<PAGE> 1
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 Quarterly Period Ended July 2, 1999 Commission File Number 0-14759
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KLLM TRANSPORT SERVICES, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 64-0412551
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
135 Riverview Drive
Richland, Mississippi 39218
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(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 [ ]
4,095,134 Common Shares were outstanding as of July 2, 1999.
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KLLM TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
Number
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<S> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
July 2, 1999 (Unaudited) and January 1, 1999 1
Consolidated Statements of Earnings (Unaudited)
Thirteen weeks and Twenty-six weeks ended
July 2, 1999 and July 3, 1998 2
Condensed Consolidated Statements of Cash Flows
(Unaudited) Twenty-six weeks ended
July 2, 1999 and July 3, 1998 3
Notes to Condensed Consolidated Financial
Statements (Unaudited) 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
Item 3. Quantitative and Qualitative Disclosures about Market Risk 7
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 8
</TABLE>
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KLLM TRANSPORT SERVICES, INC
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 2, January 1,
1999 1999
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(Unaudited) (Note)
(In thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,142 $ 756
Accounts receivable 24,390 21,132
Inventories - at cost 771 597
Prepaid expenses:
Tires 2,847 2,758
Other 3,395 2,490
Assets held for sale 1,530 1,530
Deferred income taxes 5,818 5,818
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Total current assets 39,893 35,081
Property and equipment 134,957 131,953
Less accumulated depreciation (39,703) (33,741)
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95,254 98,212
Other assets 22 69
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$ 135,169 $ 133,362
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 13,574 $ 11,745
Accrued claims expense 14,452 15,041
Current maturities of long-term debt
and capital leases 0 2,857
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Total current liabilities 28,026 29,643
Long-term debt and capital leases, less
current maturities 41,000 36,571
Deferred income taxes 14,480 14,480
Stockholders' equity:
Preferred Stock, $.01 value; authorized 5,000,000 shares; none issued
Common Stock, $1 par value; 10,000,000 shares authorized;
issued shares - 4,558,754 in 1999 and 1998;
outstanding shares - 4,095,134 in 1999 and 4,224,488 in 1998 4,559 4,559
Additional paid-in capital 32,840 32,858
Retained earnings 18,494 18,569
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55,893 55,986
Less common stock in treasury, 463,620 shares
in 1999 and 334,266 shares in 1998, at cost (4,230) (3,318)
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Total stockholders' equity 51,663 52,668
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$ 135,169 $ 133,362
========= =========
</TABLE>
Note: The balance sheet at January 1, 1999 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.
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KLLM TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
July 2, July 3, July 2, July 3,
1999 1998 1999 1998
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(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
OPERATING REVENUE $ 61,229 $ 60,113 $ 116,560 $ 119,303
OPERATING EXPENSES:
Salaries, wages and fringe benefits 21,015 18,081 40,357 37,837
Operating supplies and expenses 14,970 14,514 28,116 28,845
Insurance, claims, taxes and licenses 2,798 3,938 5,941 7,188
Depreciation and amortization 4,574 4,514 8,941 9,174
Purchased transportation and equipment rent 13,855 13,431 26,206 26,167
Other 2,866 2,985 5,545 5,714
Gain on sale of revenue equipment (391) (205) (508) (207)
-------- -------- --------- ---------
TOTAL OPERATING EXPENSES 59,687 57,258 114,598 114,718
-------- -------- --------- ---------
OPERATING INCOME 1,542 2,855 1,962 4,585
Interest and other income (13) (19) (21) (926)
Interest expense 908 870 1,711 1,826
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895 851 1,690 900
-------- -------- --------- ---------
EARNINGS BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 647 2,004 272 3,685
Income taxes 250 800 100 1,475
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NET EARNINGS BEFORE EXTRAORDINARY ITEM 397 1,204 172 2,210
Expenses associated with the early extinguishment of debt,
net of taxes 247 0 247 0
======== ======== ========= =========
NET EARNINGS (LOSS) $ 150 $ 1,204 $ (75) $ 2,210
======== ======== ========= =========
BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE:
From operations $ 0.10 $ 0.28 $ 0.04 $ 0.51
From expenses associated with the early extinguishment
of debt (0.06) 0 (0.06) 0
======== ======== ========= =========
Net earnings (loss) per common share $ 0.04 $ 0.28 $ (0.02) $ 0.51
======== ======== ========= =========
</TABLE>
See accompanying notes.
