KLLM TRANSPORT SERVICES
1995 Annual Report
Company Profile
KLLM Transport Services, Inc., through its wholly-owned subsidiary,
KLLM, Inc., specializes in providing high-quality transportation services
in North America.
KLLM Inc.'s operating divisions haul both temperature-controlled and dry
commodities. The majority of the Company's revenues, approximately 70%, are in
the temperature-controlled sector. Protective service is provided on
commodities such as food, medical supplies and cosmetics. Service offerings
include over-the-road long haul, regional, and intermodal transportation.
The shares of KLLM Transport Services, Inc. trade on The Nasdaq Stock
Market (National Market) under the symbol KLLM.
Financial And Operating Highlights
(In thousands, except per share and
operating data) 1995 1994
STATEMENT OF OPERATIONS DATA:
Operating revenue $239,685 $210,276
Operating income from continuing operations 6,513 14,301
Net earnings from continuing operations 518 5,774
Earnings per share from continuing operations 0.12 1.28
Weighted average shares outstanding 4,479 4,536
BALANCE SHEET DATA:
Total assets 164,248 $166,077
Long-term debt, less current maturities 59,594 66,531
Stockholders' equity 65,968 67,843
OPERATING DATA:
Operating ratio 97.3% 93.2%
Total miles travelled (000s) 175,967 161,584
Average miles per tractor 112,645 115,650
Average revenue per total mile 1.14 1.16
Equipment at year-end:
Company-operated tractors 1,485 1,290
Owner-operated tractors 291 242
Total tractors 1,776 1,532
Refrigerated trailers 2,150 2,115
Dry-van trailers 384 -----
Total trailers 2,534 2,115
Refrigerated rail containers 202 150
Selected Financial And Operating Data
(In thousands, except per
share and operating data) 1995 1994 1993 1992 1991
STATEMENTS OF OPERATIONS DATA:
Operating revenue $239,685 $210,276 $165,259 $143,451 $129,571
Operating expenses 233,172 195,975 152,503 131,655 120,707
------- ------- ------- ------- -------
Operating income from
continuing operations 6,513 14,301 12,756 11,796 8,864
Interest and other income 32 17 11 4 18
Interest expense (5,554) (5,014) (4,384) (4,521) (4,037)
------ ------- ------- ------- -------
Earnings from continuing
operations before income taxes 991 9,304 8,383 7,279 4,845
Income taxes 473 3,530 3,436 3,050 2,025
---- ----- ----- ----- -----
Net earnings from continuing
operations 518 5,774 4,947 4,229 2,820
Loss from operations of
discontinued division, net of
tax benefits (624) (580) (195) ------- -------
Loss on disposal of
discontinued division,
net of tax benefit (441) ------- -------- ------- -------
------ ------- ------ ------- -------
Net Earnings (Loss) $(547) $5,194 $4,752 $4,229 $ 2,820
====== ======= ====== ======= =======
Earnings (Loss) per share:
From continuing operations $ 0.12 $ 1.28 $ 1.14 $ 1.23 $ 0.82
From operations of
discontinued division (0.14) (0.13) (0.05) ----- -----
From disposal of discontinued
division (0.10) ----- ----- ----- -----
------- ----- ----- ----- -----
Net earnings (loss) per
common share $(0.12) $ 1.15 $ 1.09 $ 1.23 $ 0.82
======= ===== ====== ====== ======
Weighted average common shares
outstanding 4,479 4,536 4,357 3,449 3,432
====== ===== ===== ====== ======
BALANCE SHEET DATA (AT YEAR-END):
Net property and
equipment $122,264 $126,756 $117,322 $98,638 $74,722
Total assets 164,248 166,077 150,094 123,142 96,595
Total liabilities 98,280 98,234 86,403 84,035 62,024
Long-term debt, less current
maturities 59,594 66,531 58,514 61,256 40,592
Stockholders' equity 65,968 67,843 63,691 39,107 34,571
OPERATING DATA:
Operating ratio 97.3% 93.2% 92.3% 91.8% 93.2%
Average number of
truckloads per week 3,176 2,871 2,420 2,001 1,790
Average miles per trip 1,065 1,082 1,087 1,228 1,253
Total miles travelled (000s) 175,967 161,584 136,777 130,206 116,624
Average revenue per
total mile $ 1.14 $ 1.16 $ 1.13 $ 1.10 $ 1.10
Empty mile percentage 11.58% 9.8% 10.3% 10.6% 9.6%
Equipment at year-end:
Company-operated
tractors 1,485 1,290 1,240 1,063 939
Owner-operated tractors 291 242 85 ----- -----
----- ----- ----- ----- -----
Total tractors 1,776 1,532 1,325 1,063 939
Refrigerated trailers 2,150 2,115 1,955 1,694 1,370
Dry-van trailers 384 ----- ----- ----- -----
----- ----- ----- ----- -----
Total trailers 2,534 2,115 1,955 1,694 1,370
Refrigerated rail containers 202 150 ----- ----- -------
Ratio of tractors to non-driver
employees at year-end 3.7 2.9 2.9 2.7 2.5
Miles per gallon of fuel 6.3 6.4 6.3 6.2 6.1
Selected Quarterly Data (Unaudited)
First Second Third Fourth
Quarter Quarter Quarter Quarter
(In Thousands, except per share amounts)
- -------------------------------------------------------------------------------
1995
Operating revenue $53,423 $60,971 $63,158 $62,133
Operating income
from continuing
operations 2,352 2,747 697 717
Net earnings
(loss) from
continuing
operations 619 810 (474) (437)
Net earnings (loss) 430 681 (515) (1,143)
Earnings (Loss)
per share $ 0.10 $ 0.15 $ (0.11) $(0.26)
1994
Operating revenue $46,543 $56,701 $ 55,413 $51,619
Operating income
from continuing
operations 1,965 5,087 4,082 3,167
Net earnings from
continuing
operations 521 2,362 1,747 1,144
Net earnings 337 2,167 1,568 1,122
Earnings per share $ 0.07 $ 0.48 $ 0.35 $ 0.25
Market And Dividend Information
The Company's common stock is traded on The Nasdaq Stock Market (National
Market) under the symbol KLLM. The number of stockholders, including
beneficial owners holding shares in nominee or "street" name, as of February
21,1996, was approximately 1,665. 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 1995 and 1994:
FISCAL YEAR 1995 High Low
- ----------------------------------------------------------------------------
First Quarter $16 $12.75
econd Quarter $14.5 $12
Third Quarter $13.25 $ 9
Fourth Quarter $11.5 $ 9.75
FISCAL YEAR 1994 High Low
- ----------------------------------------------------------------------------
First Quarter $18.75 $14.25
Second Quarter $17 $14
Third Quarter $20 $15.5
Fourth Quarter $20 $14
Management's Discussion And Analysis Of
Financial Condition And Results Of Operations
LIQUIDITY AND CAPITAL RESOURCES
KLLM Transport Services, Inc.'s primary sources of liquidity are its
cash flow from operations and existing credit agreements of KLLM, Inc., a
wholly-owned subsidiary. During each of the years ended December 29, 1995
and December 30, 1994, the Company generated $23.9 million in net cash
provided from operating activities.
