-----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, EWq3TJA6Oo4GVdxXcO64Xm5HvSofTkBCtR4QKD/xOpFe7r3cJunxI334vj9bIELn rpQ4I0KGo3nKMXFWo0klyg== /in/edgar/work/20000630/0000931763-00-001647/0000931763-00-001647.txt : 20000920 0000931763-00-001647.hdr.sgml : 20000920 ACCESSION NUMBER: 0000931763-00-001647 CONFORMED SUBMISSION TYPE: SC 14D9/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20000630 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: KLLM TRANSPORT SERVICES INC CENTRAL INDEX KEY: 0000793765 STANDARD INDUSTRIAL CLASSIFICATION: [4213 ] IRS NUMBER: 640412551 STATE OF INCORPORATION: DE FISCAL YEAR END: 0103 FILING VALUES: FORM TYPE: SC 14D9/A SEC ACT: SEC FILE NUMBER: 005-38140 FILM NUMBER: 666843 BUSINESS ADDRESS: STREET 1: 135 RIVERVIEW DR CITY: RICHLAND STATE: MS ZIP: 39218 BUSINESS PHONE: 6019392545 MAIL ADDRESS: STREET 1: P.O.BOX 6098 CITY: JACKSON STATE: MS ZIP: 39288 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: KLLM TRANSPORT SERVICES INC CENTRAL INDEX KEY: 0000793765 STANDARD INDUSTRIAL CLASSIFICATION: [4213 ] IRS NUMBER: 640412551 STATE OF INCORPORATION: DE FISCAL YEAR END: 0103 FILING VALUES: FORM TYPE: SC 14D9/A BUSINESS ADDRESS: STREET 1: 135 RIVERVIEW DR CITY: RICHLAND STATE: MS ZIP: 39218 BUSINESS PHONE: 6019392545 MAIL ADDRESS: STREET 1: P.O.BOX 6098 CITY: JACKSON STATE: MS ZIP: 39288 SC 14D9/A 1 0001.txt AMENDMENT NO. 2 TO KLLM TRANSPORT SERVICES, INC. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 -------------------- SCHEDULE 14D-9 (Rule 14d-101) SOLICITATION / RECOMMENDATION STATEMENT UNDER SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934 (Amendment No. 2) KLLM Transport Services, Inc. (Name of Subject Company) -------------------- KLLM Transport Services, Inc. (Name of Person(s) Filing Statement) Common Stock, par value $1.00 per share (Title of Class of Securities) 482498102 (CUSIP Number of Class of Securities) -------------------- Leland R. Speed Chairman of the Special Committee of the Board of Directors KLLM Transport Services, Inc. 135 Riverview Drive Richland, Mississippi 39218 (601) 939-2545 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of the Person(s) Filing Statement) With copies to: Sidney J. Nurkin, Esq. Alston & Bird LLP One Atlantic Center 1201 West Peachtree Street Atlanta, Georgia 30309 (404) 881-7000 [_] Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer. This Amendment No. 2 amends and supplements the solicitation/recommendation statement on Schedule 14D-9 filed with the U.S. Securities and Exchange Commission (the "Commission") on June 2, 2000 (the "Schedule 14D-9"), as amended by Amendment No. 1 thereto filed with the Commission on June 23, 2000 (the "Amendment No. 1"), by KLLM Transport Services, Inc., a Delaware corporation (the "Company"), in relation to the tender offer being made by High Road Acquisition Subsidiary Corp., a Delaware corporation ("Purchaser"), which is a wholly owned subsidiary of High Road Acquisition Corp., a Delaware corporation ("Parent"), to purchase all of the outstanding shares of Common Stock of the Company at a purchase price of $8.05 per share, net to the seller in cash, without interest thereon, less applicable withholding taxes, if any, (the "Offer Price") upon the terms and subject to the conditions set forth in the Purchaser's Offer to Purchase, dated June 2, 2000, as amended on June 23, 2000, June 26, 2000 and June 28, 2000 (the "Offer to Purchase"), and in the related Letter of Transmittal (which, together with the Offer to Purchase, constitutes the "High Road Offer"). The High Road Offer is described in a Tender Offer Statement on Schedule TO (as amended or supplemented from time to time, the "Schedule TO"), filed by Parent and Purchaser with the Securities and Exchange Commission (the "Commission") on June 2, 2000, as amended on June 23, 2000, June 26, 2000, and June 28, 2000. The High Road Offer is being made in accordance with the Plan of Agreement and Merger, dated as of May 25, 2000, among Parent, Purchaser and the Company (the "Merger Agreement"), a copy of which is incorporated hereto as Exhibit (e)(1). Item 4. The Solicitation or Recommendation. (b) (i) Background of the High Road Offer; Contact with Parent. The information set forth in Item 4(b)(i) is hereby amended and supplemented by adding the following to the end of the first full paragraph on page 18 of Item 4(b)(i) to the Schedule 14-9: Mr. Grayson presented the oral opinion of Morgan Keegan to the Board as to the fairness of the $7.80 per share offer, from a financial point of view, to the Company's public stockholders. The full text of Morgan Keegan's written opinion, dated May 25, 2000, to the Board, which sets forth the procedures followed, assumptions made, matters considered and limitations on the review undertaken in giving such opinion, is attached as Exhibit (a)(9) hereto and is incorporated by reference in its entirety into this Schedule 14d-9. The information set forth in Item 4(b)(i) is hereby further amended and supplemented by adding the following to the end of Item 4(b)(i): Opinion of Morgan Keegan Morgan Keegan has acted as the Company's and Special Committee's exclusive financial advisor in connection with the merger. The Company selected Morgan Keegan based on Morgan Keegan's experience, reputation, and familiarity with the Company's -1- business. Morgan Keegan is a nationally recognized investment banking firm and is regularly engaged in the valuation of businesses and securities in connection with mergers and acquisitions, tender offers, leveraged buyouts, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. In light of the foregoing, the Special Committee and Board believe that Morgan Keegan is well qualified to provide the committee with independent, quality financial assistance and advice, including the delivery of the fairness opinion. In connection with Morgan Keegan's engagement, the Special Committee requested that Morgan Keegan evaluate the fairness, from a financial point of view, to the unaffiliated stockholders of the Company, other than to the Liles Group and its affiliates, of the aggregate consideration to be received by the unaffiliated stockholders of the Company in the merger. On May 25, 2000, at a meeting of the Board held to consider the merger, Morgan Keegan rendered to the Board an oral opinion, which opinion was subsequently confirmed by delivery of a written opinion dated May 25, 2000, to the effect that, as of that date and based on and subject to the matters described in its opinion, the aggregate consideration to be received by the unaffiliated stockholders in the merger was fair, from a financial point of view, to them. The full text of Morgan Keegan's written opinion, dated May 25, 2000, to the Board, which sets forth the procedures followed, assumptions made, matters considered and limitations on the review undertaken, is attached as Exhibit (a)(10) and is incorporated by reference in its entirety into this Schedule 14d-9. Holders of the Company's common stock are urged to read this opinion carefully in its entirety. Morgan Keegan's opinion is addressed to the Board and states that, as of the date of the opinion, based upon and subject to the assumptions, limitations and qualifications set forth in such opinion, the aggregate consideration to be received by the stockholders in the merger is fair, from a financial point of view, to the unaffiliated stockholders (other than the Liles Group and its affiliates). The following is a summary of the material financial analyses performed by Morgan Keegan in connection with rendering its opinion and does not purport to be a complete description of such analyses. In arriving at its opinion, Morgan Keegan: . reviewed the merger agreement; . reviewed certain business and financial information relating to the Company; . reviewed certain other information, including financial forecasts based on assumptions that Morgan Keegan believed appropriate and which forecasts the Company advised Morgan Keegan that it did not have reason to believe such forecasts or assumptions were unreasonable; . met with the management of the Company to discuss the business and prospects of the Company; . considered certain financial and stock market data of the Company, and compared that data with similar data for other publicly held companies in businesses similar to the Company; . considered the results of the strategic evaluation process and other proposals; . considered the financial terms of other business combinations and other transactions that have recently been effected; and . considered such other information, financial studies, analyses and investigations and financial, economic and market criteria that Morgan Keegan deemed relevant. -2- In connection with its review, Morgan Keegan did not assume any responsibility for independent verification of any of the information that was provided to or otherwise reviewed by it and relied on that information being complete and accurate in all material respects. Morgan Keegan was not requested to, and did not, make an independent evaluation or appraisal of the assets or liabilities, contingent or otherwise, of the Company. Morgan Keegan's opinion was necessarily based on information available to Morgan Keegan, and financial, economic, market and other conditions as they existed and could be evaluated by Morgan Keegan, on the date of its opinion. Although Morgan Keegan evaluated the fairness from a financial point of view to the unaffiliated stockholders of the Company, other than the Liles Group and its affiliates, of the aggregate consideration to be received by the unaffiliated stockholders of the Company in the Merger, Morgan Keegan was not requested to, and did not, recommend the specific consideration payable in the Merger, which consideration was determined in negotiations between the Company and the Liles Group. In preparing its opinion to the Board, Morgan Keegan performed various financial and comparative analyses, including those described below. The summary of Morgan Keegan's analyses described below is not a complete description of the analyses performed in connection with rendering its opinion. The preparation of a fairness opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a fairness opinion is not readily susceptible to summary description. In arriving at its opinion, Morgan Keegan made qualitative judgments as to the significance and relevance of each analysis and factor that it considered. Accordingly, Morgan Keegan believes that its analyses must be considered as a whole and that selecting portions of its analyses and factors or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying its analyses and opinion. In its analyses, Morgan Keegan considered industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of the Company. No company, transaction or business used in Morgan Keegan's analyses as a comparison is identical to the Company or the merger, and an evaluation of the results of those analyses is not entirely mathematical. Rather, the analysis involves complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the companies, business segments or transactions analyzed. The estimates contained in Morgan Keegan's analyses and the ranges of valuations resulting from any particular analysis are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by the analyses. In addition, analyses relating to the value of businesses or securities do not necessarily purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold. Accordingly, -3- Morgan Keegan's analyses and estimates are inherently subject to substantial uncertainty. Morgan Keegan's opinion and financial analyses were among many factors considered by the Board in its evaluation of the merger and should not be viewed as determinative of the views of the Board or management with respect to the merger or the aggregate consideration to be received. The following is a summary of the material financial analyses underlying Morgan Keegan's oral and written opinions delivered to the Board in connection with the merger. The financial analysis summarized below includes information presented in tabular format. In order to fully understand Morgan Keegan's financial analyses, the table must be read together with the text. The table alone does not constitute a complete description of the financial analyses. You are urged to read the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, or otherwise you may have a misleading or incomplete view of Morgan Keegan's financial analyses. Morgan Keegan derived implied share price reference ranges based on a discounted cash flow analysis, selected companies analysis, selected mergers and acquisitions analysis and selected premiums analysis for the Company as more fully described below. Morgan Keegan then compared the consideration to be received in the Merger of $8.05 per Share with the share price reference ranges implied by these analyses. Share Price Reference Range Analysis. Morgan Keegan compared the price to be paid in the proposed transaction to the closing price of the last trading day of each month from May 1999 through April 2000. Morgan Keegan observed that the Company's share price was declining steadily between May and October 1999, when Mr. Low began acquiring beneficial ownership of the Company's stock. Morgan Keegan noted that the closing price on November 30, 1999 of $6.16 was 28.7% greater than it was on October 29, 1999 ($4.75 per Share). Morgan Keegan also observed that after Mr. Low announced his intent on March 16, 2000 to acquire the Company, the Company share price increased steadily between that date and April 28, 2000. The closing price on April 28, 2000 was $8.13, which represents a 66.3% increase from February 29, 2000 ($5.50 per Share) and a 71.2% increase from October 29, 1999 ($4.75 per share). -4- Closing Price Table for the Twelve Months Prior to May 1, 2000 Date Closing Price ---- ------------- May 26, 1999 $6.75 June 30, 1999 $5.75 July 29, 1999 $5.94 Aug. 31, 1999 $5.00 Sept. 30, 1999 $4.88 Oct. 29, 1999 (1) $4.75 Nov. 30, 1999 $6.16 Dec. 31, 1999 $4.75 Jan. 31, 2000 $5.25 Feb. 29, 2000 $5.50 Mar. 31, 2000 (2) $6.94 April 28, 2000 $8.13 Note: (1) Based on Mr. Low's filing with the Commission, he acquired beneficial ownership of 289,000 shares of Common Stock of the Company between October 1999 through December 1999. (2) Based on Mr. Low's filing with the Commission, he acquired beneficial ownership of 250,000 additional shares on February 10, 2000. Selected Companies Analysis. Morgan Keegan compared selected financial, operating and stock market data of the Company to corresponding data of several publicly traded companies in the trucking industry, including: Selected temperature-controlled carriers: . Frozen Food Express; . Marten Transport, Ltd.; and . Simon Transportation. Selected dry van truckload carriers: . Cannon Express, Inc.; . MS Carriers; . Covenant Transport, Inc.; . PAM Transportation; . Heartland Express; . Swift Transportation; . Intrenet, Inc.; . Transit Group, Inc.; . J.B. Hunt; . Transport Corp. of America; . Knight Transportation; . U.S. Xpress Enterprises; . LandAir; . USA Truck, Inc.; and . Landstar Systems, Inc.; . Werner Enterprises, Inc. Morgan Keegan reviewed enterprise values, calculated as fully diluted equity market value, plus total debt, preferred stock and minority interests, less cash and cash equivalents of the selected companies, as multiples of their last twelve months revenues, EBITDA, and EBIT. Morgan Keegan also reviewed the market value of the selected companies' stock, calculated on a fully diluted basis, as a multiple of such companies' net income for the last twelve months. Morgan Keegan then applied the applicable multiples derived from this analysis -5- to KLLM's revenues EBIT, EBITDA, net income and tangible book value for the last twelve months ended March 31, 2000 and projected EDIT, EBITDA, net income and tangible book value for calendar year 2000. Projected results were used to derive an implied price per share in the future. These derived future share prices were discounted to the present value using an assumed 18.6% cost of equity capital. Multiples for the dry van carriers comp group were deemed less applicable than multiples for the temperature-controlled comparable group due to the difference in profitability between KLLM and most dry van carriers, because temperature-controlled carriers typically have a higher cost structure, without commensurately higher revenue rates per mile, than do dry van carriers. In addition, Morgan Keegan deemed KLLM's temperature-controlled comparable group to be more applicable than the dry van comparable group due to the fact that the temperature-controlled division generates over 80% of the Company's revenues. EBIT multiples were deemed more applicable than were EBITDA multiples due to the fact that for most trucking companies, annual capital expenditures for new tractors and trailers equals or exceeds depreciation expense for similar equipment. As a result, in the trucking industry, EBIT is deemed to be a better proxy of free cash flow than is EBITDA. The analysis assumed a cost of equity of 18.6%, a net debt outstanding of approximated $47 million and 4,101,000 shares outstanding. The table set forth below shows the selected companies analysis used by Morgan Keegan.
- -------------------------------------------------------------------------------------------------------------------- Comparable Company Analysis - -------------------------------------------------------------------------------------------------------------------- Based on Last Twelve Months (3/31) Results ----------------------------------------------------------------------------- Applicable Last 12 Enterprise Equity Share Multiples Months Value Value Value ----------------------------------------------------------------------------- Temperature- Controlled Carriers Revenues 0.2x $236,857 $47,371 $ 420 $ 0.10 EBITDA 3.3x $ 20,138 $66,455 $19,504 $ 4.76 EBIT 7.3x $ 1,317 $ 9,614 NM NM Net Income 6.6x $ (1,567) NA NM NM Tangible Book Value 0.6x $ 49,979 NA $30,987 $ 7.56 Dry Van Carriers EBITDA 4.5x $ 20,138 $90,621 $43,670 $10.65 EBIT 8.6x $ 1,317 $11,326 NM NM Net Income 10.0x $ (1,567) NA NM NM Tangible Book Value 1.3x $ 49,979 NA $64,973 $15.84 - --------------------------------------------------------------------------------------------------------------------
-6-
Based on 2000 Projections Results ------------------------------------------------------------------------------------ Applicable 2000 Enterprise Equity Share Discounted Multiples Projections Value Value Value Price/Share ------------------------------------------------------------------------------------ Temperature- Controlled Carriers Revenues 0.2x $244,941 $ 48,988 $ 2,037 $ 0.50 $ 0.42 EBITDA 3.3x $ 25,750 $ 84,975 $38,024 $ 9.27 $ 7.82 EBIT 7.3x $ 6,155 $ 44,932 NM NM NM Net Income 6.6x $ 1,437 NA $ 9,484 $ 2.31 $ 1.95 Tangible Book 0.6x $ 52,404 NA $32,490 $ 7.92 $ 6.68 Value Dry Van Carriers EBITDA 4.5x $ 25,750 $115,875 $68,924 $16.81 $14.17 EBIT 8.6x $ 6,155 $ 52,933 $ 5,982 $ 1.46 $ 1.23 Net Income 10.0x $ 1,437 NA $14,370 $ 3.50 $ 2.95 Tangible Book 1.3x $ 52,404 NA $68,125 $16.61 $14.01 Value - ----------------------------------------------------------------------------------------------------------------
Discounted Cash Flow Analysis. Morgan Keegan also performed a discounted cash flow analysis, which resulted in an implied range of less than zero to $1.33 per Share, based on an illustrative range of multiples of unlevered free cash flow and discount rates. Unlevered free cash flow is defined as after tax income from operations, less capital expenditures, plus depreciation and amortization and change in working capital. The analysis assumed a net debt outstanding of approximately $47 million and 4,101,000 shares outstanding The tables set forth below illustrates the implied value per Share at various multiples of unlevered free cash flow and discounts rates.
- ------------------------------------------------------------------------------------------------------------------- Illustrative Multiple of Unlevered Free Cash Flow Illustrative --------------------------------------------------- Weighted Average Cost of Capital Rate 5.0 x 6.0 x 7.0 x - -------------------- ----- ----- ----- 11.06%................................................... $ (.79) $ .27 $1.33 12.06%................................................... $(1.13) $ (.11) $ .90 13.06%................................................... $(1.46) $ (.48) $ .49 14.06%................................................... $(1.77) $ (.83) $ .11 15.06%................................................... $(2.07) $(1.17) $(.27) - -------------------------------------------------------------------------------------------------------------------
-7- Premium Analysis. Morgan Keegan analyzed the premiums paid for all completed mergers and acquisitions of publicly traded trucking companies with transaction values up to $500 million and for certain non-financial institutions and non-technology companies with transaction values between $25 million and $100 million. Morgan Keegan analyzed premiums paid over the target's stock price one day, one week and one month prior to the announcement date. Morgan Keegan than derived an implied price per share based on the median premiums paid in these transactions. For the purposes of this analysis, the announcement date was March 16, 2000, which is the date that Mr. Low announced in his Schedule 13D filing his intention to acquire the Company for $7.60 per share. The table set forth below depicts the results of this analysis.
Time Period Prior to Announcement Date ---------------------------------------------------- One Day One Week One Month ---------------------------------------------------- Trucking Company Transactions $8.13 $7.71 $9.84 Other Selected Transactions $7.99 $7.30 $9.37 - ---------------------------------------------------------------------------------------------------
Selected Mergers and Acquisitions Analysis. Morgan Keegan also applied median valuation multiples calculated from prices paid in publicly announced transactions to the Company's financial information. All multiples were based on publicly available financial information. This analysis indicated an implied range of $3.84 to $16.82 per Share when the derived multiples were applied to the Company. The mergers and acquisitions analysis was relied on less than the other analyses due to fact that multiples can vary significantly based on the type of consideration being paid. Multiples are typically higher for transactions involving stock, seller notes and contingent payouts than they are for transactions involving 100% cash, as is the case in the proposed transaction. Also, EBIT multiples were deemed more applicable than were EBITDA multiples for the reasons stated above. The table set forth below shows the mergers and acquisitions analysis used by Morgan Keegan. -8-
Mergers & Acquisitions Analysis Based on Last Twelve Months (3/31) Results -------------------------------------------------------------------------------- Median Last Twelve Enterprise Equity Share Multiples Months Value Value Value -------------------------------------------------------------------------------- Revenues 0.4x $236,857 $ 94,743 $47,792 $11.65 EBITDA 5.0x $ 20,138 $100,690 $53,739 $13.10 EBIT 11.2x $ 1,317 $ 14,750 NM NM Net Income 13.0x $ (1,567) NA NM NM - ---------------------------------------------------------------------------------------------------------------
Based on 2000 Projection Results ------------------------------------------------------------------------ Median 2000 Enterprise Equity Share Discounted Multiples Projection Value Value Value Price/Share ------------------------------------------------------------------------ Revenues 0.4x $244,941 $ 97,976 $51,025 $12.44 $10.49 EBITDA 5.0x $ 25,750 $128,750 $81,799 $19.95 $16.82 EBIT 11.2x $ 6,155 $ 68,936 $21,985 $ 5.36 $ 4.52 Net Income 13.0x $ 1,437 NA $18,681 $ 4.56 $ 3.84 - ------------------------------------------------------------------------------------------------
Projections. In the course of its analysis, Morgan Keegan prepared projections of the future financial performance of the Company through fiscal year 2004 using various assumptions. These projections were based upon Morgan Keegan's analysis of the Company's financial performance through fiscal year 2000 made by Morgan Keegan in connection with its regular research efforts concerning the Company. Such analysis was based on the historical performance of the Company and publicly available information and such assumptions as Morgan Keegan believed to be appropriate. From its analysis of the Company's financial performance through fiscal year 2000, Morgan Keegan prepared additional projections of the Company's financial performance thorough 2004, based upon such additional assumptions as it considered appropriate. These projections of the Company's performance and the assumptions made by Morgan Keegan in developing their projection were then furnished to the Company for review. The Company advised Morgan Keegan that it did not have reason to believe that such projections or such assumptions were unreasonable. Accordingly, such projections, and the underlying assumptions, were incorporated into Morgan Keegan's analysis of the fairness, from a financial point of view, of the various offers. Morgan Keegan included such projections in its written presentations to the Board. The Company does not as a matter of course publicly disclose or confirm projections as to future revenues or earnings, but the Company advised Morgan Keegan that it did not have reason to believe that such projections or the underlying assumptions were unreasonable to assist Morgan Keegan in analyzing the proposed acquisition of the Company. The projections prepared by Morgan Keegan are set forth below.
