<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year Commission file number 0-14759
ended December 31, 1999
KLLM TRANSPORT SERVICES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 64-0412551
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
135 Riverview Drive
Richland, Mississippi 39218
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (601) 939-2545
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 Value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of voting stock held by nonaffiliates of the
registrant as of the close of business on March 24, 2000: $27,620,824.
The number of shares outstanding of registrant's common stock as of March
24, 2000: 4,101,468.
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference:
Document Part
-------- ----
Annual Report to Shareholders for year ended
December 31, 1999 II
Definitive Proxy Statement for Annual Meeting of
Shareholders to be held May 26, 2000 to be filed with
the Securities and Exchange Commission pursuant
to Regulation 14A III
Only the portions of KLLM Transport Services, Inc.'s 1999 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> 3
KLLM TRANSPORT SERVICES, INC.
FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I
1. Business ................................................................................ 4
2. Properties .............................................................................. 6
3. Legal Proceedings ....................................................................... 7
4. Submission of Matters to a Vote of Security Holders ..................................... 7
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters ................... 8
6. Selected Financial Data ................................................................. 8
7. Management's Discussion and Analysis of Financial Condition and Results of Operations ... 8
7A. Quantitative and Qualitative Disclosures About Market Risk .............................. 8
8. Financial Statements and Supplementary Data ............................................. 8
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .... 8
PART III
10. Directors and Executive Officers of the Registrant ...................................... 9
11. Executive Compensation .................................................................. 9
12. Security Ownership of Certain Beneficial Owners and Management .......................... 9
13. Certain Relationships and Related Transactions .......................................... 9
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ......................... 10
</TABLE>
<PAGE> 4
PART I
ITEM 1. BUSINESS.
KLLM Transport Services, Inc. (through its wholly-owned subsidiary,
KLLM, Inc., hereinafter referred to as "the Company") is an irregular-route
common carrier that specializes in providing high-quality transportation service
in North America. The Company primarily serves the continental United States,
Canada and Mexico. A Delaware corporation, the Company is the successor, by
merger, to KLLM Distributing, Inc. ("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.
Protective service is provided on commodities such as food, medical supplies and
cosmetics. Service offerings include over-the-road long haul, regional, and
dedicated fleet transportation. These services are provided with both
Company-operated and owner-operated equipment.
The Company currently owns (or leases) and operates substantially all
of its fleet. On December 31, 1999, the Company's fleet consisted of 1,422
Company-operated tractors and 260 owner-operated tractors, 1,948
temperature-controlled trailers and 793 dry-van trailers. Capital expenditures,
net of proceeds from trade-ins during 1999, were approximately $17,535,000. Net
capital expenditures in 1998 were $4,823,000. Net capital expenditures in 2000
are expected to be approximately $28,400,000.
MARKETING AND OPERATIONS
The Company specializes in providing high-quality transportation
services in North America. The Company seeks customers who value its premium
services, who need a certain number of trucks each week and who require
dependable service in meeting schedule requirements.
The Company's full-time staff of six (6) salespersons, along with
certain executives, is responsible for developing new accounts. Once a customer
relationship is established, the primary Company contact is an operations
manager who is either dedicated to the customer or who is responsible to a
geographic territory. Working from the Company's corporate headquarters in
Mississippi and Louisiana, these managers contact existing customers to solicit
additional business.
The Company has driver terminal operations in Georgia, Louisiana,
California, Indiana, Pennsylvania and Mississippi. Maintenance facilities are
located in Mississippi, Louisiana, Texas and Georgia.
The Company's largest 25, 10 and 5 customers accounted for
approximately 65%, 49%, and 39%, respectively, of its revenue for the year ended
December 31, 1999. During 1999, 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,
Bastrop, Louisiana 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.
4
<PAGE> 5
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 the Mississippi and California driver terminal
locations. On December 31, 1999, the Company employed 1,418 drivers and had a
total of 1,851 employees. None of the Company's employees is represented by a
collective bargaining unit.
COMPETITION
The Company competes primarily with other long-haul truckload carriers
and with internal shipping conducted by existing and potential customers. The
Company also competes with other irregular-route long-haul truckload carriers,
and to a lesser extent, the railroads, for freight loads. Although the increased
competition resulting from a combination of deregulation, weak market demand,
and a shortage of qualified drivers has created some pressure to reduce rates,
the Company competes primarily on the basis of its quality of service and
efficiency.
TRADEMARK
The Company's service mark, the KLLM logo, is registered with the
United States Patent and Trademark Office.
SEASONALITY
In the freight transportation industry generally, results of operations
show a seasonal pattern because customers reduce shipments during and after the
winter holiday season with its attendant weather variations. The Company's
operating expenses have historically been higher in the winter months primarily
due to decreased fuel efficiency and increased maintenance costs in colder
weather.
ITEM 2. PROPERTIES.
The Company's corporate office is located in Richland, Mississippi, a
suburb of Jackson. All driver-related executive and administrative functions,
including safety, driver training, maintenance and driver recruiting are housed
in this location. The Company owns a portion of the land on which this facility
is located. The remainder is owned by the Liles and Lee families (or entities or
trusts controlled by those families), major shareholders of the Company. The
Company owns all of the improvements, consisting of approximately 31,200 square
feet of office space and approximately 40,000 square feet of equipment repair
and maintenance space. The Company has an option to purchase the Liles and Lee
part of the land for $390,257.
The 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 sixteen acres of land.
5
<PAGE> 6
Additionally, the Company's dry-van operation in Bastrop, Louisiana is
situated on 20 acres of land. The facilities located thereon include
approximately 8,000 square feet of office space and 36,500 square feet of
maintenance space.
The remaining driver terminal facilities are leased by the Company
pursuant to various short-term leases.
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.
6
<PAGE> 7
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
"Market and Dividend Information" on page 6 of the Company's 1999
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 4 of the Company's 1999
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 7 - 10 of the Company's 1999 Annual Report to
Shareholders is incorporated herein by reference in response to this item,
except that the estimated net capital expenditures is expected to be
approximately $28,400,000 rather than the $40,700,000 on page 10 of the
Company's 1999 Annual Report. You should read the following discussion and
analysis and the discussion and analysis incorporated by reference from the
Company's 1999 Annual Report in conjunction with "Item 6. Selected Financial
Data" and "Item 8. Financial Statements and Supplementary Data" incorporated
herein by reference from the Company's 1999 Annual Report, which may contain
forward-looking statements relating to our future financial performance,
business strategy, financing plans and other future events that involve
uncertainties and risks. The Company's actual results could differ materially
from the results anticipated by such forward-looking statements as a result of
many known and unknown factors, including but not limited to those discussed
below, those discussed in "-Factors Affecting Future Performance" in the
Company's 1999 Annual Report and those discussed elsewhere in this report and
the Company's 1999 Annual Report.
IN ADDITION TO THE "-FACTORS AFFECTING FUTURE PERFORMANCE" INCORPORATED
HEREIN BY REFERENCE FROM THE COMPANY'S 1999 ANNUAL REPORT, ANOTHER FACTOR
AFFECTING FUTURE PERFORMANCE IS THAT THE COMPANY HAS ADOPTED MEASURES THAT HAVE
ANTI-TAKEOVER EFFECTS, WHICH MAY DISCOURAGE TRANSACTIONS THAT MAY BE BENEFICIAL
TO STOCKHOLDERS.
Under the Company's Certificate of Incorporation, the Board of
Directors may issue Preferred Stock, with any rights the Company wishes to
assign them, without stockholder action. The Company has also adopted a
Stockholder Rights Plan under which the Company has distributed rights to
purchase shares of its Participating Preferred Stock to its stockholders. If
certain triggering events occur, the holders of the rights will be able to
purchase shares of Common Stock at a price substantially discounted from the
then applicable market price of the Common Stock.
The Company has also entered into or anticipates entering into Change
of Control Agreements with certain employees of the Company which, upon certain
triggering events, will cause the Company to pay such employees, in the
aggregate, approximately $1,876,600.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
"Market Risk" on page 9 of the Company's 1999 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 11 - 22 of the Company's 1999 Annual Report to
Shareholders are incorporated herein by reference in response to this item.
"Selected Quarterly Data (Unaudited)" on page 5 of the Company's 1999
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.
7
<PAGE> 8
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 May 26,
2000 Annual Meeting of Shareholders to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A, is incorporated herein by reference in
response to this item.
The information under the caption, "Election of Directors--Management,"
of the Company's definitive proxy statement for its scheduled May 26, 2000
Annual Meeting of Shareholders to be 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 May 26, 2000 Annual Meeting of Shareholders to be 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 May 26, 2000 Annual Meeting of
Shareholders to be filed with the Securities and 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 May
26, 2000 Annual Meeting of Shareholders to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A, is incorporated herein by
reference in response to this item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information under the caption "Certain Transactions" of the
Company's definitive proxy statement for its scheduled May 26, 2000 Annual
Meeting of Shareholders to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A, is incorporated herein by reference in response to
this item.