Capital resources required by the Company during 1995 were much less
significant than in prior years, primarily because KLLM, Inc., in January
1995, entered into an operating lease for the majority of its revenue
equipment needs for 1995. The payment terms of the operating lease were more
favorable than could have been obtained with financing or capital leasing.
In 1995, the Company-operated fleet increased by 195 tractors, 419
trailers, and 52 rail containers, net of replacements. Of the net increase
in tractors, 400 were added under the operating lease noted above. Capital
expenditures, net of proceeds from trade-ins during 1995, were approximately
$8,724,000. Net capital expenditures in 1994 were $29,586,000. Net capital
expenditures in 1996 are expected to be approximately $25,921,000 as the
Company returns to it's traditional method of investing in maintaining a
modern fleet.
During late 1994, the Company began an internal restructuring of its
operating divisions into separate operating units in order to achieve greater
accountability within those units. In 1995, the Company continued to
fine-tune the new structure to meet the changing demands of the marketplace.
The Company has continued growth of the less capital intensive owner-operator
division and contract logistics operations. Both of these operating units
have served as a favorable medium for increasing revenues with minimal capital
outlays, while maintaining positive earnings. Due to the weakened economic
conditions in 1995, the intermodal, or rail services, division was forced to
refocus on securing annual, consistent intermodal market share. While this
operating unit hasn't yet achieved profitability, the Company feels there is
a viable market for intermodal temperature-controlled services. As such,
development of the intermodal customer base is ongoing, and, at the same time,
the Company is guardedly evaluating continued participation in intermodal
operations. At the end of 1995, the Company discontinued that segment of the
international operations aimed at maritime containerized shipments. This
division proved to be unprofitable and difficult to manage; thus, in an
effort to minimize exposure on future earnings, the Company recognized a
one-time after-tax charge to 1995 earnings of $441,000, or $0.10 per share,
on the disposal of that unit. The traditional over-the-road temperature-
controlled freight operations have also made adjustments in response to
changing market conditions, including curtailed growth of the fleet.
Through a variety of measures invoked during 1995, the Company has
refocused attention on improving utilization and profitability in the
core trucking business. The more notable measures instituted in the
restructuring include consolidation of certain driver terminals, reducing
the number from thirteen at the end of 1994 to ten at the end of 1995,
and reduction in the nondriver work force of approximately 85 employees
which, on an annualized basis, will cut total annual payroll costs
by approximately $2.6 million.
In addition to fine-tuning the existing structure, effective
May 1, 1995, the Company's wholly-owned subsidiary, KLLM, Inc., acquired
substantially all of the assets of Vernon Sawyer, Inc., a regional
dry-van truckload carrier based in Bastrop, Louisiana. The assets
acquired include 126 tractors and 288 dry-van trailers, which are a
part of the overall increase in fleet size noted above. The acquisition
was financed with capital resources from operating activities in the
amount of $6,758,000 and the assumption of revenue equipment debt in the
amount of $3,795,000 for a total cost of $10,553,000.
In order to more appropriately match the terms of its revolver debt
facility with the nature of the Company's capital investments and the
expansion of divisional operations, on April 7, 1994, KLLM restructured its
revolving line of credit. The Company has a $50,000,000 unsecured
revolving line of credit with a syndication of banks. Borrowings of
$35,000,000 were outstanding at year-end. At December 29, 1995, the
weighted average interest rate on the revolving line of credit was
6.32%. Under the terms of the agreement, borrowings bear interest at
(i) the higher of prime rate or a rate based upon the Federal Funds
Effective Rate, (ii) a rate based upon the Eurodollar rates, or (iii) an
absolute interest rate as determined by each lender in the syndication
under a competitive bid process at the Company's option. Facilities
fees from 1/4% to 3/8% per annum are charged on the unused portion of
this line.
