-----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, O29twwcrU6idu5kGLiSxKCeWqlDBrNWTOZkzV+obvU5eugwGttdxHH7RQqCcEhb2 8BzGSWFKIjR3IGMrX9m6mA== 0000790372-00-000003.txt : 20000331 0000790372-00-000003.hdr.sgml : 20000331 ACCESSION NUMBER: 0000790372-00-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 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: SEC FILE NUMBER: 000-14781 FILM NUMBER: 588515 BUSINESS ADDRESS: STREET 1: 3171 DIRECTORS ROW CITY: MEMPHIS STATE: TN ZIP: 38116 BUSINESS PHONE: 9013322500 MAIL ADDRESS: STREET 1: 3171 DIRECTORS ROW CITY: MEMPHIS STATE: TN ZIP: 38116 10-K 1 M.S. CARRIERS, INC.'S 10-K FOR 1999 M.S. Carriers, Inc. 3171 Directors Row Memphis, TN 38131 March 30, 1999 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 For the fiscal year ended December 31, 1999 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 38131 (Address of principal executive offices) (Zip Code) (901) 332-2500 (Registrant's telephone number, including area code) 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 Nasdaq National Market 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. [ X ] The aggregate market value of the registrant's $.01 par value common stock held by non-affiliates of the registrant as of March 3, 2000 was $202,659,743 (based on the closing sale price of $21.9375 per share on that date, as reported by NASDAQ). As of March 3, 2000, 12,051,601 shares of the registrant's common stock were outstanding. Documents Incorporated by Reference Materials from the Registrant's Proxy Statement relating to the 2000 Annual Meeting of Shareholders to be held on May 5, 2000 have been incorporated by reference into Part III, Items 10, 11, 12 and 13. Table of Contents PART I Item 1. Business. . . . . . . . . . . . . . . . . . . . . .1 Item 2. Properties . . . . . . . . . . . . . . . . . .3 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . .4 Item 4. Submission of Matters to a Vote of Security Holders4 PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters . . . . . . . . . . . . . . . .4 Item 6. Selected Financial Data . . . . . . . . . . . . . .5 Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition . . . . . . . . . . . . . .6 Item 7A. Quantitative and Qualitative Disclosures About Market Risk9 Item 8. Financial Statements and Supplementary Data . . . 10 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures. . . . . . . 10 PART III Item 10. Directors and Executive Officers of the Registrant10 Item 11. Executive Compensation . . . . . . . . . . . . . 10 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . 10 Item 13. Certain Relationships and Related Transactions . 10 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. . . . . . . . . . . . . 11 PART I ITEM 1. BUSINESS General M.S. Carriers, Inc. (with its subsidiaries, the "Company" or "M.S. Carriers") 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 also provides third-party logistics services. M.S. Carriers is a Tennessee corporation headquartered in Memphis, Tennessee. The Company's principal executive offices are located at 3171 Directors Row, Memphis, Tennessee 38131, and its telephone number is (901) 332-2500. M.S. Carriers has both common and contract authority 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 West, Southeast, Southwest, Middle South, Central States and Northeast. The average length of a trip (one-way) was approximately 729 miles in 1999 and 689 miles in 1998. The principal types of freight transported are packages, retail goods, nonperishable foodstuffs, paper and paper products, household appliances, furniture and packaged petroleum products. Business Strategy M.S. Carriers 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 on-time deliveries, dependable late-model equipment, fully integrated computer systems to monitor shipment status and variations from schedules, on-board communications systems, 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. 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 729 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. Marketing 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 source is the irregular route dry van truckload market. In this market, 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 market and position the Company to meet the anticipated needs of its customers. The Company had revenues of $129.7 million in 1999 and $112.2 million in 1998 from freight shipments having either a point of origin or a point of destination in Mexico. These shipments represented approximately 20.9% and 21.2%, respectively, of total revenues for 1999 and 1998. -1- The largest 25, 10 and 5 customers accounted for approximately 52%, 35% and 26%, respectively, of the Company's revenues during 1999. Most of these customers are large, publicly-held companies. One customer, Sears, accounted for approximately 11% of the Company's revenues during 1999 and 13% in 1998. No other customer accounted for more than 10% of the Company's revenues during 1999 or 1998. 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. 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. The Company also recognizes that owner-operators provide the Company with another source of drivers to support its operations. Traditional owner-operators are independent contractors who 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 traditional 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. In late 1997, the Company began utilizing leased owner-operators. A leased owner-operator is an independent contractor who enters into an agreement with the Company or one of its subsidiaries to lease, with the option to purchase, a tractor and supplies that tractor and a driver to the Company. The Company has determined that there are many drivers who desire to own a tractor but who are unable to acquire a tractor without financial accommodations from the Company. The Company intends to continue its emphasis on recruiting and retaining owner-operators. Since competition for qualified drivers is intense, the Company emphasizes the importance of attracting and retaining qualified drivers. The Company employs driver recruiters and owner-operator recruiters. The competitive compensation programs, together with the Company's late-model equipment, relatively short trips and get-home policies provide important incentives to attract and retain qualified drivers. In addition, the Company operates a professional driving academy to train new drivers and employs full-time recruiters in connection therewith. Despite these incentives and programs, the Company experiences difficulty from time to time in attracting and retaining qualified drivers. At December 31, 1999, the Company employed 4,667 persons, of whom 3,520 were drivers, 266 were mechanics and other equipment maintenance personnel, and 881 were support personnel including management and administration. The Company also leased 743 tractors with qualified drivers from traditional owner-operators and had 562 tractors in its leased owner-operator program. 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. Acquisitions The trucking industry has historically been a fragmented industry which management of the Company believes is starting to consolidate. In 1997, the Company adopted a strategy of seeking to acquire small-to-medium trucking companies throughout the United States. The Company believes any acquisition should be accretive to earnings within six months and should place the Company in new markets for customers and drivers or provide additional capacity for other new business opportunities. In September 1997, the Company completed its first acquisition, Hi-Way Express. This acquisition added 262 tractors to the Company's fleet. In March 1998, the Company concluded the purchase of certain assets of the U.S. operations of Challenger Motor Freight (U.S.), Inc., adding 195 tractors and 481 trailers to its fleet. In November 1998, the Company hired 280 drivers and added 803 trailers to its fleet in connection with a transaction with Interstate Trucking Corporation of America. Although several opportunities were reviewed during 1999, management was unable to identify a candidate which met the Company's acquisition criteria. 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. However, in recent years the Company has experienced an increased focus on freight rates in certain of the markets served by the Company. Several other truckload carriers have substantially greater financial resources, own more equipment or carry a larger volume of freight than the Company. -2- Regulation The Company is a motor carrier regulated by 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. At the beginning of 1999, fuel prices were at levels below historical norms. However, fuel prices increased dramatically during the latter part of 1999 and were approximately 36% higher at the end of 1999 than at the beginning of 1999. The Company has implemented a fuel surcharge program in response to this sudden increase in the cost of fuel. This fuel surcharge will only partially offset the increase in fuel prices. Accordingly, the profitability of the Company will be negatively impacted by high fuel 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. The Company believes it is in substantial compliance with all environmental laws and regulations. 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, 1999, the Company owned and operated 3,283 Company-owned tractors; leased 743 tractors owned by traditional owner-operators; and had 562 tractors in its leased owner-operator program. The Company owns 14,293 van trailers; 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 Trailmobile. 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. The Company constantly monitors the fuel efficiency of its power equipment. The following table shows the age of Company-owned and operated tractors and trailers at December 31, 1999:
Model Year Tractors Trailers 2000 1,054 1,460 1999 798 3,493 1998 821 3,083 1997 504 1,317 1996 82 1,207 1995 24 2,282 1994 - 1,078 1993 - 152 1992 - 221 ----- ----- 3,283 14,293 ===== ======
-3- 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. Effective January 1, 1999, the Company self-insures the first $500,000 of liability for each occurrence involving bodily injury and property damage during the policy year. The Company also self-insures the second $500,000 of liability for each occurrence until an aggregate of $1,000,000 of liability has been paid by the Company on claims exceeding $500,000. 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 1999. 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 Nasdaq National Market ("Nasdaq") 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 Nasdaq for the periods indicated.