----------------- ----------------- ----------------- ----------------- ---------------- 2000P 2001P 2002P 2003P 2004P ----------------- ----------------- ----------------- ----------------- ---------------- Revenues $244,941 100.0 % 251,065 100.0 % 261,108 100.0 % 271,552 100.0 % 282,414 100.0 % Operating Expenses Salaries, wages and benefits 85,565 34.9 87,245 34.7 90,605 34.7 93,550 34.5 96,868 34.3 Operating supplies and expenses 60,286 24.6 60,256 24.0 62,666 24.0 64,901 23.9 67,497 23.9 Insurance, taxes and licenses 10,223 4.2 10,545 4.2 10,967 4.2 11,406 4.2 11,862 4.2 Depreciation and amortization 19,595 8.0 20,085 8.0 20,888 8.0 21,724 8.0 22,592 8.0 Purchased transportation 52,772 21.5 54,481 21.7 56,660 21.7 58,926 21.7 61,283 21.7 Other 10,345 4.2 10,545 4.2 10,967 4.2 11,406 4.2 11,862 4.2 -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Total operating expenses 238,786 97.5 243,157 96.9 252,753 96.8 261,912 96.5 271,965 96.3 -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Operating income 6,155 2.5 7,908 3.1 8,355 3.2 9,640 3.5 10,449 3.7 Other expenses (40) (0.0) (50) (0.0) (52) (0.0) (54) (0.0) (56) (0.0) Interest expense 3,800 1.6 4,200 1.7 4,439 1.7 4,616 1.7 4,801 1.7 -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Total Other (Income) Expense 3,760 1.5 4,150 1.7 4,387 1.7 4,562 1.7 4,745 1.7 -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Income Before Provision for Taxes 2,395 1.0 3,758 1.5 3,968 1.5 5,078 1.9 5,705 2.0 Provision for Income Taxes 958 0.4 1,503 0.6 1,587 0.6 2,031 0.7 2,282 0.8 -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Net Income $ 1,437 0.6 % $ 2,255 0.9 % $ 2,381 0.9 % $ 3,047 1.1 % $ 3,423 1.2 % ======== ===== ======== ===== ======== ===== ======== ===== ======== ===== Diluted Earnings per Share $ 0.35 $ 0.55 $ 0.58 $ 0.74 $ 0.83 Diluted Shares Outstanding 4,100 4,100 4,100 4,100 4,100 - ------------------------------------------------------------------------------------------------------------------------------------ Operating Income $ 6,155 2.5 % $ 7,908 3.1 % $ 8,355 3.2 % $ 9,640 3.5 % $ 10,449 3.7 % Depreciation and Amortization 19,595 8.0 20,085 8.0 20,888 8.0 21,724 8.0 22,592 8.0 -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- EBITDA $ 25,750 10.5 % $ 27,993 11.1 % $ 29,243 11.2 % $ 31,363 11.5 % $ 33,042 11.7 % ======== ===== ======== ===== ======== ===== ======== ===== ======== ===== - ------------------------------------------------------------------------------------------------------------------------------------
The projections were not prepared with a view to public disclosure and are included in this document only because the information was used by Morgan Keegan for this limited purpose. The projections were not: --- . prepared with a view to compliance with the published guidelines of the SEC regarding projections; -9- . prepared in accordance with the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of financial projections; or . reviewed by the Company's auditors. The projections are forward-looking statements reflecting numerous assumptions about many factors that are impossible to predict with any degree of accuracy, many of which are beyond management's control, and as such are subject to risks and uncertainties that could cause actual results to differ materially from the results forecasted by the projections. The inclusion of the projections should not be regarded as an indication that Morgan Keegan considered or consider the projections to be a reliable prediction of future events. In addition, neither Morgan Keegan nor the Company intends to update or otherwise publicly revise the projections to reflect circumstances existing after the date they were made, even if any or all of the assumptions underlying the projections are shown to be in error, or if experience or future changes make it clear that results predicted by the models will not be realized. The projections were not used with a view to reliance by the Company's stockholders in making a decision in connection with the Offer or the Merger or in making any other investment decision. Therefore, the Company's stockholders are cautioned not to rely upon the projections. Item 9. Exhibits. The information set forth Item 9 is hereby amended and supplemented by inserting the following: EXHIBIT NO. DESCRIPTION - ----------- --------------------------------------------------------- (a)(9) Written Presentation to the Board of Directors prepared by Morgan Keegan & Company, Inc. dated May 25, 2000. (a)(10) Written Presentation to the Board of Directors prepared by Morgan Keegan & Company, Inc. dated May 25, 2000. -10- SIGNATURE After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: June 30, 2000 KLLM TRANSPORT SERVICES, INC. By: /s/ Leland R. Speed ----------------------------------- Leland R. Speed, Chairman of the Special Committee of the Board of Directors -11- EX-99.A.9 2 0002.txt KLLM FAIRNESS OPINION FINAL LILES EXHIBIT 99.A.9 [KLLM Logo] Presentation to the Board of Directors May 25, 2000 The information contained in this information package should be considered confidential and should not be used for any purposes other than the Board of Directors' consideration of this transaction. Morgan Keegan & Company, Inc. Investment Banking 50 North Front Street 19th Floor Memphis, TN 38103 (901) 524-4100 Table of Contents [KLLM Logo] - -------------------------------------------------------------------------------- Methodology......................................... Tab A Transaction Overview................................ Tab B Company Overview.................................... Tab C Financial Review.................................... Tab D 1. Historical Financial Performance 2. Projected Financial Performance Valuation Methods................................... Tab E 1. Comparable Company Analysis 2. Mergers and Acquisition Analysis 3. Discounted Cash Flow Analysis 4. Premium Analysis Summary Valuation................................... Tab F Appendices.......................................... Tab G 1. Comparable Company Analysis - Detailed Schedules 2. Mergers and Acquisition Analysis - Detailed Schedules - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Methodology [KLLM Logo] - -------------------------------------------------------------------------------- In conducting our analysis, Morgan Keegan: . Participated in discussions with various members of management and representatives of KLLM Transport Services, Inc. ("KLLM" or the "Company") concerning KLLM's historical and current operations, financial condition and prospects and strategic objectives. . Reviewed historical financial and operating data that was furnished to us by KLLM relating to its business. . Reviewed internal financial analyses, financial and operating forecasts, reports and other information prepared by officers and representatives of KLLM. Projected financial information presented in this report was provided by management of the Company and is represented as management's opinion of the Company's performance. . Reviewed certain publicly available information with respect to certain other companies in lines of business that we believe to be generally comparable to those of the Company, including the trading markets for such other companies' securities. . Reviewed certain publicly available information concerning the financial terms of certain other transactions that we deemed relevant to our inquiry. . Analyzed the value of projected cash flows of the Company. . Reviewed the financial terms of the draft Plan and Agreement of Merger among Low Acquisition Corp. and KLLM Transport Services, Inc. . Undertook such other studies, analyses and investigations, and considered such other information, as we deemed relevant. - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 1 Transaction Overview [KLLM Logo] - -------------------------------------------------------------------------------- In August 1999, the Company engaged Morgan Keegan & Company to act as its financial advisor to consider strategic alternatives, including a potential sale of the Company, with a view to enhance stockholder value. The Board authorized Morgan Keegan to solicit potential bids to acquire the Company and prepare a memorandum containing certain confidential information about the company. On behalf of the Company, Morgan Keegan contacted 20 to 25 potential bidders, including Prime, Inc. and its principal, Mr. Robert Low. Of the 20 to 25 parties contacted, nine entered into confidentiality agreements with the Company and were furnished copies of the memorandum. None of the nine companies submitted an offer to buy the Company. Mr. Low declined to execute a confidentiality agreement at that time and did not receive a copy of the memorandum. Morgan Keegan attempted several times thereafter to get Mr. Low to begin negotiations regarding acquiring the Company. In a series of open market purchases between September 1999 and December 1999, Robert Low or his affiliates acquired beneficial ownership of 289,600 shares of the Company's common stock, representing approximately 7.1% of the Company's outstanding common stock. On February 10, 2000, Mr. Low purchased an additional 250,000 shares from an institutional investor in an open market transaction facilitated by a third party broker dealer, bringing Mr. Low's total stock ownership to 539,600 shares, representing approximately 13.2% of the Company's outstanding shares of common stock. On February 14, 2000, Mr. Low met with Jack Liles, Chairman of the Board, President, and Chief Executive Officer of the Company, to discuss, in general terms, the possible acquisition of the Company by Mr. Low. At the meeting, Mr. Liles indicated that he would not sell the Company for less than book value, or approximately $12 per share, a 100% premium over the then current trading price of the Company's stock. On March 16, 2000, Mr. Low indicated in a Schedule 13D filing that he was interested in acquiring the company for $7.60 per share, representing a 25% premium over the then current trading price of the Company's stock. At a board meeting on March 20, 2000, Mr. Liles indicated his interest in making a competing bid for the Company. On March 23, 2000, the Company's board of directors considered the price per share indicated in Mr. Low's offer and concluded that the price was inadequate in light of Mr. Liles' intent to present a competing offer to purchase the Company. On the same day, the Company's board established a special committee to review future offers presented to the Company. On April 12, 2000, Mr. Low commenced an all cash tender offer for the Company's stock at $7.75 a share. On April 19, 2000, Mr. Liles submitted a bid of $8.25 per share. The Special Committee established a deadline of May 5, 2000 for both Mr. Liles and Mr. Low to submit a proposed definitive merger agreement setting forth their highest and best price they were willing to pay along with any conditions to their offer. On May 5, 2000, both Mr. Liles and Mr. Low submitted proposed merger agreements providing for a purchase price of $8.25 per share. Between May 5, 2000 and May 8, 2000 the Special Committee received a series of bids and counter-bids from Mr. Low and Mr. Liles. On May 8, 2000, the Special Committee accepted an offer of $9.25 per share from Mr. Low after Mr. Liles stopped his bidding at $9.00 per share. On May 15, 2000, Mr. Low sent a letter to Morgan Keegan lowering his bid to $8.75 per share. As a result, another round of negotiations commenced with Mr. Low and Mr. Liles. On May 18, 2000 Mr. Liles submitted an unconditional offer of $8.80 per share; however, he rescinded this offer the following day. As a result, Mr. Low lowered his offer to $7.75 per share. After further negotiations, Mr. Low increased his offer to $7.80. - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 2 Transaction Overview [KLLM Logo] - -------------------------------------------------------------------------------- At $7.80 per share, the transaction represents an enterprise value of $79.0 million calculated as follows: Value of Equity: 4,101,468 x $8.05 = $32.0 million Net Debt as of March 31, 2000: $47.0 million This equates to enterprise value multiples of: .33x revenues for the last twelve months ended March 31, 2000 3.9x earnings before interest, depreciation and taxes ("EBITDA") for the last twelve months ended March 31, 2000 60.0x earnings before interest and taxes ("EBIT") for the last twelve months ended March 31, 2000 This equates to equity value multiples of: Non-meaningful multiple of net income for last twelve months due to net loss .64x book value as of March 31, 2000 - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 3 Company Overview [KLLM Logo] - -------------------------------------------------------------------------------- . The Company is a truckload carrier that specializes in temperature-controlled transportation services for major shippers in the food industry. In addition, the Company operates Vernon Sawyer, a dry van division that represented less than 20% of consolidated sales for the year ended December 31, 1999. . The Company operates nationwide from its strategically located headquarters in Richland, Mississippi and terminals in Atlanta, Georgia; Bastrop, Louisiana; Fontana, California; Portage, Indiana; and Carlisle, Pennsylvania. . The Company has established carrier relationships with Fresh Express, Pillsbury, Proctor & Gamble, Kraft, Kroger Company, and other major customers. . As of December 31, 1999, the Company operated 1,682 tractors, including 1,422 Company-operated tractors and 260 owner-operated tractors, and 2,741 trailers. - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 4 Valuation Methods [KLLM logo] - -------------------------------------------------------------------------------- Financial Highlights Revenues Fiscal 1995-2001P ($ in thousands) (graphic appears here) Year Revenue - ---- ------- 1995 $239,685 1996 246,222 1997 240,766 1998 228,988 1999 234,595 2000P 244,941 2001P 251,065 EBIT and Operating Ratio Fiscal 1995 - 2001P ($ in thousands) (graphic appears here) Year EBIT Operating Ratio - ---- ---- --------------- 1995 $6,513 97.3% 1996 6,702 97.3 1997 144 99.9 1998 5,642 97.5 1999 2,470 98.9 2000P 6,155 97.5 2001P 7,908 96.9 Shares and EPS Fiscal 1995 - 2001P (Shares in thousands) (graphic appears here) Year Shares EPS - ---- ------ --- 1995 4,479 $ 0.12 1996 4,372 0.18 1997 4,358 (3.38) 1998 4,341 0.42 1999 4,117 (0.19) 2000P 4,101 0.35 2001P 4,100 0.55 EBITDA and EBITDA Margin Fiscal 1995 - 2001P ($ in thousands) (graphic appears here) Year EBITDA EBITDA Margin - ---- ------ ------------- 1995 $20,568 11.9% 1996 28,757 11.7 1997 21,576 9.0 1998 23,912 10.4 1999 20,773 8.9 2000P 25,750 10.5 2001P 27,993 11.1 - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 5 Valuation Methods [KLLM logo] - -------------------------------------------------------------------------------- KLLM Transport Services, Inc. Balance Sheet as of March 31, 2000 (Dollars in Thousands)
Current Assets Liabilities and Stockholder's Equity Cash $ 1,618 Current Liabilities Receivables, net 23,677 Notes payable to banks $ 2,569 Inventories - at cost 715 Accounts payable and accrued expenses 17,722 Prepaid expenses and other 5,611 Accrued claims expense 11,733 Deferred income taxes 5,101 --------- ---------- Total current assets 36,722 Total current liabilities 32,024 Property and Equipment 155,028 Deferred income taxes payable 13,283 Less accumulated depreciation and amortization (50,464) Long term debt 46,000 ---------- Total stockholders' equity 49,979 Property and equipment, net 104,564 Total assets $ 141,286 Total liabilities and stockholder' equity $141,286 ========== =========
Balance Sheet Highlights - ------------------------ . Net debt (interest-bearing debt less cash) as of March 31, 2000 was $46,951 . At March 31, 2000, there were 4,101,468 shares of common stock outstanding . Net book value per share: $12.19 - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 6 Valuation Methods [KLLM logo] - -------------------------------------------------------------------------------- KLLM Transport Services, Inc. Historical Income Statements For Year Ended December 31 (Dollar in thousands except per share data)
----------------- ------------------ ------------------ 1995 1996 1997 ----------------- ------------------ ------------------ Revenue from trucking operations $239,685 100.0% $246,222 100.0% $210,766 100.0% Operating Expenses Salaries, Wages and benefits 69,706 29.1 71,318 29.0 75,748 31.5 Operating supplies and expenses 66,414 27.7 69,859 28.4 62,828 26.1 Insurance claims, taxes and licenses 11,773 4.9 14,227 5.8 17,751 7.4 Depreciation and amortization 23,017 9.6 21,872 8.9 21,432 8.9 Purchased transportation and equipment rent 53,370 22.3 54,272 22.0 51,692 21.5 Other 10,481 4.4 9,629 3.9 10,986 4.6 (Gain) loss on sale of revenue equipment (1,589) (0.7) (1,657) (0.7) 185 0.1 ----------------- ------------------ ------------------ Total operating expenses 233,172 97.3 239,520 97.3 240,622 99.9 ----------------- ------------------ ------------------ Operating income (loss) from continued operations 6,513 2.7 6,702 2.7 144 0.1 Non-Recurring Items and discontinued operations Operating revenues from discontinued operations 10,466 4.3 3,319 1.4 Discontinued operations expenses (10,818) (4.4) (4,228) (1.8) Impairment of long lived assets* (15,754) (6.5) Restructuring charge (1,906) (0.8) ----------------- ------------------ ------------------ Subtotal 0 0.0 (352) (0.1) (18,569) (7.7) ----------------- ------------------ ------------------ Operating income (loss) after non-recurring items 6,513 2.7 6,350 (18,425) (7.7) Other (income) expenses Gain on sale of property Interest and other income 32 0.0 59 0.0 68 0.0 Interest and other expense (5,554) (2.3) (4,783) (2.0) (4,363) (1.8) ----------------- ------------------ ------------------ Subtotal (5,522) (2.3) (4,724) (1.9) (4,295) (1.8) ----------------- ------------------ ------------------ Earnings (loss) from operations before taxes 991 0.4 1,626 0.7 (22,720) (9.4) Income tax expense (benefit) 473 0.2 721 0.3 (8,000) (3.3) ----------------- ------------------ ------------------ Net Income (loss) from continuing operations before taxes $ 518 0.2 $ 905 0.4 % $(14,720) (6.1) ----------------- ------------------ ------------------ After tax loss from non-recurring items $ (1,065) (0.4) $ (139) (0.1) Net earnings (loss) $ (547) (0.2) $ 766 0.3 % $(14,720) (6.1) ================= ================== ================== Diluted Earnings per Share $ (0.12) $ 0.18 $ (3.38) Diluted Shares Outstanding 4,479 4,372 4,358 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Income $ 6,513 2.7 % $ 6,702 2.7 % $ 144 0.1 % Depreciation and Amortization 22,055 9.2 22,055 9.0 21,432 8.9 ----------------- ------------------ ------------------ EBITDA $ 28,568 11.9 % $ 28,757 11.7 % $ 21,576 9.0 % - ------------------------------------------------------------------------------------------------------------------------------------
----------------- ------------------ ------------------ 1998 1999 LTM 3/DD ----------------- ------------------ ------------------ Revenue from trucking operations $228,988 100.0 % $234,595 100.0 % $ 236,857 100.0 % Operating Expenses Salaries, Wages and benefits 73,143 31.9 83,655 35.7 $ 85,146 35.9 Operating supplies and expenses 56,938 24.9 58,392 24.9 61,165 25.8 Insurance claims, taxes and licenses 13,729 6.0 10,585 4.5 10,187 4.3 Depreciation and amortization 18,270 8.0 18,303 7.8 18,821 7.9 Purchased transportation and equipment rent 50,840 22.2 51,424 21.9 50,698 21.4 Other 11,657 5.1 10,797 4.6 10,567 4.5 (Gain) loss on sale of revenue equipment (1,231) (0.5) (1,031) (0.4) $ (1,044) (0.4) ----------------- ------------------ ------------------ Total operating expenses 223,346 97.5 232,125 98.9 235,540 99.4 ----------------- ------------------ ------------------ Operating income (loss) from continued operations 5,642 2.5 2,470 1.1 1,317 0.6 Non-Recurring Items and discontinued operations Operating revenues from discontinued operations Discontinued operations expenses Impairment of long lived assets Restructuring charge ----------------- ------------------ ------------------ Subtotal 0 0.0 0 0.0 0 0.0 ----------------- ------------------ ------------------ Operating income (loss) after non-recurring items 5,642 2.5 2,470 1.1 1,317 0.6 Other (income) expenses Gain on sale of property 858 0.4 Interest and other income 87 0.0 58 0.0 101 0.0 Interest and other expense (3,551) (1.6) (3,403) (1.5) (3,543) (1.5) ----------------- ------------------ ------------------ Subtotal (2,606) (1.1) (3,345) (1.4) (3,442) (1.5) ----------------- ------------------ ------------------ Earnings (loss) from operations before taxes 3,036 1.3 (875) (0.4) (2,125) (0.9) Income tax expense (benefit) 1,200 0.5 (330) (0.1) (805) (0.3) ------------------ ------------------ ------------------ Net Income (loss) from continuing operation before taxes $ 1,836 0.8 % $ (545) (0.2) % $ (1,320) (0.6) ------------------ ------------------ ------------------ After tax loss from non-recurring items $ (247) (0.1) % (247) (0.1) Net earnings (loss) $ 1,836 0.8 % $ (792) (0.3) $ (1,567) (0.7) ================== ================== ================== Diluted Earrings per Share $ 0.42 $ (0.19) $ (0.38) Diluted Shares Outstanding 4,341 4,117 4,101 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Income $ 5,642 2.5 % $ 2,470 1.1 % $ 1,317 0.6 % Depreciation and Amortization 18,270 8.0 18,303 7.8 18,821 7.9 ------------------ ------------------ ------------------ EBITDA $ 23,912 10.4 % $ 20,773 8.9 % $ 20,138 8.5 % - ----------------------------------------------------------------------------------------------------------------------------------- * Impairment of long lived assets has been reclassified from an operating expense to a non-recurring item.