The Company entered into an interest rate swap arrangement with
a bank that effectively established a fixed interest rate of 5.23% for
two and one-half years beginning April 1, 1993 on approximately 14%, or
$5,000,000, of the Company's outstanding revolving line of credit at
December 30, 1994. The agreement expired September 29, 1995. At
December 30, 1994, the weighted average interest rate on the remaining
$31,000,000 of the revolving line of credit was 6.52%.
Working capital needs have generally been met from net cash provided
from operating activities. On April 5, 1994, in conjunction with
restructuring the revolver debt facility, the working capital line of
credit was renegotiated. The Company has $4,150,000 in unsecured working
capital lines of credit with a bank, of which $651,000 was used at
December 29, 1995, and $4,000,000 was used at December 30, 1994. Interest
is at a rate based upon the Eurodollar rates with facility fees at 1/4%
per annum on the unused portion of the line.
At December 29, 1995, the aggregate principal amount of the Company's
outstanding long-term indebtedness was approximately $66.0 million. Of
this total outstanding, $4.0 million was in the form of 10.2% notes due
July 15, 1998, $20.0 million in the form of 9.11% senior notes due
June 15, 2002, $35.0 million consisted of the revolving line of credit due
April 7, 1997, and $7.0 million principal was relative to capital leases
with varying maturities.
The required principal payments on all indebtedness are anticipated
to be $5.9 million in 1996, $39.8 million in 1997, $4.9 million in 1998,
$6.3 million in 1999, $2.9 million in 2000, and $5.7 million thereafter.
In March 1993, the Company completed an offering to the public of
1,150,000 shares of the Company's common stock, 100,000 shares of which
were sold by stockholders. The net proceeds of the offering, approximately
$19,551,000 were used to reduce the Company's borrowings under the revolving
line of credit, various capital leases and a mortgage note.
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.
RESULTS OF OPERATIONS
The following table sets forth the percentage of revenue and expense
items to operating revenue for the periods indicated.
Percentage of
Operating Revenue
--------------------
For the Year 1995 1994 1993
- ------------------------------------------------------------------------
Operating revenue 100.0% 100.0% 100.0%
Operating expenses
Salaries, wages and fringe benefits 29.1 28.8 30.6
Operating supplies and expenses 27.7 28.9 34.4
Insurance, claims, taxes and licenses 4.9 4.7 5.4
Depreciation and amortization 9.6 10.0 11.2
Purchased transportation and equipment
rent 22.3 16.7 6.4
Other 4.4 4.5 4.8
Gain on sale of revenue equipment (.7) (.4) (.5)
------ ----- -----
Total operating expenses 97.3 93.2 92.3
------ ----- -----
Operating income from continuing operations 2.7 6.8 7.7
Interest expense 2.3 2.4 2.6
----- ---- -----
Earnings from continuing operations
before income taxes 0.4 4.4 5.1
Income taxes 0.2 1.6 2.1
------ ----- -----
Net earnings from continuing operations 0.2% 2.8% 3.0%
====== ====== =====
Year Ended December 29, 1995 Compared to Year Ended December 29, 1994
Operating revenue for the year ended December 29, 1995 increased by
$29,409,000 or 14% when compared to the year ended December 30, 1994.
The net revenue increase consisted of a 5% increase in the Company's
traditional over-the-road temperature-controlled freight services, of
which a 7% increase came from the owner-operator division, 1% decrease
from rail services, 4% increase from transportation brokerage services,
and 6% increase from the operation of the dry-van over-the-road truckload
services.
The basis for the net revenue increase consists primarily of a 2%
increase in available Company-owned equipment, 6% increase in available
owner-operated equipment, and a 6% increase from the new dry-van operation.
The average revenue per mile decreased $0.02 to $1.14 for the year ended
December 29, 1995 when compared to the year ended December 30, 1994.
The operating ratio increased from 93.2% to 97.3% for the year ended
December 29, 1995 when compared to the year ended December 30, 1994. The
operating ratio for the traditional over-the-road truckload services
increased from 92.5% to 97.5% primarily due to increases in certain
variable and fixed operational costs: driver pay increased approximately
$2.6 million, liability and workers' compensation insurance provision
increased approximately $1.0 million, fuel increased approximately $1.2
million, and revenue equipment rent increased approximately $0.8 million.
These increased costs accounted for 1.9%, 0.8%, 0.9% and 0.6%, respectively,
of the increase in the operating ratio. Additionally, the increased
operating ratio resulted from a significant increase in purchased
transportation and equipment rental costs associated with the newer
operations. As previously noted, these divisions are low margin which
increases the operating ratio overall; however, they are not as capital
intensive as the traditional over-the-road freight operation. At
December 29, 1995, the Company had 3.7 tractors per nondriver employee
which was higher than the prior year ratio of 2.9, and consistent with the
previously noted reduction in the nondriver work force during 1995.
Interest expense from continuing operations for the year ended
December 29, 1995 was $5,554,000, with an additional $303,000 from
discontinued operations, for a total of $5,857,000. It was
approximately $748,000 greater than the year ended December 30, 1994.
Interest expense increased due to a higher amount of outstanding debt on
the revolving line of credit throughout the first 11 months of the year
ended December 29, 1995 than was outstanding the year before and higher
weighted average interest rate on the revolving line of credit throughout
the majority of the year ended December 29, 1995 as compared to the
previous year.
The provision for income taxes for the year ended December 29, 1995
was $473,000 on continuing operations, based on a combined effective
federal and state tax rate of 48%. This reflects an increase in the
effective tax rate from 38% for the year ended December 30, 1994 as
a result of an increase in nondeductible expenses as a percentage of
pretax income.
As a result of the foregoing, net earnings from continuing
operations decreased $5,256,000 or 91% for the year ended
December 29, 1995 when compared to the year ended December 30, 1994.
