M.S. Carriers, Inc.
3171 Directors Row
Memphis, TN 38116
March 28, 1995
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
Pursuant to the requirements of the Securities Exchange Act of 1934, we are
transmitting herewith the attached Form 10-K.
Sincerely,
M.J. Barrow
M.J. Barrow, Senior Vice President
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
(X) Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (Fee Required)
For the fiscal year ended December 31, 1994
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (No Fee Required)
For the transition period _____________ to ________________
Commission file number 0-14781
M.S. Carriers, Inc.
(Exact name of Registrant as specified in its charter)
Tennessee 62-1014070
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3171 Directors Row, Memphis, TN 38116
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 901/332-2500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter periods that the Registrant was required to filed
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
The aggregate market value of the voting stock held by non-
affiliates of the registrant as of March 7, 1995:
Common Stock, $.01 par value $321,957,500
The number of shares outstanding of the Registrant s common stock
as of March 7, 1995:
Common Stock, $.01 par value 12,878,300 shares
Documents Incorporated by Reference
Portions of the Proxy Statement for the annual shareholders
meeting to be held May 5, 1995 are incorporated by reference into
Part III.
Part I
Item 1. Business
M.S. Carriers, Inc. is an irregular route, truckload carrier
transporting a wide range of general commodities in the eastern
two-thirds of the United States and the provinces of Quebec and
Ontario in Canada. The Company has both common and contract
authority, granted by the Interstate Commerce Commission (ICC) 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
another 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 U.S. to points in Quebec
and Ontario and from points in Quebec and Ontario into the U.S.
The Company also provides interline service to and from Mexico.
The Company's primary line-haul traffic flows are between the
Middle South and the Southwest, Midwest, Central States,
Southeast and Northeast. In addition, the Company operates
regional networks which serve the Southeast, Southwest, Middle
South, Central States and Northeast. The average length of a trip
(one-way) was approximately 617 miles in 1994 and 618 miles in 1993.
The principal types of freight transported are packages, retail
goods, nonperishable foodstuffs, paper and paper products,
household appliances, furniture and packaged petroleum products.
Marketing
M.S. Carriers, Inc. has targeted the service-sensitive segment of
the truckload market rather than that segment which uses price as
its primary consideration. The Company has chosen to provide premium
services and charge compensating rates rather than to compete
solely on the basis of price. The principal elements of the
Company's premium service are dependable late-model equipment
which allows timely deliveries, multiple and appointment pickups
and deliveries, assistance in loading and unloading, the
availability of extra trailers which can be placed for the
convenience of customers and sufficient equipment to respond
promptly to customers' varying requirements.
The Company's individualized service requires a strong commitment
to marketing. The Company's marketing efforts concentrate on
attracting customers that ship multiple loads from numerous
locations that complement the Company's existing traffic flows.
As shipping patterns of existing customers expand or change, the
Company attempts to obtain additional customers to complement the
new traffic flows. Thus, the effort to attract new customers
varies from time to time depending upon growth or changes in the
shipping patterns of existing customers.
The Company publishes its own freight rates instead of using
freight rates published for a group of carriers by freight rate
publishing bureaus. This allows the Company to offer rates that
are more responsive to market conditions and the level of service
provided for a particular customer.
The largest 25, 10 and 5 customers accounted for approximately
57%, 43% and 33%, respectively, of the Company's revenues during
1994. Most of these customers are large, publicly-held companies.
One customer, Sears, accounted for approximately 15% of the
Company's revenues during 1994 and 14% in 1993. No
customer accounted for more than 10% of the Company's revenues
during 1992.
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 computer
system, 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 less than 650 miles, most of
the Company's shipments are hauled by one driver rather than two.
The relatively short trips ordinarily run by the Company make
this method of operation preferable to team operations. Each of
the Company's over-the-road tractors is equipped with a sleeper
cab so that the driver can comply with the Department of
Transportation's hours of service guidelines.
Drivers
The Company has established several programs to increase driver
loyalty and to give drivers a stake in the Company. The drivers
are compensated on the basis of miles driven and other services
such as loading and unloading and number of deliveries. Base pay
for miles driven increases with a driver's length of employment
with the Company.
The Company maintains a defined contribution plan under Section
401(k) of the Internal Revenue Code for drivers and all other
employees. The Company matches 50% of the employee's
contribution, but limited to a maximum of 3% of the employee's
contribution.
At December 31, 1994, the Company employed 2,220 drivers. 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, in addition to
maintaining regular contact between dispatchers and drivers.
Since competition for qualified drivers is intense, the Company
emphasizes the importance of attracting and retaining qualified
drivers. The Company employs seven full-time driver recruiters
and regularly advertises in local newspapers. The driver
compensation programs, together with the Company's late-model
equipment and relatively short trips, provide important
incentives to attract and retain qualified drivers. Despite these
incentives, the Company experiences difficulty from time to time
in attracting and retaining qualified drivers.
None of the Company's drivers are represented by a collective
bargaining unit. In the opinion of management, the Company's
relationship with its drivers and other employees is excellent.
Revenue Equipment
The Company has a policy of purchasing standardized tractors and
trailers manufactured to the Company's specifications. At
December 31, 1994, the Company owned and operated 2,106 Company-
owned tractors and leased 207 tractors owned by independent
contractors (owner-operators). The Company's tractors include
2,065 over-the-road and 41 local tractors. The Company owns 6,481
van trailers, of which 2,210 are 48 feet long and 4,271 are 53
feet long; all trailers are 102 inches wide with a minimum of
109.5 inches of inside height. Most of the tractors are
manufactured by Freightliner and most of the trailers are
manufactured by Lufkin or Great Dane.
