-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SQYJ90i8KKSqvCS6qugJNCbWrZHVPk6SAxeplUDJnTpdlCFMxAoFctbfK0EAFme5 XSzGDTsdCVlfDm/mY9uaWA== 0000790372-96-000004.txt : 19960329 0000790372-96-000004.hdr.sgml : 19960329 ACCESSION NUMBER: 0000790372-96-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MS CARRIERS INC CENTRAL INDEX KEY: 0000790372 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 621014070 STATE OF INCORPORATION: TN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-14781 FILM NUMBER: 96540337 BUSINESS ADDRESS: STREET 1: 3171 DIRECTORS ROW STREET 2: P O BOX 30788 CITY: MEMPHIS STATE: TN ZIP: 38131 BUSINESS PHONE: 9013322500 10-K 1 M.S. CARRIERS, INC.'S 10-K FOR 1995 M.S. Carriers, Inc. 3171 Directors Row Memphis, TN 38116 March 28, 1996 Securities and Exchange Commission Washington, D.C. 20549 Gentlemen: Pursuant to the requirements of the Securities Exchange Act of 1934, we are transmitting herewith the attached Form 10-K. Sincerely, s/ M.J. Barrow M.J. Barrow, Senior Vice President United States Securities and Exchange Commission Washington, D.C. 20549 Form 10-K [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] For the fiscal year ended December 31, 1995 Commission file number 0-14781 M.S. Carriers, Inc. (Exact name of registrant as specified in its charter) Tennessee 62-1014070 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 3171 Directors Row, Memphis, TN 38116 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (901) 332-2500 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 Par 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 periods that the registrant was required to filed 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. [ ] The aggregate market value of the registrant's $.01 par value common stock held by non-affiliates of the registrant as of March 1, 1996 was $151,196,560 (based on the closing sale price of $16.6875 per share on that date, as reported by NASDAQ). As of March 1, 1996, 12,347,634 shares of the registrant's common stock were outstanding. Documents Incorporated by Reference No documents are incorporated by reference. 1 PART I ITEM 1. BUSINESS M.S. Carriers, Inc. is a transportation company primarily engaged in the hauling of truckload shipments of general commodities throughout the United States and the provinces of Quebec and Ontario in Canada. The Company has both common and contract authority, granted by the Interstate Commerce Commission to transport any type of freight (except certain types of explosives, household goods and commodities in bulk) from any point in the continental United States to any other point in any state over any route selected by the Company. The Company has authority in Canada granted by the Quebec Transport Commission and the Ontario Highway Transport Board to haul general commodities from points in the United States to points in Quebec and Ontario and from points in Quebec and Ontario into the United States. The Company also provides interline service to and from Mexico. The Company's primary line-haul traffic flows are between the Middle South and the Southwest, Midwest, Central States, Southeast and Northeast. In addition, the Company operates regional networks which serve the Southeast, Southwest, Middle South, Central States and Northeast. The average length of a trip (one-way) was approximately 584 miles in 1995 and 617 miles in 1994. The principal types of freight transported are packages, retail goods, nonperishable foodstuffs, paper and paper products, household appliances, furniture and packaged petroleum products. Marketing M.S. Carriers, Inc. has targeted the service-sensitive segment of the transportation market rather than that segment which uses price as its primary consideration. The Company has chosen to provide premium services and charge compensating rates rather than to compete solely on the basis of price. The principal elements of the Company's premium service are dependable late-model equipment which allows timely deliveries, multiple and appointment pickups and deliveries, assistance in loading and unloading, the availability of extra trailers which can be placed for the convenience of customers and sufficient equipment to respond promptly to customers' varying requirements. The Company's individualized service requires a strong commitment to marketing. The Company's marketing efforts concentrate on attracting customers that ship multiple loads from numerous locations that complement the Company's existing traffic flows. As shipping patterns of existing customers expand or change, the Company attempts to obtain additional customers to complement the new traffic flows. Thus, the effort to attract new customers varies from time to time depending upon growth or changes in the shipping patterns of existing customers. The Company's major revenue sources are the medium to long line-haul and the regional short-haul segments of the dry van truckload market. In these markets, the Company focuses on customers who value the broad geographic coverage, premium services and flexibility available from a larger carrier. These customers generally prefer to have their freight handled by a few carriers with whom they can establish long-term relationships. The Company also provides dedicated fleet services and logistics services. These services supplement the Company's strengths in its traditional markets and position the Company to meet the anticipated needs of its customers. 2 The Company had revenues of $28 million in both 1995 and 1994 from freight shipments having either a point of origin or a point of destination in Mexico. These shipments represented approximately 8.4% and 9.6%, respectively, of total revenues for 1995 and 1994. The largest 25, 10 and 5 customers accounted for approximately 63%, 48% and 35%, respectively, of the Company's revenues during 1995. Most of these customers are large, publicly-held companies. One customer, Sears, accounted for approximately 18% of the Company's revenues during 1995 and 15% in 1994. No other customer accounted for more than 10% of the Company's revenues during 1995 or 1994. Operations The Company's operations are designed to maximize efficiency while maintaining the emphasis placed on providing premium service to customers. Through the use of the Company's information and satellite tracking systems, the location of all shipments and equipment is continuously monitored to coordinate routes and increase equipment utilization. The Company's usual hauling method requires the unit carrying the shipment to proceed directly from origin to destination with no delay enroute occasioned by a change of drivers, relays or circuitous routing. The Company's customer service department maintains constant customer contact regarding overall service requirements and specific freight movements and also attempts to produce backhauls for each unit. Because the average trip has been approximately 600 miles, most of the Company's shipments are hauled by one driver rather than two. The relatively short trips ordinarily run by the Company make this method of operation preferable to team operations. Each of the Company's over-the-road tractors is equipped with a sleeper cab so that the driver can comply with the Department of Transportation's hours of service guidelines. Competition The entire transportation industry, including the trucking industry, is highly competitive. The Company competes primarily with other truckload carriers. Competition for the freight transported by the Company is based, in the long-term, primarily on service and efficiency and, to a lesser degree, on freight rates. Several other truckload carriers have substantially greater financial resources, own more equipment or carry a larger volume of freight than the Company. During 1995, the Company experienced the effects of intense competition in some of the markets which it serves. This competition reduced the demand for the Company's services in these markets. Management attributed this to an overcapacity of equipment servicing these markets as well as reduced freight requirements of shippers in those markets during 1995 as compared to 1994. Accordingly, the Company scaled down the number of planned additions to its fleet in 1995 while seeking to obtain additional freight from customers in more favorable markets. 3 Regulation The Company is a motor carrier regulated by the Interstate Commerce Commission and the United States Department of Transportation. Additionally, such matters as weight and dimensions of equipment are subject to federal, state and international regulations. The Company believes that it is in substantial compliance with all licensing and regulatory requirements in each jurisdiction in which it operates. Seasonality In the trucking industry generally, results of operations tend to show a seasonal pattern as some customers reduce shipments during and after the winter holiday season and during the summer months due to temporary plant closings for vacations. Revenues can also be affected by bad weather and holidays, since revenue is directly related to available working days. Furthermore, operating expenses historically have been higher in the winter months due primarily to decreased fuel efficiency and increased maintenance costs of revenue equipment in cold weather. Fuel Shortages of fuel or increases in fuel prices could have a materially adverse effect on the operations and profitability of the Company. Although fuel prices have been relatively stable over the past few years, the Company can not predict future fuel supplies or prices. The Company maintains fuel storage tanks at certain of its terminals. Leakage or damage to these tanks could subject the Company to environmental clean-up costs. Drivers and Employees The Company recognizes the importance of maintaining a professional driver work force. The Company has established several programs to increase driver loyalty and to give drivers a stake in the Company. The drivers are compensated on the basis of miles driven and other services such as loading and unloading and number of deliveries. Base pay for miles driven increases with a driver's length of employment with the Company. The Company maintains a defined contribution plan under Section 401(k) of the Internal Revenue Code for drivers and all other employees. The Company matches 50% of the employee's contribution, but limited to a maximum of 3% of the employee's compensation. Drivers are selected in accordance with specific Company guidelines relating primarily to safety records, driving experience and personal evaluations. Once selected, a driver is trained in all phases of Company policies and operations as well as safety techniques and fuel efficient operation of equipment. In addition, all new drivers must pass a road test prior to assignment to a vehicle. Recognizing the importance of driver contact while on the road for extended periods, the Company maintains an electronic mailbox system which allows the drivers to transmit and receive messages 24 hours a day, equips each of its tractors with a mobile two-way satellite communication system and maintains regular telephonic contact between dispatchers and drivers. 