Year Ended December 30, 1994 Compared to Year Ended January 2, 1994
Operating revenue for the year ended December 30, 1994 increased
by $45,017,000, or 27%, when compared to the year ended January 2, 1994.
The net revenue increase consisted of 19% from the Company's traditional
over-the-road temperature-controlled freight services, of which an 8%
increase came from the owner-operator division, 6% from rail services,
and 2% from transportation brokerage services.
Excluding the newer divisions, the basis for the net revenue increase
consisted of 8% from an increase in available Company-owned equipment,
7% from an increase in available owner-operated equipment, 2% from
improvements in freight rates, and 2% from an increase in the average
miles per week per Company-owned tractor. The average revenue per mile
increased $0.03 to $1.16 for the year ended December 30, 1994 when
compared to the year ended January 2, 1994.
The operating ratio increased from 92.3% to 93.2% for the year ended
December 30, 1994 when compared to the year ended January 2, 1994.
The operating ratio for the traditional over-the-road truckload services
remained steady at 92.5% even though operating expenses increased
approximately 0.3% due to a change in the treatment of certain
previously non-deductible reimbursable expenses to the drivers.
The impact of this change was to recognize these costs as wages to the
drivers, along with the associated Company payroll taxes; thus resulting
in an increase in operating expenses, additionally allowing for a
reduction in the effective tax rate due to the change in the status of
these costs as a deductible expense for tax purposes. Overall, the
increased operating ratio resulted from a significant increase in purchased
transportation and equipment rental costs associated with the newer
operations. As previously noted, these divisions are low margin which
increases the operating ratio overall; however, they are not
as capital intensive as the traditional over-the-road freight operation.
At December 30, 1994, the Company had 2.9 tractors per nondriver employee
which was consistent with the prior year.
Interest expense from continuing operations for the year ended
December 30, 1994 was $5,014,000, with an additional $95,000 from
discontinued operations, for a total of $5,109,000. It was approximately
$725,000 greater than the year ended January 2, 1994. Interest expense
increased due to a higher amount of outstanding debt during
the year ended December 30, 1994 than was outstanding the year before.
The provision for income taxes for the year ended December 30, 1994
was $3,530,000 on continuing operations, based on a combined effective
federal and state tax rate of 38%. This reflects a decrease in the
effective tax rate from 41% for the year ended January 2, 1994 as a
result of a decrease in nondeductible expenses as a percentage of pretax
income as previously noted.
As a result of the foregoing, net earnings from continuing operations
increased by $827,000 or 17% for the year ended December 30, 1994 when
compared to the year ended January 2, 1994.
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.
Consolidated Balance Sheets
At Year-End 1995 1994
- ----------------------------------------------------------------------------
ASSETS (In thousands)
CURRENT ASSETS
Cash and cash equivalents $0 $ 1,397
Accounts receivable:
Customers (net of allowances of
$479,000 in 1995 and $147,000
in 1994) 26,709 23,325
Other 1,078 738
------ ------
27,787 24,063
Inventories--at cost 1,315 1,191
Prepaid expenses:
Tires 4,096 5,314
Taxes, licenses and permits 3,254 2,812
Other 555 952
------- -------
7,905 9,078
Deferred income taxes---Note C 1,940 1,450
------- -------
TOTAL CURRENT ASSETS 38,947 37,179
PROPERTY AND EQUIPMENT---NOTE B
Revenue equipment and capital leases 158,710 162,677
Land, structures and improvements 12,664 11,123
Other equipment 8,194 8,947
------- -------
179,568 182,747
Accumulated depreciation (57,304) (55,991)
------- -------
122,264 126,756
------- -------
INTANGIBLE ASSETS,
Net of accumulated amortization of
$407,600 in 1995 and
$120,000 in 1994---Note D 2,626 2,142
OTHER ASSETS 411 ------
TOTAL ASSETS $164,248 $166,077
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to banks---Note B $2,758 $4,000
Accounts payable 1,247 1,356
Accrued expenses---Note I 11,829 7,314
Current maturities of long-term debt
and capital leases 5,937 2,483
------- ------
TOTAL CURRENT LIABILITIES 21,771 15,153
LONG-TERM DEBT AND CAPITAL LEASES,
Less current maturities---Note B 59,594 66,531
DEFERRED INCOME TAXES---Note C 16,915 16,550
STOCKHOLDERS' EQUITY--Notes E 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---4,552,219 in 1995
and 1994; outstanding shares---
4,358,653 in 1995 and 4,481,251 in 1994 4,552 4,552
Additional paid-in capital 32,815 33,121
Retained earnings 30,687 31,234
------- -------
68,054 68,907
Less Common Stock in Treasury, 193,566
shares in 1995 and 70,968 shares in 1994,
at cost (2,086) (1,064)
------- -------
TOTAL STOCKHOLDERS' EQUITY 65,968 67,843
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $164,248 $166,077
======= =========
See accompanying notes.