8
<PAGE> 9
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
a. The following documents are filed, as part of this report or
incorporated by reference herein:
1. Financial Statements
The following consolidated financial statements of the
Company and its subsidiaries, included in the Company's Annual
Report, are incorporated by reference in Item 8:
Consolidated Balance Sheets-January 1, 1999 and
December 31, 1999.
Consolidated Statements of Operations--Years ended
January 2, 1998, January 1, 1999 and December 31, 1999.
Consolidated Statements of Stockholders' Equity--Years ended
January 2, 1998, January 1, 1999 and December 31, 1999.
Consolidated Statements of Cash Flows--Years ended
January 2, 1998, January 1, 1999 and December 31, 1999.
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
The following consolidated financial statement schedule is
included in Item 14(d):
Schedule II - Valuation and Qualifying Accounts.
All other schedules for which provision is made in the
applicable accounting regulations of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable, and therefore have been
omitted.
3. Listing of Exhibits
(i) Exhibits filed pursuant to Item 601 of Regulation S-K
9
<PAGE> 10
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
10.7 KLLM, Inc. Cafeteria Plan 6
10.9 Option to purchase real property on which terminal facility
is located from Messrs. Liles and Lee 4
10.11 Revolving Credit Agreement by andamong KLLM, Inc.,
NationsBank of Georgia, National Association, The First
National Bank of Chicago, Deposit Guaranty National Bank,
and ABN Amro Bank, N.V. 7
10.15 1996 Stock Option Plan 8
10.16 Amended and Restated 1996 Stock Purchase Plan 8
10.17 1998 Non-Employee Director Stock Compensation Plan 9
10.18 Stockholder Protection Rights Agreement dated February 13,
1997 between KLLM Transport Services, Inc. and KeyCorp
Shareholder Services, Inc.,as Rights Agent 10
10.19 Change in Control Agreement
13 1999 Annual Report (only portions incorporated by reference
are deemed filed)
21 List of Subsidiaries of the Registrant
- --------
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, 1990 (File No. 0-14759).
7 Incorporated herein by reference to Registrant's Annual Report on Form 10-K
for the year ended December 30, 1994 (File No. 0-14759).
8 Incorporated herein by reference to Registrant's Annual Report on Form 10-K
for the year ended January 3, 1997 (File No. 0-14759).
9 Incorporated herein by reference to Registrant's Annual Report on Form 10-K
for the year ended January 2, 1998 (File No. 0-14759).
10 Incorporated herein by reference to Registrant's Form 8-A12G\A as filed on
February 24, 1997 (File No. 001-12751).
10
<PAGE> 11
23 Consent of Ernst & Young LLP
27 Financial Data Schedule
(b) Reports on Form 8-K filed in the fourth quarter of 1999:
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.
11
<PAGE> 12
INFORMATION REGARDING THE COMPANY'S EMPLOYEE STOCK PURCHASE PLAN and THE
COMPANY'S AMENDED AND RESTATED 1996 STOCK PURCHASE PLAN INCLUDED PURSUANT TO
RULE 15d-21.
1. Full title of the Plans:
KLLM Transport Services, Inc. Employee Stock Purchase
Plan
KLLM Transport Services, Inc. Amended and Restated
1996 Stock Purchase Plan
2. Name of issuer of the securities held pursuant to the Plans
and the address of its principal executive office:
KLLM Transport Services, Inc.
135 Riverview Drive
Richland, Mississippi 39218
3. Financial Statements and Exhibits
Not applicable.
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this annual report to be
signed on its behalf by the undersigned thereunto duly authorized.
KLLM TRANSPORT SERVICES, INC.
Date: March 30, 2000 By: /s/ Jack Liles
------------------------- -------------------------------------
Jack Liles
Chairman of the Board, President, and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: March 30, 2000 /s/ Jack Liles
------------------------- -------------------------------------
Jack Liles
Chairman of the Board, President, and
Chief Executive Officer
Date: March 30, 2000 /s/ James L. Young
------------------------- -------------------------------------
James L. Young
Secretary and Director
Date:
------------------------- -------------------------------------
David L. Metzler
Director
Date: March 30, 2000 /s/ Walter P. Neely
------------------------- -------------------------------------
Walter P. Neely
Director
Date:
------------------------- -------------------------------------
Leland R. Speed
Director
Date: March 30, 2000 /s/ Steven L. Dutro
------------------------- -------------------------------------
Steven L. Dutro
Senior Vice President and Chief
Financial Officer
Date: March 30, 2000 /s/ A. K. Northrop
------------------------- -------------------------------------
A. K. Northrop
Corporate Controller
13
<PAGE> 14
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. Amended and
Restated 1996 Stock Purchase Plan, have duly caused this annual report to be
signed on its behalf by the undersigned hereunto duly authorized.
KLLM TRANSPORT SERVICES, INC. EMPLOYEE
STOCK PURCHASE PLAN and
KLLM TRANSPORT SERVICES, INC. AMENDED
AND RESTATED 1996 STOCK PURCHASE PLAN
Date: March 30, 2000 By: /s/ Jack Liles
------------------------- -------------------------------------
Jack Liles
Chairman of the Board, President, and
Chief Executive Officer
14
<PAGE> 15
ITEM 14(a)(2) and (c)
FINANCIAL STATEMENT SCHEDULES
KLLM TRANSPORT SERVICES, INC. and SUBSIDIARIES
SCHEDULE II - VALUATION and QUALIFYING
ACCOUNTS Years Ended January 2, 1998, January 1, 1999,
and December 31, 1999
This schedule contains summary financial information extracted from the
consolidated financial statements for the three years ended December 31, 1999
and is qualified in its entirely by reference to such financial statements.
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO WRITE-OFF BALANCE AT
BEGINNING COST AND OF END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS OF PERIOD
----------- --------- -------- -------- ---------
(In Thousands)
<S> <C> <C> <C> <C>
Accounts Receivable Allowance:
Year ended January 2, 1998 $682 $335 $128 $889
Year ended January 1, 1999 $889 $213 $552 $550
Year ended December 31, 1999 $550 $378 $512 $416
</TABLE>
15
<PAGE> 16
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
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
10.7 KLLM, Inc. Cafeteria Plan 6
10.9 Option to purchase real property on which terminal
facility is located from Messrs. Liles and Lee 4
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. 7
10.15 1996 Stock Option Plan 8
10.16 Amended and Restated 1996 Stock Purchase Plan 8
10.17 1998 Non-Employee Director Stock Compensation Plan 9
10.18 Stockholder Protection Rights Agreement dated February
13, 1997 between KLLM Transport Services, Inc. and
KeyCorp Shareholder Services, Inc., as Rights Agent 10
10.19 Change in Control Agreement
13 1999 Annual Report (Only portions incorporated by
reference are deemed filed)
- ----------
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, 1990 (File No. 0-14759).
7 Incorporated herein by reference to Registrant's Annual Report on Form 10-K
for the year ended December 30, 1994 (File No. 0-14759).
8 Incorporated herein by reference to Registrant's Annual Report on Form 10-K
for the year ended January 3, 1997 (File No. 0-14759).
9 Incorporated herein by reference to Registrant's Annual Report on Form 10-K
for the year ended January 2, 1998 (File No. 0-14759).
10 Incorporated herein by reference to Registrant's Form 8-A12G\A as filed on
February 24, 1997 (File No. 001-12751).
<PAGE> 17
21 List of Subsidiaries of the Registrant
23 Consent of Ernst & Young LLP
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.19
CHANGE IN CONTROL AGREEMENT
THIS CHANGE IN CONTROL AGREEMENT (this "Agreement") is made as of this
30th day of December, 1999, between KLLM, Inc. ("KLLM"), and [NAME OF PERSON]
("Employee").
RECITALS
Employee is employed by KLLM. The Board of Directors of KLLM (the
"Board"), has determined that it is in the best interests of KLLM and its sole
shareholder, KLLM Transport Services, Inc. (the "Company") to assure that KLLM
will have the continued dedication of Employee, notwithstanding the possibility,
threat or occurrence of a Change in Control (as defined below) of the Company.
The Board believes it is imperative to diminish the inevitable distraction of
Employee by virtue of the personal uncertainties and risks created by a pending
or threatened Change in Control and to encourage Employee's full attention and
dedication to KLLM currently and in the event of any threatened or pending
Change in Control. Therefore, in order to accomplish these objectives, the Board
has caused KLLM to enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual promises set forth
below, in order to induce Employee to remain in the employ of KLLM, and to
provide continued services to KLLM now and in the event a Change of Control
occurs within the 12 month term hereof, this Agreement sets forth a Bonus, which
KLLM offers to pay to Employee in the event of a termination of employment
pursuant to those circumstances described in Section 3 below at the time and in
the manner prescribed herein.
AGREEMENT
1. EFFECTIVE DATE. This Agreement shall be effective as of the date
first noted above (the "Effective Date").
2. PERFORMANCE OF SERVICE. Employee agrees to devote his or her full
business time, attention, skill and best efforts while at work exclusively to
the faithful performance of his or her duties assigned from time to time by
KLLM. The term of this Agreement shall commence immediately upon the date hereof
and continue for a period of twelve (12) months thereafter.