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 is now
maintaining all revenue equipment an additional year for use in
its regional distribution operations. The Company constantly
monitors the fuel efficiency of its power equipment. The miles-
per-gallon average of the entire fleet was approximately 5.77 in
1994.
The following table shows the type and age of equipment operated
by the Company at December 31, 1994:
Model Year Over-the-Road 48-Foot 53-Foot
Tractors Trailers Trailers
1995 290 906
1994 342 275 926
1993 602 422 1,017
1992 341 694 326
1991 250 227
1990 240 501
1989 445 172
1988 139 196
1987 137
1986 81
1985 17
2,065 2,210 4,271
The Company plans to order 2,360 trailers and 933 tractors during 1995.
Competition
The entire trucking industry is highly competitive. The Company
competes primarily with other irregular route truckload carriers.
Railroads, less-than-truckload carriers, and contract carriers
generally provide competition to a lesser degree. However, any
one of them may be significant in one geographic area or at any
one time. Competition for the freight transported by the Company
is based, in the long-term, primarily on service and efficiency
and, to a lesser degree, on freight rates. Several other
irregular route truckload carriers have substantially greater
financial resources, own more equipment or carry a larger volume
of freight than the Company.
Employees
At December 31, 1994, the Company employed 3,238 persons, of whom
2,220 were drivers, 259 were mechanics and other equipment
maintenance personnel, and 759 were support personnel including
management and administration. The Company also leased 207 tractors
with qualified drivers from independent contractors (owner operators).
Regulation
The Company is a motor carrier regulated by the Interstate Commerce
Commission (the ICC). Motor carrier operations also are subject to
safety requirements prescribed by the United States Department of
Transportation governing interstate operation. Additionally, such
matters as weight and dimensions of equipment are subject to
federal and state regulations.
Item 2. Properties
Office and Terminal Facilities
The Company's executive office and principal terminal are located
on 3-acre and 48-acre tracts of land, respectively, in Memphis,
Tennessee. The principal terminal consists of 52,000 square feet
of office space and 41,000 square feet of maintenance facilities.
The executive office has 57,000 square feet of office space.
The Company owns a 3,000 square foot office and terminal on a 4-
acre tract of land in Tupelo, Mississippi and a 18,000 square
foot office and maintenance facility on a 9-acre tract of land in
Nashville, Tennessee. Additionally, the Company owns office and
maintenance facilities of 34,500 square feet in Columbus, Ohio,
16,500 square feet in Laredo, Texas, and 16,500 square feet in
Martinsburg, West Virginia.
In 1994, the Company acquired a 24-acre tract of land in Atlanta,
Georgia. This land was purchased to build a full-service terminal
similar to the Columbus facility.
Item 3. Legal Proceedings
The Company is a party to routine litigation incidental to its
business, primarily involving claims for personal injuries and
property damage incurred in the transportation of freight. The
Company believes adverse results in one or more of these cases
would not have a material adverse effect on its financial
position or its results of operations. The Company maintains
insurance in an amount which management believes is sufficient to
cover its risks, subject to the Company's practice of self-
insuring in the amount of $1,000,000 for any single occurrence
resulting from cargo and property damage claims.
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 1994.
Part II
Item 5. Market for the Registrant's Common Stock
and Related Stockholder Matters
Price Range of Common Stock
The Company's Common Stock is traded in the over-the-counter market
under the symbol MSCA. The following table sets forth, for the
calendar periods indicated, the high and low sales prices for the
Company's Common Stock as reported by the National Association of
Securities Dealers Automated Quotations System (NASDAQ).
High Low
1994
1st Quarter 28 1/2 20 1/2
2nd Quarter 23 1/4 18 3/4
3rd Quarter 25 1/4 19 1/2
4th Quarter 25 20
1993
1st Quarter 25 1/4 20 1/2
2nd Quarter 25 3/4 20 1/2
3rd Quarter 25 1/2 21 1/4
4th Quarter 26 1/2 19 1/4
As of March 7, 1995 the Company had 272 shareholders of record.
Dividend Policy
The Company has never paid a cash dividend on its Common Stock. It
is the current intention of the Company's Board of Directors to
continue to retain earnings to finance the growth of the Company's
business rather than to pay dividends. Future payment of cash
dividends will depend upon the financial condition, results of
operations and capital commitments of the Company as well as other
factors deemed relevant by the Board of Directors.
Item 6. Selected Financial Data
The following selected financial data should be read in conjunction
with the financial statements and notes thereto appearing elsewhere
herein.
