements with the Company or stock options issued by the Company, to further instill in them a sense of ownership, responsibility, and entrepreneurship, with a goal of increasing their efforts and motivation for the long term benefit of the Company and all of its shareholders. 1.2 Definitions. "Board of Directors" means the Board of Directors of the Company. "Common Stock" means voting common stock of the Company, par value $1.00 per share. "Covered Consultant" means any Person, including third party non-employee consultants, advisors and the like, who may from time to time be designated a Covered Consultant by the Committee. The power to determine who is and who is not a Covered Consultant is reserved solely for the Committee. "Covered Employee" means any Person, including officers and directors in the regular full time employment of the Company or its Subsidiaries, who may from time to time be designated a Covered Employee by the Committee. The power to determine who is and who is not a Covered Employee is reserved solely for the Committee. "Optionee" means a Covered Employee or Covered Consultant to whom a stock option is granted under the Plan. "Person" shall mean an individual, partnership, corporation, limited liability company, association, trust, joint venture or unincorporated organization, or any government, governmental department or agency or political subdivision thereof. "Purchase Price" shall mean the price to be paid for a share of Common Stock under the Plan as defined in Section 1.5 (a). "Purchaser" shall mean any Covered Employee or Covered Consultant purchasing Common Stock under the Plan and, if applicable, his heirs, successors or assigns. "Subsidiary" shall mean any Person of which the Company shall at any time own directly or indirectly through another Subsidiary, 50% or more of the outstanding voting capital stock (or other shares of beneficial interest with voting rights), or which the Company shall otherwise control. 1.3 Administration of the Plan. The Plan shall be administered by the Compensation Committee (the "Committee") appointed by the Board of Directors consisting of at least three members from the Board of Directors who serve at the pleasure of the Board of Directors. No Person while a member of the Committee shall be eligible to participate in the Plan. Subject to the control of the Board of Directors, and without limiting the generality thereof, the Committee shall have the power to interpret and apply the Plan and to make regulations for carrying out its purpose. More particularly, the Committee shall determine which Covered Employees or Covered Consultants may purchase stock or be issued options to purchase stock under the Plan and the terms of such purchase or issuance. Determinations by the Committee under the Plan need not be uniform and may be made by it selectively among Persons participating in the Plan, whether or not such Persons are similarly situated. 1.4 Shares Subject to the Plan. The total number of shares that may be purchased or subject to stock options pursuant to the Plan shall not exceed three hundred thousand (300,000) shares of Common Stock. Shares subject to stock options which terminate or expire prior to exercise shall be available for future stock options. These shares may be either unissued shares of Common Stock or reacquired shares of Common Stock held in treasury. 1.5 Terms and Conditions. All purchases of shares and issuances of stock options under the Plan shall be evidenced by agreements in such form as the Committee shall approve from time to time and the following provisions: (a) Purchase Price. The Committee shall determine from time to time the Purchase Price for shares under the Plan. (b) Payment. Payment for shares under the Plan shall be made in such manner and at such time or times as shall be determined by the Committee. (c) Nontransferability. Agreements under the Plan and rights arising thereunder shall not be transferable other than by will or by the laws of descent and distribution. (d) Additional Provisions. Each agreement under the Plan may contain such other terms and conditions not inconsistent with the provisions of the Plan as the Committee may deem appropriate from time to time. 1.6 Stock Adjustments; Mergers. (a) Notwithstanding Section 1.4, if the outstanding shares of Common Stock are changed into or exchanged for a different number or kind of shares or other securities of the Company or of any other corporation by reason of any merger, sale of stock, consolidation, liquidation, recapitalization, reclassification, stock splits, combination of shares, or stock dividend, the total number of shares set forth in Section 1.4 shall be proportionately and appropriately adjusted by the Committee. If the Company continues in existence, the number and kind of shares that are subject to any agreement under the Plan and the purchase price per share shall be proportionately and appropriately adjusted without any change in the aggregate price to be paid therefor upon the closing of a purchase or exercise of an option. With regard to agreements obligating a Purchaser to purchase stock under the Plan, if the Company will not remain in existence or substantially all of the Common Stock will be purchased by a single purchaser or group of purchasers acting together, then the Committee shall notify each Purchaser that such Purchaser's right and obligation to purchase the shares shall apply with appropriate adjustments as determined by the Committee to the securities of the successor corporation to which such Purchaser, as holder of the number of shares of Common Stock he is required to purchase, would have been entitled. With regard to options issued under the Plan, if the Company will not remain in existence or substantially all of the Common Stock will be purchased by a single purchaser or group of purchasers acting together, then the Committee may (i) declare that all options shall terminate thirty (30) days after the Committee gives written notice to all Optionees of their immediate right to exercise all options outstanding (without regard to limitations on exercise otherwise contained in the option agreements), or (ii) notify all Optionees that all options granted under the Plan shall apply with appropriate adjustments as determined by the Committee to the securities of the successor corporation to which holders of the numbers of shares subject to such options would have been entitled, or (iii) some combination of aspects of (i) and (ii). The determination by the Committee as to the terms of any of the foregoing adjustments shall be conclusive and binding. ARTICLE II ADDITIONAL PROVISIONS 2.1 Compliance with Other Laws and Regulations. The Plan shall be subject to all applicable federal and state laws, rules, and regulations and to such approvals by any government or regulatory agency as may be required. The Company shall not be required to issue or deliver any certificates for shares of Common Stock prior to (a) the listing of such shares on any stock exchange on which the Common Stock may then be listed and (b) the completion of any registration or qualification of such shares under any federal or state law, or any ruling or regulation of any government body which the Company shall, in its sole discretion, determine to be necessary or advisable. 2.2 Amendments. The Board of Directors may discontinue the Plan at any time, and may amend it from time to time. 2.3 No Rights As Shareholder. No Purchaser or Optionee shall have any rights as a shareholder with respect to any share purchased pursuant to the Plan until payment of the Purchase Price and delivery to him of a certificate or certificates for the purchased shares. 2.4 Continued Employment or Engagement Not Presumed. This Plan, any document describing this Plan, and any agreement entered into pursuant to this Plan, shall not give any Covered Employee, Covered Consultant, Purchaser, Optionee or other employee, consultant, advisor, or the like, a right to continued employment or engagement by the Company or its Subsidiaries or affect the right of the Company or its Subsidiaries to terminate the employment or engagement of any such Person with or without cause. 