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, 2000
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 15, 2000 was $213,166,460
(based on the closing sale price of $25.234 per share on that date, as reported
by NASDAQ).
As of March 15, 2000, 11,339,101 shares of the registrant's common stock were
outstanding.
Table of Contents
PART I
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . 7
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . 8
Item 4. Submission of Matters to a Vote of Security
Holders . . . . . . . . . . . . . . . . . . . . . . 8
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters . . . . . . . . . . . . 9
Item 6. Selected Financial Data . . . . . . . . . . . . . .10
Item 7. Management's Discussion and Analysis of Results
of Operations and Financial Condition . . . . . . .11
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk . . . . . . . . . . . . . . . . . . . .16
Item 8. Financial Statements and Supplementary Data . . . .16
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosures . . . . . .17
PART III
Item 10. Directors and Executive Officers of the
Registrant . . . . . . . . . . . . . . . . . . . . 17
Item 11. Executive Compensation . . . . . . . . . . . . . . 17
Item 12. Security Ownership of Certain
Beneficial Owners and Management . . . . . . . . . 17
Item 13. Certain Relationships and Related Transactions . . 17
PART IV
Item 14. Exhibits, Financial Statements and Reports
on Form 8-K. . . . . . . . . . . . . . . . . . . . 17
2
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. 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 701 miles in 2000 and 729 miles in 1999. 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 701 miles, most of the
Company's shipments are hauled by one driver rather than two. The relatively
short trips
3
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. 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 $144.6 million in 2000 and $129.7 million in 1999
from freight shipments having either a point of origin or a point of
destination in Mexico. These shipments represented approximately 20.7% and
20.9%, respectively, of total revenues for 2000 and 1999.
The largest 25, 10 and 5 customers accounted for approximately 50%, 31% and
22%, respectively, of the Company's revenues during 2000. Most of these
customers are large, publicly-held companies. One customer, Sears, accounted
for approximately 10% of the Company's revenues during 2000 and 11% in 1999.
No other customer accounted for more than 10% of the Company's revenues during
2000 or 1999.
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
4
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, 2000, the Company employed 5,708 persons, of whom 4,373 were
drivers, 274 were mechanics and other equipment maintenance personnel, and 1061
were support personnel including management and administration. The Company
also leased 678 tractors with qualified drivers from traditional
owner-operators and had 718 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 will experience substantial consolidation
in the near future. In 1997, the Company adopted a strategy of seeking to
acquire small-to-medium trucking companies throughout the United States.
Management of the Company believed 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 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. The Company did not pursue any
acquisition candidates during 2000.
LOGISTICS SERVICES AND TRANSPLACE.COM
In addition to its trucking operations, the Company provided third party
logistics services to its customers. The logistics operations arranged freight
transportation for customers using various carriers, including the Company,
through agency relationships with the customers.
In April 2000, the Company entered into an Operating Agreement with five other
trucking companies to form Transplace.com, an internet-based global
transportation venture that would create a marketplace for shippers and
carriers. Pursuant to the agreement, each of the six companies agreed to
contribute their respective existing logistics operations and cash of up to $5
million to fund
5
working capital. Transplace.com commenced operations effective July 1, 2000.
The Company contributed all of its logistics operations, plus $5 million of
cash, in exchange for an approximate 13% ownership interest in Transplace.com.
The Company accounts for its investment in Transplace.com by the equity method
and its investment in Transplace.com is classified as other long-term assets
on its balance sheet.
The Company's logistics operations generated approximately $35.4 million of
operating revenues and $1.1 million of operating income for the six-month
period ended June 30, 2000. During the six-month period ended December 31,
2000, the Company reported $1.6 million of operating revenues and $0.3 million
of operating income from its logistics operations. These amounts are related
to logistics services that were in process at the time of the Company's
transfer of its logistics operations to Transplace.com.
PROPOSED MERGER WITH SWIFT TRANSPORTATION CO., INC.
On December 11, 2000, the Company entered into a merger agreement with Swift
Transportation Co., Inc. (Swift). Under the agreement, the Company will become
a wholly-owned subsidiary of Swift. In the merger, 1.7 shares of Swift common
stock will be exchanged for each share of M.S. Carriers common stock. The
merger is expected to be accounted for as a pooling-of-interests. Prior to the
merger, the Company expects to offer approximately 300,000 shares of its common
stock. The merger is expected to close in the second quarter of 2001.
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.
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
During the latter part of 1999 and continuing throughout 2000, fuel prices were
significantly higher than those in recent years. The Company implemented a
fuel surcharge program in response to these higher fuel prices which only
partially
6
passed these higher costs to customers. Accordingly, the profitability of the
Company was negatively impacted by high fuel costs in 2000. Fuel prices remain
high at the beginning of 2001. Shortages of fuel or further increases in fuel
prices could have an adverse effect on the operations and profitability of the
Company.
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 utilizing standardized tractors and trailers
manufactured to the Company's specifications. At December 31, 2000, the Company
had 3,733 Company-operated tractors; leased 678 tractors owned by traditional
owner-operators; and had 718 tractors in its leased owner-operator program. The
Company has 14,939 van trailers which are 102 inches wide with a minimum of
109.5 inches of inside height and 132 specialty trailers for a dedicated
account. 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.
7
The following table shows the age of Company-operated tractors and trailers at
December 31, 2000:
Model Year Tractors Trailers
2001 418 855
2000 1,466 2,391
1999 787 3,234
1998 791 3,081
1997 265 1,317
1996 6 1,204
1995 - 2,285
1994 - 600
1993 - 76
1992 - 28
----- -----
3,733 15,071
===== ======
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 2000.
8
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
-----------------------------------
2000
1st Quarter $25.6875 $19.5000
2nd Quarter 25.8750 16.1250
3rd Quarter 20.3750 14.5625
4th Quarter 34.3125 13.6250
1999
1st Quarter $32.9375 $24.8438
2nd Quarter 33.2500 26.6250
3rd Quarter 32.1563 24.3125
4th Quarter 29.0313 22.8125
On March 15, 2001, the last reported sales price of the Company's common stock
was $25.234 per share. At that date, the number of shareholders of record was
161. 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. The merger agreement with Swift contains restrictions on the payment
of cash dividends pending the consummation of the merger which is expected to
occur in the second quarter of 2001.