Consolidated Statements of Operations
For The Year (In thousands, except
share and per share amounts) 1995 1994 1993
- ---------------------------------------------------------------------------
OPERATING REVENUE $239,685 $210,27 $165,259
OPERATING EXPENSES:
Salaries, wages and fringe benefits 69,706 60,572 50,574
Operating supplies and expenses 66,414 60,867 56,770
Insurance, claims, taxes and licenses 11,773 9,960 8,977
Depreciation and amortization---
Note A 23,017 20,962 18,514
Purchased transportation and
equipment rent 53,370 35,073 10,557
Other 10,481 9,357 7,864
Gain on sale of revenue equipment (1,589) (816) (753)
------- -------- -------
TOTAL OPERATING EXPENSES 233,172 195,975 152,503
-------- -------- --------
OPERATING INCOME FROM
CONTINUING OPERATIONS 6,513 14,301 12,756
OTHER INCOME AND EXPENSES:
Interest and other income 32 17 11
Interest expense (5,554) (5,014) (4,384)
--------- -------- -------
(5,522) (4,997) (4,373)
--------- -------- -------
EARNINGS FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 991 9,304 8,383
Income taxes---Note C 473 3,530 3,436
--------- -------- -------
NET EARNINGS FROM
CONTINUING OPERATIONS 518 5,774 4,947
LOSS FROM OPERATIONS OF
DISCONTINUED DIVISION
(Net of tax benefits
of $351, $355 and $136
respectively)--Note H (624) (580) (195)
LOSS ON DISPOSAL OF
DISCONTINUED DIVISION
(Net of tax benefit
of $247)--Note H (441) 0 0
---------- --------- -------
NET EARNINGS (LOSS) ($547) $5,194 $4,752
========== ========= =========
EARNINGS (LOSS) PER SHARE:
From continuing operations $0.12 $1.28 $1.14
From operations of
discontinued division (0.14) (0.13) (0.05)
From disposal of discontinued
division (0.10) 0.00 0.00
--------- --------- -------
NET EARNINGS (LOSS) PER COMMON
SHARE ($0.12) $1.15 $1.09
========== ========= =======
WEIGHTED AVERAGE NUMBER of COMMON
SHARES OUTSTANDING 4,478,827 4,536,144 4,357,200
========== ========== =========
See accompanying notes.
Consolidated Statements of Stockholders' Equity
Common Stock Additional Total
-------------
Treasury Stock Paid-in Retained Stock
-------------- holders'
(In thousands) Shares Amount Shares Amount Capital Earnings Equity
- -------------- -----------------------------------------------------------
BALANCE AT
JANUARY 3,
1993 3,468 $3,468 $14,351 $21,288 $39,107
Common stock
issued upon
exercise
of stock options 33 33 248 281
Offering of
common stock---
Note E 1,050 1,050 18,501 19,551
Net earnings 4,752 4,752
---------------------------------------------------------------
BALANCE AT
JANUARY 2, 1994 4,551 4,551 33,100 26,040 63,691
Purchase of
treasury shares,
at cost (78) 1,158) (1,158)
Sale of common
stock---Note G 7 94 9 103
Common stock
issued upon exercise
of stock options 1 1 12 13
Net earnings 5,194 5,194
---------------------------------------------------------------
BALANCE AT
DECEMBER 30,
1994 4,552 4,552 (71)(1,064) 33,121 31,234 67,843
Purchase of
treasury shares,
at cost (172)(1,763) (1,763)
Sale of
common stock
- ---Note G 5 74 (22) 52
Common stock
issued upon
exercise
of stock options 44 667 (284) 383
Net loss (547) (547)
----------------------------------------------------------------
BALANCE AT
DECEMBER 29,
1995 4,552 $4,552 (194)($2,086) $32,815 $30,687 $65,968
================================================================
See accompanying notes.
Consolidated Statements of Cash Flows
For The Year (In thousands) 1995 1994 1993
- -----------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers $248,165 $215,150 $160,169
Interest and other income received 59 17 11
Cash paid to suppliers and employees (217,523) (185,072) (135,349)
Interest paid (5,999) (5,250) (4,401)
Income taxes refunded 87 391 41
Income taxes paid (856) (1,349) (1,640)
--------- --------- ------
NET CASH PROVIDED FROM
OPERATING ACTIVITIES 23,933 23,887 18,831
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of Vernon Sawyer
Assets---Note D (6,758)
Purchase of Fresh International
Transportation, Inc.---Note D (2,566)
Purchases of property and equipment (19,890) (36,108) (41,807)
Proceeds from disposition of
equipment 11,166 6,522 5,184
-------- ------- ------
NET CASH FLOWS USED IN
INVESTING ACTIVITIES (15,482) (32,152) (36,623)
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from sale of common stock 52 103 19,551
Proceeds from exercise of
stock options 383 13 281
Purchase of Common Stock for
Treasury (1,763) (1,158)
Net increase (decrease) in
borrowing under revolving
line of credit (1,000) 10,500 1,500
Repayment of long-term debt
and capital leases (4,171) (2,665) (4,781)
Net change in borrowing under
working capital line of credit (3,349) 2,000 2,000
----------- ----------- --------
NET CASH FLOWS (USED IN) PROVIDED
BY FINANCING ACTIVITIES (9,848) 8,793 18,551
----------- ------------ --------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (1,397) 528 759
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 1,397 869 110
----------- ------------ --------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $0 $1,397 $869
=========== ============= ========
RECONCILIATION OF NET EARNINGS
(LOSS) TO NET CASH
PROVIDED FROM OPERATIONS
Net income (loss) ($547) $5,194 $4,752
Noncash expenses and gain
included in income:
Depreciation and amortization 23,141 20,962 18,514
Deferred income taxes (125) 2,850 2,460
Book value of equipment written
off in accidents 375 241 178
(Increase) in accounts receivable 2,287) (1,995) (5,947)
(Increase) decrease in inventory
and prepaid expenses 1,069 (1,375) (1,962)
(Increase) in other assets (411) ----- -----
Increase (decrease) in accounts
payable and accrued expenses 4,382 (1,174) 1,589
Gain on sale of equipment (1,664) (816) (753)
---------- ---------- --------
NET CASH PROVIDED FROM OPERATIONS $23,933 $23,887 $18,831
========== =========== ========
See accompanying notes.