4 The Company also recognizes that owner-operators provide the Company with another source of drivers to support its operations. Owner- operators are independent contractors which supply their own tractors and drivers, and are responsible for their operating expenses in return for a negotiated fee based upon number of miles driven and accessorial services provided. While the Company's primary benefit from owner-operators is the acquisition of the services of a qualified driver, an additional benefit is the Company requires less capital for growth as owner-operators provide their own tractors. The Company intends to continue its emphasis on recruiting owner-operators. Since competition for qualified drivers is intense, the Company emphasizes the importance of attracting and retaining qualified drivers. The Company employs eight full-time driver recruiters and two full-time owner-operator recruiters. The driver compensation programs, together with the Company's late-model equipment and relatively short trips, provide important incentives to attract and retain qualified drivers. Despite these incentives, the Company experiences difficulty from time to time in attracting and retaining qualified drivers. At December 31, 1995, the Company employed 2,947 persons, of whom 2,139 were drivers, 262 were mechanics and other equipment maintenance personnel, and 546 were support personnel including management and administration. The Company also leased 253 tractors with qualified drivers from owner-operators. None of the Company's employees are represented by a collective bargaining unit, and management considers the Company's relationship with its employees to be excellent. ITEM 2. PROPERTIES Office and Terminal Facilities The Company's executive offices and principal terminal are located in Memphis, Tennessee on 3-acre and 48-acre tracts of land, respectively, both of which are owned by the Company. The executive offices have 57,000 square feet of office space. The principal terminal consists of 52,000 square feet of office space and 41,000 square feet of maintenance facilities. The Company owns office and maintenance facilities of 34,500 square feet in Columbus, Ohio, 16,500 square feet in Laredo, Texas, 16,500 square feet in Martinsburg, West Virginia and 45,500 square feet in Atlanta, Georgia. Additionally, the Company owns a 3,000 square foot office and terminal on a 4-acre tract of land in Tupelo, Mississippi. The Company leases several small offices and/or trailer parking yards throughout the country. Revenue Equipment The Company has a policy of purchasing standardized tractors and trailers manufactured to the Company's specifications. At December 31, 1995, the Company owned and operated 2,078 Company- owned tractors and leased 253 tractors owned by owner-operators. The Company's tractors include 2,057 over-the-road and 21 local tractors. The Company owns 7,190 van trailers, of which 934 are 48 feet long and 6,256 are 53 feet long; all trailers are 102 inches wide with a minimum of 109.5 inches of inside height. Most of the tractors are manufactured by Freightliner and most of the trailers are manufactured by Lufkin or Great Dane. 5 Standardization enables the Company to simplify driver training, control the cost of spare parts inventory and enhance its preventive maintenance program. The Company adheres to a comprehensive maintenance program, based on the amount of use of the tractor, designed to minimize equipment down-time and enhance the resale value of all of its equipment. During 1995, the Company reduced its trade cycle on tractors from 5 years to 4 years. The Company constantly monitors the fuel efficiency of its power equipment. The miles- per-gallon average of the entire fleet was approximately 6.03 in 1995. The following table shows the type and age of equipment operated by the Company at December 31, 1995:
Model Year Over-the-Road 48-Foot 53-Foot Tractors Trailers Trailers _______________________________________________________ 1996 388 993 1995 635 1,930 1994 341 222 926 1993 601 209 1,015 1992 84 250 306 1991 225 1990 1 500 1989 1 154 172 1988 43 189 1987 4 38 1986 2 16 1985 2 ___________________________________________ 2,057 934 6,256 ___________________________________________ ___________________________________________
ITEM 3. LEGAL PROCEEDINGS The Company is a party to routine litigation incidental to its business, primarily involving claims for personal injuries and property damage incurred in the transportation of freight. The Company believes adverse results in one or more of these cases would not have a material adverse effect on its financial position or its results of operations. The Company self-insures up to $1,000,000 for liability and property damage claims arising out of a single occurrence. In addition, the Company self-insures up to an aggregate amount of $750,000 for liability and property damage claims in excess of $1,000,000 arising out of a single occurrence. The Company maintains insurance which covers liability in excess of the self-insured amounts at coverage levels that management considers adequate. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of 1995. 6 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Price Range of Common Stock The Company's Common Stock is traded in the over-the-counter market under the symbol MSCA. The following table sets forth, for the calendar periods indicated, the high and low sales prices for the Company's Common Stock as reported by the National Association of Securities Dealers Automated Quotations System (NASDAQ).
High Low __________________ 1995 1st Quarter 25 1/4 21 2nd Quarter 25 16 5/8 3rd Quarter 20 3/4 15 3/4 4th Quarter 20 1/4 15 1/4 1994 1st Quarter 28 1/2 20 1/2 2nd Quarter 23 1/4 18 3/4 3rd Quarter 25 1/4 19 1/2 4th Quarter 25 20
As of March 1, 1996, the Company's common stock was held by approximately 4,000 stockholders of record or through nominee or street name accounts with brokers. Dividend Policy The Company has never paid a cash dividend on its Common Stock. It is the current intention of the Company's Board of Directors to continue to retain earnings to finance the growth of the Company's business rather than to pay dividends. Future payment of cash dividends will depend upon the financial condition, results of operations and capital commitments of the Company as well as other factors deemed relevant by the Board of Directors. 7 ITEM 6. SELECTED FINANCIAL DATA The following selected financial data should be read in conjunction with the financial statements and notes thereto appearing elsewhere herein.
Year ended December 31 1995 1994 1993 1992 1991 ______________________________________________________ (In thousands, except per share amounts) Statement of income data: Operating revenues $333,070 $292,883 $224,716 $181,303 $152,569 Operating expenses: Salaries, wages and benefits 126,176 111,493 84,820 66,568 55,648 Operations and maintenance 66,961 64,498 60,880 52,077 44,973 Taxes and licenses 10,024 8,746 6,901 6,040 4,965 Insurance and claims 15,666 14,471 9,545 8,035 7,863 Communications and utilities 6,081 4,698 4,135 3,279 2,803 Depreciation and amortization 39,143 33,694 27,360 21,866 18,186 Rent and purchased transportation 41,946 23,564 4,246 1,358 1,603 Other 2,435 2,058 1,792 1,706 1,161 ______________________________________________________ Total operating expenses 308,432 263,222 199,679 160,929 137,202 ______________________________________________________ Operating income 24,638 29,661 25,037 20,374 15,367 Interest expense (4,076) (1,802) (2,041) (2,463) (2,535) Other (expense) income (25) 147 118 68 151 ______________________________________________________ Income before income taxes and cumulative effect of change in accounting for income taxes 20,537 28,006 23,114 17,979 12,983 Income taxes 7,386 10,856 9,512 7,405 5,223 ______________________________________________________ Income before cumulative effect of accounting change 13,151 17,150 13,602 10,574 7,760 Cumulative effect as of January 1, 1993 of change in accounting for income taxes 500 ______________________________________________________ Net income $13,151 $17,150 $14,102 $10,574 $7,760 ______________________________________________________ ______________________________________________________ Earnings per share: Income before cumulative effect of accounting change $1.01 $1.31 $1.13 $0.97 $0.73 Cumulative effect of accounting change 0.04 ______________________________________________________ Net income $1.01 $1.31 $1.17 $0.97 $0.73 ______________________________________________________ ______________________________________________________
8
December 31 1995 1994 1993 1992 1991 _______________________________________________________ (In thousands) Balance sheet data: Total assets $279,934 $276,073 $198,960 $150,842 $122,275 Long-term obligations 47,377 51,187 17,985 32,693 26,799 Stockholders' equity 152,524 147,924 131,939 71,969 61,293
The following tables set forth data regarding the freight revenues, operations, revenue equipment and employees of the Company.
1995 1994 1993 1992 1991 ______________________________________________________ For the year ended December 31: Operating ratio (1) 92.6% 89.9% 88.9% 88.8% 89.9% Average number of truckloads per week (2) 8,265 6,971 5,759 4,300 3,324 Average revenues per tractor per week (2) $2,569 $2,613 $2,530 $2,575 $2,597 Average miles per trip (2) 584 617 618 693 765 Average revenue per mile (2) $1.25 $1.26 $1.19 $1.17 $1.15 At December 31: Total tractors operated Company owned 2,078 2,106 1,854 1,460 1,227 Owner-Operator Owned 253 207 0 0 0 Total tractors 2,331 2,313 1,854 1,460 1,227 Total trailers 7,190 6,481 5,256 3,925 2,478 Number of employees 2,947 3,238 2,705 2,177 1,897 (1) Operating expenses as a percentage of operating revenues. (2) Excludes revenues from logistics services which began in September 1993.
