-----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, CdYbgJucQzl9plnd1sH1sFmGJm86fTAXH2BsyjQt9zXCjMToPUl1DDGRhOCtaMwC c8DqaFueF25pwU7n94TG8g== 0000790372-99-000013.txt : 19990818 0000790372-99-000013.hdr.sgml : 19990818 ACCESSION NUMBER: 0000790372-99-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 DATE AS OF CHANGE: 19990817 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MS CARRIERS INC CENTRAL INDEX KEY: 0000790372 STANDARD INDUSTRIAL CLASSIFICATION: 4213 IRS NUMBER: 621014070 STATE OF INCORPORATION: TN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14781 FILM NUMBER: 99694052 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-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 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 No.) 3171 Directors Row, Memphis, TN 38131 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (901) 332-2500 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date: Outstanding common shares at August 1, 1999 - 12,297,601 -1- M.S. Carriers, Inc. Index to Form 10-Q Contents Part I - Financial Information Item 1 - Financial Statements (Unaudited) Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998............................................. 3 Consolidated Statements of Income for the Three Months Ended June 30, 1999 and 1998 and the Six Months Ended June 30, 1999 and 1998........................................ 5 Consolidated Statement of Stockholders' Equity for the Six Months Ended June 30, 1999.................................... 6 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1999 and 1998.................................. 7 Notes to Consolidated Financial Statements...................... 8 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations........................... 10 Item 3 - Quantitative and Qualitative Disclosure About Market Risk................................................... 15 Part II - Other Information Item 1 - Legal Proceedings...................................... 16 Item 2 - Changes in Securities.................................. 16 Item 3 - Defaults Upon Senior Securities........................ 16 Item 4 - Submission of Matters to a Vote of Security Holders.... 16 Item 5 - Other Information...................................... 16 Item 6 - Exhibits and Reports on Form 8-K....................... 16 Signatures...................................................... 18 -2- PART I - Financial Information Item 1. Financial Statements (Unaudited) M.S. Carriers, Inc. Consolidated Balance Sheets
June 30 December 31 1999 1998 ------------------------------------- (Unaudited) Assets Current assets: Cash and cash equivalents $ 612,693 $ 1,465,303 Accounts receivable: Trade, net 64,309,882 54,892,449 Officers and employees 1,713,797 1,285,890 ------------------------------------- 66,023,679 56,178,339 Deferred income taxes 7,318,000 7,143,000 Prepaid expenses and other 10,786,520 9,436,180 ------------------------------------- Total current assets 84,740,892 74,222,822 Property and equipment: Land and land improvements 8,563,092 6,804,552 Buildings 31,507,134 30,128,055 Revenue equipment 472,469,301 444,639,971 Service equipment and other 45,237,275 43,202,780 Construction in progress 4,009,831 2,421,531 ------------------------------------- 561,786,633 527,196,889 Less accumulated depreciation and amortization 143,669,104 128,045,907 ------------------------------------- 418,117,529 399,150,982 Other assets 12,972,636 10,635,682 ------------------------------------- Total assets $515,831,057 $484,009,486 ------------------------------------- -------------------------------------
See accompanying notes. -3- M.S. Carriers, Inc. Consolidated Balance Sheets (continued)
June 30 December 31 1999 1998 -------------------------------------- (Unaudited) Liabilities and stockholders' equity Current liabilities: Trade accounts payable $ 6,229,957 $ 14,856,055 Accrued compensation and related costs 9,308,446 5,066,654 Accrued expenses 17,307,506 11,729,668 Claims payable 18,543,779 18,072,814 Income taxes payable 2,984,120 2,943,883 Current maturities of long-term debt 25,279,922 27,214,227 -------------------------------------- Total current liabilities 79,653,730 79,883,301 Long-term debt, less current maturities 160,129,176 146,595,170 Deferred income taxes 57,833,520 53,777,739 Stockholders' equity: Common stock Authorized shares - 20,000,000 Issued and outstanding shares - 12,287,601 at June 30, 1999 and 12,260,101 at December 31, 1998 122,876 122,601 Additional paid-in capital 65,761,954 65,269,015 Retained earnings 154,467,310 140,365,314 Cumulative other comprehensive loss (2,137,509) (2,003,654) -------------------------------------- Total stockholders' equity 218,214,631 203,753,276 -------------------------------------- Total liabilities and stockholders' equity $515,831,057 $484,009,486 -------------------------------------- --------------------------------------