3. BONUS PAYMENT. If Employee's employment with KLLM shall have
terminated within twelve (12) months after a Change in Control due to (i)
Employee's termination by KLLM without Cause (as defined below), or (ii)
Employee's resignation for Good Reason (as defined below), then KLLM will pay to
Employee a bonus (the "Bonus") equal to but not less than [PERCENTAGE OF GROSS
ANNUAL SALARY] of his gross annual salary, as of the Effective Date of this
Agreement, in cash, less applicable withholding of taxes. The Bonus shall be due
and payable on the date Employee's employment is terminated pursuant to clauses
(i) or (ii) above.
<PAGE> 2
4. DEFINED TERMS.
(i) CHANGE IN CONTROL. For the purposes of this Agreement, a "Change in
Control" shall mean the occurrence of any of the following events:
(a) Individuals who, at the Effective Date, constitute the
Board of Directors of the Company (the "Incumbent Directors") cease for
any reason to constitute at least a majority of the Company's Board,
provided that any person becoming a director after the Effective Date
and whose election or nomination for election was approved by a vote of
at least a majority of the Incumbent Directors then on the Board
(either by a specific vote or by approval of the proxy statement of the
Company in which such person is named as a nominee for director,
without written objection to such nomination) shall be an Incumbent
Director; provided, however, that no Individual initially elected or
nominated as a director of the Company as a result of an actual or
threatened election contest (as described in Rule 14a-11 under the 1934
Act ("Election Contest") or other actual or threatened solicitation of
proxies or consents by or on behalf of any "person" (as such term is
defined in Section 3(a)(9) of the 1934 Act and as used in Section
13(d)(3) and 14(d)(2) of the 1934 Act) other than the Board ("Proxy
Contest"), including by reason of any agreement intended to avoid or
settle any Election Contest or Proxy Contest, shall be deemed an
Incumbent Director;
(b) any person is or becomes a "beneficial owner" (as defined
in Rule 13d-3 under the 1934 Act), directly or indirectly, of
securities of the Company representing 15% or more of either (i) the
then outstanding shares of common stock or (ii) the combined voting
power of the Company's then outstanding securities eligible to vote for
the election of the Board (the "Company Voting Securities"); provided,
however, that the event described in this paragraph (b) shall not be
deemed to be a Change in Control of the Company by virtue of any of the
following acquisitions: (A) any acquisition by a person who is on the
Effective Date the beneficial owner of 25% or more of the outstanding
Company Voting Securities, (B) an acquisition by the Company which
reduces the number of Company Voting Securities outstanding and thereby
results in any person acquiring beneficial ownership of more than 25%
of the outstanding Company Voting Securities; provided, that if after
such acquisition by the Company such person becomes the beneficial
owner of additional Company Voting Securities that increases the
percentage of outstanding Company Voting Securities beneficially owned
by such person by 5%, a Change in Control of the Company shall then
occur, (C) an acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any Parent or
Subsidiary, (D) an acquisition by an underwriter temporarily holding
securities pursuant to an offering of such securities, (E) an
acquisition pursuant to a Non-Qualifying Transaction (as defined in
paragraph (c) below), or (F) a transaction (other than the one
described in paragraph (c) below) in which Company Voting Securities
are acquired from the Company, if a majority of the Incumbent Directors
approve a resolution providing expressly that the acquisition pursuant
to this clause (F) does not constitute a Change in Control of the
Company under this paragraph (b);
(c) the consummation of a reorganization, merger,
consolidation, statutory share exchange or similar form of corporate
transaction involving the Company that requires the approval of the
Company's stockholders, whether for such transaction or the issuance of
securities in the transaction (a "Reorganization"), or the sale or
other disposition of all or substantially all of the Company's assets
to an entity that is not an affiliate of the Company (a "Sale"), unless
immediately following such Reorganization or Sale: (A) more than 50% of
the total voting power of (x) the corporation resulting from such
Reorganization or the corporation which has acquired all or
substantially all of the assets of the Company (in either case, the
"Surviving Corporation"), or (y) if applicable, the ultimate parent
corporation that directly or indirectly has beneficial ownership of
100% of the voting securities eligible to elect directors of the
Surviving Corporation (the "Parent Corporation"), is represented by the
Company Voting Securities that were outstanding immediately prior to
such Reorganization or Sale (or, if applicable, is represented by
shares into which such Company Voting Securities were converted
pursuant to such Reorganization or Sale), and such voting power among
the holders thereof is in substantially the same proportion as the
voting power of such Company Voting Securities among the holders
thereof immediately prior to the Reorganization or Sale, (B) no person
(other than (x) the Company, (y) any employee benefit plan (or related
trust) sponsored or maintained by the Surviving Corporation or the
Parent Corporation, or (z) a person who immediately prior to the
Reorganization or Sale was the beneficial owner of 25% or
-2-
<PAGE> 3
more of the outstanding Company Voting Securities) is the beneficial
owner, directly or indirectly, of 25% or more of the total voting power
of the outstanding voting securities eligible to elect directors of the
Parent Corporation (or, if there is no Parent Corporation, the
Surviving Corporation), and (C) at least a majority of the members of
the board of directors of the Parent Corporation (or, if there is no
Parent Corporation, the Surviving Corporation) following the
consummation of the Reorganization or Sale were Incumbent Directors at
the time of the Board's approval of the execution of the initial
agreement providing for such Reorganization or Sale (any Reorganization
or Sale which satisfies all of the criteria specified in (A), (B) and
(C) above shall be deemed to be a "Non-Qualifying Transaction").
(ii) TERMINATION FOR CAUSE. For the purposes of this Agreement, "Cause"
includes but shall not be limited to: (a) conduct amounting to fraud or
dishonesty against the Company or any affiliate of the Company, including the
knowing failure to disclose or stop such dishonest conduct of others; (b)
inattention to or substandard performance by Employee of his/her duties; (c)
repeated absences from work without a reasonable excuse; (d) intoxication with
alcohol or drugs while on Company business during regular business hours; (e)
any conduct by Employee involving moral turpitude; (f) commission of a felony;
(g) a breach or violation by Employee of any material terms of this Agreement or
any other agreement to which Employee and the Company or any affiliate of the
Company are a party; or (h) any act or omission by Employee that is likely to
injure the reputation or Business of the Company or any affiliate of the
Company.
(iii) RESIGNATION FOR GOOD REASON. For the purposes of this Agreement,
"Good Reason" shall mean:
(a) without the written consent of Employee, any action by
KLLM that results in a material diminution in Employee's position,
authority, duties or responsibilities, excluding for this purpose any
action not taken in bad faith and which is remedied by KLLM promptly
after receipt of notice thereof given by Employee;
(b) a material reduction by KLLM in Employee's Base Salary as
in effect on the Effective Date or as the same may be increased from
time to time; or
(c) without the written consent of Employee, KLLM's requiring
Employee, to be based at any office or location more than [60] miles
from the Jackson, Mississippi metropolitan area.
5. INDIVIDUAL. For the purposes of this Agreement, any reference to an
individual includes a natural person, entity or group, and use of any masculine
pronoun in this Agreement is used for convenience only.
6. NOTICE. Any notice required or permitted to be given by this
Agreement shall be effective only if in writing, delivered personally against
receipt therefor or mailed by certified or registered mail, return receipt
requested, to the parties at the addresses hereinafter set forth, or at such
other places that either party may designate by notice to the other.
Notice to the Company shall be addressed to:
KLLM, Inc.
P. O. Box 6098
Jackson, MS 39288
Facsimile No. (601) 936-5441
Attention: Chairman
Notice to Employee shall be addressed to him or her at the business
address of the Company where Employee is employed.
All such notices shall be deemed effectively given five (5) days after
the same has been deposited in a post box
-3-
<PAGE> 4
under the exclusive control of the United States Postal Service.
7. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
8. ARBITRATION. Any dispute or controversy between the parties relating
to this Agreement shall be settled by binding arbitration in the City of
Jackson, State of Mississippi pursuant to the governing rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court of competent jurisdiction.
9. COSTS OF ENFORCEMENT. Each party shall pay its own legal fees and
expenses incurred in connection with any arbitration (or other proceeding
whether or not instituted by KLLM or Employee), relating to the interpretation
or enforcement of any provision of this Agreement (including any action seeking
to obtain or enforce any right or benefit provided by this Agreement).
10. NO RESTRICTION ON EMPLOYMENT RIGHTS. This contract is in relation
to certain benefits and compensation only and is not to be construed as an
employment contract for a definite term. Nothing in this Agreement shall confer
on Employee any right to continue in the employ of KLLM or shall interfere with
or restrict the rights of KLLM, which are expressly reserved, to discharge
Employee at any time for any reason whatsoever, with or without Cause. Nothing
in this Agreement shall restrict the right of Employee to terminate his or her
employment with the Company at any time for any reason whatsoever.
