UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1998
Commission file Number 0-14781
M.S. CARRIERS, INC.
(Exact name of Registrant as specified in its charter.)
Tennessee 62-1014070
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3171 Director's Row, Memphis, TN 38131
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (901) 332-2500
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of
common stock, as of the latest practical date:
Outstanding common shares at September 30, 1998 - 12,260,101
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M.S. Carriers, Inc.
Index to Form 10-Q
Contents
Part I - Financial Information
Item 1 - Financial Statements (Unaudited)
Consolidated Balance Sheets as of September 30, 1998 and
December 31, 1997............................................. 3
Consolidated Statements of Income for the Three Months Ended
September 30, 1998 and 1997 and the Nine Months Ended
September 30, 1998 and 1997................................... 5
Consolidated Statement of Stockholders' Equity for the Nine
Months Ended September 30, 1998............................... 6
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1998 and 1997............................. 7
Notes to Consolidated Financial Statements...................... 8
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 9
Part II - Other Information
Item 1 - Legal Proceedings...................................... 12
Item 2 - Changes in Securities.................................. 12
Item 3 - Defaults Upon Senior Securities........................ 12
Item 4 - Submission of Matters to a Vote of Security Holders.... 12
Item 5 - Other Information...................................... 13
Item 6 - Exhibits and Reports on Form 8-K....................... 13
Signatures...................................................... 14
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PART I - Financial Information
Item 1. Financial Statements (Unaudited)
M.S. Carriers, Inc. and Subsidiaries
Consolidated Balance Sheets
September 30 December 31
1998 1997
---------------------------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 240,756 $ 351,919
Accounts receivable:
Trade, net 59,705,728 44,551,316
Officers and employees 1,258,330 660,370
---------------------------------------
60,964,058 45,211,686
Recoverable income taxes 4,990,159 4,520,917
Deferred income taxes 6,865,000 5,427,000
Prepaid expenses and other 7,027,042 4,979,826
---------------------------------------
Total current assets 80,087,015 60,491,348
Property and equipment:
Land and land improvements 6,699,774 6,221,032
Buildings 30,128,055 30,128,055
Revenue equipment 394,298,754 326,709,385
Service equipment and other 41,257,441 40,089,062
Construction in progress 4,209,654 114,015
---------------------------------------
476,593,678 403,261,549
Accumulated depreciation and
amortization 121,738,171 106,090,776
---------------------------------------
354,855,507 297,170,773
Other assets 6,474,902 4,584,340
---------------------------------------
Total assets $441,417,424 $362,246,461
=======================================
See accompanying notes.
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M.S. Carriers, Inc. and Subsidiaries
Consolidated Balance Sheets (continued)
September 30 December 31
1998 1997
---------------------------------------
(Unaudited)
Liabilities and stockholders' equity
Current liabilities:
Trade accounts payable $ 5,211,700 $ 5,448,110
Accrued compensation and related
cost 10,274,128 2,343,595
Accrued expenses 12,502,835 8,438,898
Claims payable 18,544,799 14,826,627
Current maturities of
long-term debt 23,315,451 15,737,609
---------------------------------------
Total current liabilities 69,848,913 46,794,839
Long-term debt, less current
maturities 113,723,749 79,977,266
Deferred income taxes 60,910,067 58,083,519
Stockholders' equity:
Common stock, $.01 par value, 122,601 122,106
Authorized shares - 20,000,000
Issued and outstanding shares -
12,260,101 at September 30, 1998 and
12,210,601 at December 31, 1997
Additional paid-in capital 65,269,014 64,175,260
Retained earnings 133,546,734 115,097,125
Equity Adjustment from Foreign
Currency Translation (2,003,654) (2,003,654)
---------------------------------------
Total stockholders' equity 196,934,695 177,390,837
---------------------------------------
Total liabilities and stockholders'
equity $441,417,424 $362,246,461
=======================================
</TALE>
See accompanying notes.