- -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 7 Valuation Methods [KLLM logo] - -------------------------------------------------------------------------------- KLLM Transport Services, Inc Historical Income Statements (Dollars in thousands except per share data)
Quarter Ended Quarter Ended ------------------ ------------------ 03/31/2000 04/02/1999 ------------------ ------------------ Revenue from trucking operations $ 57,593 100.0 % $ 55,331 100.0 % Operating Expenses Salaries, Wages and Benefits 20,833 36.2 19,342 35.0 Operating supplies and expenses 15,919 27.6 13,146 23.8 Insurance claims, taxes and licenses 2,745 4.8 3,143 5.7 Depreciation and amortization 4,885 8.5 4,367 7.9 Purchased transportation and equipment rent 11,625 20.2 12,351 22.3 Other 2,449 4.3 2,679 4.8 (Gain) loss on sale of revenue equipment (130) (0.2) (117) (0.2) ------------------ ------------------ Total operating expenses 58,326 101.3 54,911 99.2 ------------------ ------------------ Operating income (loss) from continued operations (733) (1.3) 420 0.8 Other (income) expenses Interest and other income 51 8 Interest and other expense (943) (1.6) (803) (1.5) ------------------ ------------------ Subtotal (892) (1.5) (795) (1.4) ------------------ ------------------ Earnings (loss) from operations before taxes (1,625) (2.8) (375) (0.7) Income tax expense (benefit) (625) (1.1) (150) (0.3) ------------------ ------------------ Net Income (loss) from continuing operations before taxes $ (1,000) (1.7) $ (225) (0.4) ------------------ ----------------- After tax loss from non-recurring items Net earnings (loss) $ (1,000) (1.7) $ (225) (0.4) ================== ================= Diluted Earnings per Share $ (0.24) $ (0.05) Diluted Shares Outstanding 4,101 4,373 - ------------------------------------------------------------------------------------------------------- Operating Income $ (733) (1.3) % $ 420 0.8 % Depreciation and Amortization 4,885 8.5 4,367 7.9 ----------------- ---------------- EBITDA $ 4,152 7.2 % $ 4,787 8.7 % - -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 8 Valuation Methods [KLLM Logo] - -------------------------------------------------------------------------------- Historical Income Statement Highlights -------------------------------------- . Revenues decreased at a average compound annual rate of .2% between 1995 and 1999. During that period, the largest increase in revenue was 2.7% in 1996 and the largest decrease in revenue was 4.9% in 1998. For 1999, revenue increased by 2.4% from the previous year. . From 1995 to 1997, KLLM's operating ratio ranged between 97.3% and 99.9%. During 1999 the operating ratio increased from 97.5% to 98.9%. For the quarter ended March 31, 2000, the operating ratio was 101.3%. . Depreciation and amortization expense was 7.8% of revenue in 1999, while in 1995 it was 9.6% of revenues. Depreciation and amortization did not change significantly as a percent of revenue during 1999 compared to the prior year. . From 1995 to 1999, operating income from continued operations or earnings before interest and taxes ("EBIT") ranged from a high of $6.7 million in 1996 to a low of $144,000 in 1997. For 1999, operating income was approximately $2.5 million. For the last twelve months ended March 31, 2000, operating income was $1.3 million. . Earnings before interest, taxes and depreciation and amortization ("EBITDA") decreased at an average compound annual rate of 7.8% from $28.8 million in 1995 to $20.8 million in 1999. For the last twelve months ended March 31, 2000, EBITDA was $20.1 million. . The Company has shown a profit in only two of the last five years. The cumulative net loss for the last five years was $13.5 million. The net loss and loss per share was $792,000 and $.19, respectively, in 1999. For the quarter ended March 31, 1999 the net loss and loss per share were $1.0 million and $.24, respectively. - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 9 Valuation Methods [KLLM Logo] - -------------------------------------------------------------------------------- KLLM Transport Services, Inc. Projected Income Statements Fiscal Year Ended December 31 (Dollars in thousands except per share data)
----------------- ----------------- ----------------- ----------------- ---------------- 2000P 2001P 2002P 2003P 2004P ----------------- ----------------- ----------------- ----------------- ---------------- Revenues $244,941 100.0 % 251,065 100.0 % 261,108 100.0 % 271,552 100.0 % 282,414 100.0 % Operating Expenses Salaries, wages and benefits 85,565 34.9 87,245 34.7 90,605 34.7 93,550 34.5 96,868 34.3 Operating supplies and expenses 60,286 24.6 60,256 24.0 62,666 24.0 64,901 23.9 67,497 23.9 Insurance, taxes and licenses 10,223 4.2 10,545 4.2 10,967 4.2 11,406 4.2 11,862 4.2 Depreciation and amortization 19,595 8.0 20,085 8.0 20,888 8.0 21,724 8.0 22,592 8.0 Purchased transportation 52,772 21.5 54,481 21.7 56,660 21.7 58,926 21.7 61,283 21.7 Other 10,345 4.2 10,545 4.2 10,967 4.2 11,406 4.2 11,862 4.2 -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Total operating expenses 238,786 97.5 243,157 96.9 252,753 96.8 261,912 96.5 271,965 96.3 -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Operating income 6,155 2.5 7,908 3.1 8,355 3.2 9,640 3.5 10,449 3.7 Other expenses (40) (0.0) (50) (0.0) (52) (0.0) (54) (0.0) (56) (0.0) Interest expense 3,800 1.6 4,200 1.7 4,439 1.7 4,616 1.7 4,801 1.7 -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Total Other (Income) Expense 3,760 1.5 4,150 1.7 4,387 1.7 4,562 1.7 4,745 1.7 -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Income Before Provision for Taxes 2,395 1.0 3,758 1.5 3,968 1.5 5,078 1.9 5,705 2.0 Provision for Income Taxes 958 0.4 1,503 0.6 1,587 0.6 2,031 0.7 2,282 0.8 -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Net Income $ 1,437 0.6 % $ 2,255 0.9 % $ 2,381 0.9 % $ 3,047 1.1 % $ 3,423 1.2 % ======== ===== ======== ===== ======== ===== ======== ===== ======== ===== Diluted Earnings per Share $ 0.35 $ 0.55 $ 0.58 $ 0.74 $ 0.83 Diluted Shares Outstanding 4,100 4,100 4,100 4,100 4,100 - ------------------------------------------------------------------------------------------------------------------------------------ Operating Income $ 6,155 2.5 % $ 7,908 3.1 % $ 8,355 3.2 % $ 9,640 3.5 % $ 10,449 3.7 % Depreciation and Amortization 19,595 8.0 20,085 8.0 20,888 8.0 21,724 8.0 22,592 8.0 -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- EBITDA $ 25,750 10.5 % $ 27,993 11.1 % $ 29,243 11.2 % $ 31,363 11.5 % $ 33,042 11.7 % ======== ===== ======== ===== ======== ===== ======== ===== ======== ===== - ------------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 10 Valuation Methods [KLLM Logo] - -------------------------------------------------------------------------------- Projected Income Statement Highlights - ------------------------------------- . Revenue is projected to increase from $234.6 million to $282.4 million from 1999 to 2004, which represents a compound annual growth rate of 3.8%. . EBIT is projected to increase from $2.5 million to $10.4 million from 1999 to 2004, which represents a compound annual growth rate of 33.4%. . EBITDA is projected to increase from $20.8 million to $33.0 million from 1999 to 2004, which represents a compound annual growth rate of 9.7%. . Earnings per share is projected to increase from ($.19) to $.83 from 1999 to 2004. - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 11 Valuation Methods [KLLM Logo] - -------------------------------------------------------------------------------- Comparable Company Analysis - --------------------------- Overview . Analyzed a group of publicly traded companies similar to the Company based on a variety of criteria. . Compared the Company's financial performance with the performance of the group of comparable companies. . Derived industry multiples by analyzing the specific comparable company multiples. . Applied the industry multiples to the Company's results for the last twelve months ended March 31, 2000 to derive an implied range of equity value and price per share. . Due to KLLM's low EBIT and net loss for the last twelve months ended March 31, 2000, valuations based on these financial measures indicate a negative equity value. As an alternative, 2000 projections were used to derive an implied range of equity and price per share in the future. These derived future values were then discounted to the present value using the Company's cost of equity capital. - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 12 Valuation Methods [KLLM Logo] - -------------------------------------------------------------------------------- . Comparable Company Analysis - Summary ------------------------------------- (Detailed analysis is included as an appendix)
- ------------------------------------------------------------------------------------------------------------------------------------ Comparable Company Analysis - ------------------------------------------------------------------------------------------------------------------------------------ Based on LTM (3/31) Results Based on 2000P Results --------------------------------------- ----------------------------------------------------- Applicable Enterprise Equity Share Enterprise Equity Share Discounted(1) Multiples LTM Value Value Value 2000P Value Value Value Price/Shr --------------------------------------- ----------------------------------------------------- Temperature-Controlled Carriers Revenues 0.2 x $236,857 $47,371 $ 420 $ 0.10 $244,941 $ 48,988 $ 2,037 $ 0.50 $ 0.42 EBITDA 3.3 x $ 20,138 $66,455 $19,504 $ 4.76 $ 25,750 $ 84,975 $38,024 $ 9.27 $ 7.82 EBIT 7.3 x $ 1,317 $ 9,614 NM NM $ 6,155 $ 44,932 NM NM NM Net Income 6.6 x $ (1,567) NA NM NM $ 1,437 NA $ 9,484 $ 2.31 $ 1.95 Tangible Book Value 0.6 x $ 49,979 NA $30,987 $ 7.56 $ 52,404 NA $32,490 $ 7.92 $ 6.68 Dry Van and Flatbed Carriers EBITDA 4.5 x $ 20,138 $90,621 $43,670 $10.65 $ 25,750 $115,875 $68,924 $16.81 $14.17 EBIT 8.6 x $ 1,317 $11,326 NM NM $ 6,155 $ 52,933 $ 5,982 $ 1.46 $ 1.23 Net Income 10.0 x $ (1,567) NA NM NM $ 1,437 NA $14,370 $ 3.50 $ 2.95 Tangible Book Value 1.3 x $ 49,979 NA $64,973 $15.84 $ 52,404 NA $68,125 $16.61 $14.01 - ----------------------------------------------------------------------------------------------------------------------------------- (1) Discounted at the Company's cost of equity of 18.6%. For calculation, refer to discounted cash flow analysis.
Net Debt $46,951 Shares Outstanding 4,101 - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 13 Valuation Methods [KLLM logo] - -------------------------------------------------------------------------------- Comparable Company Analysis - --------------------------- Conclusion . Morgan Keegan determined the market value and the adjusted market value of each comparable company and calculated trading multiples based on revenue, EBITDA, EBIT and tangible book value. . Trading multiples of the comparable company group as a whole were deemed more meaningful than multiples of any particular company. . Valuations based on multiples of EBITDA for temperature-controlled carriers and multiples of revenues for dry van carriers produced implied valuations well in excess of the other methods and were not relied on in valuing the Company for the following reasons. EBITDA multiples for the temperature- controlled comp group deviated significantly. In addition, this comp group was relatively small as it contained only three companies. As an alternative, EBIT and EBITDA multiples for Marten Transport, the most profitable company in the temperature-controlled comp group, were used. The median revenue multiple for dry van carriers was not relied on due to the relative difference in profitability between KLLM and most dry van carriers. Therefore, making the aforementioned adjustments, the analysis produced an implied value range of between $.10 and $7.82 per share based on the multiples of the comparable temperature-controlled carriers group and between $1.23 and $15.84 per share based on the multiples of the comparable dry van carriers group. - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 14 Valuation Methods [KLLM logo] - -------------------------------------------------------------------------------- Mergers and Acquisitions Analysis - --------------------------------- Overview . Searched databases and news articles for acquisitions of trucking companies. . Selected those transactions with available financial information. . Derived valuation multiples by comparing the prices paid in these transactions to the Company's financial information for the last twelve months ended March 31, 2000 to derive an implied range of equity value and price per share. . Due to KLLM's low EBIT and net loss for the last twelve months ended March 31, 2000, valuations based on these financial measures indicated a negative equity value. Alternatively, 2000 projections were used to derive an implied range of equity and price per share in the future. These derived future values were then discounted to the present value using the Company's cost of equity capital. - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 15 Valuation Methods [KLLM logo] - -------------------------------------------------------------------------------- Mergers & Acquisitions Analysis - Summary - ----------------------------------------- (Detailed analysis is included as an appendix) Mergers & Acquisitions Analysis
Based on LTM (3/31) Results Based on 2000P Results ---------------------------------------- ---------------------------------------------------------- Median Enterprise Equity Share Enterprise Equity Share Discounted Multiples LTM Value Value Value 2000P Value Value Value Price/Share(1) --------- -------- ---------- ------- ------ -------- ---------- ------- ------- -------------- Revenues 0.4x $236,857 $ 94,743 $47,792 $11.65 $244,941 $ 97,976 $51,025 $12.44 $10.49 EBDITA 5.0x $ 20,138 $100,690 $53,739 $13.10 $ 25,750 $128,750 $81,799 $19.95 $16.82 EBIT 11.2x $ 1,317 $ 14,750 NM NM $ 6,155 $ 68,936 $21,985 $ 5.36 $ 4.52 Net Income 13.0x $ (1,567) NA NM NM $ 1,437 NA $18,681 $ 4.56 $ 3.84
(1) Discounted at the Company's cost of equity of 18.6%. For calculation, refer to discounted cash flow analysis. Net Debt $46,951 Shares Outstanding 4,101 - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 16 Valuation Methods [KLLM logo] - -------------------------------------------------------------------------------- Mergers and Acquisitions Analysis - ---------------------------------- Conclusion . Transaction multiples vary for the following reasons: . Differences in pre-transaction operating performance . Other hidden or intangible assets not apparent in historical operating performance . Other deal specific factors . The analysis resulted in an implied range of $3.84 to $16.82 per share based on the median multiples from the comparable mergers and acquisitions transactions. - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 17 Valuation Methods [KLLM logo] - -------------------------------------------------------------------------------- Discounted Cash Flow Analysis - ----------------------------- Overview . Relies on projections of future cash flows provided by the Company. . Terminal value is calculated by applying a terminal multiple to the Company's unlevered free cash flow in 2004. . Annual cash flows and the terminal value are discounted at various weighted average cost of capital (WACC) rates. . Considers a range of terminal multiples and weighted average cost of capital (WACC) rates. - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 18 Valuation Methods [KLLM logo] - -------------------------------------------------------------------------------- KLLM Transport Services, Inc. Discounted Cash Flow Analysis (Dollars in Thousands)
For the Year Ended December 31, ---------------------------------------------------- 2000P 2001P 2002P 2003P 2004P Terminal -------- -------- -------- -------- -------- -------- Revenue $244,941 $251,065 $261,108 $271,552 $282,414 Operating Expenses: Operating Expenses Excluding Depreciation 219,191 223,072 231,865 240,188 249,373 Depreciation & Amortization 19,595 20,085 20,888 21,724 22,592 -------- -------- -------- -------- -------- Total Operating Exp. 238,786 243,157 252,753 261,912 271,965 -------- -------- -------- -------- -------- EBIT 6,155 7,908 8,355 9,640 10,449 Income Taxes(1) 2,462 3,163 3,342 3,856 4,180 -------- -------- -------- -------- -------- After-Tax EBIT $ 3,693 $ 4,745 $ 5,013 $ 5,784 $ 6,270 Capital Expenditures (18,615) (19,081) (19,844) (20,638) (21,462) Depreciation & Amortization 19,595 20,085 20,888 21,724 22,592 Increase in Working Capital (310) (184) (301) (313) (326) -------- -------- -------- -------- -------- Unlevered Free Cash Flow $ 4,363 $ 5,565 $ 5,756 $ 6,557 $ 7,074 $42,443 Discount Period 0.64 1.64 2.64 3.64 4.64 4.64 Discount Factor 1.08 1.20 1.35 1.51 1.70 1.70 PV of Cash Flow $ 4,058 $ 4,619 $ 4,263 $ 4,334 $ 4,172 $25,034 --------------------------------------------------- ----------------------------- Weighted Avg. Cost of Capital 12.06% PV of Cash Flows $46,480 Terminal Multiple 6.00 Less Net Debt 46,951 --------------------------------------------------- ------- Equity Value $ (471) -----------------------------
Notes: - ------ (1) Taxes computed using a 40% tax rate. - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 19 Valuation Methods [KLLM logo] - -------------------------------------------------------------------------------- KLLM Transport Services, Inc. Weighted Average Cost of Capital Calculation ("WACC") Cost of Equity: 18.6% Risk free rate 6.85% 5 year Treasury Market risk premium 8.10% Per Ibbotson Associates 2000 Yearbook Size premium 3.60% Per Ibbotson Associates 2000 Yearbook - expected com-beta small cap premium of 5.1%, plus industry premium of -1.5% for motor freight, transportation & warehousing. Assumed beta 1.00 The S&P's beta was used. KLLM's beta as reported by Bloomberg is currently .47. After-tax Cost of Debt: KLLM's assumed borrowing rate 8.50% Tax rate 40.00% After-tax cost of debt 5.10% Net Debt to Total Capital Ratio: (as of December 31, 1999) Net debt $47,489 Shareholder's equity $50,967 ------- Total capital $98,456 KLLM's net debt to total capital ratio 48.23% - ------------------------------------------------ WACC 12.06% - ------------------------------------------------
- -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 20 Valuation Methods [KLLM logo] - -------------------------------------------------------------------------------- KLLM Transport Services, Inc. Discounted Cash Flow -- Equity Value and Share Price Sensitivity Analysis (Dollars in Thousands) Implied Equity Values Unlevered Free Cash Flow Terminal Multiple ----------------------------------------------------- 5.0 5.5 6.0 6.5 7.0 ---------------------------------------------------------------- 11.06% $(3,244) $(1,069) $ 1,105 $ 3,280 $ 5,454 ---------------------------------------------------------------- WACC 12.06% (4,643) (2,557) (471) 1,615 3,701 ---------------------------------------------------------------- 13.06% (5,979) (3,977) (1,975) 27 2,029 ---------------------------------------------------------------- 14.06% (7,255) (5,333) (3,411) (1,490) 432 ---------------------------------------------------------------- 15.06% (8,475) (6,629) (4,784) (2,938) (1,092) ---------------------------------------------------------------- Shares Outstanding: 4,101 (in thousands) Implied Share Values Unlevered Free Cash Flow Terminal Multiple ---------------------------------------------------- 5.0 5.5 6.0 6.5 7.0 --------------------------------------------------------------- 11.06% $(0.79) $(0.26) $ 0.27 $ 0.80 $ 1.33 --------------------------------------------------------------- WACC 12.06% $(1.13) $(0.62) $(0.11) $ 0.39 $ 0.90 --------------------------------------------------------------- 13.06% $(1.46) $(0.97) $(0.48) $ 0.01 $ 0.49 --------------------------------------------------------------- 14.06% $(1.77) $(1.30) $(0.83) $(0.36) $ 0.11 --------------------------------------------------------------- 15.06% $(2.07) $(1.62) $(1.17) $(0.72) $(0.27) --------------------------------------------------------------- - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 21 Valuation Methods [KLLM logo] - ------------------------------------------------------------------------------- Discounted Cash Flow Analysis - ----------------------------- Conclusion . The DCF valuation is dependent upon a number of factors: . The validity of management's projections . Terminal multiple . Discount rate . This analysis resulted in an implied range of less than zero to $1.33 per share. - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 22 Valuation Methods [KLLM logo] - ------------------------------------------------------------------------------- Premium Analysis - ---------------- Overview . Analyzed the premiums paid for all completed mergers and acquisitions of publicly traded trucking companies since January 1, 1997 with total consideration up to $500 million. . Analyzed the premiums paid for all completed non-financial institution and non-technology mergers and acquisitions of publicly traded companies with transaction values between $25 million and $100 million. . Analyzed the premiums paid over the target's stock price one day, one week and one month prior to the announcement date. For premium analysis purposes, the announcement date is March 16, which is the date that Mr. Low announced in his 13D filing his intention to acquire the Company for $7.60 per share. . Compared these premiums to the premium offered pursuant to the transaction. . Derived an implied price per share based on the median premiums paid in these transactions. - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 23 Valuation Methods [KLLM logo] - -------------------------------------------------------------------------------- Monthly Volume and Closing Price Graph For the Twelve Months Prior to May 1, 2000 [GRAPH APPEARS HERE] Month Volume(1) Closing Price ------- ---------- ------------- May 99 50,000 $6.75 June 99 750,000 5.75 July 99 25,000 5.94 Aug 99 100,000 5.00 Sept 99 75,000 4.88 Oct 99(2) 475,000 4.75 Nov 99 250,000 6.16 Dec 99 150,000 4.75 Jan 00 150,000 5.25 Feb 00 900,000(3) 5.50 Mar 00 500,000(4) 6.94 Apr 00 400,000 8.13 ------------- (1) Approximate (2) Mr. Low acquired beneficial ownership of 289,600 shares between October 1999 and December 1999 (3) Mr. Low acquired 250,000 shares in February 2000 (4) On March 16, 2000, Mr. Low announced his intent to acquire the Company for $7.60 per share - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 24 Valuation Methods [KLLM logo] - -------------------------------------------------------------------------------- Volume at Various Price Ranges For the Twelve Months Prior to Announcement Date [GRAPH APPEARS HERE] Price Range Volume (1) ----------- ---------- $4.00 - $4.49 50,000 $4.50 - $4.99 500,000 $5.00 - $5.49 400,000 $5.50 - $5.99 850,000 $6.00 - $6.49 700,000 $6.50 - $6.99 700,000 $7.00 and above 350,000 -------- (1) Approximate - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 25 Valuation Methods [KLLM logo] - ------------------------------------------------------------------------------- Premium Analysis - ---------------- Premium Analysis of Public Trucking Company Transactions Announced Since 1/1/97 with Total Consideration up to $500 Million - --------------------------------------------------------------------------------
