UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Period Ended Commission File Number
July 3, 1998 0-14759
KLLM TRANSPORT SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 64-0412551
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
135 Riverview Drive
Richland, Mississippi 39218
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (601) 939-2545
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, and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
4,374,473 Common Shares were outstanding as of July 3, 1998.
KLLM TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
INDEX
Page
Number
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
July 3, 1998 (Unaudited) and January 2, 1998 1
Consolidated Statements of Earnings (Unaudited)
Thirteen weeks and Twenty-six weeks ended July 3,
1998 and July 4, 1997 2
Condensed Consolidated Statements of Cash Flows
(Unaudited)Twenty-six weeks ended July 3, 1998
and July 4, 1997 3
Notes to Condensed Consolidated Financial
Statements(Unaudited) 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 5
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 7
KLLM TRANSPORT SERVICES, INC
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<S> <C> <C>
July 3 January 2,
1998 1998
--------- ----------
(Unaudited) (Note)
(In Thousands)
ASSETS
Current assets:
Cash and cash equivalents $1,006 $ 670
Accounts receivable, net 21,019 20,824
Inventories - at cost 613 635
Prepaid expenses:
Tires 3,083 2,885
Other 1,524 2,494
Assets held for sale 1,530 3,383
Deferred income taxes 5,413 5,413
--------- ----------
Total current assets 34,188 36,304
Property and equipment 134,410 137,216
Less accumulated depreciation (32,025)(29,276)
--------- ----------
102,385 107,940
Intangible assets, net 0 90
Other assets 137 201
--------- ----------
$136,710 $144,535
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued expenses $14,188 $15,912
Accrued claims expense 14,831 13,913
Current maturities of long-term debt
and capital leases 7,021 4,898
--------- ----------
Total current liabilities 36,040 34,723
Long-term debt and capital leases, less
current maturities 33,457 44,826
Deferred income taxes 12,875 12,875
Stockholders' equity:
Preferred Stock, $.01 value;
authorized 5,000,000 shares; none
issued
Common Stock, $1 par value;
10,000,000 shares authorized;
issued shares - 4,558,754 in 1998
and 1997;outstanding shares - 4,374,473
in 1998 and 4,373,155 in 1997 4,559 4,559
Additional paid-in capital 32,857 32,854
Retained earnings 18,943 16,733
---------- ----------
56,359 54,146
Less Common Stock in Treasury,
at cost, 184,281 shares
in 1998 and 185,639 shares in 1997 (2,021) (2,035)
---------- ----------
Total stockholders' equity 54,338 52,111
---------- ----------
$136,710 $144,535
========== ==========
</TABLE>
Note: The balance sheet at January 2, 1998 has been derived from the audited
financial statements at the date indicated, but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes.
KLLM TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<S> <C> <C>
Thirteen Weeks Ended Twenty-Six Weeks Ended
July 3 July 4 July 3 July 4,
1998 1997 1998 1997
-------------------- ----------------------
(In Thousands, Except Per Share Amounts)
OPERATING REVENUE FROM
TRUCK LOAD OPERATIONS $60,113 $62,593 $119,303 $123,211
OPERATING EXPENSES:
Salaries, wages and
fringe benefits 18,081 19,050 37,837 38,143
Operating supplies
and expenses 14,514 15,418 28,845 31,557
Insurance, claims,
taxes and licenses 3,938 3,498 7,188 7,535
Depreciation and
amortization 4,514 5,206 9,174 10,431
Purchased transportation
and equipment rent 13,431 13,899 26,167 26,829
Other 2,985 2,593 5,714 5,269
(Gain) loss on sale of
revenue equipment (205) 182 (207) 349
-------------------- ----------------------
TOTAL OPERATING EXPENSES
FROM TRUCK LOAD OPERATIONS 57,258 59,846 114,718 120,113
-------------------- ----------------------
OPERATING INCOME FROM
TRUCK LOAD OPERATIONS 2,855 2,747 4,585 3,098
OPERATING REVENUE FROM
RAIL CONTAINER OPERATIONS 0 1,170 0 3,319
OPERATING EXPENSES 0 1,928 0 4,128
RESTRUCTURING CHARGE - Note C 0 1,906 0 1,906
-------------------- ----------------------
OPERATING INCOME (LOSS)
FROM RAIL CONTAINER OPERATIONS 0 (2,664) 0 (2,715)
Interest and other income (19) (17) (926) (43)
Interest expense 870 1,059 1,826 2,115
-------------------- ----------------------
851 1,042 900 2,072
-------------------- ----------------------
EARNINGS (LOSS) BEFORE
INCOME TAXES 2,004 (959) 3,685 (1,689)
Income taxes 800 (350) 1,475 (625)
-------------------- ----------------------
NET EARNINGS (LOSS) $1,204 ($609) $2,210 ($1,064)
BASIC AND DILUTED EARNINGS
(LOSS) PER COMMON SHARE $0.28 ($0.14) $0.51 ($0.24)
</TABLE>
See accompanying notes.