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M.S. Carriers, Inc. and Subsidiaries
Consolidated Statements of Income (Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
1998 1997 1998 1997
-------------------------------------------------------
Operating revenues $137,512,075 $107,465,935 $388,340,261 $301,677,875
Operating expenses:
Salaries, wages and benefits 41,601,135 33,288,290 119,157,947 98,000,840
Operations and maintenance 21,702,749 17,680,798 62,500,227 51,632,095
Taxes and licenses 2,904,232 2,818,984 8,466,486 7,902,127
Insurance and claims 5,413,697 4,933,022 16,064,764 13,888,529
Communications and utilities 1,710,364 1,367,845 4,993,472 3,958,139
Depreciation and amortization 12,733,205 9,908,039 35,654,901 28,939,798
Loss (gain) on disposals of revenue
equipment (448,467) 53,722 (647,184) (8,455)
Rent and purchased transportation 37,789,807 26,624,458 105,132,487 70,616,114
Other 953,911 464,925 2,701,941 1,439,882
-------------------------------------------------------
Total operating expenses 124,360,633 97,140,083 354,025,041 276,369,069
-------------------------------------------------------
Operating income 13,151,442 10,325,852 34,315,220 25,308,806
Other expense (income):
Interest expense 2,135,936 1,739,182 6,038,641 4,342,186
Other (186,036) (68,674) (777,921) (24,572)
-------------------------------------------------------
1,949,900 1,670,508 5,260,720 4,317,614
-------------------------------------------------------
Income before income taxes 11,201,542 8,655,344 29,054,500 20,991,192
Income taxes 4,088,562 3,085,265 10,604,891 7,519,265
-------------------------------------------------------
Net income $ 7,112,980 $ 5,570,079 $ 18,449,609 $ 13,471,927
=======================================================
Common shares and common
stock equivalents 12,702,631 12,589,587 12,757,754 12,554,948
=======================================================
Diluted earnings per share $0.56 $0.44 $1.45 $1.07
=======================================================
See accompanying notes.
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M.S. Carriers, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity (Unaudited)
Nine Months Ended September 30, 1998
Cumulative
Common Stock Paid-In Retained Translation
Shares Amount Capital Earnings Adjustments Total
--------------------------------------------------------------------------------
Balance at January
1, 1998 12,210,601 $122,106 $64,175,260 $115,097,125 ($2,003,654) $177,390,837
Net Income 18,449,609 18,449,609
Exercise of
employee stock
options 49,500 495 1,093,754 1,094,249
--------------------------------------------------------------------------------
Balance at September
30, 1998 12,260,101 $122,601 $65,269,014 $133,546,734 ($2,003,654) $196,934,695
================================================================================
See accompanying notes.
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M.S. Carriers, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended
September 30
1998 1997
--------------------------------------
Operating activities
Net income $ 18,449,609 $13,471,927
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 35,654,901 28,939,798
Gain on disposals of revenue
equipment (647,184) (8,455)
Other 150,174
Provision for deferred income taxes 1,388,548 3,726,462
Changes in operating assets and
liabilities:
Accounts receivable (15,752,372) (9,138,542)
Current and other assets (4,606,568) 2,171,742
Trade accounts payable (236,410) 7,243,158
Other current liabilities 15,712,642 8,770,442
--------------------------------------
31,513,557 41,854,779
--------------------------------------
Net cash provided by operating
activities 49,963,166 55,326,706
Investing activities
Purchases of property and equipment (110,575,006) (72,210,590)
Proceeds from disposals of property
and equipment 28,212,368 17,458,948
Business acquisition (6,956,000)
--------------------------------------
Net cash used in investing
activities (89,318,638) (54,751,642)
Financing activities
Net change in revolving line of credit (4,364,189) (564,437)
Proceeds from exercise of stock
options 1,094,249
Principal payments on long-term debt (16,180,828)
Proceeds from long-term debt 58,695,077
--------------------------------------
Net cash provided by
financing activities 39,244,309 (564,437)
--------------------------------------
Increase (decrease) in cash and cash
equivalents (111,163) 10,627
Cash and cash equivalents at
beginning of period 351,919 1,153,993
--------------------------------------
Cash and cash equivalents at end
of period $ 240,756 $ 1,164,620
======================================
See accompanying notes.
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M.S. Carriers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
September 30, 1998
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results
for the nine-month period ended September 30, 1998 are not necessarily
indicative of the results that may be expected for the year ended December
31, 1998. For further information and a listing of the Company's significant
accounting policies, refer to the financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year ended
December 31, 1997.