Premium ------------------------------- 1 day 1 week 4 weeks Date Date Deal Offer prior to prior to prior to Announced Effective Target Name Acquiror Name Value (mil) Price/Share ann. date ann. date ann. date - ---------- ---------- ------------------------- ---------------------------------------------------------------------------------- 02/11/1998 06/10/1998 MLT Inc. Sombrero Acquisition Corp. 250.1 40.00 37.931 38.528 56.098 06/01/1998 08/28/1998 PST Vans Inc. US Xpress Enterprises Inc. 83.9 7.47 32.8 35.818 10.667 06/07/1999 09/30/1999 Jevic Transportation Inc. Yellow Corp 194.5 14.00 30.233 45.455 51.351 ----------------------------------------------------------------------- Medium 32.8% 38.5% 51.4% ----------------------------------------------------------------------- KLLM Closing Price $6.1250 $5.5625 $6.5000 ---------------------------------------------------------------------- Implied Share Price $8.13 $7.71 $9.84 ----------------------------------------------------------------------
- -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 26 Valuation Methods [KLLM logo] - -------------------------------------------------------------------------------- Premium Analysis - ---------------- Premium Analysis of Selected Transactions Announced Since 1/1/99 with Total Consideration between $25 and $100 Million Premium --------------------------------- Offer 1 day 1 week 4 weeks Date Date Deal Price/ prior to prior to prior to Announced Effective Target Name Acquiror Name Value (mil) Share ann. date ann. date ann. date - --------- ---------- ------------------------ ------------------------- ----------- ------ --------- --------- --------- 11/24/1998 03/24/1999 Besicorp Group Inc BGI Acquisition LLC 111.8 36.97 11.2 11.6 6.4 07/27/1999 12/27/1999 Asahi-America Inc Asahi Organic Chemical 28.6 9.55 36.4 36.4 23.2 06/18/1999 07/26/1999 Durakon Industries Inc Littlejohn & Co LLC 101.2 16.00 32.6 29.3 24.9 12/03/1998 04/05/1999 Back Bay Restaurants Group Inc. SRC Holdings 38.9 10.25 12.3 13.9 28.1 01/19/1999 03/24/1999 Audits & Surveys Worldwide Inc United Information Group 43.2 3.24 32.9 36.4 29.6 08/26/1998 01/08/1999 Toastmaster Inc Salton/Maxim Housewares Inc 101.2 7.00 3.7 21.7 36.6 12/03/1998 01/19/1999 Valley Forge Corp Key Components LLC 82.9 19.00 49.0 46.2 40.7 02/17/1999 08/27/1999 Doughtie's Foods Sysco Corp 25.4 17.00 28.3 23.6 42.4 02/04/1998 03/15/1999 Spice Entertainment Cos Inc Playboy Enterprises Intl Inc 108.8 6.25 17.6 17.6 42.8 05/14/1999 09/23/1999 United Foods Inc Pictsweet LLC 23.8 3.50 40.0 27.3 43.6 11/09/1999 01/19/2000 Percon Inc PSC Inc 59.5 15.00 11.6 13.2 44.6 01/07/1999 02/24/1999 Defiance Inc General Chemical Group Inc 57.8 9.50 43.4 43.4 46.2 01/19/1999 04/09/1999 AG Associates Inc Steag AG(Ruhrkohle AG) 34.6 5.50 25.7 33.3 49.2 03/15/1999 05/30/1999 Haskel International Inc Investor Group 65.4 12.90 42.3 49.6 51.8 03/11/1999 08/26/1999 LAI Worldwide Inc TMP Worldwide Inc 74.2 9.23 38.0 25.2 53.8 04/26/1999 08/19/1999 Bridgeport Machines Inc Goldman Industrial Group Inc 57.0 10.00 67.5 77.8 53.8 05/26/1999 08/04/1999 Golden Genesis Co Kyocera International Inc 40.5 2.33 24.3 28.6 55.3 03/10/1999 07/29/1999 Morgan Products Ltd Andersen Corp 41.4 4.00 23.1 45.5 60.0 02/09/1999 07/08/1999 Coffee People Inc (Second Cup) Diedrich Coffee Inc 31.7 2.92 145.5 94.3 60.8 05/10/1999 07/29/1999 CMC Industries Inc ACT Manufacturing Inc 60.4 7.59 24.0 42.9 66.4 -------------------------------------------------------- Median 30.5% 31.3% 44.1% -------------------------------------------------------- -------------------------------------------------------- KLLM Closing Price $6.1250 $5.5625 $6.5000 -------------------------------------------------------- -------------------------------------------------------- Implied Share Price $ 7.99 $ 7.30 $ 9.37 --------------------------------------------------------
- -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 27 Valuation Methods [KLLM logo] - -------------------------------------------------------------------------------- Conclusion . The offer price of $7.80 per share represents a premium of: 49.7% to the average closing price for September 1999 ($5.21), which was the month when Mr. Low started accumulating shares of KLLM in the open market; 28.7% to the price paid ($6.06) by Mr. Low on February 10, 2000 for 250,000 shares purchased from an institutional investor; 27.3% to the closing price on March 15, 2000 of $6.125 per share, which was the day before Mr. Low's announced in his 13D filling his intention to acquire the Company for $7.60 per share; 40.2% to the closing price on March 9, 2000 of $5.5625, which was one week prior to announcement date; 20.0% to the closing price on February 17, 2000 of $6.50, which was four weeks prior to announcement date. . Implied price per share of $8.13, $7.70 and $9.84 for one day, one week and four weeks prior to announcement date, respectively, based on the premiums paid in the trucking transactions. . Implied price per share of $7.99, $7.30 and $9.37 for one day, one week and four weeks prior to announcement date, respectively, based on the premiums paid in the selected transactions with consideration between $25 million and $100 million. Technology and financial institutions transactions were excluded from these transactions. - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 28 Valuation Methods [KLLM logo] - -------------------------------------------------------------------------------- Summary Valuation Summary of Indicated Ranges of Value - ------------------------------------ The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Morgan Keegan believes that its analyses must be considered as a whole and that selecting portions of its analyses and of the factors considered by it, without considering all analyses and factors, could create a misleading view of the processes underlying the Morgan Keegan opinion. No company or transaction used in the analysis performed by Morgan Keegan as a comparison is identical to KLLM or the contemplated transaction. In addition, Morgan Keegan may have given various analyses more or less weight than other analyses, and may have deemed various assumptions more or less probable than other assumption, so that the range of valuation resulting from any particular analysis described below should not be taken to be Morgan Keegan's view of the actual value of KLLM. The following table sets forth the indicated ranges of equity value as outlined in the previous analyses. Valuation Method Indicative Value Per Share Range - -------------------------------------------------------------------------------- Comparable Company Analysis/(1)/ Temperature-Controlled Carriers $0.10 -- $ 7.82 Dry Van Carriers $1.23 -- $15.84 Mergers and Acquisitions Analysis $3.84 -- $16.82 Discounted Cash Flow Analysis Negative -- $ 1.33 Premium Analysis Trucking Company Transactions $7.70 -- $ 9.84 Other Selected Transactions $7.30 -- $ 9.37 (1) Excluding certain multiples for temperature-controlled carriers and day van carriers. Refer to conclusion section of Comparable Company Analysis. - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 29 APPENDICES - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 30 Refrigerated Truckload Carriers Comparable Company Analysis Morgan Keegan & Company, Inc. (Dollars in Thousands, Except Per Share) - -------------------------------------------------------------------------------- Share Year Adjusted Company's Price ----------------- Shares Market Net Market Latest Financials Ticker 05/25/2000 High Low Outst. Value Debt(1) Value(2) - --------------------- ------ ---------- -------- ------- ------ ------- ------- -------- Frozen Food Express FFEX 2-3/4 8-5/16 2-1/2 16,497 $45,367 $24,887 $ 70,254 12/31/1999 Marten Transport, Ltd. MRTN 13-3/8 16 9-1/2 4,249 $56,834 $77,230 $134,064 03/31/2000 Simon Transportation SIMN 5-11/16 6-3/4 4 6,287 $35,756 $11,905 $ 47,661 03/31/2000 KLLM Transport Services KLLM 6-13/16 10 4 4,101 $27,938 $46,951 $ 74,889 03/31/2000
Latest Twelve Months*(3) E.P.S. -------------------------------------------------------- -------------------------------- Tangible Company's Net Book 1999 Cal 2000 Cal Latest Financials Revenues EBITDA EBIT Income Value LTM Act.(5) Est.(4) - ---------------------- -------- ------- --------- -------- -------- ------- -------- -------- Frozen Food Express $372,149 $ 2,050 $(11,514) $(9,637) $83,121 $(0.59) $(0.07) $0.22 12/31/1999 Marten Transport, Ltd. $230,762 $40,091 $ 18,312 $ 8,659 $60,381 $ 1.98 $ 1.92 $2.08 03/31/2000 Simon Transportation $215,899 $ 3,716 $ (856) $(1,416) $55,883 $(0.23) $(0.56) NA 03/31/2000 KLLM Transport Services $236,857 $20,138 $ 1,317 $(1,567) $49,979 $(0.38) $(0.19) $0.35 03/31/2000
*Asche Transportation was not included in the model because it did not file its most recent 10-K due to accounting problems at one of its subsidiaries. - -------------------------------------------------------------------------------- (1) Short-term debt, long-term debt (including capitalized lease obligations), and preferred stock minus cash and marketable securities. (2) Market value of equity plus net debt. (3) Income statement data excludes extraordinary items & non-recurring items. (4) Mean estimates obtained from First Call & Nelson Information, Inc. (5) Actual calendar year results obtained from First Call. Ratios Growth ----------------------------------------------------------------- --------------------- Net Return on Net Debt Sales Net Income Company Oper. EBITDA EBIT Income Latest to Total 5-Year 5-Year Name Ratio Margin Margin Margin Equity Capital CAGR CAGR - ------------------------------- ----------- --------- -------- -------- ---------- ---------- -------- ----------- Frozen Food Express 103.1% 0.6% NM NM NM 23.0% 6.2% NM Marten Transport, Ltd. 92.1% 17.4% 7.9% 3.8% 14.3% 56.1% 12.3% 14.0% Simon Transportation 100.4% 1.7% NM NM NM 17.6% 29.1% NM - ------------------------------- COMBINED: - ---------------------------------------------------------------------------------------------------------------------------------- Low 92.1% 0.6% 7.9% 3.8% 14.3% 17.6% 6.2% 14.0% Mean 98.5% 6.5% 7.9% 3.8% 14.3% 32.2% 15.9% 14.0% High 103.1% 17.4% 7.9% 3.8% 14.3% 56.1% 29.1% 14.0% Median 100.4% 1.7% 7.9% 3.8% 14.3% 23.0% 12.3% 14.0% - ---------------------------------------------------------------------------------------------------------------------------------- KLLM Transport Services 99.4% 8.5% 0.6% NM NM 48.4% 0.5% NM
Multiple of Adj. Market Value Multiple of Market Value --------------------------------- ------------------------------------------------------ Company Net LTM 1999 Cal 2000 Cal Book Name Revenues EBITDA EBIT Income EPS EPS EPS Value - ---------------------- -------- ------- --------- -------- -------- ------- -------- ------- Frozen Food Express 0.19 x 34.3 x NM x NM x NM x NM x 12.5 x 0.55 x Meten Transport, Ltd. 0.58 x 3.3 x 7.3 x 6.6 x 6.7 x 7.0 x 6.4 x 0.94 x Simon Transportation 0.22 x 12.8 x NM x NM x NM x NM x NA x 0.64 x - --------------------- COMBINED: - --------------------- Low 0.2 x 3.3 x 7.3 x 6.6 x 6.7 x 7.0 x 6.4 x 0.55 x Mean 0.3 16.8 7.3 6.6 6.7 7.0 9.5 0.71 High 0.6 34.3 7.3 6.6 6.7 7.0 12.5 0.94 Median 0.2 12.8 7.3 6.6 6.7 7.0 9.5 0.64 - ----------------------------------- KLLM Transport Services 0.32 x 3.7 x NM x NM x NM x NM x 19.5 x 0.56 x
- -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 31 Dry Van Truckload Carriers Comparable Company Analysis Morgan Keegan & Company, Inc. (Dollars in Thousands, Except Per Share) - -------------------------------------------------------------------------------- Shares Year Adjusted Company/ Price ----------------- Shares Market Net Market Latest Financials Ticker 05/25/2000 High Low Outst.(1) Value Debt(2) Value(3) - --------------------- ------ ---------- -------- ------- --------- ------- -------- ---------- Cannon Express, Inc. AB 1-7/8 3-5/8 1-3/8 3,193 $ 5,987 $ 51,051 $ 57,038 12/31/1999 Covenant Transport, Inc. CVTI 10-3/8 18-15/16 9-13/16 14,916 $154,758 $ 143,669 $ 298,427 12/31/1999 Heartland Express HTLD 17-3/8 19-3/8 12-3/8 25,367 $440,744 $(118,134) $ 322,610 03/31/2000 Intrenet, Inc. INET 1-7/16 3-1/4 1-1/4 13,872 $ 19,941 $ 29,284 $ 49,225 12/31/1999 J.B. Hunt JBHT 15-11/16 18-1/16 10-1/2 35,639 $559,007 $ 315,033 $ 874,120 12/31/1999 Knight Transportation KNGT 16-1/8 22 10-3/4 15,278 $246,353 $ 7,859 $ 254,212 12/31/2000 LandAir LAND 4-1/4 6-1/4 3-1/8 6,004 $ 25,516 $ 22,233 $ 47,749 03/31/2000 Landstar System, Inc. LSTR 51 69-3/4 32-3/4 9,240 $471,220 $ 44,770 $ 515,990 03/25/2000 MS Carriers MSCA 21-1/16 32-3/4 19-1/2 12,439 $262,000 $ 241,352 $ 503,351 12/31/1999 PAM Transportation PTSI 9-15/16 12-7/8 8 8,531 $ 84,782 $ 74,331 $ 159,113 12/31/1999 Swift Transportation SWFT 14-11/16 24 11-13/16 64,593 $948,708 $ 112,960 $1,061,668 03/31/2000 Transit Group, Inc. TRGP 1-1/16 6-7/8 1-15/16 31,824 $ 33,813 $ 186,159 $ 219,972 12/31/1999 Transport Corp. of America TCAM 5-3/4 17-3/16 4-3/4 8,319 $ 47,832 $ 140,528 $ 188,360 12/31/1999 U.S. Xpress Enterprises XPRSA 7-1/2 12-3/4 5-1/8 16,159 $121,195 $ 182,179 $ 303,374 12/31/1999 USA Truck, Inc. USAK 6-5/8 9-5/8 6-1/8 9,267 $ 61,395 $ 73,263 $ 134,658 12/31/1999 Werner Enterprises, Inc. WERN 13 22-1/4 12-1/4 47,042 $611,546 $ 104,632 $ 716,178 12/31/1999
Latest Twelve Months'(4) E.P.S. ---------------------------------------------------------- -------------------------------- Tangible Company/ Net Book 1999 Cal 2000 Cal Latest Financials Revenues EBITDA EBIT Income Value LTM Act.(6) Est.(5) - --------------------- ---------- -------- --------- -------- --------- ------- -------- --------- Cannon Express, Inc. $ 90,665 $ 10,934 $ 858 $ (234) $ 18,291 $(0.07) NA NA 12/31/1999 Covenant Transport, Inc. $ 472,741 $ 78,348 $ 42,690 $22,277 $141,523 $ 1.48 $ 1.68 $1.56 12/31/1999 Heartland Express $ 265,097 $ 64,188 $ 47,077 $34,701 $169,972 $ 1.20 $ 1.13 $1.29 03/31/2000 Intrenet, Inc. $ 284,800 $ 5,521 $ 752 $(2,125) $ 15,459 $(0.16) NA NA 12/31/1999 J.B. Hunt $2,045,073 $227,247 $ 77,430 $31,909 $401,386 $ 0.89 $ 0.89 $1.12 12/31/1999 Knight Transportation $ 151,490 $ 40,090 $ 25,910 $15,464 $ 84,078 $ 1.02 $ 1.02 $1.21 12/31/2000 LandAir $ 133,055 $ 12,576 $ (1,031) $(2,390) $ 41,827 $(0.39) $(0.30) $0.25 03/31/2000 Landstar System, Inc. $1,403,654 $ 96,009 $ 83,900 $46,801 $ 71,777 $ 4.72 $ 4.55 $5.32 03/25/2000 MS Carriers $ 620,414 $119,194 $ 56,793 $30,587 $235,210 $ 2.39 $ 2.41 $2.55 12/31/1999 PAM Transportation $ 207,381 $ 43,274 $ 24,455 $11,269 $ 44,454 $ 1.33 $ 1.33 $1.25 12/31/1999 Swift Transportation $1,117,812 $167,757 $114,720 $65,383 $385,201 $ 1.00 $ 1.02 $1.06 03/31/2000 Transit Group, Inc. $ 355,526 $ 26,820 $ 12,964 $ 4,380 $(34,100) $ 0.15 $ 0.04 $0.20 12/31/1999 Transport Corp. of America $ 285,585 $ 46,786 $ 21,071 $ 8,570 $ 48,647 $ 1.00 $ 1.21 $1.60 12/31/1999 U.S. Xpress Enterprises $ 708,212 $ 62,791 $ 32,777 $12,124 $ 91,366 $ 0.82 $ 0.77 $0.89 12/31/1999 USA Truck, Inc. $ 166,363 $ 34,428 $ 15,837 $ 8,642 $ 70,108 $ 0.92 $ 0.92 $0.72 12/31/1999 Werner Enterprises, Inc. $1,052,333 $202,156 $102,201 $60,011 $494,772 $ 1.26 $ 1.26 $1.32 12/31/1999
- -------------------------------------------------------------------------------- (1) Shares outstanding includes in-the-money options using the treasury stock method. (2) Short-term debt, long-term debt (including capitalized lease obligations), and preferred stock minus cash and marketable securities. (3) Market value of equity plus net debt. (4) Income statement data excludes extraordinary items & non-recurring items. (5) Mean estimates obtained from First Call & Nelson Information, Inc. (6) Actual CY 1999 EPS according to First Call. - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 32 Dry Van Truckload Carriers Morgan Keegan & Company, Inc. Comparable Company Analysis - --------------------------------------------------------------------------------
Ratios Growth ----------------------------------------------------------------- --------------------- Net Return on Net Debt Sales Net Income Company Oper. EBITDA EBIT Income Latest to Total 4-Year 4-Year Name Ratio Margin Margin Margin Equity Capital CAGR CAGR - ------------------------------- ----------- --------- -------- -------- ---------- ---------- -------- ----------- Cannon Express, Inc. 99.1% 12.1% 0.9% NM NM 73.6 % 4.8% NM Covenant Transport, Inc. 91.0% 16.6% 9.0% 4.7% 15.7% 50.4 % 27.2% 24.5% Heartland Express 82.2% 24.2% 17.8% 13.1% 20.4% (227.9)% 8.0% 12.6% Intrenet, Inc. 99.7% 1.9% 0.3% NM NM 59.5 % 7.3% NM J.B. Hunt 96.2% 11.1% 3.8% 1.6% 7.9% 44.0 % 10.9% NM Knight Transportation 82.9% 26.5% 17.1% 10.2% 18.4% 8.5 % 28.2% 27.8% Land Air 100.8% 9.5% NM NM NM 34.7 % 10.7% NM Landstar System, Inc. 94.0% 6.8% 6.0% 3.3% 44.5% 29.9 % 7.1% 16.5% MS Carriers 90.8% 19.2% 9.2% 4.9% 13.0% 50.6 % 16.8% 23.5% PAM Transportation 88.2% 20.9% 11.8% 5.4% 21.1% 58.2 % 22.7% 22.4% Swift Transportation 89.7% 15.0% 10.3% 5.8% 16.7% 22.4 % 23.4% 30.5% Transit Group, Inc. 96.4% 7.5% 3.6% 1.2% 5.6% 70.4 % NM NM Transport Corp. of America 92.6% 16.4% 7.4% 3.0% 11.4% 65.2 % 18.6% 7.9% U.S. Xpress Enterprises 95.4% 8.9% 4.6% 1.7% 7.5% 53.0 % NM NM USA Truck, Inc. 90.5% 20.7% 9.5% 5.2% 12.3% 51.1 % 12.9% 9.4% Werner Enterprises, Inc. 90.3% 19.2% 9.7% 5.7% 12.1% 17.5 % 16.3% 13.3% - -------------- Combined: - ----------------------------------------------------------------------------------------------------------------------------------- Low 82.2% 1.9% 0.3% 1.2% 5.6% (227.9)% 4.8% 7.9% Mean 92.5% 14.8% 8.1% 5.1% 15.9% 28.8 % 15.3% 18.8% High 100.8% 26.5% 17.8% 13.1% 44.5% 73.6 % 28.2% 30.5% Median 91.8% 15.7% 9.0% 4.9% 13.0% 50.5 % 14.6% 19.5% - ------------------------------------------------------------------------------------------------------------------------------------
Multiple of Adj. Market Value Multiple of Market Value ------------------------------------------- --------------------------------------------- Company Net LTM 1999 Cal 2000 Cal Book Name Revenues EBITDA EBIT Income EPS EPS EPS Value - ------------------------------- ----------- --------- -------- -------- ---------- ---------- --------- ---------- Cannon Express, Inc. 0.63x 5.2x NMx NMx NMx NAx NAx 0.33x Covenant Transport, Inc. 0.63x 3.8x 7.0x 6.9x 7.0x 7.0x 6.7x 1.09x Heartland Express 1.22x 5.0x 6.9x 12.7x 14.4x 15.4x 13.5x 2.59x Intrenet, Inc. 0.17x 8.9x NMx NMx NMx NA NA 1.29x J.B. Hunt 0.43x 3.8x 11.3x 17.5x 17.6x 17.6x 14.0x 1.39x Knight Transportation 1.68x 6.3x 9.8x 15.9x 15.9x 15.8x 13.3x 2.93x Land Air 0.36x 3.8x NMx NMx NMx NMx 17.0x 0.61x Landstar System, Inc. 0.37x 5.4x 6.2x 10.1x 10.8x 11.2x 9.6x 6.57x MS Carriers 0.81x 4.2x 8.9x 8.6x 8.8x 8.7x 8.3x 1.11x PAM Transportation 0.77x 3.7x 6.5x 7.5x 7.5x 7.5x 8.0x 1.91x Swift Transportation 0.95x 6.3x 9.3x 14.5x 14.7x 14.4x 13.9x 2.46x Transit Group, Inc. 0.62x 8.2x 17.0x 7.7x 7.0x 26.6x 5.3x NMx Transport Corp. of America 0.66x 4.0x 8.9x 5.6x 5.8x 4.8x 3.6x 0.98x U.S. Xpress Enterprises 0.43x 4.8x 9.3x 10.0x 9.2x 9.7x 8.4x 1.33x USA Truck, Inc. 0.81x 3.9x 8.5x 7.1x 7.2x 7.2x 9.2x 0.88x Werner Enterprises, Inc. 0.68x 3.5x 7.0x 10.2x 10.3x 10.3x 9.8x 1.24x - -------------- Combined: - ----------------------------------------------------------------------------------------------------------------------------------- Low 0.2x 3.5x 6.2x 5.6x 5.8x 4.8x 3.6x 0.33x Mean 0.7 5.1 9.0 10.3 10.5 12.0 10.0 1.78 High 1.7 8.9 17.0 17.5 17.6 26.6 17.0 6.57 Median 0.6x 4.5x 8.9x 10.0x 9.2x 10.3x 9.4x 1.29x - ------------------------------------------------------------------------------------------------------------------------------------ ==================================================================================================================================== NA-Not Available NM-Not Meaningful (1) Compound annual growth rates for sales and net income are calculated from 1993-1997.
