-----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, WJ9B231Tm10Cn74vQsqSvT/b3vsVUgP5cOmi0IBFlwpjOtYPYIaY3tlpqYNHcxc+ 83YPfOwL7R1Je5c58y3LnQ== 0000950144-99-003847.txt : 19990402 0000950144-99-003847.hdr.sgml : 19990402 ACCESSION NUMBER: 0000950144-99-003847 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990101 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KLLM TRANSPORT SERVICES INC CENTRAL INDEX KEY: 0000793765 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 640412551 STATE OF INCORPORATION: DE FISCAL YEAR END: 0103 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-14759 FILM NUMBER: 99583296 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 10-K 1 KLLM TRANSPORT SERVICES INC 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year Commission file number 0-14759 ended January 1, 1999 KLLM TRANSPORT SERVICES, INC. ---------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 64-0412551 - ------------------------------- ------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 135 Riverview Drive Richland, Mississippi 39218 ------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (601) 939-2545 Securities registered pursuant to Section 12(g) of the Act: Common Stock, $1.00 Value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ----- Aggregate market value of voting stock held by nonaffiliates of the registrant as of the close of business on March 18, 1999: $26,280,179. The number of shares outstanding of registrant's common stock as of March 18, 1999: 4,142,525. 2 DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents are incorporated by reference:
Document Part -------- ---- Annual Report to Shareholders for year ended January 1, 1999 II Definitive Proxy Statement for Annual Meeting of Shareholders to be held April 29, 1999 filed with the Securities and Exchange Commission pursuant to Regulation 14A III
Only the portions of KLLM Transport Services, Inc.'s 1998 Annual Report to Shareholders and Proxy Statement which are expressly incorporated by reference in this Annual Report on Form 10-K are deemed filed as part of this report. 2 3 KLLM TRANSPORT SERVICES, INC. FORM 10-K TABLE OF CONTENTS
PART I PAGE 1. Business............................................................... 4 2. Properties............................................................. 6 3. Legal Proceedings...................................................... 7 4. Submission of Matters to a Vote of Security Holders..................................................... 7 PART II 5. Market for Registrant's Common Equity and Related Stockholder Matters............................... 8 6. Selected Financial Data................................................ 8 7. Management's Discussion and Analysis of Financial Condition and Results of Operation......................... 8 7A. Quantitative and Qualitative Disclosures About Market Risk ............ 8 8. Financial Statements and Supplementary Data............................ 8 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................... 8 PART III 10. Directors and Executive Officers of the Registrant.................................................... 9 11. Executive Compensation................................................. 9 12. Security Ownership of Certain Beneficial Owners and Management................................................ 9 13. Certain Relationships and Related Transactions......................... 9 PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................................................... 10
3 4 PART I ITEM 1. BUSINESS. KLLM Transport Services, Inc. (through its wholly-owned subsidiary, KLLM, Inc., hereinafter referred to as "the Company") is an irregular-route common carrier that specializes in providing high-quality transportation service in North America. The Company primarily serves the continental United States, Canada and Mexico. A Delaware corporation, the Company is the successor, by merger, to KLLM Distributing, Inc., a Mississippi corporation, incorporated in 1964. The Company owns all of the outstanding shares of KLLM, Inc., a Texas corporation, which owns (either in fee or as lessee) and operates substantially all of the Company's tractors and trailers and holds all of the operating rights presently used in the Company's business. The Company offers transportation services for both temperature-controlled and dry commodities. It strives to provide dependable and timely service designed to meet the specialized needs of its customers. Protective service is provided on commodities such as food, medical supplies and cosmetics. Service offerings include over-the-road long haul, regional, and dedicated fleet transportation. These services are provided with both Company-operated and owner-operated equipment. The Company currently owns (or leases) and operates substantially all of its fleet. On January 1, 1999, the Company's fleet consisted of 1,467 Company-operated tractors and 279 owner-operated tractors, 1,998 temperature-controlled trailers and 695 dry-van trailers. Capital expenditures, net of proceeds from trade-ins during 1998, were approximately $4,823,000. Net capital expenditures in 1997 were $25,764,000. Net capital expenditures in 1999 are expected to be approximately $28,800,000. Marketing and Operations KLLM specializes in providing high-quality transportation services in North America. The Company seeks customers who value its premium services, need a certain number of trucks each week and require dependable service in meeting schedule requirements. The Company's full-time staff of eight (8) salespersons, along with certain executives, is responsible for developing new accounts. Once a customer relationship is established, the primary Company contact is an operations manager who is either dedicated to the customer or who is responsible to a geographic territory. Working from the Company's corporate headquarters in Mississippi, these managers contact existing customers to solicit additional business. The Company has driver terminal operations in Georgia, Louisiana, California, Indiana, Pennsylvania and Mississippi. Maintenance facilities are located in Mississippi, Louisiana, Texas, and Georgia. 4 5 The Company's largest 25, 10 and 5 customers accounted for approximately 65%, 51%, and 39%, respectively, of its revenue for the year ended January 1, 1999. During 1998, one customer accounted for more than 10% of the Company's revenues. Maintenance The Company has a comprehensive preventive maintenance program for its tractors and trailers, which is carried out at its Mississippi, Louisiana, Georgia, and Texas facilities. The Company's policy is to purchase standardized tractors and trailers manufactured to Company specifications. Standardization enables the Company to control the cost of its spare parts inventory and streamline its preventive maintenance program. Manufacturers of tractors are required to certify that new tractors meet federal emissions standards, and the Company receives this certification on each new tractor it acquires. Environmental protection measures require the Company to adhere to a fuel and oil spill prevention plan and to comply with regulations concerning the discharge of waste oil. The Company believes it is in compliance with all applicable provisions relating to the protection of the environment. Management does not anticipate that compliance with these provisions will have a material effect on the Company's capital expenditures, earnings or competitive position. Personnel Drivers are primarily recruited from the Jackson, Mississippi facility. On January 1, 1999, the Company employed 1,551 drivers and had a total of 1,939 employees. None of the Company's employees is represented by a collective bargaining unit. Competition The Company competes primarily with other long-haul truckload carriers and with internal shipping conducted by existing and potential customers. The Company also competes with other irregular-route long-haul truckload carriers, and to a lesser extent, the railroads, for freight loads. Although the increased competition resulting from a combination of deregulation, weak market demand, and a shortage of qualified drivers has created some pressure to reduce rates, the Company competes primarily on the basis of its quality of service and efficiency. Trademark The Company's service mark, the KLLM logo, is registered with the United States Patent and Trademark Office. Seasonality In the freight transportation industry generally, results of operations show a seasonal pattern because customers reduce shipments during and after the winter holiday season with its 5 6 attendant weather variations. The Company's operating expenses have historically been higher in the winter months primarily due to decreased fuel efficiency and increased maintenance costs in colder weather. ITEM 2. PROPERTIES. The Company's corporate office is located in Richland, Mississippi, a suburb of Jackson. All driver-related executive and administrative functions, including safety, driver training, maintenance and driver recruiting are housed in this location. The Company owns a portion of the land on which this facility is located. The remainder is owned by the Liles and Lee families (or entities or trusts controlled by those families), major shareholders of the Company. The Company owns all of the improvements, consisting of approximately 31,200 square feet of office space and approximately 40,000 square feet of equipment repair and maintenance space. The Company has an option to purchase the Liles and Lee part of the land for $390,257. The William J. Liles, Jr. Marital Trust, B. C. Lee, L.P., and the Estate of Benjamin C. Lee, Jr., are the principal shareholders of the Company. The Company owns a maintenance and driver terminal facility near Dallas, Texas which was leased out in 1997 after maintenance and terminal operations were ceased at that facility. The facility is currently leased through the spring of 1999 at rates which cover the expenses of ownership. This facility, which consists of approximately 8,000 square feet of office space and 13,700 square feet of equipment repair and maintenance space, is located on approximately nine acres of land. That property is currently available for sale. The Company also owns a maintenance and driver terminal operation in Atlanta, Georgia. This facility, which includes two buildings containing approximately 5,000 square feet of office space and 20,000 square feet of maintenance space, is located on approximately eighteen acres of land. Additionally, the Company's dry-van operation in Bastrop, Louisiana is situated on 20 acres of land. The facilities located thereon include approximately 8,000 square feet of office space and 36,500 square feet of maintenance space. The remaining driver terminal facilities are leased by the Company pursuant to various short-term leases. 6 7 ITEM 3. LEGAL PROCEEDINGS. The Company is involved in various claims and routine litigation incidental to its business. Although the amount of ultimate liability, if any, with respect to these matters cannot be determined, management believes that these matters will not have a materially adverse effect on the Company's consolidated financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. 