KLLM TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<S> <C> <C>
Twenty-Six Weeks Ended
July 3 July 4,
1998 1997
---------- -----------
(In Thousands)
NET CASH PROVIDED BY OPERATING
ACTIVITIES $10,241 $9,885
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property and equipment (5,673) (9,890)
Proceeds from disposition of property,
equipment and assets held for sale 5,014 4,208
--------- -----------
NET CASH FLOWS USED IN INVESTING
ACTIVITIES (659) (5,682)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 0 99
Net increase (decrease) in borrowings
under revolving line of credit (6,000) 2,000
Repayment of long-term debt and capital
leases (3,246) (3,442)
Net change in borrowings under working
capital line of credit 0 (3,400)
--------- -----------
NET CASH FLOWS USED IN
FINANCING ACTIVITIES (9,246) (4,743)
--------- -----------
Net Increase (Decrease)in Cash and
Cash Equivalents 336 (540)
Cash and Cash Equivalents at Beginning
Of Period 670 2,874
--------- -----------
Cash and Cash Equivalents at End
Of Period $1,006 $2,334
========= ===========
NONCASH FINANCING ACTIVITIES
Common stock issued for services $17
</TABLE>
See accompanying notes.
KLLM TRANSPORT SERVICES, INC
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A- BASIS OF PRESENTATION
The accompanying unaudited condensed
consolidated financial statements have been prepared
in accordance with generally accepted accounting
principles for interim financial information. They
have been prepared in accordance with the
instructions to Form 10-Q and Article 10 of
Regulation S-X and accordingly, do not include all
of the information and footnotes required by
generally accepted accounting principles for
complete financial statements. In the opinion of
management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair
presentation have been included.
As of January 3, 1998, the Company adopted
Financial Accounting Standards Board Statement No.
130, Reporting Comprehensive Income. Statement No.
130 establishes new rules for the reporting and
display of comprehensive income and its components;
however, the adoption of this Statement had no
impact on the Company's consolidated net income or
shareholders' equity. Statement No. 130 requires
unrealized gains or losses on the Company's
available-for-sale securities and foreign currency
translation adjustments, which prior to adoption
were required to be reported separately in
shareholders' equity, to be included in other
comprehensive income. The Company has no
available-for-sale securities or foreign currency
translation adjustments; therefore, no disclosure is
necessary for the second quarter of 1998.
In March 1998, the American Institute of
Certified Public Accountants issued Statement of
Position (SOP) 98-1, Accounting For the Costs of Computer Software
Developed For or Obtained For Internal-Use. The SOP
is effective for financial statements for fiscal
years beginning after December 15, 1998 and
restatement of previously issued annual financial
statements or adoption by cumulative catch-up
adjustment is prohibited. The Company has elected
early adoption of SOP 98-1 for its fiscal year
beginning January 3, 1998. The SOP requires the
capitalization of certain costs incurred after the
date of adoption. The Company incurred no such
costs in the first six months of 1998.
NOTE B- FISCAL YEAR
The Company has adopted a fiscal year-end
on the Friday nearest December 31. Accordingly, the
second quarter of 1998 ended on Friday, July 3,
1998.
NOTE C- COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims
and routine litigation incidental to its business.
Management is of the opinion that the outcome of
these matters will not have a material adverse
effect on the consolidated financial position or
results of consolidated operations of the Company.