2.5 Effective Date; Duration. The Plan shall be effective as of the date of its adoption by the Board of Directors and shall expire July 30, 2006 (the "Expiration Date"). No agreements under the Plan may be entered into under the Plan after the Expiration Date, but agreements entered into on or before that date may be carried out according to their terms and shall continue to be governed by and interpreted consistent with the terms hereof. EX-13 4 Company Profile KLLM Transport Services, Inc., through its wholly-owned subsidiary, KLLM, Inc., specializes in providing high-quality transportation services in North America. KLLM Inc.'s operating divisions haul both temperature-controlled and dry commodities. The majority of the Company's revenues, approximately 70%, are in the temperature-controlled sector. Protective service is provided on commodities such as food, medical supplies and cosmetics. Service offerings include over-the-road long haul, regional, and intermodal transportation. The shares of KLLM Transport Services, Inc. trade on the Nasdaq National Market under the symbol KLLM. Financial and Operating Highlights (In thousands, except per share and operating data) 1996 1995 STATEMENT OF OPERATIONS DATA: Operating revenue $256,688 $239,685 Operating income from continuing operations 6,350 6,513 Net earnings from continuing operations 905 518 Earnings per share from continuing operations $ 0.21 $ 0.12 Weighted average shares outstanding 4,365 4,479 BALANCE SHEET DATA: Total assets $159,894 $164,248 Long-term debt, less current maturities 49,747 59,594 Stockholders' equity 66,500 65,968 OPERATING DATA: Operating ratio (1) 97.5% 97.3% Total miles travelled (000s)(2) 184,260 175,967 Average miles per tractor(2) 113,602 112,645 Average revenue per total mile(2) $ 1.14 $ 1.14 Equipment at year-end: Company Operated tractors 1,390 1,485 Owner-operated tractors 366 291 Total tractors 1,756 1,776 Refrigerated trailers 2,114 2,150 Dry-van trailers 493 384 Total trailers 2,607 2,534 Refrigerated rail containers 200 202
- ----------------- 1 Operating expenses as a percent of operating revenues on continuing operations. 2 Traditional over-the-road temperature-controlled freight operations only. Letter to Shareholders Over the past year and a half, we have made many significant changes at KLLM: changes in our management team, organizational configuration and cost structure. While there is still work to be done, we have completed the most difficult tasks of rebuilding KLLM and are beginning to see good signs of a more vibrant and progressive company. We have laid a new foundation and put in place a strategy which we believe will lead to operational excellence, superior customer service and significantly higher stockholder returns in the future. 1996 Results To understand our results for 1996, we believe it is important to look at the environment for trucking companies over the previous couple of years. In the early 1990s our industry enjoyed healthy growth. In anticipation of continued strong demand, KLLM expanded the size of its fleet and started several new ventures. When demand did not materialize as expected in 1995, due to a number of factors both within and outside our control, our trucks, people and other assets were underutilized and our earnings suffered. While we increased capacity, freight demand remained constant, freight rates fell and our new ventures performed poorly. While our overall results were better in 1996 than in 1995, the combination of weak market demand, a shortage of qualified drivers and our lack of a focused sales and marketing plan made 1996 a difficult and disappointing year for our largest division, the Transport Group, which provides temperature-controlled services using Company-owned equipment. Compared with the previous year, 1996 total operating revenue increased 7 percent to $256.7 million. Net earnings from continuing operations rose 75% to 905,000, or $.21 per share, compared with $518,000, or $.12 per share, for 1995. KLLM Rebuilds KLLM assertively responded to the market conditions and our own shortcomings, starting with a new management team. Between mid-1995 and the end of 1996, KLLM named a new chief executive officer; a new senior vice president of sales; new vice presidents of finance and strategic planning, field operations, and maintenance; and a new president of Express Systems, our owner-operator division. We realigned responsibilities, streamlined our corporate structure and instituted accountability at all levels of our organization. Today, we have a much stronger, more focused management team with clearly defined performance objectives. In addition, we discontinued our international maritime service, reintegrated our rail operations with our truck operations, and closed our freight brokerage division. During the same period, we acquired Vernon Sawyer, a highly successful regional dry freight operator, which has produced steady growth in both revenue and profits. The Company is now structured to comprise three core truckload operations: the Transport Group; Express Systems; and Vernon Sawyer. While weak demand has inhibited optimization in both the Transport Group and Express Systems, Express Systems has produced favorable returns while the Transport Group has not. Vernon Sawyer has generated above average returns, reflecting significant growth and an excellent cost structure. Throughout the past eighteen months, we cut costs wherever possible. Since mid-1995, we redeployed our human assets, cutting jobs in some areas and adding them in others such as outside expense control, which manages pallet and lumper costs. Overall, we reduced total employment by approximately 155 people and cut total annual non-driver payroll by roughly $5.2 million. In addition, we consolidated Transport Group driver terminals, reducing the number from thirteen in mid-1995 to seven today. We reduced the Company-operated fleet by approximately 90 tractors and transferred 60 tractors to Vernon Sawyer to address both the underutilization of equipment and the driver shortage affecting the Transport Group. In 1996, we also adopted the concept of economic value added, or EVA_, as a tool to guide our business decisions and measure our performance. In simple terms, EVA_ is what remains of our operating profit after we deduct the cost of capital. It causes us to take into account the capital as well as operating costs of all our operations. It is helping us understand which of our operations are making a positive contribution in building stockholder value. Armed with this EVA_ tool, we will be able to invest our resources strictly based on measurable returns. As EVA_ matures in our Company, the concept will not only guide our decisions but also serve as the basis for incentive compensation for employees throughout the Company. Over the long term, EVA_ has proven to correlate more closely with market value than most other measures. We believe focusing on improving EVA_ will result in higher and more consistent returns for the stockholders of KLLM. Strategy for Success While the changes we have made over the past year and a half have lowered our break-even level and sharpened our focus, the most important change affecting our long-term future is the development of a well defined strategy for success. The temperature-controlled freight-for-hire market is roughly a $4.7 billion market. With $257 million in annual sales, KLLM has substantial opportunities to grow its share of the market. Moreover, independent studies suggest that demand for truckload intermodal freight transportation may grow at 4% per year over the next decade. However, costs will likely increase at least as fast as freight rates, and growth for growth's sake will no longer lead to success. A shortage of new drivers entering the industry and customer requirements