2. Net Income Per Common Share
Three Months Ended Nine Months Ended
September 30 September 30
1998 1997 1998 1997
-----------------------------------------------------
Numerator:
Net income available to
common shareholders $7,112,980 $5,570,079 $18,449,609 $13,471,927
=====================================================
Denominator:
Weighted-average shares
for basic earnings per
share 12,259,905 12,009,633 12,252,139 12,009,633
Dilutive employee stock
options 442,726 579,954 505,615 545,315
-----------------------------------------------------
Adjusted weighted-
average shares for
diluted earnings per
share 12,702,631 12,589,587 12,757,754 12,554,948
=====================================================
Basic earnings per
share $0.58 $0.46 $1.51 $1.12
=====================================================
Diluted earnings per
share $0.56 $0.44 $1.45 $1.07
=====================================================
-8-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following table sets forth the percentage relationship of revenue and
expense items to operating revenues for the periods indicated.
Percentage of Operating Revenues
Three Months Ended Nine Months Ended
September 30 September 30
1998 1997 1998 1997
--------------------------------------------------
Operating revenues 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Salaries, wages and benefits 30.2% 31.0% 30.7% 32.5%
Operations and maintenance 15.8% 16.4% 16.1% 17.1%
Taxes and licenses 2.1% 2.6% 2.2% 2.6%
Insurance and claims 3.9% 4.6% 4.1% 4.6%
Communications and utilities 1.2% 1.3% 1.3% 1.3%
Depreciation and amortization 9.3% 9.2% 9.2% 9.6%
Loss (gain) on disposals of
revenue equipment (0.3%) 0.1% (0.2%) -
Rent and purchased 27.5% 24.8% 27.1% 23.4%
transportation
Other 0.7% 0.4% 0.7% 0.5%
--------------------------------------------------
Total operating expenses 90.4% 90.4% 91.2% 91.6%
--------------------------------------------------
Operating income 9.6% 9.6% 8.8% 8.4%
Interest expense 1.5% 1.6% 1.5% 1.4%
Other (income) (0.1%) (0.1%) (0.2%) -
--------------------------------------------------
Income before income taxes 8.2% 8.1% 7.5% 7.0%
Income Taxes 3.0% 2.9% 2.7% 2.5%
--------------------------------------------------
Net income 5.2% 5.2% 4.8% 4.5%
==================================================
Results of Operations
Operating revenues for the first nine months of 1998 increased $86.7 million,
or 28.7%, to $388.3 million compared with $301.7 million for the same period
in the prior year. For the quarter ended September 30, 1998, operating
revenues increased $30.0 million, or 28.0%, to $137.5 million compared
with $107.5 million for the same quarter of 1997. The Company's increase
in revenues was due primarily to increased demand from customers, expansion
of the Company's fleet and increased logistics revenues. The Company's fleet
increased to 3,503 tractors at September 30, 1998 from 3,113 at
September 30, 1997, an increase of 390 tractors.
The sources of the Company's revenues were as follows:
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Three Months Ended Nine Months Ended
September 30 September 30
1998 1997 1998 1997
----------------------------------------------
(in thousands) (in thousands)
Domestic Linehaul $ 73,722 $ 51,877 $214,154 $144,660
Interline Service - Mexico 14,410 10,152* 36,855 27,852*
Dedicated 14,399 6,815 32,101 20,275
Regional 22,356 28,377* 69,278 83,738*
Logistics 12,625 10,245 35,952 25,153
----------------------------------------------
Total $137,512 $107,466 $388,340 $301,678
==============================================
*International - Mexico revenue restated for 1997 to include
international freight carried by Regional trucks. Regional revenue
for 1997 was reduced by the same amount.
The operating ratio (operating expenses as a percentage of revenues) for the
first nine months of 1998 was 91.2% compared to 91.6% for the same period of
1997 and was 90.4% for the third quarters of 1998 and 1997.