7 8 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. "Market and Dividend Information" on page 7 of the Company's 1998 Annual Report to Shareholders is incorporated herein by reference in response to this item. ITEM 6. SELECTED FINANCIAL DATA. "Selected Financial and Operating Data" on page 6 of the Company's 1998 Annual Report to Shareholders is incorporated herein by reference in response to this item. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION. "Management's Discussion and Analysis of Financial Condition and Results of Operation" on pages 8-12 of the Company's 1998 Annual Report to Shareholders is incorporated herein by reference in response to this item. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. "Market Risk" on page 11 of the Company's 1998 Annual Report to Shareholders is incorporated herein by reference in response to this item. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Report of Independent Auditors and the consolidated financial statements included on pages 13-24 of the Company's 1998 Annual Report to Shareholders are incorporated herein by reference in response to this item. "Selected Quarterly Data (Unaudited)" on page 7 of the Company's 1998 Annual Report to Shareholders is incorporated herein by reference in response to this item. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 8 9 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information under the caption, "Election of Directors--Nominees for Director," of the Company's definitive proxy statement for its scheduled April 29, 1999 Annual Meeting of Shareholders filed with the Securities and Exchange Commission pursuant to Regulation 14A, is incorporated herein by reference in response to this item. The information under the caption, "Election of Directors--Management," of the Company's definitive proxy statement for its scheduled April 29, 1999 Annual Meeting of Shareholders filed with the Securities and Exchange Commission pursuant to Regulation 14A, is incorporated herein by reference in response to this item. The information under the caption, "Section 16(a) Beneficial Ownership Reporting Compliance" of the Company's definitive proxy statement for its scheduled April 29, 1999 Annual Meeting of Shareholders filed with the Securities and Exchange Commission pursuant to Regulation 14A, is incorporated herein by reference in response to this item. ITEM 11. EXECUTIVE COMPENSATION. The information under the captions, "Executive Compensation; Director Compensation; Compensation Committee Report on Executive Compensation; Compensation Committee Interlocks and Insider Participation; Stock Option Plan; Employee Stock Purchase Plan ("ESPP") and Performance Graph" of the Company's definitive proxy statement for its scheduled April 29, 1999 Annual Meeting of Shareholders filed with the Securities Exchange Commission pursuant to Regulation 14A, is incorporated herein by reference in response to this item. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information under the caption "Election of Directors--Stock Ownership," of the Company's definitive proxy statement for its scheduled April 29, 1999 Annual Meeting of Shareholders filed with the Securities and Exchange Commission pursuant to Regulation 14A, is incorporated herein by reference in response to this item. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information under the caption "Certain Transactions," of the Company's definitive proxy statement for its scheduled April 29, 1999 Annual Meeting of Shareholders filed with the Securities and Exchange Commission pursuant to Regulation 14A, is incorporated herein by reference in response to this item. 9 10 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. a. The following documents are filed, as part of this report or incorporated by reference herein: 1. Financial Statements The following consolidated financial statements of the Company and its subsidiaries, included in the Company's Annual Report, are incorporated by reference in Item 8: Consolidated Balance Sheets--January 2, 1998 and January 1, 1999. Consolidated Statements of Operations--Years ended January 3, 1997, January 2, 1998 and January 1, 1999. Consolidated Statements of Stockholders' Equity--Years ended January 3, 1997, January 2, 1998 and January 1, 1999. Consolidated Statements of Cash Flows--Years ended January 3, 1997, January 2, 1998 and January 1, 1999. Notes to Consolidated Financial Statements 2. Financial Statement Schedules The following consolidated financial statement schedule is included in Item 14(d): Schedule II - Valuation and Qualifying Accounts. All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. 3. Listing of Exhibits (i) Exhibits filed pursuant to Item 601 of Regulation S-K 10 11
Exhibit Number Description -------------- ----------- 3.1 Bylaws of Registrant(1) 3.2 Certificate of Incorporation (as amended)(2) 10.1 Amended & Restated Stock Option Plan(3) 10.2 KLLM, Inc. Retirement Plan and Trust (as amended)(4) 10.3 1986 Lease with Mr. Lee and Mr. Liles Covering Corporate Headquarters(1) 10.4 Employee Stock Purchase Plan (as amended)(5) 10.5 Options granted to Mr. Young and Dr. Neely(6)
- ----------------- (1) Incorporated herein by reference to Registrant's Registration Statement on Form S-1 as filed on July 2, 1986 (Registration No. 33-5881, File No. 0- 14759). (2) Incorporated herein by reference to Registrant's Annual Report on Form 10-K for the year ended January 1, 1989 (File No. 0-14759). (3) Incorporated herein by reference to Registrant's Annual Report on Form 10-K for the year ended December 31, 1989 (File No. 0-14759). (4) Incorporated herein by reference to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991 (File No. 0-14759). (5) Incorporated herein by reference from Fourth Post-Effective Amendment to Registration Statement on Form S-8 as filed on November 30, 1990 (Registration No. 33-14545). (6) Incorporated herein by reference to Registrant's Annual Report on Form 10-K for the year ended December 31, 1987 (File No. 0-14759). 11 12
Exhibit Number Description -------------- ----------- 10.6 First Amendment to Options granted to Mr. Young and Dr. Neely(7) 10.7 KLLM, Inc. Cafeteria Plan(7) 10.8 KLLM Maintenance, Inc. Retirement Plan and Trust Agreement(7) 10.9 Option to purchase real property on which terminal facility is located from Messrs. Liles and Lee(4) 10.10 Stock Purchase Agreement by and between KLLM, Inc. and Fresh International Corp.(8) 10.11 Revolving Credit Agreement by and among KLLM, Inc., NationsBank of Georgia, National Association, The First National Bank of Chicago, Deposit Guaranty National Bank, and ABN Amro Bank, N.V.(8) 10.12 Employment Agreement between KLLM Transport Services, Inc. and Steven K. Bevilaqua(9) 10.13 Options granted to Steven K. Bevilaqua(9) 10.14 Asset Purchase Agreement by and among Vernon Sawyer, Inc. and Vernon and Nancy Sawyer as Sellers and KLLM, Inc. as Purchaser (schedules furnished upon request)(9)
- ----------------- (7) Incorporated herein by reference to Registrant's Annual Report on Form 10-K for the year ended December 31, 1990 (File No. 0-14759). (8) Incorporated herein by reference to Registrant's Annual Report on Form 10-K for the year ended December 30, 1994 (File No. 0-14759). (9) Incorporated herein by reference to Registrant's Annual Report on Form 10-K for the year ended December 29, 1995 (File No. 0-14759). 12 13
Exhibit Number Description -------------- ----------- 10.15 1996 Stock Option Plan(10) 10.16 Amended and Restated 1996 Stock Purchase Plan(10) 10.17 1998 Non-Employee Director Stock Compensation Plan(11) 10.18 Stockholder Protection Rights Agreement dated February 13, 1997 between KLLM Transport Services, Inc. and KeyCorp Shareholder Services, Inc., as Rights Agent(12) 13 1998 Annual Report (only portions incorporated by reference are deemed filed) 21 List of Subsidiaries of the Registrant 23 Consent of Ernst & Young LLP 27 Financial Data Schedule (b) Reports on Form 8-K filed in the fourth quarter of 1998: None (c) Exhibits--The response to this portion of Item 14 is submitted as a separate section of this report. (d) Financial Statements Schedules--The response to this portion of Item 14 is submitted as a separate section of this report.
- ----------------- (10) Incorporated herein by reference to Registrant's Annual Report on Form 10-K for the year ended January 3, 1997 (File No. 0-14759). (11) Incorporated herein by reference to Registrant's Annual Report on Form 10-K for the year ended January 2, 1998 (File No. 0-14759). (12) Incorporated herein by reference to Registrant's Form 8-A12G\A as filed on February 24, 1997 (File No. 001-12751). 13 14 INFORMATION REGARDING THE COMPANY'S EMPLOYEE STOCK PURCHASE PLAN and THE COMPANY'S AMENDED AND RESTATED 1996 STOCK PURCHASE PLAN INCLUDED PURSUANT TO RULE 15d-21. 1. Full title of the Plans: KLLM Transport Services, Inc. Employee Stock Purchase Plan KLLM Transport Services, Inc. Amended and Restated 1996 Stock Purchase Plan 2. Name of issuer of the securities held pursuant to the Plans and the address of its principal executive office: KLLM Transport Services, Inc. 135 Riverview Drive Richland, Mississippi 39218 3. Financial Statements and Exhibits Not applicable. 14 15 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this annual report to be signed on its behalf by the undersigned thereunto duly authorized. KLLM TRANSPORT SERVICES, INC. Date: March 30, 1999 By: /s/ Jack Liles ------------------------- ------------------------------------- Jack Liles Chairman of the Board, President, and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Date: March 30, 1999 /s/ Jack Liles ------------------------- ----------------------------------------- Jack Liles Chairman of the Board, President, and Chief Executive Officer Date: March 30, 1999 /s/ James Leon Young ------------------------- ----------------------------------------- James Leon Young Secretary and Director Date: March 30, 1999 /s/ Walter P. Neely ------------------------- ----------------------------------------- Walter P. Neely Director Date: March 30, 1999 /s/ Leland R. Speed ------------------------- ----------------------------------------- Leland R. Speed Director Date: March 30, 1999 /s/ Steven L. Dutro ------------------------- ----------------------------------------- Steven L. Dutro Chief Financial Officer Date: March 30, 1999 /s/ A. K. Northrop ------------------------- ----------------------------------------- A. K. Northrop Corporate Controller Pursuant to the requirements of the Securities Exchange Act of 1934, the Board of Directors, administrators of the KLLM Transport Services, Inc. Employee Stock Purchase Plan and the KLLM 15 16 Transport Services, Inc. Amended and Restated 1996 Stock Purchase Plan, have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized. KLLM TRANSPORT SERVICES, INC. EMPLOYEE STOCK PURCHASE PLAN and KLLM TRANSPORT SERVICES, INC. AMENDED AND RESTATED 1996 STOCK PURCHASE PLAN Date: March 30, 1999 By: /s/ Jack Liles ------------------------- ------------------------------------- Jack Liles Chairman of the Board, President, and Chief Executive Officer 17 ITEM 14(a)(2) and (c) FINANCIAL STATEMENT SCHEDULES 18 KLLM TRANSPORT SERVICES, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED JANUARY 3, 1997, JANUARY 2, 1998, AND JANUARY 1, 1999 This schedule contains summary financial information extracted from the consolidated financial statements for the three years ended January 1, 1999 and is qualified in its entirely by reference to such financial statements.