See accompanying notes. -4- M.S. Carriers, Inc. and Subsidiaries Consolidated Statements of Income (Unaudited)
Three Months Ended Six Months Ended June 30 June 30 1999 1998 1999 1998 ----------------------------------------------------------------- Operating revenues $153,596,736 $133,624,361 $296,411,211 $250,828,186 Operating expenses: Salaries, wages and benefits 45,412,447 41,100,993 89,710,562 77,556,812 Operations and maintenance 23,436,715 21,398,722 46,310,696 40,797,478 Taxes and licenses 3,168,266 3,016,532 6,855,587 5,562,254 Insurance and claims 5,482,793 5,456,263 10,283,413 10,651,067 Communications and utilities 2,073,928 1,663,163 3,747,396 3,283,108 Depreciation and amortization 14,965,941 11,573,848 29,562,807 22,921,696 Gain on disposals of revenue equipment (333,460) (221,818) (1,146,797) (198,717) Rent and purchased transportation 43,339,037 35,759,531 82,189,814 67,342,680 Other 1,388,888 1,068,278 2,905,574 1,748,030 ----------------------------------------------------------------- Total operating expenses 138,934,555 120,815,512 270,419,052 229,664,408 ----------------------------------------------------------------- Operating income 14,662,181 12,808,849 25,992,159 21,163,778 Other expense (income): Interest expense 2,936,302 2,265,073 5,836,922 3,902,705 Other (1,248,666) (394,799) (1,708,322) (591,885) ----------------------------------------------------------------- 1,687,636 1,870,274 4,128,600 3,310,820 ----------------------------------------------------------------- Income before income taxes 12,974,545 10,938,575 21,863,559 17,852,958 Income taxes 4,605,963 3,992,579 7,761,563 6,516,329 ----------------------------------------------------------------- Net income $ 8,368,582 $ 6,945,996 $ 14,101,996 $ 11,336,629 ----------------------------------------------------------------- ----------------------------------------------------------------- Basic earnings per share $0.68 $0.57 $1.15 $0.93 ----------------------------------------------------------------- ----------------------------------------------------------------- Diluted earnings per share $0.65 $0.54 $1.10 $0.89 ----------------------------------------------------------------- -----------------------------------------------------------------
See accompanying notes. -5- M.S. Carriers, Inc. Consolidated Statement of Stockholders' Equity (Unaudited) Six Months Ended June 30, 1999
Cumulative Common Stock Paid-In Retained Other Compre- Shares Amount Capital Earnings hensive Loss Total --------------------------------------------------------------------------------- Balance at January 1, 1999 12,260,101 $122,601 $65,269,015 $140,365,314 $(2,003,654) $203,753,276 Net income 14,101,996 14,101,996 Exercise of employee stock options 27,500 275 492,939 493,214 Equity adjustment from foreign currency translation (133,855) (133,855) --------------------------------------------------------------------------------- Balance at June 30, 1999 12,287,601 $122,876 $65,761,954 $154,467,310 $(2,137,509) $218,214,631 --------------------------------------------------------------------------------- ---------------------------------------------------------------------------------
See accompanying notes. -6- M.S. Carriers, Inc. and Subsidiaries Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30 1999 1998 ----------------------------------------- Operating activities Net income $14,101,996 $11,336,629 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 29,562,807 22,921,696 Gain on disposals of revenue equipment (1,146,797) (198,717) Provision for deferred income taxes 3,880,781 3,213,267 Changes in operating assets and liabilities: Accounts receivable (9,845,340) (7,694,266) Current and other assets (3,821,149) (4,118,890) Trade accounts payable (8,626,098) 1,015,201 Other current liabilities 10,330,832 9,065,223 ----------------------------------------- (20,335,036) 24,203,514 Net cash provided by operating activities 34,437,032 35,540,143 Investing activities Purchases of property and equipment (50,443,566) (58,873,872) Proceeds from disposals of property and equipment 15,307,034 20,756,508 Business acquisition (6,956,000) ----------------------------------------- Net cash used in investing activities (35,136,532) (45,073,364) Financing activities Net change in revolving line of credit and proceeds from long-term debt 12,411,455 18,823,146 Proceeds from exercise of stock options 493,214 1,081,781 Principal payments on long-term debt obligations (13,057,779) (10,228,480) ----------------------------------------- Net cash provided by (used in) financing activities (153,110) 9,676,447 ----------------------------------------- Increase (decrease) in cash and cash equivalents (852,610) 143,226 Cash and cash equivalents at beginning of period 1,465,303 351,919 ----------------------------------------- Cash and cash equivalents at end of period $ 612,693 $ 495,145 ----------------------------------------- -----------------------------------------