- -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 33 Mergers and Acquisitions in the Trucking Industry (Dollars in Millions)
- ---------------------------------------------------------------------------------------------------------------------------- Trailing 12 Month Financials of Acquired (in $ M M) Adjusted --------------------------------------------------- Date Acquiror Market Net Market Net Book Effective Target Value Debt Value Revenues EBITDA EBIT Income Value - --------- -------- ------ ----- -------- -------- ------ ------ ------ ------ Jan-00 Trimac Transportation DSI Transports $ 68.3 $11.7 $ 80.0 $149.1 $ 3.7 Nov-99 Covenant Transport, Inc. Harold Ives Trucking Co. $ 22.8 $22.2 $ 45.0 $115.0 Sep-99 Transit Group Fox Midwest Transport Inc. $ 5.0 $ 0.0 $ 5.0 $ 38.0 Jul-99 Yellow Corporation Jevic Transportation $161.0 $39.0 $200.0 $237.0 $ 33.4 $ 17.8 $ 9.6 $ 77.9 Jun-99 Skynet Holdings Pony Express Delivery Services, Inc. $ 4.8 $ 6.8 $ 11.6 $138.0 $ (9.4) $(11.6) $(13.2) $(27.4) May-99 U.S. Trucking, Inc. Prime Cos, Inc. $ 1.9 $ 0.0 $ 1.9 $ 8.4 Mar-99 Transit Group Inc. Kat Inc. $ 4.2 $ 0.0 $ 4.2 $ 20.0 Mar-99 Knight Transportation Inc. Action Delivery Service Inc. $ 2.0 $ 0.0 $ 2.0 $ 5.6 Jan-99 KTI Inc. AFA Group $ 10.5 $ 5.5 $ 16.0 $ 11.0 Jan-99 Pam Transportation Services Decker Transport Inc. $ 14.0 $14.0 $ 28.0 $ 48.5 $ 3.6 $ 0.6 $ 0.1 $ 6.2 Jan-99 Transit Group Priority Transportation $ 4.8 $ 0.0 $ 4.8 $ 23.5 Jan-99 Transit Group Inc. Priority Transportation Inc. $ 4.8 $ 0.0 $ 4.8 $ 23.5 Nov-98 USFreightways Corp. Golden Eagle Group $ 30.2 $ 4.8 $ 35.1 $ 96.7 $ 1.4 $ 0.7 $ 0.4 $ 10.3 Aug-98 U.S. Xpress Enterprises PST Vans $ 23.0 $52.7 $ 75.7 $144.9 $ 14.3 $ 2.3 $ (2.0) $ 9.5 May-98 U.S. Xpress Enterprises Victory Express, Inc. $ 51.0 $ 2.0 $ 53.0 $ 62.5 $ 13.4 $ 4.7 $ 2.8 $ 24.7 May-98 Celadon Group Gerth Transport $ 19.2 $ 35.0 Dec-97 Boyd Bros. Transportation Welborn Transport $ 6.5 $ 3.2 $ 9.7 $ 29.5 $ 2.2 $ 1.3 $ 0.7 $ 4.0
Adjusted Market Value as a Market Value as a Multiple of: Multiple of: --------------------------------------- ------------------ Net Revenues EBITDA EBIT Income -------- ------- ------ ------ Jan-00 Trimac Transportation DSI Transports 0.5 x NA NM NA Nov-99 Covenant Transport, Inc. Harold Ives Trucking Co. 0.4 x NA NA NA Sep-99 Transit Group Fox Midwest Transport Inc. 0.1 x NA NA NA Jul-99 Yellow Corporation Jevic Transportation 0.8 x 6.0 x 11.2 x 16.8 x Jun-99 Skynet Holdings Pony Express Delivery Services, Inc. 0.1 x NM NA NM May-99 U.S. Trucking, Inc. Prime Cos, Inc. 0.2 x NA NA NA Mar-99 Transit Group Inc. Kat Inc. 0.2 x NA NA NA Mar-99 Knight Transportation Inc. Action Delivery Service Inc. 0.4 x NA NA NA Jan-99 KTI Inc. AFA Group 1.5 x NA NA NA Jan-99 Pam Transportation Services Decker Transport Inc. 0.6 x 7.8 x NA NM Jan-99 Transit Group Priority Transportation 0.2 x NA NA NA Jan-99 Transit Group Inc. Priority Transportation Inc. 0.2 x NA NA NA Nov-98 USFreightways Corp. Golden Eagle Group 0.4 x NM NM NM Aug-98 U.S. Xpress Enterprises PST Vans 0.5 x 5.3 x NM NM May-98 U.S. Xpress Enterprises Victory Express, Inc. 0.8 x 4.0 x 11.3 x 18.0 x May-98 Celadon Group Gerth Transport 0.5 x NA NA NA Dec-97 Boyd Bros. Transportation Welborn Transport 0.3 x 4.5 x 7.5 x 9.6 x
- -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 34 Mergers and Acquisitions in the Trucking Industry (Continued) (Dollars in Millions)
- ------------------------------------------------------------------------------------------------------------------------------- Trailing 12 Month Financials of Acquired (in $ M M) Adjusted --------------------------------------------------- Date Acquiror Market Net Market Net Book Effective Target Value Debt Value Revenues EBITDA EBIT Income Value - --------- -------- ------ ----- -------- -------- ------ ------ ------ ------ Oct-097 Investor Group JB Hunt Transport Services (Flatbed Unit) $ 40.0 $ 75.0 Oct-97 Covenant Transport, Inc. Bud Meyer Truck Lines, Inc. $ 5.2 $ 45.0 Sep-97 Transit Group, Inc. Carroll Fulmer Group, Inc. $ 28.1 $ 0.0 $ 28.1 $ 69.3 $ 1.6 $ 0.8 $ 0.2 $ 2.3 Sep-97 Celadon Group, Inc. GE Industrial Control Systems $ 8.0 $ 25.0 Aug-97 Transit Group, Inc. Service Express, Inc. / Capital Warehouse $ 9.9 $ 0.0 $ 9.9 $ 21.3 $ 3.7 $ 0.6 $(0.1) $ 2.2 Jul-97 BT Industries AB Raymond Corporation $246.2 $99.0 $345.2 $305.5 $31.7 $31.2 $15.0 $128.7 Jul-97 Heartland Express A&M Express $ 14.0 $17.0 $ 31.0 $ 28.0 $ 5.8 $ 2.4 $ 1.5 $ 10.0 Jul-97 Ameritruck Distribution Corp. Tran-Star, Inc. $ 2.6 $30.0 $ 32.6 $ 68.5 $ 6.9 $(1.2) $(2.3) $ 0.1 May-97 Dynamex, Inc. Road Runner Transportation, Inc. $ 14.1 $ 0.0 $ 14.1 $ 22.7 $ 1.5 $ 0.5 $ 0.1 $ 1.9 May-97 Ameritruck Distribution Corp. Monfort Transport./Lynn Transport. $ 15.0 $ 0.0 $ 15.0 $ 88.2 $11.0 $ 5.9 $ 2.4 $ 3.6 May-97 Golder, Thoma, Cressey, Rauner Cardinal Freight Carriers $ 38.0 $ 0.0 $ 38.0 $ 76.1 $ 7.6 $ 1.5 $ 1.0 May-97 Central Freight Viking Freight $ 43.0 $ 8.0 $ 51.0 May-97 Ampace Corp Bar J Enterprises $ 4.3 Apr-97 Fleet Equity Partners Roadrunner Freight Systems $ 75.0 Apr-97 Swift Transportation Direct Transit Inc. $ 3.0 Feb-97 Transit Group Rainbow Trucking $ 4.5 $ 12.5 Adjusted Market Value as a Market Value as a Multiple of: Multiple of: Date Acquiror Net Effective Target Revenues EBITDA EBIT Income - --------- -------- -------- ------ ---- ------------------ Oct-097 Investor Group JB Hunt Transport Services (Flatbed Unit) 0.5 x NA NA NA Oct-97 Covenant Transport, Inc. Bud Meyer Truck Lines, Inc. NA NA NA NA Sep-97 Transit Group, Inc. Carroll Fulmer Group, Inc. 0.4 x NM NM NM Sep-97 Celadon Group, Inc. GE Industrial Control Systems 0.3 x NA NA NA Aug-97 Transit Group, Inc. Service Express, Inc. / Capital Warehouse 0.5 x 2.7 x NM NM Jul-97 BT Industries AB Raymond Corporation 1.1 x 10.9 x 11.1 x 16.4 x Jul-97 Heartland Express A&M Express 1.1 x 5.3 x 12.9 x 9.3 x Jul-97 Ameritruck Distribution Corp. Tran-Star, Inc. 0.5 x 4.7 x NM NM May-97 Dynamex, Inc. Road Runner Transportation, Inc. 0.6 x 9.3 x NM NM May-97 Ameritruck Distribution Corp. Monfort Transport./Lynn Transport. 0.2 x 1.4 x NM 6.2 x May-97 Golder, Thoma, Cressey, Rauner Cardinal Freight Carriers 0.5 x 5.0 x NM 40.0 x May-97 Central Freight Viking Freight NM NA NA NA May-97 Ampace Corp Bar J Enterprises NA NA NA NA Apr-97 Fleet Equity Partners Roadrunner Freight Systems NA NA NA NA Apr-97 Swift Transportation Direct Transit Inc. NA NA NA NA Feb-97 Transit Group Rainbow Trucking 0.4 x NA NA NA High 1.5 x 10.9 x 12.9 x 40.0 x Low 0.1 x 1.4 x 7.5 x 6.2 x Mean 0.5 x 5.6 x 10.8 x 16.6 x Median 0.4 x 5.0 x 11.2 x 13.0 x ------------------------------------------------------------------------------------- Page 35
EX-99.A.10 3 0003.txt KLLM FAIRNESS OPINION FINAL LOW EXHIBIT 99.A.10 [KLLM TRANSPORT SERVICES LOGO] Presentation to the Board of Directors May 25, 2000 The information contained in this information package should be considered confidential and should not be used for any purposes other than the Board of Directors' consideration of this transaction. Morgan Keegan & Company, Inc. Investment Banking 50 North Front Street 19th Floor Memphis, TN 38103 (901) 524-4100 Table of Contents [KLLM logo] - -------------------------------------------------------------------------------- Methodology.................................................... Tab A Transaction Overview........................................... Tab B Company Overview............................................... Tab C Financial Review............................................... Tab D 1. Historical Financial Performance 2. Projected Financial Performance Valuation Methods.............................................. Tab E 1. Comparable Company Analysis 2. Mergers and Acquisition Analysis 3. Discounted Cash Flow Analysis 4. Premium Analysis Summary Valuation.............................................. Tab F Appendices..................................................... Tab G 1. Comparable Company Analysis - Detailed Schedules 2. Mergers and Acquisition Analysis - Detailed Schedules - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Methodology [KLLM logo] - -------------------------------------------------------------------------------- In conducting our analysis, Morgan Keegan: . Participated in discussions with various members of management and representatives of KLLM Transport Services, Inc. ("KLLM" or the "Company") concerning KLLM's historical and current operations, financial condition and prospects and strategic objectives. . Reviewed historical financial and operating data that was furnished to us by KLLM relating to its business. . Reviewed internal financial analyses, financial and operating forecasts, reports and other information prepared by officers and representatives of KLLM. Projected financial information presented in this report was provided by management of the Company and is represented as management's opinion of the Company's performance. . Reviewed certain publicly available information with respect to certain other companies in lines of business that we believe to be generally comparable to those of the Company, including the trading markets for such other companies' securities. . Reviewed certain publicly available information concerning the financial terms of certain other transactions that we deemed relevant to our inquiry. . Analyzed the value of projected cash flows of the Company. . Reviewed the financial terms of the draft Plan and Agreement of Merger among High Road Acquisition Corp., High Road Acquisition Subsidiary Corp. and KLLM Transport Services, Inc. . Undertook such other studies, analyses and investigations, and considered such other information, as we deemed relevant. - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 1 Transaction Overview [KLLM logo] - -------------------------------------------------------------------------------- In August 1999, the Company engaged Morgan Keegan & Company to act as its financial advisor to consider strategic alternatives, including a potential sale of the Company, with a view to enhance stockholder value. The Board authorized Morgan Keegan to solicit potential bids to acquire the Company and prepare a memorandum containing certain confidential information about the company. On behalf of the Company, Morgan Keegan contacted 20 to 25 potential bidders, including Prime, Inc. and its principal, Mr. Robert Low. Of the 20 to 25 parties contacted, nine entered into confidentiality agreements with the Company and were furnished copies of the memorandum. None of the nine companies submitted an offer to buy the Company. Mr. Low declined to execute a confidentiality agreement at that time and did not receive a copy of the memorandum. Morgan Keegan attempted several times thereafter to get Mr. Low to begin negotiations regarding acquiring the Company. In a series of open market purchases between September 1999 and December 1999, Robert Low or his affiliates acquired beneficial ownership of 289,600 shares of the Company's common stock, representing approximately 7.1% of the Company's outstanding common stock. On February 10, 2000, Mr. Low purchased an additional 250,000 shares from an institutional investor in an open market transaction facilitated by a third party broker dealer, bringing Mr. Low's total stock ownership to 539,600 shares, representing approximately 13.2% of the Company's outstanding shares of common stock. On February 14, 2000, Mr. Low met with Jack Liles, Chairman of the Board, President, and Chief Executive Officer of the Company, to discuss, in general terms, the possible acquisition of the Company by Mr. Low. At the meeting, Mr. Liles indicated that he would not sell the Company for less than book value, or approximately $12 per share, a 100% premium over the then current trading price of the Company's stock. On March 16, 2000, Mr. Low indicated in a Schedule 13D filing that he was interested in acquiring the company for $7.60 per share, representing a 25% premium over the then current trading price of the Company's stock. At a board meeting on March 20, 2000, Mr. Liles indicated his interest in making a competing bid for the Company. On March 23, 2000, the Company's board of directors considered the price per share indicated in Mr. Low's offer and concluded that the price was inadequate in light of Mr. Liles' intent to present a competing offer to purchase the Company. On the same day, the Company's board established a special committee to review future offers presented to the Company. On April 12, 2000, Mr. Low commenced an all cash tender offer for the Company's stock at $7.75 a share. On April 19, 2000, Mr. Liles submitted a bid of $8.25 per share. The Special Committee established a deadline of May 5, 2000 for both Mr. Liles and Mr. Low to submit a proposed definitive merger agreement setting forth their highest and best price they were willing to pay along with any conditions to their offer. On May 5, 2000, both Mr. Liles and Mr. Low submitted proposed merger agreements providing for a purchase price of $8.25 per share. Between May 5, 2000 and May 8, 2000 the Special Committee received a series of bids and counter-bids from Mr. Low and Mr. Liles. On May 8, 2000, the Special Committee accepted an offer of $9.25 per share from Mr. Low after Mr. Liles stopped his bidding at $9.00 per share. On May 15, 2000, Mr. Low sent a letter to Morgan Keegan lowering his bid to $8.75 per share. As a result, another round of negotiations commenced with Mr. Low and Mr. Liles. On May 18, 2000 Mr. Liles submitted an unconditional offer of $8.80 per share; however, he rescinded this offer the following day. As a result, Mr. Low lowered his offer to $7.75 per share. After further negotiations, Mr. Low increased his offer to $7.80. Finally, Mr. Liles presented an unconditional offer at $8.05, which was accepted by the Board and set forth in a definitive merger agreement. - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 2 Transaction Overview [KLLM logo] - -------------------------------------------------------------------------------- At $8.05 per share, the transaction represents an enterprise value of $80.0 million calculated as follows: Value of Equity: 4,101,468 x $8.05 = $33.0 million Net Debt as of March 31, 2000: $47.0 million This equates to enterprise value multiples of: .33x revenues for the last twelve months ended March 31, 2000 4.0x earnings before interest, depreciation and taxes ("EBITDA") for the last twelve months ended March 31, 2000 60.7x earnings before interest and taxes ("EBIT") for the last twelve months ended March 31, 2000 This equates to equity value multiples of: Non-meaningful multiple of net income for last twelve months due to net loss .66x book value as of March 31, 2000 - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 3 Company Overview [KLLM Logo] - -------------------------------------------------------------------------------- . The Company is a truckload carrier that specializes in temperature-controlled transportation services for major shippers in the food industry. In addition, the Company operates Vernon Sawyer, a dry van division that represented less than 20% of consolidated sales for the year ended December 31, 1999. . The Company operates nationwide from its strategically located headquarters in Richland, Mississippi and terminals in Atlanta, Georgia; Bastrop, Louisiana; Fontana, California; Portage, Indiana; and Carlisle, Pennsylvania. . The Company has established carrier relationships with Fresh Express, Pillsbury, Proctor & Gamble, Kraft, Kroger Company, and other major customers. . As of December 31, 1999, the Company operated 1,682 tractors, including 1,422 Company-operated tractors and 260 owner-operated tractors, and 2,741 trailers. - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 4 Valuation methods [KLLM logo] - -------------------------------------------------------------------------------- Financial Highlights Revenues Fiscal 1995-2001P ($ in thousands) (graphic appears here) EBIT and Operating Ratio Fiscal 1995 - 2001P ($ in thousands) (graphic appears here) Shares and EPS Fiscal 1995 - 2001P (Shares in thousands) (graphic appears here) EBITDA adn EBITDA Margin Fiscal 1995 - 2001P ($ in thousands) (graphic appears here) - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 5 Valuation Methods [KLLM logo] - -------------------------------------------------------------------------------- KLLM Transport Services, Inc. Balance Sheet as of March 31, 2000 (Dollars in Thousands)
Current Assets Liabilities and Stockholder's Equity Cash $ 1,618 Current Liabilities Receivables, net 23,677 Notes payable to banks $ 2,569 Inventories - at cost 715 Accounts payable and accrued expenses 17,722 Prepaid expenses and other 5,611 Accrued claims expense 11,733 Deferred income taxes 5,101 --------- ---------- Total current assets 36,722 Total current liabilities 32,024 Property and Equipment 155,028 Deferred income taxes payable 13,283 Less accumulated depreciation and amortization (50,464) Long term debt 46,000 ---------- Total stockholders' equity 49,979 Property and equipment, net 104,564 Total assets $ 141,286 Total liabilities and stockholder' equity $141,286 ========== =========
Balance Sheet Highlights - ------------------------ . Net debt (interest-bearing debt less cash) as of March 31, 2000 was $46,951 . At March 31, 2000, there were 4,101,468 shares of common stock outstanding . Net book value per share: $12.19 - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 6 Valuation Methods [KLLM logo] - -------------------------------------------------------------------------------- KLLM Transport Services, Inc. Historical Income Statements For Year Ended December 31 (Dollar in thousands except per share data)
----------------- ------------------ ------------------ 1995 1996 1997 ----------------- ------------------ ------------------ Revenue from trucking operations $239,685 100.0% $246,222 100.0% $240,766 100.0% Operating Expenses Salaries, Wages and benefits 69,706 29.1 71,318 29.0 75,748 31.5 Operating supplies and expenses 66,414 27.7 69,859 28.4 62,828 26.1 Insurance claims, taxes and licenses 11,773 4.9 14,227 5.8 17,751 7.4 Depreciation and amortization 23,017 9.6 21,872 8.9 21,432 8.9 Purchased transportation and equipment rent 53,370 22.3 54,272 22.0 51,692 21.5 Other 10,481 4.4 9,629 3.9 10,986 4.6 (Gain) loss on sale of revenue equipment (1,589) (0.7) (1,657) (0.7) 185 0.1 ----------------- ------------------ ------------------ Total operating expenses 233,172 97.3 239,520 97.3 240.622 99.9 ----------------- ------------------ ------------------ Operating income (loss) from continued operations 6,513 2.7 6,702 2.7 144 0.1 Non-Recurring Items and discontinued operations Operating revenues from discontinued operations 10,466 4.3 3,319 1.4 Discontinued operations expenses (10,818) (4.4) (4,228) (1.8) Impairment of long lived assets (15,754) (6.5) Restructuring charge (1,906) (0.8) ----------------- ------------------ ------------------ Subtotal 0 0.0 (352) (0.1) (18,569) (7.7) ----------------- ------------------ ------------------ Operating income (loss) after non-recurring items 6,513 2.7 6,350 (18,425) (7.7) Other (income) expenses Gain on sale of property Interest and other income 32 0.0 59 0.0 68 0.0 Interest and other expense (5,554) (2.3) (4,783) (2.0) (4,363) (1.8) ----------------- ------------------ ------------------ Subtotal (5,522) (2.3) (4,724) (1.9) (4,295) (1.8) ----------------- ------------------ ------------------ Earnings (loss) from operations before taxes 991 0.4 1,626 0.7 (22,720) (9.4) Income tax expense (benefit) 473 0.2 721 0.3 (8,000) (3.3) ----------------- ------------------ ------------------ Net Income (loss) from continuing operation before taxes $ 518 0.2 $ 905 0.4 % $(14,720) (6.1) ----------------- ------------------ ------------------ After tax loss from non-recurring items $ (1,065) (0.4) $ (139) (0.1) Net earnings (loss) $ (547) (0.2) $ 766 0.3 % $(14,720) (6.1) ================= ================== ================== Diluted Earrings per Share $ (0.12) $ 0.18 $ (3.38) Diluted Shares Outstanding 4,479 4,372 4,358 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Income $ 6,513 2.7 % $ 6,702 2.7 % $ 144 0.1 % Depreciation and Amortization 22,055 9.2 22,055 9.0 21,432 8.9 ----------------- ------------------ ------------------ EBITDA $ 28,568 11.9 % $ 28,757 11.7 % $ 21,576 9.0 % - ------------------------------------------------------------------------------------------------------------------------------------
----------------- ------------------ ------------------ 1998 1999 LTM 3/DD ----------------- ------------------ ------------------ Revenue from trucking operations $228,988 100.0 % $234,595 100.0 % $ 236,857 100.0 % Operating Expenses Salaries, Wages and benefits 73,143 31.9 83,655 35.7 $ 85,146 35.9 Operating supplies and expenses 56,938 24.9 58,392 24.9 61,165 25.8 Insurance claims, taxes and licenses 13,729 6.0 10,585 4.5 10,187 4.3 Depreciation and amortization 18,270 8.0 18,303 7.8 18,821 7.9 Purchased transportation and equipment rent 50,840 22.2 51,424 21.9 50,698 21.4 Other 11,657 5.1 10,797 4.6 10,567 4.5 (Gain) loss on sale of revenue equipment (1,231) (0.5) (1,031) (0.4) $ (1,044) (0.4) ----------------- ------------------ ------------------ Total operating expenses 223,346 97.5 232,125 98.9 235,540 99.4 ----------------- ------------------ ------------------ Operating income (loss) from continued operations 5,642 2.5 2,470 1.1 1,317 0.6 Non-Recurring Items and discontinued operations Operating revenues from discontinued operations Discontinued operations expenses Impairment of long lived assets Restructuring charge ----------------- ------------------ ------------------ Subtotal 0 0.0 0 0.0 0 0.0 ----------------- ------------------ ------------------ Operating income (loss) after non-recurring items 5,642 2.5 2,470 1.1 1,317 0.6 Other (income) expenses Gain on sale of property 858 0.4 Interest and other income 87 0.0 58 0.0 101 0.0 Interest and other expense (3,551) (1.6) (3,403) (1.5) (3,543) (1.5) ----------------- ------------------ ------------------ Subtotal (2,606) (1.1) (3,345) (1.4) (3,442) (1.5) ----------------- ------------------ ------------------ Earnings (loss) from operations before taxes 3,036 1.3 (875) (0.4) (2,125) (0.9) Income tax expense (benefit) 1,200 0.5 (330) (0.1) (805) (0.3) ------------------ ------------------ ------------------ Net Income (loss) from continuing operation before taxes 1,836 0.8 % $ (545) (0.2) % $ (1,320) (0.6) ------------------ ------------------ ------------------ After tax loss from non-recurring items $ (247) (0.1) % (247) (0.1) Net earnings (loss) $ 1,836 0.8 % $ (792) (0.3) $ (1,567) (0.7) Diluted Earrings per Share $ 0.42 $ (0.19) $ (0.38) Diluted Shares Outstanding 4,341 4,117 4,101 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Income $ 5,642 2.5 % $ 2,470 1.1 % $ 1,317 0.6 % Depreciation and Amortization 18,270 8.0 18,303 7.8 18,821 7.9 ------------------ ------------------ ------------------ EBITDA $ 23,912 10.4 % $ 20,773 8.9 % $ 20,138 8.5 % - ----------------------------------------------------------------------------------------------------------------------------------- * Impairment of long lived assets has been reclassified from an operating expense to a non-recurring item.