11. OTHER BENEFITS PAYABLE. The Bonus shall be payable in addition to,
and not in lieu of, all other accrued or vested earned but deferred
compensation, rights, options or other benefits which may be owed to Employee
following his discharge or resignation (whether or not contingent on any Change
of Control preceding termination), including but not limited to accrued vacation
or sick pay, amounts or benefits payable, if any, under any bonus or other
compensation plan, stock option plan, stock purchase plan, life insurance plan,
health plan, disability plan or similar plan.
12. ASSIGNABILITY. This Agreement is binding on and is for the benefit
of the parties hereto and their respective successors, heirs, executors,
administrators and other legal representatives. Neither this Agreement nor any
right or obligation hereunder may be assigned by KLLM (except to any subsidiary
or affiliate) or by Employee.
13. SUCCESSOR. KLLM shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of KLLM or the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform. As used in this Agreement,
Company shall mean the company as hereinabove defined and any successor to its
business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law or otherwise.
14. AMENDMENT; WAIVER. This Agreement may be amended only by an
instrument in writing signed by the parties hereto, and any provision hereof may
be waived only by an instrument in writing signed by the party or parties
against whom or which enforcement of such waiver is sought. The failure of
either party at any time to require the performance by the other party of any
provision hereof shall in no way affect the full right to require such
performance at any time thereafter, nor shall the waiver by either party of a
breach of any provision hereof be taken or held to be a waiver of any succeeding
breach of such provision or a waiver of the provision itself or a waiver of any
other provision of this Agreement.
15. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect, nor shall the invalidity or unenforceability of a portion of any
provision of this Agreement affect the validity or enforceability of the balance
of such provision. If any provision of this Agreement, or portion thereof is so
broad, in scope or duration, as to
-4-
<PAGE> 5
be unenforceable, such provision or portion thereof shall be interpreted to be
only so broad as is enforceable.
16. ENTIRE AGREEMENT. This Agreement contains the entire understanding
of the Company and Employee with respect to the subject matter hereof.
17. APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with the substantive internal law and not the conflicts provision
of the State of Mississippi.
IN WITNESS WHEREOF, the parties have executed these presents as of the
day and year first above written.
KLLM, INC.
By:
----------------------------------
Title:
--------------------------------
EMPLOYEE
--------------------------------------
-5-
<PAGE> 6
SCHEDULE TO EXHIBIT 10.19
The named executive officers listed below have each entered into the above
form Change in Control Agreement with KLLM, Inc., except that the name of each
such named executive officer appears as set forth below in the place of the
phrase "[NAME OF PERSON]" on page 1 of the form Change of Control Agreement
and the percentage of such named executive officer's gross annual salary agreed
to in such agreement appears as set forth in the place of the phrase
"[PERCENTAGE OF GROSS ANNUAL SALARY]" on page 1 of the form Change of Control
Agreement.
<TABLE>
<CAPTION>
Percentage
of Gross
Name Annual Salary
- -------------- -------------
<S> <C>
Jack Liles 200
Steven L. Dutro 200
Nancy M. Sawyer 200
</TABLE>
<PAGE> 1
SELECTED FINANCIAL AND OPERATING DATA
KLLM Transport Services, Inc. - 1999 Annual Report
EXHIBIT 13
<TABLE>
<CAPTION>
(In thousands, except per share and operating data) 1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Operating revenue from truckload operations $ 234,595 $ 228,988 $ 240,766 $ 246,222 $ 229,519
Operating revenue from rail container operations -- -- 3,319 10,466 10,166
Operating expenses from truckload operations 232,125 223,346 256,376 239,520 222,789
Operating expenses from rail container operations -- -- 6,134 10,818 10,383
-------------------------------------------------------------------------
Operating income (loss) 2,470 5,642 (18,425) 6,350 6,513
Interest and other income 58 945 68 59 32
Interest expense (3,403) (3,551) (4,363) (4,783) (5,554)
-------------------------------------------------------------------------
Earnings (loss) from continuing operations
before income taxes (875) 3,036 (22,720) 1,626 991
Income tax expense (benefit) (330) 1,200 (8,000) 721 473
-------------------------------------------------------------------------
Net earnings (loss) from continuing operations
before extraordinary item (545) 1,836 (14,720) 905 518
Extraordinary item, net of income tax benefit (247) -- -- -- --
Loss from operations of discontinued division,
net of income tax benefit -- -- -- -- (624)
Loss on disposal of discontinued division, net
of income tax benefit -- -- -- (139) (441)
-------------------------------------------------------------------------
Net earnings (loss) $ (792) $ 1,836 $ (14,720) $ 766 $ (547)
=========================================================================
Basic and diluted earnings (loss) per share:
From continuing operations $ (0.13) $ 0.42 $ (3.38) $ 0.21 $ 0.12
From extraordinary item (0.06) -- -- -- --
From operations of discontinued division -- -- -- -- (0.14)
From disposal of discontinued division -- -- -- (0.03) (0.10)
-------------------------------------------------------------------------
Net earnings (loss) per common share $ (0.19) $ 0.42 $ (3.38) $ 0.18 $ (0.12)
=========================================================================
Weighted average diluted common shares
outstanding 4,117 4,341 4,358 4,372 4,504
===========================================================================
BALANCE SHEET DATA (AT YEAR-END):
Net property and equipment $ 99,046 $ 98,212 $ 107,940 $ 121,875 $ 122,264
Total assets 139,147 133,362 144,535 159,894 164,248
Total liabilities 88,180 80,694 92,424 93,394 98,280
Long-term debt, less current maturities 48,000 36,571 44,826 49,747 59,594
Stockholders' equity 50,967 52,668 52,111 66,500 65,968
OPERATING DATA:
Average number of truckloads per week 3,999 3,708 3,966 3,907 3,444
Average miles per trip 936 990 998 1,009 1,065
Total miles travelled (000s) 194,680 190,975 205,828 205,006 186,443
Average revenue per total mile $ 1.13 $ 1.13 $ 1.12 $ 1.12 $ 1.13
Empty mile percentage 13.6% 12.8% 11.5% 12.1% 11.8%
Equipment at year-end:
Company-operated tractors 1,422 1,467 1,464 1,390 1,485
Owner-operated tractors 260 279 349 366 291
-------------------------------------------------------------------------
Total tractors 1,682 1,746 1,813 1,756 1,776
Refrigerated trailers 1,948 1,998 2,047 2,114 2,150
Dry-van trailers 793 695 570 493 384
-------------------------------------------------------------------------
Total trailers 2,741 2,693 2,617 2,607 2,534
Refrigerated rail containers -- -- -- 200 202
</TABLE>
4
<PAGE> 2
SELECTED QUARTERLY DATA (UNAUDITED)
KLLM Transport Services, Inc. - 1999 Annual Report
<TABLE>
<CAPTION>
First Second Third Fourth
(In thousands, except per share amounts) Quarter Quarter Quarter Quarter
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Operating revenue $ 55,331 $61,229 $ 58,893 $ 59,142
Operating income (loss) 420 1,542 (419) 927
Extraordinary item, net of tax benefits 0 247 0 0
Net earnings (loss) (225) 150 (747) 30
Basic and diluted earnings (loss) per share before
extraordinary item (0.05) 0.10 (0.18) 0.01
Basic and diluted earnings (loss) per share $ (0.05) $ 0.04 $ (0.18) $ 0.01
1998
Operating revenue $ 59,190 $60,113 $ 55,102 $ 54,583
Operating income (loss) (1) 1,730 2,855 1,262 (205)
Net earnings (loss) 1,006 1,204 231 (605)
Basic and diluted earnings (loss) per share $ 0.23 $ 0.28 $ 0.05 $ (0.14)
</TABLE>
(1) The fourth quarter 1998 operating loss reflects a $.8 million reduction
in reserves for self-insured claims as a result of favorable claims
experience in the quarter.
5
<PAGE> 3
MARKET AND DIVIDEND INFORMATION
KLLM Transport Services, Inc. - 1999 Annual Report
The Company's common stock trades on The Nasdaq Stock Market(R) under
the symbol KLLM. The number of stockholders, including beneficial owners holding
shares in nominee or "street" name, as of March 10, 2000, was approximately
1,180. 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 1999 and 1998:
<TABLE>
<CAPTION>
FISCAL YEAR 1999 High Low
- -----------------------------------------------------------
<S> <C> <C>
First Quarter $ 7.63 $ 5.75
Second Quarter $ 7.00 $ 5.38
Third Quarter $ 6.00 $ 4.00
Fourth Quarter $ 7.50 $ 4.25
FISCAL YEAR 1998 High Low
- -----------------------------------------------------------
<S> <C> <C>
First Quarter $ 13.75 $ 11.00
Second Quarter $ 14.13 $ 11.50
Third Quarter $ 13.00 $ 8.00
Fourth Quarter $ 9.00 $ 7.00
</TABLE>
6
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
KLLM Transport Services, Inc. - 1999 Annual Report
RESULTS OF OPERATIONS
The following table sets forth the percentage of revenue and expense items
to operating revenue for the periods indicated.