The Company has entered into heating oil
(diesel fuel) swap agreements in order to hedge its
exposure to price fluctuations. At July 3, 1998,
the Company had approximately 20.6% of its remaining
1998 anticipated fuel requirements and approximately
5% of its 1999 anticipated fuel requirements under
swap agreements which expire in May, 1999. Gains
and losses on hedging contracts are recognized in
operating expenses as part of the fuel cost over the
hedge period.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Operating revenue for the second quarter of
1998 decreased 4.0% from the comparable period of
1997. The decrease in operating revenue in the
second quarter consisted of a 6.2% decrease from the
Company's traditional over-the-road
temperature-controlled freight services, net of a
2.2% increase from the dry-van over-the-road
truckload division. The decline in revenue reflects
the ongoing challenge of attracting and retaining
qualified drivers. The average revenue per mile
excluding fuel surcharges increased from $1.119 to
$1.146 for the second quarter of 1998 as compared to
the same period in 1997. In 1997, fuel surcharges
increased revenue slightly by $0.005 per mile.
For the year, operating revenue decreased
3.2% from the first six months of 1997 reflecting a
similar decrease in the Company's traditional
over-the-road temperature-controlled business and an
increase in the dry-van over-the-road truckload
business.
Although revenues declined slightly, the
Company improved profitability. The operating ratio
improved from 95.6% to 95.3% for the second quarter
of 1998 compared to the same period in 1997. During
the first six months of 1998 the operating ratio
improved from 97.5% in 1997 to 96.2%.
As a result of the aggressive cost control
measures over the past several quarters, the Company
has seen certain items of expense remain below
prior year levels. Although average driver
compensation rates have increased since the second
quarter of 1997, fewer miles driven and reductions
in nondriver compensation have resulted in a net
decrease in salaries, wages, and benefits of
$969,000 and $306,000 for the second quarter and
first six months of 1998. Operating supplies
decreased $904,000 in the second quarter compared to
the same period last year primarily due to lower
fuel prices ($715,000) and cost control efforts.
For the year, insurance, claims, taxes and licenses
are $347,000 below 1997; however, in the second
quarter, these costs were $440,000 above the second
quarter of 1997 primarily reflecting a higher number
of claims in the quarter. Depreciation and
amortization was $692,000 for the quarter and
$1,257,000 for the first six months below last year
due to the second quarter 1997 write-off of
intangible assets within the restructuring charge
related to exiting the rail container business and
the fourth quarter 1997 special charge to recognize
an impairment in value of the Company's 48-foot
temperature-controlled trailers. During the second
quarter, other expenses increased $392,000 over the
same period last year as a result of increased
expenses related to advertising for and recruiting
of drivers. In the second quarter of 1998, the
Company recognized an improvement of $387,000 from
gains and losses on the disposition of its revenue
equipment as compared to the same period in 1997.
As a result of the foregoing, income from truckload
operations increased by $108,000 or 3.9% for the
second quarter of 1998 and $1,487,000 or 48.0% for
the first six months when compared to the comparable
period of 1997. Other income increased $883,000
during the first half of 1998 as compared to the
same period in 1997 primarily as a result of the
sale of the corporate office building during the
first quarter of 1998. The Company realized a net
gain on disposition of $858,000.
During the second quarter of 1997, the
Company completed its plan to exit the rail
container operation. A restructuring charge of
$1,906,000 was recorded in 1997 as a result of the
decision. Operating losses in the rail operation
were $758,000 in the second quarter and $809,000 in
the first six months of 1997.
Net income for the second quarter of 1998
of $1,204,000 is $1,813,000 greater than the same
period in 1997, which was a net loss of $609,000.
For the year, net income increased $3,274,000 to
$2,210,000 compared to the same period in 1997.
Basic and diluted earnings (loss) per share
increased from $(.14) to $.28 in the second quarter
of 1998 and increased from $(.24) to $.51 in the
first six months compared to the same period in
1997.
The primary restraint on operating results
in 1998 has been recruitment and retention of
drivers. Subsequent to the end of the quarter, the
Company announced a significant restructuring of its
driver compensation plan including provisions which
will raise total driver compensation approximately
7%. Management believes the expected improvement in
retention and experience level will, in time,
produce significant improvements in efficiency and
cost.
LIQUIDITY AND CAPITAL RESOURCES
KLLM Transport Services, Inc.'s primary
sources of liquidity are its cash flow from
operations and its existing credit agreements.