9
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 2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------
[In Thousands, except per share amounts]
Statement of income data:
Operating revenues $697,522 $620,414 $528,841 $415,933 $340,236
Operating expenses:
Salaries, wages and benefits 236,726 184,676 163,225 133,517 127,237
Operations and maintenance 128,975 97,947 84,260 71,381 66,224
Taxes and licenses 14,690 12,664 11,425 10,708 8,973
Insurance and claims 23,213 21,987 20,833 18,462 18,777
Communications and utilities 9,307 7,908 6,914 5,711 5,209
Depreciation and amortization 70,666 62,401 49,794 40,094 37,010
Gains on disposals of revenue
equipment (1,108) (941) (1,200) (490) (2,397)
Rent and purchased
transportation 166,982 171,572 142,766 99,584 53,014
Other 6,116 5,407 3,901 2,077 2,362
- ------------------------------------------------------------------------------
Total operating expenses 655,567 563,621 481,918 381,044 316,409
- ------------------------------------------------------------------------------
Operating income 41,955 56,793 46,923 34,889 23,827
Other expense (income):
Interest expense 18,244 12,592 8,484 5,775 4,844
Other income (1,447) (3,221) (1,353) (320) (487)
- ------------------------------------------------------------------------------
Income before income taxes 25,158 47,422 39,792 29,434 19,470
Income taxes 8,816 16,835 14,524 10,472 7,031
- ------------------------------------------------------------------------------
Net income $16,342 $30,587 $25,268 $18,962 $12,439
- ------------------------------------------------------------------------------
Basic earnings per share $1.43 $2.49 $2.06 $1.57 $1.03
- ------------------------------------------------------------------------------
Diluted earnings per share $1.42 $2.39 $1.99 $1.54 $1.02
- ------------------------------------------------------------------------------
At December 31 2000 1999 1998 1997 1996
As As As As
Restated* Restated* Restated* Restated*
- ------------------------------------------------------------------------------
[In thousands]
Balance sheet data:
Total assets $620,452 $595,533 $488,009 $366,246 $294,662
Long-term obligations,
less current maturities 207,816 202,405 146,595 79,977 45,373
Stockholders' equity 218,155 228,310 196,853 170,491 147,311
*See Note 17 to the Notes to Consolidated Financial Statements.
10
The following tables set forth data regarding the freight revenues, operations,
revenue equipment and employees of the Company.
2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------
For the year ended December 31:
Operating ratio(1) 94.0% 90.9% 91.1% 91.6% 93.0%
Average number of truckloads
per week(2) 12,717 10,964 9,839 9,385 9,277
Average revenues per
tractor per week(2) $ 2,590 $2,721 $2,702 $2,652 $2,575
Average miles per trip(2) 701 729 689 633 534
Average revenue per mile(2) $ 1.23 $ 1.20 $ 1.20 $ 1.19 $ 1.23
At December 31:
Total tractors operated:
Company owned 3,733 3,283 2,750 2,370 2,046
Owner-Operator owned 678 743 739 711 419
Owner-Operator leased 718 562 264 60 -
- ------------------------------------------------------------------------------
Total tractors 5,129 4,588 3,753 3,141 2,465
Total trailers 15,071 14,369 12,164 8,981 7,156
Number of employees 5,708 4,667 3,336 3,112 2,886
(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 2000 1999 1998
- -----------------------------------------------------------------------------
Operating revenues 100.0% 100.0% 100.0%
Operating expenses:
Salaries, wages and benefits 33.9 29.8 30.9
Operations and maintenance 18.5 15.8 15.9
Taxes and licenses 2.1 2.0 2.2
Insurance and claims 3.3 3.5 3.9
Communications and utilities 1.3 1.3 1.3
Depreciation and amortization 10.1 10.1 9.4
Gains on disposals of revenue
equipment (0.2) (0.2) (0.2)
Rent and purchased
transportation 23.9 27.7 27.0
Other 1.1 0.9 0.7
- -----------------------------------------------------------------------------
Total operating expenses 94.0 90.9 91.1
- ------------------------------------------------------------------------------
Operating income 6.0 9.1 8.9
Other expense (income):
Interest expense 2.6 2.0 1.6
Other income (0.2) (0.5) (0.2)
- ------------------------------------------------------------------------------
Income before income taxes 3.6 7.6 7.5
Income taxes 1.3 2.7 2.7
- ------------------------------------------------------------------------------
Net income 2.3% 4.9% 4.8%
- ------------------------------------------------------------------------------
11
The sources of the Company's operating revenues were as follows:
For the year ended December 31 2000 1999 1998
- -----------------------------------------------------------------------------
[in Thousands]
Trucking Revenues:
Domestic Irregular Route $410,264 $355,083 $316,236
International Irregular Route(1) 144,589 129,704 112,211
Dedicated Route 107,609 83,978 53,203
- ------------------------------------------------------------------------------
Total Trucking Revenues 662,462 568,765 481,650
Logistics Revenues 36,952 68,214 60,939
Intersegment Eliminations and Other (1,892) (16,565) (13,748)
- -----------------------------------------------------------------------------
Total Operating Revenues $697,522 $620,414 $528,841
=============================================================================
(1) International Irregular Route includes loads originating or terminating in
Laredo, TX, Brownsville, TX, El Paso, TX, Nogales, AZ, San Diego, CA and
Calexico, CA.
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 2000 1999 1998
- ------------------------------------------------------------------------------
Trucking Segment 93.9% 90.4% 90.8%
Logistics Segment 96.2% 97.0% 96.1%
Total Company 94.0% 90.9% 91.1%
2000 COMPARED TO 1999
Operating revenues grew 12.4% to $698 million in 2000 from $620 million in
1999. The Company's increase in revenues was due primarily to increased
capacity and increased trucking revenues. Total trucking revenues during 2000
increased 16.5% compared to 1999. The Company's fleet, including owner-
operators, increased to 5,129 tractors at December 31, 2000 from 4,588 at
December 31, 1999, an increase of 541 tractors.
Logistics revenues during 2000 decreased 45.8% compared to 1999 as a result of
the contribution of the Company's logistics operations to Transplace.com in
July 2000 in exchange for an ownership interest in Transplace.com. The Company
accounts for its investment in Transplace.com by the equity method and its
investment in Transplace.com is classified as other long-term assets on the
Company's balance sheet.