BALANCE AT CHARGED TO WRITE-OFF BALANCE AT BEGINNING COST AND OF END DESCRIPTION OF PERIOD EXPENSES ACCOUNTS OF PERIOD - ----------------------------- ---------- ---------- --------- ---------- (In Thousands) Accounts Receivable Allowance: Year ended January 3, 1997 $479 $520 $317 $682 Year ended January 2, 1998 $682 $335 $128 $889 Year ended January 1, 1999 $889 $213 $552 $550
19 EXHIBIT INDEX
Exhibit Number Description Page - -------------- ----------- ---- 3.1 Bylaws of Registrant(1) 3.2 Certificate of Incorporation (as amended)(2) 10.1 Amended and Restated Stock Option Plan(3) 10.2 KLLM, Inc. Retirement Plan and Trust (as amended)(4) 10.3 1986 Lease with Mr. Lee and Mr. Liles Covering Corporate Headquarters(1) 10.4 Employee Stock Purchase Plan (as amended)(5) 10.5 Options granted to Mr. Young and Dr. Neely(6)
- -------------- (1) Incorporated herein by reference to Registrant's Registration Statement on Form S-1 as filed on July 2, 1986 (Registration No. 33-5881, File No. 0-14759). (2) Incorporated herein by reference to Registrant's Annual Report on Form 10-K for the year ended January 1, 1989 (File No. 0-14759). (3) Incorporated herein by reference to Registrant's Annual Report on Form 10-K for the year ended December 31, 1989 (File No. 0-14759). (4) Incorporated herein by reference to Registrant's Annual Report on Form 10-K for the year ended December 31, 1991 (File No. 0-14759). (5) Incorporated herein by reference from Fourth Post-Effective Amendment to Registration Statement on Form S-8 as filed on November 30, 1990 (Registration No. 33-14545). (6) Incorporated herein by reference to Registrant's Annual Report on Form 10-K for the year ended December 31, 1987 (File No. 0-14759). 20 EXHIBIT INDEX
Exhibit Number Description Page - -------------- ----------- ---- 10.6 First Amendment to Options granted to Mr. Young and Dr. Neely(7) 10.7 KLLM, Inc. Cafeteria Plan(7) 10.8 KLLM Maintenance, Inc. Retirement Plan and Trust Agreement(7) 10.9 Option to purchase real property on which terminal facility is located from Messrs. Liles and Lee(4) 10.10 Stock Purchase Agreement by and between KLLM, Inc. and Fresh International Corp.(8) 10.11 Revolving Credit Agreement by and among KLLM, Inc., NationsBank of Georgia, National Association, The First National Bank of Chicago, Deposit Guaranty National Bank, and ABN Amro Bank, N. V.(8) 10.12 Employment Agreement between KLLM Transport Services, Inc. and Steven K. Bevilaqua(9) 10.13 Options granted to Steven K. Bevilaqua(9) 10.14 Asset Purchase Agreement by and among Vernon Sawyer, Inc. and Vernon and Nancy Sawyer as Sellers and KLLM, Inc. as Purchaser (schedules furnished upon request)(9)
- --------------- (7) Incorporated herein by reference to Registrant's Annual Report on Form 10-K for the year ended December 31, 1990 (File No. 0-14759). (8) Incorporated herein by reference to Registrant's Annual Report on Form 10-K for the year ended December 30, 1994 (File No. 0-14759). (9) Incorporated herein by reference to Registrant's Annual Report on Form 10-K for the year ended December 29, 1995 (File No. 0-14759). 21 EXHIBIT INDEX
Exhibit Number Description Page - -------------- ----------- ---- 10.15 1996 Stock Option Plan(10) 10.16 Amended and Restated 1996 Stock Purchase Plan(10) 10.17 1998 Non-Employee Director Stock Compensation Plan(11) 10.18 Stockholder Protection Rights Agreement dated February 13, 1997 between KLLM Transport Services, Inc. and KeyCorp Shareholder Services, Inc., as Rights Agent(12) 13 1998 Annual Report (Only portions incorporated by reference are deemed filed) 21 List of Subsidiaries of the Registrant 23 Consent of Ernst & Young LLP 27 Financial Data Schedule
- ------------- (10) Incorporated herein by reference to Registrant's Annual Report on Form 10-K for the year ended January 3, 1997 (File No. 0-14759). (11) Incorporated herein by reference to Registrant's Annual Report on Form 10-K for the year ended January 2, 1998 (File No. 0-14759). (12) Incorporated herein by reference to Registrant's Form 8-A12G\A as filed on February 24, 1997 (File No. 001-12751). EX-13 2 1998 ANNUAL REPORT 1 SELECTED FINANCIAL AND OPERATING DATA KLLM Transport Services, Inc. - 1998 Annual Report
(In thousands, except per share and operating data) 1998 1997 1996 1995 1994 - -------------------------------------------------------------------------------------------------------------------------------- STATEMENTS OF OPERATIONS DATA: Operating revenue from truckload operations $228,988 $240,766 $246,222 $229,519 $202,101 Operating revenue from rail container operations -- 3,319 10,466 10,166 8,175 Operating expenses from truckload operations 223,346 256,376 239,520 222,789 187,452 Operating expenses from rail container operations -- 6,134 10,818 10,383 8,523 ------------------------------------------------------------------------ Operating income 5,642 (18,425) 6,350 6,513 14,301 Interest and other income 945 68 59 32 17 Interest expense (3,551) (4,363) (4,783) (5,554) (5,014) ------------------------------------------------------------------------ Earnings (loss) from continuing operations before income taxes 3,036 (22,720) 1,626 991 9,304 Income tax expense (benefit) 1,200 (8,000) 721 473 (3,530) ------------------------------------------------------------------------ Net earnings (loss) from continuing operations 1,836 (14,720) 905 518 5,774 Loss from operations of discontinued division, net of tax benefits -- -- -- (624) (580) Loss on disposal of discontinued division, net of tax benefit -- -- (139) (441) -- ------------------------------------------------------------------------ Net earnings (loss) $ 1,836 $(14,720) $ 766 $ (547) $ 5,194 ======================================================================== Basic and diluted earnings (loss) per share: From continuing operations $ 0.42 $ (3.38) $ 0.21 $ 0.12 $ 1.28 From operations of discontinued division -- -- -- (0.14) (0.13) From disposal of discontinued division -- -- (0.03) (0.10) -- ------------------------------------------------------------------------ Net earnings (loss) per common share $ 0.42 $ (3.38) $ 0.18 $ (0.12) $ 1.15 ======================================================================== Weighted average basic and diluted common shares outstanding 4,340 4,358 4,373 4,504 4,536 ======================================================================== BALANCE SHEET DATA (AT YEAR-END): Net property and equipment $ 98,212 $107,940 $121,875 $122,264 $126,756 Total assets 133,362 144,535 159,894 164,248 166,077 Total liabilities 80,694 92,424 93,394 98,280 98,234 Long-term debt, less current maturities 36,571 44,826 49,747 59,594 66,531 Stockholders' equity 52,668 52,111 66,500 65,968 67,843 OPERATING DATA: Average number of truckloads per week 3,708 3,966 3,907 3,444 2,871 Average miles per trip 990 998 1,009 1,065 1,082 Total miles travelled (000s) 190,975 205,828 205,006 186,443 161,584 Average revenue for all miles $ 1.13 $ 1.12 $ 1.12 $ 1.13 $ 1.16 Empty mile percentage 12.8% 11.5% 12.1% 11.8% 9.8% Equipment at year-end: Company-operated tractors 1,467 1,464 1,390 1,485 1,290 Owner-operated tractors 279 349 366 291 242 ------------------------------------------------------------------------ Total tractors 1,746 1,813 1,756 1,776 1,532 Refrigerated trailers 1,998 2,047 2,114 2,150 2,115 Dry-van trailers 695 570 493 384 -- ------------------------------------------------------------------------ Total trailers 2,693 2,617 2,607 2,534 2,115 Refrigerated rail containers -- -- 200 202 150 Ratio of tractors to non-driver employees at year-end 4.3 5.1 4.0 3.7 2.9
6 2 SELECTED QUARTERLY DATA O MARKET AND DIVIDEND INFORMATION KLLM Transport Services, Inc. - 1998 Annual Report SELECTED QUARTERLY DATA
First Second Third Fourth (In thousands, except per share amounts) Quarter Quarter Quarter Quarter - --------------------------------------------------------------------------------------------------------------- 1998 Operating revenue $59,190 $60,113 $55,102 $54,583 Operating income (loss)(1) 1,730 2,855 1,262 (205) Net earnings (loss) 1,006 1,204 231 (605) Basic and diluted earnings (loss) per share $ 0.23 $ 0.28 $ 0.05 $ (0.14) 1997 Operating revenue from truckload operations $60,618 $62,593 $60,127 $57,428 Operating revenue from rail container operations 2,149 1,170 -- -- Operating income (loss) from continuing operations(2) 300 83 2,571 (21,279) Net earnings (loss) (455) (609) 887 (14,543) Basic and diluted earnings (loss) per share $ (0.10) $ (0.14) $ 0.20 $ (3.34)
(1) The fourth quarter 1998 operating loss reflects a $.8 million reduction in reserves for self-insured claims as a result of favorable claims experience in the quarter. (2) The fourth quarter 1997 operating loss from continuing operations reflects charges of $15.7 million for the impairment of long-lived assets and $3.9 million for increased reserves for self-insured claims and other expenses. MARKET AND DIVIDEND INFORMATION The Company's common stock is traded on The Nasdaq National Market under the symbol KLLM. The number of stockholders, including beneficial owners holding shares in nominee or street name, as of March 18, 1999, was approximately 1,550. The Company has never declared or paid a cash dividend on its common stock. The current policy of the Board of Directors is to continue to retain earnings to finance the continued growth of the Company's business. The following table shows quarterly high and low prices for the common stock for each quarter of 1998 and 1997:
FISCAL YEAR 1998 High Low - -------------------------------------------------------- First Quarter $13 3/4 $11 Second Quarter $14 1/8 $11 1/2 Third Quarter $13 $ 8 Fourth Quarter $ 9 $ 7 FISCAL YEAR 1997 High Low - -------------------------------------------------------- First Quarter $13 $ 9 Second Quarter $13 $10 5/8 Third Quarter $12 3/4 $11 1/4 Fourth Quarter $14 3/8 $12 1/8
7 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION KLLM Transport Services, Inc. - 1998 Annual Report RESULTS OF OPERATIONS The following table sets forth the percentage of revenue and expense items to operating revenue from truckload operations for the years indicated.