High Low ----------------------------------- 1999 1st Quarter $32.9375 $24.8438 2nd Quarter 33.25 26.625 3rd Quarter 32.1563 24.3125 4th Quarter 29.0313 22.8125 1998 1st Quarter $33.6875 $27.6875 2nd Quarter 34.6875 25.0625 3rd Quarter 31.8125 19.8125 4th Quarter 31.625 16.00
On March 3, 2000, the last reported sales price of the Company's common stock was $21.9375 per share. At that date, the number of shareholders of record was 191. The Company estimates that there are approximately 3,000 beneficial owners of the Company's outstanding shares of Common Stock. 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. -4-
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. For the year ended December 31 1999 1998 1997 1996 1995 - ----------------------------------------------------------------------------------------------------- [In Thousands, except per share amounts] Statement of income data: Operating revenues $620,414 $528,841 $415,933 $340,236 $333,070 Operating expenses: Salaries, wages and benefits 184,676 163,225 133,517 127,237 126,176 Operations and maintenance 97,947 84,260 71,381 66,224 66,961 Taxes and licenses 12,664 11,425 10,708 8,973 10,024 Insurance and claims 21,987 20,833 18,462 18,777 15,666 Communications and utilities 7,908 6,914 5,711 5,209 6,081 Depreciation and amortization 62,401 49,794 40,094 37,010 39,143 Gains on disposals of revenue equipment (941) (1,200) (490) (2,397) - Rent and purchased transportation 171,572 142,766 99,584 53,014 41,946 Other 5,407 3,901 2,077 2,362 2,435 - ----------------------------------------------------------------------------------------------------- Total operating expenses 563,621 481,918 381,044 316,409 308,432 - ----------------------------------------------------------------------------------------------------- Operating income 56,793 46,923 34,889 23,827 24,638 Interest expense 12,592 8,484 5,775 4,844 5,525 Other income (3,221) (1,353) (320) (487) (1,424) - ----------------------------------------------------------------------------------------------------- Income before income taxes 47,422 39,792 29,434 19,470 20,537 Income taxes 16,835 14,524 10,472 7,031 7,386 - ----------------------------------------------------------------------------------------------------- Net income $30,587 $25,268 $18,962 $12,439 $13,151 - ----------------------------------------------------------------------------------------------------- Basic earnings per share $2.49 $2.06 $1.57 $1.03 $1.02 - ----------------------------------------------------------------------------------------------------- Diluted earnings per share $2.39 $1.99 $1.54 $1.02 $1.01 - ----------------------------------------------------------------------------------------------------- At December 31 1999 1998 1997 1996 1995 - ----------------------------------------------------------------------------------------------------- [In thousands] Balance sheet data: Total assets $591,533 484,009 $362,246 $290,662 $279,934 Long-term obligations 202,405 146,59 79,977 45,373 47,377 Stockholders' equity 235,210 203,753 177,391 154,211 152,524
-5-
The following tables set forth data regarding the freight revenues, operations, revenue equipment and employees of the Company. 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------ For the year ended December 31: Operating ratio(1) 90.9% 91.1% 91.6% 93.0% 92.6% Average number of truckloads per week(2) 10,964 9,839 9,385 9,277 8,265 Average revenues per tractor per week(2) $ 2,721 $2,702 $2,652 $2,575 $2,569 Average miles per trip(2) 729 689 633 534 584 Average revenue per mile(2) $ 1.20 $ 1.20 $ 1.19 $ 1.23 $ 1.25 At December 31: Total tractors operated: Company owned 3,283 2,750 2,370 2,046 2,078 Owner-Operator owned 743 739 711 419 253 Owner-Operator leased 562 264 60 - - - ------------------------------------------------------------------------------------------------------ Total tractors 4,588 3,753 3,141 2,465 2,331 Total trailers 14,369 12,164 8,981 7,156 7,190 Number of employees 4,667 3,336 3,112 2,886 2,947
(1) Operating expenses as a percentage of operating revenues. (2) Excludes logistics services.
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 1999 1998 1997 - ---------------------------------------------------------------------------------- Operating revenues 100.0% 100.0% 100.0% Operating expenses: Salaries, wages and benefits 29.8 30.9 32.1 Operations and maintenance 15.8 15.9 17.2 Taxes and licenses 2.0 2.2 2.6 Insurance and claims 3.5 3.9 4.4 Communications and utilities 1.3 1.3 1.4 Depreciation and amortization 10.1 9.4 9.6 Gains on disposals of revenue equipment (0.2) (0.2) (0.1) Rent and purchased transportation 27.7 27.0 23.9 Other 0.9 0.7 0.5 - ---------------------------------------------------------------------------------- Total operating expenses 90.9 91.1 91.6 - ---------------------------------------------------------------------------------- Operating income 9.1 8.9 8.4 Interest expense 2.0 1.6 1.4 Other income (0.5) (0.2) (0.1) - ---------------------------------------------------------------------------------- Income before income taxes 7.6 7.5 7.1 Income taxes 2.7 2.7 2.5 - ---------------------------------------------------------------------------------- Net income 4.9% 4.8% 4.6% - ----------------------------------------------------------------------------------
-6-
The sources of the Company's operating revenues were as follows: For the year ended December 31 1999 1998 1997 - ---------------------------------------------------------------------------------- [in Thousands] Trucking Revenues: Domestic Irregular Route $355,083 $316,236 $290,683 International Irregular Route(1) 129,704 112,211 61,900 Dedicated Route 83,978 53,203 28,266 - ---------------------------------------------------------------------------------- Total Trucking Revenues 568,765 481,650 380,849 Logistics Revenues 68,214 60,939 45,135 Intersegment Eliminations (16,565) (13,748) (10,051) - ---------------------------------------------------------------------------------- Total Operating Revenues $620,414 $528,841 $415,933 ==================================================================================
(1) The definition of International Irregular Route has been changed to include loads originating or terminating in Laredo, TX, Brownsville, TX, El Paso, TX, Nogales, AZ, San Diego, CA and Calexico, CA. Revenues for Domestic Irregular Route and International Irregular Route categories have been restated for 1998 and 1997 to conform to this definition. The operating ratios (operating expenses as a percentage of operating revenues) for the trucking and logistics segments and the Company's total business were as follows:
For the year ended December 31 1999 1998 1997 - --------------------------------------------------------------------------------- Trucking Segment 90.4% 90.8% 91.6% Logistics Segment 97.0% 96.1% 93.2% Total Company 90.9% 91.1% 91.6%
1999 Compared to 1998 Operating revenues grew 17.3% to $620 million in 1999 from $529 million in 1998. The Company's increase in revenues was due primarily to increased demand from customers, expansion of the Company's fleet and increased logistics revenues. Total trucking revenues during 1999 increased 18.1% compared to 1998, and logistics revenues during 1999 increased 11.9% compared to 1998. The Company's fleet, including owner-operators, increased to 4,588 tractors at December 31, 1999, from 3,753 at December 31, 1998, an increase of 835 tractors. Revenues per mile were $1.20 in 1999 and in 1998. Average length of haul increased to 729 miles in 1999 up from 689 miles in 1998. The operating ratio (operating expenses as a percentage of operating revenues) for 1999 was 90.9% compared to 91.1% for 1998. For the trucking segment of the Company's business, the operating ratio for 1999 was 90.4% compared to 90.8% for 1998. For the logistics segment of the Company's business, the operating ratio for 1999 was 97.0% compared to 96.1% for 1998. Salaries, wages and benefits decreased to 29.8% of revenues in 1999 compared to 30.9% of revenues in 1998. This decrease was due primarily to the owner-operator tractors representing a larger percentage of the average number of total tractors in service during 1999 compared to 1998, which caused a shift in operating expenses as amounts paid to owner-operators are recorded as purchased transportation. The Company had 1,305 owner-operators at December 31, 1999, compared to 1,003 at December 31, 1998. Operations and maintenance expenses decreased to 15.8% of revenues in 1999 from 15.9% of revenues in 1998. This slight decrease resulted from the expanded use of owner-operators. Higher fuel costs experienced by the Company during the latter part of 1999 kept the decrease from being larger. Insurance and claims expense was 3.5% of revenues in 1999 compared to 3.9% of revenues in 1998. This decrease was due primarily to an improved accident and health claims experience in 1999. Depreciation and amortization increased to 10.1% of revenues in 1999 compared to 9.4% of revenues in 1998. This increase resulted primarily from the expansion of the leased owner-operator program. Rent and purchased transportation increased to 27.7% of revenues in 1999 from 27.0% of revenues in 1998. This increase was attributable primarily to the expanded use of owner-operators by the Company and increased expenses related to logistics services. -7- Interest expense was $12,591,491 in 1999 compared to $8,483,852 in 1998. This increase in interest expense was due to an increase in average outstanding debt during 1999 as compared to 1998 as the Company incurred debt to finance its expanded operations. Other income increased to .5% of revenues in 1999 from .2% of revenues in 1998 primarily as a result of the recognition of income relating to the Company's investment in Transportes EASO S.A. de C.V. increasing to $2,905,000 in 1999 from $955,000 in 1998. The effective income tax rate decreased to 35.5% in 1999 compared to 36.5% in 1998, as described in Note 6 to the Notes to Consolidated Financial Statements. 