- -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 7 Valuation Methods KLLM logo - -------------------------------------------------------------------------------- KLLM Transport Services, Inc Historical Income Statements (Dollars in thousands except per share data)
Quarter Ended Quarter Ended ------------------ ------------------ 03/31/2000 04/02/1999 ------------------ ------------------ Revenue from trucking operations $ 57,593 100.0 % $ 55,331 100.0 % Operating Expenses Salaries, Wages and Benefits 20,833 36.2 19,342 35.0 Operating supplies and expenses 15,919 27.6 13,146 23.8 Insurance claims, taxes and licenses 2,745 4.8 3,143 5.7 Depreciation and amortization 4,885 8.5 4,367 7.9 Purchased transportation and equipment rent 11,625 20.2 12,351 22.3 Other 2,449 4.3 2,679 4.8 (Gain) loss on sale of revenue equipment (130) (0.2) (117) (0.2) ------------------ ------------------ Total operating expenses 58,326 101.3 54,911 99.2 ------------------ ------------------ Operating income (loss) from continued operations (733) (1.3) 420 0.8 Other (income) expenses Interest and other income 51 8 Interest and other expense (943) (1.6) (803) (1.5) ------------------ ------------------ Subtotal (892) (1.5) (795) (1.4) ------------------ ------------------ Earnings (loss) from operations before taxes (1,625) (2.8) (375) (0.7) Income tax expense (benefit) (625) (1.1) (150) (0.3) Net Income (loss) from continuing operations before taxes $ (1,000) (1.7) $ (225) (0.4) ------------------ ----------------- Net earnings (loss) $ (1,000) (1.7) $ (225) (0.4) ================== ================= Diluted Earnings per Share $ (0.24) $ (0.05) Diluted Shares Outstanding 4,101 4,373 - ------------------------------------------------------------------------------------------------------- Operating Income $ (733) (1.3) % $ 420 0.8 % Depreciation and Amortization 4,885 8.5 4,367 7.9 ----------------- ---------------- EBITDA $ 4,152 7.2 % $ 4,787 8.7 % - -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 8 Table of Contents [KLLM logo] - -------------------------------------------------------------------------------- Methodology.................................................... Tab A Transaction Overview........................................... Tab B Company Overview............................................... Tab C Financial Review............................................... Tab D 1. Historical Financial Performance 2. Projected Financial Performance Valuation Methods.............................................. Tab E 1. Comparable Company Analysis 2. Mergers and Acquisition Analysis 3. Discounted Cash Flow Analysis 4. Premium Analysis Summary Valuation.............................................. Tab F Appendices..................................................... Tab G 1. Comparable Company Analysis - Detailed Schedules 2. Mergers and Acquisition Analysis - Detailed Schedules - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Methodology [KLLM logo] - -------------------------------------------------------------------------------- In conducting our analysis, Morgan Keegan: . Participated in discussions with various members of management and representatives of KLLM Transport Services, Inc. ("KLLM" or the "Company") concerning KLLM's historical and current operations, financial condition and prospects and strategic objectives. . Reviewed historical financial and operating data that was furnished to us by KLLM relating to its business. . Reviewed internal financial analyses, financial and operating forecasts, reports and other information prepared by officers and representatives of KLLM. Projected financial information presented in this report was provided by management of the Company and is represented as management's opinion of the Company's performance. . Reviewed certain publicly available information with respect to certain other companies in lines of business that we believe to be generally comparable to those of the Company, including the trading markets for such other companies' securities. . Reviewed certain publicly available information concerning the financial terms of certain other transactions that we deemed relevant to our inquiry. . Analyzed the value of projected cash flows of the Company. . Reviewed the financial terms of the draft Plan and Agreement of Merger among High Road Acquisition Corp., High Road Acquisition Subsidiary Corp. and KLLM Transport Services, Inc. . Undertook such other studies, analyses and investigations, and considered such other information, as we deemed relevant. - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 1 Transaction Overview [KLLM logo] - -------------------------------------------------------------------------------- In August 1999, the Company engaged Morgan Keegan & Company to act as its financial advisor to consider strategic alternatives, including a potential sale of the Company, with a view to enhance stockholder value. The Board authorized Morgan Keegan to solicit potential bids to acquire the Company and prepare a memorandum containing certain confidential information about the company. On behalf of the Company, Morgan Keegan contacted 20 to 25 potential bidders, including Prime, Inc. and its principal, Mr. Robert Low. Of the 20 to 25 parties contacted, nine entered into confidentiality agreements with the Company and were furnished copies of the memorandum. None of the nine companies submitted an offer to buy the Company. Mr. Low declined to execute a confidentiality agreement at that time and did not receive a copy of the memorandum. Morgan Keegan attempted several times thereafter to get Mr. Low to begin negotiations regarding acquiring the Company. In a series of open market purchases between September 1999 and December 1999, Robert Low or his affiliates acquired beneficial ownership of 289,600 shares of the Company's common stock, representing approximately 7.1% of the Company's outstanding common stock. On February 10, 2000, Mr. Low purchased an additional 250,000 shares from an institutional investor in an open market transaction facilitated by a third party broker dealer, bringing Mr. Low's total stock ownership to 539,600 shares, representing approximately 13.2% of the Company's outstanding shares of common stock. On February 14, 2000, Mr. Low met with Jack Liles, Chairman of the Board, President, and Chief Executive Officer of the Company, to discuss, in general terms, the possible acquisition of the Company by Mr. Low. At the meeting, Mr. Liles indicated that he would not sell the Company for less than book value, or approximately $12 per share, a 100% premium over the then current trading price of the Company's stock. On March 16, 2000, Mr. Low indicated in a Schedule 13D filing that he was interested in acquiring the company for $7.60 per share, representing a 25% premium over the then current trading price of the Company's stock. At a board meeting on March 20, 2000, Mr. Liles indicated his interest in making a competing bid for the Company. On March 23, 2000, the Company's board of directors considered the price per share indicated in Mr. Low's offer and concluded that the price was inadequate in light of Mr. Liles' intent to present a competing offer to purchase the Company. On the same day, the Company's board established a special committee to review future offers presented to the Company. On April 12, 2000, Mr. Low commenced an all cash tender offer for the Company's stock at $7.75 a share. On April 19, 2000, Mr. Liles submitted a bid of $8.25 per share. The Special Committee established a deadline of May 5, 2000 for both Mr. Liles and Mr. Low to submit a proposed definitive merger agreement setting forth their highest and best price they were willing to pay along with any conditions to their offer. On May 5, 2000, both Mr. Liles and Mr. Low submitted proposed merger agreements providing for a purchase price of $8.25 per share. Between May 5, 2000 and May 8, 2000 the Special Committee received a series of bids and counter-bids from Mr. Low and Mr. Liles. On May 8, 2000, the Special Committee accepted an offer of $9.25 per share from Mr. Low after Mr. Liles stopped his bidding at $9.00 per share. On May 15, 2000, Mr. Low sent a letter to Morgan Keegan lowering his bid to $8.75 per share. As a result, another round of negotiations commenced with Mr. Low and Mr. Liles. On May 18, 2000 Mr. Liles submitted an unconditional offer of $8.80 per share; however, he rescinded this offer the following day. As a result, Mr. Low lowered his offer to $7.75 per share. After further negotiations, Mr. Low increased his offer to $7.80. Finally, Mr. Liles presented an unconditional offer at $8.05, which was accepted by the Board and set forth in a definitive merger agreement. - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 2 Transaction Overview [KLLM logo] - -------------------------------------------------------------------------------- At $8.05 per share, the transaction represents an enterprise value of $80.0 million calculated as follows: Value of Equity: 4,101,468 x $8.05 = $33.0 million Net Debt as of March 31, 2000: $47.0 million This equates to enterprise value multiples of: .33x revenues for the last twelve months ended March 31, 2000 4.0x earnings before interest, depreciation and taxes ("EBITDA") for the last twelve months ended March 31, 2000 60.7x earnings before interest and taxes ("EBIT") for the last twelve months ended March 31, 2000 This equates to equity value multiples of: Non-meaningful multiple of net income for last twelve months due to net loss .66x book value as of March 31, 2000 - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 3 Company Overview [KLLM Logo] - -------------------------------------------------------------------------------- . The Company is a truckload carrier that specializes in temperature-controlled transportation services for major shippers in the food industry. In addition, the Company operates Vernon Sawyer, a dry van division that represented less than 20% of consolidated sales for the year ended December 31, 1999. . The Company operates nationwide from its strategically located headquarters in Richland, Mississippi and terminals in Atlanta, Georgia; Bastrop, Louisiana; Fontana, California; Portage, Indiana; and Carlisle, Pennsylvania. . The Company has established carrier relationships with Fresh Express, Pillsbury, Proctor & Gamble, Kraft, Kroger Company, and other major customers. . As of December 31, 1999, the Company operated 1,682 tractors, including 1,422 Company-operated tractors and 260 owner-operated tractors, and 2,741 trailers. - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 4 Valuation Methods [KLLM logo] - -------------------------------------------------------------------------------- Financial Highlights Revenues Fiscal 1995-2001P ($ in thousands) (graphic appears here) Year Revenue - ---- ------- 1995 $239,685 1996 246,222 1997 240,766 1998 228,988 1999 234,595 2000P 244,941 2001P 251,065 EBIT and Operating Ratio Fiscal 1995 - 2001P ($ in thousands) (graphic appears here) Year EBIT Operating Ratio - ---- ---- --------------- 1995 $6,513 97.3% 1996 6,702 97.3 1997 144 99.9 1998 5,642 97.5 1999 2,470 98.9 2000P 6,155 97.5 2001P 7,908 96.9 Shares and EPS Fiscal 1995 - 2001P (Shares in thousands) (graphic appears here) Year Shares EPS - ---- ------ --- 1995 4,479 $ 0.12 1996 4,372 0.18 1997 4,358 (3.38) 1998 4,341 0.42 1999 4,117 (0.19) 2000P 4,101 0.35 2001P 4,100 0.55 EBITDA and EBITDA Margin Fiscal 1995 - 2001P ($ in thousands) (graphic appears here) Year EBITDA EBITDA Margin - ---- ------ ------------- 1995 $20,568 11.9% 1996 28,757 11.7 1997 21,576 9.0 1998 23,912 10.4 1999 20,773 8.9 2000P 25,750 10.5 2001P 27,993 11.1 - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 5 Valuation Methods [KLLM logo] - -------------------------------------------------------------------------------- KLLM Transport Services, Inc. Balance Sheet as of March 31, 2000 (Dollars in Thousands)
Current Assets Liabilities and Stockholder's Equity Cash $ 1,618 Current Liabilities Receivables, net 23,677 Notes payable to banks $ 2,569 Inventories - at cost 715 Accounts payable and accrued expenses 17,722 Prepaid expenses and other 5,611 Accrued claims expense 11,733 Deferred income taxes 5,101 --------- ---------- Total current assets 36,722 Total current liabilities 32,024 Property and Equipment 155,028 Deferred income taxes payable 13,283 Less accumulated depreciation and amortization (50,464) Long term debt 46,000 ---------- Total stockholders' equity 49,979 Property and equipment, net 104,564 Total assets $ 141,286 Total liabilities and stockholder' equity $141,286 ========== =========
Balance Sheet Highlights - ------------------------ . Net debt (interest-bearing debt less cash) as of March 31, 2000 was $46,951 . At March 31, 2000, there were 4,101,468 shares of common stock outstanding . Net book value per share: $12.19 - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 6 Valuation Methods [KLLM logo] - -------------------------------------------------------------------------------- KLLM Transport Services, Inc. Historical Income Statements For Year Ended December 31 (Dollar in thousands except per share data)
----------------- ------------------ ------------------ 1995 1996 1997 ----------------- ------------------ ------------------ Revenue from trucking operations $239,685 100.0% $246,222 100.0% $240,766 100.0% Operating Expenses Salaries, Wages and benefits 69,706 29.1 71,318 29.0 75,748 31.5 Operating supplies and expenses 66,414 27.7 69,859 28.4 62,828 26.1 Insurance claims, taxes and licenses 11,773 4.9 14,227 5.8 17,751 7.4 Depreciation and amortization 23,017 9.6 21,872 8.9 21,432 8.9 Purchased transportation and equipment rent 53,370 22.3 54,272 22.0 51,692 21.5 Other 10,481 4.4 9,629 3.9 10,986 4.6 (Gain) loss on sale of revenue equipment (1,589) (0.7) (1,657) (0.7) 185 0.1 ----------------- ------------------ ------------------ Total operating expenses 233,172 97.3 239,520 97.3 240,622 99.9 ----------------- ------------------ ------------------ Operating income (loss) from continued operations 6,513 2.7 6,702 2.7 144 0.1 Non-Recurring Items and discontinued operations Operating revenues from discontinued operations 10,466 4.3 3,319 1.4 Discontinued operations expenses (10,818) (4.4) (4,228) (1.8) Impairment of long lived assets* (15,754) (6.5) Restructuring charge (1,906) (0.8) ----------------- ------------------ ------------------ Subtotal 0 0.0 (352) (0.1) (18,569) (7.7) ----------------- ------------------ ------------------ Operating income (loss) after non-recurring items 6,513 2.7 6,350 (18,425) (7.7) Other (income) expenses Gain on sale of property Interest and other income 32 0.0 59 0.0 68 0.0 Interest and other expense (5,554) (2.3) (4,783) (2.0) (4,363) (1.8) ----------------- ------------------ ------------------ Subtotal (5,522) (2.3) (4,724) (1.9) (4,295) (1.8) ----------------- ------------------ ------------------ Earnings (loss) from operations before taxes 991 0.4 1,626 0.7 (22,720) (9.4) Income tax expense (benefit) 473 0.2 721 0.3 (8,000) (3.3) ----------------- ------------------ ------------------ Net Income (loss) from continuing operations before taxes $ 518 0.2 $ 905 0.4 % $(14,720) (6.1) ----------------- ------------------ ------------------ After tax loss from non-recurring items $ (1,065) (0.4) $ (139) (0.1) Net earnings (loss) $ (547) (0.2) $ 766 0.3 % $(14,720) (6.1) ================= ================== ================== Diluted Earnings per Share $ (0.12) $ 0.18 $ (3.38) Diluted Shares Outstanding 4,479 4,372 4,358 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Income $ 6,513 2.7 % $ 6,702 2.7 % $ 144 0.1 % Depreciation and Amortization 22,055 9.2 22,055 9.0 21,432 8.9 ----------------- ------------------ ------------------ EBITDA $ 28,568 11.9 % $ 28,757 11.7 % $ 21,576 9.0 % - ------------------------------------------------------------------------------------------------------------------------------------
----------------- ------------------ ------------------ 1998 1999 LTM 3/DD ----------------- ------------------ ------------------ Revenue from trucking operations $228,988 100.0 % $234,595 100.0 % $ 236,857 100.0 % Operating Expenses Salaries, Wages and benefits 73,143 31.9 83,655 35.7 $ 85,146 35.9 Operating supplies and expenses 56,938 24.9 58,392 24.9 61,165 25.8 Insurance claims, taxes and licenses 13,729 6.0 10,585 4.5 10,187 4.3 Depreciation and amortization 18,270 8.0 18,303 7.8 18,821 7.9 Purchased transportation and equipment rent 50,840 22.2 51,424 21.9 50,698 21.4 Other 11,657 5.1 10,797 4.6 10,567 4.5 (Gain) loss on sale of revenue equipment (1,231) (0.5) (1,031) (0.4) $ (1,044) (0.4) ----------------- ------------------ ------------------ Total operating expenses 223,346 97.5 232,125 98.9 235,540 99.4 ----------------- ------------------ ------------------ Operating income (loss) from continued operations 5,642 2.5 2,470 1.1 1,317 0.6 Non-Recurring Items and discontinued operations Operating revenues from discontinued operations Discontinued operations expenses Impairment of long lived assets Restructuring charge ----------------- ------------------ ------------------ Subtotal 0 0.0 0 0.0 0 0.0 ----------------- ------------------ ------------------ Operating income (loss) after non-recurring items 5,642 2.5 2,470 1.1 1,317 0.6 Other (income) expenses Gain on sale of property 858 0.4 Interest and other income 87 0.0 58 0.0 101 0.0 Interest and other expense (3,551) (1.6) (3,403) (1.5) (3,543) (1.5) ----------------- ------------------ ------------------ Subtotal (2,606) (1.1) (3,345) (1.4) (3,442) (1.5) ----------------- ------------------ ------------------ Earnings (loss) from operations before taxes 3,036 1.3 (875) (0.4) (2,125) (0.9) Income tax expense (benefit) 1,200 0.5 (330) (0.1) (805) (0.3) ------------------ ------------------ ------------------ Net Income (loss) from continuing operation before taxes $ 1,836 0.8 % $ (545) (0.2) % $ (1,320) (0.6) ------------------ ------------------ ------------------ After tax loss from non-recurring items $ (247) (0.1) % (247) (0.1) Net earnings (loss) $ 1,836 0.8 % $ (792) (0.3) $ (1,567) (0.7) ================== ================== ================== Diluted Earrings per Share $ 0.42 $ (0.19) $ (0.38) Diluted Shares Outstanding 4,341 4,117 4,101 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Income $ 5,642 2.5 % $ 2,470 1.1 % $ 1,317 0.6 % Depreciation and Amortization 18,270 8.0 18,303 7.8 18,821 7.9 ------------------ ------------------ ------------------ EBITDA $ 23,912 10.4 % $ 20,773 8.9 % $ 20,138 8.5 % - ----------------------------------------------------------------------------------------------------------------------------------- * Impairment of long lived assets has been reclassified from an operating expense to a non-recurring item.
- -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 7 Valuation Methods [KLLM logo] - -------------------------------------------------------------------------------- KLLM Transport Services, Inc Historical Income Statements (Dollars in thousands except per share data)
Quarter Ended Quarter Ended ------------------ ------------------ 03/31/2000 04/02/1999 ------------------ ------------------ Revenue from trucking operations $ 57,593 100.0 % $ 55,331 100.0 % Operating Expenses Salaries, Wages and Benefits 20,833 36.2 19,342 35.0 Operating supplies and expenses 15,919 27.6 13,146 23.8 Insurance claims, taxes and licenses 2,745 4.8 3,143 5.7 Depreciation and amortization 4,885 8.5 4,367 7.9 Purchased transportation and equipment rent 11,625 20.2 12,351 22.3 Other 2,449 4.3 2,679 4.8 (Gain) loss on sale of revenue equipment (130) (0.2) (117) (0.2) ------------------ ------------------ Total operating expenses 58,326 101.3 54,911 99.2 ------------------ ------------------ Operating income (loss) from continued operations (733) (1.3) 420 0.8 Other (income) expenses Interest and other income 51 8 Interest and other expense (943) (1.6) (803) (1.5) ------------------ ------------------ Subtotal (892) (1.5) (795) (1.4) ------------------ ------------------ Earnings (loss) from operations before taxes (1,625) (2.8) (375) (0.7) Income tax expense (benefit) (625) (1.1) (150) (0.3) ------------------ ------------------ Net Income (loss) from continuing operations before taxes $ (1,000) (1.7) $ (225) (0.4) ------------------ ----------------- After tax loss from non-recurring items Net earnings (loss) $ (1,000) (1.7) $ (225) (0.4) ================== ================= Diluted Earnings per Share $ (0.24) $ (0.05) Diluted Shares Outstanding 4,101 4,373 - ------------------------------------------------------------------------------------------------------- Operating Income $ (733) (1.3) % $ 420 0.8 % Depreciation and Amortization 4,885 8.5 4,367 7.9 ----------------- ---------------- EBITDA $ 4,152 7.2 % $ 4,787 8.7 % - -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 8 Valuation Methods [KLLM Logo] - -------------------------------------------------------------------------------- Historical Income Statement Highlights -------------------------------------- . Revenues decreased at a average compound annual rate of .2% between 1995 and 1999. During that period, the largest increase in revenue was 2.7% in 1996 and the largest decrease in revenue was 4.9% in 1998. For 1999, revenue increased by 2.4% from the previous year. . From 1995 to 1997, KLLM's operating ratio ranged between 97.3% and 99.9%. During 1999 the operating ratio increased from 97.5% to 98.9%. For the quarter ended March 31, 2000, the operating ratio was 101.3%. . Depreciation and amortization expense was 7.8% of revenue in 1999, while in 1995 it was 9.6% of revenues. Depreciation and amortization did not change significantly as a percent of revenue during 1999 compared to the prior year. . From 1995 to 1999, operating income from continued operations or earnings before interest and taxes ("EBIT") ranged from a high of $6.7 million in 1996 to a low of $144,000 in 1997. For 1999, operating income was approximately $2.5 million. For the last twelve months ended March 31, 2000, operating income was $1.3 million. . Earnings before interest, taxes and depreciation and amortization ("EBITDA") decreased at an average compound annual rate of 7.8% from $28.8 million in 1995 to $20.8 million in 1999. For the last twelve months ended March 31, 2000, EBITDA was $20.1 million. . The Company has shown a profit in only two of the last five years. The cumulative net loss for the last five years was $13.5 million. The net loss and loss per share was $792,000 and $.19, respectively, in 1999. For the quarter ended March 31, 1999 the net loss and loss per share were $1.0 million and $.24, respectively. - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 9 Valuation Methods [KLLM Logo] - -------------------------------------------------------------------------------- KLLM Transport Services, Inc. Projected Income Statements Fiscal Year Ended December 31 (Dollars in thousands except per share data)
----------------- ----------------- ----------------- ----------------- ---------------- 2000P 2001P 2002P 2003P 2004P ----------------- ----------------- ----------------- ----------------- ---------------- Revenues $244,941 100.0 % 251,065 100.0 % 261,108 100.0 % 271,552 100.0 % 282,414 100.0 % Operating Expenses Salaries, wages and benefits 85,565 34.9 87,245 34.7 90,605 34.7 93,550 34.5 96,868 34.3 Operating supplies and expenses 60,286 24.6 60,256 24.0 62,666 24.0 64,901 23.9 67,497 23.9 Insurance, taxes and licenses 10,223 4.2 10,545 4.2 10,967 4.2 11,406 4.2 11,862 4.2 Depreciation and amortization 19,595 8.0 20,085 8.0 20,888 8.0 21,724 8.0 22,592 8.0 Purchased transportation 52,772 21.5 54,481 21.7 56,660 21.7 58,926 21.7 61,283 21.7 Other 10,345 4.2 10,545 4.2 10,967 4.2 11,406 4.2 11,862 4.2 -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Total operating expenses 238,786 97.5 243,157 96.9 252,753 96.8 261,912 96.5 271,965 96.3 -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Operating income 6,155 2.5 7,908 3.1 8,355 3.2 9,640 3.5 10,449 3.7 Other expenses (40) (0.0) (50) (0.0) (52) (0.0) (54) (0.0) (56) (0.0) Interest expense 3,800 1.6 4,200 1.7 4,439 1.7 4,616 1.7 4,801 1.7 -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Total Other (Income) Expense 3,760 1.5 4,150 1.7 4,387 1.7 4,562 1.7 4,745 1.7 -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Income Before Provision for Taxes 2,395 1.0 3,758 1.5 3,968 1.5 5,078 1.9 5,705 2.0 Provision for Income Taxes 958 0.4 1,503 0.6 1,587 0.6 2,031 0.7 2,282 0.8 -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Net Income $ 1,437 0.6 % $ 2,255 0.9 % $ 2,381 0.9 % $ 3,047 1.1 % $ 3,423 1.2 % ======== ===== ======== ===== ======== ===== ======== ===== ======== ===== Diluted Earnings per Share $ 0.35 $ 0.55 $ 0.58 $ 0.74 $ 0.83 Diluted Shares Outstanding 4,100 4,100 4,100 4,100 4,100 - ------------------------------------------------------------------------------------------------------------------------------------ Operating Income $ 6,155 2.5 % $ 7,908 3.1 % $ 8,355 3.2 % $ 9,640 3.5 % $ 10,449 3.7 % Depreciation and Amortization 19,595 8.0 20,085 8.0 20,888 8.0 21,724 8.0 22,592 8.0 -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- EBITDA $ 25,750 10.5 % $ 27,993 11.1 % $ 29,243 11.2 % $ 31,363 11.5 % $ 33,042 11.7 % ======== ===== ======== ===== ======== ===== ======== ===== ======== ===== - ------------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 10 Valuation Methods [KLLM Logo] - -------------------------------------------------------------------------------- Projected Income Statement Highlights - ------------------------------------- . Revenue is projected to increase from $234.6 million to $282.4 million from 1999 to 2004, which represents a compound annual growth rate of 3.8%. . EBIT is projected to increase from $2.5 million to $10.4 million from 1999 to 2004, which represents a compound annual growth rate of 33.4%. . EBITDA is projected to increase from $20.8 million to $33.0 million from 1999 to 2004, which represents a compound annual growth rate of 9.7%. . Earnings per share is projected to increase from ($.19) to $.83 from 1999 to 2004. - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 11 Valuation Methods [KLLM Logo] - -------------------------------------------------------------------------------- Comparable Company Analysis - --------------------------- Overview . Analyzed a group of publicly traded companies similar to the Company based on a variety of criteria. . Compared the Company's financial performance with the performance of the group of comparable companies. . Derived industry multiples by analyzing the specific comparable company multiples. . Applied the industry multiples to the Company's results for the last twelve months ended March 31, 2000 to derive an implied range of equity value and price per share. . Due to KLLM's low EBIT and net loss for the last twelve months ended March 31, 2000, valuations based on these financial measures indicate a negative equity value. As an alternative, 2000 projections were used to derive an implied range of equity and price per share in the future. These derived future values were then discounted to the present value using the Company's cost of equity capital. - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 12 Valuation Methods [KLLM Logo] - -------------------------------------------------------------------------------- . Comparable Company Analysis - Summary ------------------------------------- (Detailed analysis is included as an appendix)
- ------------------------------------------------------------------------------------------------------------------------------------ Comparable Company analysis - ------------------------------------------------------------------------------------------------------------------------------------ Based on LTM (3/31) Results Based on 2000P Results --------------------------------------- ----------------------------------------------------- Applicable Enterprise Equity Share Enterprise Equity Share Discounted(1) Multiples LTM Value Value Value 2000P Value Value Value Price/Shr --------------------------------------- ----------------------------------------------------- Temperature-Controlled Carriers Revenues 0.2 x $236,857 $47,371 $ 420 $ 0.10 $244,941 $ 48,988 $ 2,037 $ 0.50 $ 0.42 EBITDA 3.3 x $ 20,138 $66,455 $19,504 $ 4.76 $ 25,750 $ 84,975 $38,024 $ 9.27 $ 7.82 EBIT 7.3 x $ 1,317 $ 9,614 NM NM $ 6,155 $ 44,932 NM NM NM Net Income 6.6 x $ (1,567) NA NM NM $ 1,437 NA $ 9,484 $ 2.31 $ 1.95 Tangible Book Value 0.6 x $ 49,979 NA $30,987 $ 7.56 $ 52,404 NA $32,490 $ 7.92 $ 6.68 Dry Van and Flatbed Carriers EBITDA 4.5 x $ 20,138 $90,621 $43,670 $10.65 $ 25,750 $115,875 $68,924 $16.81 $14.17 EBIT 8.6 x $ 1,317 $11,326 NM NM $ 6,155 $ 52,933 $ 5,982 $ 1.46 $ 1.23 Net Income 10.0 x $ (1,567) NA NM NM $ 1,437 NA $14,370 $ 3.50 $ 2.95 Tangible Book Value 1.3 x $ 49,979 NA $64,973 $15.84 $ 52,404 NA $68,125 $16.61 $14.01 - ----------------------------------------------------------------------------------------------------------------------------------- (1) Discounted at the Company's cost of equity of 18.6%. For calculation, refer to discounted cash flow analysis.