for higher service standards and more customized services will present additional challenges. To meet all of these challenges head-on and capitalize on the opportunities in our market, KLLM has developed a strategy which we believe will lead to long-term success. - We will use economic value added as a guide to invest our capital based on real, measurable returns. - We will concentrate on customer selection, targeting customers which are interested in building "partnerships," are willing to pay adequately for superior total service, and have potential for growth. - We will sharpen and maintain our focus on operational excellence, working to reduce costs without sacrificing service quality. - We will bring our mix of equipment and levels of service in line with customer demand, growing capacity only in areas where returns on investment are favorable. - We will supplement our driver force with owner operators, subcontractors and intermodal transportation. -We will seize the initiative and be proactive, not reactive, to changes in market conditions and our competition. - We will be the best in customer service, which will lead to long-term, "total service" relationships with our customers. These relationships in turn will result in more stable revenues, better capacity planning, cooperation in efficiency gains, and market share growth. - We will keep our capacity flexible by growing our owner operator fleet, utilizing short-term rentals of revenue equipment, transferring equipment between our fleets and tying employees pay to performance. - We will take advantage of opportunities to build key customer relationships, acquire bargain priced assets, hire drivers and make our operations more efficient. Commitment to Succeed Last fall, ten officers of KLLM's management team demonstrated our confidence in the new direction of our Company by obligating ourselves to purchase a significant number of shares of KLLM stock over the next five years. The Securities Purchase Agreements signed by this group of officers are an indication of our commitment to build the economic and stockholder value of this Company. With a heightened sense of ownership, responsibility and entrepreneurship, our motivation to work for the long-term benefit of KLLM and all of its stockholders has never been greater. Steven K. Bevilaqua President and Chief Executive Officer Selected Financial and Operating Data (In thousands, except per share and operating data) 1996 1995 1994 1993 1992 STATEMENTS OF OPERATIONS DATA: Operating revenue $256,688 $239,685 $210,276 $165,259 $143,451 Operating expenses 250,338 233,172 195,975 152,503 131,655 Operating income from continuing operations 6,350 6,513 14,301 12,756 11,796 Interest and other income 59 32 17 11 4 Interest expense (4,783) (5,554) (5,014) (4,384) (4,521) Earnings from continuing operations before income taxes 1,626 991 9,304 8,383 7,279 Income taxes 721 473 3,530 3,436 3,050 Net earnings from continuing operations 905 518 5,774 4,947 4,229 Loss from operations of discontinued division, net of tax benefits _ (624) (580) (195) _ Loss on disposal of discontinued division, net of tax benefit (139) (441) _ _ _ Net earnings (loss) $766 $(547) $5,194 $4,752 $4,229 Earnings (loss) per share: From continuing operations $0.21 $0.12 $1.28 $1.14 $1.23 From operations of discontinued division _ (0.14) (0.13) (0.05) _ From disposal of discontinued division (0.03) (0.10) _ _ _ Net earnings (loss) per common share $0.18 $(0.12) $1.15 $1.09 $1.23 Weighted average common shares outstanding 4,365 4,479 4,536 4,357 3,449 BALANCE SHEET DATA (AT YEAR-END): Net property and equipment $121,875 $122,264 $126,756 $117,322 $ 98,638 Total assets 159,894 164,248 166,077 150,094 123,142 Total liabilities 93,394 98,280 98,234 86,403 84,035 Long-term debt, less current maturities 49,747 59,594 66,531 58,514 61,256 Stockholders' equity 66,500 65,968 67,843 63,691 39,107 OPERATING DATA: Operating ratio (1) 97.5% 97.3% 93.2% 92.3% 91.8% Average number of truckloads per week(2) 3,250 3,176 2,871 2,420 2,001 Average miles per trip(2) 1,070 1,065 1,082 1,087 1,228 Total miles travelled (000s)(2) 184,260 175,967 161,584 136,777 130,206 Average revenue per total mile(2) $1.14 $1.14 $1.16 $1.13 $1.10 Empty mile percentage(2) 11.3% 11.6% 9.8% 10.3% 10.6% Equipment at year-end: Company-operated tractors 1,390 1,485 1,290 1,240 1,063 Owner-operated tractors 366 291 242 85 _ Total tractors 1,756 1,776 1,532 1,325 1,063 Refrigerated trailers 2,114 2,150 2,115 1,955 1,694 Dry-van trailers 493 384 _ _ _ Total trailers 2,607 2,534 2,115 1,955 1,694 Refrigerated rail containers 200 202 150 _ _ Ratio of tractors to non-driver employees at year-end 4.0 3.7 2.9 2.9 2.7
- ------- 1 Operating expenses as a percent of operating revenues on continuing operations. 2 Traditional over-the-road temperature-controlled freight operations only. Selected Quarterly Data- Market and Dividend Information Selected Quarterly Data (Unaudited) First Second Third Fourth (In thousands, except Quarter Quarter Quarter Quarter per share amounts) 1996 Operating revenue $63,736 $67,110 $62,466 $63,376 Operating income from continuing operations 607 2,735 1,463 1,545 Net earnings (loss) from continuing operations (406) 959 130 222 Net earnings (loss) (386) 945 91 116 Earnings (loss) per share $(0.09) $0.22 $0.02 $0.03 1995 Operating revenue $53,423 $60,971 $63,158 $62,133 Operating income from continuing operations 2,352 2,747 697 717 Net earnings (loss) from continuing operations 619 810 (474) (437) Net earnings (loss) 430 681 (515) (1,143) Earnings (loss) per share $0.10 $0.15 $(0.11) $(0.26)
Market And Dividend Information The Company's common stock is traded on the Nasdaq National Market under the symbol KLLM. The number of stockholders, including beneficial owners holding shares in nominee or "street" name, as of March 3, 1997, was approximately 1,600. The Company has never declared or paid a cash dividend on its common stock. The current policy of the Board of Directors is to continue to retain earnings to finance the continued growth of the Company's business. The following table shows quarterly high and low prices for the common stock for each quarter of 1996 and 1995: FISCAL YEAR 1996 High Low First Quarter $11 3/4 $10 Second Quarter $13 3/4 $10 3/4 Third Quarter $13 1/4 $11 3/4 Fourth Quarter $11 7/8 $ 9 3/8 FISCAL YEAR 1995 High Low First Quarter $16 $12 3/4 Second Quarter $14 1/2 $12 Third Quarter $13 1/4 $ 9 Fourth Quarter $11 1/2 $ 9 3/4
Management's Discussion and Analysis of Results of Operations and Financial Condition KLLM Transport Services, Inc.'s primary sources of liquidity are its cash flow from operations and existing credit agreements of KLLM, Inc., a wholly-owned subsidiary. During the years ended January 3, 1997 and December 29, 1995, the Company generated $33.5 million and $23.9 million, respectively, in net cash provided from operating activities. This cash flow in 1996 combined with limited capital expenditures allowed the Company to reduce long-term debt and capital leases by approximately $11,000,000. Capital resources required by the Company during 1996 continued to be less significant than in prior years as the Company continued to maintain the overall size of the fleet by decreasing Company-owned equipment and increasing owner-operated equipment. In 1996, the Company-owned fleet decreased by 95 tractors and 36 temperature controlled trailers, net of replacements. Capital expenditures, net of proceeds from trade-ins during 1996, were approximately $20,153,000. Net capital expenditures in 1995 were $8,724,000. Capital resources required by the Company during 1995 were much less significant primarily because KLLM, Inc., in January 1995, entered into an operating lease for the majority of its revenue equipment needs for 1995. The payment terms of the operating lease were more favorable than could have been obtained with financing or capital leasing. Net capital expenditures in 1997 are expected to be approximately $11,906,000 The Company has a $50,000,000 unsecured revolving line of credit with a syndication of banks. Borrowings of $30,000,000 were outstanding at year-end. At January 3, 1997, the weighted average interest rate on the revolving line of credit was 6.29%. Under the terms of the agreement, borrowings bear interest at (i) the higher of prime rate or a rate based upon the Federal Funds Effective Rate, (ii) a rate based upon the Eurodollar rates, or (iii) an absolute interest rate as determined by each lender in the syndication under a competitive bid process at the Company's option. Facilities fees from 1/4% to 3/8% per annum are charged on the unused portion of this line. Working capital needs have generally been met from net cash provided from operating activities. The Company has a $4,000,000 unsecured working capital line of credit with a bank, of which $3,400,000 was used at January 3, 1997, and $651,000 was used at December 29, 1995. Interest is at a rate based upon the Eurodollar rates with facility fees at 1/4% per annum on the unused portion of the line. This working capital line of credit is used to minimize idle cash in the bank and is tied to cash equivalent investments for any excess cash. On the last day of 1995 all cash had been applied to the working capital line of credit. At year end 1996, cash and cash equivalents on the balance sheet totaled $2,874,000. At January 3, 1997, the aggregate principal amount of the Company's outstanding long-term indebtedness was approximately $54.6 million. Of this total outstanding, $2.5 million was in the form of 10.2% notes due July 15, 1998, $17.1 million in the form of 9.11% notes due June 15, 2002, $30.0 million consisted of the revolving line of credit due April 7, 1999, and $5.0 million principal was related to capital leases with varying maturities. The required principal payments on all indebtedness are anticipated to be $4.8 million in 1997, $4.9 million in 1998, $36.3 million in 1999, $2.9 million in 2000, $2.9 million in 2001, and $2.8 million thereafter. The Company periodically enters into heating oil (diesel fuel) swap agreements to hedge its exposure to price fluctuations on various levels of its anticipated fuel requirements. Gains and losses on hedging contracts are recognized in operating expenses as part of the fuel cost over the hedge period. The Company anticipates that its existing credit facilities along with cash flow from operations will be sufficient to fund operating expenses, capital expenditures, and debt service. RESULTS OF OPERATIONS The following table sets forth the percentage of revenue and expense items to operating revenue for the periods indicated. Percentage of Operating Revenue For the Year 1996 1995 1994 Operating revenue 100.0% 100.0% 100.0% Operating expenses: Salaries, wages and fringe benefits 27.9 29.1 28.8 Operating supplies and expenses 27.4 27.7 28.9 Insurance, claims, taxes and licenses 5.5 4.9 4.7 Depreciation and amortization 8.6 9.6 10.0 Purchased transportation and equipment rent 24.9 22.3 16.7 Other 3.8 4.4 4.5 Gain on sale of revenue equipment (.6) (.7) (.4) Total operating expenses 97.5 97.3 93.2 Operating income from continuing operations 2.5 2.7 6.8 Interest expense 1.8 2.3 2.4 Earnings from continuing operations before income taxes 0.7 0.4 4.4 Income taxes 0.3 0.2 1.6 Net earnings from continuing operations 0.4% 0.2% 2.8%
Year Ended January 3, 1997 Compared to Year Ended December 29, 1995 Operating revenue for the year ended January 3, 1997 increased by $17,003,000 or 7% when compared to the year ended December 29, 1995. The net revenue increase consisted of a 4% increase in the Company's traditional over-the-road temperature-controlled freight services, 1% decrease from rail services, 2% decrease from transportation brokerage services, and 6% increase from the operation of the dry-van over-the-road truckload services. The average revenue per mile including fuel surcharges remained constant at $1.14 for the year ended January 3, 1997 when compared to the year ended December 29, 1995. Surcharges for high fuel costs added $1,760,000 and $64,000 to revenues in 1996 and 1995 respectively. Through a variety of measures implemented during 1996 the Company has focused on improving utilization and profitability in the core trucking business. Significant actions included the closure of the freight brokerage business, reintegration of rail intermodal operations into truck operations, a net reduction of Company-owned trucks offset by an increase in owner-operated trucks and growth of the dry-van fleet. Cost control efforts yielded results in facility and staff levels, maintenance, and operating expenses. These efforts included centralization of certain terminal functions resulting in the consolidation of certain driver terminals, reducing the number from ten at the end of 1995 to seven at the end of 1996, and reduction in the nondriver work force of approximately 70 employees which, on an annualized basis, will reduce total annual payroll costs by approximately $2.6 million. At January 3, 1997, the Company had 4.0 tractors per nondriver employee which was an improvement over the prior year ratio of 3.7. The operating ratio (which represents operating expenses as a percent of operating revenues on continuing operations) increased from 97.3% to 97.5% for the year ended January 3, 1997 when compared to the year ended December 29, 1995. Operating revenues and results for 1996 were affected by an overall weak freight market which has plagued the industry since early 1995. In addition, during 1996, the Company experienced a steady and significant increase in fuel costs and an unusually large number of severe winter storms. The change in the components of operating expenses during 1996, when compared to the same period last year, reflects increases from the following: a) driver pay and related costs of approximately $1.7 million, b) the previously mentioned increased fuel costs of approximately $5.5 million, (within this amount, approximately $2.8 million is associated with the rising fuel prices), and c) liability and workers' compensation insurance costs of approximately $3.0 million, and cost reductions in the following: a) administrative wages and expenses of approximately $3.1 million, b) maintenance costs of approximately $0.5 million, and c) various over-the-road operating costs of approximately $1.3 million. Comparability of components of operating expenses is affected by the increase in purchasing transportation services instead of incurring wage, depreciation and other expenses related to owned asset operations and by the use of operating leases for revenue equipment put in service throughout 1995. Interest expense from continuing operations for the year ended January 3, 1997 was $4,783,000. The decrease in interest expense in 1996 was primarily due to a decrease in debt throughout 1996. Interest rates under the revolving line of credit remained level during 1996. The provision for income taxes for the year ended January 3, 1997 was $721,000 on continuing operations, based on a combined effective federal and state tax rate of 44%. This rate reflects a decrease in the effective tax rate from 48% for the year ended December 29, 1995 as a result of a decrease in nondeductible expenses as a percentage of pretax income. As a result of the foregoing, net earnings from continuing operations increased $387,000 or 75% for the year ended January 3, 1997 when compared to the year ended December 29, 1995. Year Ended December 29, 1995 Compared to Year Ended December 30, 1994 Operating revenue for the year ended December 29, 1995 increased by $29,409,000 or 14% when compared to the year ended December 30, 1994. The net revenue increase consisted of a 5% increase in the Company's traditional over-the-road temperature-controlled freight services, of which a 7% increase came from the owner-operator division, 1% decrease from rail services, 4% increase from transportation brokerage services, and 6% increase from the operation of the dry-van over-the-road