During the twenty-six weeks ended July 3, 1998, the
Company generated $10.2 million in net cash provided
from operating activities.
As a result of the Company's decision to
consolidate the corporate office and terminal
operations, the sale of the corporate office
building was finalized in March 1998. The sale
generated $3.2 million, thus, providing additional
liquidity to the Company. During the first half of
1998, net capital resources required by the Company
were approximately $5 million less than the same
period last year or $.7 million. The most
significant changes from last year have been the
timing of the delivery of new equipment. Net
capital expenditures for the remainder of 1998,
primarily for revenue equipment, are expected to be
approximately $4.6 million. Additionally,
management expects to lease 600
temperature-controlled trailers through the
remainder of 1998.
The Company has a $50,000,000 unsecured
revolving line of credit with a syndication of
banks. Borrowings of $24,000,000 were outstanding
at July 3, 1998. 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 1/5% to 3/8% per
annum are charged on the unused portion of this
line.
At July 3, 1998, the aggregate principal
amount of the Company's outstanding long-term
indebtedness was approximately $40.4 million. Of
this total outstanding, $1.2 million was in the form
of 10.6% notes due July 15, 1998, $11.4 million in
the form of 9.5% senior notes due June 15, 2002,
$24.0 million consisted of the revolving line of
credit due April 7, 1999, and $3.8 million principal
related to capital leases with varying maturities.
Working capital needs have generally been
met from net cash provided from operating
activities. The Company has $4,000,000 in an
unsecured working capital line of credit with a
bank, all of which was available at July 3, 1998.
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.
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.
IMPACT OF YEAR 2000
During 1998 the Company has progressed with
modifications to its computer software which will
enable its computer systems to function properly
with respect to dates in the year 2000 and
thereafter. The total project is estimated at
approximately $700,000 for the purchase of new
software and the modification of existing software.
The project is estimated to be completed no later
than June 30, 1999, which is prior to any
anticipated impact on the operations of the Company.
FACTORS AFFECTING FUTURE PERFORMANCE
The Company's future operating results may
be affected by various trends and factors which are
beyond the Company's control. These include adverse
changes in demand for trucking services,
availability of drivers and fuel prices.
Accordingly, past performance should not be presumed
to be an accurate indication of future performance.
SEASONALITY
In the transportation industry, results of
operations generally show a seasonal pattern because
customers reduce shipments during and after the
winter holiday season with its attendant weather
variations. The Company's operating expenses have
historically been higher in the winter months
primarily due to decreased fuel efficiency and
increased maintenance costs in colder weather.
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27 - Financial Data Schedule
There were no Form 8-K filings for the
quarter ended July 3, 1998.
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KLLM TRANSPORT SERVICES, INC.
(Registrant)
<TABLE>
<S> <C>
Date August 12, 1998
s/William J. Liles, III
--------------------------
William J. Liles, III
President and Chief Executive Officer
Date August 12, 1998
s/Steven L. Dutro
--------------------------
Steven L. Dutro
Chief Financial Officer
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KLLM TRANSPORT SERVICES,INC.
(Registrant)
<TABLE>
<S> <C>
Date August 12, 1998
/s/William J. Liles, III
----------------------------
William J. Liles,III
President and Chief
Executive Officer
Date August 12, 1998
/s/Steven L. Dutro
---------------------------
Steven L. Dutro
Chief Financial Officer
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-01-1999
<PERIOD-END> JUL-03-1998
<CASH> 1,006
<SECURITIES> 0
<RECEIVABLES> 21,570
<ALLOWANCES> 551
<INVENTORY> 613
<CURRENT-ASSETS> 34,188
<PP&E> 134,410
<DEPRECIATION> 32,025
<TOTAL-ASSETS> 136,710
<CURRENT-LIABILITIES> 36,040
<BONDS> 0
0
0
<COMMON> 4,559
<OTHER-SE> 49,779
<TOTAL-LIABILITY-AND-EQUITY> 136,710
<SALES> 0
<TOTAL-REVENUES> 119,303
<CGS> 0
<TOTAL-COSTS> 114,718
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,826
<INCOME-PRETAX> 3,685
<INCOME-TAX> 1,475
<INCOME-CONTINUING> 2,210
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,210
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0.51
</TABLE>