Notes to Consolidated Financial Statements
NOTE A---SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business. The Company, through its wholly-owned subsidiary, KLLM, Inc.,
provides transportation services in North America for both temperature-
controlled and dry commodities. Services provided include over-the-road long
haul, regional, and intermodal transportation. The demand for transportation
services is affected by general economic conditions and is subject to seasonal
demand for certain commodities and severe weather conditions.
Principles of Consolidation. The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation. Certain reclassifications have been made to conform with current
year presentation.
Cash Equivalents. 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 the tires. 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. Gains and losses on sales or exchanges of
property and equipment are included in operations in the year of disposition.
The Company changed the estimated salvage value of certain revenue equipment
as of January 4, 1993 to reflect increases in the prices for used equipment.
The change resulted in an increase to the net loss of $281,000, or $0.06 per
share, for the year ended December 29, 1995, resulting from a decrease
to the gain on sale of revenue equipment partially offset by lower
depreciation expense, and a decrease in depreciation expense of $716,000
and an increase in net earnings of $415,000, or $0.09 per share, for each
of the years ended December 30, 1994 and January 2, 1994.
Use of estimates. The preparation of the financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates.
Revenue Recognition. Revenue is recognized on the date the freight is
received for shipment. Estimated costs of delivery of shipments in transit
are accrued. The Company's method of revenue recognition is not materially
different from the method of recognizing revenues based on relative transit
time incurred which is considered an acceptable method of accounting for
freight-in-transit by the Emerging Issues Task Force of the Financial
Accounting Standards Board.
Earnings Per Common Share. Earnings per common share is based on the
weighted average number of common shares outstanding during each year.
Fiscal Year. The Company's fiscal year-end is the Friday nearest D
ecember 31, which was December 29, 1995 and December 30, 1994 for the past
two fiscal year ends. Prior to this, the Company's fiscal year-end was
the Sunday nearest December 31, which was January 2, 1994 for the prior
year. The change in fiscal year-end cut-off did not have a significant
effect on the Company's results of operations or financial condition for
fiscal years ended December 29, 1995 and December 30, 1994.
Impact of Recently Issued Accounting Standards. In March 1995, the
FASB issued Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, which requires impairment
losses to be recorded on long-lived assets used in operations when indicators
of impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount.
Statement 121 also addresses the accounting for long-lived assets that are
expected to be disposed of. The Company will adopt Statement 121 in the first
quarter of 1996 and, based on current circumstances, does not believe the
effect of adoption will be material.
Notes To Consolidated Financial Statements (Continued)
NOTE B---CREDIT FACILITIES, DEBT AND CAPITAL LEASES
Long-term debt and capital leases consisted
of the following: 1995 1994
- -------------------------------------------------------------------------
(In thousands)
9.11% unsecured notes payable to
insurance companies with semi-annual
interest payments and annual principal
payments of $2,857,000 from 1996
through 2002 $20,000 $20,000
10.2% unsecured notes payable to
insurance company with semi-annual
interest payments and annual principal
payments of $1,250,000 through July 1998 3,750 5,000
Revolving line of credit with banks,
with floating interest(6.32% weighted average rate at
December 29, 1995) 35,000 36,000
Capital lease obligations with interest
rates from 6.2% to 6.68%
and monthly payments of $144,000 through
June 1999 6,781 8,014
------------- ----------
65,531 69,014
Less current maturities (5,937) (2,483)
------------- ----------
$59,594 $66,531
============= ==========
Capital lease obligations represent leased revenue equipment
capitalized for $10,938,000 with accumulated amortization of
ation of
$4,443,000 and $3,228,000 at year-end 1995 and 1994, respectively.
The Company has a $50,000,000 unsecured revolving line of credit.
In accordance with the agreement, the Company has agreed to limit assets
pledged on any other borrowing. At December 29, 1995, $15,000,000 was
available to the Company under the revolving line of credit. Under the
terms of the agreement, borrowings bear interest at (i) the higher
of prime rate or a rate based upon the Federal Funds Effective Rate,
(ii) a rate based upon the Eurodollar rates, or (iii) an absolute interest
rate as determined by each lender under a competitive bid process at the
Company's option. Facilities fees from 1/4% to 3/8% per annum are charged
on the unused portion of this line.
The aggregate annual maturities of long-term debt and capital leases
at December 29, 1995 are as follows:
Long-term Capital
(In thousands) Debt Leases Total
- --------------------------------------------------------------------------
1996 $ 4,107 $ 2,204 $ 6,311
1997 39,107 1,045 40,152
1998 4,107 1,045 5,152
1999 2,857 3,498 6,355
2000 2,857 ------- 2,857
Thereafter 5,715 ------- 5,715
------------ -------- ------
58,750 7,792 66,542
Less amount
representing interest ------- (1,011) (1,011)
---------- ----------- -------
$ 58,750 $ 6,781 $65,531
========== =========== ========
The Company also has $4,150,000 in unsecured working capital lines of
credit, of which $651,000 was used at December 29, 1995. Interest is at a
rate based upon London Interbank Offered Rate (LIBOR) on borrowings on the
working capital lines with facility fees at 1/4% per annum on the unused
portion of the line.
Under the terms of the lines of credit and notes payable agreements,
the Company agreed to maintain minimum levels of consolidated tangible net
worth and cash flows, to limit additional borrowing based on a debt-to-
consolidated tangible net worth ratio, and to restrict assets that can be
pledged on any other borrowings. The agreements also establish
limits on dividends, stock repurchases, and new investments. The Company is
in compliance with these provisions at year-end 1995 and 1994, as amended
subsequent to year end December 29, 1995.
