ITEM 1. BUSINESS
General M.S. Carriers, Inc. (with its subsidiaries, the "Company" or "M.S. Carriers") is a transportation company primarily engaged in the hauling of truckload shipments of general commodities throughout the United States and the provinces of Quebec and Ontario in Canada. The Company also provides third-party logistics services. M.S. Carriers is a Tennessee corporation headquartered in Memphis, Tennessee. The Company's principal executive's 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 689 miles in 1998 and 633 miles in 1997. 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 en route 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 689 miles, most of the Company's shipments are hauled by one driver rather than two. The relatively short trips ordinarily run by the Company make this method of operation preferable to team operations. Each of the Company's over-the-road tractors is equipped with a sleeper cab so that the driver can comply with the Department of Transportation's hours of service guidelines.
Marketing The Company's individualized service requires a strong commitment to marketing. The Company's marketing efforts concentrate on attracting customers that ship multiple loads from numerous locations that complement the Company's existing traffic flows. As shipping patterns of existing customers expand or change, the Company attempts to obtain additional customers to complement the new traffic flows. Thus, the effort to attract new customers varies from time to time depending upon growth or changes in the shipping patterns of existing customers. The Company's major revenue source is the irregular route dry van truckload market. In this market, the Company focuses on customers who value the broad geographic coverage, premium services and flexibility available from a larger carrier. These customers generally prefer to have their freight handled by a few carriers with whom they can establish long-term relationships. The Company also provides dedicated fleet services and logistics services. These services supplement the Company's strengths in its traditional market and position the Company to meet the anticipated needs of its customers. The Company had revenues of $53.6 million in 1998 and $38.8 million in 1997 from freight shipments having either a point of origin or a point of destination in Mexico. These shipments represented approximately 10.1% and 9.3%, respectively, of total revenues for 1998 and 1997.
The largest 25, 10 and 5 customers accounted for approximately 52%, 37% and 29%, respectively, of the Company's revenues during 1998. Most of these customers are large, publicly-held companies. One customer, Sears, accounted for approximately 13% of the Company's revenues during 1998 and 14% in 1997. No other customer accounted for more than 10% of the Company's revenues during 1998 or 1997.
Drivers and Employees The Company recognizes the importance of maintaining a professional driver work force. The Company has established several programs to increase driver loyalty and to give drivers a stake in the Company. The drivers are compensated on the basis of miles driven and other services such as loading and unloading and number of deliveries. Base pay for miles driven increases with a driver's length of employment with the Company. Drivers are selected in accordance with specific Company guidelines relating primarily to safety records, driving experience and personal evaluations. Once selected, a driver is trained in all phases of Company policies and operations as well as safety techniques and fuel efficient operation of equipment. In addition, all new drivers must pass a road test prior to assignment to a vehicle. Recognizing the importance of driver contact while on the road for extended periods, the Company maintains an electronic mailbox system which allows the drivers to transmit and receive messages 24 hours a day, equips each of its tractors with a mobile two-way satellite communication system and maintains regular telephonic contact between dispatchers and drivers. The Company also recognizes that owner-operators provide the Company with another source of drivers to support its operations. Traditional owner- operators are independent contractors who supply their own tractors and drivers, and are responsible for their operating expenses in return for a negotiated fee based upon number of miles driven and accessorial services provided. While the Company's primary benefit from traditional owner-operators is the acquisition of the services of a qualified driver, an additional benefit is the Company requires less capital for growth as owner-operators provide their own tractors. In late 1997, the Company began utilizing leased owner-operators. A leased owner-operator is an independent contractor who enters into an agreement with the Company or one of its subsidiaries to lease, with the option to purchase, a tractor and supplies that tractor and a driver to the Company. The Company has determined that there are many drivers who desire to own a tractor but who are unable to acquire a tractor without financial accommodations from the Company. The Company intends to continue its emphasis on recruiting and retaining owner-operators. Since competition for qualified drivers is intense, the Company emphasizes the importance of attracting and retaining qualified drivers. The Company employs driver recruiters and owner-operator recruiters. The competitive compensation programs, together with the Company's late-model equipment, relatively short trips and get-home policies provide important incentives to attract and retain qualified drivers. In addition, the Company operates a professional driving academy to train new drivers and employs full-time recruiters in connection therewith. Despite these incentives and programs, the Company experiences difficulty from time to time in attracting and retaining qualified drivers. At December 31, 1998, the Company employed 3,336 persons, of whom 2,476 were drivers, 221 were mechanics and other equipment maintenance personnel, and 639 were support personnel including management and administration. The Company also leased 739 tractors with qualified drivers from traditional owner- operators and had agreements with 264 leased owner-operators. None of the Company's employees are represented by a collective bargaining unit, and management considers the Company's relationship with its employees to be excellent.