Revenues per mile increased to $1.23 in 2000 from $1.20 in 1999 as a result of
rate increases implemented in 2000. Average length of haul decreased to 701
miles in 2000 from 729 miles in 1999. Average revenue per tractor per week
decreased to $2,590 in 2000 from $2,721 in 1999. During 2000, there was a
decline in the general truckload freight market and a lower demand for the
Company's services in some of the markets which it serves.
12
The operating ratio (operating expenses as a percentage of operating revenues)
for 2000 was 94.0% compared to 90.9% for 1999. For the trucking segment of the
Company's business, the operating ratio for 2000 was 93.9% compared to 90.4%
in 1999. For the logistics segment of the Company's business, the operating
ratio for 2000 was 96.2% compared to 97.0% for 1999. The Company's logistics
operations were contributed to Transplace.com in July 2000 and the Company is
restricted from engaging in logistics operations in the future.
Salaries, wages and benefits increased to 33.9% of revenues in 2000 compared
to 29.8% in 1999. This increase was due primarily to (i) a significant driver
pay increase implemented in March 2000; and (ii) lower logistics revenues as
a result of the Company's contribution of its logistics operations to
Transplace.com.
Operations and maintenance increased to 18.5% of revenues in 2000 from 15.8%
of revenues in 1999. This increase was due primarily to higher fuel costs and
lower logistics revenues during 2000. Fuel price swaps which the Company
utilized to convert floating fuel prices to fixed fuel prices on a portion of
the Company's monthly fuel requirements throughout 1999 and the first five
months of 2000 expired in May 2000. These swaps had lessened the impact of
higher fuel prices. Further increases in fuel costs, to the extent not offset
by rate increases or fuel surcharges, could have an adverse effect on the
operations and profitability of the Company.
Insurance and claims expense was 3.3% of revenues in 2000 compared to 3.5% of
revenues in 1999. During 2000, the Company modified its method of estimating
and accruing its ultimate cost related to accident, workers' compensation,
cargo and physical damage claims. The Company began applying loss development
factors to its accident and workers' compensation claims history. This new
method results in a more accurate estimate of the Company's ultimate loss from
claims than its prior method. Expenses for workers' compensation claims are
classified as salaries, wages and benefits and expenses for all other claims
are classified as insurance and claims on the Company's income statement. The
new method resulted in a $1.6 million increase to workers' compensation claims
expense during 2000 and restatement of the following balances at December 31,
1997: a decrease in retained earnings of $6.9 million, an increase in claims
payable of $10.9 million, and an increase in deferred tax assets of $4.0
million.
Depreciation and amortization was 10.1% of revenues in 2000 and in 1999.
Increases in depreciation and amortization expenses as a percentage of revenues
attributable to lower logistics revenues in 2000 were offset by the Company's
implementation of a change from a three-year trade cycle to a four-year trade
cycle with respect to Company-owned tractors and the utilization of operating
leases in 2000 to expand the Company's fleet. Expenses relating to operating
leases are recorded as rent and purchased transportation.
Rent and purchased transportation decreased to 23.9% of revenues in 2000 from
27.7% of revenues in 1999. This decrease was due primarily to the contribution
of the Company's logistics operations to Transplace.com in July 2000 as
expenses related to logistics operations were recorded as rent and purchased
transportation.
Interest expense was $18,244,136 in 2000 compared to $12,591,491 in 1999. This
increase was due to (i) an increase in average outstanding debt during 2000 as
compared to 1999; and (ii) higher interest rates during 2000 as compared to
1999. The Company incurred additional debt during 2000 to finance its expanded
operations and the repurchase of 1,270,100 shares of its common stock.
The effective income tax rate decreased to 35.0% in 2000 compared to 35.5% in
1999, as described in Note 7 to the Notes to Consolidated Financial Statements.
13
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.
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 7 to the Notes to Consolidated Financial Statements.
14
LIQUIDITY AND CAPITAL RESOURCES
The Company's business continues to require significant investments in new
revenue equipment and office and terminal facilities. The Company has
historically financed these investments largely from cash provided by operating
activities, secured borrowings, and secured and unsecured credit facilities.
During 2000, the Company began leasing various revenue equipment under
operating leases.
Net cash provided by operating activities was approximately $75.9 million in
2000, $73.1 million in 1999 and $74.3 million in 1998. At December 31, 2000,
the Company has outstanding long-term obligations, including current
maturities, of $273.4 million and future minimum lease payments under
noncancelable operating leases of $71.8 million.
In December 1999, the Company's Board of Directors authorized the repurchase
of up to 1 million shares of the Company's common stock. In June 2000, the
Company's Board of Directors authorized the repurchase of up to an additional
2 million shares of the Company's common stock. The Company purchased
1,270,100 shares of its common stock for approximately $26.9 million during
2000.
In July 2000, Transplace.com commenced operations. The Company contributed all
of its logistics operations and $5 million of cash to Transplace.com in
exchange for an approximate 13% ownership interest in Transplace.com. In
addition, the Company provided various services to Transplace.com under a
shared service agreement, the terms of which expired on December 31, 2000. The
Company had a receivable from Transplace.com of approximately $11 million at
December 31, 2000 for freight, fees related to the shared service agreement and
funding of a portion of Transplace.com's working capital requirements.
Transplace.com established its own credit facilities during the first quarter
of 2001 and paid the $11 million receivable in full. Additional funding of
Transplace.com activities by the Company is not anticipated.
In October 2000, the Company restructured its credit facility with its primary
bank to provide for a $55 million reducing revolving note and a $30 million
revolving note, with interest based on a leverage ratio defined therein and
ranging from the 30-LIBOR rate plus .50% to 1.90% (7.16% at December 31, 2000).
There was approximately $63.5 million outstanding under this credit facility
at December 31, 2000. Management expects to retire the reducing revolving note
through cash provided by operating activities or secured borrowings and expects
to maintain the revolving note for an indefinite period.
In December 2000, the Company entered into a merger agreement with Swift
pursuant to which the Company would become a wholly owned subsidiary of Swift.
The merger is expected to close in the second quarter of 2001. The Company
anticipates that planned revenue equipment purchases and the financing thereof
will be coordinated through Swift following the merger.