<TABLE>
<CAPTION>
Percentage of
Operating Revenue
---------------------------------------
For the Year 1999 1998 1997
- ------------ ------- ------- -------
<S> <C> <C> <C>
Operating revenue from truckload operations 100.0% 100.0% 100.0%
Operating expenses:
Salaries, wages and fringe benefits 35.7 31.9 31.5
Operating supplies and expenses 24.9 24.9 26.1
Insurance, claims, taxes and licenses 4.5 6.0 7.3
Depreciation and amortization 7.8 8.0 8.9
Purchased transportation and equipment rent 21.9 22.2 21.5
Impairment loss -- -- 6.5
Other 4.6 5.0 4.6
(Gain) loss on sale of revenue equipment (0.4) (0.5) 0.1
------- ------- -------
Total operating expenses from truckload operations 99.0 97.5 106.5
------- ------- -------
Operating income (loss) from truckload operations 1.0 2.5 (6.5)
Operating loss from rail container operations -- -- (1.1)
------- ------- -------
Operating income (loss) 1.0 2.5 (7.6)
Other income -- 0.4 --
Interest expense 1.3 1.6 1.8
------- ------- -------
Earnings (loss) before income taxes and extraordinary item (0.3) 1.3 (9.4)
Income tax expense (benefit) (0.1) 0.5 (3.3)
------- ------- -------
Net earnings (loss) before extraordinary item (0.2) 0.8 (6.1)
Extraordinary item, net of tax benefits (0.1) -- --
------- ------- -------
Net earnings (loss) (0.3)% 0.8% (6.1)%
======= ======= =======
</TABLE>
Year Ended December 31, 1999 Compared to Year Ended January 1, 1999
Operating revenue for the year ended December 31, 1999 increased by
$5,607,000 or 2% when compared to the year ended January 1, 1999. The increase
in operating revenue consisted of a 4% increase from dry-van services, net of a
2% decrease from temperature-controlled services. The decrease in
temperature-controlled services resulted primarily from a 14% decrease in the
average number of owner operated tractors. Average revenue per mile excluding
fuel surcharges remained flat. At the end of the third quarter of 1999, fuel
prices rose to a level that generated fuel surcharges to the Company's
customers. These surcharges added an additional $538,000 and $15,000 to
operating revenues in 1999 and 1998, respectively.
During the third quarter of 1998, the Company implemented an enhanced pay
package that increased compensation for certain drivers. As a result, salaries,
wages, and benefits increased in 1999 when compared to 1998. The primary
elements leading to the change in driver wages were an increase in the average
experience level of the driver workforce combined with growth in the number of
drivers in regional and dedicated fleets. In 1999, the Company was able to
recruit and retain drivers better than in prior years. During 1999, many driver
performance related expenses improved.
- - Miles per truck increased in 1999 compared to 1998, indicating an improvement
in the utilization of equipment.
- - Repair costs decreased for the year, reflecting more careful treatment of
equipment by drivers.
- - An improvement in safety led to reduced accident repair cost, a component of
operating supplies and expenses, and to a significant decrease in the cost of
claims.
- - Advertising and recruiting expenses, within other expenses, also decreased
in 1999 compared to 1998, further reflecting the results of the 1998 pay
increase.
7
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
KLLM Transport Services, Inc. - 1999 Annual Report
Operating supplies and expenses increased, when compared to the prior year,
primarily due to an increase in the price of fuel offsetting the decrease in
expenses from driver related improvements. During 1999, the Company paid
$4,500,000 more for fuel than in 1998. Diesel fuel prices began rising in March
1999 and at year end retail on-highway diesel prices were $.34 per gallon above
year end 1998 prices. At year end prices, the Company is able to recover a
portion of its diesel fuel cost through fuel surcharges to its customers.
Purchased transportation and equipment rent remained level from 1998 through
1999 as the decrease in purchased transportation paid to owner operated trucks
was offset by an increase in equipment rent resulting from the new equipment
operating leases. Depreciation and amortization did not change significantly
compared to the prior year. An increase in depreciation expense, reflecting a
conversion of the fleet to a shorter trade cycle, was offset by the decrease in
depreciation resulting from the replacement of owned equipment by equipment
leased under operating leases.
Other income decreased $887,000 from the prior year primarily as a result of
a gain on sale of the corporate office building of $858,000 in the first
quarter of 1998.
The operating ratio (which represents operating expenses as a percent of
operating revenues) increased from 97.5% to 99.0% for the year ended December
31, 1999 when compared to the year ended January 1, 1999.
Interest expense decreased $148,000 from the prior year as a result of lower
debt outstanding. The average interest rate under the revolving line of credit
was approximately the same in both years. During 1999, the Company fully
prepaid the 9.11% senior notes 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 which are included in the consolidated statements of
operations as an extraordinary item.
The effective income tax rate was 37.7% in 1999 compared to 39.5% in 1998.
The decreased rate reflects the effect of nondeductible expenses as a
percentage of pretax income (loss).
Year Ended January 1, 1999 Compared to Year Ended January 2, 1998
Operating revenue for the year ended January 1, 1999 decreased by $11,778,000
or 5% when compared to the year ended January 2, 1998. The decrease in
operating revenue consisted of a 2% increase from dry-van services, net of a 7%
decrease in temperature-controlled services. The decrease in
temperature-controlled services resulted primarily from a 4% decrease in the
number of owner operated tractors and a 6% decrease in miles per tractor. The
decrease in miles per tractor was due to a shortage of qualified drivers.
Average revenue per mile excluding fuel surcharges increased to $1.13 for the
year ended January 1, 1999 compared to $1.12 for the year ended January 2,
1998. Surcharges for high fuel costs added an additional $15,000 and $1,209,000
to revenues in 1998 and 1997, respectively.
The challenge of attracting and retaining qualified drivers led to the
implementation of an enhanced pay package for certain drivers on September 1,
1998 which increased driver wages approximately 7%. Fewer miles driven and
reductions in nondriver compensation have resulted in a net reduction in
salaries, wages, and benefits expense compared to 1997. Operating supplies and
expenses decreased $5,890,000 compared to the prior year primarily due to lower
fuel prices ($3,862,000), and cost control efforts offset by an increase in
repair costs.
Insurance, claims, taxes, and licenses decreased $4,022,000 compared to
1997. Insurance expense in 1997 had been increased as a result of a
reevaluation of the Company's self insured claims management and reserve
practices. Management believes that improvements in driver recruiting and
retention, in part a result of the new driver pay plan, also contributed to
lower costs through improvements in safety.
Depreciation and amortization decreased from 1997 as a result of; 1) the
write-off in 1997 of intangible assets related to exiting the rail container
business; 2) the special charge in 1997 to recognize an impairment in value of
the Company's 48-foot temperature-controlled trailers; and 3) the replacement
of certain owned equipment with equipment leased under operating leases.
8
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
KLLM Transport Services, Inc. - 1999 Annual Report
Purchased transportation and equipment rent remained level from 1997 to 1998
because the increase in equipment rent was offset by a decrease in
transportation purchased from owner operators. During 1998, the Company had a
modest gain on the sale of revenue equipment through the regular trade cycle.
The operating ratio (which represents operating expenses as a percent of
operating revenues on continuing operations) decreased from 106.5% to 97.5% for
the year ended January 1, 1999 when compared to the year ended January 2, 1998.
Interest expense for the year ended January 1, 1999 decreased from the prior
year primarily due to a decrease in the average debt outstanding. Interest
rates under the revolving line of credit declined slightly during 1998 compared
to 1997.
The provision for income tax expense for 1998 was $1,200,000, based on a
combined effective federal and state income tax rate of 40%. This rate reflects
an increase in the effective rate in 1997 as a result of an increase in
nondeductible expenses as a percentage of pretax income (loss) and a small
increase in the effective state income tax rate.
IMPACT OF YEAR 2000
In prior years, the Company discussed the nature and progress of its plans
to become Year 2000 ready. In late 1999, the Company completed its remediation
and testing of systems. As a result of those planning and implementation
efforts, the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes
those systems successfully responded to the Year 2000 date change. The total
project cost was 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. The Company expensed approximately
$120,000 during 1999 in connection with remediating its systems. The Company is
not aware of any material problems resulting from Year 2000 issues, either with
its products, its internal systems, or the products and services of third
parties. The Company will continue to monitor its mission critical computer
applications and those of its suppliers and vendors throughout the year 2000 to
ensure that any latent Year 2000 matters that may arise are addressed promptly.
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. At December 31, 1999, the Company had long-term debt
of $48,000,000 at a weighted average interest rate of 8.2% maturing in 2001.
The 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.
To hedge its exposure to price fluctuations, the Company periodically enters
into heating oil (diesel fuel) swap agreements. Such agreements are accounted
for as hedges with gains and losses recognized in operating expense as part of
the fuel cost over the hedge period. At December 31, 1999, the Company has
entered into swap agreements on approximately 4% of its 2000 anticipated fuel
requirements which is immaterial to the Company's financial position and
operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company'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 December 31, 1999 and January 1, 1999, the Company generated
$9.6 million and $16.5 million, respectively, in net cash provided by operating
activities. This cash flow in 1999 was used primarily for capital expenditures.