Year ended December 31
1994 1993 1992 1991 1990
(In thousands, except per share amounts)
Statement of income data:
Operating revenues $292,883 $224,716 $181,303 $152,569 $123,577
Operating expenses:
Salaries, wages and benefits 111,493 84,820 66,568 55,648 42,748
Operations and maintenance 64,498 60,880 52,077 44,973 36,088
Taxes and licenses 8,746 6,901 6,040 4,965 4,124
Insurance and claims 14,471 9,545 8,035 7,863 7,245
Communications and utilities 4,698 4,135 3,279 2,803 2,122
Depreciation and amortization 33,694 27,360 21,866 18,186 15,897
Rent and purchased
transportation 23,564 4,246 1,358 1,603 948
Other 2,058 1,792 1,706 1,161 1,281
Total operating expenses 263,222 199,679 160,929 137,202 110,453
Operating income 29,661 25,037 20,374 15,367 13,124
Interest expense (1,802) (2,041) (2,463) (2,535) (2,517)
Other (expense) income 147 118 68 151 (56)
Income before income taxes and
cumulative effect of change in
accounting for income taxes 28,006 23,114 17,979 12,983 10,551
Income taxes 10,856 9,512 7,405 5,223 4,169
Income before cumulative effect
of accounting change 17,150 13,602 10,574 7,760 6,382
Cumulative effect as of
January 1, 1993 of change
in accounting for income taxes 500
Net income $17,150 $14,102 $10,574 $7,760 $6,382
Earnings per share:
Income before cumulative
effect of accounting change $1.31 $1.13 $0.97 $0.73 $0.60
Cumulative effect of
accounting change 0.04
Net income $1.31 $1.17 $0.97 $0.73 $0.60
December 31
1994 1993 1992 1991 1990
(In thousands)
Balance sheet data:
Total assets $276,073 $198,960 $150,842 $122,275 $111,223
Long-term obligations 51,187 17,985 32,693 26,799 25,609
Stockholders' equity 147,924 131,939 71,969 61,293 53,373
The following table sets forth data regarding the freight revenues and
operations of the Company.
1994 1993 1992 1991 1990
For the year ended December 31:
Operating ratio (1) 89.9% 88.9% 88.8% 89.9% 89.4%
Average number of truckloads
per week (2) 6,971 5,759 4,300 3,324 2,812
Average revenues per tractor
per week (2) $2,613 $2,530 $2,575 $2,597 $2,250
Average miles per trip (2) 617 618 693 765 741
Average revenue per mile (2) $1.26 $1.19 $1.17 $1.15 $1.14
At December 31:
Total tractors 2,106 1,854 1,460 1,227 1,056
Total trailers 6,481 5,256 3,925 2,478 2,440
Number of employees 3,238 2,705 2,177 1,897 1,726
<FN>
(1) Operating expenses as a percentage of operating revenues.
(2) Excludes revenues from Logistics and Intermodal services, which began
in September 1993.
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
1994 1993 1992
Operating revenues 100.0% 100.0% 100.0%
Operating expenses:
Salaries, wages and benefits 38.1 37.7 36.7
Operations and maintenance 22.0 27.1 28.7
Taxes and licenses 3.0 3.1 3.3
Insurance and claims 5.0 4.3 4.4
Communications and utilities 1.6 1.8 1.8
Depreciation and amortization 11.5 12.2 12.1
Rent and purchased transportation 8.0 1.9 .8
Other 0.7 0.8 1.0
Total operating expenses 89.9 88.9 88.8
Operating income 10.1 11.1 11.2
Interest expense (0.6) (0.9) (1.4)
Other income 0.1 .1 .1
Income before income taxes and
cumulative effect of change in
accounting for income taxes 9.6 10.3 9.9
Income taxes 3.7 4.2 4.1
Income before cumulative effect of
accounting change 5.9 6.1 5.8
Cumulative effect as of January 1,
1993 of change in method of
accounting for income taxes 0.2
Net income 5.9% 6.3% 5.8%
Results of Operations
M.S. Carriers continued its growth during 1994 as operating
revenues were $292.9 million compared to $224.7 million in 1993 and
$181.3 million in 1992. The percentage increases in revenues were
30.3%, 23.9%, and 18.8% for 1994, 1993, and 1992, respectively.
Management continued to control revenue growth during 1994 in order
to maintain the high level of service provided to customers. The
Company's increased revenues reflect additional volume from
existing customers as well as new volume from the expansion of the
Company's customer base.
Revenues per mile were $1.26, $1.19, and $1.17 in 1994, 1993, and 1992,
respectively. The increase in revenues per mile in 1994 and 1993
resulted from a continued expansion of the Company's regional
markets. The Company's regional traffic involves shorter lengths of
haul and higher revenues per mile. Revenues from regional
operations were 32% of the Company's total revenues in 1994
compared to 24% in 1993 and 7% in 1992. In addition, rates charged
to customers were increased in mid-year to provide for increased driver
compensation in an attempt to attract and retain qualified drivers.
Salaries, wages and benefits were 38.1% of revenues in 1994
compared to 37.7% in 1993 and 36.7% in 1992. Effective January 1, 1994,
the Company no longer paid per diem to line-haul drivers as reimbursement
for expenses incurred during extended periods of time away from home.
Instead, these drivers now receive a higher pay rate per mile which has
caused a significant increase in the Company's salary and wages expense.
This is offset by the Company's implementation of the use of owner-operators
during 1994. Amounts paid to owner-operators are recorded as purchased
transportation. The increase in 1993 was due primarily to increased driver
pay per mile associated with regional operations.
Operations and maintenance expense was 22.0% of revenues
compared to 27.1% in 1993 and 28.7% in 1992. The decrease in 1994 is
primarily attributable to the discontinuance of per diem payments to
line-haul drivers and the use of owner-operators. The decrease in
1993 was attributable to a decrease in fuel prices together with
the continued expansion of regional markets which result in lower
operating and maintenance costs.
Insurance and claims expense was 5.0% of revenue in 1994 compared
to 4.3% in 1993 and 4.4% in 1992. The increase in costs is due primarily
to adjustments to reflect increased liability related to claims incurred
in prior periods.