9 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following table sets forth the percentage relationship of revenue and expense items to operating revenues for the periods indicated.
Percentage of Operating Revenues Year ended December 31 1995 1994 1993 ____________________________________ Operating revenues 100.0% 100.0% 100.0% Operating expenses: Salaries, wages and benefits 37.9 38.1 37.7 Operations and maintenance 20.1 22.0 27.1 Taxes and licenses 3.0 3.0 3.1 Insurance and claims 4.7 5.0 4.3 Communications and utilities 1.8 1.6 1.8 Depreciation and amortization 11.8 11.5 12.2 Rent and purchased transportation 12.6 8.0 1.9 Other 0.7 0.7 0.8 ____________________________________ Total operating expenses 92.6 89.9 88.9 ____________________________________ Operating income 7.4 10.1 11.1 Interest expense (1.2) (0.6) (0.9) Other income (0.1) 0.1 0.1 ____________________________________ Income before income taxes and cumulative effect of change in accounting for income taxes 6.1 9.6 10.3 Income taxes 2.2 3.7 4.2 ____________________________________ Income before cumulative effect of accounting change 3.9 5.9 6.1 Cumulative effect as of January 1, 1993 of change in method of accounting for income taxes 0.2 ____________________________________ Net income 3.9% 5.9% 6.3% ____________________________________ ____________________________________
10 RESULTS OF OPERATIONS 1995 Compared to 1994 Operating revenues grew 13.7% to $333 million in 1995 from $293 million in 1994. This growth was due to the increase in the average number of tractors in service during the year and increased revenues from logistics services. Revenues per mile were $1.25 in 1995 compared to $1.26 in 1994. There were no material rate increases during 1995. Salaries, wages and benefits were 37.9% of revenues in 1995 compared to 38.1% of revenues in 1994. This decrease was due to owner-operator tractors representing a larger percentage of the average number of total tractors in service during 1995, which caused a shift in expenses as amounts paid to owner-operators are recorded as purchased transportation. Operations and maintenance expenses decreased to 20.1% of revenues in 1995 from 22.0% of revenues in 1994. This decrease resulted from the larger percentage of owner-operator tractors used in 1995. Insurance and claims expense was 4.7% of revenues in 1995 compared to 5.0% in 1994. This decrease was due principally to improvement in claims handling and experience. Depreciation and amortization increased slightly in 1995 to 11.8% of revenues from 11.5% of revenues in 1994. This increase resulted from the Company reducing its trade-in cycle of tractors during 1995, a reduced utilization of tractors in 1995 and the addition of a fleet-wide satellite tracking system which was installed in the latter part of 1994. This was partially offset by an increase in the use of owner-operators and expanded revenues from logistics services. Rent and purchased transportation rose to 12.6% of revenues in 1995 compared to 8.0% of revenues in 1994. The increase is attributable primarily to increased use of owner-operators and expenses incurred related to the Company's logistics services. Interest expense was $5,524,467 in 1995 compared to $1,801,981 in 1994. This increase in interest expense is due to the increase in average outstanding debt during 1995. The effective income tax rate decreased to 35.9% in 1995 from 38.8% in 1994, as described in Note 4 of the Notes in Consolidated Financial Statements. 1994 Compared to 1993 Operating revenues grew 30.3% to $293 million in 1994 from $225 million in 1993. This growth was due to the increase in the average number of tractors in service during the year and rate increases implemented during the year. 11 Revenues per mile were $1.26 in 1994 compared to $1.19 in 1993. The increase in revenues per mile resulted principally from the continued expansion of the Company's regional short-haul markets. The Company's regional traffic involves shorter lengths of haul and higher revenues per mile. Revenues from regional operations were 32% of the Company's total revenues in 1994 compared to 24% in 1993. In addition, rates charged to customers were increased in mid-year to provide for increased driver compensation in an attempt to attract and retain qualified drivers. Salaries, wages and benefits were 38.1% of revenues in 1994 compared to 37.7% in 1993. Effective January 1, 1994, the Company no longer paid per diem to line-haul drivers as reimbursement for expenses incurred during extended periods of time away from home. Instead, these drivers now receive a higher pay rate per mile which has caused a significant increase in the Company's salary and wages expense. This was partially offset by the Company's implementation of the use of owner-operators during 1994 which caused a shift in expenses as amounts paid to owner-operators are recorded as purchased transportation. Operations and maintenance expense was 22.0% of revenues in 1994 compared to 27.1% in 1993. The decrease was attributable primarily to the discontinuance of per diem payments to line-haul drivers and the use of owner- operators. Insurance and claims expense was 5.0% of revenues in 1994 compared to 4.3% in 1993. The increase in costs is due primarily to adjustments to reflect increased liability related to claims incurred in prior periods. Depreciation and amortization decreased as a percentage of revenues to 11.5% in 1994 from 12.2% in 1993. The decrease in 1994 was associated with the Company's use of owner operators. Rent and purchased transportation was 8.0% of revenues in 1994 compared to 1.9% in 1993. The increase in 1994 was attributable primarily to expenses incurred in conjunction with the use of owner-operators and the increase in the Company's logistics services. Interest expense was $1,801,981 in 1994 compared to $2,041,114 in 1993. The decrease in interest expense is due to the reduction in average outstanding debt during 1994. The effective income tax rate decreased to 38.8% in 1994 from 41.2% in 1993, as described in Note 4 of the Notes to Consolidated Financial Statements. LIQUIDITY AND CAPITAL RESOURCES The growth of the Company's business continues to require significant investments in new revenue equipment and office and terminal facilities. These investments have been financed largely from cash provided by operating activities, secured and unsecured borrowings, unsecured credit facilities and capital markets during the past three years. Net cash provided by operating activities was approximately $55.4 million in 1995, $55.8 million in 1994, and $36.2 million in 1993. At December 31, 1995, the Company had obligations of $64 million related to purchases of revenue equipment. 12 The Company expects to purchase approximately $43 million of additional revenue equipment (after trade-in allowances) in 1996. The Company expects to fund these expenditures through cash provided by operating activities, secured borrowings or existing credit facilities. Prevailing interest rates and the market for used revenue equipment may affect the timing of the Company's purchase of new and replacement revenue equipment. Historically, cash provided by operating activities, secured and unsecured borrowings and existing credit facilities have been sufficient to satisfy substantially all of the Company's working capital and capital expenditure requirements. The Company has a bank line of credit providing for borrowing of up to $30 million with interest at the lower of the bank's corporate prime rate or the 30-day LIBOR rate plus .45%. At December 31, 1995, there was $12.9 million outstanding under this line of credit. Management expects to maintain this line of credit for an indefinite period. From time to time, the Company has and may continue to repurchase shares of its common stock. The timing and amount of such repurchases depend on market conditions and other factors. During 1995, the Company repurchased 413,900 of its shares at an aggregate cost of $7.8 million. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's Consolidated Financial Statements and Financial Statement Schedules are included on pages 28 to 46. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 13 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The names, ages and certain other information about the Company's directors, executive officers and other officers as of March 1, 1996 are set forth below: Name Age Position Michael S. Starnes 51 Chairman of the Board, President, Chief Executive Officer and Director Carl J. Mungenast 56 Executive Vice President, Chief Operating Officer and Director James W. Welch 52 Senior Vice President - Marketing and Director M. J. Barrow 51 Senior Vice President - Finance, Secretary - Treasurer and Director Robert P. Hurt 61 Vice President - Maintenance, assistant Secretary and Director Michael J. Hufnagel 51 Vice President - Corporate Development John W. Hudson 55 Vice President - Process and Individual Development Jerry L. Stairs 54 Vice President - Safety and Risk Management Kenneth B. Stonebrook 34 Vice President - Human Resources Mike Reaves 51 Vice President - Driver Services Dwight M. Bassett 35 Controller Morris H. Fair 66 Director Jack H. Morris, III 65 Director 14 Michael S. Starnes has served as a director, Chief Executive Officer and President of the Company since 1978. In 1986, Mr. Starnes was named Chairman of the Board. Mr. Starnes is also a director of RFS Hotel Investors, Inc., a real estate investment trust. Carl J. Mungenast has been Executive Vice President and Chief Operating Officer of the Company since April 1, 1994. Mr. Mungenast was elected as a director of the Company on May 6, 1994. Mr. Mungenast was employed by Sears Roebuck and Company from 1958 until his retirement in December 1993. At the time of his retirement, he was Senior Vice President for Sears Logistics Services in Itasca, Illinois and responsible for all distribution, transportation and home delivery services for Sears. James W. Welch joined the Company in 1982 as a director and Vice President- Sales. In 1989, Mr. Welch was named Senior Vice President-Marketing of the Company and is an executive officer of the Company. M. J. Barrow joined the Company in 1982 as Controller and Treasurer. Shortly thereafter, he was elected as a director of the Company and named Vice President-Finance. Mr. Barrow was named Secretary-Treasurer of the Company in 1986 and Senior Vice President-Finance of the Company in 1989. Mr. Barrow is an executive officer of the Company. Robert P. Hurt joined the Company in 1983 as a director and Vice President- Operations and Maintenance. Mr. Hurt was named Vice President-Maintenance of the Company in 1984 and is an executive officer of the Company. Michael J. Hufnagel joined the Company in 1987 and was named Vice President- Corporate Development of the Company in 1989. John M. Hudson joined the Company in 1990 and was named Vice President- Human Resources of the Company in 1991 and Vice President-Process and Individual Development of the Company in 1994. Jerry L. Stairs joined the Company in 1986 and was named Vice President- Safety and Risk Management of the Company in 1993. Kenneth B. Stonebrook joined the Company 1983 and was named Vice President-Human Resources of the Company in 1994. Mike Reaves joined the Company on June 20, 1994 and was named Vice President-Driver Services of the Company in 1995. Prior to joining the Company, Mr. Reaves was employed by Yellow Corporation, the parent company of several less-than-truckload carriers, for more than five years in various sales management positions. Dwight M. Bassett joined the Company in 1986 and was named Controller of the Company in 1993. Morris H. Fair has served as a director of the Company since 1986. Mr. Fair has been a Senior Vice President of Union Planters Corporation, a bank holding company, for more than five years. Jack H. Morris, III has served as a director of the Company since 1986. Mr. Morris has been Chief Executive Officer of Auto Glass of Memphis, Inc. for more than five years. 15 The Amended and Restated Bylaws of the Company provide for a Board of Directors consisting of not less than three members, which number may be fixed from time to time by resolution of the Board of Directors. The term of each director expires at the next annual meeting of shareholders following the election of the director. 16 ITEM 11. EXECUTIVE COMPENSATION The following table and related notes summarizes the compensation paid by the Company to its Chief Executive Officer and the four other most highly compensated executive officers for the three fiscal years ended December 31, 1995.