Percentage of Operating Revenue ------------------------------- For the Year 1998 1997 1996 - ---------------------------------------------------------------------------------------------------- Operating revenue from truck load operations 100.0% 100.0% 100.0% Operating expenses: Salaries, wages and fringe benefits 31.9 31.5 29.0 Operating supplies and expenses 24.9 26.1 28.3 Insurance, claims, taxes and licenses 6.0 7.3 5.8 Depreciation and amortization 8.0 8.9 8.9 Purchased transportation and equipment rent 22.2 21.5 22.0 Impairment loss -- 6.5 -- Other 5.0 4.6 3.9 Gain (loss) on sale of revenue equipment (.5) .1 (.6) ------------------------------- Total operating expenses from truck load operations 97.5 106.5 97.3 ------------------------------- Operating income (loss) from truck load operations 2.5 (6.5) 2.7 Operating loss from rail container operations -- (1.1) (.1) ------------------------------- Operating income (loss) 2.5 (7.6) 2.6 Other income .4 -- -- Interest expense 1.6 1.8 1.9 ------------------------------- Earnings (loss) from continuing operations before income taxes 1.3 (9.4) 0.7 Income tax expense (benefit) .5 (3.3) 0.3 ------------------------------- Earnings (loss) from continuing operations .8% (6.1)% 0.4% ===============================
Year Ended January 1, 1999 Compared to Year Ended January 2, 1998 Operating revenue for the year ended January 1, 1999 decreased by $11,778,000 or 5% when compared to the year ended January 2, 1998. The decrease in operating revenue consisted of a 2% increase from the dry-van services, net of a 7% decrease in the temperature controlled services. The decrease in temperature controlled services resulted primarily from a decrease in the number of owner operated tractors (4%) and a decrease in miles per tractor (6%). The decrease in miles per tractor was due to a shortage of qualified drivers. Average revenue per mile excluding fuel surcharges increased to $1.13 for the year ended January 1, 1999 when compared to $1.12 for the year ended January 2, 1998. Surcharges for high fuel costs added an additional $15,000 and $1,209,000 to revenues in 1998 and 1997, respectively. The challenge of attracting and retaining qualified drivers led to the implementation of an enhanced pay package for certain drivers on September 1, 1998 which increased driver wages approximately 7%. Fewer miles driven and reductions in nondriver compensation have resulted in a net reduction in salaries, wages, and benefits expense compared to 1997. Operating supplies and expenses decreased $5,890,000 compared to the prior year primarily due to lower fuel prices ($3,862,000), fewer miles driven and cost control efforts offset by an increase in repair costs. Insurance, claims, taxes, and licenses decreased $4,022,000 compared to 1997. Insurance expense in 1997 had been increased as a result of a reevaluation of the Company's self-insured claims management and reserve practices. Management believes that improvements in driver recruiting and retention, in part a result of the new driver pay plan, also contributed to lower costs through improvements in safety. Depreciation and amortization decreased from 1997 as a result of; 1) the write-off in 1997 of intangible assets related to exiting the rail container business; 2) the special charge in 1997 to recognize an impairment in value of the Company's 48-foot temperature controlled trailers; and 3) the replacement of certain owned equipment with equipment leased under operating leases. 8 4 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) KLLM Transport Services, Inc. - 1998 Annual Report Purchased transportation and equipment rent remained level from 1997 to 1998 because the increase in equipment rent was offset by a decrease in transportation purchased from owner operators. During 1998, the Company had a modest gain on the sale of revenue equipment through the regular trade cycle. Other income increased $877,000 over the prior year primarily as a result of a gain on sale of the corporate office building of $858,000 in the first quarter of 1998. The operating ratio (which represents operating expenses as a percent of operating revenues on continuing operations) decreased from 106.5% to 97.5% for the year ended January 1, 1999 when compared to the year ended January 2, 1998. Interest expense for the year ended January 1, 1999 decreased from the prior year primarily due to a decrease in the average debt outstanding. Interest rates under the revolving line of credit declined slightly during 1998 compared to 1997. The provision for income tax expense for 1998 was $1,200,000, based on a combined effective federal and state income tax rate of 40%. This rate reflects an increase in the effective rate in 1997 as a result of an increase in nondeductible expenses as a percentage of pretax income (loss) and a small increase in the effective state income tax rate. Year Ended January 2, 1998 Compared to Year Ended January 3, 1997 Operating revenue for the year ended January 2, 1998 decreased by $5,456,000 or 2% when compared to the year ended January 3, 1997. The decrease in operating revenue consisted of a 3% increase from the dry-van over-the-road truckload services, net of decreases resulting from rail non-container operations (2%) and other divisions (3%). The average revenue per mile excluding fuel surcharges remained constant at $1.12 for the year ended January 2, 1998 when compared to the year ended January 3, 1997. Surcharges for high fuel costs added $1,209,000 and $1,760,000 to operating revenues in 1997 and 1996, respectively. Salaries increased $4,430,000 primarily due to increases in driver compensation in order to offset the cancellation of reimbursement of certain expenses to drivers. Management anticipates continued upward pressure on driver wages. Wages for administrative and maintenance staff were reduced by $1,718,000 in 1997 from 1996. At year-end, the ratio of trucks to non-driving employees had risen to 5.1 from 4.0 at year end 1996 and 3.7 at year end 1995. Operating supplies decreased $7,031,000 due to lower fuel prices (approximately $1,076,000), the reduction in driver reimbursed expenses of $4,268,000 as mentioned above, and aggressive cost management. Purchased transportation and equipment rent declined $2,580,000 primarily due to the closure in mid-year 1996 of the freight brokerage operation off set by a 5% increase in owner-operated trucks in the fleet. Insurance, claims, taxes, and licenses increased by $3,524,000 primarily as a result of a reevaluation of the Company's self insured claims management and reserve practices. The level of depreciation and amortization expense reflects the stable level of our Company-owned tractor and trailer fleets. Other expenses grew by $1,357,000, the majority of which was related to advertising for and recruiting of drivers. In 1997, the Company realized a net loss of $185,000 on disposition of tractors and trailers compared to a net gain of $1,657,000 in 1996. In 1997, the market value of used 48 foot temperature-controlled trailers decreased resulting in losses on dispositions during the year which was partially offset by gains on disposition of tractors. The Company specializes in providing high-quality transportation services in North America. The majority of revenues come from transporting commodities such as food, medical supplies, and cosmetics requiring temperature- controlled equipment. The temperature-controlled segment of the trucking industry had, until 1997, been reluctant to convert to 53 foot trailers due to operational concerns and a lack of customer demand for the greater cube capacity. New equipment sales to for-hire carriers in 1997 were substantially all 53 foot trailers and the market price for used 9 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) KLLM Transport Services, Inc. - 1998 Annual Report 48 foot trailers dropped. KLLM had a substantial fleet of 48 foot trailers. Management made the decision in December 1997 to accelerate its fleet conversion in order to maintain its position as a leader in the temperature-con- trolled sector. As a result management recognized an impairment in the value of its 48 foot temperature-controlled trailers as of year end 1997. The book values of the 48-foot temperature-controlled trailers, under the guidance of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of," were reduced to market value requiring a special pretax charge of $15,426,000. To accomplish the fleet conversion, a three-year contract was negotiated with a major trailer manufacturer to purchase KLLM's trailers at predetermined prices and to provide a similar number of new 53 foot temperature-controlled trailers under operating leases. The Company also recorded a pretax impairment charge of $506,000 related to real estate held for sale. The decision in the second quarter to exit the rail container business resulted in a decline in revenues from rail container operations of $7,147,000 and an increase in operating losses of $557,000 compared to 1996. A restructuring charge of $1,906,000 was also incurred pertaining to the write-off of intangible assets and expenses on subleasing the containers and exiting this market. Substantially all costs to exit the rail container business had been incurred and paid as of January 2, 1998. The operating ratio (which represents operating expenses as a percent of operating revenues on continuing operations) increased from 97.3% to 106.5% for the year ended January 2, 1998 when compared to the year ended January 3, 1997. Interest expense for the year ended January 2, 1998 was $4,363,000. The decrease in interest expense in 1997 was primarily due to a decrease in the average debt outstanding in 1997 as compared to 1996. Interest rates under the revolving line of credit remained level during 1997 compared to 1996. The provision for income tax benefit for 1997 was $8,000,000, based on a combined effective federal and state tax rate of 35%. This rate reflects a decrease in the