Depreciation and amortization has remained relatively constant as
a percentage of revenues during the past three years. Depreciation
and amortization as a percentage of revenues were 11.5%, 12.2%, and 12.1%
in 1994, 1993, and 1992, respectively. The slight decrease in 1994 is
associated with the Company's use of owner operators.
Rent and purchased transportation was 8.0% of revenues in 1994 compared to
1.9% in 1993 and 0.8% in 1992. The increase in 1994 is attributable primarily
to expenses incurred in conjunction with the use of owner-operators and
the increase in the Company's logistics operations. The increase in 1993
reflects expenses incurred related to the Company's logistics operations.
Interest expense was $1,801,981 in 1994 compared to $2,041,114 in 1993
and $2,463,486 in 1992. The decrease in interest expense is
due to the reduction in average outstanding debt during 1994 and 1993.
The effective tax rates are 38.8%, 41.2%, and 41.2% in 1994, 1993,
and 1992, respectively. The decrease in 1994 is due primarily
to a significant reduction in the Company's nondeductible meals and travel
expense resulting from discontinuance of the per diem pay to line-haul
drivers. The per diem pay was only partially deductible by the Company
for federal income tax purposes.
Inflation can be expected to have an impact on the Company's
operating costs. The effect of inflation has been minimal over the
past three years.
In the trucking industry, generally, results of operations tend to
show a seasonal pattern as customers reduce shipments during and
after the winter holiday season and during the summer months due to
temporary plant closings for vacations. 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.
Liquidity and Capital Resources
The growth of the Company's business continues to require
significant investments in new revenue equipment and office and
terminal facilities. These investments have been financed largely
from cash provided by operating activities, secured and unsecured
borrowings, unsecured credit facilities and capital markets during the
past three years.
Net cash provided by operating activities was approximately $55.8
million in 1994, $36.2 million in 1993, and $38.8 million in 1992.
At December 31, 1994, the Company had obligations of $67.9 million
related to purchases of revenue equipment.
The Company expects to purchase approximately $81 million of
additional revenue equipment in 1995. The Company anticipates
expenditures of approximately $15 million for expansion of its
office and terminal facilities. The Company expects to fund these
expenditures through available cash, cash provided by operating
activities, secured borrowings and existing credit facilities. Prevailing
interest rates and the market for used revenue equipment may affect the
timing of the Company's purchase of new and replacement revenue
equipment. Historically, cash provided by operating activities,
secured and unsecured borrowings and existing credit facilities have been
sufficient to satisfy substantially all of the Company s working
capital and capital expenditure requirements. The Company has a
bank line of credit providing for borrowing of up to $10 million
with interest at the lower of the bank's corporate prime rate or
the 30-day LIBOR rate plus .45%. At December 31, 1994, there were
no amounts outstanding under this line of credit. Management
expects to maintain this line of credit for an indefinite period.
Item 8. Financial Statements and Supplementary Data
The response to this item is submitted in a separate section of
this report.
Selected quarterly financial data are found in Note 11 to the
financial statements located elsewhere herein.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Item 13. Certain Relationships and Related Transactions
Information responsive to Items 10, 11, 12 and 13 is incorporated
by reference to sections entitled "Election of Directors,"
"Additional Information Related to the Board of Directors,"
"Executive Compensation" and "Beneficial Ownership of Common
Stock" of the Registrant's Proxy Statement for the Annual Meeting
of Shareholders to be held May 5, 1995.
Part IV
Item 14. Exhibits, Financial Statements and Reports on Form 8-K
(a)(1) and (2) -- The response to this portion of Item 14 is
submitted as a separate section of this report.
(3) Listing of Exhibits
Exhibit
Number
3A Restated Charter of M.S. Carriers, Inc.*
3B Amended By-Laws of M.S. Carriers, Inc.*
10A Industrial Development Loan Agreement dated as of
July 26, 1984 between M.S. Carriers, Inc. and The
Industrial Development Board of the City of Memphis
and County of Shelby, Tennessee*
10B Incentive Stock Option Plan and Agreements*
10C Amendment to Incentive Stock Option Plan*
10D Restricted Stock Purchase Agreements*
10E Amendments to Restricted Stock Purchase Agreements*
10F Employment Agreements*
10G Matched Stock/Savings Plan*
10H Incentive Compensation Plan**
11 Statement regarding: Computation of Per Share
Earnings
22 List of Subsidiaries
* Incorporated by references from exhibits to the
Registrant's Registration Statement on Form S-1
(Registration Number 33-12070).
** Incorporated by reference from Exhibit to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1989.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of
1994.
(c) Exhibits - The response to this portion of Item 14 is submitted
as a separate section of this report.
(d) Financial Statement Schedule - The response to this portion of Item 14
is submitted as a separate section of
this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
M.S. Carriers, Inc.
(Registrant)
By: Michael S. Starnes
Chairman of the Board and President
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.
Michael S. Starnes Member of Board of Directors March 27, 1995
and President
Carl Mungenast Member of Board of Directors March 27, 1995
and Chief Operating Officer
James W. Welch Member of Board of Directors March 27, 1995
and Senior Vice President
-Marketing
M. J. Barrow Member of Board of Directors March 27, 1995
and Senior Vice President
-Finance and Secretary-
Treasurer
Gary L. Hardeman Member of Board of Directors March 27, 1995
and Senior Vice President-
Operations
Robert P. Hurt Member of Board of Directors March 27, 1995
and Vice President-
Maintenance
Jack H. Morris, III Member of Board of Directors March 27, 1995
Morris H. Fair Member of Board of Directors March 27, 1995
Dwight M. Bassett Controller and Director of March 27, 1995
Accounting
Index to Exhibits
Exhibit Sequential
Number Description Page Number
11 Statement regarding: Computation of
Per Share Earnings 36
12 List of Subsidiaries 37
Annual Report on Form 10-K
Item 8, Item 14(a)(1) and (2), (c) and (d)
Index of Financial Statements and Financial
Statement Schedule
Financial Statements
Certain Exhibits
Financial Statement Schedule
Year ended December 31, 1994
M.S. Carriers, Inc.