In 1999, the Company-owned tractor fleet decreased by 45 units while the
trailer fleet increased by 48 units, net of replacements, compared to 1998.
Capital expenditures, net of proceeds from trade-ins during 1999, were
approximately $17.5 million compared to $4.8 million in 1998. The Company also
entered into operating leases for 65 tractors and 600
9
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
KLLM Transport Services, Inc. - 1999 Annual Report
trailers throughout the year. Net capital expenditures in 2000 are expected to
be approximately $40.7 million, although management may finance a portion of
the capital expenditures with operating leases.
The Company has a $60,000,000 unsecured revolving line of credit with a
syndication of banks due April 7, 2001. Borrowings of $48,000,000 were
outstanding under the line at year-end. Under the most restrictive payment
terms on long-term debt, the entire amount, $48,000,000, would be payable in
2001.
Working capital needs have generally been met from net cash provided from
operating activities. The Company has a $5,000,000 unsecured working capital
line of credit with a bank which was fully available at December 31, 1999.
Interest is at a rate based upon the Eurodollar rates with facility fees at
3/8% per annum on the unused portion of the line. This working capital line of
credit is used to minimize idle cash in the bank and is tied to cash equivalent
investments for any excess cash. At year-end 1999 and 1998, cash and cash
equivalents totaled $511,000 and $756,000, respectively.
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 purchased for
$960,000 of which 50,000 shares for $356,000 were purchased 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, and debt service.
FACTORS AFFECTING FUTURE PERFORMANCE
The Company's future operating results may be affected by various trends and
factors which are beyond the Company's control. These include adverse changes
in demand for trucking services, availability of drivers and fuel prices.
Accordingly, past performance should not be presumed to be an accurate
indication of future performance.
SEASONALITY
In the transportation industry, results of operations generally show a
seasonal pattern because customers reduce shipments during and after the winter
holiday season with its attendant weather variations. The Company's operating
expenses have historically been higher in the winter months primarily due to
decreased fuel efficiency and increased maintenance costs in colder weather.
The foregoing statements contain forward-looking statements which involve
risks and uncertainties and the Company's actual experience may differ
materially from that discussed above. Factors that may cause such a difference
include, but are not limited to, those discussed in "Factors Affecting Future
Performance" as well as future events that have the effect of reducing the
Company's available cash balances, such as unanticipated operating losses or
capital expenditures related to possible future acquisitions. Readers are
cautioned not to place undue reliance on forward-looking statements, which
reflect management's analysis only as of the date hereof. The Company assumes
no obligation to update forward-looking statements.
10
<PAGE> 8
CONSOLIDATED BALANCE SHEETS
KLLM Transport Services, Inc. - 1999 Annual Report
<TABLE>
<CAPTION>
At Year-End (In thousands) 1999 1998
- -------------------------- ---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 511 $ 756
Accounts receivable:
Customers (net of allowances of $416,000 in 1999 and $550,000 in 1998) 24,763 20,607
Other 1,941 525
---------- ----------
26,704 21,132
Inventories - at cost 686 597
Prepaid expenses:
Tires 3,625 2,758
Taxes, licenses and permits 3,161 1,796
Other 313 763
---------- ----------
7,099 5,317
Assets held for sale - Note B 0 1,530
Deferred income taxes - Note D 5,101 5,818
---------- ----------
TOTAL CURRENT ASSETS 40,101 35,150
PROPERTY AND EQUIPMENT - Note B
Revenue equipment and capital leases 129,926 118,567
Land, structures and improvements 7,873 8,174
Other equipment 7,790 5,212
---------- ----------
145,589 131,953
Accumulated depreciation and amortization (46,543) (33,741)
---------- ----------
99,046 98,212
---------- ----------
TOTAL ASSETS $ 139,147 $ 133,362
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,877 $ 4,295
Accrued expenses 12,155 7,450
Accrued claims expense - Note J 12,865 15,041
Current maturities of long-term debt 0 2,857
---------- ----------
TOTAL CURRENT LIABILITIES 26,897 29,643
LONG-TERM DEBT, less current maturities - Note C 48,000 36,571
DEFERRED INCOME TAXES - Note D 13,283 14,480
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 1999 and 1998 4,559 4,559
Additional paid-in capital 32,822 32,858
Retained earnings 17,777 18,569
---------- ----------
55,158 55,986
Less common stock in treasury, 459,787 shares in 1999 and 334,266
shares in 1998, at cost (4,191) (3,318)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 50,967 52,668
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 139,147 $ 133,362
========== ==========
</TABLE>
See accompanying notes.
11
<PAGE> 9
CONSOLIDATED STATEMENT OF OPERATIONS
KLLM Transport Services, Inc. - 1999 Annual Report
<TABLE>
<CAPTION>
For The Year (In thousands, except share and per share amounts) 1999 1998 1997
- --------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
OPERATING REVENUE FROM TRUCKLOAD OPERATIONS $ 234,595 $228,988 $ 240,766
OPERATING EXPENSES:
Salaries, wages and fringe benefits 83,655 73,143 75,748
Operating supplies and expenses 58,392 56,938 62,828
Insurance, claims, taxes and licenses 10,585 13,729 17,751
Depreciation and amortization 18,303 18,270 21,432
Purchased transportation and equipment rent 51,424 50,840 51,692
Other 10,797 11,657 10,986
Impairment of long-lived assets - Note B 0 0 15,754
(Gain) loss on sale of revenue equipment (1,031) (1,231) 185
--------- --------- ---------
TOTAL OPERATING EXPENSES FROM TRUCKLOAD OPERATIONS 232,125 223,346 256,376
--------- --------- ---------
OPERATING INCOME (LOSS) FROM TRUCKLOAD OPERATIONS 2,470 5,642 (15,610)
OPERATING REVENUE FROM RAIL CONTAINER OPERATIONS 0 0 3,319
OPERATING EXPENSES 0 0 4,228
RESTRUCTURING CHARGE - Note I 0 0 1,906
--------- --------- ---------
OPERATING LOSS FROM RAIL CONTAINER OPERATIONS 0 0 (2,815)
--------- --------- ---------
OPERATING INCOME (LOSS) 2,470 5,642 (18,425)
OTHER INCOME AND EXPENSES:
Gain on sale of property 0 858 0
Interest and other income 58 87 68
Interest expense (3,403) (3,551) (4,363)
--------- --------- ---------
(3,345) (2,606) (4,295)
--------- --------- ---------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS (875) 3,036 (22,720)
Income tax expense (benefit) - Note D (330) 1,200 (8,000)
--------- --------- ---------
NET EARNINGS (LOSS) before extraordinary item (545) 1,836 (14,720)
EXTRAORDINARY LOSS on early extinguishment of debt -
Note H (Net of income tax benefit of $150) (247) 0 0
--------- --------- ---------
NET EARNINGS (LOSS) $ (792) $1,836 $ (14,720)
========== ========= ==========
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:
Net earnings (loss) before extraordinary item $ (0.13) $ 0.42 ($3.38)
Extraordinary item (0.06) 0.00 0.00
--------- --------- ---------
BASIC AND DILUTED NET EARNINGS (LOSS) PER SHARE $ (0.19) $ 0.42 ($3.38)
========== ========= ======
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic 4,116,718 4,340,033 4,357,970
========= ========= =========
Diluted 4,116,718 4,340,666 4,357,970
========= ========= =========
</TABLE>
See accompanying notes.
12
<PAGE> 10
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
KLLM Transport Services, Inc. - 1999 Annual Report
<TABLE>
<CAPTION>
Common Stock
------------------------------------------
Treasury Stock Additional Total
-------------------- Paid-in Retained Stockholders'
(In thousands) Shares Amount Shares Amount Capital Earnings Equity
- -------------- ------ ------ ------ ------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
JANUARY 4, 1997 4,559 $4,559 (214) $(2,323) $32,811 $31,453 $66,500
Sale of common
stock - Note F 4 36 5 41
Common stock issued
upon exercise of stock
options - Note G 24 252 (29) 223
Stock options issued
for services 67 67
Net loss (14,720) (14,720)
----- ------ ---- ------- ------- ------- -------
BALANCE AT
JANUARY 2, 1998 4,559 4,559 (186) (2,035) 32,854 16,733 52,111
Purchase of treasury
shares, at cost (153) (1330) (1,330)
Sale of common
stock - Note F 1 2 2
Common stock issued
for services 4 45 4 49
Net earnings 1,836 1,836
----- ------ ---- ------- ------- ------- -------
BALANCE AT
JANUARY 1, 1999 4,559 4,559 (334) (3,318) 32,858 18,569 52,668
Purchase of treasury
shares, at cost (134) (960) (960)
Common stock issued
for services 8 87 (36) 51
Net loss (792) (792)
----- ------ ---- ------- ------- ------- -------
BALANCE AT
DECEMBER 31, 1999 4,559 $4,559 (460) $(4,191) $32,822 $17,777 $50,967
===== ====== ==== ======= ======= ======= =======
</TABLE>
See accompanying notes.