Net Debt $46,951 Shares Outstanding 4,101 - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 13 Valuation Methods [KLLM Logo] - -------------------------------------------------------------------------------- Comparable Company Analysis - --------------------------- Conclusion . Morgan Keegan determined the market value and the adjusted market value of each comparable company and calculated trading multiples based on revenue, EBITDA, EBIT and tangible book value. . Trading multiples of the comparable company group as a whole were deemed more meaningful than multiples of any particular company. . Valuations based on multiples of EBITDA for temperature-controlled carriers and multiples of revenues for dry van carriers produced implied valuations well in excess of the other methods and were not relied on in valuing the Company for the following reasons. EBITDA multiples for the temperature- controlled comp group deviated significantly. In addition, this comp group was relatively small as it contained only three companies. As an alternative, EBIT and EBITDA multiples for Marten Transport, the most profitable company in the temperature-controlled comp group, were used. The median revenue multiple for dry van carriers was not relied on due to the relative difference in profitability between KLLM and most dry van carriers. Therefore, making the aforementioned adjustments, the analysis produced an implied value range of between $.10 and $7.82 per share based on the multiples of the comparable temperature-controlled carriers group and between $1.23 and $15.84 per share based on the multiples of the comparable dry van carriers group. - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 14 Valuation Methods [KLLM Logo] - -------------------------------------------------------------------------------- Mergers and Acquisitions Analysis - --------------------------------- Overview . Searched databases and news articles for acquisitions of trucking companies. . Selected those transactions with available financial information. . Derived valuation multiples by comparing the prices paid in these transactions to the Company's financial information for the last twelve months ended March 31, 2000 to derive an implied range of equity value and price per share. . Due to KLLM's low EBIT and net loss for the last twelve months ended March 31, 2000, valuations based on these financial measures indicated a negative equity value. Alternatively, 2000 projections were used to derive an implied range of equity and price per share in the future. These derived future values were then discounted to the present value using the Company's cost of equity capital. - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 15 Valuation Methods [KLLM Logo] - -------------------------------------------------------------------------------- Mergers & Acquisitions Analysis - Summary - ----------------------------------------- (Detailed analysis is included as an appendix)
- ------------------------------------------------------------------------------------------------------------------------------------ Mergers & Acquisitions Analysis - ------------------------------------------------------------------------------------------------------------------------------------ Based on LTM (3/31) Results Based on 2000P Results ----------------------------------------- ---------------------------------------------------- Median Enterprise Equity Share Enterprise Equity Share Discounted(1) Multiples LTM Value Value Value 2000P Value Value Value Price/Shr ----------------------------------------- ---------------------------------------------------- Revenues 0.4 x $236,857 $ 94,743 $47,792 $11.65 $244,941 $ 97,976 $51,025 $12.44 $10.49 EBITDA 5.0 x $ 20,138 $100,690 $53,739 $13.10 $ 25,750 $128,750 $81,799 $19.95 $16.82 EBIT 11.2 x $ 1,317 $ 14,750 NM NM $ 6,155 $ 68,936 $21,985 $ 5.36 $ 4.52 Net Income 13.0 x $ (1,567) NA NM NM $ 1,437 NA $18,681 $ 4.56 $ 3.84 - ----------------------------------------------------------------------------------------------------------------------------------- (1) Discounted at the Company's cost of equity of 18.6%. For calculation, refer to discounted cash flow analysis.
Net Debt $46,951 Shares Outstanding 4,101 - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 16 Valuation Methods [KLLM Logo] - -------------------------------------------------------------------------------- Mergers and Acquisitions Analysis - ---------------------------------- Conclusion . Transaction multiples vary for the following reasons: . Differences in pre-transaction operating performance . Other hidden or intangible assets not apparent in historical operating performance . Other deal specific factors . The analysis resulted in an implied range of $3.84 to $16.82 per share based on the median multiples from the comparable mergers and acquisitions transactions. - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 17 Valuation Methods [KLLM Logo] - -------------------------------------------------------------------------------- Discounted Cash Flow Analysis - ----------------------------- Overview . Relies on projections of future cash flows provided by the Company. . Terminal value is calculated by applying a terminal multiple to the Company's unlevered free cash flow in 2004. . Annual cash flows and the terminal value are discounted at various weighted average cost of capital (WACC) rates. . Considers a range of terminal multiples and weighted average cost of capital (WACC) rates. - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 18 Valuation Methods [KLLM Logo] - -------------------------------------------------------------------------------- KLLM Transport Services, Inc. Discounted Cash Flow Analysis (Dollars in Thousands)
For the Year Ended December 31, ------------------------------------------------------------ 2000P 2001P 2002P 2003P 2004P Terminal -------- -------- -------- -------- -------- -------- Revenue $244,941 $251,065 $261,108 $271,552 $282,414 Operating Expense: Operating Expenses Excluding Depreciation 219,191 223,072 231,865 240,188 249,373 Depreciation & Amortization 19,595 20,085 20,888 21,724 22,592 -------- -------- -------- -------- -------- Total Operating Exp. 238,786 243,157 252,753 261,912 271,965 -------- -------- -------- -------- -------- EBIT 6,155 7,908 8,355 9,640 10,449 Income Taxes(1) 2,462 3,163 3,342 3,856 4,180 -------- -------- -------- -------- -------- After-Tax EBIT $ 3,693 $ 4,745 $ 5,013 $ 5,784 $ 6,270 Capital Expenditures (18,615) (19,081) (19,844) (20,638) (21,462) Depreciation & Amortization 19,595 20,085 20,888 21,724 22,592 Increase in Working Capital (310) (184) (301) (313) (326) -------- -------- -------- -------- -------- Unlevered Free Cash Flow $ 4,363 $ 5,565 $ 5,756 $ 6,557 $ 7,074 $42,443 Discount Period 0.64 1.64 2.64 3.64 4.64 4.64 Discount Factor 1.08 1.20 1.35 1.51 1.70 1.70 PV of Cash Flow $ 4,058 $ 4,619 $ 4,263 $ 4,334 $ 4,172 $25,034 ---------------------------------------------- ---------------------------------------- Weighted Avg. Cost of Capital 12.06% PV of Cash Flows $ 46,480 Terminal Multiple 6.00 Less Net Debt -46,951 ---------------------------------------------- --------- Equity Value $ (471) ========= --------------------------------------- Notes: - ------ (1) Taxes computed using a 40% tax rate.
- -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 19 Valuation Methods [KLLM Logo] - -------------------------------------------------------------------------------- KLLM Transport Services, Inc. Weighted Average Cost of Capital Calculation ("WACC")
Cost of Equity: 18.6% Risk free rate: 6.85% 5 year Treasury Market risk premium 8.10% Per Ibbotson Association 2000 Yearbook Size premium 3.60% Per Ibbotson Association 2000 Yearbook - expected non-beta small cap premium of 5.1% plus industry premium of -1.5% for motor freight, transportation & warehousing. Assumed beta 1.00 The S&P's beta was used. KLLM's beta as reported by Bloomberg is currently -47. After-tax Cost of Debt: KLLM's assumed borrowing rate 8.50% Tax rate 40.00% After-tax cost of debt 5.10% Net Debt to Total Capital Ratio: (as of December 31, 1999) Net debt $47,489 Shareholders' equity $50,967 ------- Total capital $98,456 KLLM's net debt to total capital ratio 48.23% -------------------------------------------------------------- WACC 12.06% --------------------------------------------------------------
- -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 20 Valuation Methods [KLLM Logo] - -------------------------------------------------------------------------------- KLLM Transport Services, Inc. Discounted Cash Flow - Equity Value and Share Price Sensitivity Analysis (Dollars in Thousands)
Implied Equity Values Unlevered Free Cash Flow Terminal Multiple -------------------------------------------------------------------- 5.0 5.5 6.0 6.5 7.0 ----------------------------------------------------------------------------------------------------- 11.06% $(3,244) $(1,069) $ 1,105 $ 3,280 $ 5,454 WACC 12.06% (4,643) (2,557) (471) 1,615 3,701 13.06% (5,979) (3,977) (1,975) 27 2,029 14.06% (7,255) (5,333) (3,411) (1,490) 432 15.06% (8,475) (6,629) (4,784) (2,938) (1,092) ----------------------------------------------------------------------------------------------------- Shares Outstanding: 4,101 (in thousands) Implied Share Values Unlevered Free Cash Flow Terminal Multiple -------------------------------------------------------------------- 5.0 5.5 6.0 6.5 7.0 ----------------------------------------------------------------------------------------------------- 11.06% $(0.79) $(0.26) $ 0.27 $ 0.80 $ 1.33 WACC 12.06% $(1.13) $(0.62) $(0.11) $ 0.39 $ 0.90 13.06% $(1.46) $(0.97) $(0.48) $ 0.01 $ 0.49 14.06% $(1.77) $(1.30) $(0.83) $(0.36) $ 0.11 15.06% $(2.07) $(1.62) $(1.17) $(0.72) $(0.27) -----------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 21 Valuation Methods [KLLM logo] - -------------------------------------------------------------------------------- Discounted Cash Flow Analysis - ----------------------------- Conclusion . The DCF valuation is dependent upon a number of factors: . The validity of management's projections . Terminal multiple . Discount rate . This analysis resulted in an implied range of less than zero to $1.33 per share. - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 22 Valuation Methods [KLLM logo] - -------------------------------------------------------------------------------- Premium Analysis - ---------------- Overview . Analyzed the premiums paid for all completed mergers and acquisitions of publicly traded trucking companies since January 1, 1997 with total consideration up to $500 million. . Analyzed the premiums paid for all completed non-financial institution and non-technology mergers and acquisitions of publicly traded companies with transaction values between $25 million and $100 million. . Analyzed the premiums paid over the target's stock price one day, one week and one month prior to the announcement date. For premium analysis purposes, the announcement date is March 16, which is the date that Mr. Low announced in his 13D filing his intention to acquire the Company for $7.60 per share. . Compared these premiums to the premium offered pursuant to the transaction. . Derived an implied price per share based on the median premiums paid in these transactions. - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 23 Valuation Methods [KLLM logo] - -------------------------------------------------------------------------------- Monthly Volume and Closing Price Graph For the Twelve Months Prior to May 1, 2000 [GRAPH APPEARS HERE] Month Volume(1) Closing Price ------- ---------- ------------- May 99 50,000 $6.75 June 99 750,000 5.75 July 99 25,000 5.94 Aug 99 100,000 5.00 Sept 99 75,000 4.88 Oct 99(2) 475,000 4.75 Nov 99 250,000 6.16 Dec 99 150,000 4.75 Jan 00 150,000 5.25 Feb 00 900,000(3) 5.50 Mar 00 500,000(4) 6.94 Apr 00 400,000 8.13 ------------- (1) Approximate (2) Mr. Low acquired beneficial ownership of 289,600 shares between October 1999 and December 1999 (3) Mr. Low acquired 250,000 shares in February, 2000 (4) On March 16, 2000, Mr. Low announced his intent to acquire the Company for $7.60 per share - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 24 Valuation Methods [KLLM logo] - -------------------------------------------------------------------------------- Volume at Various Price Ranges For the Twelve Months Prior to Announcement Date [GRAPH APPEARS HERE] Price Range Volume (1) ----------- ---------- $4.00 - $4.49 50,000 $4.50 - $4.99 500,000 $5.00 - $5.49 400,000 $5.50 - $5.99 850,000 $6.00 - $6.49 700,000 $6.50 - $6.99 700,000 $7.00 and above 350,000 -------- (1) Approximate - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 25 Valuation Methods [KLLM logo] - -------------------------------------------------------------------------------- Premium Analysis - ---------------- Premium Analysis of Public Trucking Company Transactions Announced Since 1/1/97 with Total Consideration up to $500 Million Premium --------------------------------- Offer 1 day 1 week 4 weeks Date Date Deal Price/ prior to prior to prior to Announced Effective Target Name Acquiror Name Value (mil) Share ann. date ann. date ann. date - --------- ----------------------------------- ------------------------- ----------- ------ --------- --------- --------- 02/11/1998 06/10/1998 MTL Inc Sombrero Acquisition Corp 250.1 40.00 37.931 38.528 56.098 06/01/1998 08/28/1998 PST Vans Inc USXpress Enterprises Inc 83.9 7.47 32.8 35.818 10.667 06/07/1999 09/30/1999 Jevic Transportation Inc Yellow Corp 194.5 14.00 30.233 45.455 51.351 -------------------------------------------------------- Median 32.8% 38.5% 51.4% -------------------------------------------------------- -------------------------------------------------------- KLLM Closing Price $6.1250 $5.5625 $6.5000 -------------------------------------------------------- -------------------------------------------------------- Implied Share Price $ 8.13 $ 7.71 $ 9.84 --------------------------------------------------------
- -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 26 Valuation Methods [KLLM logo] - -------------------------------------------------------------------------------- Premium Analysis - ---------------- Premium Analysis of Selected Transactions Announced Since 1/1/99 with Total Consideration between $25 and $100 Million Premium --------------------------------- Offer 1 day 1 week 4 weeks Date Date Deal Price/ prior to prior to prior to Announced Effective Target Name Acquiror Name Value (mil) Share ann. date ann. date ann. date - --------- --------- ------------------------ ------------------------- ----------- ------ --------- --------- --------- 11/24/1998 03/24/1999 Besicorp Group Inc BGI Acquisition LLC 111.8 36.97 11.2 11.6 6.4 07/27/1999 12/27/1999 Asahi-America Inc Asahi Organic Chemical 28.6 9.55 36.4 36.4 23.2 06/18/1999 07/26/1999 Durakon Industries Inc Littlejohn & Co LLC 101.2 16.00 32.6 29.3 24.9 12/03/1998 04/05/1999 Back Bay Restaurants Group Inc. SRC Holdings 38.9 10.25 12.3 13.9 28.1 01/19/1999 03/24/1999 Audits & Surveys Worldwide Inc United Information Group 43.2 3.24 32.9 36.4 29.6 08/26/1998 01/08/1999 Toastmaster Inc Salton/Maxim Housewares Inc 101.2 7.00 3.7 21.7 36.6 12/03/1998 01/19/1999 Valley Forge Corp Key Components LLC 82.9 19.00 49.0 46.2 40.7 02/17/1999 08/27/1999 Doughtie's Foods Sysco Corp 25.4 17.00 28.3 23.6 42.4 02/04/1998 03/15/1999 Spice Entertainment Cos Inc Playboy Enterprises Intl Inc 108.8 6.25 17.6 17.6 42.8 05/14/1999 09/23/1999 United Foods Inc Pictsweet LLC 23.8 3.50 40.0 27.3 43.6 11/09/1999 01/19/2000 Percon Inc PSC Inc 59.5 15.00 11.6 13.2 44.6 01/07/1999 02/24/1999 Defiance Inc General Chemical Group Inc 57.8 9.50 43.4 43.4 46.2 01/19/1999 04/09/1999 AG Associates Inc Sieng AG(Ruhrkohle AG) 34.6 5.50 25.7 33.3 49.2 03/15/1999 05/30/1999 Haskel International Inc Investor Group 65.4 12.90 42.3 49.6 51.8 03/11/1999 08/26/1999 LAI Worldwide Inc TMP Worldwide Inc 74.2 9.23 38.0 25.2 53.8 04/26/1999 08/19/1999 Bridgeport Machines Inc Goldman Industrial Group Inc 57.0 10.00 67.5 77.8 53.8 05/26/1999 08/04/1999 Golden Genesis Co Kyocera International Inc 40.5 2.33 24.3 28.6 55.3 03/10/1999 07/29/1999 Morgan Products Ltd Andersen Corp 41.4 4.00 23.1 45.5 60.0 02/09/1999 07/08/1999 Coffee People Inc (Second Cup) Diedrich Coffee Inc 31.7 2.92 145.5 94.3 60.8 05/10/1999 07/29/1999 CMC Industries Inc ACT Manufacturing Inc 60.4 7.59 24.0 42.9 66.4 -------------------------------------------------------- Median 30.5% 31.3% 44.1% -------------------------------------------------------- -------------------------------------------------------- KLLM Closing Price $6.1250 $5.5625 $6.5000 -------------------------------------------------------- -------------------------------------------------------- Implied Share Price $ 7.99 $ 7.30 $ 9.37 --------------------------------------------------------
- -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 27 Valuation Methods [KLLM logo] - -------------------------------------------------------------------------------- Premium Analysis - ---------------- Conclusion . The offer price of $8.05 per share represents a premium of: 54.5% to the average closing price for September 1999 ($5.21), which was the month when Mr. Low started accumulating shares of KLLM in the open market; 32.8% to the price paid ($6.06) by Mr. Low on February 10, 2000 for 250,000 shares purchased from an institutional investor; 31.4% to the closing price on March 15, 2000 of $6.125 per share, which was the day before Mr. Low's announced in his 13D filling his intention to acquire the Company for $7.60 per share; 44.7% to the closing price on March 9, 2000 of $5.5625, which was one week prior to announcement date; 23.8% to the closing price on February 17, 2000 of $6.50, which was four weeks prior to announcement date. . Implied price per share of $8.13, $7.70 and $9.84 for one day, one week and four weeks prior to announcement date, respectively, based on the premiums paid in the trucking transactions. . Implied price per share of $7.99, $7.30 and $9.37 for one day, one week and four weeks prior to announcement date, respectively, based on the premiums paid in the selected transactions with consideration between $25 million and $100 million. Technology and financial institutions transactions were excluded from these transactions. - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 28 Summary Valuation [KLLM logo] - -------------------------------------------------------------------------------- Summary of Indicated Ranges of Value - ------------------------------------ The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Morgan Keegan believes that its analyses must be considered as a whole and that selecting portions of its analyses and of the factors considered by it, without considering all analyses and factors, could create a misleading view of the processes underlying the Morgan Keegan opinion. No company or transaction used in the analysis performed by Morgan Keegan as a comparison is identical to KLLM or the contemplated transaction. In addition, Morgan Keegan may have given various analyses more or less weight than other analyses, and may have deemed various assumptions more or less probable than other assumption, so that the range of valuation resulting from any particular analysis described below should not be taken to be Morgan Keegan's view of the actual value of KLLM. The following table sets forth the indicated ranges of equity value as outlined in the previous analyses. Valuation Method Indicative Value Per Share Range - -------------------------------------------------------------------------------- Comparable Company Analysis/(1)/ Temperature-Controlled Carriers $0.10 -- $ 7.82 Dry Van Carriers $1.23 -- $15.84 Mergers and Acquisitions Analysis $3.84 -- $16.82 Discounted Cash Flow Analysis Negative -- $ 1.33 Premium Analysis Trucking Company Transactions $7.70 -- $ 9.84 Other Selected Transactions $7.30 -- $ 9.37 (1) Excluding certain multiples for temperature-controlled carriers and day van carriers. Refer to conclusion section of Comparable Company Analysis. - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 29 APPENDICES - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 30 Refrigerated Truckload Carriers Comparable Company Analysis Morgan Keegan & Company, Inc. (Dollars in Thousands, Except Per Share) - -------------------------------------------------------------------------------- Share Year Adjusted Company's Price ----------------- Shares Market Net Market Latest Financials Ticker 05/25/2000 High Low Outst. Value Debt(1) Value(2) - --------------------- ------ ---------- -------- ------- ------ ------- ------- -------- Frozen Food Express FFEX 2-3/4 8-5/16 2-1/2 16,497 $45,367 $24,887 $ 70,254 12/31/1999 Marten Transport, Ltd. MRTN 13-3/8 16 9-1/2 4,249 $56,834 $77,230 $134,064 03/31/2000 Simon Transportation SIMN 5-11/16 6-3/4 4 6,287 $35,756 $11,905 $ 47,661 03/31/2000 KLLM Transport Services KLLM 6-13/16 10 4 4,101 $27,938 $46,951 $ 74,889 03/31/2000