See accompanying notes. -7- M.S. Carriers, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) June 30, 1999 1. Basis of Presentation The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six month period ended June 30, 1999 are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. For further information and a listing of the Company's significant accounting policies, refer to the financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1998. 2. Net Income Per Common Share
Three Months Ended Six Months Ended June 30 June 30 1999 1998 1999 1998 ------------------------------------------------- Numerator: Net income available to common shareholders $8,368,582 $6,945,996 $14,101,996 $11,336,629 ------------------------------------------------- ------------------------------------------------- Denominator: Weighted-average shares for basic earnings per share 12,285,315 12,256,486 12,283,292 12,248,192 Dilutive employee stock options 614,001 617,941 579,242 553,489 ------------------------------------------------- Adjusted weighted- average shares for diluted earnings per share 12,899,316 12,874,427 12,862,534 12,801,681 ------------------------------------------------- ------------------------------------------------- Basic earnings per share $0.68 $0.57 $1.15 $0.93 ------------------------------------------------- ------------------------------------------------- Diluted earnings per share $0.65 $0.54 $1.10 $0.89 ------------------------------------------------- -------------------------------------------------
-8- 3. 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. Summarized segment information is as follows: Three Months Ended Six Months Ended June 30 June 30 1999 1998 1999 1998 ----------------------------------------------------- (in thousands) (in thousands) Operating Revenues: Trucking $140,819 $121,308 $271,715 $227,501 Logistics 16,300 15,007 31,655 29,001 Intersegment eliminations (3,522) (2,691) (6,959) (5,674) ----------------------------------------------------- $153,597 $133,624 $296,411 $250,828 ----------------------------------------------------- ----------------------------------------------------- Operating Income: Trucking $ 14,157 $ 11,714 $24,979 $19,482 Logistics 505 1,095 1,013 1,682 ----------------------------------------------------- $ 14,662 $ 12,809 $25,992 $21,164 ----------------------------------------------------- -----------------------------------------------------
-9- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following table sets forth the percentage relationship of revenue and expense items to operating revenues for the periods indicated.
Percentage of Operating Revenues Three Months Six Months Ended June 30 Ended June 30 1999 1998 1999 1998 ------------------------------------- Operating revenues 100.0% 100.0% 100.0% 100.0% Operating expenses: Salaries, wages and benefits 29.6% 30.7% 30.3% 30.9% Operations and maintenance 15.3% 16.0% 15.6% 16.3% Taxes and licenses 2.1% 2.3% 2.3% 2.2% Insurance and claims 3.6% 4.1% 3.5% 4.3% Communications and utilities 1.3% 1.2% 1.2% 1.3% Depreciation and amortization 9.7% 8.7% 10.0% 9.1% Gain on disposals of revenue equipment (.2%) (.2%) (.4%) (.1%) Rent and purchased transportation 28.2% 26.8% 27.7% 26.9% Other .9% .8% 1.0% .7% ------------------------------------- Total operating expenses 90.5% 90.4% 91.2% 91.6% ------------------------------------- Operating income 9.5% 9.6% 8.8% 8.4% Interest expense 1.9% 1.7% 2.0% 1.5% Other income (.8%) (.3%) (.6%) (.2%) ------------------------------------- Income before income taxes 8.4% 8.2% 7.4% 7.1% Income taxes 3.0% 3.0% 2.6% 2.6% ------------------------------------- Net income 5.4% 5.2% 4.8% 4.5% ------------------------------------- -------------------------------------
-10- Results of Operations Operating revenues for the first six months of 1999 increased $45.6 million, or 18.2%, to $296.4 million compared with $250.8 million for the same period in the prior year. For the quarter ended June 30, 1999, operating revenues increased $20.0 million, or 15.0%, to $153.6 million compared with $133.6 million for the same quarter of 1998. These increases in revenues were due primarily to increased capacity and increased trucking revenues. The Company's fleet increased to 4,003 tractors at June 30, 1999 from 3,401 at June 30, 1998, an increase of 602 tractors. The sources of the Company's operating revenues were as follows:
Three Months Ended Six Months Ended June 30 June 30 1999 1998 1999 1998 ------------------------------------------ (in thousands) (in thousands) Trucking Revenues: Domestic Irregular Route $ 89,798 $ 80,848 $172,771 $157,366 International Irregular Route(1) 32,433 29,555 62,143 52,433 Dedicated Route 18,588 10,905 36,801 17,702 ------------------------------------------ Total Trucking Revenues $140,819 $121,308 $271,715 $227,501 Logistics Revenues 16,300 15,007 31,655 29,001 Intersegment Eliminations (3,522) (2,691) (6,959) (5,674) ------------------------------------------ Total Operating Revenues $153,597 $133,624 $296,411 $250,828 ------------------------------------------ ------------------------------------------
(1) The definition of International Irregular Route Trucking Revenues has been changed to include loads originating or terminating at Laredo, TX, Brownsville, TX, El Paso, TX, Nogales, AZ, San Diego, CA, and Calexico, CA. Revenues in the International Irregular Route Trucking and the Domestic Irregular Route Trucking categories have been restated for 1998 to conform with this definition. The operating ratio (operating expenses as a percentage of operating revenues) for the trucking and logistics segments and the Company's total business were as follows:
Three Months Ended Six Months Ended June 30 June 30 1999 1998 1999 1998 --------------------------------------------- Trucking Segment 89.9% 90.3% 90.8% 91.4% Logistics Segment 96.9% 92.7% 96.8% 94.2% Total Company 90.5% 90.4% 91.2% 91.6%
-11- Salaries, wages and benefits decreased to 30.3% and 29.6% of operating revenues for the six-month and three-month periods ending June 30, 1999, from 30.9% and 30.7% for the same periods in 1998. These decreases were due primarily to the increased use of owner-operators and increased logistics revenues in 1999. The Company had 1,176 owner-operators at June 30, 1999 compared to 887 at June 30, 1998. Operations and maintenance expenses decreased to 15.6% and 15.3% of operating revenues for the six-month and three-month periods ending June 30, 1999 from 16.3% and 16.0% for the same periods in 1998. These decreases were due primarily to the increased use of owner-operators and increased logistics revenues in 1999. Insurance and claims decreased to 3.5% and 3.6% of operating revenues for the six-month and three-month periods ended June 30, 1999 from 4.3% and 4.1% for the same periods ended June 30, 1998. These decreases were due primarily to improved accident claims experience during 1999. Depreciation and amortization was 10.0% of operating revenues for the first six months of 1999 compared to 9.1% for the same period in 1998 and 9.7% of operating revenues for the quarter ended June 30, 1999, compared to 8.7% for the same quarter of 1998. These increases were attributable primarily to the increased use of leased owner-operators during 1999. The Company capitalizes the tractors which are leased to the owner-operators and depreciate the same. The Company had 340 leased owner-operators at June 30, 1999 compared to 117 at June 30, 1998. Rent and purchased transportation increased to 27.7% of operating revenues in the first six months of 1999 compared to 26.9% for the same period of 1998 primarily as a result of the increased use of owner- operators by the Company and increased expenses relating to logistics operations. Rent and purchased transportation increased to 28.2% of operating revenues for the quarter ended June 30, 1999, from 26.8% for the same quarter in 1998 for the same reasons. Interest expense was $5,836,922 and $2,936,302 for the six-month and three-month periods ended June 30, 1999 compared to $3,902,705 and $2,265,073 for the same periods in 1998. These increases in interest expense were due primarily from average debt outstanding being significantly higher during 1999 as compared to 1998. Other income was $1,248,666 for the quarter ended June 30, 1999 compared to $394,799 for the same quarter of 1998. This increase in other income was attributable primarily to Transportes Easo S.A. de C.V., a Mexican trucking company in which the Company has a 50% investment. Liquidity and Capital Resources The Company's business has required significant investment in new equipment and office and terminal facilities. The Company has financed these investments largely from cash provided by operating activities, secured and unsecured borrowings, and unsecured credit facilities during the past three years. During the six month period ending June 30, 1999, the Company had expenditures, net of equipment sales, of $35.1 million for purchases of property and equipment. The Company funded these purchases of property and equipment through cash on hand and cash provided by operating activities. Net cash provided by operating activities was $34.4 million. -12- The Company has bank lines of credit providing for borrowings of up to $80 million, with interest at the lower of the bank's corporate prime rate or the 30-day LIBOR rate plus .45%. At June 30, 1999 there was $71.0 million outstanding under these