Acquisitions The trucking industry has historically been a fragmented industry which management of the Company believes is starting to consolidate. In 1997, the Company adopted a strategy of seeking to acquire small-to-medium trucking companies throughout the United States. The Company believes any acquisition should be accretive to earnings within six months and should place the Company in new markets for customers and drivers or provide additional capacity for other new business opportunities. In September 1997, the Company completed its first acquisition, Hi-Way Express. This acquisition added 262 tractors to the Company's fleet. In March 1998, the Company concluded the purchase of certain assets of the U.S. operations of Challenger Motor Freight (U.S.), Inc., adding 195 tractors and 481 trailers to its fleet. In November 1998, the Company hired 280 drivers and added 803 trailers to its fleet in connection with a transaction with Interstate Trucking Corporation of America.
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 Shortages of fuel or increases in fuel prices could have a materially adverse effect on the operations and profitability of the Company. From time to time, the Company has implemented a fuel surcharge program in response to sudden increases in the cost of fuel. However, there is no assurance that such fuel surcharges could be used to offset future increases in fuel prices. During 1998, fuel prices have remained at levels below historical norms. 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.
ITEM 2. PROPERTIES
Office and Terminal Facilities The Company's executive offices and principal terminal are located in Memphis, Tennessee on 3-acre and 48-acre tracts of land, respectively, both of which are owned by the Company. The executive offices have 57,000 square feet of office space. The principal terminal consists of 52,000 square feet of office space and 41,000 square feet of maintenance facilities. The Company owns office and maintenance facilities of 34,500 square feet in Columbus, Ohio, 16,500 square feet in Laredo, Texas, 16,500 square feet in Martinsburg, West Virginia and 45,500 square feet in Atlanta, Georgia. Additionally, the Company owns a 3,000 square foot office and terminal on a 4- acre tract of land in Tupelo, Mississippi. The Company leases several small offices and/or trailer parking yards throughout the country.
Revenue Equipment The Company has a policy of purchasing standardized tractors and trailers manufactured to the Company's specifications. At December 31, 1998, the Company owned and operated 2,750 Company-owned tractors; leased 739 tractors owned by traditional owner-operators; and had agreements for 264 tractors with leased owner-operators. The Company owns 12,164 van trailers; all trailers are 102 inches wide with a minimum of 109.5 inches of inside height. Most of the tractors are manufactured by Freightliner and most of the trailers are manufactured by Lufkin or 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 constantly monitors the fuel efficiency of its power equipment. The following table shows the type and age of equipment operated by the Company at December 31, 1998:
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to routine litigation incidental to its business, primarily involving claims for personal injuries and property damage incurred in the transportation of freight. The Company believes adverse results in one or more of these cases would not have a material adverse effect on its financial position or its results of operations. Effective January 1, 1999, the Company self-insures the first $500,000 of liability for each occurrence involving bodily injury and property damage during the policy year. The Company also self-insures the second $500,000 of liability for each occurrence until an aggregate of $1,000,000 of liability has been paid by the Company on claims exceeding $500,000. The Company maintains insurance which covers liability in excess of the self-insured amounts at coverage levels that management considers adequate.
ITEM 4.
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 1998.
PART II
ITEM 5.
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.
On March 5, 1999, the last reported sales price of the Company's common stock was $29.75 per share. At that date, the number of shareholders of record was 191. The Company estimates that there are approximately 3,000 beneficial owners of the Company's outstanding shares of Common Stock.
Dividend Policy The Company has never paid a cash dividend on its Common Stock. It is the current intention of the Company's Board of Directors to continue to retain earnings to finance the growth of the Company's business rather than to pay dividends. Future payment of cash dividends will depend upon the financial condition, results of operations and capital commitments of the Company as well as other factors deemed relevant by the Board of Directors.
(1) Operating expenses as a percentage of operating revenues. (2) Excludes revenues from logistics services.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The sources of the Company's operating revenues were as follows:
(1) Includes Mexico transborder only.