13
<PAGE> 11
CONSOLIDATED STATEMENTS OF CASH FLOWS
KLLM Transport Services, Inc. - 1999 Annual Report
<TABLE>
<CAPTION>
For The Year (In thousands) 1999 1998 1997
- --------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (792) $ 1,836 $ (14,720)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 18,303 18,270 21,507
Deferred income taxes (480) 1,200 (8,000)
Impairment costs 0 0 15,754
Restructuring charge on rail container operations 0 0 1,906
Book value of equipment written off in accidents 607 464 522
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable (5,572) (308) 1,780
(Increase) decrease in inventory and prepaid expenses (1,148) 301 (647)
Increase (decrease) in accounts payable and
accrued expenses (260) (3,190) 13,478
(Gain) loss on sale of property and equipment (1,031) (2,089) 185
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 9,627 16,484 31,765
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (31,975) (21,865) (37,108)
Proceeds from disposition of property and equipment 14,440 17,042 11,344
---------- ---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (17,535) (4,823) (25,764)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock 0 2 41
Proceeds from exercise of stock options 0 0 223
Common stock issued for services 51 49 0
Purchase of common stock for treasury (960) (1,330) 0
Net increase (decrease) in borrowing under revolving line of credit 20,000 (2,000) 0
Repayment of long-term debt and capital leases (11,428) (8,296) (4,871)
Net change in borrowing under working capital line of credit 0 0 (3,598)
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 7,663 (11,575) (8,205)
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (245) 86 (2,204)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 756 670 2,874
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 511 $ 756 $ 670
========== ========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 3,420 $ 3,721 $ 4,432
========== ========== ==========
Income taxes refunded $ 726 $ 816 $ 877
========== ========== ==========
</TABLE>
See accompanying notes.
14
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KLLM Transport Services, Inc. - 1999 Annual Report
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business. The Company, through its wholly-owned subsidiary, KLLM, Inc.,
provides transportation services in North America for both
temperature-controlled and dry commodities. Services provided include
over-the-road long haul, regional, and dedicated fleet transportation. The
Company operates as one segment under the provisions of Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information." The demand for transportation services is affected by
general economic conditions and is subject to seasonal demand for certain
commodities and severe weather conditions.
Principles of Consolidation. The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
Certain reclassifications have been made to conform with current year
presentation.
Cash Equivalents. The Company classifies short-term, highly liquid
investments with original maturities of three months or less as cash
equivalents. Cash equivalents are stated at cost which approximates market.
Tires in Service. The cost of original equipment and replacement tires
placed in service is capitalized and amortized over the estimated useful life
of eighteen to twenty-four months. The cost of recapping tires is expensed as
incurred.
Property and Equipment. Property and equipment is stated at cost.
Depreciation of property and equipment is provided by the straight-line method
over the estimated useful lives. The ranges of estimated useful lives of the
major classes of depreciable assets are as follows: revenue equipment - 3 to 7
years, buildings and improvements - 20 to 30 years, and other equipment - 3 to
5 years. Gains and losses on sales or exchanges of property and equipment are
included in operations in the year of disposition.
Income Taxes. Income taxes are accounted for using the liability method in
accordance with Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes. Deferred income taxes relate to temporary differences between
assets and liabilities recognized differently for financial reporting and
income tax purposes.
Impairment of Long-Lived Assets. The Company continually reevaluates the
carrying value of its long-lived assets for events or changes in circumstances
which indicate that the carrying value may not be recoverable. As part of this
reevaluation, the Company estimates the future cash flows expected to result
from the use of the asset and its eventual disposal. If the sum of the expected
future cash flows (undiscounted and without interest charges) is less than the
carrying amount of the asset, an impairment loss is recognized through a charge
to operations. Such charge is measured by the amount by which the carrying
amount of the asset exceeds the fair value of the asset.
Use of Estimates. The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Revenue Recognition. The Company uses the relative transit time incurred
method to recognize revenue and record costs of shipments in transit.
Earnings per Share. Basic earnings per share are based on the weighted
average common shares outstanding. Diluted earnings per share includes any
dilutive effects of options, warrants and convertible securities.
15
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
KLLM Transport Services, Inc. - 1999 Annual Report
Use of Derivative Commodity Instruments. To hedge its exposure to price
fluctuations, the Company periodically enters into heating oil (diesel fuel)
swap agreements. The Company does not engage in speculative transactions nor
does the Company hold or issue derivative instruments for trading purposes.
Such agreements 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.
Fiscal Year. The Company's fiscal year-end is the Friday nearest December
31, which was the 52-week periods ended December 31, 1999, January 1, 1999 and
January 2, 1998 for the past three fiscal year ends.
Impact of Recently Issued Accounting Pronouncements. In June 1998, the FASB
issued Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS No. 133). The provisions
of SFAS No. 133 requires all derivatives to be recorded on the balance sheet at
fair value. SFAS No. 133 establishes "special accounting" for fair value
hedges, cash flow hedges, and hedges of foreign currency exposures of net
investments in foreign operations. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, changes in the fair value of derivatives will
either be offset against the change in fair value of the hedged item through
earnings or recognized in other comprehensive income until the hedged item is
recognized in earnings. The effect of this statement will be insignificant to
the results of the consolidated operations and financial position of the
Company when it becomes effective for 2001.
NOTE B - IMPAIRMENT OF LONG-LIVED ASSETS
Included in the Company's fleet of temperature-controlled trailers, as of
January 2, 1998, were 1,860 trailers that are 48 feet in length. In December
1997, management developed a plan to dispose of all of the Company's 48-foot
temperature-controlled trailers over the following three years, which was
significantly earlier than the typical disposal cycle for these units, due to
the temperature-controlled segment of the trucking industry's rapid acceptance
of 53-foot trailers as the industry standard. Accordingly, management evaluated
the market value for used 48-foot temperature-controlled trailers based upon
the Company's accelerated disposal dates and determined that the carrying value
of the 48-foot temperature-controlled trailers of $46.4 million was impaired. A
charge of $15.2 million resulted which is included in impairment on long-lived
assets in the accompanying statement of operations for the year ended January
2, 1998.
During 1997, the Company closed its terminal facility in Dallas, Texas. The
Dallas terminal had a carrying amount of $2.0 million as of January 2, 1998
which was greater than the estimated sales value, net of related costs to sell.
Accordingly, the Company marked the facility to market and included the write
down of approximately $.5 million in impairment on long-lived assets in the
accompanying statement of operations for the year ended January 2, 1998. The
terminal was classified as assets available for sale in the accompanying
balance sheets as of January 1, 1999. As of December 31, 1999, the terminal was
reclassified to land, structures and improvements because the Company intends
to use the facility in its operations.
16
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
KLLM Transport Services, Inc. - 1999 Annual Report
NOTE C - CREDIT FACILITIES AND DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
- -------------- ------- -------
<S> <C> <C>
Revolving line of credit with banks, with floating interest rates
(weighted average rate of 8.2% at December 31, 1999 and
6.1% at January 1, 1999) $48,000 $28,000
9.11% unsecured notes payable to insurance companies 0 11,428
------- -------
48,000 39,428
Less current maturities 0 (2,857)
------- -------
$48,000 $36,571
======= =======
</TABLE>
The Company has a $60,000,000 unsecured revolving line of credit maturing in
2001. In accordance with the agreement, the Company has agreed to limit assets
pledged on any other borrowing. At December 31, 1999, $12,000,000 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 1/2% per annum are charged on the unused portion of this line.
Under the most restrictive payment terms, borrowings under the revolving line
of credit are payable in 2001.
The Company also has $5,000,000 in an unsecured working capital line of
credit, all of which was available at December 31, 1999. Interest is at a rate
based upon London Interbank Offered Rate (LIBOR) on borrowings on the working
capital line with facility fees at 3/8% per annum on the unused portion of the
line.
Under the terms of the lines of credit, 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.
NOTE D - INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The components of
deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
- -------------- ------- -------
<S> <C> <C>
Deferred tax liability--property and equipment $22,769 $25,668
Deferred tax assets:
Allowance for doubtful accounts 161 193
Accrued expenses 4,940 5,625
Net operating loss carryforward 8,376 10,064
Intangibles 194 208
Alternative minimum tax carryforward 916 916
------- -------
14,587 17,006
------- -------
Net deferred tax liabilities $ 8,182 $ 8,662
======= =======
</TABLE>
17
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
KLLM Transport Services, Inc. - 1999 Annual Report
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
- -------------- ------- ------- --------
<S> <C> <C> <C>
Deferred:
Federal $ (410) $ 833 $ (7,300)
State (70) 367 (700)
------ ------- --------
Total income tax expense (benefit) (480) 1,200 (8,000)
Income tax benefit allocated to extraordinary item 150 0 0
------ ------- --------
Income tax expense (benefit) attributable to income
before extraordinary item $ (330) $ 1,200 $ (8,000)
====== ======= ========
</TABLE>
The reconciliation of income tax computed at the federal statutory tax rate
to income tax expense is as follows:
<TABLE>
<CAPTION>
(In thousands) 1999 1998 1997
- -------------- ------ ------- --------
<S> <C> <C> <C>
Statutory federal income tax rate $ (433) $ 1,032 $ (7,725)
State income taxes, net (46) 242 (462)
Other (1) (74) 187
------ ------- --------
$ (480) $ 1,200 $ (8,000)
====== ======= ========
</TABLE>
The Company has a net operating loss carry forward for income tax purposes
of approximately $22,000,000, which expires at various dates beginning in 2010
through the year 2018.