1998 Compared to 1997 Operating revenues grew 27.1% to $529 million in 1998 from $416 million in 1997. The Company's increase in revenues was due primarily to increased demand from customers, expansion of the Company's fleet and increased logistics revenues. Total trucking revenues during 1998 increased 26.5% compared to 1997, and logistics revenues during 1998 increased 35.0% compared to 1997. The Company's fleet, including owner-operators, increased to 3,753 tractors at December 31, 1998 from 3,141 at December 31, 1997, an increase of 612 tractors. In March 1998, the Company concluded the acquisition of certain assets of Challenger Motor Freight (U.S.), Inc. including 195 company-owned tractors. Revenues per mile were $1.20 in 1998 compared to $1.19 in 1997, due to a slight increase in the average loaded rate per mile experienced by the Company in 1998. Average length of haul increased to 689 miles in 1998 from 633 miles in 1997. The operating ratio (operating expenses as a percentage of operating revenues) for 1998 was 91.1% compared to 91.6% for 1997. For the trucking segment of the Company's business, the operating ratio for 1998 was 90.8% compared to 91.6% for 1997. For the logistics segment of the Company's business, the operating ratio for 1998 was 96.1% compared to 93.2% for 1997. Salaries, wages and benefits decreased to 30.9% of revenues in 1998 compared to 32.1% of revenues in 1997. This decrease was due primarily to the owner-operator tractors representing a larger percentage of the average number of total tractors in service during 1998 compared to 1997, which caused a shift in operating expenses as amounts paid to owner-operators are recorded as purchased transportation. The Company had 1003 owner-operators at December 31, 1998 compared to 771 at December 31, 1997. Operations and maintenance expenses decreased to 15.9% of revenues in 1998 from 17.2% of revenues in 1997. This decrease resulted from the expanded use of owner-operators and lower fuel costs. Insurance and claims expense was 3.9% of revenues in 1998 compared to 4.4% of revenues in 1997. This decrease was due primarily to increased logistics revenues in 1998 and an improved accident claims experience in 1998. Depreciation and amortization decreased to 9.4% of revenues in 1998 compared to 9.6% of revenues in 1997. This decrease resulted primarily from the expanded use of owner-operators and increased logistics revenues. The Company reported gains equal to .2% of revenues, or approximately $1,200,000, from the disposal of revenue equipment in 1998 compared to .1% of revenues, or approximately $500,000, in 1997. Rent and purchased transportation increased to 27.0% of revenues in 1998 from 23.9% of revenues in 1997. This increase was attributable primarily to the expanded use of owner-operators by the Company and increased expenses related to logistics services. Interest expense was $8,483,852 in 1998 compared to $5,775,020 in 1997. This increase in interest expense was due to an increase in average outstanding debt during 1998 as compared to 1997 as the Company incurred debt to finance its expanded operations. The effective income tax rate increased to 36.5% in 1998 compared to 35.6% in 1997, as described in Note 6 to the Notes to Consolidated Financial Statements. Liquidity and Capital Resources 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 borrowing and unsecured credit facilities during the past three years. Net cash provided by operating activities was approximately $73.1 million in 1999, $74.3 million in 1998 and $59.2 million in 1997. At December 31, 1999, the Company had total outstanding obligations of $238.1 million related to purchases of revenue equipment. The Company expects to have expenditures, net of sales, of approximately $100 million for additional revenue equipment in 2000. 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 -8- and unsecured borrowing and existing credit facilities have been sufficient to satisfy substantially all of the Company's working capital and capital expenditure requirements. The Company has bank lines of credit providing for total borrowings of up to $100 million, with interest at the lower of the bank's prime rate or the 30-day LIBOR rate plus .45%. At December 31, 1999, there was $58.7 million outstanding under these lines of credit. Management expects to maintain these or similar credit facilities for an indefinite period. In December 1999, the Company's Board of Directors authorized the repurchase of up to 1 million shares of the Company's common stock. The Company had not repurchased any shares as of December 31, 1999, but did purchase 540,000 shares for approximately $11.8 million during the first quarter of 2000. Recently Issued Accounting Standards During 1998, the Financial Accounting Standards Board (FASB) issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133). This statement requires companies to record derivative instruments on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in the values of a derivative would be accounted for depending on the use of a derivative and whether it qualifies for hedge accounting. In June 1999, the FASB issued Statement No. 137, which delayed the effective date of SFAS No. 133 to the Company's fiscal year 2001. Because of the Company's minimal historical use of derivatives, management anticipates that the adoption of SFAS No. 133 will not have a significant effect on earnings or on the financial position of the Company. Year 2000 Issues In prior years, the Company discussed the nature and progress of its plans to become Year 2000 ready. In late 1999, the Company completed its remediation and testing of systems. As a result of those planning and implementation efforts, the Company experienced no significant disruptions in mission critical information technology and non-information technology systems and believes those systems successfully responded to the Year 2000 date change. The Company expensed approximately $743,000 during 1999 in connection with remediating its systems. The Company is not aware of any material problems resulting from Year 2000 issues, either with its products and services, its internal systems, or the products and services of third parties. The Company will continue to monitor its mission critical computer applications and those of its suppliers and vendors throughout the year 2000 to ensure that any latent Year 2000 matters that may arise are addressed properly. Forward-Looking Statements Certain statements and information included herein constitute "forward-looking statements" within the meaning of the Federal Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, the ability to develop and implement operational and financial systems to manage growing operations; the ability to acquire and integrate businesses and the risks associated with such businesses; the ability to obtain financing on acceptable terms to finance the Company's operations and growth; competition within the industry; the ability to attract and retain quality drivers, and other factors contained in the Company's filings with the Securities and Exchange Commission. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk The Company has market risk exposure to changing interest rates. The Company's policy is to manage interest rates through the use of a combination of fixed and floating rate debt. Interest rate swaps may be used to adjust interest rate exposure based on market conditions. These swaps are entered into with a group of financial institutions with investment grade credit ratings, thereby minimizing the risk of credit loss. At December 31, 1999 and 1998, the fair value of the Company's total long-term debt is approximately $242 million and $174 million, respectively, using yields obtained for similar types of borrowing arrangements and taking into consideration the underlying terms of the debt. Market risk is estimated as the potential change in fair value resulting from a hypothetical ten percent decrease in interest rates and amounts to $351,000 and $660,000 at December 31, 1999 and 1998, respectively. At December 31, 1999, the Company had $189.5 million of variable-rate debt. The Company has entered into interest rate swaps which convert floating rates to fixed rates for a total notional amount of $70 million. If interest rates on the Company's variable-rate debt, after considering interest rate swaps, were to increase by ten percent from their 1999 year-end rates for the whole of 2000, the increase in interest expense for 2000 would be approximately $772,000. The potential change in fair value of the Company's interest rate swaps resulting from a hypothetical ten percent decrease in interest rates would not be material to the Company's financial position at December 31, 1999. -9- Commodity Derivative Product Exposure The Company has market risk exposure to changing diesel fuel prices. The Company's policy is to manage fuel price exposure through the use of a combination of spot price purchases, fixed price contracts from vendors and commodity derivative products. Currently, the Company has entered into fuel price swaps which convert floating spot fuel prices to fixed fuel prices for a notional amount of 800,000 gallons per month through May 31, 2000 (which represents approximately 18% of fuel consumed by Company owned fleet operations at the current capacity and fleet configuration). If the fuel index on which these derivatives are based were to decrease ten percent from its 1999 year-end level for the whole of 2000, the Company would have an increase in fuel expense for the 2000 year of $266,000 as a result of the fuel price swaps on the notional 800,000 gallons per month. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's Consolidated Financial Statements and Financial Statement Schedule are included on pages 15 to 29. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREs None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information with respect to directors and executive officers of the Company is set forth under the captions "Information Regarding Directors and Executive Officers," "Additional Information Related to the Board of Directors" and "Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the Registrant's Proxy Statement relating to its 2000 Annual Meeting of Shareholders (the "2000 Proxy Statement") to be held on May 5, 2000, which is incorporated by reference in this Form 10-K. With the exception of the foregoing information and other information specifically incorporated by reference in this Form 10-K, the 2000 Proxy Statement is not being filed as a part hereof. ITEM 11. EXECUTIVE COMPENSATION Information with respect to executive compensation is set forth under the captions "Executive Compensation," "Summary Compensation Table," "Option Grants in 1999," "Aggregated Option Exercises in 1999 and Year-End Value Table", "Employment Contracts" and "Report of the Executive Compensation Committee" in the 2000 Proxy Statement and is incorporated by reference in this Form 10-K. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information with respect to security ownership of certain beneficial owners and management is included under the caption "Beneficial Ownership of Common Stock" in the 2000 Proxy Statement and is incorporated by reference in this Form 10-K. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS During 1999, the Executive Compensation Committee of the Board of Directors was comprised of Michael S. Starnes, Morris H. Fair and Jack H. Morris, III, all of whom participated in deliberations concerning executive officer compensation. Mr. Starnes also serves as President and Chief Executive Officer of the Company. The Committee establishes the compensation for Mr. Starnes and reviews compensation set by Mr. Starnes for other executive officers. Mr. Starnes does not participate in the Committee's deliberations concerning his compensation. During 1999, the Company purchased from M&S Aviation, Inc. a 45% interest in a joint venture which owned a 1996 Learjet 31A and a deposit on a 1999 Learjet 45 for $2,610,000. Mr. Starnes owned 50% of the outstanding shares of stock of M&S Aviation, Inc. at the time of this purchase. Subsequent to the purchase, M&S Aviation, Inc. redeemed Mr. Starnes' shares. The purchase was on terms no less favorable to the Company than those which may have been obtained from an unaffiliated third party and was approved by the non-employee directors of the Company. -10- Edward A. Labry, III is President and a member of the Board of Directors of Concord EFS, Inc. and its subsidiary EFS National Bank, Memphis, Tennessee. Concord is a vertically integrated electronic transaction processor, providing transaction authorization, data capture, settlement and funds transfer services to the trucking industry and other selected markets. Concord's primary activities include providing credit, debit, check authorization and electronic benefits transfer (EBT) processing services to supermarket, petroleum, convenience store and other retailers. Concord also provides electronic payment and payroll services to trucking companies, truck stops and other segments of the market. During 1999, Concord processed transactions in the aggregate amount of $44,929,823 for the Company. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K (a) Financial Statements and Financial Statement Schedules. (1) Financial Statements. Report of Independent Auditors . . . . . . . . . . . . . 15 Consolidated Balance Sheets. . . . . . . . . . . . . . . 16 Consolidated Statements of Income. . . . . . . . . . . . 17 Consolidated Statements of Stockholders' Equity. . . . . 18 Consolidated Statements of Cash Flow . . . . . . . . . . 19 Notes to Consolidated Financial Statements . . . . . . . 20 (2) Financial Statement Schedules Schedule II - Valuation and Qualifying Accounts for the Company is included herein on page 29. No other financial statement schedules are required. (b) Reports on Form 8-K. The Company did not file any report on Form 8-K during the last quarter of 1999. (c) Exhibits. An Exhibit Index of the exhibits required by Item 601 of Regulation S-K is included on page 13. -11- 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. 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, March 30, 2000 Michael S. Starnes Chief Executive Officer and Date Director s/ James W. Welch Senior Vice President - March 30, 2000 James W. Welch Marketing and Director Date s/ M.J. Barrow Senior Vice President - March 30, 2000 M.J. Barrow Finance and Administration, Date Secretary-Treasurer and Director s/ Dwight M. Bassett Vice President, Chief Accounting March 30, 2000 Dwight M. Bassett Officer and Assistant Secretary Date s/ Jack H. Morris, III Director March 30, 2000 Jack H. Morris, III Date s/ Morris H. Fair Director March 30, 2000 Morris H. Fair Date s/ Edward A. Labry, III Director March 30, 2000 Edward A. Labry, III Date -12- EXHIBIT INDEX Exhibit Page Number or Incorporation Number Description By Reference 3(i).1 Restated Charter of M.S. Carriers, Inc. Incorporated by reference from 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 exhibits to the of M.S. Carriers, Inc. Registrant's Registration Statement on Form S-3 (Registration Number 33-63280). 3(ii) Amended and Restated By-Laws of Incorporated by reference from exhibits to the M.S. Carriers, Inc. 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 Plan Incorporated by reference from 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 Plan Incorporated by reference from Registrant's Proxy Statement dated March 31, 1995. 10.5* Employment Agreements with James W. Incorporated by reference Welch and M.J. Barrow from exhibits to the Registrant's Statement on Form S-1 (Registration Number 33-12070). 10.6* Employment Agreement with Incorporated by reference from Michael S. Starnes exhibits to the Registrant's 2nd Quarter 1995 Form 10-Q. 10.7* M.S. Carriers, Inc. 1996 Stock Incorporated by reference from Option Plan exhibits to the Registrant's Proxy Statement dated April 4, 1996 21 Subsidiaries of the Registrant Page 14 27 Financial Data Schedule Filed herewith * Indicates management contract or compensatory plan or arrangement -13- Exhibit 21 Subsidiaries of M.S. Carriers, Inc. Jurisdiction 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 M.S. Global, Inc. Nevada M.S. Air, Inc. Tennessee -14- Report of Independent Auditors Board of Directors M.S. Carriers, Inc. We have audited the accompanying consolidated balance sheets of M.S. Carriers, Inc. as of December 31, 1999 and 1998, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1999. 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 auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of M.S. Carriers, Inc. at December 31, 1999 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairy in all material respects the information set forth therein. s/ Ernst & Young LLP Memphis, Tennessee January 26, 2000, except for note 15, as to which the date is March 13, 2000 -15- M.S. Carriers, Inc. Consolidated Balance Sheets