2
<PAGE> 5
KLLM TRANSPORT SERVICES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
July 2, July 3,
1999 1998
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(In Thousands)
<S> <C> <C>
NET CASH PROVIDED BY OPERATING
ACTIVITIES $ 5,447 $ 10,241
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (16,077) (5,673)
Proceeds from disposition of property, equipment and
assets held for sale 10,404 5,014
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NET CASH FLOWS USED IN INVESTING ACTIVITIES (5,673) (659)
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of common stock for treasury (960) 0
Net increase (decrease) in borrowings under
revolving line of credit 13,000 (6,000)
Repayment of long-term debt and capital leases (11,428) (3,246)
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NET CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES 612 (9,246)
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Net Increase in Cash and Cash Equivalents 386 336
Cash and Cash Equivalents at Beginning of Period 756 670
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Cash and Cash Equivalents at End of Period $ 1,142 $ 1,006
======== ========
NONCASH FINANCING ACTIVITIES
Common stock issued for services $ 30 $ 17
======== ========
</TABLE>
See accompanying notes.
3
<PAGE> 6
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.
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS No. 133). The provisions of SFAS No. 133 require all
derivatives to be recorded on the balance sheet at fair value. SFAS No. 133
establishes "special accounting" for fair value hedges, cash flow hedges, and
hedges of foreign currency exposures of net investments in foreign operations.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives will either be offset against the change in fair
value of the hedged item through earnings or recognized in other comprehensive
income until the hedged item is recognized in earnings. Management expects the
effect of the adoption of this statement will be insignificant to the results of
the consolidated operations and financial position of the Company when it
becomes effective for fiscal 2000.
NOTE B- FISCAL YEAR
The Company has adopted a fiscal year-end on the Friday nearest
December 31. Accordingly, the second quarter of 1999 ended on Friday, July 2,
1999.
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.
To hedge its exposure to price fluctuations, the Company periodically
enters into heating oil (diesel fuel) swap agreements. Agreements to purchase
19% of the remaining 1999 anticipated fuel requirements and approximately 5% of
its anticipated fuel requirements for the year 2000 were in place at the end of
the quarter. Such agreements are settled monthly and are accounted for as hedges
with gains and losses recognized in operating expenses using the accrual method
as part of the fuel cost over the hedge period. The Company does not engage in
speculative transactions nor does the Company hold or issue derivative
instruments for trading purposes.
4
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Operating revenue for the second quarter of 1999 increased 2% from the
comparable period of 1998 consistent with the increase in the number of trucks
in operation. The increase in operating revenue in the second quarter consisted
of a 2% decrease from the Company's traditional over-the-road
temperature-controlled freight services, net of a 4% increase from the dry-van
over-the-road truckload division. The average revenue per mile decreased from
$1.14 to $1.12 for the second quarter of 1999 as compared to the same period in
1998. There were no fuel surcharges in either period.
Operating revenue decreased 2% from the first six months of 1998
reflecting the impact of winter weather in the first quarter of 1999 compared to
the same period in 1998. Operating revenue in the second quarter did not dilute
the negative impact of the winter weather on 1999 revenue from the first
quarter.
The operating ratio increased from 95.3% to 97.5% for the second
quarter of 1999 compared to the same period in 1998. During the first six months
of 1999, the operating ratio increased from 96.2% to 98.3%.