Memphis, Tennessee
M.S. Carriers, Inc.
Form 10-K -- Item 14(a)(1) and (2)
Index of Financial Statements and Financial Statement Schedule
The following financial statements and report of independent auditors of
M.S. Carriers, Inc. are included in Item 8:
Report of independent auditors
Consolidated balance sheets - December 31, 1994 and 1993
Consolidated statements of income - Years ended December 31, 1994, 1993
and 1992
Consolidated statements of stockholders' equity - Years ended December 31,
1994, 1993, and 1992
Consolidated statements of cash flows - Years ended December 31, 1994,
1993, and 1992
Notes to consolidated financial statements - December 31, 1994
The following financial statement schedule of M.S. Carriers, Inc. is
included in Item 14(d):
Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable,
and therefore have been omitted.
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, 1994 and 1993, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1994. Our audits
also included the financial statement schedule listed in the
Index at Item 14(a). These financial statements and schedule are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of M.S. Carriers, Inc. and subsidiaries at December 31, 1994 and
1993, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information
set forth therein.
As discussed in Note 4 to the consolidated financial statements, the Company
changed its method of accounting for income taxes in the year
ended December 31, 1993.
January 27, 1995
M.S. Carriers, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31
1994 1993
Assets
Current assets:
Cash and cash equivalents $ 30,806,731 $ 110,080
Accounts receivable:
Trade, net 33,327,599 22,447,815
Officers and employees 457,165 216,972
Other 131,939
33,784,764 22,796,726
Recoverable income taxes 2,727,344
Deferred income taxes 4,774,000 3,375,000
Prepaid expenses and other 4,419,081 3,011,378
Total current assets 73,784,576 32,020,528
Property and equipment:
Land and land improvements 6,201,674 4,574,956
Buildings 23,393,800 23,142,732
Revenue equipment 232,771,820 192,608,567
Service equipment and other 28,531,425 18,001,576
Construction in progress 2,813,438 2,242,730
293,712,157 240,570,561
Accumulated depreciation
and amortization 95,019,410 77,020,694
198,692,747 163,549,867
Other assets 3,595,196 3,389,836
Total assets $276,072,519 $198,960,231
M.S. Carriers, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31
1994 1993
Liabilities and stockholders equity
Current liabilities:
Trade accounts payable $ 6,341,525 $ 3,092,069
Accrued expenses 8,277,724 4,834,417
Claims payable 12,325,226 8,740,679
Income taxes payable 1,256,186
Current maturities of
long-term obligations 16,693,512 6,000,000
Total current liabilities 44,894,173 22,667,165
Long-term obligations,
less current maturities 51,186,613 17,985,000
Deferred income taxes 32,068,000 26,369,000
Stockholders equity:
Common Stock, $.01 par value:
Authorized shares- 20,000,000
Issued and outstanding shares 12,878,300
in 1994 and 12,875,632 in 1993 128,783 128,757
Additional paid-in capital 64,137,909 64,118,752
Retained earnings 84,842,041 67,691,557
Equity adjustment from foreign
currency translation (1,185,000)
Total stockholders' equity 147,923,733 131,939,066
Total liabilities and
stockholders' equity $276,072,519 $198,960,231
<FN>
See accompanying notes.
M.S. Carriers, Inc. and Subsidiaries
Consolidated Statements of Income
Year ended December 31
1994 1993 1992
Operating revenues $292,882,828 $224,716,304 $181,303,289
Operating expenses:
Salaries, wages and benefits 111,492,850 84,819,837 66,568,051
Operations and maintenance 64,497,963 60,880,244 52,077,299
Taxes and licenses 8,746,479 6,900,546 6,039,373
Insurance and claims 14,470,493 9,545,503 8,035,075
Communications and utilities 4,698,024 4,134,864 3,279,350
Depreciation and amortization 33,694,434 27,360,554 21,865,371
Rent and purchased transportation 23,564,113 4,245,735 1,358,095
Other 2,058,001 1,792,382 1,706,305
263,222,357 199,679,665 160,928,919
Operating income 29,660,471 25,036,639 20,374,370
Other expense (income):
Interest expense 1,801,981 2,041,114 2,463,486
Other (147,994) (118,445) (68,288)
1,653,987 1,922,669 2,395,198
Income before income taxes and
cumulative effect of change in
accounting for income taxes 28,006,484 23,113,970 17,979,172
Income taxes 10,856,000 9,512,000 7,405,000
Income before cumulative effect
of accounting change 17,150,484 13,601,970 10,574,172
Cumulative effect as of
December 31, 1992 of change in
accounting for income taxes 500,000
Net income $ 17,150,484 14,101,970 $ 10,574,172
Earnings per share:
Income before cumulative effect
of accounting change $1.31 $1.13 $0.97
Cumulative effect of accounting
change 0.04
Net income $1.31 $1.17 $0.97
Weighted average common shares
and common share equivalents 13,097,586 12,036,386 10,913,012
<FN>
See accompanying notes.