December 31 1999 1998 - -------------------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $242,606 $1,465,303 Accounts receivable: Trade, less allowance for doubtful accounts of $2,850,000 in 1999 and $2,418,000 in 1998 74,235,169 54,892,449 Officers and employees 1,372,312 1,285,890 - -------------------------------------------------------------------------------- 75,607,481 56,178,339 Recoverable income taxes 4,391,692 Deferred income taxes 9,558,000 7,143,000 Prepaid expenses and other 6,627,602 9,436,180 - -------------------------------------------------------------------------------- Total current assets 96,427,381 74,222,822 Property and equipment: Land and land improvements 8,563,092 6,804,552 Buildings 33,853,177 30,128,055 Revenue equipment 538,170,367 444,639,971 Service equipment and other 50,764,814 43,202,780 Construction in progress 7,051,494 2,421,531 - -------------------------------------------------------------------------------- 638,402,944 527,196,889 Accumulated depreciation and amortization 157,129,859 128,045,907 - -------------------------------------------------------------------------------- 481,273,085 399,150,982 Other assets 13,832,915 10,635,682 - -------------------------------------------------------------------------------- Total assets $591,533,381 $484,009,486 - -------------------------------------------------------------------------------- Liabilities and stockholders' equity Current liabilities: Trade accounts payable $7,300,275 $14,856,055 Accrued compensation and related costs 5,625,679 5,066,654 Other accrued expenses 16,562,822 11,729,668 Claims payable 19,914,990 18,072,814 Income taxes payable 2,943,883 Current maturities of long-term obligations 39,189,255 27,214,227 - -------------------------------------------------------------------------------- Total current liabilities 88,593,021 79,883,301 Long-term obligations, less current maturities 202,404,874 146,595,170 Deferred income taxes 65,325,276 53,777,739 Commitments and contingencies Stockholders' equity: Common stock, $.01 par value: Authorized shares- 20,000,000 Issued and outstanding shares-12,301,601 in 1999 and 12,260,101 in 1998 123,016 122,601 Additional paid-in capital 66,222,158 65,269,015 Retained earnings 170,952,739 140,365,314 Cumulative other comprehensive loss (2,087,703) (2,003,654) - -------------------------------------------------------------------------------- Total stockholders' equity 235,210,210 203,753,276 - -------------------------------------------------------------------------------- Total liabilities and stockholders' equity $591,533,381 $484,009,486 ================================================================================
See accompanying notes. -16- M.S. Carriers, Inc. Consolidated Statements of Income
Year ended December 31 1999 1998 1997 - -------------------------------------------------------------------------------- Operating revenues $620,414,137 $528,841,314 $415,932,825 Operating expenses: Salaries, wages and benefits 184,676,598 163,224,933 133,517,321 Operations and maintenance 97,946,624 84,260,614 71,380,518 Taxes and licenses 12,663,778 11,425,054 10,707,885 Insurance and claims 21,986,637 20,832,807 18,462,037 Communications and utilities 7,907,923 6,913,782 5,710,433 Depreciation and amortization 62,400,797 49,794,229 40,093,988 Gains on disposals of (940,944) (1,199,851) (489,519) revenue equipment Rent and purchased transportation 171,572,280 142,765,753 99,584,257 Other 5,407,423 3,901,274 2,077,206 - -------------------------------------------------------------------------------- 563,621,116 481,918,595 381,044,126 - -------------------------------------------------------------------------------- Operating income 56,793,021 46,922,719 34,888,699 Other expense (income): Interest expense 12,591,491 8,483,852 5,775,020 Other (3,220,837) (1,353,558) (319,977) - -------------------------------------------------------------------------------- 9,370,654 7,130,294 5,455,043 - -------------------------------------------------------------------------------- Income before income taxes 47,422,367 39,792,425 29,433,656 Income taxes 16,834,942 14,524,236 10,471,883 - -------------------------------------------------------------------------------- Net income $ 30,587,425 $ 25,268,189 $ 18,961,773 - -------------------------------------------------------------------------------- Basic earnings per share $ 2.49 $ 2.06 $ 1.57 - -------------------------------------------------------------------------------- Diluted earnings per share $ 2.39 $ 1.99 $ 1.54 - --------------------------------------------------------------------------------
See accompanying notes. -17- M.S. Carriers, Inc. Consolidated Statements of Stockholders' Equity
Cumulative Additional Other Common Stock Paid-in Retained Comprehensive Shares Amount Capital Earnings Loss Total - -------------------------------------------------------------------------------------------------------- Balance at January 1, 1997 12,009,633 $120,096 $59,959,590 $96,135,352 $(2,003,654) $154,211,384 Net income 18,961,773 18,961,773 Issuance of common stock upon business acquisition 153,468 1,535 3,574,270 3,575,805 Exercise of stock options 47,500 475 641,400 641,875 - -------------------------------------------------------------------------------------------------------- Balance at December 31, 1997 12,210,601 122,106 64,175,260 115,097,125 (2,003,654) 177,390,837 Net income 25,268,189 25,268,189 Exercise of stock options 49,500 495 1,093,755 1,094,250 - -------------------------------------------------------------------------------------------------------- Balance at December 31, 1998 12,260,101 122,601 65,269,015 140,365,314 (2,003,654) 203,753,276 Comprehensive income: Net income 30,587,425 30,587,425 Other comprehensive income: Foreign currency translation (84,049) (84,049) Comprehensive income 30,503,376 Exercise of stock options 41,500 415 953,143 953,558 - -------------------------------------------------------------------------------------------------------- Balance at December 31, 1999 12,301,601 $123,016 $66,222,158 $170,952,739 $(2,087,703) $235,210,210 ========================================================================================================
See accompanying notes. -18- M.S. Carriers, Inc. Consolidated Statements of Cash Flows
Year ended December 31 1999 1998 1997 - -------------------------------------------------------------------------------- Operating activities Net income $30,587,425 $25,268,189 $18,961,773 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 61,898,985 49,580,210 40,093,988 Amortization 501,812 214,019 Gain on disposals of revenue equipment (940,944) (1,199,851) (489,519) Other (91,113) (220,695) Deferred income taxes 9,132,537 (6,021,780) 8,366,096 Changes in operating assets and liabilities: Accounts receivable (19,429,143)(10,966,653)(10,687,051) Other (5,366,207) (3,150,798) 1,533,687 Trade accounts payable (7,555,780) 9,407,945 (1,840,039) Other current liabilities 4,290,472 11,253,899 3,485,198 - -------------------------------------------------------------------------------- Net cash provided by operating activities 73,119,157 74,294,067 59,203,438 Investing activities Purchases of property and equipment (94,177,749)(75,114,762)(96,025,327) Proceeds from disposals of 46,049,919 29,754,012 34,064,457 property and equipment Business acquisitions (17,033,000) (672,739) - -------------------------------------------------------------------------------- Net cash used in investing activities (48,127,830)(62,393,750)(62,633,609) Financing activities Proceeds from long-term obligations 3,498,617 Net change in line of credit obligations 171,454 10,102,811 23,403,189 Principal payments on long-term obligations (30,837,653 (21,983,994)(21,416,967) Proceeds from issuance of common stock 953,558 1,094,250 641,875 - -------------------------------------------------------------------------------- Net cash provided by (used in) financing activities (26,214,024)(10,786,933) 2,628,097 - -------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents (1,222,697) 1,113,384 (802,074) Cash and cash equivalents at beginning of year 1,465,303 351,919 1,153,993 - -------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 242,606 $1,465,303 $351,919 ================================================================================
See accompanying notes. -19- M.S. Carriers, Inc. notes to consolidated Financial statements 1. Nature of Business M.S. Carriers, Inc. (the Company) is an irregular route, truckload carrier transporting a wide range of commodities throughout the United States, and between the United States and the provinces of Ontario and Quebec, Canada. The Company also provides interline service to and from Mexico. The Company's primary traffic flows are between the Middle South and the 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. The Company also provides logistics services. 2. 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. Significant intercompany accounts and transactions have been eliminated in consolidation. The Company accounts for its 50% investment in Transportes EASO S.A. de C.V. (EASO), a Mexican trucking company, by the equity method. This investment is classified as other long-term assets in the consolidated financial statements and is approximately $5,279,000 and $2,458,000 at December 31, 1999 and 1998, respectively. The Company recognized other income of approximately $2,905,000 in 1999, $955,000 in 1998, and $306,000 in 1997 from its investment in EASO. At December 31, 1999, approximately $4.2 million of the Company's retained earnings relate to undistributed earnings of EASO. Revenue Recognition Operating revenues are recognized on the date 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. Property and Equipment Property and equipment are stated at cost. Depreciation, which includes amortization of assets held under capital leases, is computed on the straight-line method over the estimated useful lives as follows: Buildings 15-30 years Revenue equipment 3-6 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. Goodwill and Other Intangible Assets Goodwill and other intangible assets of $5,373,211 and $5,875,023 are included in other long-term assets at December 31, 1999 and 1998, respectively. Goodwill represents the excess of the cost of businesses acquired over fair value of net tangible and identifiable intangible assets at the date of acquisition. Goodwill and other intangible assets, which are net of accumulated amortization of $715,831 and $214,019 at December 31, 1999 and 1998, respectively, are being amortized using the straight-line method over periods of up to 10 years. Foreign Currency Translation Prior to January 1, 1999, the functional currency of the Company's foreign subsidiary and equity investee was the reporting currency because Mexico was designated as a highly inflationary economy. Translation gains and losses prior to January 1, 1999, were recorded in the statement of income rather than as a separate component of stockholders' equity. Effective January 1, 1999, Mexico is no longer designated as a highly inflationary economy. Therefore, translation gains and losses subsequent to that date are recorded as other comprehensive income and presented as a separate component of stockholders' equity. -20- Income Taxes The Company accounts for income taxes using the liability method. Earnings Per Share Basic earnings per share has been computed based on the weighted-average number of common shares outstanding. Diluted earnings per share reflects the increase in weighted-average common shares outstanding that would result from the assumed exercise of dilutive outstanding stock options, calculated using the treasury stock method. 