effective tax rate from 44% in 1996 as a result of a decrease in nondeductible expenses as a percentage of pretax income (loss). IMPACT OF YEAR 2000 Some of the Company's older computer programs were written using two digits rather than four to define the applicable year. As a result, those computer programs have time-sensitive software that recognizes a date using "00" as the year 1900 rather than the year 2000. This date problem could cause a system failure or could cause miscalculations which would disrupt operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. During 1998 the Company has progressed with modifications to its computer software which will enable its computer systems to function properly with respect to dates in the year 2000 and thereafter. The failure of the Company, its suppliers, or its customers to adequately prepare for the Year 2000 problem could have an adverse affect on the consolidated financial results of consolidated operations of the Company. Beginning in mid 1996, the Company established a conversion timeline. Each software system was identified and categorized as Year 2000 ready, not-ready and conversion planned, and not-ready with replacement planned. During the two years since that study, the conversion effort and timeline have been updated to reflect progress on the overall project. Consistent with the original Year 2000 conversion timeline, the project is approximately eighty percent complete. At present, management of the Company believes that sufficient resources are in place to complete the project by June 30, 1999. Upon completion of the project, detailed testing, including actually changing the date to the year 2000 in certain systems, will be performed to ensure a seamless passage into the year 2000. The total project is estimated to be approximately $700,000 for the purchase of new software and the modification of existing software with $400,000 of the total to be capitalized and the remaining $300,000 expensed as incurred. Through January 1, 1999, approximately $260,000 had been capitalized and $180,000 had been expensed. Over the three- year project, approximately 10% of the information systems budget will be directed to Year 2000 compliance. To determine the scope of the effort beyond the Company's systems, each operating department of the Company is determining the population of significant suppliers and their level of preparedness. In certain applications, tests have 10 6 Management's Discussion and Analysis of Results of Operations and Financial Condition (Continued) KLLM Transport Services, Inc. - 1998 Annual Report been performed to ensure an uneventful continuation of business. The Company's suppliers, vendors, and equipment manufacturers, have indicated that they continue to assess the impact of the Year 2000 issue on their operations. In the event of an unforeseen problem, the Company is studying contingency plans that may include communication with drivers other than via satellite and manual transactions. If certain suppliers such as fuel vendors are unable to supply products or if customer locations are closed due to their inability to operate, the Company's operations could be suspended. Although management has been assured that revenue equipment will not be affected, a Year 2000 electronic malfunction could render certain pieces of equipment inoperable. The Company's diverse customer base provides assurance that the inability of one customer to operate, due to Year 2000 related problems, will not have a significant adverse impact on the operations of the Company. MARKET RISK Market risk relating to the Company's operations result primarily from changes in interest rates and the price of heating oil (diesel fuel), as well as credit risk concentration. The Company does not use financial instruments for trading purposes and is not a party to any leveraged derivatives. The Company's interest expense is sensitive to changes in the general level of U.S. interest rates. The Company maintains certain of its debt as fixed rate in nature to mitigate the impact of fluctuations in interest rates. The following table provides information about the Company's debt instruments that are sensitive to change in interest rates. Interest Rate Sensitivity Principal Amount by Expected Maturity Average Interest Rates
Fair Value January 1, (Dollars in thousands) 1999 2000 2001 2002 Total 1999 Fixed rate $2,857 $ 2,857 $2,857 $2,857 $11,428 $11,900 Average interest rate 9.11% 9.11% 9.11% 9.11% Variable rate -- $28,000 -- -- $28,000 $28,000 Average interest rate -- 6.10% -- --
To hedge its exposure to price fluctuations, the Company periodically enters into heating oil (diesel fuel) swap agreements. Such agreements are accounted for as hedges with gains and losses recognized in operating expense as part of the fuel cost over the hedge period. At January 1, 1999, the Company has entered into swap agreements on approximately 15% of its 1999 anticipated fuel requirements which is immaterial to the Company's consolidated financial position and operations. LIQUIDITY AND CAPITAL RESOURCES KLLM Transport Services, Inc.'s primary sources of liquidity are its cash flow from operations and existing credit agreements of KLLM, Inc., a wholly-owned subsidiary. During the years ended January 1, 1999 and January 2, 1998, the Company generated $16.5 million and $31.8 million, respectively, in net cash provided from operating activities. This cash flow in 1998 was used primarily for capital expenditures and the reduction of long-term debt and capital leases by approximately $10,300,000. In 1998, the Company-owned tractor fleet remained level while the trailer fleet was increased by 76 units, net of replacements, compared to 1997. Capital expenditures, net of proceeds from trade-ins during 1998, were approximately $4.8 million compared to $25.8 million in 1997. The Company also entered into operating leases for 600 trailers throughout the year. Net capital expenditures in 1999 are expected to be approximately $28.8 million, although management may finance a portion of the capital expenditures with operating leases. The Company has a $50,000,000 unsecured revolving line of credit with a syndication of banks. Borrowings of $28,000,000 were outstanding under the line at year-end. At January 1, 1999, the weighted average interest rate on the revolving line of credit was 6.1%. Under the terms of the agreement, borrowings bear interest at (i) the higher of 11 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED) KLLM Transport Services, Inc. - 1998 Annual Report prime rate or a rate based upon the federal funds effective rate, (ii) a rate based upon the Eurodollar rates, or (iii) an absolute interest rate as determined by each lender in the syndication under a competitive bid process at the Company's option. Facilities fees from 1/5% to 3/8% per annum are charged on the unused portion of this line. Working capital needs have generally been met from net cash provided from operating activities. The Company has a $4,000,000 unsecured working capital line of credit with a bank which was fully available at January 1, 1999. Interest is at a rate based upon the Eurodollar rates with facility fees at 1/4% per annum on the unused portion of the line. This working capital line of credit is used to minimize idle cash in the bank and is tied to cash equivalent investments for any excess cash. At year-end 1998 and 1997, cash and cash equivalents totaled $756,000 and $670,000, respectively. At January 1, 1999, the aggregate principal amount of the Company's outstanding long-term indebtedness including current maturities was approximately $39.4 million, reflecting the $10.3 million reduction of indebtedness during the year. Of debt outstanding at January 1, 1999, $11.4 million was in the form of 9.11% notes due June 15, 2002 and $28.0 million consisted of borrowing under the revolving line of credit due April 7, 2000. The required principal payments on all long-term debt and capital leases are anticipated to be $2.8 million in 1999, $30.8 million in 2000, $2.9 million in 2001, and $2.9 million in 2001. During 1998, the Company announced plans to purchase up to 350,000 shares of the Company's outstanding stock. Pursuant to the Company's plans, 153,250 shares were repurchased for $1,330,000 during the year with an additional 84,000 shares repurchased for $604,000 subsequent to the end of the year. The Company anticipates that its existing credit facilities, along with cash flows from operations, will be sufficient to fund operating expenses, capital expenditures, and debt service. FACTORS AFFECTING FUTURE PERFORMANCE The Company's future operating results may be affected by various trends and factors which are beyond the Company's control. These include adverse changes in demand for trucking services, availability of drivers and fuel prices. Accordingly, past performance should not be presumed to be an accurate indication of future performance. SEASONALITY In the transportation industry, results of operations generally show a seasonal pattern because customers reduce shipments during and after the winter holiday season with its attendant weather variations. The Company's operating expenses have historically been higher in the winter months primarily due to decreased fuel efficiency and increased maintenance costs in colder weather. The foregoing statements contain forward-looking statements which involve risks and uncertainties and the Company's actual experience may differ materially from that discussed above. Factors that may cause such a difference include, but are not limited to, those discussed in "Factors Affecting Future Performance" as well as future events that have the effect of reducing the Company's available cash balances, such as unanticipated operating losses or capital expenditures related to possible future acquisitions. Readers are cautioned not to place undue reliance on forward- looking statements, which reflect management's analysis only as of the date hereof. The Company assumes no obligation to update forward-looking statements. 12 8 CONSOLIDATED BALANCE SHEETS KLLM Transport Services, Inc. - 1998 Annual Report