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:
See accompanying notes.
See accompanying notes.
See accompanying notes.
See accompanying notes.
M.S. Carriers, Inc. Notes to Consolidated Financial statements
1. Nature of Business
M.S. Carriers, Inc. (the Company) operates 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, nonperishable foodstuffs, paper and paper products, household appliances, furniture and packaged petroleum products. The Company also provides logistics services.
2. Significant Accounting Policies
Organization and Principles of Consolidation The consolidated financial statements include the accounts of M.S. Carriers, Inc. and its wholly-owned subsidiaries, M.S. Carriers Warehousing and Distribution, Inc., M.S. Carriers Logistics Mexico, S.A. de C.V., M.S. International, Inc. and M.S. Global, Inc. 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 assets in the consolidated financial statements and is approximately $2,458,000 and $1,503,000 at December 31, 1998 and 1997, respectively. The Company recognized income of approximately $955,000 in 1998 and $306,000 in 1997 from its investment in EASO. The operations of EASO were approximately breakeven in 1996.
Revenue Recognition Operating revenues are recognized on the date freight is delivered.
Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
Property and Equipment Property and equipment are stated at cost. Depreciation, which includes amortization of assets held under capital leases, is computed on the straight- line method over the estimated useful lives as follows:
Buildings 15-30 years Revenue equipment 3-6 years Service equipment and other 3-5 years
Tires and tubes purchased as part of revenue equipment are capitalized as a cost of the equipment. Replacement tires and tubes are expensed when placed in service.
Goodwill and Other Intangible Assets Goodwill 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, which is net of accumulated amortization of $100,000 at December 31, 1998, is being amortized using the straight-line method over estimated useful lives of 5 to 10 years. Other intangible assets, which are net of accumulated amortization of $114,000 at December 31, 1998, are being amortized using the straight-line method over periods of up to five years.
Foreign Currency Translation Prior to January 1, 1997, the functional currency of the Company's foreign subsidiary and equity investee was the local currency, the Mexican peso. Balance sheet accounts were translated at exchange rates in effect at the end of the year and income statement accounts were translated at average exchange rates for the year. Translation gains and losses were included as a separate component of stockholders' equity. Effective January 1, 1997, Mexico was designated as a highly inflationary economy. As a result, the functional currency was changed from the local currency to the reporting currency. Translation gains and losses beginning January 1, 1997, are 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.
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 average number of common shares outstanding. Diluted earnings per share reflects the increase in average common shares outstanding that would result from the assumed exercise of outstanding stock options, calculated using the treasury stock method.
Risks and Uncertainties The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates.
Valuation of Long-Lived Assets Management periodically evaluates carrying values of long-lived assets, including property and equipment, strategic investments, goodwill and other intangible assets, to determine whether events and circumstances indicate that these assets have been impaired. An asset is considered impaired when undiscounted cash flows to be realized from such asset are less than its carrying value. In that event, a loss is determined based on the amount that the carrying value exceeds the fair market value of such asset.
Stock-Based Compensation The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25) and related interpretations as permitted by Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS No. 123).
Interest Rate Swaps The Company enters into interest rate swap agreements to modify the interest characteristics of its outstanding debt. These agreements involve the exchange of amounts based on a fixed interest rate for amounts based on variable interest rates over the life of the agreement without an exchange of the notional amount upon which the payments are based. The differential to be paid or received as interest rates change is accrued and recognized as an adjustment of interest expense related to the debt. The related amount payable to or receivable from counterparties is included in accrued expenses or other current assets. The fair value of the swap agreements and changes in the fair value as a result of changes in market interest rates are not recognized in the financial statements.
Concentrations of Credit and Market Risks Concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of entities comprising the Company's customer base and their dispersion across many different industries. The Company performs ongoing credit evaluations and generally does not require collateral. The Company's sales are principally denominated and collected in the U.S. dollar.
Comprehensive Income In 1998, the Company adopted Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS No. 130). SFAS No. 130 establishes rules for the reporting of comprehensive income and its components. Comprehensive income for the Company is presented in the consolidated statement of stockholders' equity. The adoption of SFAS No. 130 by the Company had no impact on total stockholders' equity. Prior year financial statements have been reclassified to conform with the requirements of SFAS No. 130. The Company's comprehensive income consists of net income and foreign currency translation adjustments.
