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