truckload services. The basis for the net revenue increase consists primarily of a 2% increase in available Company-owned equipment, 6% increase in available owner-operated equipment, and a 6% increase from the new dry-van operation. The average revenue per mile decreased $0.02 to $1.14 for the year ended December 29, 1995 when compared to the year ended December 30, 1994. The operating ratio (which represents operating expenses as a percent of operating revenues on continuing operations) increased from 93.2% to 97.3% for the year ended December 29, 1995 when compared to the year ended December 30, 1994. The operating ratio for the traditional over-the-road truckload services increased from 92.5% to 97.5% primarily due to increases in certain variable and fixed operational costs: driver pay increased approximately $2.6 million, liability and workers' compensation insurance provision increased approximately $1.0 million, fuel increased approximately $1.2 million, and revenue equipment rent increased approximately $0.8 million. These increased costs accounted for 1.9%, 0.8%, 0.9% and 0.6%, respectively, of the increase in the operating ratio. Additionally, the increased operating ratio resulted from a significant increase in purchased transportation and equipment rental costs associated with the newer operations. These divisions are low margin which increases the operating ratio overall; however, they are not as capital intensive as the traditional over-the-road freight operation. At December 29, 1995, the Company had 3.7 tractors per nondriver employee which was higher than the prior year ratio of 2.9, and consistent with the previously noted reduction in the nondriver work force during 1995. Interest expense from continuing operations for the year ended December 29, 1995 was $5,554,000, with an additional $303,000 from discontinued operations, for a total of $5,857,000. It was approximately $748,000 greater than the year ended December 30, 1994. Interest expense increased due to a higher amount of outstanding debt on the revolving line of credit throughout the first 11 months of the year ended December 29, 1995 than was outstanding the year before and higher weighted average interest rate on the revolving line of credit throughout the majority of the year ended December 29, 1995 as compared to the previous year. The provision for income taxes for the year ended December 29, 1995 was $473,000 on continuing operations, based on a combined effective federal and state tax rate of 48%. This reflects an increase in the effective tax rate from 38% for the year ended December 30, 1994 as a result of an increase in nondeductible expenses as a percentage of pretax income. As a result of the foregoing, net earnings from continuing operations was $518,000, a decrease of $5,256,000 or 91% for the year ended December 29, 1995 when compared to the year ended December 30, 1994. Overall, the Company sustained a net loss of $547,000 based on managements' decision to discontinue its international division which primarily provided maritime transportation services. The Company recognized an after-tax loss of $624,000 from operations of the discontinued division and an after-tax loss of $441,000 on disposal of the discontinued division. SEASONALITY In the transportation industry, results of operations generally show a seasonal pattern because customers reduce shipments during and after the winter holiday season with its attendant weather variations. The Company's operating expenses have historically been higher in the winter months primarily due to decreased fuel efficiency and increased maintenance costs in colder weather. Consolidated Balance Sheets At Year-End 1996 1995 ASSETS (In thousands) Current assets Cash and cash equivalents $2,874 $ _ Accounts receivable: Customers (net of allowances of $682,000 in 1996 and $479,000 in 1995) 21,818 26,709 Other 866 1,078 22,684 27,787 Inventories _ at cost 891 1,315 Prepaid expenses: Tires 4,282 4,096 Taxes, licenses and permits 1,120 3,254 Other 245 555 5,647 7,905 Deferred income taxes _ Note C 3,325 1,940 Total current assets 35,421 38,947 Property and equipment _ note b Revenue equipment and capital leases 158,421 158,710 Land, structures and improvements 12,742 12,664 Other equipment 8,450 8,194 179,613 179,568 Accumulated depreciation (57,738) (57,304) 121,875 122,264 Intangible assets, Net of accumulated amortization of $775,000 in 1996 and $408,000 in 1995 _ Note D 2,259 2,626 Other assets 339 411 Total assets $159,894 $164,248 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Notes payable to banks _ Note B $3,598 $2,758 Accounts payable 1,002 1,247 Accrued expenses _ Note I 15,412 11,829 Current maturities of long-term debt and capital leases 4,848 5,937 Total current liabilities 24,860 21,771 Long-term debt and capital leases, Less current maturities _ Note B 49,747 59,594 Deferred income taxes _ note c 18,787 16,915 Stockholders' equity _ notes f and g Preferred stock, $0.01 par value; authorized shares 5,000,000; none issued Common stock, $1 par value; authorized shares _ 10,000,000; issued shares _ 4,558,754 in 1996 and 4,552,219 in 1995; outstanding shares _ 4,344,955 in 1996 and 4,358,653 in 1995 4,559 4,552 Additional paid-in capital 32,811 32,815 Retained earnings 31,453 30,687 68,823 68,054 Less common stock in treasury, 213,799 shares in 1996 and 193,566 shares in 1995, at cost (2,323) (2,086) Total stockholders' equity 66,500 65,968 Total liabilities and stockholders' equity $159,894 $164,248
See accompanying notes. Consolidated Statements of Operations For The Year (In thousands, 1996 1995 1994 except share and per share amounts) Operating revenue $256,688 $239,685 $210,276 Operating expenses: Salaries, wages and fringe benefits 71,570 69,706 60,572 Operating supplies and expenses 70,417 66,414 60,867 Insurance, claims, taxes and licenses 14,242 11,773 9,960 Depreciation and amortization _ Note A 22,023 23,017 20,962 Purchased transportation and equipment rent 63,863 53,370 35,073 Other 9,880 10,481 9,357 Gain on sale of revenue equipment (1,657) (1,589) (816) Total operating expenses 250,338 233,172 195,975 Operating income from continuing operations 6,350 6,513 14,301 Other income and expenses: Interest and other income 59 32 17 Interest expense (4,783) (5,554) (5,014) (4,724) (5,522) (4,997) Earnings from continuing operations before income taxes 1,626 991 9,304 Income taxes _ Note C 721 473 3,530 Net earnings from continuing operations 905 518 5,774 Loss from operations of discontinued division (Net of tax benefits of $0, $351 and $355, respectively) _ Note H - (624) (580) Loss on disposal of discontinued division (Net of tax benefit of $109, $247 and $0, respectively) _ Note H (139) (441) _ Net earnings (loss) $766 $(547) $5,194 Earnings (loss) per share: From continuing operations $0.21 $0.12 $1.28 From operations of discontinued division _ (0.14) (0.13) From disposal of discontinued division (0.03) (0.10) _ Net earnings (loss) per common share $0.18 $(0.12) $1.15 Weighted average number of common shares outstanding 4,365,199 4,478,827 4,536,144
See accompanying notes. Consolidated Statements of Stockholders' Equity Common Stock ______________ Treasury Stock Additional Total Paid-In Retained Stock holder's (In thousands) Shares Amount Shares Amount Capital Earnings Equity Balance at January 2, 1994 4,551 $4,551 $33,100 $26,040 $63,691 Purchase of treasury shares, at cost (78) $(1,158) (1,158) Sale of common stock _ Note F 7 94 9 103 Common stock issued upon exercise of stock options 1 1 12 13 Net earnings 5,194 5,194 Balance at December 30, 1994 4,552 4,552 (71) (1,064) 33,121 31,234 67,843 Purchase of treasury shares, at cost (172) (1,763) (1,763) Sale of common stock _ Note F 5 74 (22) 52 Common stock issued upon exercise of stock options 44 667 (284) 383 Net loss (547) (547) Balance at December 29, 1995 4,552 4,552 (194) (2,086) 32,815 30,687 65,968 Purchase of treasury shares, at cost (70) (854) (854) Sale of common stock _ Note F 7 7 61 68 Common stock issued upon exercise of stock options _ Note G 50 617 (190) 427 Income tax benefit from options exercised _ Note F 125 125 Net earnings 766 766 Balance at January 3, 1997 4,559 $4,559 (214) $(2,323) $32,811 $31,453 $66,500