Salaries, wages and benefits decreased to 30.7% and 30.2% of operating revenues
for the nine-month and three-month periods ending September 30, 1998, from 32.5%
and 31.0% for the same periods in 1997. These decreases were due primarily to
the increased use of owner-operators. The Company had 945 owner-operators at
September 30, 1998 compared to 743 at September 30,
1997.
Operations and maintenance expenses decreased to 16.1% and 15.8% of operating
revenues for the nine-month and three-month periods ending September 30, 1998
from 17.1% and 16.4% for the same periods in 1997 due primarily to the increased
use of owner-operators by the Company.
Taxes and licenses decreased to 2.2% and 2.1% of operating revenues for the
nine-month and three-month periods ended September 30, 1998 from 2.6% for the
same periods in 1997. These decreases result primarily from a change in fuel
purchasing patterns which has caused the Company to pay more taxes when
purchasing fuel and pay less taxes when filing end of quarter fuel and highway
use tax returns. The Company classifies taxes paid when purchasing fuel as
operations and maintenance expense and taxes paid with fuel and highway use tax
returns as tax returns and licenses expense. In addition, the Company has
increased its revenues from trucking and logistics operations without a
proportionate increase in its property tax expense.
Insurance and claims decreased to 4.1% and 3.9% of operating revenues for the
nine-month and three-month periods ended September 30, 1998 from 4.6% for the
same periods ended September 30, 1997. These decreases were due primarily to
the increased logistics revenues in 1998.
Depreciation and amortization was 9.2% of operating revenues for the first nine
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months of 1998 compared to 9.6% for the same period in 1997. This decrease
resulted primarily from the increased use of owner-operators and increased
logistics revenues.
The Company reported gain of .2% of operating revenues from the disposals of
revenue equipment during the nine-month period ended September 30, 1998 compared
to a minimal gain for the same period of 1997. For the quarter ended September
30, 1998, the Company reported a gain equal to .3% of operating revenues from
the disposals of revenue equipment compared to a reported loss from the
disposals of revenue equipment of .1% of operating revenues for the same quarter
of 1997.
Rent and purchased transportation increased to 27.1% of operating revenues in
the first nine months of 1998 compared to 23.4% for the same period of 1997
primarily as a result of the increased use of owner-operators by the Company and
increased expenses relating to logistics operations. Rent and purchased
transportation increased to 27.5% of operating revenues for the quarter ended
September 30, 1998, from 24.8% for the same quarter in 1997 for the same
reasons.
Liquidity and Capital Resources
The Company's business has required significant investment in new equipment and
office and terminal facilities, historically financed through cash from
operations, secured borrowings, unsecured credit facilities and capital markets.
During the nine month period ending September 30, 1998, the Company had
expenditures, net of sales, of $82.4 million for purchases of property and
equipment and $6.9 million related to a business acquisition. The Company
funded these purchases of property and equipment and business acquisition
through cash on hand, cash from operations, secured borrowings and the
Company's bank lines of credit. Net cash provided by operating activities was
$50.0 million and net cash provided by financing activities was $39.2 million.
The Company has bank lines of credit providing for borrowings of up to $68.9
million, with interest at the lower of the bank's corporate prime rate or the
30-day LIBOR rate plus .45%. At September 30, 1998 there was $44.1 million
outstanding under these lines of credit. Management expects to maintain these
lines of credit for an indefinite period.
The Company expects to finance its normal operating requirements and planned
revenue equipment purchases through cash from operations, the Company's bank
lines of credit and secured borrowings. In the future, the Company will
continue to have significant capital requirements, which may require the Company
to seek additional borrowings or to access capital markets. The availability of
debt financing or equity capital will depend upon the Company's financial
condition and results of operations as well as prevailing market conditions and
other factors over which the Company has little or no control.
Year 2000 Issue
The Company has completed its initial assessment of its internal
information technology ("IT") and non-IT systems for Year 2000 compliance.
During this assessment, the Company identified certain software applications
that will have to be modified or updated for its IT systems to be Year 2000
compliant. The Company is in the process of obtaining such modifications and
updates. In addition, the Company has commenced testing and verifying that
its IT systems are Year 2000 compliant. The Company believes that substantially
all of its IT systems will be Year 2000 compliant by January 1, 1999.