lines of credit. Management expects to maintain these lines of credit for an indefinite period. The Company expects to finance its normal operating requirements and planned revenue equipment purchases through cash provided by operating activities, the Company's bank lines of credit and secured borrowings. In the future, the Company will continue to have significant capital requirements, which may require the Company to seek additional borrowings or to access capital markets. The availability of debt financing or equity capital will depend upon the Company's financial condition and results of operations as well as prevailing market conditions and other factors over which the Company has little or no control. Year 2000 Issues The Company continues to assess the potential impact of the Year 2000 on the Company's internal business systems and operations. The Company's Year 2000 initiatives have included (i) testing and upgrading internal business systems and facilities; (ii) contacting key suppliers, vendors and customers to determine their Year 2000 compliance status; (iii) testing the interfacing of the Company's internal information technology (IT) systems with the IT systems of its principal customers and other third parties with whom the Company has material relationships; and (iv) developing contingency plans. The Company's State of Readiness The Company has completed its assessment of its IT systems for Year 2000 compliance. During this assessment, the Company identified certain software applications that had to be modified or updated for IT systems to be Year 2000 compliant. The Company has obtained or will obtain such modifications and updates. The Company believes that all of its critical IT systems, with one exception, are Year 2000 compliant. The Company anticipates all critical IT systems will be Year 2000 compliant by August 31, 1999. The Company will continue periodic testing and verification that its critical IT systems are Year 2000 compliant. The Company has also assessed and identified embedded technology contained in the Company's non-IT systems. As part of the Company's review of its Year 2000 issues, the Company has developed questionnaires relating to Year 2000 compliance for its significant suppliers and vendors. The Company is obtaining verification of the Year 2000 readiness of this imbedded technology from its vendors and suppliers. The Company continues to follow-up and monitor the Year 2000 compliance progress of its significant suppliers and vendors. During the first quarter of 1999, the Company commenced testing the interfacing of the Company's IT systems with the IT systems of certain of its principal customers and other third parties with whom the Company has material relationships. The Company will continue this testing in an effort to minimize operating disruptions due to Year 2000 issues. At present, the Company has not identified any material customer or vendor which will not be Year 2000 compliant. -13- Estimated Costs to Address Year 2000 Issues To date, costs incurred in connection with Year 2000 issues have not been material. Management estimates that the total Year 2000 project costs will not have a material impact on the Company's results of operation, liquidity or financial condition. Except for expenditures for capital items, Year 2000 project costs are being expensed and are funded through cash from operations. The Company has not yet deferred any IT project due to its Year 2000 efforts. Risks of the Company's Year 2000 Issues Virtually every aspect of the Company's trucking and logistics operations might be disrupted if the Company's systems or the systems of the Company's material customers, suppliers or vendors are not Year 2000 compliant. While the Company is attempting to minimize any negative consequences arising from Year 2000 issues, there can be no assurance that Year 2000 issues will not have a material adverse impact on the Company's business, operations or financial condition. Moreover, while the Company expects that upgrades to its IT systems will be completed in a timely manner, there can be no assurances that the Company will not encounter unexpected costs or delays. Further, if any of the Company's significant customers, suppliers or vendors experience business disruptions due to Year 2000 issues, the Company might be adversely affected. At present, the Company is not able to determine whether there would be a material impact on the Company's results of operations, liquidity or financial condition if the Company's material customers and vendors are not Year 2000 compliant. Contingency Plans The Company will formulate a specific contingency plan at that point in time when the Company does not believe that a material customer, supplier or vendor will be Year 2000 compliant. As the Company anticipates that all its material customers, suppliers and vendors will be Year 2000 compliant, the Company has not yet established a specific contingency plan. However, as a general precaution, the Company has documented manual procedures to be implemented if the IT systems of certain of its material customers, suppliers or vendors fail and has made arrangements for its employees to be on call should the Company experience unanticipated disruptions. 