During the third quarter of 1998, the Company implemented a
restructured pay package that increased compensation for certain drivers. An
increase in the utilization of equipment resulted in more miles which further
increased driver wages. For the first half of 1999, insurance, claims, taxes and
licenses were $1,247,000 below the first half of 1998. Favorable claims
experience combined with the results of aggressive claims management has led to
a decrease in the expense rate for insurance and claims. The Company's equipment
trade cycle resulted in a gain on the disposition of revenue equipment of
$508,000 during the first six months of 1999, an increase of $301,000 over the
same period in 1998.
As a result of the foregoing, operating income decreased by $1,313,000
and $2,623,000 for the second quarter and first six months of 1999,
respectively, when compared to the comparable periods of 1998. For the first six
months of 1999, other income was $905,000 greater last year as a result of the
sale of the corporate office building during the first quarter of 1998.
Net income, before the extraordinary item, decreased $807,000 and
$2,038,000 for the second quarter and the first six months of 1999,
respectively, compared to the same periods in 1998. Basic and diluted earnings
per share before the extraordinary item, decreased from $.28 to $.10 in the
second quarter of 1999 and decreased from $.51 to $.04 for the first half of
1999 compared to the same periods in 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash flow from
operations and its existing credit agreements. During the twenty-six weeks ended
July 2, 1999, the Company generated $5,447,000 in net cash from operating
activities.
During the first six months of 1999, net capital resources required by
the Company were approximately $5.7 million. Net capital expenditures for the
remainder of 1999, primarily for revenue equipment, are expected to be
approximately $13 million, although management may finance a portion of the
capital expenditures with operating leases. The Company entered into operating
leases for 200 trailers during the first quarter and 400 trailers in the second
quarter of 1999. Leases for 65 tractors were also entered into during the second
quarter of 1999.
The Company has a $50,000,000 unsecured revolving line of credit (the
"Revolver") with a syndication of banks. Borrowings under the Revolver of
$41,000,000 were outstanding at July 2, 1999. Under the terms of the Revolver,
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 2, 1999, borrowing under the Revolver was the Company's only long-term
debt outstanding. Subsequent to the end of the quarter, the Revolver was
amended, increasing the line of credit to $60,000,000 and extending the maturity
date to April 2001.
During the quarter, the Company fully prepaid the 9.11% senior notes
(1992 debt) which were due June 2002. Under the terms of the prepayment, fees
and other expenses totaling $247,000, net of a $150,000 tax benefit, were
incurred. With the prepayment of the 1992 debt, the Company's average effective
interest rate for debt outstanding was
5
<PAGE> 8
reduced from 6.8% to 6.0%. Expenses relating to the prepayment of the 1992 debt
are included in the consolidated statements of earnings as an extraordinary
item. Prepayment of the 1992 debt eliminated certain restrictive financial
covenants.
Working capital needs have generally been met from net cash provided
from operating activities. The Company has a $4 million unsecured working
capital line of credit with a bank, all of which was available at July 2, 1999.
Interest is at a rate based upon the Eurodollar rates with facility fees at 1/4%
per annum on the unused portion of the line.
In 1998, the Company announced plans to purchase up to 150,000 shares
of the Company's outstanding stock. During 1999, 134,000 shares were repurchased
for $960,000 of which 50,000 shares for $356,000 were repurchased from the
Estate of B.C. Lee, Jr., former Chairman of the Board.
The Company anticipates that its existing credit facilities along with
cash flow from operations will be sufficient to fund operating expenses, capital
expenditures, debt service, and any additional stock repurchases.
IMPACT OF YEAR 2000
Some of the Company's older computer programs were written using two
digits rather than four to define the applicable year. As a result, those
computer programs have time-sensitive software that recognizes a date using "00"
as the year 1900 rather than the year 2000. This date problem could cause a
system failure or could cause miscalculations which would disrupt operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities. During 1999 the
Company has progressed with modifications to its computer software which will
enable its computer systems to function properly with respect to dates in the
year 2000 and thereafter. The failure of the Company, its suppliers, or its
customers to adequately prepare for the Year 2000 problem could have an adverse
effect on the consolidated operations of the Company.