At Year-End (In thousands) 1998 1997 - ----------------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 756 $ 670 Accounts receivable: Customers (net of allowances of $550,000 in 1998 and $889,000 in 1997) 20,607 20,195 Other 525 629 ----------------------- 21,132 20,824 Inventories - at cost 597 635 Prepaid expenses: Tires 2,758 2,885 Taxes, licenses and permits 1,796 2,027 Other 694 467 ----------------------- 5,248 5,379 Assets held for sale - Note B 1,530 3,383 Deferred income taxes - Note D 5,818 5,413 ----------------------- TOTAL CURRENT ASSETS 35,081 36,304 PROPERTY AND EQUIPMENT - Note B Revenue equipment and capital leases 118,567 121,337 Land, structures and improvements 8,174 7,103 Other equipment 5,212 8,776 Accumulated depreciation and amortization (33,741) (29,276) ----------------------- 98,212 107,940 OTHER ASSETS 69 291 ----------------------- TOTAL ASSETS $133,362 $144,535 ======================= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 4,295 $ 4,350 Accrued expenses 7,450 11,562 Accrued claims expense - Note J 15,041 13,913 Current maturities of long-term debt and capital leases 2,857 4,898 ----------------------- TOTAL CURRENT LIABILITIES 29,643 34,723 LONG-TERM DEBT AND CAPITAL LEASES, Less current maturities - Note C 36,571 44,826 DEFERRED INCOME TAXES - Note D 14,480 12,875 STOCKHOLDERS' EQUITY - Notes F and G Preferred stock, $0.01 par value; authorized shares - 5,000,000; none issued Common stock, $1 par value; authorized shares - 10,000,000; issued shares - 4,558,754 in 1998 and 1997; outstanding shares - 4,224,488 in 1998 and 4,373,115 in 1997 4,559 4,559 Additional paid-in capital 32,858 32,854 Retained earnings 18,569 16,733 ----------------------- 55,986 54,146 Less common stock in treasury, 334,266 shares in 1998 and 185,639 shares in 1997, at cost (3,318) (2,035) ----------------------- TOTAL STOCKHOLDERS' EQUITY 52,668 52,111 ----------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $133,362 $144,535 =======================
See accompanying notes. 13 9 CONSOLIDATED STATEMENTS OF OPERATIONS KLLM Transport Services, Inc. - 1998 Annual Report
For the Year (In thousands, except share and per share amounts) 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------- OPERATING REVENUE FROM TRUCK LOAD OPERATIONS $ 228,988 $ 240,766 $ 246,222 OPERATING EXPENSES: Salaries, wages and fringe benefits 73,143 75,748 71,318 Operating supplies and expenses 56,938 62,828 69,859 Insurance, claims, taxes and licenses 13,729 17,751 14,227 Depreciation and amortization 18,270 21,432 21,872 Purchased transportation and equipment rent 50,840 51,692 54,272 Other 11,657 10,986 9,629 Impairment of long-lived assets - Note B 0 15,754 0 (Gain) loss on sale of revenue equipment (1,231) 185 (1,657) -------------------------------------------- TOTAL OPERATING EXPENSES FROM TRUCK LOAD OPERATIONS 223,346 256,376 239,520 -------------------------------------------- OPERATING INCOME (LOSS) FROM TRUCK LOAD OPERATIONS 5,642 (15,610) 6,702 OPERATING REVENUE FROM RAIL CONTAINER OPERATIONS 0 3,319 10,466 OPERATING EXPENSES 0 4,228 10,818 RESTRUCTURING CHARGE -Note I 0 1,906 0 -------------------------------------------- OPERATING LOSS FROM RAIL CONTAINER OPERATIONS 0 (2,815) (352) -------------------------------------------- OPERATING INCOME (LOSS) 5,642 (18,425) 6,350 OTHER INCOME AND EXPENSES: Gain on sale of property 858 0 0 Interest and other income 87 68 59 Interest expense (3,551) (4,363) (4,783) -------------------------------------------- (2,606) (4,295) (4,724) -------------------------------------------- EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 3,036 (22,720) 1,626 Income tax expense (benefit) - Note D 1,200 (8,000) 721 -------------------------------------------- NET EARNINGS (LOSS) FROM CONTINUING OPERATIONS 1,836 (14,720) 905 LOSS ON DISPOSAL OF DISCONTINUED DIVISION (Net of tax benefit of $0, $0 and $109 respectively) - Note H 0 0 (139) -------------------------------------------- NET EARNINGS (LOSS) $ 1,836 $ (14,720) $ 766 ============================================ BASIC AND DILUTED EARNINGS (LOSS) PER SHARE: From continuing operations $ 0.42 $ (3.38) $ 0.21 From disposal of discontinued division 0.00 0.00 (0.03) -------------------------------------------- BASIC AND DILUTED NET EARNINGS (LOSS) PER SHARE $ 0.42 $ (3.38) $ 0.18 ============================================ WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: Basic 4,340,033 4,357,970 4,365,199 ============================================ Diluted 4,340,666 4,357,970 4,371,945 ============================================
See accompanying notes. 14 10 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY KLLM Transport Services, Inc. - 1998 Annual Report
Common Stock ------------------------------------------------- Treasury Stock Additional Total --------------------- Paid-in Retained Stockholders' (In thousands) Shares Amount Shares Amount Capital Earnings Equity - -------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 30, 1995 4,552 $4,552 (194) $(2,086) $32,815 $30,687 $65,968 Purchase of treasury shares, at cost (70) (854) (854) Sale of common stock - Note F 7 7 61 68 Common stock issued upon exercise of stock options - Note G 50 617 (190) 427 Income tax benefit from options exercised - Note G 125 125 Net earnings 766 766 --------------------------------------------------------------------------------------------- BALANCE AT JANUARY 3, 1997 4,559 4,559 (214) (2,323) 32,811 31,453 66,500 Sale of common stock - Note F 4 36 5 41 Common stock issued upon exercise of stock options - Note G 24 252 (29) 223 Stock options issued for services 67 67 Net loss (14,720) (14,720) --------------------------------------------------------------------------------------------- BALANCE AT JANUARY 2, 1998 4,559 4,559 (186) (2,035) 32,854 16,733 52,111 Purchase of treasury shares, at cost (153) (1,330) (1,330) Sale of common stock - Note F 1 2 2 Common stock issued for services 4 45 4 49 Net earnings 1,836 1,836 --------------------------------------------------------------------------------------------- BALANCE AT JANUARY 1, 1999 4,559 $4,559 (334) $(3,318) $32,858 $18,569 $52,668 =============================================================================================
See accompanying notes. 15 11 CONSOLIDATED STATEMENTS OF CASH FLOWS KLLM Transport Services, Inc. - 1998 Annual Report
For the Year (In thousands) 1998 1997 1996 - ------------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 1,836 $(14,720) $ 766 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 18,270 21,508 22,055 Deferred income taxes 1,200 (8,000) 487 Impairment costs 0 15,753 0 Restructuring charge on rail container operations 0 1,906 0 Book value of equipment written off in accidents 464 522 510 Change in operating assets and liabilities: (Increase) decrease in accounts receivable (308) 1,780 5,102 (Increase) decrease in inventory and prepaid expenses 169 (785) 2,682 Increase in other assets 132 138 198 Increase (decrease) in accounts payable and accrued expenses (3,190) 13,478 3,307 (Gain) loss on sale of property and equipment (2,089) 185 (1,657) ------------------------------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 16,484 31,765 33,450 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (21,865) (37,108) (31,040) Proceeds from disposition of property and equipment 17,042 11,344 10,887 ------------------------------------ NET CASH USED IN INVESTING ACTIVITIES (4,823) (25,764) (20,153) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from sale of common stock 2 41 68 Proceeds from exercise of stock options 0 223 427 Common stock issued for services 49 0 0 Purchase of common stock for treasury (1,330) 0 (854) Net decrease in borrowing under revolving line of credit (2,000) 0 (5,000) Repayment of long-term debt and capital leases (8,296) (4,871) (7,812) Net change in borrowing under working capital line of credit 0 (3,598) 2,748 ------------------------------------ NET CASH USED IN FINANCING ACTIVITIES (11,575) (8,205) (10,423) ------------------------------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 86 (2,204) 2,874 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 670 2,874 0 ------------------------------------ CASH AND CASH EQUIVALENTS AT END OF YEAR $ 756 $ 670 $ 2,874 ==================================== Supplemental disclosure of cash flow information: Cash paid for interest $ 3,721 $ 4,432 $ 4,776 ==================================== Income taxes refunded $ 816 $ 877 $ 1,785 ====================================