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 value 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. In June
2000, the FASB issued SFAS No. 138 which amends certain provisions of SFAS No.
133 and must be adopted concurrently with the Company's adoption of SFAS No.
133. The Company recorded a $1.4 million liability upon adoption of SFAS No.
133 to reflect the fair market
15
value of interest rate swaps. The adoption of SFAS No. 133 has not had a
significant effect on the results from operations or on the financial position
of the Company.
FORWARD-LOOKING STATEMENTS
Certain statements and information included herein constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. This information is in accordance with the Company's current
expectations and is subject to certain risks and uncertainties that could cause
actual results to differ materially from those set forth in the forward-looking
statements. With respect to the Company's financial results these
uncertainties include, without limitation, the following: the Company will have
reasonable success recruiting and retaining experienced drivers and owner
operators at the Company's current compensation level; demand and pricing for
the markets served by the Company will remain at historical levels; fuel will
remain available and without rapid price fluctuations; the Company's accident
experience will remain at historical levels; the Company will be able to
develop and implement operational and financial systems to manage growing
operations; and the Company will be able to obtain financing on acceptable
terms to finance the Company's growth and operations. With respect to the
proposed merger transaction with Swift these uncertainties include, without
limitation, the following: the inability to obtain governmental approvals of
the merger on the proposed terms and schedule; the failure of M.S. Carriers and
Swift stockholders to approve the merger; the risk that the businesses will not
be integrated successfully; the risk that the revenue synergies and costs
savings anticipated from the merger may not be fully realized or may take
longer to realize than expected; disruptions from the merger making it more
difficult to maintain relationships with customers, employees or suppliers; and
increased competition and its effect on pricing, spending, third-party
relationships and revenues.
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, 2000 and 1999, the fair
value of the Company's total long-term debt is approximately $273 million and
$242 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 $446,000 and $351,000 at December 31, 2000 and 1999, respectively.
At December 31, 2000, the Company had $210 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 2000 year-end rates for the whole of
2001, the increase in interest expense for 2001 would be approximately
$929,000. 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, 2000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Financial Statements and Financial Statement
Schedule are included on pages 21 to 39.
16
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
To be provided by amendment.
ITEM 11. EXECUTIVE COMPENSATION
To be provided by amendment.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
To be provided by amendment.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
To be provided by amendment.
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 . . . . . . . . . . . . . 21
Consolidated Balance Sheets. . . . . . . . . . . . . . . 22
Consolidated Statements of Income. . . . . . . . . . . . 24
Consolidated Statements of Stockholders' Equity. . . . . 25
Consolidated Statements of Cash Flows. . . . . . . . . . 26
Notes to Consolidated Financial Statements . . . . . . . 27
(2) Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the Company
is included herein on page 39. 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
2000.
(c) Exhibits.
An Exhibit Index of the exhibits required by Item 601 of Regulation S-K is
included on page 19.
17
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, 2001
Michael S. Starnes Chief Executive Officer and Date
Director
s/ James W. Welch Senior Vice President - March 30, 2001
James W. Welch Marketing and Director Date
s/ M.J. Barrow Senior Vice President - March 30, 2001
M.J. Barrow Finance and Administration, Date
Secretary-Treasurer and Director
s/ Pierce Crockett Controller March 30, 2001
Pierce Crockett Date
s/ Jack H. Morris, III Director March 30, 2001
Jack H. Morris, III Date
s/ Morris H. Fair Director March 30, 2001
Morris H. Fair Date
s/ Edward A. Labry, III Director March 30, 2001
Edward A. Labry, III Date
18
EXHIBIT INDEX
Exhibit
Number Description
3(i).1 Restated Charter of M.S. Carriers, Inc. filed as an exhibit to
Registrant's Registration Statement on Form S-1 (Registration Number
33-12070).
3(i).2 Articles of Amendment to Charter of M.S. Carriers, Inc. filed as an
exhibit to Registrant's Registration Statement on Form S-3
(Registration Number 33-63280).
3(ii) Amended and Restated By-Laws of M.S. Carriers, Inc. filed as an exhibit
to Registrant's Registration Statement on Form S-3 (Registration Number
33-63280).
10.1 Incentive Stock Option Plan of M.S. Carriers, Inc. filed as an exhibit
to Registrant's Registration Statement on Form S-1 (Registration
Number 33-12070).*
10.2 Amendment to Incentive Stock Option Plan of M.S. Carriers, Inc. filed
as an exhibit to Registrant's Registration Statement on Form S-1
(Registration Number 33-12070).*
10.3 1993 Stock Option Plan of M.S. Carriers, Inc. filed as an exhibit to
Registrant's Registration Statement on Form S-3 (Registration Number
33-63280).*
10.4 Non-Employee Directors Stock Option Plan of M.S. Carriers, Inc. filed
as an exhibit to Registrant's Proxy Statement dated March 31, 1995.*
10.5 Employment Agreements with James W. Welch and M.J. Barrow of M.S.
Carriers, Inc. filed as an exhibit to Registrant's Statement on Form
S-1 (Registration Number 33-12070).*
10.6 Employment Agreement with Michael S. Starnes of M.S. Carriers, Inc.
filed as an exhibit to Registrant's Form 10-Q for the quarter ended
June 30, 1995.*
10.7 M.S. Carriers, Inc. 1996 Stock Option Plan filed as an exhibit to
Registrant's Proxy Statement dated April 4, 1996.*
10.8 Operating Agreement of Transplace.com, LLC filed as an exhibit to
Registrant's Form 10-Q for the quarter ended June 30, 2000.
10.9 Initial Subscription Agreement of Transplace.com, LLC filed as an
exhibit to Registrant's Form 10-Q for the quarter ended June 30, 2000.
10.10 Ninth Amended and Restated Loan Agreement with Bank of America, N.A.
filed as an exhibit to Registrant's Form 10-Q for the quarter ended
September 30, 2000.
10.11 Merger Agreement dated December 11, 2000, among Swift Transportation
Co., Inc., Sun Merger, Inc. and M.S. Carriers, Inc. filed herewith.
10.12 Voting Agreement dated December 11,2000, among M.S. Carriers, Inc.,
Jerry and Vicki Moyes Family Trust dated 12/11/87 and Jerry Moyes
filed herewith.