Notes To Consolidated Financial Statements (Continued)
NOTE C---INCOME TAXES
The Company adopted the Financial Accounting Standards Board Statement
No. 109, "Accounting for Income Taxes" effective January 1, 1993. The
adoption of Statement 109 had no material effect on the Company's accounting
for income taxes. Prior to the adoption of Statement 109, income tax expense
and the classification of deferred income taxes were determined using the
method prescribed by Statement 96, which is superseded by Statement 109.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
The components of deferred tax assets and liabilities are as follows:
(In thousands) 1995 1994
- --------------------------------------------------------------------------
Deferred Tax Assets:
Allowance for doubtful accounts $ 173 $ 57
Accrued expenses 1,767 1,393
------- ------
$1,940 $1,450
======= =======
Deferred Tax Liabilities:
Property and equipment $19,305 $17,465
Intangibles (40) -----
Net Operating Loss Carryforward (1,414) -----
Alternative minimum tax carry forward (936) (915)
--------- --------
$16,915 $16,550
========= ========
Income tax expense (benefit) consist of the following:
(In thousands) 1995 1994 1993
- -----------------------------------------------------------------------
Current:
Federal $ ---- $ 230 $ 550
State ---- 95 290
-------- ------- --------
---- 325 840
Deferred:
Federal $ (115) 2,600 2,150
State (10) 250 310
-------- ------- --------
(125) 2,850 2,460
Total income tax
expense (benefit) $ (125) $3,175 $3,300
Less: Income tax benefit
allocated to discontinued
operations (351) (355) (136)
Income tax benefit
allocated
to loss on disposal of
discontinued operations (247) ----- -----
-------- -------- --------
Income Tax Expense
attributable
to continuing operations $ 473 $3,530 $ 3,436
========= ========= ========
The reconciliation of income tax computed at the federal statutory tax
rate to income tax expense is as follows:
(In thousands) 1995 1994 1993
- -----------------------------------------------------------------------------
Statutory federal income
tax rate $ (228) $ 2,845 $ 2,738
Nondeductible driver related
expenses ------ ----- 294
State income taxes, net (7) 232 396
Other 110 98 (128)
------ ------ --------
$ (125) $ 3,175 $ 3,300
========= ======== =========
The Company has a net operating loss carryforward for income tax purposes
of approximately $3,725,000, which expires in the year 2010.
Notes to Consolidated Financial Statements (Continued)
NOTE D---ACQUISITIONS
Effective May 1, 1995, the Company acquired substantially all of the
assets of Vernon Sawyer, Inc., a regional dry-van truckload carrier based
in Bastrop, Louisiana. Results from operations of the Company include
operations of the net assets acquired since May 1, 1995. Acquisition cost
includes $772,000 of intangibles, a three year non-compete agreement. The
non-compete agreement is being amortized by the straight-line method over
the life of the agreement.
Pro forma unaudited revenues, net income (loss) and net income (loss)
per share for the years ended December 29, 1995 and December 30, 1994,
assuming the purchase of substantially all of the assets of Vernon Sawyer,
Inc. had occurred on January 3, 1994, would have been $245,193,000,
($406,000), and ($0.09), and $226,094,000, $5,355,000, and $1.18,
respectively.
Effective March 1, 1994, the Company acquired all of the outstanding
stock of Fresh International Transportation, Inc., a company which provides
temperature controlled transportation via double-stack containers on railroads.
Results from, operations of the Company include operations of Fresh
International Transportation, Inc. since March 1, 1994. The excess
purchase price over the fair value of the assets acquired is classified
as goodwill and is included in intangibles in the accompanying balance sheet.
Goodwill is being amortized by the straight-line method over fifteen years.
Prior operations of Fresh International Transportation, Inc. are immaterial
to the Company's revenues, net earnings and earnings per sha3.
NOTE E---OFFERING OF COMMON STOCK
In March 1993, the Company completed an offering of 1,150,000 shares of
the Company's common stock, 100,000 shares of which were sold by stockholders,
with net proceeds to the Company of approximately $19,551,000. Proceeds from
the offering were used to reduce the Company's borrowing under the revolving
line of credit, capital leases and a mortgage note.
NOTE F---CONCENTRATIONS OF CREDIT RISK
The Company had one customer which accounted for operating revenues of
$23,311,000 in 1995, $29,353,000 in 1994, and $24,915,000 in 1993.
Trade accounts receivable are the principal financial instruments that
potentially subject the Company to significant concentrations of credit risk.
The Company performs periodic credit evaluations of its customers and credit
losses have been insignificant and within management's expectations.
NOTE G---EMPLOYEE BENEFIT PLANS
The Company sponsors a defined contribution plan covering substantially
all of its employees. Contributions to the plan are 200% of the employee
contribution up to 4% of each covered employee's salary. Contributions under
the plan approximated $653,000, $486,000, and $345,000 in 1995, 1994, and 1993,
respectively.
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
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 the stock options granted.
Notes to Consolidated Financial Statements (Continued)
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 to
purchase an aggregate of 332,000 shares at prices ranging from $7.125 to
$21.00 per share are outstanding at December 29, 1995. At December 29, 1995,
options for 203,000 shares were exercisable.
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 1995, 4,902 shares were purchased and in 1994, 6,532 shares
were issued pursuant to the plan. Subsequent to December 29, 1995, an
additional 17,489 shares have been subscribed for by employees.