See accompanying notes. Consolidated Statements of Cash Flows For The Year (In thousands) 1996 1995 1994 Cash flows from operating activities Cash received from customers $263,897 $248,165 $215,150 Interest and other income (expense) received (paid) (94) 59 17 Cash paid to suppliers and employees (227,362) (217,523) (185,072) Interest paid (4,776) (5,999) (5,250) Income taxes refunded 1,785 87 391 Income taxes paid _ (856) (1,349) Net cash provided from operating activities 33,450 23,933 23,887 Cash flows from investing activities Purchase of Vernon Sawyer Assets _ Note D _ (6,758) _ Purchase of Fresh International Transportation, Inc. _ Note D _ _ (2,566) Purchases of property and equipment (31,040) (19,890) (36,108) Proceeds from disposition of equipment 10,887 11,166 6,522 Net cash flows in investing activities (20,153) (15,482) (32,152) Cash flows from financing activities Proceeds from sale of common stock 68 52 103 Proceeds from exercise of stock options 427 383 13 Purchase of Common Stock for Treasury (854) (1,763) (1,158) Net increase (decrease) in borrowing under revolving line of credit (5,000) (1,000) 10,500 Repayment of long-term debt and capital leases (7,812) (4,171) (2,665) Net change in borrowing under working capital line of credit 2,748 (3,349) 2,000 Net cash flows (used in) provided by financing activities (10,423) (9,848) 8,793 Net increase (decrease) in cash and cash equivalents 2,874 (1,397) 528 Cash and cash equivalents at beginning of year _ 1,397 869 Cash and cash equivalents at end of year 2,874 $ _ $1,397 Reconciliation of net earnings (loss) to net cash provided from operations Net income (loss) $766 $(547) $5,194 Noncash expenses and gain included in income: Depreciation and amortization 22,055 23,141 20,962 Deferred income taxes, net of option exercise benefit 487 (125) 2,850 Book value of equipment written off in accidents 510 375 241 (Increase) decrease in accounts receivable 5,102 (2,287) (1,995) (Increase) decrease in inventory and prepaid expenses 2,682 1,069 (1,375) (Increase) decrease in other assets 198 (411) _ Increase (decrease) in accounts payable and accrued expenses 3,307 4,382 (1,174) Gain on sale of equipment (1,657) (1,664) (816) Net cash provided from operations $33,450 $23,933 $23,887
See accompanying notes. Notes to Consolidated Financial Statements NOTE A _ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business. The Company, through its wholly-owned subsidiary, KLLM, Inc., provides transportation services in North America for both temperature-controlled and dry commodities. Services provided include over-the-road long haul, regional, and intermodal transportation. The demand for transportation services is affected by general economic conditions and is subject to seasonal demand for certain commodities and severe weather conditions. Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made to conform with current year presentation. Cash Equivalents. The Company considers all highly liquid investments with a maturity of three months or less, when purchased to be cash equivalents. Cash equivalents are stated at cost which approximates market. Tires in Service. The cost of original equipment and replacement tires placed in service is capitalized and amortized over the estimated useful life of thirty months. The cost of recapping tires is expensed as incurred. Property and Equipment. Property and equipment is stated at cost. Depreciation of property and equipment is provided by the straight-line method over the estimated useful lives. The ranges of estimated useful lives of the major classes of depreciable assets are as follows: revenue equipment - 4 to 7 years, buildings and improvements - 20 to 30 years, and other equipment - 5 years. Gains and losses on sales or exchanges of property and equipment are included in operations in the year of disposition. Use of estimates. The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Revenue Recognition. Revenue is recognized on the date the freight is received for shipment. Estimated costs of delivery of shipments in transit are accrued. The Company's method of revenue recognition is not materially different on a quarterly and annual basis from the method of recognizing revenues based on relative transit time incurred which is considered an acceptable method of accounting for freight-in-transit by the Emerging Issues Task Force of the Financial Accounting Standards Board. Earnings Per Common Share. Earnings per common share is based on the weighted average number of common shares outstanding during each year. Fiscal Year. The Company's fiscal year-end is the Friday nearest December 31, which was the 53 weeks ended January 3, 1997, and the 52-week periods ended December 29, 1995 and December 30, 1994 for the past three fiscal year ends. Impact of Recently Issued Accounting Standards. In March 1995, the FASB issued Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Statement 121 also addresses the accounting for long-lived assets that are expected to be disposed. The Company adopted Statement 121 in the first quarter of 1996 and the effect of adoption was not material. NOTE B _ CREDIT FACILITIES, DEBT AND CAPITAL LEASES Long-term debt and capital leases consisted of the following: 1996 1995 (In thousands) 9.11% unsecured notes payable to insurance companies with semi- annual interest payments and annual principal payments of $2,857,000 through 2002 $17,143 $20,000 10.2% unsecured notes payable to insurance company with semi-annual interest payments and annual principal payments of $1,250,000 through 1998 2,500 3,750 Revolving line of credit with banks, with floating interest rates (6.29% weighted average rate at January 3, 1997) 30,000 35,000 Capital lease obligations with interest rates from 6.2% to 6.68% and monthly payments of $144,000 through 1999 4,952 6,781 ------------------------------- 54,595 65,531 Less current maturities (4,848) (5,937) $49,747 $59,594
Capital lease obligations represent leased revenue equipment capitalized for $7,823,000 and $10,938,000 with accumulated amortization of $3,121,000 and $4,443,000 at year-end 1996 and 1995, respectively. The Company has a $50,000,000 unsecured revolving line of credit maturing in 1999. In accordance with the agreement, the Company has agreed to limit assets pledged on any other borrowing. At January 3, 1997, $20,000,000 was available to the Company under the revolving line of credit. Under the terms of the agreement, borrowings bear interest at (i) the higher of prime rate or a rate based upon the Federal Funds Effective Rate, (ii) a rate based upon the Eurodollar rates, or (iii) an absolute interest rate as determined by each lender under a competitive bid process at the Company's option. Facilities fees from 1/4% to 3/8% per annum are charged on the unused portion of this line. The aggregate annual maturities of long-term debt and capital leases at January 3, 1997 are as follows: Long-term Capital (In thousands) Debt Leases Total 1997 $4,107 $1,045 $5,152 1998 4,107 1,045 5,152 1999 32,857 3,498 36,355 2000 2,857 _ 2,857 2001 2,857 _ 2,857 Thereafter 2,858 _ 2,858 49,643 5,588 55,231 Less amount representing interest _ (636) (636) $ 49,643 $4,952 $54,595