19
10.13 Voting Agreement dated December 11, 2000, among Swift Transportation
Co., Inc., Sun Merger, Inc. and Michael S. Starnes filed herewith.
10.14 First Amendment to Ninth Amended and Restated Loan Agreement with Bank
of America, N.A. filed herewith.
21. Subsidiaries of M.S. Carriers, Inc. filed herewith.
____________
* Indicates a compensation plan.
20
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, 2000 and 1999, and the related consolidated statements
of income, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 2000. 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 audits 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, 2000 and 1999, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000, 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 fairly in all material respects the information set forth
therein.
As more fully described in Note 17, retained earnings and deferred income taxes
at December 31, 1997, have been restated to reflect an increase in claims
payable.
s/ Ernst & Young LLP
Memphis, Tennessee
February 1, 2001
21
M.S. Carriers, Inc.
Consolidated Balance Sheets
December 31
2000 1999
(As Restated)
---------------------------------
Assets
Current assets:
Cash and cash equivalents $ 442,188 $ 242,606
Receivables:
Trade accounts, less allowance for
doubtful accounts of $9,954,000 in
2000 and $7,987,000 in 1999 84,547,281 74,235,169
Affiliate - Transplace.com 11,007,081 -
Officers and employees 1,657,217 1,372,312
---------------------------------
97,211,579 75,607,481
Recoverable income taxes 3,080,972 4,391,692
Deferred income taxes 14,113,152 13,558,000
Prepaid expenses and other 8,590,836 6,627,602
---------------------------------
Total current assets 123,438,727 100,427,381
Property and equipment:
Land and land improvements 13,469,040 8,563,092
Buildings 39,987,066 33,853,177
Revenue equipment 567,967,605 538,170,367
Service equipment and other 56,118,261 50,764,814
Construction in progress 2,895,443 7,051,494
---------------------------------
680,437,415 638,402,944
Accumulated depreciation and amortization 204,637,683 157,129,859
---------------------------------
475,799,732 481,273,085
Other assets 21,213,310 13,832,915
---------------------------------
Total assets $620,451,769 $595,533,381
=================================
22
M.S. Carriers, Inc.
Consolidated Balance Sheets (continued)
December 31
2000 1999
(As Restated)
------------------------------
Liabilities and stockholders' equity
Current liabilities:
Trade accounts payable $ 7,398,017 $ 7,300,275
Accrued compensation and related costs 4,611,314 5,625,679
Other accrued expenses 13,139,878 16,562,822
Claims payable 33,842,957 30,814,990
Current maturities of long-term obligations 65,558,795 39,189,255
------------------------------
Total current liabilities 124,550,961 99,493,021
Long-term obligations, less current maturities 207,816,118 202,404,874
Deferred income taxes 69,929,823 65,325,276
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value:
Authorized shares - 20,000,000
Issued and outstanding shares - 11,168,501
in 2000 and 12,301,601 in 1999 111,685 123,016
Additional paid-in capital 60,567,768 66,222,158
Retained earnings 160,321,332 164,052,739
Notes receivable from officers (851,719) -
Cumulative other comprehensive loss (1,994,199) (2,087,703)
------------------------------
Total stockholders' equity 218,154,867 228,310,210
------------------------------
Total liabilities and stockholders' equity $ 620,451,769 $595,533,381
==============================
See accompanying notes.
23
M.S. Carriers, Inc.
Consolidated Statements of Income
Year ended December 31
2000 1999 1998
---------------------------------------------
Operating revenues $697,521,957 $620,414,137 $528,841,314
Operating expenses:
Salaries, wages and benefits 236,726,123 184,676,598 163,224,933
Operations and maintenance 128,975,476 97,946,624 84,260,614
Taxes and licenses 14,690,488 12,663,778 11,425,054
Insurance and claims 23,212,634 21,986,637 20,832,807
Communications and utilities 9,306,977 7,907,923 6,913,782
Depreciation and amortization 70,665,611 62,400,797 49,794,229
Gains on disposals of revenue
equipment (1,108,415) (940,944) (1,199,851)
Rent and purchased
transportation 166,982,436 171,572,280 142,765,753
Other 6,115,739 5,407,423 3,901,274
---------------------------------------------
655,567,069 563,621,116 481,918,595
---------------------------------------------
Operating income 41,954,888 56,793,021 46,922,719
Other expense (income):
Interest expense 18,244,136 12,591,491 8,483,852
Other (1,447,566) (3,220,837) (1,353,558)
---------------------------------------------
16,796,570 9,370,654 7,130,294
---------------------------------------------
Income before income taxes 25,158,318 47,422,367 39,792,425
Income taxes 8,816,069 16,834,942 14,524,236
---------------------------------------------
Net income $ 16,342,249 $30,587,425 $ 25,268,189
=============================================
Basic earnings per share $1.43 $2.49 $2.06
=============================================
Diluted earnings per share $1.42 $2.39 $1.99
=============================================
See accompanying notes.
24
M.S. Carriers, Inc.
Consolidated Statements of Stockholders' Equity
Notes
Additional Receivable Other
Common Stock Paid-In Retained From Comprehensive
Shares Amount Capital Earnings Officers Income (Loss) Total
-------------------------------------------------------------------------------------------
Balance at January 1, 1998 (As
Restated - Note 17) 12,210,601 $122,106 $64,175,260 $108,197,125 $ - $(2,003,654) $170,490,837
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 (As
Restated - Note 17) 12,260,101 122,601 65,269,015 133,465,314 - (2,003,654) 196,853,276
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 (As
Restated - Note 17) 12,301,601 123,016 66,222,158 164,052,739 - (2,087,703) 228,310,210
Comprehensive income:
Net income 16,342,249 16,342,249
Other comprehensive income:
Foreign currency translation 93,504 93,504
Comprehensive income 16,435,753
Exercise of stock options 137,000 1,370 1,182,849 (851,719) 332,500
Repurchase of common stock (1,270,100) (12,701) (6,837,239) (20,073,656) (26,923,596)
-------------------------------------------------------------------------------------------
Balance at December 31, 2000 11,168,501 $111,685 $60,567,768 $160,321,332 $(851,719) $(1,994,199) $218,154,867
===========================================================================================
See accompanying notes.
25
M.S. Carriers, Inc.