NOTE E - CONCENTRATIONS OF CREDIT RISK
The Company had one customer, which accounted for operating revenues of
$43,600,000 in 1999, $39,700,000 in 1998 and $27,760,000 in 1997.
Trade accounts receivable are the principal financial instruments that
potentially subject the Company to significant concentrations of credit risk.
The Company performs periodic credit evaluations of its customers and
collateral is generally not required. Credit losses have been insignificant and
within management's expectations.
NOTE F - EMPLOYEE BENEFIT PLANS
The Company sponsors a defined contribution plan covering substantially all
of its employees. The Company makes discretionary contributions to the plan of
100% of the employee contribution up to 4% of each covered employee's salary.
Contributions by the Company under the plan approximated $830,000, $559,000,
and $540,000 in 1999, 1998, and 1997, 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 1999, 210 shares were purchased and in 1998, 211 shares were
issued pursuant to the plan. Subsequent to December 31, 1999, an additional
9,334 shares have been subscribed for by employees.
18
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
KLLM Transport Services, Inc. - 1999 Annual Report
NOTE G - STOCK OPTION PLANS
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to or above the fair value of the shares at the
date of the grant. The Company accounts for stock option grants in accordance
with APB Opinion No. 25, Accounting for Stock Issued to Employees, and,
accordingly, recognizes no compensation expense for stock options granted.
Under the Company's Incentive Stock Option Plan, 533,333 shares of Common
Stock have been reserved for grant to key employees and directors. Options
granted under the plan have a ten-year term with vesting periods of one to five
years from the date of the grant.
Pro forma information regarding net income and earnings per share is
required by FASB Statement No. 123, and has been determined as if the Company
had accounted for its employee stock options under the fair value method of
that Statement. The fair value for these options was estimated at the date of
the grant using a Black-Scholes option pricing model with the following
weighted-average assumptions: volatility factors of .285 for 1998;
weighted-average expected life of options of five years for 1998; risk-free
interest rate of 6% for 1998; and no dividend yield. There were no options
granted in 1999.
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 is amortized to expense
over the vesting period. The Company's pro forma information follows (in
thousands, except per share information):
<TABLE>
<CAPTION>
1999 1998
------ -------
<S> <C> <C>
Pro forma net income (loss) $ (834) $ 1,809
Pro forma basic and diluted earnings (loss) per common share $ (.20) $ .42
</TABLE>
19
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
KLLM Transport Services, Inc. - 1999 Annual Report
A summary of the Company's stock option activity and related information is
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------- ------------------------- -------------------------
Options Weighted-Average Options Weighted-Average Options Weighted-Average
(000) Exercise Price (000) Exercise Price (000) Exercise Price
------------------------- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning of year 117 $14 234 $14 269 $14
Granted -- -- 95 12 21 12
Exercised -- -- -- -- (25) 9
Forfeited (23) 14 (212) 14 (31) 15
---- ----- ----- ----- ----- ------
Outstanding-end of year 94 $14 117 $14 234 $14
---- ----- ----- ----- ----- ------
Exercisable-end of year 51 48 146
---- ----- -----
Weighted-average fair value of
options granted during the year -- $4.26 $3.15
----- ------ -------
</TABLE>
Following is a summary of the status of options outstanding at December 31,
1999:
<TABLE>
<CAPTION>
Outstanding Options Exercisable Options
------------------------------- -----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Range (000's) Life Price (000's) Price
----------- ------------------------------- -----------------------
<S> <C> <C> <C> <C> <C>
$11 - $12 38 7 years $11 10 $11
$13 - $14 45 3 years $14 30 $14
$21 11 2 years $21 11 $21
</TABLE>
NOTE H - EXTRAORDINARY ITEM
During the second quarter of 1999, 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 reduced and certain
restrictive financial covenants were eliminated. Expenses relating to the
prepayment of the 1992 debt are included in the consolidated statements of
earnings as an extraordinary item.
NOTE I - RAIL CONTAINER RESTRUCTURING CHARGE
During 1997, the Company completed its plan to exit the rail container
market. A one-time restructuring charge of $1,906,000 was recorded for the
write-off of intangible assets pertaining to the rail container operation and
the accrual of certain expenses related to the subleasing of rail containers
and exiting this market.
20
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
KLLM Transport Services, Inc. - 1999 Annual Report
NOTE J - COMMITMENTS AND CONTINGENCIES
The Company self-insures for losses related to liability and workers'
compensation claims with excess coverage by underwriters on a per incident
basis. Claims payable totaled $12,865,000 at December 31, 1999 and $15,041,000
at January 1, 1999, a portion of which is for insurance claims that have been
incurred but not reported and estimated future development of claims. The
ultimate cost for outstanding claims may vary significantly from current
estimates.
The Company leases certain revenue equipment and data processing equipment
under operating leases that expire over the next five 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 December 31, 1999 are $10,327,000 in 2000, $8,817,000 in 2001,
$7,787,000 in 2002, $6,334,000 in 2003 and $1,349,000 in 2004. The Company
guarantees approximately $3,270,000 of the residual value of certain revenue
equipment leased under operating leases. Rental expense applicable to
noncancelable operating leases totaled $11,433,000 in 1999, $8,097,000 in 1998,
and $6,806,000 in 1997.
The Company has entered into heating oil (diesel fuel) swap agreements to
hedge its exposure to price fluctuations at year end 1999 on 4% of its 2000
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 is also involved in various claims and routine litigation
incidental to its business. Management is of the opinion that the outcome of
these other matters will not have a material adverse effect on the consolidated
financial position or operations of the Company.
NOTE K - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount reported in the consolidated balance sheet for cash and
cash equivalents and long-term debt approximate their fair values at December
31, 1999.
21
<PAGE> 19
REPORT OF INDEPENDENT AUDITORS
KLLM Transport Services, Inc. - 1999 Annual Report
The Board of Directors and Stockholders
KLLM Transport Services, Inc.
We have audited the accompanying consolidated balance sheets of KLLM
Transport Services, Inc. and subsidiaries as of December 31, 1999 and January
1, 1999, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 December 31, 1999 and January 1, 1999, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Jackson, Mississippi
February 4, 2000
22
<PAGE> 1
Exhibit 21
List of Subsidiaries of the Registrant
--------------------------------------
The only subsidiary of the registrant is KLLM, Inc., a Texas corporation.
<PAGE> 1
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of KLLM Transport Services, Inc. of our report dated February 4, 2000, included
in the 1999 Annual Report to Shareholders of KLLM Transport Services, Inc.
Our audits also included the financial statement schedule of KLLM Transport
Services, Inc. listed in Item 14(a)(2). This schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information as set forth therein.
We also consent to the incorporation by reference in the Registration Statement
(Post-effective Amendment No. 6, Form S-8, No. 33-14545) pertaining to the KLLM
Transport Services, Inc. Employee Stock Purchase Plan, the Registration
Statement (Form S-8, No. 333-35365) pertaining to the KLLM Transport Services,
Inc. 1996 Stock Purchase Plan and the Registration Statement (Form S-8,
No.333-50359) pertaining to the KLLM Transport Services, Inc. 1998 Non-Employee
Director Stock Compensation Plan of our report dated February 4, 2000, 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) for the year ended December 31, 1999.
Ernst & Young LLP
Jackson, Mississippi
March 28, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF KLLM TRANSPORT FOR THE FISCAL YEAR ENDED DECEMBER 31,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-02-1999
<PERIOD-END> DEC-31-1999
<CASH> 511
<SECURITIES> 0
<RECEIVABLES> 27,120
<ALLOWANCES> 416
<INVENTORY> 686
<CURRENT-ASSETS> 40,101
<PP&E> 145,589
<DEPRECIATION> 46,543
<TOTAL-ASSETS> 139,147
<CURRENT-LIABILITIES> 26,897
<BONDS> 0
0
0
<COMMON> 4,559
<OTHER-SE> 46,408
<TOTAL-LIABILITY-AND-EQUITY> 139,147
<SALES> 0
<TOTAL-REVENUES> 234,595
<CGS> 0
<TOTAL-COSTS> 232,125
<OTHER-EXPENSES> (58)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,403
<INCOME-PRETAX> (875)
<INCOME-TAX> (330)
<INCOME-CONTINUING> (545)
<DISCONTINUED> 0
<EXTRAORDINARY> (247)
<CHANGES> 0
<NET-INCOME> (792)
<EPS-BASIC> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