See accompanying notes. 16 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KLLM Transport Services, Inc. - 1998 Annual Report NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business. The Company, through its wholly-owned subsidiary, KLLM, Inc., provides transportation services in North America for both temperature-controlled and dry commodities. Services provided include over-the-road long haul, regional, and dedicated fleet transportation. The demand for transportation services is affected by general economic conditions and is subject to seasonal demand for certain commodities and severe weather conditions. Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made to conform with current year presentation. Cash Equivalents. The Company classifies short-term, highly liquid investments with original maturities of three months or less as cash equivalents. Cash equivalents are stated at cost which approximates market. Tires in Service. The cost of original equipment and replacement tires placed in service is capitalized and amortized over the estimated useful life of twenty-four to thirty months. The cost of recapping tires is expensed as incurred. Property and Equipment. Property and equipment is stated at cost. Depreciation of property and equipment is provided by the straight-line method over the estimated useful lives. The ranges of estimated useful lives of the major classes of depreciable assets are as follows: revenue equipment - 3 to 7 years, buildings and improvements - 20 to 30 years, and other equipment - 3 to 5 years. Gains and losses on sales or exchanges of property and equipment are included in operations in the year of disposition. Income Taxes. Income taxes are accounted for using the liability method in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Deferred income taxes relate to temporary differences between assets and liabilities recognized differently for financial reporting and income tax purposes Impairment of Long-Lived Assets. The Company continually reevaluates the carrying value of its long-lived assets for events or changes in circumstances which indicate that the carrying value may not be recoverable. As part of this reevaluation, the Company estimates the future cash flows expected to result from the use of the asset and its eventual disposal. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized through a charge to operations. Use of Estimates. The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Revenue Recognition. The Company uses the relative transit time incurred method to recognize revenue and record costs of shipments in transit. Earnings per Share. Basic earnings per share is based on the weighted average common shares outstanding. Diluted earnings per share includes any dilutive effects of options, warrants and convertible securities. Use of Derivative Commodity Instruments. To hedge its exposure to price fluctuations, the Company periodically enters into heating oil (diesel fuel) swap agreements. Agreements to purchase 15% of the anticipated 1999 fuel requirements were in place at the end of 1998. The Company does not engage in speculative transactions nor does the Company hold or issue derivative instruments for trading purposes. Such agreements are settled monthly and are accounted for as hedges with gains and losses recognized in operating expenses using the accrual method as part of the fuel cost over the hedge period. 17 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) KLLM Transport Services, Inc. - 1998 Annual Report Fiscal Year. The Company's fiscal year-end is the Friday nearest December 31, which was the 52-week period ended January 1, 1999, the 52-week period ended January 2, 1998 and the 53-week period ended January 3, 1997 for the past three fiscal year ends. Impact of Recently Issued Accounting Pronouncements. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS No. 131) which is effective for fiscal 1998. Under the provisions of SFAS No. 131, public business enterprises must report financial and descriptive information about its reportable segments. Based upon management's analysis of SFAS No. 131, the Company operates in one reportable segment. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130). The provisions of SFAS No. 130 require companies to classify items of comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from retained earnings and capital in excess of par value in the consolidated financial statements. The statement had no effect on the Company's consolidated financial statements upon adoption in fiscal 1998. In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133). The provisions of SFAS No. 133 requires all derivatives to be recorded on the balance sheet at fair value. SFAS No. 133 establishes "special accounting" for fair value hedges, cash flow hedges, and hedges of foreign currency exposures of net investments in foreign operations. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged item through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. Management expects the effect of the adoption of this statement will be insignificant to the earnings and financial position of the Company when it becomes effective for fiscal 1999. NOTE B - IMPAIRMENT OF LONG-LIVED ASSETS Included in the Company's fleet of temperature-controlled trailers, as of January 2, 1998, were 1,860 trailers that are 48 feet in length. In December 1997, management developed a plan to dispose of all of the Company's 48-foot temperature-controlled trailers over the following three years, which was significantly earlier than the typical disposal cycle for these units, due to the temperature-controlled segment of the trucking industry's rapid acceptance of 53-foot trailers as the industry standard. Accordingly, management projected cash flows for used 48-foot temperature-controlled trailers based upon the Company's accelerated disposal dates and determined that the carrying value of the 48-foot temperature-controlled trailers of $46.4 million was impaired. A charge of $15.2 million, based on the estimated fair value, resulted and is included in impairment on long-lived assets in the accompanying statement of operations for the year ended January 2, 1998. During 1997, the Company closed its terminal facility in Dallas, Texas. The Dallas terminal had a carrying amount of $2.0 million as of January 2, 1998 which was greater than the estimated sales value, net of related costs to sell. Accordingly, the Company marked the facility to fair value and included the write down of approximately $.5 million in impairment on long-lived assets in the accompanying statement of operations for the year ended January 2, 1998. The terminal is classified as assets available for sale in the accompanying balance sheets. 18 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) KLLM Transport Services, Inc. - 1998 Annual Report NOTE C - CREDIT FACILITIES, DEBT AND CAPITAL LEASES Long-term debt and capital leases consisted of the following:
1998 1997 - -------------------------------------------------------------------------------------------- 9.11% unsecured notes payable to insurance companies with (In thousands) semi-annual interest payments and annual principal payments of $2,857,000 through 2002 $ 11,428 $ 14,286 Revolving line of credit with banks, with floating interest rates (6.1% weighted average rate at January 1, 1999) 28,000 30,000 Capital lease obligations 0 4,188 Unsecured notes payable to insurance company 0 1,250 ---------------------- 39,428 49,724 Less current maturities (2,857) (4,898) ---------------------- $ 36,571 $ 44,826 ======================
The Company has a $50,000,000 unsecured revolving line of credit maturing in 2000. In accordance with the agreement, the Company has agreed to limit assets pledged on any other borrowing. At January 1, 1999, $22,000,000 was available to the Company under the revolving line of credit. Under the terms of the agreement, borrowings bear interest at (i) the higher of prime rate or a rate based upon the Federal Funds Effective Rate, (ii) a rate based upon the Eurodollar rates, or (iii) an absolute interest rate as determined by each lender under a competitive bid process at the Company's option. Facilities fees from 1/5% to 3/8% per annum are charged on the unused portion of this line. The aggregate annual maturities of long-term debt at January 1, 1999 are as follows:
Long-Term (In thousands) Debt - ------------------------------------------------------------------------------------------------ 1999 $ 2,857 2000 30,857 2001 2,857 2002 2,857 ------- $39,428 =======
The Company also has $4,000,000 in an unsecured working capital line of credit, all of which was available at January 1, 1999. Interest is at a rate based upon London Interbank Offered Rate (LIBOR) on borrowings on the working capital line with facility fees at 1/4% per annum on the unused portion of the line. Under the terms of the lines of credit and notes payable agreements, the Company agreed to maintain minimum levels of consolidated tangible net worth and cash flows, to limit additional borrowing based on a debt-to-consolidated tangible net worth ratio, and to restrict assets that can be pledged on any other borrowings. The agreements also establish limits on dividends, stock repurchases, and new investments. 19 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) KLLM Transport Services, Inc. - 1998 Annual Report NOTE D - INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The components of deferred tax assets and liabilities are as follows:
(In thousands) 1998 1997 - --------------------------------------------------------------------------------- Deferred tax liability--property and equipment $25,668 $21,972 Deferred tax assets: Allowance for doubtful accounts 193 338 Accrued expenses 5,625 5,075 Net operating loss carryforward 10,064 7,989 Intangibles 208 192 Alternative minimum tax carryforward 916 916 ------------------- 17,006 14,510 ------------------- Net deferred tax liabilities $ 8,662 $ 7,462 ===================
Income tax expense (benefit) consists of the following:
(In thousands) 1998 1997 1996 - --------------------------------------------------------------------------------------------------------- Deferred: Federal $ 833 $(7,300) $538 State 367 (700) 74 ---------------------------- Total income tax expense (benefit) 1,200 (8,000) 612 Income tax benefit allocated to loss on disposal of discontinued operations 0 0 109 ---------------------------- Income tax expense (benefit) attributable to continuing operations $1,200 $(8,000) $721 ============================
The reconciliation of income tax computed at the federal statutory tax rate to income tax expense is as follows:
(In thousands) 1998 1997 1996 - -------------------------------------------------------------------------------- Statutory federal income tax rate $1,032 $(7,725) $468 State income taxes, net 242 (462) 49 Other (74) 187 95 ----------------------------- $1,200 $(8,000) $612 =============================