M.S. Carriers, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Equity
Adjustment
Additional From Foreign
Common Stock Paid-in Retained Currency
Shares Amount Capital Earnings Translation Total
Balance at
January 1,
1992 5,331,333 $ 53,313 $18,224,609 $43,015,415 $ $ 61,293,337
Net income for 1992 10,574,172 10,574,172
Issuance of
stock dividend 5,331,333 53,314 (53,314)
Issuance of
Common Stock
upon exercise of
stock options 17,000 170 33,830 34,000
Tax benefit of
deduction for
employee exercise
of stock options 67,405 67,405
Balance at
December 31,
1992 10,679,666 106,797 18,272,530 53,589,587 71,968,914
Net income
for 1993 14,101,970 14,101,970
Issuance of
Common Stock
upon exercise of
stock options 39,666 397 304,022 304,419
Issuance of
Common Stock 2,156,300 21,563 45,531,997 45,553,560
Tax benefit of
deduction for
employee exercise
of stock options 10,203 10,203
Balance at
December 31,
1993 12,875,632 128,757 64,118,752 67,691,557 131,939,066
Net income
for 1994 17,150,484 17,150,484
Issuance of
Common Stock
upon exercise of
stock options 2,668 26 19,157 19,183
Equity adjustment
from foreign
currency translation (1,185,000) (1,185,000)
Balance at
December 31,
1994 12,878,300 $128,783 $64,137,909 $84,842,041 $(1,185,000) $147,923,733
<FN>
See accompanying notes.
M.S. Carriers, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Year ended December 31
1994 1993 1992
Operating activities
Net income $ 17,150,484 $ 14,101,970 $ 10,574,172
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 33,694,434 27,360,554 21,865,371
Other 131,483 130,819 225,337
Provision for deferred
income taxes 4,300,000 4,668,000 3,023,000
Cumulative effect of change
in accounting principle (500,000)
Changes in operating assets
and liabilities:
Accounts receivable (10,988,038) (4,294,336) (2,647,453)
Current and other assets (70,719) (4,624,213) (1,512,481)
Trade accounts payable 3,249,456 (3,262,213) 4,674,370
Other current liabilities 8,284,040 2,613,749 2,633,492
Net cash provided by
operating activities 55,751,140 36,194,330 38,835,808
Investing activities
Purchases of property
and equipment (100,346,967) (66,058,904) (46,135,676)
Proceeds from disposals
of property and equipment 31,378,170 82,210 702,551
Net cash used in
investing activities (68,968,797) (65,976,694) (45,433,125)
Financing activities
Proceeds from long-term
obligations and revolving
line of credit 147,271,905 107,724,000 78,222,000
Proceeds from issuance
of Common Stock 19,183 45,857,979 34,000
Principal payments on
long-term obligations
and revolving line of credit (103,376,780) (123,735,365) (71,674,473)
Net cash provided by
(used in) financing activities 43,914,308 29,846,614 6,581,527
Increase (decrease) in cash
and cash equivalents 30,696,651 64,250 (15,790)
Cash and cash equivalents
at beginning of year 110,080 45,830 61,620
Cash and cash equivalents
at end of year $30,806,731 $ 110,080 $ 45,830
<FN>
See accompanying notes.
M.S. Carriers, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1994
1. Significant Accounting Policies
Organization and Principles of Consolidation
The consolidation financial statements include the accounts of
M.S. Carriers, Inc. and its wholly-owned subsidiaries M.S. Carriers
Warehousing and Distribution, Inc., M.S. Carriers Logistics Mexico,
S.A. de C.V. and M.S. International, Inc. Significant intercompany
accounts have been eliminated.
Business
The Company operates primarily as a truckload carrier. Concentrations
of credit risk with respect to trade accounts receivable are limited
due to the large number of entities comprising the Company's customer
base and their dispersion across many different industries. The
Company performs ongoing credit evaluations and generally does not
require collateral.
Revenue Recognition
Operating revenues are recognized on the date the freight is
delivered.
Cash Equivalents
The Company considers all highly liquid investments with a maturity
of three months or less when purchased to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost. At the time of trade-in,
the cost of revenue equipment is adjusted for any difference
between the trade-in value and net book value. Depreciation, which
includes amortization of assets held under capital leases, is
computed on the straight-line method over the estimated useful
lives as follows:
Buildings 15-30 Years
Revenue equipment 4-6 Years
Service equipment and other 3-5 Years
Tires and tubes purchased as part of revenue equipment are
capitalized as a cost of the equipment. Replacement tires and tubes
are expensed when placed in service.
Foreign Currency Translation
Included in other assets in the accompanying consolidated financial
statements is an investment in a Mexican trucking company which is
accounted for under the equity method. The operations of the Mexican
trucking company during 1994 were approximately break even. The
Company considers the Mexican peso to be the functional currency.
During 1994 the Company recorded an equity translation adjustment
to reduce the carrying value of its investment and stockholders'
equity by $1,185,000 due to devaluation of the Mexican peso.
Income Taxes
The Company accounts for income taxes under the provisions of
Financial Accounting Standards Board Statement No. 109,
Accounting for Income Taxes. (see Note 4).
Earnings Per Share
Earnings per share is computed based on the weighted average
number of common shares outstanding during the year, adjusted
to include common stock equivalents attributable to dilutive options.