Consolidated Statements of Cash Flows
Year Ended December 31
2000 1999 1998
-------------------------------------------
Operating activities
Net income $ 16,342,249 $ 30,587,425 $ 25,268,189
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 69,977,237 61,898,985 49,580,210
Amortization 688,374 501,812 214,019
Gain on disposals of revenue equipment (1,108,415) (940,944) (1,199,851)
Other (91,113)
Deferred income taxes 4,049,395 9,132,537 (6,021,780)
Changes in operating assets and liabilities:
Accounts receivable (10,597,017) (19,429,143) (10,966,653)
Other (2,127,779) (5,366,207) (3,150,798)
Trade accounts payable 97,742 (7,555,780) 9,407,945
Other current liabilities (1,409,342) 4,290,472 11,253,899
-------------------------------------------
Net cash provided by operating activities 75,912,444 73,119,157 74,294,067
Investing activities
Purchases of property and equipment (82,732,227) (94,177,749) (75,114,762)
Investment in and advances to joint venture (16,007,081)
Proceeds from disposals of property and
equipment 79,195,590 46,049,919 29,754,012
Business acquisitions (17,033,000)
Other (1,500,000)
-------------------------------------------
Net cash used in investing activities (21,043,718) (48,127,830) (62,393,750)
Financing activities
Proceeds from long-term obligations 3,498,617
Net change in line of credit obligations 4,798,546 171,454 10,102,811
Principal payments on long-term obligations (32,876,594) (30,837,653) (21,983,994)
Repurchase of common stock (26,923,596)
Proceeds from issuance of common stock 332,500 953,558 1,094,250
-------------------------------------------
Net cash used in financing activities (54,669,144) (26,214,024) (10,786,933)
-------------------------------------------
Increase (decrease) in cash and cash equivalents 199,582 (1,222,697) 1,113,384
Cash and cash equivalents at beginning of year 242,606 1,465,303 351,919
-------------------------------------------
Cash and cash equivalents at end of year $442,188 $242,606 $1,465,303
===========================================
Notes issued to officers for the exercise of
stock options $ 851,719 $ - $ -
===========================================
See accompanying notes.
26
M.S. Carriers, Inc.
Notes to Consolidated Financial Statements
December 31, 2000
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.
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 balance sheets and is approximately $6,140,000 and
$5,279,000 at December 31, 2000 and 1999, respectively. The Company recognized
other income of approximately $1,084,000 in 2000, $2,905,000 in 1999 and
$955,000 in 1998 from its investment in EASO. The Company accounts for its
approximate 13% investment in Transplace.com (see Note 16) by the equity
method. This investment is classified as other long-term assets in the
consolidated balance sheets and was $5,000,000 at December 31, 2000. The
Company recognized other income of approximately $250,000 in 2000 from its
investment in Transplace.com. At December 31, 2000, approximately $5.25
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 3-8 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.
27
Goodwill and Other Intangible Assets
Goodwill and other intangible assets of $5,413,211 and $5,373,211 are included
in other long-term assets at December 31, 2000 and 1999, 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 $1,401,684 and $715,831 at December 31, 2000 and 1999, 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. Foreign currency translation is the only component of the Company's
other comprehensive income (loss).
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 accounting
principles generally accepted in the United States 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).
28
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.
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 would be 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. In June 2000, the FASB issued SFAS No. 138
which amends certain provisions of SFAS No. 133 and must be adopted
concurrently with the Company's adoption of SFAS No. 133. The Company recorded
a $1.4 million liability upon adoption of SFAS No. 133 to reflect the fair
market value of interest rate swaps. The adoption of SFAS No. 133 has not had
a significant effect on the results of operations or financial position of the
Company.
Reclassifications
Certain amounts in the 1999 financial statements have been reclassified to
conform with the 2000 financial statement presentation.
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.
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
29
acquisitions had occurred at the beginning of 1998 would not differ materially
from the reported results.
4. Long-Term Obligations
Long-term obligations consist of the following:
December 31
2000 1999
--------------------------------------
Capitalized lease obligations $206,331,296 $179,349,058
Equipment loan 3,498,617 3,498,617
Revolving notes 63,545,000 -
Revolving lines of credit - 58,746,454
--------------------------------------
273,374,913 241,594,129
Less current maturities (65,558,795) (39,189,255)
--------------------------------------
$207,816,118 $202,404,874
======================================
In October, 2000, the Company amended and restated its line of credit
agreements to form two separate notes. These notes consist of a $55,000,000
reducing revolving note and a $30,000,000 revolving note. Interest is charged
under both notes based on the total leverage ratio of the Company, as defined
in the loan agreement, and ranges from 30-day LIBOR plus .50% - 1.90% (7.16%
at December 31, 2000). The reducing revolving note is reduced by $5,000,000
each quarter beginning on December 31, 2000, until its maturity on October 15,
2003. The revolving note matures on June 1, 2002. Both notes are secured by
Company trailers with a net book value of $92,963,000 at December 31, 2000. The
balance of these notes as of December 31, 2000, is $63,545,000.
At December 31, 1999, the Company had 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%. The balance outstanding under this
line of credit was $38,746,454 at December 31, 1999. At December 31, 1999, the
Company also maintained two separate agreements with banks that each provided
for borrowings of up to $10,000,000 under unsecured lines of credit. The lines
of credit bore interest at varying rates based upon the lower of the bank's
prime rate or the 30-day LIBOR rate plus .45%. The balance outstanding under
both lines of credit was an aggregate of $20,000,000 at December 31, 1999.
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% (7.76% at December 31, 2000). Interest
payments are to be made quarterly for the term of the note, with a single
principal payment being due in November, 2004.
The Company entered into capital lease agreements to lease revenue equipment
with a fair value of approximately $59,859,000 in 2000, $94,952,000 in 1999 and
$86,802,000 in 1998. 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, 2000 and
1999, of approximately $202,270,000 and $156,922,000, respectively, which is
net of accumulated amortization of $53,661,000 and $52,286,000, respectively,
and bear interest at fixed and variable rates ranging from 3.1% to 7.8%. The
weighted average interest rate on the Company's fixed-rate capital leases is
approximately 5.56% at December 31, 2000.
30
At December 31, 2000, 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 funded debt to earnings before interest, taxes, depreciation and
amortization, and earnings before interest, taxes, depreciation and
amortization to total debt service.