Summary Compensation Table Annual Compensation Long Term Other Compensation Compensation ______________________________________________________________________________________ Profit Name and Sharing Retirement Life Principal Position Year Salary Bonus Options Plan(1) Savings Plan(2) Insurance(3) ________________________________________________________________________________________________________________________ Michael S. Starnes 1995 $325,246 -- -- -- -- $64,238 Chairman of Board, 1994 313,190 $29,096 -- $ 834 -- 73,775 President and Chief 1993 300,942 36,112 60,000 1,482 -- 59,704 Executive Officer Carl J. Mungenast 1995 205,815 -- 40,000 -- $4,620 -- Executive Vice President 1994 190,401(4) 18,500 50,000 -- -- -- and Chief Operating Officer 1993 -- -- -- -- -- -- James W. Welch 1995 188,178 -- -- -- 4,620 4,387 Senior Vice President - 1994 179,178 16,574 20,000 834 -- 4,052 Marketing 1993 170,522 20,463 -- 1,185 -- 4,016 Gary L. Hardeman(5) 1995 169,245 -- -- -- 1,848 -- Senior Vice President - 1994 164,321 14,583 20,000 834 1,848 4,110 Operations 1993 149,975 17,997 -- 1,042 1,799 4,053 M.J. Barrow 1995 138,365 -- -- -- 3,170 4,667 Senior Vice President - 1994 135,313 12,188 20,000 817 2,772 4,313 Finance, Secretary - 1993 122,944 14,753 -- 854 2,698 4,273 Treasurer (1) The Company's contribution to the named individual's account in the Company's Profit-Sharing Plan. (2) The Company's contribution to the named individual's account in the Company's Retirement Savings Plan. (3) Premiums paid by the Company on split-dollar life insurance policies covering the named individual. Upon death of an individual, the Company will be reimbursed the amount it has paid in premiums. (4) Carl J. Mungenast's employment with the Company commenced April 1, 1994. The amount listed under this column included $44,247 of reimbursed relocation expenses. (5) Gary L. Hardeman's employment with the Company terminated January 31, 1996.
17 The following table sets forth information with respect to stock options granted to the Chief Executive Officer and each of the four other most highly compensated executive officers during the year ended December 31, 1995.
Individual Grants _________________________________________________________________________ Potential realizable value at assumed % of annual rates Number of Total of stock price Securities Options Exercise appreciation for Underlying Granted to or Base option term Options Employees in Price Expiration _____________________ Name Granted (#) Fiscal Year ($/SH) Date 5% 10% ____ ___________ _____________ _________ __________ ____ _____ Michael S. Starnes -- -- -- -- -- -- Carl J. Mungenast 40,000 88.9% $23.00 2/06/05 $578,583 $1,249,312 James W. Welch -- -- -- -- -- -- Gary L. Hardeman -- -- -- -- -- -- M.J. Barrow -- -- -- -- -- --
18 The following table sets forth information with respect to stock options exercised by the Chief Executive Officer and each of the four other most highly compensated executive officers during the year ended December 31, 1995.
Aggregated Option Exercises in 1995 and Year-End Value Table Number of Value of Unexercised Unexercised Options In-the-Money Options Shares At December 31, 1995 At December 31, 1995(1) Acquired Value Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable Michael S. Starnes -- -- -- 60,000 -- -- Carl J. Mungenast -- -- -- 90,000 -- -- James W. Welch -- -- 76,666 33,334 $1,241,654 $170,842 Gary L. Hardeman -- -- 46,668 26,666 545,849 85,408 M.J. Barrow -- -- 26,666 33,334 341,658 170,842 (1) This amount is the aggregate of the number of options multiplied by the difference between the last sale price of $20.00 of the Common Stock on the last trading day in 1995 minus the exercise price for those options.