The Company also has $4,000,000 in unsecured working capital lines of credit, of which $3,400,000 was used at January 3, 1997. Interest is at a rate based upon London Interbank Offered Rate (LIBOR) (6.3% at January 3, 1997 and 6.9% at December 29, 1995) on borrowings on the working capital lines with facility fees at 1/4% per annum on the unused portion of the line. Under the terms of the lines of credit and notes payable agreements, the Company agreed to maintain minimum levels of consolidated tangible net worth and cash flows, to limit additional borrowing based on a debt-to-consolidated tangible net worth ratio, and to restrict assets that can be pledged on any other borrowings. The agreements also establish limits on dividends, stock repurchases, and new investments. The Company is in compliance with these provisions at year-end 1996 and 1995, as amended subsequent to January 3, 1997. NOTE C _ INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of deferred tax assets and liabilities are as follows: (In thousands) 1996 1995 Deferred Tax Assets: Allowance for doubtful accounts $ 263 $ 173 Accrued expenses 3,062 1,767 $ 3,325 $ 1,940 Deferred Tax Liabilities: Property and equipmet $ 3,149 $19,305 Intangibles (99) (40) Net operating loss carryforward (3,347) (1,414) Alternative minimum tax carryforward (916) (936) $ 18,787 $ 16,915
Income tax expense (benefit) consist of the following: (In thousands) 1996 1995 1994 Current: Federal $ _ $ _ $ 230 State _ _ 95 _ _ 325 Deferred: Federal 538 (115) 2,600 State 74 (10) 250 612 (125) 2,850 Total income tax expense (benefit) 612 (125) 3,175 Income tax benefit allocated to discontinued operations _ 351 355 Income tax benefit allocated to loss on disposal of discontinued operations 109 247 _ Income tax expense attributable to continuing operations $ 721 $ 473 $3,530
The reconciliation of income tax computed at the federal statutory tax rate to income tax expense is as follows: (In thousands) 1996 1995 1994 Statutory federal income tax rate $468 $(228) $2,845 State income taxes, net 49 (7) 232 Other 95 110 98 $612 $(125) $3,175
The Company has a net operating loss carryforward for income tax purposes of approximately $9,300,000, which expires in the year 2011. NOTE D _ ACQUISITIONS Effective May 1, 1995, the Company acquired substantially all of the assets of Vernon Sawyer, Inc., a regional dry-van truckload carrier based in Bastrop, Louisiana. Results from operations of the Company include operations of the net assets acquired since May 1, 1995. The acquisition was accounted for using the purchase method of accounting. Acquisition cost includes $772,000 of intangibles pertaining to a three year non-compete agreement. The non-compete agreement is being amortized by the straight-line method over the life of the agreement. Pro forma unaudited revenues, net income (loss) and net income (loss) per share for the years ended December 29, 1995 and December 30, 1994, assuming the purchase of substantially all of the assets of Vernon Sawyer, Inc. had occurred on January 3, 1994, would have been $245,193,000, ($406,000), and ($0.09), and $226,094,000, $5,355,000, and $1.18, respectively. Effective March 1, 1994, the Company acquired all of the outstanding stock of Fresh International Transportation, Inc., a company which provides temperature controlled transportation via double-stack containers on railroads. The acquisition was accounted for using the purchase method of accounting. Results from operations of the Company include operations of Fresh International Transportation, Inc. since March 1, 1994. The excess purchase price over the fair value of the assets acquired is classified as goodwill and is included in intangibles in the accompanying balance sheet. Goodwill is being amortized by the straight-line method over fifteen years. Prior operations of Fresh International Transportation, Inc. are immaterial to the Company's revenues, net earnings and earnings per share for 1994. NOTE E _ CONCENTRATIONS OF CREDIT RISK The Company had one customer which accounted for operating revenue of $23,311,000 in 1995 and $29,353,000 in 1994. The Company had no customer which accounted for more than 10% of operating revenues in 1996. Trade accounts receivable are the principal financial instruments that potentially subject the Company to significant concentrations of credit risk. The Company performs periodic credit evaluations of its customers and credit losses have been insignificant and within management's expectations. NOTE F _ EMPLOYEE BENEFIT PLANS The Company sponsors a defined contribution plan covering substantially all of its employees. Discretionary contributions to the plan are 100% of the employee contribution up to 4% of each covered employee's salary. Contributions by the Company under the plan approximated $1,071,000, $653,000, and $486,000 in 1996, 1995, and 1994, respectively. In April 1987, the stockholders approved an employee stock purchase plan reserving 133,333 shares of Common Stock for the plan. Substantially all employees are eligible to participate and may subscribe for 10 to 300 shares each. During 1996, 6,535 shares were purchased and in 1995, 4,902 shares were issued pursuant to the plan. The income tax benefit from options exercised is included in additional paid-in capital. Subsequent to January 3, 1997, an additional 8,711 shares have been subscribed for by employees. In 1996, the Company entered into securities purchase agreements with certain officers of the Company pursuant to the KLLM Transport Services, Inc. 1996 Stock Purchase Plan. The agreements require the officers to purchase a stated number of shares of the Company's common stock within five years from the date of the agreements. The purchase price is the fair value of the Company's common stock at the inception of the agreements increased by an escalation factor of 7% per annum. At January 3, 1997, agreements to purchase 204,000 shares were outstanding at $12.72 per share. The Company recognizes compensation expense applicable to the agreements in accordance with APB Opinion No. 25 for each period based upon the excess of the fair value of the stock over the purchase price specified in the agreements. NOTE G _ STOCK OPTION PLANS The Company grants stock options for a fixed number of shares to employees with an exercise price equal or above the fair value of the shares at the date of the grant. The Company accounts for stock option grants in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees, and, accordingly, recognizes no compensation expense for stock options granted. Under the Company's Incentive Stock Option Plan, 533,333 shares of Common Stock have been reserved for grant to key employees and directors. Options granted under the plan have a ten year term with vesting periods of one to five years from the date of the grant. Pro forma information regarding net income and earnings per share is required by FASB Statement No. 123, and has been determined as if the Company had accounted for its employee stock options and securities purchase agreements described in Note F under the fair value method of that Statement. The fair value was estimated at the date of the grant using a Black-Scholes option pricing model with the following weighted-average assumptions: volatility factors of .297 and .359 for 1996 and 1995 respectively; weighted-average expected life of options of two years and securities purchase agreements of one year; risk-free interest rate of 5%; and no dividend yield. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options and the securities purchase agreements granted in 1996 and 1995 is amortized to expense over the vesting period. The Company's pro forma information follows (in thousands, except per share information): ______ 1996 1995 Pro forma net income (loss) $386 $(652) Pro forma earnings (loss) per common share $.09 $(.15)
A summary of the Company's stock option activity and related information is as follows: 1996 1995 Options Weighted-Average Options Weighted-Average (in thousands) Exercise Price (in thousands) Exercise Price Outstanding- beginning of year 332 $14 272 $13 Granted 34 11 150 15 Exercised (50) 8 (44) 9 Forfeited (47) 16 (46) 18 Outstanding - -end of year 269 $14 332 $14 Weighted-average fair value of options granted during the year $1.86 $2.72 Weighted-average fair value of securities purchase agreements granted during the year $1.28 $ _