Beginning in mid 1996, the Company established a conversion timeline.
Each software system was identified and categorized as year 2000 ready,
not-ready and conversion planned, and not-ready with replacement planned. During
the two and one-half years since that study, the conversion effort and timeline
has been updated to reflect progress on the overall project. Consistent with the
original year 2000 conversion timeline, the project is approximately ninety-five
percent complete. At present, management of the Company believes that sufficient
resources are in place to complete the effort by the end of the third quarter.
Upon completion of the effort, detail testing, including actually changing the
date to the year 2000 in certain systems, will be performed to ensure a seamless
passage into the year 2000. The total project is estimated at approximately
$700,000 for the purchase of new software and the modification of existing
software with $400,000 of the total capitalized and the remaining $300,000
expensed as incurred. Through July 2, 1999, approximately $350,000 had been
capitalized and $220,000 had been expensed.
To determine the scope of the effort beyond the Company's systems, each
operating department of the Company is determining the population of significant
suppliers and their level of preparedness. In certain applications, tests have
been performed to ensure an uneventful continuation of business. The Company's
suppliers, vendors, and equipment manufacturers, have indicated that they
continue to assess the impact of the Year 2000 on their operations. In the event
of an unforeseen problem, the Company is studying contingency plans that may
include communication with drivers other than via satellite and manual
transactions. If certain suppliers such as fuel vendors are unable to supply
products or if customer locations are closed due to their inability to operate,
the Company's operations could be suspended. Although management has been
assured that revenue equipment will not be affected, a Year 2000 electronic
malfunction could render certain equipment inoperable.
The Company's diverse customer base provides assurance that the
inability of one customer to operate, due to Year 2000 related problems, will
not have a significant adverse impact on the operations of the Company.
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.
6
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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.
FORWARD LOOKING INFORMATION
The foregoing statements contain forward-looking statements which
involve risks and uncertainties and the Company's actual experience may differ
materially from that discussed above. Factors that may cause such a difference
include, but are not limited to, those discussed in "Factors Affecting Future
Performance" as well as future events that have the effect of reducing the
Company's available cash balances, such as unanticipated operating losses or
capital expenditures related to possible future acquisitions. Readers are
cautioned not to place undue reliance on forward-looking statements, which
reflect management's analysis only as of the date hereof. The Company assumes no
obligation to update forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK
Market risk relating to the Company's operations result primarily from
changes in interest rates and the price of heating oil (diesel fuel), as well as
credit risk concentration. The Company does not use financial instruments for
trading purposes and is not a party to any leveraged derivatives.
The Company's interest expense is sensitive to changes in the general
level of U. S. interest rates.
7
<PAGE> 10
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 2, 1999.
8
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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)
Date August 16, 1999 /s/ Jack Liles
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Jack Liles
Chairman of the Board, President and
Chief Executive Officer
Date August 16, 1999 /s/ Steven L. Dutro
-------------------------- -------------------------------------
Steven L. Dutro
Senior Vice President and Chief
Financial Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-02-1999
<PERIOD-END> JUL-02-1999
<CASH> 1,142
<SECURITIES> 0
<RECEIVABLES> 24,760
<ALLOWANCES> 370
<INVENTORY> 771
<CURRENT-ASSETS> 39,893
<PP&E> 134,957
<DEPRECIATION> 39,703
<TOTAL-ASSETS> 135,169
<CURRENT-LIABILITIES> 28,026
<BONDS> 0
0
0
<COMMON> 4,559
<OTHER-SE> 47,104
<TOTAL-LIABILITY-AND-EQUITY> 135,169
<SALES> 0
<TOTAL-REVENUES> 116,560
<CGS> 0
<TOTAL-COSTS> 114,598
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,711
<INCOME-PRETAX> 272
<INCOME-TAX> 100
<INCOME-CONTINUING> 172
<DISCONTINUED> 0
<EXTRAORDINARY> (247)
<CHANGES> 0
<NET-INCOME> (75)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