The Company has also assessed and identified embedded technology contained
in the Company's non-IT systems. As part of the Company's review of its Year
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PAGE
2000 issues, the Company is obtaining verification of the Year 2000 readiness of
this embedded technology from its vendors and suppliers.
In the first quarter of 1999, the Company intends to commence testing the
interfacing of the Company's IT systems with the IT systems of its principal
customers and other third parties with whom the Company has material
relationships. At present, the Company is not able to determine whether there
would be a material impact on the Company's results of operations, financial
position or capital resources if the Company's material customers and vendors
are not Year 2000 compliant. The Company will formulate a contingency plan at
that point in time when the Company does not believe a material vendor or
customer will be compliant. As the Company anticipates that all its material
customers and vendors will be Year 2000 compliant, the Company has not yet
established a contingency plan.
Management estimates that the total Year 2000 project costs will not have a
material impact on the Company's results of operation, liquidity or financial
condition. Except for expenditures for capital items, Year 2000 project costs
are being expensed and are funded through cash from operations. The Company has
not deferred any IT projects due to its Year 2000 efforts.
Forward-Looking Statements
This report on Form 10-Q contains forward-looking statements. The words
"believe," "expect," and "anticipate," and similar expressions identify
forward-looking statements, which speak only as of the date the statement was
made. Such forward-looking statements are within the meaning of that term in
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Such statements may include,
but are not limited to, projections of revenues, income, or loss, capital
expenditures, plans for future operations, financing needs or plans, the impact
of inflation and plans relating to the foregoing.
PART II - Other Information
Item 1. Legal Proceedings
The Company is involved in certain ordinary routine litigation incidental
to its business. The Company does not expect that the outcome of any of
these proceedings will have a material adverse effect upon the Company's
operations or its financial position.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None
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PAGE
Item 6 - Exhibits and Reports on Form 8-K
(a) The exhibits filed as a part of this report are listed below:
Exhibit Page Number or Incorporation
Number Description By Reference
3(i).1 Restated Charter of M.S. Carriers, Incorporated by reference from
Inc. exhibits to the registrant's
Registration Statement on Form
S-1 (Registration Number
33-12070).
3(i).2 Articles of Amendment to Charter Incorporated by reference from
of M.S. Carriers, Inc. exhibits to the registrant's
Registration Statement on Form
S-3 (Registration Number
33-63280).
3(ii) Amended and Restated By-Laws of M.S. Incorporated by reference from
Carriers, Inc. exhibits to the registrant's
Registration Statement on
Form S-3 (Registration Number
33-63280).
10.1 Incentive Stock Option Plan Incorporated by reference from
exhibits to the registrant's
Registration Statement on
Form S-1 (Registration Number
33-12070).
10.2 Amendment to Incentive Stock Option Incorporated by reference from
Plan exhibits to the registrant's
Registration Statement on
Form S-1 (Registration Number
33-12070).
10.3 1993 Stock Option Plan Incorporated by reference from
exhibits to the registrant's
Registration Statement on
Form S-3 (Registration Number
33-63280).
10.4 Non-Employee Directors Stock Option Incorporated by reference
Plan from registrant's Proxy
Statement dated March 31, 1995.
10.5 Employment Agreements with James W. Incorporated by reference
Welch, M.J. Barrow and Robert P. from exhibits to the
Hurt registrant's Statement on
Form S-1 (Registration
- -13-
PAGE
Number 33-12070).
10.6 Employment Agreement with Michael S. Incorporated by reference
Starnes from exhibits to the
registrant's 2nd Quarter
1995 Form 10-Q.
10.7 1993 Incentive Plan for Designated Incorporated by reference
Key Employees from registrant's Proxy
Statement dated April 4,
1996
10.8 1996 Stock Option Plan Incorporated by reference
from registrant's Proxy
Statement dated April 4, 1996.
11 Statement regarding computation of 8
per share earnings
27 Financial Data Schedule NOT INCLUDED WITH PAPER FILING
(b) The Company did not file any reports on Form 8-K during the three months
ended
September 30, 1998.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
M.S. Carriers, Inc.
(Registrant)
November 16, 1998
Date S/Dwight M. Bassett
Dwight M. Bassett,
Director of Accounting
(Chief Accounting Officer of the
Company)
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