Following is a summary of the status of options outstanding at January 3, 1997: Outstanding Options Exercisable Options -------------------- ------------------- Weighted Weighted Weighted Average Average Average Exercise Number Contractal Exercise Number Exercise Price Range (in thousands) Life Price (in thousands)Price - ----------------------------------------------------------------------------- $ 9.00 - $11.25 52 5 years $10 27 $ 9 $12.00 - $15.00 191 8 years $15 101 $14 $20.00 - $21.00 26 6 years $21 26 $21
NOTE H _ DISCONTINUED OPERATIONS The Company's management reached the decision to discontinue its international division which primarily provided maritime transportation services. Abandonment of operations began on November 30, 1995, and were completed in 1996. In 1995, the loss on disposal of discontinued operations included approximately $62,000 (net of $35,000 tax benefit) of operational losses from November 30, 1995 through December 29, 1995. Actual costs incurred to complete the disposal exceeded the Company's 1995 estimate by $139,000 (net of $109,000 tax benefit), and accordingly, is included in the accompanying consolidated statement of operations for 1996. These additional costs were incurred primarily to cover unplanned severance pay and equipment rental charges. Sales of the international division were $2,107,000, $10,651,000 and $6,869,000 in 1996, 1995 and 1994, respectively. Interest expense of $303,000 and $95,000 was allocated to discontinued operations in 1995 and 1994, respectively, based on the relative net assets of the discontinued operations compared to total net assets. At December 29, 1995, the assets of the division consisted primarily of trade accounts receivable of $1,658,000 and liabilities of $1,010,000, which include estimated costs to close the division. No significant assets remained at January 3, 1997. NOTE I _ COMMITMENTS AND CONTINGENCIES The Company self-insures for losses related to liability and workers' compensation claims with excess coverage by underwriters on a per incident basis. Accrued expenses include $7,449,000 at January 3, 1997 and $3,827,000 at December 29, 1995 applicable to claims payable, a portion of which is for insurance claims that have been incurred but not reported. The ultimate cost for outstanding claims may vary significantly from current estimates. The Company leases certain revenue equipment and data processing equipment under operating leases that expire over the next six years. The leases require the Company to pay the maintenance, insurance, taxes and other expenses in addition to the minimum monthly rentals. Future minimum payments under the leases at January 3, 1997 are $7,513,000 in 1997, $6,679,000 in 1998, $4,399,000 in 1999, $988,000 in 2000 and $502,000 in 2001. Rental expense applicable to noncancelable operating leases totaled $8,440,000 in 1996, $7,042,000 in 1995, and $2,769,000 in 1994. The Company has entered into heating oil (diesel fuel) swap agreements in order to hedge its exposure to price fluctuations. At January 3, 1997, the Company had less than 1% of its 1997 anticipated fuel requirements under swap agreements which expire in January 1997. Gains and losses on hedging contracts are recognized in operating expenses as part of the fuel cost over the hedge period. Also, the Company establishes prices for a portion of its anticipated fuel purchases over specified periods of time through various fuel purchase agreements. During 1996, the Internal Revenue Service assessed the Company for certain employment taxes for the years 1992 through 1994. The Company disputes the assessment and believes that the matter will be resolved in the Company's favor. Accordingly, the Company has not accrued for such amounts in the accompanying financial statements. The Company is also involved in various claims and routine litigation incidental to its business. Management is of the opinion that the outcome of these other matters will not have a material adverse effect on the consolidated financial position or operations of the Company. NOTE J _ FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount reported in the balance sheet for cash and cash equivalents and short-term notes payable to banks approximate their fair values. The fair values of the Company's long-term debt and capital lease obligations are estimated using discounted cash flow analysis, based upon the Company's current incremental borrowing rates for similar types of borrowing arrangements, which approximate the carrying amounts at January 3, 1997. Report of Independent Auditors The Board of Directors and Stockholders KLLM Transport Services, Inc. We have audited the accompanying consolidated balance sheets of KLLM Transport Services, Inc. and subsidiaries as of January 3, 1997 and December 29, 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended January 3, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of KLLM Transport Services, Inc. and subsidiaries at January 3, 1997 and December 29, 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended January 3, 1997, in conformity with generally accepted accounting principles. s/Ernst & Young, LLP Jackson, Mississippi January 31, 1997, except for Note B as to which the date is March 7, 1997. Directors and Officers BOARD OF DIRECTORS BENJAMIN C. LEE, JR. Chairman of the Board KLLM Transport Services, Inc. STEVEN K. BEVILAQUA President and Chief Executive Officer KLLM Transport Services, Inc. WALTER P. NEELY, PH. D. J. Army Brown Chair of Business Administration Professor of Finance Else School of Management, Millsaps College JAMES L. YOUNG Attorney Young, Williams, Henderson and Fuselier, P.A. LELAND R. SPEED Chairman of the Board and Chief Executive Officer The Parkway Company C. TOM CLOWE, JR. President and Chief Operating Officer Missouri Gas Energy OFFICERS BENJAMIN C. LEE, JR. Chairman of the Board STEVEN K. BEVILAQUA President and Chief Executive Officer JOHN J. RITCHIE Senior Vice President _ Sales and Marketing JAMES P. SORRELS President _ Express Systems NANCY M. SAWYER President _ Vernon Sawyer IRENE C. HOWARD Vice President _ Human Resources and Risk Management WILLIAM J. LILES III Vice President _ Sales and Marketing STEVEN L. DUTRO Vice President _ Finance, Acting Chief Financial Officer James T. Merritt Vice President _ Dedicated and Contract Services WILLIAM M. CREEL Transport Group Vice President _ Field Operations LARRY C. SIMPSON Transport Group Vice President _ Maintenance VINCENT A. SCHOTT Transport Group Vice President _ Information Systems JAMES M. RICHARDS, JR. Transport Group Vice President _ Customer Service THOMAS J. SHEPHERD Transport Group Vice President _ Dedicated Logistics EX-23 5 Exhibit 23 Consent of Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K) of KLLM Transport Services, Inc. of our report dated January 31, 1997, except for Note B as to which the date is March 7, 1997, included in the 1996 Annual Report to Shareholders of KLLM Transport Services, Inc. Our audits also included the financial statement schedule of KLLM Transport Services, Inc. listed in Item 14(a)(2). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information as set forth therein. We also consent to the incorporation by reference in the Registration Statement (Post-effective Amendment No. 6, Form S-8, No. 33-14545) pertaining to the KLLM Transport Services, Inc. Employee Stock Purchase Plan and in the Registration Statement (Form S-8, No. 333-09605) pertaining to the KLLM Transport Services, Inc. 1996 Stock Purchase Plan of our report dated January 31, 1997, except for Note B as to which the date is March 7, 1997, with respect to the consolidated financial statements incorporated herein by reference and our report included in the preceding paragraph with respect to the financial statement schedule of KLLM Transport Services, Inc. included in the Annual Report (Form 10-K) of KLLM Transport Services, Inc.. /s/ Ernst & Young LLP Jackson, Mississippi March 31, 1997
EX-27 6
5 12-MOS JAN-03-1997 JAN-03-1997 2,874 0 22,684 682 891 35,421 179,613 57,738 159,894 24,860 0 0 0 4,559 61,941 159,894 0 256,688 0 250,338 0 0 4,783 1,626 721 905 0 0 0 766 0.18 0.00
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