19 Employment Contracts The Company has employment agreements with Michael S. Starnes, Carl J. Mungenast, James W. Welch and M.J. Barrow. Under each of these employment agreements, the Executive Compensation Committee of the Company's Board of Directors determines the annual base salary of the executive officer and may award discretionary bonuses to the executive officer. Each executive officer is entitled to participate in all employee benefit plans generally available to the Company's employees. The Company shall reimburse all ordinary and necessary business expenses incurred by each of these executive officers. Each of these employment agreements provide that the employment of the executive officer may be terminated by either the Company or the executive officer upon thirty days notice. Mr. Mungenast's and Mr. Welch's employment agreements contain certain non-competition and confidentiality provisions which continue after the term of their employment. Compensation of Directors Directors who are not full-time employees receive a fee of $1,500 for each meeting of the Board of Directors they attend and for each Committee meeting they attend if not held on a day on which a meeting of the Board of Directors is held. Directors who are also officers of the Company receive no additional compensation for services as directors. Under the Company's Non-Employee Director Stock Option Plan, which was approved by the shareholders, each non-employee director received on September 14, 1994, an automatic, non- discretionary award of an option to purchase 2,500 shares of Common Stock and all new non-employee directors will receive a similar award upon their election to the Board. The option price per share is equal to the fair market value of the Common Stock on the date of the grant. Each stock option shall vest and become exercisable in five (5) equal annual installments on the anniversary dates of the date of the grant. If a non-employee director ceases to be a director of the Company for any reason other than death or disability, all options granted to him or her shall immediately terminate; provided, however, the non-employee director shall have thirty (30) days from the date on which he or she ceased to be a director to exercise any portion of the option which was exercisable on the date that the non-employee director ceased to be a director of the Company. Compensation Committee Interlocks and Inside Participation in Compensation Decisions Compensation decisions regarding the executive officers of the Company are made by the Executive Compensation Committee of the Company's Board of Directors. The Executive Compensation Committee consists of Michael S. Starnes, the Company's President and Chief Executive Officer, and the Company's two non-employee directors, Morris H. Fair and Jack H. Morris, III. 20 Compliance With Section 16(a) of the Securities Exchange Act of 1934 Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires the Company's officers and directors, and persons who own more than ten percent of a registered class of the Company's equity securities, to file reports of securities ownership and changes in such ownership with the Securities and Exchange Commission (the "SEC"). Officers, directors and greater than ten-percent shareholders also are required by rules promulgated by the SEC to furnish the Company with copies of all Section 16(a) forms they file. The Company believes that, during the fiscal year ended December 31, 1995, all filing requirements under Section 16(a) of the Exchange Act applicable to its officers, directors and greater than ten percent beneficial owners were complied with on a timely basis. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The Company's authorized capital stock consists of 20,000,000 shares of Common Stock, par value $.01 per share. As of March 1, 1996, the Company had 12,347,634 shares outstanding. The following table set forth certain information as of March 1, 1996, with respect to the beneficial ownership of the Company's Common Stock by (i) each person known to the Company to be the beneficial owner of more than 5% of the Company's Common Stock; (ii) each director of the Company; (iii) each executive officer named in the Summary Compensation Table in Item 11; and (iv) all directors and executive officers as a group. 21
OWNERSHIP OF COMMON STOCK Name of Amount and Nature of Percent Beneficial Owner Beneficial Ownership(1) of Class ________________ _______________________ _________ Michael S. Starnes c/o M.S. Carriers, Inc. 3171 Directors Row Memphis, Tennessee 38116 ......... 3,106,058 25.2% Wellington Management Company 75 State Street Boston, Massachusetts 02109 ..... 1,600,280(2) 13.0% The Capital Group Companies, Inc., Capital Research and Management Company, SMALLCAP World Fund, Inc. and Capital Guardian Trust Company 333 South Hope Street Los Angeles, CA 90071 .......... 1,478,200(3) 12.0% Carl J. Mungenast ................. 8,178(4) * James W. Welch .................... 145,771(5) 1.2% Gary L. Hardeman .................. 53,334 * M.J. Barrow ....................... 52,992(6) * Robert P. Hurt .................... 41,227(7) * Morris H. Fair .................... 19,500(8) * Jack H. Morris, III ............... 22,500(9) * All executive officers and directors as a group ...................... 3,396,326 27.3% *Indicates less than 1%. (1) Beneficial ownership of Common Stock consists of sole voting and investment power except as otherwise indicated. (2) According to a Schedule 13G (Amendment No. 8) dated February 6, 1996, Wellington Management Company claims as of December 31, 1995, shared voting power with respect to 883,990 shares and shared investment power with respect to 1,600,280 shares. Wellington Management Company does not claim sole voting power or sole investment power with respect to any of these shares. (3) According to a Schedule 13G (Amendment No. 1) dated February 9, 1996, Capital Guardian Trust Company and Capital Research and Management Company, operating subsidiaries of the Capital Group Companies, Inc., claim as of December 29, 1995, sole voting power with respect to 616,000 and 837,000 shares, respectively, and sole investment power with respect to 641,200 and 837,000 shares, respectively, for a combined total of 1,478,200 shares which were owned by various institutional investors. 22 (4) The shares of Common Stock shown as beneficially owned by Carl J. Mungenast represent 178 shares allocated to his account in the Company's Retirement Savings Plan and 8,000 shares which he may acquire through the exercise of stock options within 60 days of March 1, 1996. (5) The shares of Common Stock shown as beneficially owned by James W. Welch represent 100,000 shares owned directly by him, 5,771 shares allocated to his account in the Company's Retirement Savings Plan and 40,000 shares which he may acquire through the exercise of stock options within 60 days of March 1, 1996. (6) The shares of Common Stock shown as beneficially owned by M. J. Barrow represent 8,965 shares owned directly by him, 60 shares owned by him as custodian for his children, 3,967 shares allocated to his account in the Company's Retirement Savings Plan and 40,000 shares which he may acquire through the exercise of stock options within 60 days of March 1, 1996. (7) The shares of Common Stock shown as beneficially owned by Robert P. Hurt represent 17,600 shares owned directly by him, 3,627 shares allocated to his account in the Company's Retirement Savings Plan and 20,000 shares which he may acquire through the exercise of stock options within 60 days of March 1, 1996. (8) The shares of Common Stock shown as beneficially owned by Morris H. Fair represent 19,000 shares owned directly by him and 500 shares which he may acquire through the exercise of stock options within 60 days of March 1, 1996. (9) The shares of Common Stock shown as beneficially owned by Jack H. Morris represent 22,000 shares owned directly by him and 500 shares which he may acquire through the exercise of stock options within 60 days of March 1, 1996. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Mr. Starnes owns 20% and his brother, C.R. Bobby Starnes, owns 40% of the common stock of Southern Drayage, Inc., a Mississippi corporation ("SDI"). SDI is a motor common carrier providing services in markets which are not served by the Company. During 1995, the Company paid SDI $352,000 for transportation services provided by SDI to the Company's logistics operations. The terms on which SDI provided services to the Company were no less favorable than those which the Company could have obtained from other carriers. During 1995, the Company paid Richards Aviation, Inc., a Tennessee corporation ("Richards"), a total of $63,000 for charter aircraft services which Richards provided to the Company. One of the aircrafts which Richards utilizes in its charter business is a Lear jet in which Mr. Starnes owns an indirect one-third interest. The terms of Richards' charter services to the Company were no less favorable than those which the Company could have obtained from other providers of charter aircraft services. 23 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K (a) Financial Statements and Financial Statement Schedules. (1) The following consolidated Financial Statements of the Company and its Subsidiaries are included herein on the page indicated. Page No. Report of Independent Auditor Consolidated Balance Sheets 29 Consolidated Statements of Income 30-31 Consolidated Statements of Stockholders' Equity 32 Consolidated Statements of Cash Flow 33 Notes of Consolidated Statements 34 35-45 (2) Financial Statement Schedules Schedule II - Valuation and Qualifying Accounts for the Company is included herein on page 46. (3) Exhibits -- An Exhibit Index of the exhibits required by Item 601 of Regulation S-K is included herein on page 26-27. (b) Reports on Form 8-K. The Company filed one report on Form 8-K during the last quarter of 1995. The Form 8-K was filed with the Securities and Exchange Commission on November 8, 1995, and reported that the Company's Board of Directors had authorized the repurchase of up to one million shares of the Company's Common Stock. No financial statements were filed with the Form 8-K. 24 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. M.S. Carriers, Inc. (Registrant) By: s/ Michael S. Starnes Michael S. Starnes 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. s/ Michael S. Starnes Chairman of the Board, President, Michael S. Starnes Chief Executive Officer and March 26, 1996 Director Date s/ Carl J. Mungenast Executive Vice President, Chief Carl J. Mungenast Operating Officer and March 28, 1996 Director Date s/ James W. Welch Senior Vice President - March 26, 1996 James W. Welch Marketing and Director Date s/ M.J. Barrow Senior Vice President - March 26, 1996 M.J. Barrow Finance, Secretary - Treasurer Date and Director s/ Robert P. Hurt Vice President - Maintenance March 28, 1996 Robert P. Hurt and Director Date s/ Jack H. Morris, III Director March 26, 1996 Jack H. Morris, III Date s/ Morris H. Fair Director March 26, 1996 Morris H. Fair Date s/ Dwight M. Bassett Controller and Director of March 26, 1996 Dwight M. Bassett Accounting Date 25 EXHIBIT INDEX Exhibit Page Number or Incorporation Number Description By Reference 3(i).1 Restated Charter of M.S. Carriers, Incorporated by reference from Inc. exhibits to the registrant's Registration Statement on Form S-1 (Registration Number 33-12070). 