2. Debt
Long-term obligations consist of:
December 31
1994 1993
Equipment loans $38,369,490 $18,000,000
Capitalized lease obligations 29,510,635
Revolving line of credit 5,985,000
67,880,125 23,985,000
Less current maturities (16,693,512) (6,000,000)
$51,186,613 $17,985,000
The equipment loans are payable through 1998 in varying monthly
installments with interest at rates ranging from 5.7% to 6.15%
and $12,000,000 of these loans are secured by revenue equipment with
a net book value of approximately $17,700,000.
The Company has a line of credit available for borrowings up
to $10,000,000, with interest at the lower of the bank's prime
rate or the 30-day LIBOR rate plus .45%.
There are no commitment fees or compensating balance
requirements for the line of credit, which expires June 1,
1995. The Company may elect through June 1, 1995 to reduce
the line of credit by up to $7,500,000 with term loans payable
in monthly installments over three to four years.
During 1994, the Company entered into sale leaseback transactions
related to revenue equipment with an original value of approximately
$30,000,000. These capital leases are secured by the related
revenue equipment with a net book value at December 31, 1994 of
approximately $29,700,000, net of accumulated amortization of
$300,000. The leases extend from 3 to 5 years and contain renewal or
fixed price purchase options and guarantees of residual value at the
end of the lease terms.
Certain of the Company's debt agreements contain covenants
with financial ratios and a requirement to maintain minimum
net worth of $50,000,000.
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,
1994:
Capitalized
Lease
Debt Obligations
1995 $ 12,756,728 $ 6,291,819
1996 12,321,683 6,371,200
1997 8,652,951 7,224,316
1998 4,638,128 8,840,043
1999 8,304,156
38,369,490 37,031,534
Amounts
representing interest (7,520,899)
Total long-term
obligations $ 38,369,490 $ 29,510,635
The Company paid interest of approximately $1,819,000 in 1994,
$2,060,000 in 1993, and 2,432,000 in 1992.
3. Claims Payable
Under an agreement with its insurance underwriters, the
Company acts as a self-insurer for liability up to $1,000,000
for any single occurrence involving cargo and property damage.
Liability in excess of this amount is assumed by the insurance
underwriters. Reserves for claims are provided in amounts
which management considers adequate.
The Company self-insures employee health claims up to $100,000
and workers' compensation claims up to $250,000 and has
provided reserves which management considers adequate for the
Company's estimated liability for covered claims.
4. Income Taxes
In February 1992, the Financial Accounting Standards Board
issued Statement No. 109, Accounting for Income Taxes. The
Company adopted the provisions of the new standard in its
financial statements for the year ended December 31, 1993.
As permitted by Statement 109, prior year financial statements
were not restated to reflect the change in accounting
method. The cumulative effect as of January 1, 1993 of
adopting Statement 109 increased net income by $500,000 and
$.04 per share.
Under Statement 109, 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. Prior to the adoption of Statement 109, income tax
expense was determined using the deferred method. Deferred tax
expense was based on items of income and expense that were
reported in different years in the financial statements and
tax returns and were measured at the tax rate in effect in the
year the difference originated.
As a result of the change in the federal statutory rate from
34 percent to 35 percent effective January 1, 1993 resulting
from legislation enacted during 1993, the Company recorded an
adjustment to increase income tax expense by approximately
$550,000 in 1993.
Income taxes consist of the following:
Year ended December 31
1994 1993 1992
Current:
Federal $ 5,835,000 $4,134,000 $3,458,000
State 721,000 710,000 924,000
6,556,000 4,844,000 4,382,000
Deferred:
Federal 3,665,000 4,022,000 2,872,000
State 635,000 646,000 151,000
4,300,000 4,668,000 3,023,000
$10,856,000 $9,512,000 $7,405,000
The effective tax rate varied from the statutory federal
income tax rate of 35% in 1994 and 1993 and 34% in 1992 as
follows:
Year ended December 31
1994 1993 1992
Taxes at
statutory rate $ 9,802,269 $ 8,089,890 $ 6,112,919
Increase
(decrease) in
taxes arising
from:
State income
taxes, net of
federal tax
benefits 1,001,231 826,324 709,255
Nondeductible
expenses 203,291 501,074 530,244
Other (150,791) 94,712 52,582
$10,856,000 $ 9,512,000 $7,405,000
The Company paid income taxes of approximately $2,573,000 in 1994,
$6,949,000 in 1993, and $5,100,000 in 1992.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the
Company's deferred tax liabilities and assets as of December
31, 1994 and 1993 are as follows:
1994 1993
Deferred tax liabilities:
Property and equipment $ 30,408,000 $ 25,486,000
Other - net 1,660,000 883,000
Total deferred tax liabilities 32,068,000 26,369,000
Deferred tax assets:
Claims payable 4,588,000 3,205,000
Other net 186,000 170,000
Total deferred tax assets 4,774,000 3,375,000
Net deferred tax liabilities $ 27,294,000 $ 22,994,000
5. Employees' Benefit Plans
The Company has a profit sharing plan (the Plan) for all
employees who are 21 years of age or older and have completed
1,000 hours of service. The Plan provides for discretionary
contributions by the Company not to exceed income before
federal income taxes for the year and limited to the amount
permitted under the Internal Revenue Code as a deductible
expense. Each eligible employee may also contribute up to 10%
of the employee's annual compensation. The Company's
contribution was approximately $323,000 for 1994, $345,000 for
1993, and $275,000 for 1992.