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. -14- Item 3. Quantitative And Qualitative Disclosure 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 June 30, 1999, the fair value of the Company's total long-term debt is approximately $185 million, 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 $496,000 at June 30, 1999. At June 30, 1999, the Company had $117.6 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 June 30, 1999 rates for the next twelve months, the increase in interest expense would be approximately $240,000. 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 June 30, 1999. Commodity Derivative Product Exposure The Company has market 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 June 30, 1999 level for the next twelve months, the Company would have an increase in fuel expense of $352,000 as a result of the fuel price swaps on the notional 800,000 gallons per month. -15- PART II - Other Information Item 1. Legal Proceedings The Company is involved in certain ordinary routine litigation incidental to its business. The Company does not expect that the outcome of any of these proceedings will have a material adverse effect upon the Company's operations or its financial position. Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders At the Company's annual meeting of shareholders on May 7, 1999, Michael S. Starnes, James W. Welch, M.J. Barrow, Morris H. Fair and Jack H. Morris, III were re-elected as directors upon the following vote: For Against Abstaining Michael S. Starnes 9,872,263 36,200 35,175 James W. Welch 9,872,263 36,200 35,175 M.J. Barrow 9,872,263 36,200 35,175 Morris H. Fair 9,872,263 36,200 35,175 Jack H. Morris, III 9,872,263 36,200 35,175 No other matters were submitted to a vote of security holders during the second quarter of 1999. Item 5. Other Information None Item 6 - Exhibits and Reports on Form 8-K (a) The exhibits filed as a part of this report are listed below: Exhibit Page Number or Incorporation Number Description By Reference 3(i).1 Restated Charter of M.S. Carriers, Incorporated by reference Inc. from exhibits to the registrant's Registration Statement on Form S-1 (Registration Number 33-12070). -16- 3(i).2 Articles of Amendment to Charter Incorporated by reference of M.S. Carriers, Inc. from exhibits to the registrant's Registration Statement on Form S-3 (Registration Number 33-63280). 3(ii) Amended and Restated By-Laws of M.S. Incorporated by reference Carriers, Inc. from exhibits to the registrant's Registration Statement on Form S-3 (Registration Number 33-63280). 10.1 Incentive Stock Option Plan Incorporated by reference from exhibits to the registrant's Registration Statement on Form S-1 (Registration Number 33-12070). 10.2 Amendment to Incentive Stock Option Incorporated by reference Plan 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 Incorporated by reference Plan from registrant's Proxy Statement dated March 31, 1995. 10.5 Employment Agreements with James W. Incorporated by reference Welch, M.J. Barrow and Robert P. from exhibits to the Hurt registrant's Statement on Form S-1 (Registration Number 33-12070). 10.6 Employment Agreement with Michael S. Incorporated by reference Starnes from exhibits to the registrant's 2nd Quarter 1995 Form 10-Q. -17- 10.7 1996 Stock Option Plan Incorporated by reference from registrant's Proxy Statement dated April 4, 1996 27 Financial Data Schedule NOT INCLUDED WITH PAPER FILING (b) The Company did not file any reports on Form 8-K during the three months ended June 30, 1999. Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. M.S. Carriers, Inc. (Registrant) Date: August 16, 1999 /s/ Dwight M. Bassett Dwight M. Bassett Vice President (Chief Accounting Officer of the Company) -18- H:\ELINK\MSCFORMS\2Q10Q99.WP EX-27 2 ART. 5 FINANCIAL DATA SCHEDULES FOR 2ST QTR 10-Q FOR 1999
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AS OF JUNE 30,1999, AND THE RELATED STATEMENTS OF INCOME FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30,1999, AND THE NOTES RELATED THERETO AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1999 APR-01-1999 JUN-30-1999 612,693 0 66,738,514 2,428,632 0 84,740,892 561,786,633 143,669,104 515,831,057 79,653,730 160,129,716 122,876 0 0 218,214,631 515,831,057 0 153,596,736 0 138,934,555 0 0 2,936,302 12,974,545 4,605,963 8,368,582 0 0 0 8,368,582 .68 .65
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