3(i).2 Articles of Amendment to Charter Incorporated by reference from of M.S. Carriers, Inc. exhibits to the registrant's Registration Statement on Form S-3 (Registration Number 33-63280). 3(ii) Amended and Restated By-Laws of M.S. Incorporated by reference from Carriers, Inc. exhibits to the registrant's Registration Statement on Form S-3 (Registration Number 33-63280). 10.1 Incentive Stock Option Plan Incorporated by reference from exhibits to the registrant's Registration Statement on Form S-1 (Registration Number 33-12070). 10.2 Amendment to Incentive Stock Option Incorporated by reference from Plan exhibits to the registrant's Registration Statement on Form S-1 (Registration Number 33-12070). 10.3 1993 Stock Option Plan Incorporated by reference from exhibits to the registrant's Registration Statement on Form S-3 (Registration Number 33-63280). 10.4 Non-Employee Directors Stock Option Incorporated by reference Plan from registrant's Proxy Statement dated March 31, 1995. 10.5 Employment Agreements with James W. Incorporated by reference Welch, M.J. Barrow and Robert P. from exhibits to the Hurt registrant's Statement on Form S-1 (Registration Number 33-12070). 26 10.6 Employment Agreement with Michael S. Incorporated by reference Starnes from exhibits to the registrant's 2nd Quarter 1995 Form 10-Q. 10.7 Employment Agreement with Carl J. Incorporated by reference Mungenast from exhibits to the registrant's 2nd Quarter 1995 Form 10-Q. 10.8 1993 Incentive Plan for Designated Incorporated by reference Key Employees from exhibits to the registrant's 2nd Quarter 1995 Form 10-Q. 11 Statement regarding computation of Page 47 per share 21 Subsidiaries of the Registrant Page 48 27 Financial Data Schedule Page 49 27 Annual Report on Form 10-K Item 8, Item 14(a)(1) and (2), (c) and (d) Index of Financial Statements and Financial Statement Schedule Financial Statements and Supplementary Data Certain Exhibits Financial Statement Schedule Year ended December 31, 1995 M.S. Carriers, Inc. Memphis, Tennessee 28 Report of Independent Auditors Board of Directors M.S. Carriers, Inc. We have audited the accompanying consolidated balance sheets of M.S. Carriers, Inc. and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule 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 M.S. Carriers, Inc. and subsidiaries at December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As discussed in Note 4 to the consolidated financial statements, the Company changed its method of accounting for income taxes in the year ended December 31, 1993. s/ Ernst & Young LLP Memphis, Tennessee January 11, 1996 29 M.S. Carriers, Inc. and Subsidiaries Consolidated Balance Sheets
December 31 1995 1994 Assets Current assets: Cash and cash equivalents $ 486,459 $ 30,806,731 Accounts receivable: Trade, net 27,643,708 33,327,599 Officers and employees 1,181,729 457,165 ____________ ____________ 28,825,437 33,784,764 Recoverable income taxes 4,277,297 Deferred income taxes 4,136,679 4,774,000 Prepaid expenses and other 5,125,254 4,419,081 ____________ ____________ Total current assets 42,851,126 73,784,576 Property and equipment: Land and land improvements 5,568,043 6,201,674 Buildings 28,589,080 23,393,800 Revenue equipment 254,132,265 232,771,820 Service equipment and other 33,757,292 28,531,425 Construction in progress 3,218,800 2,813,438 ____________ ____________ 325,265,480 293,712,157 Accumulated depreciation and amortization 91,407,638 95,019,410 ____________ ____________ 233,857,842 198,692,747 Other assets 3,225,277 3,595,196 ____________ ____________ Total assets $279,934,245 $276,072,519 ____________ ____________ ____________ ____________
30 M.S. Carriers, Inc. and Subsidiaries Consolidated Balance Sheets (continued)
December 31 1995 1994 ____________________________________ Liabilities and stockholders' equity Current liabilities: Trade accounts payable $ 4,336,847 $ 6,341,525 Accrued expenses 8,130,784 8,277,724 Claims payable 13,142,682 12,325,226 Income taxes payable 1,256,186 Current maturities of long-term obligations 16,666,155 16,693,512 ___________ ____________ Total current liabilities 42,276,468 44,894,173 Long-term obligations, less current maturities 47,376,558 51,186,613 Deferred income taxes 37,757,200 32,068,000 Stockholders' equity: Common Stock, $.01 par value: Authorized shares- 20,000,000 Issued and outstanding shares 12,464,400 in 1995 and 12,878,300 in 1994 124,644 128,783 Additional paid-in capital 62,076,687 64,137,909 Retained earnings 92,301,919 84,842,041 Equity adjustment from foreign currency translation (1,979,231) (1,185,000) ______________ _____________ Total stockholders' equity 152,524,019 147,923,733 ______________ _____________ Total liabilities and stockholders' equity $ 279,934,245 $ 276,072,519 ______________ _____________ ______________ _____________ See accompanying notes.
31 M.S. Carriers, Inc. and Subsidiaries Consolidated Statements of Income
Year ended December 31 1995 1994 1993 ____________________________________________ Operating revenues $333,069,506 $292,882,828 $224,716,304 Operating expenses: Salaries, wages and benefits 126,176,172 111,492,850 84,819,837 Operations and maintenance 66,961,380 64,497,963 60,880,244 Taxes and licenses 10,024,270 8,746,479 6,900,546 Insurance and claims 15,666,099 14,470,493 9,545,503 Communications and utilities 6,080,563 4,698,024 4,134,864 Depreciation and amortization 39,142,879 33,694,434 27,360,554 Rent and purchased transportation 41,945,874 23,564,113 4,245,735 Other 2,434,767 2,058,001 1,792,382 ____________ ____________ _____________ 308,432,004 263,222,357 199,679,665 ____________ ____________ _____________ Operating income 24,637,502 29,660,471 25,036,639 Other expense (income): Interest expense 5,524,467 1,801,981 2,041,114 Interest income (1,448,577) Other 24,081 (147,994) (118,445) ____________ ____________ _____________ 4,099,971 1,653,987 1,922,669 ____________ ____________ _____________ Income before income taxes and cumulative effect of change in accounting for income taxes 20,537,531 28,006,484 23,113,970 Income taxes 7,386,439 10,856,000 9,512,000 ____________ ____________ _____________ Income before cumulative effect of accounting change 13,151,092 17,150,484 13,601,970 Cumulative effect as of January 1, 1993 of change in accounting for income taxes 500,000 _____________ ____________ ____________ Net income $ 13,151,092 $ 17,150,484 $ 14,101,970 _____________ ____________ ____________ _____________ ____________ ____________ Earnings per share: Income before cumulative effect of accounting change $1.01 $1.31 $1.13 Cumulative effect of accounting change 0.04 _____________ ____________ ____________ Net income $1.01 $1.31 $1.17 _____________ ____________ ____________ _____________ ____________ ____________ Weighted average common shares and common share equivalents 13,028,562 13,097,586 12,036,386 _____________ ____________ ____________ _____________ ____________ ____________ See accompanying notes.
32 M.S. Carriers, Inc. and Subsidiaries Consolidated Statements of Stockholders' Equity
Equity Adjustment Additional From Foreign Common Stock Paid-in Retained Currency Shares Amount Capital Earnings Translation Total ___________________________________________________________________________________ Balance at January 1, 1993 10,679,666 $106,797 $18,272,530 $53,589,587 $ $71,968,914 Net income for 1993 14,101,970 14,101,970 Issuance of Common Stock upon exercise of stock options 39,666 397 304,022 304,419 Issuance of Common Stock 2,156,300 21,563 45,531,997 45,553,560 Tax benefit of deduction for employee exercise of stock options 10,203 10,203 ____________________________________________________________________________________ Balance at December 31, 1993 12,875,632 128,757 64,118,752 67,691,557 131,939,066 Net income for 1994 17,150,484 17,150,484 Issuance of Common Stock upon exercise of stock options 2,668 26 19,157 19,183 Equity adjustment from foreign currency translation (1,185,000) (1,185,000) _______________________________________________________________________________________ Balance at December 31,1994 12,878,300 128,783 64,137,909 84,842,041 (1,185,000) 147,923,733 Net Income for 1995 13,151,092 13,151,092 Repurchase of Common Stock (413,900) (4,139) (2,061,222) (5,691,214) (7,756,575) Equity adjustment from foreign currency translation (794,231) (794,231) _______________________________________________________________________________________ Balance at December 31,1995 12,464,400 $124,644 $62,076,687 $92,301,919 $(1,979,231) $152,524,019 See accompanying notes.
33 M.S. Carriers, Inc. and Subsidiaries Consolidated Statements of Cash Flows
Year ended December 31 1995 1994 1993 _____________________________________________ Operating activities Net income $13,151,092 $ 17,150,484 $ 14,101,970 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 39,142,879 33,694,434 27,360,554 Other (208,613) (131,483) (130,819) Provision for deferred income taxes 6,326,521 4,300,000 4,668,000 Cumulative effect of change in accounting principle (500,000) Changes in operating assets and liabilities: Accounts receivable 4,959,327 (10,988,038) (4,294,336) Current and other assets (5,407,782) (70,719) (4,624,213) Trade accounts payable (2,004,678) 3,249,456 (3,262,213) Other current liabilities (585,670) 8,284,040 2,613,749 __________________________________________________ Net cash provided by operating activities 55,373,076 55,751,140 36,194,330 Investing activities Purchases of property and equipment (76,590,161) (100,346,967) (66,058,904) Proceeds from disposals of property and equipment 2,490,800 31,378,170 82,210 __________________________________________________ Net cash used in investing activities (74,099,361) (68,968,797) (65,976,694) Financing activities Proceeds from long-term obligations and revolving line of credit 26,875,000 147,271,905 107,724,000 Proceeds from issuance of Common Stock 19,183 45,857,979 Repurchase of Common Stock (7,756,575) Principal payments on long-term obligations and revolving line of credit (30,712,412) (103,376,780) (123,735,365) _________________________________________________ Net cash provided by (used in) financing activities (11,593,987) 43,914,308 29,846,614 _________________________________________________ Increase (decrease) in cash and cash equivalents (30,320,272) 30,696,651 64,250 Cash and cash equivalents at beginning of year 30,806,731 110,080 45,830 _________________________________________________ Cash and cash equivalents at end of year $ 486,459 $ 30,806,731 $ 110,080 _________________________________________________ _________________________________________________ See accompanying notes.