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. Valuation of Long-Lived Assets Management periodically evaluates carrying values of long-lived assets, including property and equipment, strategic investments, goodwill and other intangible assets, to determine whether events and circumstances indicate that these assets have been impaired. An asset is considered impaired when undiscounted cash flows to be realized from such asset are less than its carrying value. In that event, a loss is determined based on the amount that the carrying value exceeds the fair market value of such asset. Stock-Based Compensation The Company accounts for employee stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25) and related interpretations as permitted by Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS No. 123). Interest Rate Swaps The Company enters into interest rate swap agreements to modify the interest characteristics of its outstanding debt. These agreements involve the exchange of amounts based on a fixed interest rate for amounts based on variable interest rates over the life of the agreement without an exchange of the notional amount upon which the payments are based. The differential to be paid or received as interest rates change is accrued and recognized as an adjustment of interest expense related to the debt. The related amount payable to or receivable from counterparties is included in accrued expenses or other current assets. The fair value of the swap agreements and changes in the fair value as a result of changes in market interest rates are not recognized in the financial statements. Concentrations of Credit and Market Risks 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. The Company's sales are principally denominated and collected in the U.S. dollar. The Company has market risk exposure to changing diesel fuel prices. The Company's policy is to manage fuel price exposure through the use of a combination of spot price purchases, fixed price contracts from vendors and commodity derivative products. Currently, the Company has entered into fuel price swaps which convert floating spot fuel prices to fixed fuel prices for a notional amount of 800,000 gallons per month through May 31, 2000 (which represents approximately 18% of fuel consumed by Company owned fleet operations at the current capacity and fleet configuration). Recently Issued Accounting Pronouncements During 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133). This statement requires companies to record derivative instruments on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in the value of a derivative are accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. In June 1999, the FASB issued SFAS No. 137, which delayed the effective date of SFAS No. 133 to the Company's fiscal year 2001. Management anticipates that the adoption of SFAS No. 133 will not have a significant effect on the results of operations or financial position of the Company. -21- 3. Business Acquisitions In March 1998, the Company acquired substantially all of the assets, consisting primarily of revenue equipment, and assumed certain liabilities of a truckload carrier located in Ohio. In connection with this acquisition, the Company paid cash of approximately $7,556,000 and recorded a holdback liability of $700,000. In November 1998, the Company acquired substantially all of the assets, consisting primarily of revenue equipment, and assumed certain liabilities of a truckload carrier located in Wisconsin. In connection with this acquisition, the Company paid cash of approximately $9,477,000 and recorded a holdback liability of $250,000. In September 1997, the Company acquired substantially all of the assets and assumed certain liabilities of a truckload carrier located in Arkansas. The Company acquired assets, which consisted primarily of revenue equipment, totaling approximately $19,575,000 and assumed liabilities, which consisted primarily of capitalized lease obligations, totaling approximately $15,943,000. In connection with this acquisition, the Company issued to the seller 153,468 shares of the Company's common stock valued at $3,575,805, recorded approximately $443,000 in deferred payments and paid cash of $673,000. Each of the acquisitions was accounted for using the purchase method of accounting. Therefore, the results of operations of the acquired businesses are included in the consolidated financial statements of the Company from their respective acquisition dates. The pro forma results of operations as if the acquisitions had occurred at the beginning of the year preceding the year of acquisition would not differ materially from the reported results. 4. Long-Term Obligations Long-term obligations consist of the following:
December 31 1999 1998 ----------------------------------------------------------- Capitalized lease obligations $179,349,058 $115,234,397 Equipment loan 3,498,617 Revolving lines of credit 58,746,454 58,575,000 ----------------------------------------------------------- 241,594,129 173,809,397 Less current maturities (39,189,255) (27,214,227) ----------------------------------------------------------- $202,404,874 $146,595,170 ===========================================================
The Company has an unsecured line of credit available for borrowings of up to $80,000,000 with interest at the lower of the bank's prime rate or the 30-day LIBOR rate plus .45% (6.91% at December 31, 1999). The balance outstanding under this line of credit was $38,746,454 and $38,575,000 at December 31, 1999 and 1998, respectively. There are no commitment fees or compensating balance requirements for the line of credit, which expires June 1, 2001. The Company also maintains two separate agreements with banks that each provide for borrowings of up to $10,000,000 under unsecured lines of credit. The lines of credit bear interest at varying rates based upon the lower of the banks' prime rates or the 30-day LIBOR rate plus .45% (6.91% at December 31, 1999). The balance outstanding under both lines of credit, which expire March 26, 2000, and April 27, 2000, respectively, was an aggregate of $20,000,000 at December 31, 1999 and 1998. These amounts are classified as long-term obligations in the accompanying consolidated balance sheets because the Company intends to refinance the lines of credit on a long-term basis through new credit facilities or through the existing $80,000,000 line of credit. The Company issued a promissory note to a bank in the amount of $3,498,617. This note is secured by related equipment and bears interest at a varying rate based on the 90-day LIBOR rate plus 1% (6.16% at December 31, 1999). Interest payments are to be made quarterly for the term of the note, with a single principal payment being due on November 2, 2004. During 1999 and 1998, the Company entered into various lease agreements to lease revenue equipment with a fair value of approximately $94,952,000 and $86,802,000, respectively. These capital leases are secured by the related revenue equipment and bear interest at fixed and variable rates. Additionally, in connection with the 1998 acquisitions described in Note 3, the Company assumed approximately $3,174,000 in capitalized lease obligations related to acquired revenue equipment with a fair value of approximately $10,330,000 at the time of acquisition. The Company's capital leases have remaining lease terms of 1 to 5 years and contain guarantees of residual value at the end of the lease terms. Certain of the leases contain renewal or fixed-price purchase options. The leases are secured by revenue equipment with a net book value at December 31, 1999 and 1998, of approximately $156,922,000 and $116,256,000, respectively, which is net of accumulated amortization of $52,286,000 and $17,962,000, respectively, and bear interest at fixed and variable rates ranging from 4.2% to 8.3%. The weighted average interest rate on the Company's fixed-rate capital leases is approximately 5.4% at December 31, 1999. -22- At December 31, 1999, the Company has entered into interest rate swaps which convert floating interest rates to fixed interest rates ranging from 5.63% to 6.50% for a total notional amount of $70 million. Certain of the Company's debt agreements contain covenants including required ratios of notes payable to net worth and notes payable to 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, 1999:
Long-Term Capitalized Debt Lease Obligations ------------------------------------------------------------- 2000 $ $ 48,963,965 2001 58,746,454 47,555,604 2002 57,149,824 2003 32,090,018 2004 3,498,617 15,412,237 Thereafter 1,859,656 ------------------------------------------------------------- 62,245,071 203,031,304 Amounts representing interest 23,682,246 ------------------------------------------------------------- Total long-term obligations $ 62,245,071 $ 179,349,058 =============================================================
The Company paid interest of approximately $12,422,000 in 1999, $8,344,000 in 1998, and $5,775,000 in 1997. 5. Claims Payable Under an agreement with its insurance underwriters through December 31, 1998, the Company was self-insured for accident liabilities of $1,500,000 for the initial occurrence per policy year, $1,250,000 for the second occurrence per policy year, and $1,000,000 for each occurrence thereafter involving bodily injury and property damage. Effective January 1, 1999, the Company entered into a new agreement to reduce its self-insured retention limit for accident claims. Under this new agreement, the Company self-insures the first $500,000 of liability for each occurrence involving bodily injury and property damage. The Company also self-insures the second $500,000 of liability for each occurrence until an aggregate of $1,000,000 of liability has been paid by the Company on claims exceeding $500,000 of liability. Excess liability 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 policy year and workers' compensation claims up to $300,000 per employee per policy year and has provided reserves which management considers adequate for the Company's estimated liability for covered claims. -23- 6. Income Taxes The liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Income tax expense (benefit) consists of the following:
Year ended December 31 1999 1998 1997 - ------------------------------------------------------------------ Current: Federal $ 6,571,326 $17,616,578 $ 1,931,443 State 1,131,079 2,929,438 174,344 - ------------------------------------------------------------------ 7,702,405 20,546,016 2,105,787 Deferred: Federal 8,404,084 (5,163,198) 7,173,148 State 728,453 (858,582) 1,192,948 - ------------------------------------------------------------------ 9,132,537 (6,021,780) 8,366,096 - ------------------------------------------------------------------ $ 16,834,942 $14,524,236 $ 10,471,883 ==================================================================
The effective tax rate varied from the statutory federal income tax rate of 35% as follows:
Year ended December 31 1999 1998 1997 - ------------------------------------------------------------------ Taxes at statutory rate $16,597,828 $13,927,349 $10,301,780 State income taxes, net of federal tax benefits 1,859,532 1,422,578 919,231 Other (1,622,418) (825,691) (749,128) - ------------------------------------------------------------------ $16,834,942 $14,524,236 $10,471,883 ==================================================================
Income tax payments (refunds) were approximately $14,832,000 in 1999, $13,078,000 in 1998 and $351,000 in 1997. Significant components of the Company's deferred tax liabilities and assets as of December 31 are as follows:
1999 1998 ----------------------------------------------------------- Deferred tax liabilities: Property and equipment $61,917,708 $54,919,170 Other-net 4,733,783 1,958,669 ----------------------------------------------------------- Total deferred tax liabilities 66,651,491 56,877,839 Deferred tax assets: Claims payable 6,948,396 6,971,588 Other-net 3,935,819 3,271,512 ----------------------------------------------------------- Total deferred tax assets 10,884,215 10,243,100 ----------------------------------------------------------- Net deferred tax liabilities $55,767,276 $46,634,739 ===========================================================
7. Employee Benefit Plans The M.S. Carriers, Inc. Retirement Savings Plan (the Plan) is a defined contribution plan under Section 401(k) of the Internal Revenue Code (IRC) and 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 Plan. The Plan provides each participant with the option of contributing from 1% to 15% of the employee's annual compensation subject to IRC limitations. The Company matches the employee contribution up to 50% of the participant's contribution, but limited to a maximum of 3% of the participant's compensation. The Company's contribution to the Plan, net of forfeitures, was approximately $1,571,000 in 1999, $1,318,000 in 1998, and $1,098,000 for 1997. -24- 9. Earnings Per Share
The following table sets forth the computations of basic and diluted earnings per share: Year ended December 31 1999 1998 1997 - ----------------------------------------------------------------------------------------- Numerator: Net income available to common stockholders $30,587,425 $25,268,189 $ 18,961,773 - ----------------------------------------------------------------------------------------- Denominator: Weighted-average shares for basic earnings per share 12,291,349 12,254,067 12,074,140 Dilutive employee stock options 524,266 475,339 261,064 - ----------------------------------------------------------------------------------------- Adjusted weighted-average shares for diluted earnings per share 12,815,615 12,729,406 12,335,204 - ----------------------------------------------------------------------------------------- Basic earnings per share $ 2.49 $ 2.06 $ 1.57 ========================================================================================= Diluted earnings per share $ 2.39 $ 1.99 $ 1.54 =========================================================================================
9. Stock Options Company has elected to follow APB No. 25 and related Interpretations in accounting for its employee stock options because the alternative fair value accounting provided for under SFAS No. 123 requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB No. 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. The Company's Stock Option Plans (the Option Plans) provide for the granting of either qualified or nonqualified stock options. Options are subject to terms and conditions determined by the Compensation Committee of the Board of Directors. Options granted under the 1986 Incentive Stock Option Plan generally are exercisable in increments of one-third per year beginning two years from the date of grant. Options granted under the 1993 and 1996 Stock Option Plans are exercisable five years from the date of grant. All options expire ten years from the date of grant. Under the Option Plans, the Company may grant options to purchase up to a total of 2,600,000 shares of common stock at the prevailing market price at the date of grant. Pro forma information regarding net income and earnings per share is required by SFAS No. 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of SFAS No. 123. The fair value for the Company's options was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions for 1999, 1998, and 1997, respectively: risk-free interest rates of 6.9% in 1999, 5.7% in 1998, and 5.3% in 1997, a volatility factor of the expected market price of the Company's common stock of .37 in 1999, .30 in 1998, and .27 in 1997; a weighted-average expected life of the options of 7 years; and no dividend payments. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the respective options' vesting periods. The Company's SFAS No. 123 pro forma information follows:
Year ended December 31 1999 1998 1997 - ---------------------------------------------------------------------------------- Net income $30,587,425 $25,268,189 $18,961,773 Pro forma compensation expense (1,925,059) (1,308,983) (1,323,462) - ---------------------------------------------------------------------------------- Pro forma net income $28,662,366 $23,959,206 $17,638,311 - ---------------------------------------------------------------------------------- Pro forma basic earnings per share $ 2.39 $ 1.98 $ 1.46 - ---------------------------------------------------------------------------------- Pro forma diluted earnings per share $ 2.29 $ 1.90 $ 1.43 - ----------------------------------------------------------------------------------
- -25- Because SFAS No. 123 applies only to stock-based compensation awards for 1995 and future years, the pro forma disclosures under SFAS No. 123 are not likely to be indicative of future disclosures until the disclosures reflect all outstanding, non-vested awards. A summary of the Company's stock option plan activity is as follows:
Number of Shares Weighted-Average Under Option Exercise Price -------------------------------------------------------------- Balance at January 1, 1997 1,696,000 $18.37 Granted 516,500 20.93 Exercised (47,500) 13.93 Canceled (429,000) 18.67 -------------------------------------------------------------- Balance at December 31, 1997 1,736,000 19.01 Granted 758,000 28.85 Exercised (49,500) 22.11 Canceled (476,500) 23.92 -------------------------------------------------------------- Balance at December 31, 1998 1,968,000 21.53 Granted 757,000 28.23 Exercised (41,500) 18.28 Canceled (644,000) 25.97 -------------------------------------------------------------- Balance at December 31, 1999 2,039,500 $21.64 --------------------------------------------------------------
Options exercisable were 513,526, 315,500, and 200,833 at December 31, 1999, 1998, and 1997, respectively. The weighted-average fair value of options granted during 1999, 1998, and 1997 was $14.67, $11.43, and $8.86, respectively. Exercise prices for options outstanding as of December 31, 1999, ranged from $7.19 to $34.25. At December 31, 1999, the Company had reserved 292,667 shares of its common stock for issuance pursuant to stock option plans. The following table segregates option information between ranges of exercise prices as of December 31, 1999:
Exercise Price -------------------- Less Greater Than $10 Than $10 Total - ----------------------------------------------------------------------------------------- Number of shares under option 118,500 1,921,000 2,039,500 Weighted-average exercise price $ 7.19 $ 22.53 $ 21.64 Weighted-average years of remaining contractual life 0.95 7.25 6.88 Exercisable options 118,500 395,026 513,526 Weighted-average exercise price of exercisable options $ 7.19 $ 20.02 $ 17.06
10. Commitments and Contingencies 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. The Company expects to have expenditures, net of sales, of approximately $100 million for additional revenue equipment in 2000. 11. Stock Repurchase Program On December 16, 1999, the Company's Board of Directors authorized the repurchase of up to one million shares of the Company's common stock from time-to-time through open market transactions. The stock repurchase program is authorized through December 31, 2000. The Company will have no obligation to purchase any shares and may cancel, suspend or extend the time period for the purchase of shares at any time. Through December 31, 1999, the Company had not repurchased any shares under this program. 12. Fair Value of Financial Instruments The carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value. The book value of long-term obligations, including current portion, approximates fair value based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. The fair value of the Company's interest rate swap agreements is a liability of approximately $2.2 million and $3.8 million at December 31, 1999 and 1998, respectively. -26- 13. Industry Segments The Company's two reportable segments are trucking operations and logistics. These segments are classified primarily by the type of services they provide. Performance of the segments is generally evaluated by their operating income. The trucking operations provide irregular route freight transport services to customers. The logistics operations arrange freight transportation for customers using various carriers, including the trucking segment of the Company, through agency relationships with its customers. Customers of both the trucking operations and logistics operations primarily include manufacturing, retail, wholesale and courier service companies.
Summarized segment information is shown in the following table: Year ended December 31 1999 1998 1997 - --------------------------------------------------------------------------------- (in thousands) Operating revenues: Trucking (including trucking revenues received from logistics) $568,765 $481,650 $380,849 Logistics 68,214 60,939 45,135 Elimination of trucking revenues received from logistics (16,565) (13,748) (10,051) - --------------------------------------------------------------------------------- $620,414 $528,841 $415,933 ================================================================================= Operating income: Trucking $ 54,771 $ 44,546 $ 31,820 Logistics 2,022 2,377 3,069 - --------------------------------------------------------------------------------- $ 56,793 $ 46,923 $ 34,889 =================================================================================
Due to the minimal amount of long-lived assets required by the logistics operations, the Company does not separately report such assets and related depreciation and amortization expense in its financial records used for allocating Company resources and evaluating operating performance. The Company allocated operating overhead costs of approximately $3,942,000, $2,930,000, and $2,300,000 in 1999, 1998, and 1997, respectively, to the logistics operations for purposes of determining operating income and evaluating performance. Cost allocations to the logistics operations are based primarily on payroll costs. A trucking customer, Sears, accounted for 10% or more of revenues in 1999, 1998, and 1997 with revenues of $69,594,000, $66,428,000, and $59,577,000, respectively. 14. Selected Quarterly Data (Unaudited)
Summarized quarterly data for 1999 and 1998 follows: 1999 -------------------------------------------------------- March 31 June 30 September 30 December 31 - -------------------------------------------------------------------------------------- Operating revenues $142,814,475 $153,596,736 $160,434,754 $163,568,172 Operating expenses 131,484,497 138,934,555 144,886,110 148,315,954 - -------------------------------------------------------------------------------------- Operating income 11,329,978 14,662,181 15,548,644 15,252,218 Other expense 2,440,964 1,687,636 2,199,252 3,042,802 - -------------------------------------------------------------------------------------- Income before taxes 8,889,014 12,974,545 13,349,392 12,209,416 Income taxes 3,155,600 4,605,963 4,724,764 4,348,615 - -------------------------------------------------------------------------------------- Net income $ 5,733,414 $ 8,368,582 $ 8,624,628 $ 7,860,801 ====================================================================================== Basic earnings per share $ .47 $ .68 $ .70 $ .64 ====================================================================================== Diluted earnings per share $ .45 $ .65 $ .67 $ .62 ======================================================================================
-27-
1998 -------------------------------------------------------- March 31 June 30 September 30 December 31 - -------------------------------------------------------------------------------------- Operating revenues $117,203,825 $133,624,361 $137,512,075 $140,501,053 Operating expenses 108,848,896 120,815,512 124,360,633 127,893,554 - -------------------------------------------------------------------------------------- Operating income 8,354,929 12,808,849 13,151,442 12,607,499 Other expense 1,440,546 1,870,274 1,949,900 1,869,574 - -------------------------------------------------------------------------------------- Income before taxes 6,914,383 10,938,575 11,201,542 10,737,925 Income taxes 2,523,750 3,992,579 4,088,562 3,919,345 - -------------------------------------------------------------------------------------- Net income $ 4,390,633 $ 6,945,996 $ 7,112,980 $ 6,818,580 ====================================================================================== Basic earnings per share $ .36 $ .57 $ .58 $ .56 ====================================================================================== Diluted earnings per share$ .35 $ .54 $ .56 $ .54 ======================================================================================
15. SUBSEQUENT EVENT On March 13, 2000, the Company announced that it had signed a letter of intent with five other trucking companies to form an internet-based global transportation venture that would create a marketplace for shippers and carriers. Pursuant to the letter of intent, each of the six companies is committed to contribute their respective existing logistics operations and cash of up to $5 million to fund working capital. The Company's logistics operations generated approximately $68.2 million of operating revenues and $2.0 million of operating income in 1999.
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(1) of Period - ------------------------------------------------------------------------------------------- Year ended December 31, 1999 Deducted from asset accounts: Allowance for doubtful accounts receivable $2,418,476 $ 624,912 $192,995 $2,850,393 Year ended December 31, 1998 Deducted from asset accounts: Allowance for doubtful accounts receivable $1,497,651 $1,122,289 $201,464 $2,418,476 Year ended December 31, 1997 Deducted from asset accounts: Allowance for doubtful accounts receivable $ 514,610 $1,268,497 $285,456 $1,497,651
(1) Uncollectible accounts written off, net of recoveries. -28- EX-27 2 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, 1999, AND THE RELATED CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR DECEMBER 31, 1999, AND THE NOTES RELATED THERETO AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1999 DEC-31-1999 242,606 0 77,085,169 2,850,000 0 96,427,381 638,402,944 157,129,859 591,533,381 88,593,021 202,404,874 123,016 0 0 235,210,210 591,533,381 0 620,414,137 0 563,621,116 0 0 12,591,491 47,422,367 16,834,942 30,587,425 0 0 0 30,587,425 2.49 2.39
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