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, 2000:
Capitalized
Long-Term Lease
Debt Obligations
---------------------------------
2001 $14,805,000 $ 60,988,170
2002 38,740,000 71,981,029
2003 10,000,000 57,752,340
2004 3,498,617 23,894,385
2005 17,089,138
---------------------------------
67,043,617 231,705,062
Amounts representing interest 25,373,766
---------------------------------
Total long-term obligations $67,043,617 $ 206,331,296
=================================
The Company paid interest of approximately $17,067,000 in 2000, $12,422,000 in
1999, and $8,344,000 in 1998.
The Company has outstanding letters of credit primarily for workers'
compensation and accident liability self-insurance of $11,300,000 at December
31, 2000.
5. Operating Leases
The Company began leasing various revenue equipment under operating leases in
2000. Rental expense was approximately $4,569,000 for 2000. At December 31,
2000, the future minimum lease payments under noncancelable operating leases
are as follows:
2001 $12,358,608
2002 12,358,608
2003 18,800,514
2004 23,323,946
2005 4,914,079
--------------
$ 71,755,755
==============
6. Claims Payable
Claims payable represent accruals for the uninsured portion of pending accident
liability, workers' compensation, physical damage, cargo damage and employee
health claims. These accruals are estimated based on management's evaluation
of the nature and severity of individual claims and an estimate of future
claims development based on the Company's past claims experience. Claims
payable were restated as of December 31, 1997 (See Note 17).
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
31
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.
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.
7. 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
2000 1999 1998
---------------------------------------------
Current:
Federal $ 11,820,590 $ 6,571,326 $ 17,616,578
State 1,044,874 1,131,079 2,929,438
---------------------------------------------
12,865,464 7,702,405 20,546,016
Deferred:
Federal (3,521,421) 8,404,084 (5,163,198)
State (527,974) 728,453 (858,582)
---------------------------------------------
(4,049,395) 9,132,537 (6,021,780)
---------------------------------------------
$ 8,816,069 $16,834,942 $14,524,236
=============================================
The effective tax rate varied from the statutory federal income tax rate of 35%
as follows:
Year ended December 31
2000 1999 1998
-------------------------------------------
Taxes at statutory rate $ 8,805,411 $16,597,828 $ 13,927,349
State income taxes, net of
federal tax benefits 332,780 1,208,695 1,346,056
Other (322,122) (971,581) (749,169)
-------------------------------------------
$ 8,816,069 $16,834,942 $ 14,524,236
===========================================
Income tax payments (net of refunds) were approximately $3,391,000 in 2000,
$14,832,000 in 1999, and $13,078,000 in 1998.
Significant components of the Company's deferred tax liabilities and assets as
of December 31 are as follows:
2000 1999
(As Restated)
----------------------------------
Deferred tax liabilities:
Property and equipment $71,084,091 $65,325,337
Deferred tax assets:
Claims payable 12,871,830 11,720,173
Other-net 2,395,590 1,837,888
----------------------------------
Total deferred tax assets 15,267,420 13,558,061
----------------------------------
Net deferred tax liabilities $ 55,816,671 $51,767,276
==================================
32
8. 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 $1,590,000 in
2000, $1,571,000 in 1999, and $1,318,000 in 1998.
9. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings
per share:
Year Ended December 31
2000 1999 1998
-------------------------------------------
Numerator:
Net income available to common
stockholders $ 16,342,249 $ 30,587,425 $ 25,268,189
===========================================
Denominator:
Weighted-average shares for
basic earnings per share 11,425,063 12,291,349 12,254,067
Dilutive employee stock options 113,594 524,266 475,339
-------------------------------------------
Adjusted weighted-average shares
for diluted earnings per share 11,538,657 12,815,615 12,729,406
===========================================
Basic earnings per share $ 1.43 $ 2.49 $ 2.06
===========================================
Diluted earnings per share $ 1.42 $ 2.39 $ 1.99
===========================================
Stock options that could potentially dilute basic earnings per share in the
future, which were not included in the fully diluted computation because they
would have been anti-dilutive, were 861,103 at December 31, 2000.
10. Stock Options
The 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
33
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 2000, 1999, and 1998, respectively: risk-free interest rates
of 7.2% in 2000, 6.9% in 1999, and 5.7% in 1998, a volatility factor of the
expected market price of the Company's common stock of .36 in 2000, .37 in
1999, and .30 in 1998, 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
2000 1999 1998
--------------------------------------------
Net income $ 16,342,249 $ 30,587,425 $ 25,268,189
Pro forma compensation
expense (2,138,266) (1,925,059) (1,308,983)
--------------------------------------------
Pro forma net income $ 14,203,983 $ 28,662,366 $ 23,959,206
============================================
Pro forma basic earnings
per share $ 1.31 $ 2.39 $ 1.98
============================================
Pro forma diluted earnings
per share $ 1.30 $ 2.29 $ 1.90
============================================
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, nonvested awards.
34
A summary of the Company's stock option plan activity is as follows:
Number of Shares
Under Weighted-Average
Option Exercise Price
-----------------------------------
Balance at January 1, 1998 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
Granted 171,000 20.06
Exercised (137,000) 8.63
Canceled (317,000) 24.82
-----------------------------------
Balance at December 31, 2000 1,756,500 $21.86
===================================
Options exercisable were 486,726, 513,526, and 315,500 at December 31, 2000,
1999, and 1998, respectively. The weighted-average fair value of options
granted during 2000, 1999, and 1998 was $10.50, $14.67, and $11.43,
respectively. Exercise prices for options outstanding as of December 31, 2000,
ranged from $15.44 to $34.25. At December 31, 2000, the Company had reserved
438,667 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, 2000:
Exercise Price
-------------------------------
Less Than Greater Than
$25 $25 Total
---------------------------------------
Number of shares under option 1,401,000 355,000 1,756,500
Weighted-average exercise price $19.95 $29.38 $21.86
Weighted-average years of
remaining contractual life 5.89 7.88 6.29
Exercisable options 481,226 5,500 486,726
Weighted-average exercise price
of exercisable options $19.89 $25.59 $19.96
11. 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 to the Company's
financial position or results of operations.
The Company guarantees certain debt obligations of EASO for revenue equipment.