The Company has a net operating loss carryforward for income tax purposes of approximately $27,000,000, which expires at various dates through the year 2018. NOTE E - CONCENTRATIONS OF CREDIT RISK The Company had one customer which accounted for operating revenues of $39,700,000 in 1998 and $27,759,000 in 1997. No customer accounted for more than 10% of the Company's operating revenues in 1996. Trade accounts receivable are the principal financial instruments that potentially subject the Company to significant concentrations of credit risk. The Company performs periodic credit evaluations of its customers and collateral is generally not required. Credit losses have been insignificant and within management's expectations. 20 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) KLLM Transport Services, Inc. - 1998 Annual Report NOTE F - EMPLOYEE BENEFIT PLANS The Company sponsors a defined contribution plan covering substantially all of its employees. The Company makes discretionary contributions to the plan of 100% of the employee contribution up to 4% of each covered employee's salary. Contributions by the Company under the plan approximated $559,000, $540,000, and $771,000 in 1998, 1997, and 1996, respectively. In April 1987, the stockholders approved an employee stock purchase plan reserving 133,333 shares of common stock for the plan. Substantially all employees are eligible to participate and may subscribe for 10 to 300 shares each. During 1998, 211 shares were purchased and in 1997, 3,276 shares were issued pursuant to the plan. Subsequent to January 1, 1999, an additional 10,766 shares have been subscribed for by employees NOTE G - STOCK OPTION PLANS The Company grants stock options for a fixed number of shares to employees with an exercise price equal to or above the fair value of the shares at the date of the grant. The Company accounts for stock option grants in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees, and, accordingly, recognizes no compensation expense for stock options granted. Under the Company's Incentive Stock Option Plan, 533,333 shares of Common Stock have been reserved for grant to key employees and directors. Options granted under the plan have a ten-year term with vesting periods of one to five years from the date of the grant. Pro forma information regarding net income and earnings per share is required by SFAS No. 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of the grant using a Black-Scholes option pricing model with the following weighted-average assumptions: volatility factors of .285 and .281 for 1998 and 1997 respectively; weighted-average expected life of options of five and three years for 1998 and 1997 respectively; risk-free interest rate of 6% for 1998 and 1997; and no dividend yield. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options and the securities purchase agreements granted in 1998 and 1997 is amortized to expense over the vesting period. The Company's pro forma information follows (in thousands, except per share information):
1998 1997 - -------------------------------------------------------------------------------- Pro forma net income (loss) $1,809 $(14,786) Pro forma earnings (loss) per common share $ .42 $ (3.39)
21 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) KLLM Transport Services, Inc. - 1998 Annual Report A summary of the Company's stock option activity and related information is as follows:
1998 1997 1996 -------------------------- --------------------------- -------------------------- Options Weighted-Average Options Weighted-Average Options Weighted-Average (000) Exercise Price (000) Exercise Price (000) Exercise Price - ------------------------------------------------------------------------------------------------------------------------------- Outstanding-beginning of year 234 $ 14 269 $14 332 $14 Granted 95 12 21 12 34 11 Exercised -- -- (25) 9 (50) 8 Forfeited (212) 14 (31) 15 (47) 16 Outstanding-end of year 117 $ 14 234 $14 269 $14 ==== ==== === === === === Exercisable-end of year 48 146 154 ==== === === Weighted-average fair value of options granted during the year $4.26 $3.15 $1.86 ===== ===== ===== Weighted-average fair value of securities purchase agreements granted during the year $ -- $ -- $1.28 ===== ===== =====
Following is a summary of the status of options outstanding at January 1, 1999:
Outstanding Options Exercisable Options --------------------------------- ----------------------- Weighted Average Weighted Weighted Remaining Average Average Exercise Number Contractual Exercise Number Exercise Price Range (000's) Life Price (000's) Price ------------------ --------------------------------- ----------------------- $ 9.00 - $11.75 27 7 years $11 5 $10 $12.00 - $15.00 76 6 years $13 29 $14 $21.00 14 3 years $21 14 $21
NOTE H - DISCONTINUED OPERATIONS Abandonment of the Company's international division, which primarily provided maritime transportation services, began in 1995 and was completed in 1996. Actual costs incurred to complete the disposal exceeded the Company's 1995 estimate by $139,000 (net of $109,000 tax benefit), and accordingly, is included in the accompanying consolidated statement of operations for 1996. NOTE I - RAIL CONTAINER RESTRUCTURING CHARGE During 1997, the Company completed its plan to exit the rail container market. A one-time restructuring charge of $1,906,000 was recorded for the write-off of intangible assets pertaining to the rail container operation and the accrual of certain expenses related to the subleasing of rail containers and exiting this market. 22 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) KLLM Transport Services, Inc. - 1998 Annual Report NOTE J - COMMITMENTS AND CONTINGENCIES The Company self-insures for losses related to liability and workers' compensation claims with excess coverage by underwriters on a per incident basis. Claims payable totaled $15,041,000 at January 1, 1999 and $13,913,000 at January 2, 1998, a portion of which is for insurance claims that have been incurred but not reported and estimated future development of claims. The ultimate cost for outstanding claims may vary significantly from current estimates. The Company leases certain revenue equipment and data processing equipment under operating leases that expire over the next six years. The leases require the Company to pay the maintenance, insurance, taxes and other expenses in addition to the minimum monthly rentals. Future minimum payments under the leases at January 1, 1999 are $8,553,000 in 1999, $5,498,000 in 2000, $3,920,000 in 2001, $3,387,000 in 2002 and $2,294,000 in 2003. The Company guarantees approximately $1,360,000 of the residual value of certain revenue equipment leased under an operating lease. Rental expense applicable to noncancelable operating leases totaled $8,097,000 in 1998, $6,806,000 in 1997, and $8,440,000 in 1996. During 1996, the Internal Revenue Service assessed the Company for certain employment taxes for the years 1992 through 1994. The Company disputes the assessment and believes that the matter will be resolved in the Company's favor. Accordingly, the Company has not accrued for such amounts in the accompanying financial statements. The Company is also involved in various claims and routine litigation incidental to its business. Management is of the opinion that the outcome of these other matters will not have a material adverse effect on the consolidated financial position or operations of the Company. NOTE K - FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount reported in the consolidated balance sheet for cash and cash equivalents approximate their fair values. The fair values of the Company's long-term debt is estimated using discounted cash flow analysis, based upon the Company's current incremental borrowing rates for similar types of borrowing arrangements, which approximate $39,900,000 at January 1, 1999. 23 19 REPORT OF INDEPENDENT AUDITORS KLLM Transport Services, Inc. - 1998 Annual Report The Board of Directors and Stockholders KLLM Transport Services, Inc. We have audited the accompanying consolidated balance sheets of KLLM Transport Services, Inc. and subsidiaries as of January 1, 1999 and January 2, 1998, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended January 1, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of KLLM Transport Services, Inc. and subsidiaries at January 1, 1999 and January 2, 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended January 1, 1999, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Jackson, Mississippi February 7, 1999 24 EX-21 3 LIST OF SUBSIDIARIES 1 Exhibit 21 List of Subsidiaries of the Registrant The only subsidiary of the registrant is KLLM, Inc. a Texas corporation. EX-23 4 CONSENT OF ERNST & YOUNG 1 Exhibit 23 Consent of Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K) of KLLM Transport Services, Inc. of our report dated February 7, 1999, included in the 1998 Annual Report to Shareholders of KLLM Transport Services, Inc. Our audits also included the financial statement schedule of KLLM Transport Services, Inc. listed in Item 14(a)(2). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information as set forth therein. We also consent to the incorporation by reference in the Registration Statement (Post-effective Amendment No. 6, Form S-8, No. 33-14545) pertaining to the KLLM Transport Services, Inc. Employee Stock Purchase Plan, the Registration Statement (Form S-8, No. 333-35365) pertaining to the KLLM Transport Services, Inc. 1996 Stock Purchase Plan and the Registration Statement (Form S-8, No.333-50359) pertaining to the KLLM Transport Services, Inc. 1998 Non-Employee Director Stock Compensation Plan of our report dated February 7, 1999, with respect to the consolidated financial statements incorporated herein by reference and our report included in the preceding paragraph with respect to the financial statement schedule of KLLM Transport Services, Inc. included in the Annual Report (Form 10-K) of KLLM Transport Services, Inc. Ernst & Young LLP Jackson, Mississippi March 29, 1999 EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF KLLM TRANSPORT SERVICES, INC. FOR THE TWELVE MONTHS ENDED JANUARY 1, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR JAN-01-1999 JAN-03-1998 JAN-01-1999 756 0 21,682 550 597 35,081 131,953 33,741 133,362 29,643 0 0 0 4,559 48,109 133,362 0 228,988 0 223,346 (945) 0 3,551 3,036 1,200 1,836 0 0 0 1,836 0.42 0.42
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