34 M.S. Carriers, Inc. and Subsidiaries Notes to Consolidated Financial Statements December 31, 1995 1. Significant Accounting Policies Organization and Principles of Consolidation The consolidated financial statements include the accounts of M.S. Carriers, Inc. and its wholly-owned subsidiaries, M.S. Carriers Warehousing and Distribution, Inc., M.S. Carriers Logistics Mexico, S.A. de C.V. and M.S. International, Inc. Significant intercompany accounts have been eliminated in consolidation. Business M.S. Carriers, Inc. is an irregular route, truckload carrier transporting a wide range of commodities in the eastern two-thirds of the United States, and the provinces of Ontario and Quebec, Canada, with interline service to Mexico. The Company may transport any type of freight (except certain types of explosives, household goods and commodities in bulk) from any point in the continental United States to any other point in another state over any route selected by the Company. The Company's primary traffic flows are between the Middle South and Southwest, Midwest, Central States, Southeast and Northeast. The principal types of freight transported are packages, retail goods, non-perishable foodstuffs, paper and paper products, household appliances, furniture and packaged petroleum products. Concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of entities comprising the Company's customer base and their dispersion across many different industries. The Company performs ongoing credit evaluations and generally does not require collateral. Revenue Recognition Operating revenues are recognized on the date the freight is delivered. Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. 35 Property and Equipment Property and equipment are stated at cost. At the time of trade-in, the cost of revenue equipment is adjusted for any difference between the trade-in value and net book value. Depreciation, which includes amortization of assets held under capitalized leases, is computed on the straight-line method over the estimated useful lives as follows: Buildings 15-30 Years Revenue equipment 4-6 Years Service equipment and other 3-5 Years Tires and tubes purchased as part of revenue equipment are capitalized as a cost of the equipment. Replacement tires and tubes are expensed when placed in service. Foreign Currency Translation The functional currency of the Company's foreign subsidiary is the local currency. Adjustments resulting from the translation of the financial statements of the foreign subsidiary are reflected as a separate component of stockholders' equity. Included in other assets in the accompanying consolidated financial statements is an investment of approximately $1,254,000 and $1,743,000 at December 31, 1995 and 1994, respectively, in a Mexican trucking company which is accounted for under the equity method. The operations of the Mexican trucking company during 1995 and 1994 were approximately break even. The Company considers the Mexican peso to be the functional currency. Income Taxes The Company accounts for income taxes under the provisions of Financial Accounting Standards Board Statement No.(FASB)109, Accounting for Income Taxes. (see note 4). Earnings Per Share Earnings per share is computed based on the weighted average number of common shares outstanding during the year, adjusted to include common stock equivalents attributable to dilutive options. 36 Risks and Uncertainties The preparation of 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 the accompanying notes. Actual results could differ from those estimates. Long-Lived Assets 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 carrying amount of those assets. 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. Stock-Based Compensation The Company accounts for employee stock-based compensation awards under the provisions of APB Opinion No 25, Accounting for Stock Issued to Employees. 2. Long-Term Obligations Long-term obligations consist of the following:
December 31 1995 1994 ___________________________________ Equipment loans $25,612,761 $38,369,490 Capitalized lease obligations 25,573,952 29,510,635 Revolving line of credit 12,856,000 ___________________________________ 64,042,713 67,880,125 Less current maturities (16,666,155) (16,693,512) ___________________________________ $47,376,558 $51,186,613 ___________________________________ ___________________________________
37 The equipment loans are payable through 1998 in varying monthly installments with interest at rates ranging from 5.7% to 8.12% and $6,000,000 of these loans are secured by revenue equipment with a net book value of approximately $6,500,000. The Company has a line of credit available for borrowings up to $30,000,000, with interest at the lower of the bank's prime rate or the 30-day LIBOR rate plus .45% (6.2625% at December 31, 1995). There are no commitment fees or compensating balance requirements for the line of credit, which expires June 1, 1997. During 1994, the Company entered into sale leaseback transactions related to revenue equipment. These capitalized leases are secured by the related revenue equipment with a net book value at December 31, 1995 and 1994 of approximately $26,100,000 and $29,700,000, respectively, which is a net of accumulated amortization of $3,900,000 and $300,000, respectively. The remaining lease terms are from 2 to 4 years and contain renewal or fixed price purchase options and guarantees of residual value at the end of the lease terms. Certain of the Company's debt agreements contain covenants including the ratio of notes payable to net worth and cash flow. The future maturities of long-term debt and future minimum lease payments under capitalized lease obligations, by year and in the aggregate, consist of the following at December 31, 1995:
Capitalized Long-Term Lease Debt Obligations ___________________________________ 1996 $12,321,683 $ 6,371,200 1997 21,508,951 7,224,316 1998 4,638,127 8,840,043 1999 - 8,304,156 ___________________________________ 30,739,715 Amounts representing interest (5,165,763) ___________________________________ Total long-term obligations $38,468,761 $25,573,952 ___________________________________ ___________________________________
38 The Company paid interest of approximately $4,026,000 in 1995, $1,819,000 in 1994, and $2,060,000 in 1993. 3. Claims Payable Under an agreement with its insurance underwriters, the Company self-insures for liability of $1,500,000 for the initial occurence per policy year, $1,250,000 for the second occurrence per policy year, and $1,000,000 for each occurrence thereafter involving property damage. Liability in excess of this amount is assumed by the insurance underwriters. Reserves for claims are provided in amounts which management considers adequate. The Company self-insures employee health claims up to $175,000 per employee per year and workers' compensation claims up to $500,000 per employee per year and has provided reserves which management considers adequate for the Company's estimated liability for covered claims. 4. Income Taxes In February 1992, the Financial Accounting Standards Board issued Statement No. 109, Accounting for Income Taxes. The Company adopted the provisions of the new standard in its financial statements for the year ended December 31, 1993. As permitted by Statement 109, prior year financial statements were not restated to reflect the change in accounting method. The cumulative effect as of January 1, 1993 of adopting Statement 109 increased net income by $500,000 and $.04 per share for the year ended December 31, 1993. As a result of the change in the federal statutory rate from 34 percent to 35 percent effective January 1, 1993 resulting from legislation enacted during 1993, the Company recorded an adjustment to increase income tax expense by approximately $550,000 in 1993. 39
Income taxes consist of the following: Year ended December 31 1995 1994 1993 __________________________________________ Current: Federal $1,115,242 $ 5,835,000 $4,134,000 State (55,324) 721,000 710,000 __________________________________________ 1,059,918 6,556,000 4,844,000 Deferred: Federal 5,273,783 3,665,000 4,022,000 State 1,052,738 635,000 646,000 __________________________________________ 6,326,521 4,300,000 4,668,000 __________________________________________ $7,386,439 $10,856,000 $9,512,000 __________________________________________ __________________________________________
The effective tax rate varied from the statutory federal income tax rate of 35% as follows:
Year ended December 31 1995 1994 1993 ______________________________________________ Taxes at statutory rate $ 7,188,136 $ 9,802,269 $ 8,089,890 Increase (decrease) in taxes arising from: State income taxes, net of federal tax benefits 734,215 1,001,231 826,324 Other (535,912) 52,500 595,786 ________________________________________________ $ 7,386,439 $10,856,000 $ 9,512,000 ________________________________________________ ________________________________________________
The Company paid income taxes of approximately $6,593,000 in 1995, $2,573,000 in 1994, and $6,949,000 in 1993. The Company has alternative minimum tax credit carryforwards of approximately $1,057,000 which have no expiration date and which have been utilized for financial statement purposes. 40 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. Significant components of the Company's deferred tax liabilities and assets as of December 31 are as follows:
1995 1994 ________________________________ Deferred tax liabilities: Property and equipment $38,075,635 $ 30,408,000 Other - net 1,846,513 1,660,000 _________________________________ Total deferred tax liabilities 39,922,148 32,068,000 Deferred tax assets: Claims payable 4,903,403 4,588,000 Other net 1,398,224 186,000 _________________________________ Total deferred tax assets 6,301,627 4,774,000 _________________________________ Net deferred tax liabilities $33,620,521 $ 27,294,000