Latest Twelve Months*(3) E.P.S. -------------------------------------------------------- -------------------------------- Tangible Company's Net Book 1999 Cal 2000 Cal Latest Financials Revenues EBITDA EBIT Income Value LTM Act.(5) Est.(4) - ---------------------- -------- ------- --------- -------- -------- ------- -------- -------- Frozen Food Express $372,149 $ 2,050 $(11,514) $(9,637) $83,121 $(0.59) $(0.07) $0.22 12/31/1999 Marten Transport, Ltd. $230,762 $40,091 $ 18,312 $ 8,659 $60,381 $ 1.98 $ 1.92 $2.08 03/31/2000 Simon Transportation $215,899 $ 3,716 $ (856) $(1,416) $55,883 $(0.23) $(0.56) NA 03/31/2000 KLLM Transport Services $236,857 $20,138 $ 1,317 $(1,567) $49,979 $(0.38) $(0.19) $0.35 03/31/2000
*Asche Transportation was not included in the model because it did not file its most recent 10-K due to accounting problems at one of its subsidiaries. - -------------------------------------------------------------------------------- (1) Short-term debt, long-term debt (including capitalized lease obligations), and preferred stock minus cash and marketable securities. (2) Market value of equity plus net debt. (3) Income statement data excludes extraordinary items & non-recurring items. (4) Mean estimates obtained from First Call & Nelson Information, Inc. (5) Actual calendar year results obtained from First Call. Ratios Growth ----------------------------------------------------------------- --------------------- Net Return on Net Debt Sales Net Income Company Oper. EBITDA EBIT Income Latest to Total 5-Year 5-Year Name Ratio Margin Margin Margin Equity Capital CAGR CAGR - ------------------------------- ----------- --------- -------- -------- ---------- ---------- -------- ----------- Frozen Food Express 103.1% 0.6% NM NM NM 23.0% 6.2% NM Marten Transport, Ltd. 92.1% 17.4% 7.9% 3.8% 14.3% 56.1% 12.3% 14.0% Simon Transportation 100.4% 1.7% NM NM NM 17.6% 29.1% NM - ------------------------------- COMBINED: - ---------------------------------------------------------------------------------------------------------------------------------- Low 92.1% 0.6% 7.9% 3.8% 14.3% 17.6% 6.2% 14.0% Mean 98.5% 6.5% 7.9% 3.8% 14.3% 32.2% 15.9% 14.0% High 103.1% 17.4% 7.9% 3.8% 14.3% 56.1% 29.1% 14.0% Median 100.4% 1.7% 7.9% 3.8% 14.3% 23.0% 12.3% 14.0% - ---------------------------------------------------------------------------------------------------------------------------------- KLLM Transport Services 99.4% 8.5% 0.6% NM NM 48.4% 0.5% NM
Multiple of Adj. Market Value Multiple of Market Value --------------------------------- ------------------------------------------------------ Company Net LTM 1999 Cal 2000 Cal Book Name Revenues EBITDA EBIT Income EPS EPS EPS Value - ---------------------- -------- ------- --------- -------- -------- ------- -------- ------- Frozen Food Express 0.19 x 34.3 x NM x NM x NM x NM x 12.5 x 0.55 x Marten Transport, Ltd. 0.58 x 3.3 x 7.3 x 6.6 x 6.7 x 7.0 x 6.4 x 0.94 x Simon Transportation 0.22 x 12.8 x NM x NM x NM x NM x NA x 0.64 x - --------------------- COMBINED: - --------------------- Low 0.2 x 3.3 x 7.3 x 6.6 x 6.7 x 7.0 x 6.4 x 0.55 x Mean 0.3 16.8 7.3 6.6 6.7 7.0 9.5 0.71 High 0.6 34.3 7.3 6.6 6.7 7.0 12.5 0.94 Median 0.2 12.8 7.3 6.6 6.7 7.0 9.5 0.64 - ----------------------------------- KLLM Transport Services 0.32 x 3.7 x NM x NM x NM x NM x 19.5 x 0.56 x
- -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 31 Dry Van Truckload Carriers Comparable Company Analysis Morgan Keegan & Company, Inc. (Dollars in Thousands, Except Per Share) - -------------------------------------------------------------------------------- Shares Year Adjusted Company/ Price ----------------- Shares Market Net Market Latest Financials Ticker 05/25/2000 High Low Outst.(1) Value Debt(2) Value(3) - --------------------- ------ ---------- -------- ------- --------- ------- -------- ---------- Cannon Express, Inc. AB 1-7/8 3-5/8 1-3/8 3,193 $ 5,987 $ 51,051 $ 57,038 12/31/1999 Covenant Transport, Inc. CVTI 10-3/8 18-15/16 9-13/16 14,916 $154,758 $ 143,669 $ 298,427 12/31/1999 Heartland Express HTLD 17-3/8 19-3/8 12-3/8 25,367 $440,744 $(118,134) $ 322,610 12/31/2000 Intranet, Inc. INET 1-7/16 3-1/4 1-1/4 13,872 $ 19,941 $ 29,284 $ 49,225 12/31/1999 J.B. Hunt JBHT 15-11/16 18-1/16 10-1/2 35,639 $559,087 $ 315,033 $ 874,120 12/31/1999 Knight Transportation KNGT 16-1/8 22 10-3/4 15,278 $246,353 $ 7,859 $ 254,212 12/31/2000 LandAir LAND 4-1/4 6-1/4 3-1/8 6,004 $ 25,516 $ 22,233 $ 47,749 03/31/2000 Landstar System, Inc. LSTR 51 69-3/4 32-3/4 9,240 $471,220 $ 44,770 $ 515,990 03/25/2000 MS Carriers MSCA 21-1/16 32-3/4 19-1/2 12,439 $262,000 $ 241,352 $ 503,351 12/31/1999 PAM Transportation PTSI 9-15/16 12-7/8 8 8,531 $ 84,782 $ 74,331 $ 159,113 12/31/1999 Swift Transportation SWFT 14-11/16 24 11-13/16 64,593 $948,708 $ 112,960 $1,061,668 03/31/2000 Transit Group, Inc. TRGP 1-1/16 6-7/8 1-15/16 31,824 $ 33,813 $ 186,159 $ 219,972 12/31/1999 Transport Corp. of America TCAM 5-3/4 17-3/16 4-3/4 8,319 $ 47,832 $ 140,528 $ 188,360 12/31/1999 U.S. Xpress Enterprises XPRSA 7-1/2 12-3/4 5-1/8 16,159 $121,195 $ 182,179 $ 303,374 12/31/1999 USA Truck, Inc. USAK 6-5/8 9-5/8 6-1/8 9,267 $ 61,395 $ 73,263 $ 134,658 12/31/1999 Werner Enterprises, Inc. WERN 13 22-1/4 12-1/4 47,042 $611,546 $ 104,652 $ 716,178 12/31/1999
Latest Twelve Months'(4) E.P.S. ---------------------------------------------------------- -------------------------------- Tangible Company/ Net Book 1999 Cal 2000 Cal Latest Financials Revenues EBITDA EBIT Income Value LTM Act.(6) Est.(5) - --------------------- ---------- -------- --------- -------- --------- ------- -------- --------- Cannon Express, Inc. $ 90,665 $ 10,954 $ 858 $ (254) $ 18,291 $(0.07) NA NA 12/31/1999 Covenant Transport, Inc. $ 472,741 $ 78,348 $ 42,690 $22,277 $141,523 $ 1.48 $ 1.48 $1.56 12/31/1999 Hartford Express $ 265,097 $ 64,188 $ 47,077 $34,701 $169,972 $ 1.20 $ 1.13 $1.29 03/31/2000 Intranet, Inc. $ 284,800 $ 5,521 $ 752 $(2,125) $ 15,459 $(0.16) NA NA 12/31/1999 J.B. Hunt $2,045,073 $227,247 $ 77,430 $31,909 $401,386 $ 0.89 $ 0.89 $1.12 12/31/1999 Knight Transportation $ 151,490 $ 40,090 $ 25,910 $15,464 $ 84,078 $ 1.02 $ 1.02 $1.21 12/31/2000 LandAir $ 133,055 $ 12,576 $ (1,031) $(2,390) $ 41,827 $(0.39) $(0.30) $0.25 03/31/2000 Landstar System, Inc. $1,403,654 $ 96,009 $ 83,900 $46,801 $ 71,777 $ 4.72 $ 4.55 $5.32 03/25/2000 MS Carriers $ 620,414 $119,194 $ 56,773 $30,587 $235,210 $ 2.39 $ 2.41 $2.55 12/31/1999 PAM Transportation $ 207,381 $ 43,274 $ 24,455 $11,264 $ 44,454 $ 1.33 $ 1.33 $1.25 12/31/1999 Swift Transportation $1,117,812 $167,757 $114,720 $65,383 $385,201 $ 1.00 $ 1.02 $1.06 03/31/2000 Transit Group, Inc. $ 355,526 $ 26,820 $ 12,964 $ 4,380 $(34,100) $ 0.15 $ 0.04 $0.20 12/31/1999 Transport Corp. of America $ 285,585 $ 46,786 $ 21,071 $ 8,570 $ 48,647 $ 1.00 $ 1.21 $1.60 12/31/1999 U.S. Xpress Enterprises $ 708,212 $ 62,791 $ 32,777 $12,124 $ 91,366 $ 0.82 $ 0.77 $0.89 12/31/1999 USA Truck, Inc. $ 166,363 $ 34,428 $ 15,837 $ 8,642 $ 70,108 $ 0.92 $ 0.92 $0.72 12/31/1999 Werner Enterprises, Inc. $1,052,333 $202,156 $102,201 $60,011 $494,772 $ 1.26 $ 1.26 $1.32 12/31/1999
- -------------------------------------------------------------------------------- (1) Shares outstanding includes in-the-money options using the treasury stock method. (2) Short-term debt, long-term debt (including capitalized lease obligations), and preferred stock minus cash and marketable securities. (3) Market value of equity plus net debt. (4) Income statement data excludes extraordinary items & non-recurring items. (5) Mean estimates obtained from First Call & Nelson Information, Inc. (6) Actual CY 1999 EPS according to First Call. - -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 32 Dry Van Truckload Carriers Morgan Keegan & Company, Inc. Comparable Company Analysis - --------------------------------------------------------------------------------
Ratios Growth ----------------------------------------------------------------- --------------------- Net Return on Net Debt Sales Net Income Company Oper. EBITDA EBIT Income Latest to Total 4-Year 4-Year Name Ratio Margin Margin Margin Equity Capital CAGR CAGR - ------------------------------- ----------- --------- -------- -------- ---------- ---------- -------- ----------- Cannon Express, Inc. 99.1% 12.1% 0.9% NM NM 73.6 % 4.8% NM Covenant Transport, Inc. 91.0% 16.6% 9.0% 4.7% 15.7% 50.4 % 27.2% 24.5% Heartland Express 82.2% 24.2% 17.8% 13.1% 20.4% (227.9)% 8.0% 12.6% Intrenet, Inc. 99.7% 1.9% 0.3% NM NM 59.5 % 7.3% NM J.B. Hunt 96.2% 11.1% 3.8% 1.6% 7.9% 44.0 % 10.9% NM Knight Transportation 82.9% 26.5% 17.1% 10.2% 18.4% 8.5 % 28.2% 27.8% Land Air 100.8% 9.5% NM NM NM 34.7 % 10.7% NM Landstar System, Inc. 94.0% 6.8% 6.0% 3.3% 44.5% 29.9 % 7.1% 16.5% MS Carriers 90.8% 19.2% 9.2% 4.9% 13.0% 50.6 % 16.8% 23.5% PAM Transportation 88.2% 20.9% 11.8% 5.4% 21.1% 58.2 % 22.7% 22.4% Swift Transportation 89.7% 15.0% 10.3% 6.5% 16.7% 22.4 % 23.4% 30.5% Transit Group, Inc. 96.4% 7.5% 3.6% 1.2% 5.6% 70.4 % NM NM Transport Corp. of America 92.6% 16.4% 7.4% 3.0% 11.4% 65.2 % 18.6% 7.9% U.S. Xpress Enterprises 95.4% 8.9% 4.6% 1.7% 7.5% 53.0 % NM NM USA Truck, Inc. 90.5% 20.7% 9.5% 5.2% 12.3% 51.1 % 12.9% 9.4% Werner Enterprises, Inc. 90.3% 19.2% 9.7% 5.7% 12.1% 17.5 % 16.3% 13.3% - -------------- Combined: - ----------------------------------------------------------------------------------------------------------------------------------- Low 82.2% 1.9% 0.3% 1.2% 5.6% (227.9)% 4.0% 7.9% Mean 92.5% 14.8% 8.1% 5.1% 15.9% 28.8 % 15.3% 18.8% High 100.8% 26.5% 17.8% 13.1% 44.5% 73.6 % 28.2% 30.5% Median 91.8% 15.7% 9.0% 4.9% 13.0% 50.5 % 14.6% 19.5% - ------------------------------------------------------------------------------------------------------------------------------------
Multiple of Adj. Market Value Multiple of Market Value ------------------------------------------- -------------------------------------------- Company Net LTM 1999 Cal 2000 Cal Book Name Revenues EBITDA EBIT Income EPS EPS EPS Value - ------------------------------- ----------- --------- -------- -------- ---------- ---------- --------- ---------- Cannon Express, Inc. 0.63x 5.2x NMx NMx NMx NAx NAx 0.33x Covenant Transport, Inc. 0.63x 3.8x 7.0x 6.9x 7.0x 7.0x 6.7x 1.09x Heartland Express 1.22x 5.0x 6.9x 12.7x 14.4x 15.4x 13.5x 2.59x Intrenet, Inc. 0.17x 8.9x NMx NMx NMx NA NA 1.29x J.B. Hunt 0.43x 3.8x 11.3x 17.5x 17.6x 17.6x 14.0x 1.39x Knight Transportation 1.68x 6.3x 9.8x 15.9x 15.9x 15.8x 13.3x 2.93x Land Air 0.36x 3.8x NMx NMx NMx NMx 17.0x 0.61x Landstar System, Inc. 0.37x 5.4x 6.2x 10.1x 10.8x 11.2x 9.6x 6.57x MS Carriers 0.81x 4.2x 8.9x 8.6x 8.8x 8.7x 8.3x 1.11x PAM Transportation 0.77x 3.7x 6.5x 7.5x 7.5x 7.5x 8.0x 1.91x Swift Transportation 0.95x 6.3x 9.3x 14.5x 14.7x 14.4x 13.9x 2.46x Transit Group, Inc. 0.62x 8.2x 17.0x 7.7x 7.0x 26.6x 5.3x NMx Transport Corp. of America 0.66x 4.0x 8.9x 5.6x 5.8x 4.8x 3.6x 0.98x U.S. Xpress Enterprises 0.43x 4.8x 9.3x 10.0x 9.2x 9.7x 8.4x 1.33x USA Truck, Inc. 0.81x 3.9x 8.5x 7.1x 7.2x 7.2x 9.2x 0.88x Werner Enterprises, Inc. 0.68x 3.5x 7.0x 10.2x 10.3x 10.3x 9.8x 1.24x - -------------- Combined: - ----------------------------------------------------------------------------------------------------------------------------------- Low 0.2x 3.5x 6.2x 5.6x 5.8x 4.8x 3.6x 0.33x Mean 0.7 5.1 9.0 10.3 10.5 12.0 10.0 1.78 High 1.7 8.9 17.0 17.5 17.6 26.6 17.0 6.57 Median 0.6x 4.5x 8.9x 10.0x 9.2x 10.3x 9.4x 1.29x - ------------------------------------------------------------------------------------------------------------------------------------ ==================================================================================================================================== NA-Not Available NM-Not Meaningful (1) Compound annual growth rates for sales and net income are calculated from 1993-1997.
- -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 33 Mergers and Acquisitions in the Trucking Industry (Dollars in Millions)
- ---------------------------------------------------------------------------------------------------------------------------- Trailing 12 Month Financials of Acquired (in $ M M) Adjusted --------------------------------------------------- Date Acquiror Market Net Market Net Book Effective Target Value Debt Value Revenues EBITDA EBIT Income Value - --------- -------- ------ ----- -------- -------- ------ ------ ------ ------ Jan-00 Trimac Transportation DSI Transports $ 68.3 $11.7 $ 80.0 $149.1 $ 3.7 Nov-99 Covenant Transport, Inc. Harold Ives Trucking Co. $ 22.8 $22.2 $ 45.0 $115.0 Sep-99 Transit Group Fox Midwest Transport Inc. $ 5.0 $ 0.0 $ 5.0 $ 38.0 Jul-99 Yellow Corporation Jevic Transportation $161.0 $39.0 $200.0 $237.0 $ 33.4 $ 17.8 $ 9.6 $ 77.9 Jun-99 Skynet Holdings Pony Express Delivery Services, Inc. $ 4.8 $ 6.8 $ 11.6 $138.0 $ (9.4) $(11.6) $(13.2) $(27.4) May-99 U.S. Trucking, Inc. Prime Cos, Inc. $ 1.9 $ 0.0 $ 1.9 $ 8.4 Mar-99 Transit Group Inc. Kai Inc. $ 4.2 $ 0.0 $ 4.2 $ 20.0 Mar-99 Knight Transportation Inc. Action Delivery Service Inc. $ 2.0 $ 0.0 $ 2.0 $ 5.6 Jan-99 KTI Inc. AFA Group $ 10.5 $ 5.5 $ 16.0 $ 11.0 Jan-99 Pam Transportation Services Decker Transport Inc. $ 14.0 $14.0 $ 28.0 $ 48.5 $ 3.6 $ 0.6 $ 0.1 $ 6.2 Jan-99 Transit Group Priority Transportation $ 4.8 $ 0.0 $ 4.8 $ 23.5 Jan-99 Transit Group Inc. Priority Transportation Inc. $ 4.8 $ 0.0 $ 4.8 $ 23.5 Nov-98 USFreightways Corp. Golden Eagle Group $ 30.2 $ 4.8 $ 35.1 $ 96.7 $ 1.4 $ 0.7 $ 0.4 $ 10.3 Aug-98 U.S. Xpress Enterprises PST Vans $ 23.0 $52.7 $ 75.7 $144.9 $ 14.3 $ 2.3 $ (2.0) $ 9.5 May-98 U.S. Xpress Enterprises Victory Express, Inc. $ 51.0 $ 2.0 $ 53.0 $ 62.5 $ 13.4 $ 4.7 $ 2.8 $ 24.7 May-98 Celadon Group Gerth Transport $ 19.2 $ 35.0 Dec-97 Boyd Bros. Transportation Welborn Transport $ 6.5 $ 3.2 $ 9.7 $ 29.5 $ 2.2 $ 1.3 $ 0.7 $ 4.0
Adjusted Market Value as a Market Value as a Multiple of: Multiple of: --------------------------------------- ------------------ Net Revenues EBITDA EBIT Income -------- ------- ------ ------ Jan-00 Trimac Transportation DSI Transports 0.5 x NA NM NA Nov-99 Covenant Transport, Inc. Harold Ives Trucking Co. 0.4 x NA NA NA Sep-99 Transit Group Fox Midwest Transport Inc. 0.1 x NA NA NA Jul-99 Yellow Corporation Jevic Transportation 0.8 x 6.0 x 11.2 x 16.8 x Jun-99 Skynet Holdings Pony Express Delivery Services, Inc. 0.1 x NM NA NM May-99 U.S. Trucking, Inc. Prime Cos, Inc. 0.2 x NA NA NA Mar-99 Transit Group Inc. Kai Inc. 0.2 x NA NA NA Mar-99 Knight Transportation Inc. Action Delivery Service Inc. 0.4 x NA NA NA Jan-99 KTI Inc. AFA Group 1.5 x NA NA NA Jan-99 Pam Transportation Services Decker Transport Inc. 0.6 x 7.8 x NA NM Jan-99 Transit Group Priority Transportation 0.2 x NA NA NA Jan-99 Transit Group Inc. Priority Transportation Inc. 0.2 x NA NA NA Nov-98 USFreightways Corp. Golden Eagle Group 0.4 x NM NM NM Aug-98 U.S. Xpress Enterprises PST Vans 0.5 x 5.3 x NM NM May-98 U.S. Xpress Enterprises Victory Express, Inc. 0.8 x 4.0 x 11.3 x 18.0 x May-98 Celadon Group Gerth Transport 0.5 x NA NA NA Dec-97 Boyd Bros. Transportation Welborn Transport 0.3 x 4.5 x 7.5 x 9.6 x
- -------------------------------------------------------------------------------- Morgan Keegan & Company, Inc. Page 34 Mergers and Acquisitions in the Trucking Industry (Continued) (Dollars in Millions)
- ------------------------------------------------------------------------------------------------------------------------------- Trailing 12 Month Financials of Acquired (in $ M M) Adjusted --------------------------------------------------- Date Acquiror Market Net Market Net Book Effective Target Value Debt Value Revenues EBITDA EBIT Income Value - --------- -------- ------ ----- -------- -------- ------ ------ ------ ------ Oct-097 Investor Group JB Hunt Transport Services (Flatbed Unit) $ 40.0 $ 75.0 Oct-97 Covenant Transport, Inc. Bud Meyer Truck Lines, Inc. $ 5.2 $ 45.0 Sep-97 Transit Group, Inc. Carroll Fulmer Group, Inc. $ 28.1 $ 0.0 $ 28.1 $ 69.3 $ 1.6 $ 0.8 $ 0.2 $ 2.3 Sep-97 Celadon Group, Inc. GE Industrial Control Systems $ 8.0 $ 25.0 Aug-97 Transit Group, Inc. Service Express, Inc. / Capital Warehouse $ 9.9 $ 0.0 $ 9.9 $ 21.3 $ 3.7 $ 0.6 $(0.1) $ 2.2 Jul-97 BT Industries AB Raymond Corporation $246.2 $99.0 $345.2 $345.2 $31.7 $31.2 $15.0 $128.7 Jul-97 Heartland Express A&M Express $ 14.0 $17.0 $ 31.0 $ 28.0 $ 5.8 $ 2.4 $ 1.5 $ 10.0 Jul-97 Ameritruck Distribution Corp. Tran-Star, Inc. $ 2.6 $30.0 $ 32.6 $ 68.5 $ 6.9 $(1.2) $(2.3) $ 0.1 May-97 Dynamex, Inc. Road Runner Transportation, Inc. $ 14.1 $ 0.0 $ 14.1 $ 22.7 $ 1.5 $ 0.5 $ 0.1 $ 1.9 May-97 Ameritruck Distribution Corp. Monfort Transport./Lynn Transport. $ 15.0 $ 0.0 $ 15.0 $ 88.2 $11.0 $ 5.9 $ 2.4 $ 3.6 May-97 Golder, Thoma, Cressey, Rauner Cardinal Freight Carriers $ 38.0 $ 0.0 $ 38.0 $ 76.1 $ 7.6 $ 1.5 $ 1.0 May-97 Central Freight Viking Freight $ 43.0 $ 8.0 $ 51.0 May-97 Ampace Corp Bar J Enterprises $ 4.3 Apr-97 Fleet Equity Partners Roadrunner Freight Systems $ 75.0 Apr-97 Swift Transportation Direct Transit Inc. $ 3.0 Feb-97 Transit Group Rainbow Trucking $ 4.5 $ 12.5 Adjusted Market Value as a Market Value as a Multiple of: Multiple of: Date Acquiror Net Effective Target Revenues EBITDA EBIT Income - --------- -------- -------- ------ ---- ------------------ Oct-097 Investor Group JB Hunt Transport Services (Flatbed Unit) 0.5 x NA NA NA Oct-97 Covenant Transport, Inc. Bud Meyer Truck Lines, Inc. NA NA NA NA Sep-97 Transit Group, Inc. Carroll Fulmer Group, Inc. 0.4 x NM NM NM Sep-97 Celadon Group, Inc. GE Industrial Control Systems 0.3 x NA NA NA Aug-97 Transit Group, Inc. Service Express, Inc. / Capital Warehouse 0.5 x 2.7 x NM NM Jul-97 BT Industries AB Raymond Corporation 1.1 x 10.9 x 11.1 x 16.4 x Jul-97 Heartland Express A&M Express 1.1 x 5.3 x 12.9 x 9.3 x Jul-97 Ameritruck Distribution Corp. Tran-Star, Inc. 0.5 x 4.7 x NM NM May-97 Dynamex, Inc. Road Runner Transportation, Inc. 0.6 x 9.3 x NM NM May-97 Ameritruck Distribution Corp. Monfort Transport./Lynn Transport. 0.2 x 1.4 x NM 6.2 x May-97 Golder, Thoma, Cressey, Rauner Cardinal Freight Carriers 0.5 x 5.0 x NM 40.0 x May-97 Central Freight Viking Freight NM NA NA NA May-97 Ampace Corp Bar J Enterprises NA NA NA NA Apr-97 Fleet Equity Partners Roadrunner Freight Systems NA NA NA NA Apr-97 Swift Transportation Direct Transit Inc. NA NA NA NA Feb-97 Transit Group Rainbow Trucking 0.4 x NA NA NA High 1.5 x 10.9 x 12.9 x 40.0 x Low 0.1 x 1.4 x 7.5 x 6.2 x Mean 0.5 x 5.6 x 10.8 x 16.6 x Median 0.4 x 5.0 x 11.2 x 13.0 x ------------------------------------------------------------------------------------- Page 35
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