At December 31, 2000, the amount guaranteed was approximately $20.8 million.
The guaranteed obligations have maturity dates from June 1, 2001, to September
1, 2006.
12. 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
35
through open market transactions. The stock repurchase program was authorized
through December 31, 2000. On June 7, 2000, the Board of Directors authorized
an additional two million shares for repurchase. This stock repurchase program
is authorized through December 31, 2001. 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, 2000, the Company had
repurchased 1,270,100 shares under this program.
13. 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 $1.4 million and $2.2 million at December 31, 2000
and 1999, respectively.
14. 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.
Effective July 1, 2000, the Company contributed its logistics operations to
Transplace.com as described in Note 16.
Summarized segment information is shown in the following table:
Year ended December 31
2000 1999 1998
-----------------------------------------
(in thousands)
Operating revenues:
Trucking (including trucking
revenues received from
logistics) $ 662,462 $ 568,765 $ 481,650
Logistics 36,952 68,214 60,939
Elimination of trucking revenues
received from logistics (1,892) (16,565) (13,748)
-----------------------------------------
$ 697,522 $ 620,414 $ 528,841
=========================================
Operating income:
Trucking $ 40,567 $ 54,771 $ 44,546
Logistics 1,388 2,022 2,377
-----------------------------------------
$ 41,955 $ 56,793 $ 46,923
=========================================
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
36
allocating Company resources and evaluating operating performance. The Company
allocated operating overhead costs of approximately $3,312,000, $3,942,000, and
$2,930,000 in 2000, 1999, and 1998, 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 2000,
1999, and 1998 with revenues of $70,264,000 and $69,594,000, and $66,428,000,
respectively.
15. Selected Quarterly Data (Unaudited)
Summarized quarterly data for 2000 and 1999 follows:
2000
March 31 June 30 September 30 December 31
------------------------------------------------------------
Operating revenues $164,169,693 $180,002,316 $176,112,824 $177,237,124
Operating expenses 154,303,193 165,888,067 165,366,526 170,009,283
------------------------------------------------------------
Operating income 9,866,500 14,114,249 10,746,298 7,227,841
Other expense 2,793,740 4,540,490 4,481,365 4,980,975
------------------------------------------------------------
Income before taxes 7,072,760 9,573,759 6,264,933 2,246,866
Income taxes 2,458,472 3,397,264 2,177,689 782,644
------------------------------------------------------------
Net income $ 4,614,288 $ 6,176,495 $ 4,087,244 $ 1,464,222
============================================================
Basic earnings per
share $ 0.39 $ 0.54 $ 0.37 $ 0.13
============================================================
Diluted earnings per
share $ 0.38 $ 0.53 $ 0.37 $ 0.13
============================================================
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 $ 0.47 $ 0.68 $ 0.70 $ 0.64
==============================================================
Diluted earnings per
share $ 0.45 $ 0.65 $ 0.67 $ 0.62
==============================================================
16. Investment in Affiliated Company
In March 2000, the Company, along with five other motor carriers, announced the
intent to contribute its logistics operations into a joint venture,
Transplace.com (TPC). TPC is an internet-based global transportation logistics
company. TPC commenced operations effective July 1, 2000. The Company
contributed all of its logistics operations, plus $5 million of cash, in
exchange for an approximate 13% initial membership interest in TPC. The Company
accounts for its approximate 13% interest in TPC utilizing the equity method
of accounting. The Company's investment in TPC is classified as other assets
on its consolidated
37
balance sheet. No gain or loss was recognized upon formation and contribution
of the logistics operations to TPC. The excess of the Company's share of TPC's
net assets over its cost basis is being amortized over 20 years on a straight-
line basis. Equity in earnings of TPC was not significant in 2000.
The Company's logistics operations generated approximately $35.4 million of
operating revenues and $1.1 million of operating income for the six-month
period ended June 30, 2000. During the six-month period ended December 31,
2000, the Company reported $1.6 million of operating revenues and $0.3 million
of operating income from its logistics operations. These amounts are related
to logistics services that were in process at the time of the Company's
transfer of its logistics operations to TPC.
The Company provided various services to TPC under a shared service agreement,
the terms of which expired on December 31, 2000. The services included the
following: payroll and benefits; accounting; computer system maintenance;
office facilities; and telecommunications. The fees from these services
approximated $2,634,000 in 2000 and were recorded in the consolidated statement
of income as reimbursements of salaries, wages and benefits and other operating
expenses. The Company has a receivable from TPC of $11.0 million at December
31, 2000, for freight, fees related to the shared service agreement and funding
of a portion of TPC's working capital requirements. An additional $309,000 due
from TPC is included in trade accounts receivable for freight services provided
by the Company.
The Company earned revenues of $8,615,000 from TPC in providing transportation
services in the last six months of 2000.
17. Restatement
In 2000, the Company modified its method of estimating and accruing its
ultimate cost related to accident, workers' compensation, cargo and physical
damage claims in accordance with accounting principles generally accepted in
the United States. The Company began applying loss development factors to its
accident and workers' compensation claims history. This new method results in
a more accurate estimate of the Company's ultimate loss from claims than its
prior method.
This new method resulted in a restatement of the following balances at December
31, 1997: a decrease in retained earnings of $6.9 million, an increase in
claims payable of $10.9 million, and an increase in deferred tax assets of $4.0
million. This restatement had no material impact on the 1999 and 1998
consolidated statements of income.
18. Proposed Merger with Swift Transportation Co., Inc.
On December 11, 2000, the Company entered into a merger agreement with Swift
Transportation Co., Inc. (Swift). Under the agreement, the Company will become
a wholly-owned subsidiary of Swift. The merger is expected to be accounted for
as a pooling-of-interests. Prior to the merger, the Company expects to offer
approximately 300,000 shares of its common stock.
38
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, 2000
Deducted from asset accounts:
Allowance for doubtful
accounts receivable $7,986,872 $ 660,000 $1,644,022(2) $336,475 $9,954,419
Year ended December 31, 1999
Deducted from asset accounts:
Allowance for doubtful
accounts receivable $2,418,476 $ 624,912 $5,136,479(2) $192,995 $7,986,872
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
(1)Uncollectible accounts written off, net of recoveries.
(2)The Company recognized an estimate of credits to be issued related to detention charges by reducing operating revenues.
39