5. Employees' Benefit Plans The Company has a profit sharing plan (the Plan) for all employees who are 21 years of age or older and have completed 1,000 hours of service. The Plan provides for discretionary contributions by the Company not to exceed income before federal income taxes for the year and limited to the amount permitted under the Internal Revenue Code as a deductible expense. Each eligible employee may also contribute up to 10% of the employee's annual compensation. The Company's contribution was approximately $323,000 for 1994 and $345,000 for 1993. No contributions were made by the Company during 1995. The Company also has a defined contribution plan under Section 401(k) (the 401(k) Plan) of the Internal Revenue Code which provides for voluntary contributions by employees and matching contributions by the Company. All employees who are 19 years of age or older and have completed six months of service are eligible for the 401(k) Plan which provides each participant with the option of contributing from 1% to 15% of the employee's annual compensation. The Company matches the employee contribution up 41 to 50% of the participant's contribution, but limited to a maximum of 3% of the participant's compensation. The Company's contribution, net of forfeitures, was approximately $1,078,000 in 1995, $840,000 for 1994, and $678,000 for 1993. 6. Operating Leases The Company leases revenue equipment under operating leases with terms of less than one year. Rent and purchased transportation includes rental of revenue equipment of approximately $130,000 in 1995, $164,000 in 1994, $465,000 in 1993. Other operating expenses include rentals of certain office, terminal and warehouse facilities of $766,000 in 1995, $653,000 in 1994, and $481,000 in 1993. 7. Stockholders' Equity The Company has stock option plans for key employees and outside directors. Option transactions are summarized as follows:
1995 1994 _______________________________ Options outstanding at beginning of year 627,000 384,668 Options granted 45,000 245,000 Options cancelled (18,000) Options exercised - (2,668) _______________________________ Options outstanding at of end of year 654,000 627,000 _______________________________ _______________________________ Option price range as of December 31 $2.00-$25.50 $2.00-$25.50 _______________________________ _______________________________ Options exercisable at December 31 229,669 214,002 _______________________________ _______________________________
Shares reserved for future grants were 486,000 at December 31, 1995. 42 Options are granted at the then-prevailing market price. They become exercisable in equal parts over the succeeding three to five years. In November, 1995, the Board of Directors authorized the purchase of up to one million shares of the Company's Common Stock in the open market. Approximately 414,000 shares were repurchased and retired under this authorization in 1995. In June and July 1993, the Company sold to the public 2,000,000 and 156,300 shares, respectively, of common stock in a secondary public offering. The net proceeds of the sale of $45,553,560 were used to pay off $33,900,000 of long-term debt and to purchase additional revenue equipment. 8. Significant Customers The Company operates primarily in one business segment, that of a truckload carrier. One customer, Sears, accounted for more than 10% of revenues in 1995, 1994, and 1993 with revenues of $59,533,000, $43,876,000 and $33,900,000, respectively. 9. Commitments and Contingencies The Company has noncancelable contracts to purchase revenue equipment of approximately $17,755,000 during 1996. The Company is involved in certain legal actions and claims arising in the ordinary course of business. It is the opinion of management that such litigation and claims will be resolved without material effect on the Company's financial position or results of operations. 43 10. Fair Value of Financial Instruments The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: Cash and cash equivalents: The carrying amount reported in the balance sheet for cash and cash equivalents approximates its fair value. Accounts receivable and accounts payable: The carrying amounts reported in the balance sheet for accounts receivable and accounts payable approximate their fair value. Long-term obligations, including current portion: The fair values of the Company's debt are estimated using discounted cash flow analyses, based on the Company's current incremental borrowing rates for similar types of borrowing arrangements.
The carrying amounts and fair values of the Company's financial instruments at December 31 are as follows: 1995 1994 _________________________________________________________ Carrying Fair Carrying Fair Amount Value Amount Value ________ _____ ________ _____ Cash and cash equivalents $ 486,459 $ 486,459 $30,806,731 $30,806,731 Accounts receivable 28,825,437 28,825,437 33,784,764 33,784,764 Accounts payable 4,336,847 4,336,847 6,341,525 6,341,525 Long-term debt 64,042,713 65,765,747 67,880,125 69,950,130
44 11. Selected Quarterly Data (Unaudited) Summarized quarterly data for 1995 and 1994 follows.
1995 March 31 June 30 September 30 December 31 ________________________________________________________ 1995 Operating revenues $81,701,370 $84,541,100 $84,326,406 $82,500,630 Operating expenses 74,973,573 77,221,560 79,399,971 76,836,900 ________________________________________________________ Operating income 6,727,797 7,319,540 4,926,435 5,663,730 Other expense 849,108 983,678 915,978 1,351,207 ________________________________________________________ Income before taxes 5,878,689 6,335,862 4,010,457 4,312,523 Income taxes 2,115,000 2,311,123 1,429,377 1,530,939 ________________________________________________________ Net income $ 3,763,689 $ 4,024,739 $ 2,581,080 $ 2,781,584 ________________________________________________________ ________________________________________________________ Earnings per share: Net income per share $.29 $.31 $.20 $.22 ________________________________________________________ ________________________________________________________
1994 March 31 June 30 September 30 December 31 ________________________________________________________ 1994 Operating revenues $60,432,420 $69,558,611 $80,303,567 $82,588,230 Operating expenses 56,118,951 61,862,141 71,016,620 74,224,645 ________________________________________________________ Operating income 4,313,469 7,696,470 9,286,947 8,363,585 Other expense 290,532 376,758 473,932 512,765 ________________________________________________________ Income before taxes 4,022,937 7,319,712 8,813,015 7,850,820 Income taxes 1,602,000 2,901,000 3,463,000 2,890,000 ________________________________________________________ Net income $ 2,420,937 $ 4,418,712 $ 5,350,015 $ 4,960,820 ________________________________________________________ ________________________________________________________ Earnings per share: Net income per share $.18 $.34 $.41 $.38 ________________________________________________________ ________________________________________________________
45 Schedule II Valuation and Qualifying Accounts M.S. Carriers, Inc.
Column A Column B Column C Column D Column E ______________________________________________________________________________________________________________________ Additions ___________________________________ Balance at Charged to Charged to Balance at Beginning Costs and Other End Description Of Period Expenses Accounts Deductions Of Period ______________________________________________________________________________________________________________________ Year ended December 31, 1995 Deducted from asset accounts: Allowance for doubtful accounts receivable $492,400 $202,176 $185,657 (1) $508,919 Year ended December 31, 1994 Deducted from asset accounts: Allowance for doubtful accounts receivable $559,881 $233,854 $301,335 (1) $492,400 Year ended December 31, 1993 Deducted from asset accounts: Allowance for doubtful accounts receivable $377,005 $187,594 $ 4,718 (1) $559,881 (1) Uncollectible accounts written off, net of recoveries.
46 EX-11 2 STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Exhibit 11 Statement Regarding Computation of Per Share Earnings M.S. Carriers, Inc. Year ended December 31 1995 1994 1993 ____________________________________________ Primary Weighted average shares and share equivalents outstanding 13,028,562 13,097,586 12,036,386 Income before cumulative effect of accounting change $13,151,092 $17,150,484 $13,601,970 Per share amount before cumulative effect of accounting change $1.01 $1.31 $1.13 Net income $13,151,092 $17,150,484 $14,101,970 Per share amount $1.01 $1.31 $1.17 Fully Diluted Weighted average shares and share equivalents outstanding 13,028,562 13,097,586 12,036,386 Net income $13,151,092 $17,150,484 $14,101,970 Per share amount $1.01 $1.31 $1.17
47 EX-21 3 LIST OF SUBSIDIARIES Exhibit 21 Subsidiaries of M.S. Carriers, Inc. Jursidiction of Subsidiary Incorporation M.S. Carriers Warehousing & Distribution, Inc. Tennessee M.S. Nationwide, Inc. (inactive) Tennessee M.S. Carriers Logistics Mexico, S.A. de C.V. Mexico M.S. International, Inc. Nevada 48 EX-27 4 ART. 5 FINANCIAL DATA SCHEDULES FOR 10-K
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1995, AND THE RELATED CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR DECEMBER 31, 1995, AND THE NOTES RELATED THERETO AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1995 DEC-31-1995 486,459 0 28,152,627 508,919 0 42,851,126 325,265,480 91,407,638 279,934,245 42,276,468 47,376,558 124,644 0 0 152,399,375 279,934,245 0 333,069,506 0 308,432,004 0 0 5,524,467 20,537,531 7,386,439 13,151,092 0 0 0 13,151,092 1.01 1.01
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