The Company also has a defined contribution plan under Section
401(k) (the 401(k) Plan) of the Internal Revenue code which
provides for voluntary contributions by employees and matching
contributions by the Company. All employees who are 19 years
of age or older and have completed six months of service are
eligible for the 401(k) Plan which provides each participant
with the option of contributing from 1% to 15% of compensation
to the 401(k) Plan. 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, net of forfeitures, was
approximately $840,000 for 1994, $678,000 for 1993, and $427,000
for 1992.
6. Operating Leases
The Company leases revenue equipment under operating leases
with terms of less than one year. Rent and purchased
transportation includes rental of revenue equipment of
approximately $164,000 in 1994, $465,000 in 1993, and
$1,358,000 in 1992.
Other operating expense includes rentals of certain office,
terminal and warehouse facilities of $653,000 in 1994,
$481,000 in 1993, and $286,000 in 1992.
7. Stockholders' Equity
The Company has stock option plan for key employees and
outside directors. Option transactions are summarized as
follows:
1994 1993
Options outstanding
at beginning of year 384,668 388,334
Options granted 245,000 76,000
Options cancelled (40,000)
Options exercised (2,668) (39,666)
Options outstanding
as of end of year 627,000 384,668
Option price range
as of December 31 $2.00-$25.50 $2.00-21.75
Options exercisable
at December 31 214,002 144,664
Shares reserved for future grants were 491,000 shares at
December 31, 1994.
Options are granted at the then-prevailing market price. They
become exercisable in equal parts over the succeeding three to
five years.
In June and July 1993, the Company sold to the public
2,000,000 and 156,300 shares, respectively, of common stock in
a secondary public offering. The net proceeds of the sale of
$45,553,560 were used to pay off $33,900,000 of long-term debt
and to purchase additional revenue equipment.
8. Significant Customers
The Company operates in one business segment, that of a
truckload carrier. One customer, Sears, accounted for more
than 10% of revenues in 1994 and 1993 with revenues of
$43,876,000 and $31,949,000, respectively. No customer accounted
for more than 10% of revenues in 1992.
9. Commitments and Contingencies
The Company has noncancelable contracts to purchase revenue
equipment of approximately $81,000,000, net of trade-ins, during 1995.
The Company is involved in certain legal actions and claims
arising in the ordinary course of business. It is the opinion
of management (based on the advice of legal counsel) that such
litigation and claims will be resolved without material effect
on the Company's financial position.
10. Fair Value of Financial Instruments
The following methods and assumptions were used by the Company
in estimating its fair value disclosures for financial
instruments:
Cash and cash equivalents: The carrying amount reported in
the balance sheet for cash and cash equivalents approximates
its fair value.
Debt: The carrying amounts of the Company's borrowings under
its line of credit arrangements and long-term debt approximate
their fair value at December 31, 1994 and 1993. The fair values
of the Company's debt are estimated using discounted cash flow
analyses, based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements.
11. Selected Quarterly Data (Unaudited)
Summarized quarterly data for 1994 and 1993 follows.
1994
March 31 June 30 September 30 December 31
Operating revenues $60,432,420 $69,558,611 $80,303,567 $82,588,230
Operating expenses 56,118,951 61,862,141 71,016,620 74,224,645
Operating income 4,313,469 7,696,470 9,286,947 8,363,585
Other expense 290,532 376,758 473,932 512,765
Income before taxes 4,022,937 7,319,712 8,813,015 7,850,820
Income taxes 1,602,000 2,901,000 3,463,000 2,890,000
Net income $ 2,420,937 $ 4,418,712 $ 5,350,015 $ 4,960,820
Earnings per share:
Net income per share $.18 $.34 $.41 $.38
1993
March 31 June 30 September 30 December 31
Operating revenues $49,847,268 $55,164,708 $59,277,923 $60,426,405
Operating expenses 44,687,405 48,646,090 52,286,484 54,059,686
Operating income 5,159,863 6,518,618 6,991,439 6,366,719
Other expense 621,009 718,444 169,371 413,845
Income before taxes
and cumulative effect
of change in
accounting for
income taxes 4,538,854 5,800,174 6,822,068 5,952,874
Income taxes 1,871,000 2,388,000 2,967,000 2,286,000
Income before
cumulative effect
of accounting change 2,667,854 3,412,174 3,855,068 3,666,874
Cumulative effect as
of January 1, 1993
of change in accounting
for income taxes 500,000
Net income $ 3,167,854 $ 3,412,174 $ 3,855,068 $ 3,666,874
Earnings per share:
Earnings per share
before cumulative
effect of accounting
change $.24 $.31 $.30 $.28
Cumulative effect of
accounting change .05
Net income per share $.29 $.31 $.30 $.28
Schedule II
Valuation and Qualifying Accounts
M.S. Carriers, Inc.
Column A Column B Column C Column D Column E
Additions
Balance at Charge to Charge to Balance at
Beginning Costs and Other End
Description Of Period Expenses Accounts Deductions Of Period
Year ended December 31, 1994
Deducted from asset accounts:
Allowance for doubtful
accounts receivable $559,881 $233,854 $301,335 (1) $492,400
Year ended December 31, 1993
Deducted from asset accounts:
Allowance for doubtful
accounts receivable $377,005 $187,594 $ 4,718 (1) $559,881
Year ended December 31, 1992
Deducted from asset accounts:
Allowance for doubtful
accounts receivable $198,664 $239,200 $60,859 (1) $377,005
<FN>
(1) Uncollectible accounts written off, net of recoveries.