NOTE H---DISCONTINUED OPERATIONS
The Company's management reached the decision to discontinue its
international division which primarily provided maritime transportation
services. Cessation of operations began on November 30, 1995, and are
expected to be completed by June 30, 1996, after certain contractual
obligations are completed.
Sales of the international division were $10,651,000, $6,869,000,
and $222,000 in 1995, 1994, and 1993, respectively. The loss on disposal
of discontinued operations includes approximately $62,000 (net of $35,000
tax benefit) of operational losses from November 30, 1995 through December
29, 1995. No additional loss from operations of the discontinued division
through the disposal date are anticipated by the Company.
Interest expense of $303,000, $95,000, and $0 was allocated to
discontinued operations in 1995, 1994 and 1993, respectively, based on the
relative net assets of the discontinued operations compared to total net
assets.
At December 29, 1995, the assets of the division consisted
primarily of trade accounts receivable of $1,658,000 and
liabilities of $1,010,000, which include estimated costs to close
the division.
NOTE I---COMMITMENTS AND CONTINGENCIES
The Company self-insures for losses related to liability and
workers' compensation claims with excess coverage by underwriters on a per
incident basis. Accrued expenses include $3,827,000 at December 29, 1995
and $2,640,000 at December 30, 1994 applicable to claims payable.
The ultimate cost for outstanding claims may vary significantly from
current estimates.
The Company leases certain revenue equipment and data processing
equipment under operating leases that expire over the next six years.
The leases require the Company to pay the maintenance, insurance, taxes
and other expenses in addition to the minimum monthly rentals.
Future minimum payments under the leases at December 29, 1995 are $7,590,000
in 1996, $7,356,000 in 1997, $6,601,000 in 1998, $4,348,000 in 1999, and
$952,000 in 2000. Rental expense applicable to noncancelable operating
leases totaled $7,042,000 in 1995, $2,769,000 in 1994, and $2,288,000 in 1993.
The Company has entered into heating oil (diesel fuel) swap agreements
in order to hedge its exposure to price fluctuations on approximately 12% of
its 1996 anticipated fuel requirements and less than 1% of its 1997
anticipated fuel requirements. Gains and losses on hedging contracts are
recognized in operating expenses as part of the fuel cost over the
hedge period. Also, the Company establishes prices for a portion of its
anticipated fuel purchases over specified periods of time through various
fuel purchase agreements.
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.
Report of Independent Auditors
The Board of Directors and Stockholders
KLLM Transport Services, Inc.
We have audited the accompanying consolidated balance sheets of KLLM
Transport Services, Inc. and subsidiaries as of December 29, 1995 and December
30, 1994, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
29, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of KLLM Transport
Services, Inc. and subsidiaries at December 29, 1995 and December 30, 1994,
and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 29, 1995, in conformity
with generally accepted accounting principles.
Jackson, Mississippi
January 29, 1996, except for Note B as to
which the date is March 13, 1996
Directors And Officers
BOARD OF DIRECTORS OFFICERS (Continued)
BENJAMIN C. LEE, JR.. IRENE C. HOWARD
Chairman of the Board Corporate Group
KLLM Transport Services, Inc. Vice President--Human Resources
and
Risk Management
STEVEN K. BEVILAQUA
President and Chief Executive Officer C. ALAN CLARK
KLLM Transport Services, Inc. Corporate Group
Vice President--Information
Systems
WALTER P. NEELY, PH. D.
J. Army Brown Chair of Business JAMES T. MERRITT
Administration Transport Group
Professor of Finance Senior Vice President--
Sales and Marketing
Else School of Management,
Millsaps College
STEVEN L. DUTRO
JAMES L. YOUNG Transport Group
Attorney Vice President--Finance
Young, Williams, Henderson
and Fuselier, P.A.
WILLIAM M. CREEL
LELAND R. SPEED Transport Group
Chairman of the Board and Vice President--
Chief Executive Officer Field Operations
The Parkway Company
JOSEPH. M. STIANCHE
C. TOM CLOWE, JR. Transport Group
President and Chief Operating Officer Vice President--Maintenance
Missouri Gas Energy
VINCENT A. SCHOTT
Transport Group
OFFICERS Vice President--
Information Systems
BENJAMIN C. LEE, JR. JAMES M. RICHARDS, JR.
Chairman of the Board Transport Group
Vice President--Customer Service
STEVEN K. BEVILAQUA
President and Chief Executive Officer THOMAS J. SHEPHERD
Transport Group
J. KIRBY LANE Vice President--Dedicated Logistics
Executive Vice President and Chief
Financial Officer
JAMES P. SORRELS
President--Express Systems and
Contract Logistics
WILLIAM J. LILES III
President--Rail Services
KENNETH O. ANDERS
President--International Operations
NANCY M. SAWYER
President--Vernon Sawyer
Stockholder Information
CORPORATE OFFICES
KLLM Transport Services, Inc.
3475 Lakeland Drive
Jackson, Mississippi 39208
(601) 939-2545
TRANSFER AGENT
Society National Bank
Corporate Trust Division
P. O. Box 6477
Cleveland, Ohio 44101
(800) 542-7792
INDEPENDENT AUDITORS
Ernst & Young LLP
Jackson, Mississippi
FORM 10-K
Information about KLLM Transport Services, Inc.,
including the Form 10-K, may be obtained without charge
by writing to Mr. J. Kirby Lane, Executive Vice President,
at the Company's corporate offices.
ANNUAL MEETING
10:00 a.m.
April 16, 1996
KLLM Corporate Offices
3475 Lakeland Drive
Jackson, Mississippi