Recently Issued Accounting Pronouncements During 1998, the Financial Accounting Standards Board 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 values of a derivative are accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. SFAS No. 133 is effective for the Company's fiscal year 2000. Management anticipates that the adoption of SFAS No. 133 will not have a significant effect on the results of operations or financial position of the Company.
Reclassifications Certain amounts in the 1997 and 1996 consolidated financial statements have been reclassified to conform with the 1998 presentation.
3. Change in Accounting Estimate
Effective February 1, 1996, the Company changed the estimated salvage value of substantially all of its trailers to more accurately reflect market conditions. This change in accounting estimate decreased depreciation expense in 1996 by approximately $3,500,000, resulting in an increase in net income of approximately $2,200,000 and an increase in both basic and diluted earnings per share of $.18 per share for the year ended December 31, 1996.
4. 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. The acquisition resulted in goodwill of $500,000. In November 1998, the Company acquired substantially all of the assets, consisting primarily of revenue equipment, and assumed certain liabilities of a truckload caier 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. The acquisition resulted in goodwill of $450,000. In September 1997, the Company acquired substantially all of the assets and assumed certain liabilities of a truckload carrier located in Arkansas. The Company acquired assets, which consisted primarily of revenue equipment, totaling approximately $19,575,000 and assumed liabilities, which consisted primarily of capitalized lease obligations, totaling approximately $15,943,000. In connection with this acquisition, the Company issued to the seller 153,468 shares of the Company's common stock valued at $3,575,805, recorded approximately $443,000 in deferred payments and paid cash of $673,000. The acquisition resulted in goodwill of approximately $1,060,000. 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.
5. Long-Term Obligations
Long-term obligations consist of the following:
The Company has a line of credit available for borrowings of up to $60,000,000 with interest at the lower of the bank's prime rate or the 30-day LIBOR rate plus .45% (5.99% at December 31, 1998). The balance outstanding under this line of credit was $38,575,000 and $38,472,189 at December 31, 1998 and 1997, respectively. There are no commitment fees or compensating balance requirements for the line of credit, which expires June 1, 2000. The Company also has an agreement with a bank to provide for borrowings of up to $10,000,000 under a line of credit. The line of credit bears interest at varying rates based upon the lower of the bank's prime rate or the 30-day LIBOR rate plus .45% (5.9 at December 31, 1998). The balance outstanding under this line of credit, which expires June 3, 1999, was $10,000,000 at December 31, 1998 and 1997. This amount is classified as a long-term obligation in the accompanying consolidated balance sheets because the Company intends to refinance the line of credit on a long-term basis through a new credit facility or through the existing $60,000,000 line of credit. During 1998, the Company entered into an agreement with a bank to provide for borrowings of up to $10,000,000 under a new line of credit. The line of credit bears interest at the lower of the banks' prime rate or the 30-day LIBOR rate plus .45% (5.99% at December 31, 1988) and expires April 26, 2000. The balance outstanding under this line of credit was $10,000,000 at December 31, 1998. During 1998, the Company entered into various lease agreements to lease revenue equipment with a fair value of approximately $86,802,000. These capital leases are secured by the related revenue equipment and bear interest at fixed and variable rates. Additionally, in connection with the 1998 acquisitions described in Note 4, 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.
During 1997, the Company entered into a sale-leaseback transaction related to revenue equipment with a fair value of approximately $18,300,000. These capital leases are secured by the related revenue equipment and bear interest at varying rates based upon the 30-day LIBOR less .60%. Additionally, in connection with the 1997 acquisition described in Note 4, the Company assumed approximately $15,700,000 in capitalized lease obligations related to acquired revenue equipment with a fair value of approximately $19,175,000 at the time of acquisition. The Company's capital leases, including new leases entered into or assumed in 1998 and 1997, 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, 1998 and 1997, of approximately $116,256,000 and $56,445,000, respectively, which is net of accumulated amortization of $17,962,000 and $10,630,000, respectively, and bear interest at fixed and variable rates ranging from 4.2% to 8.0%. The weighted-average interest rate on the Company's fixed-rate debt is approximately 5.9% at December 31, 1998. At December 31, 1998, the Company has entered into interest rate swaps which convert floating interest rates to fixed interest rates ranging from 5.74% to 6.50% for a total notional amount of $70 million. Certain of the Company's debt agreements contain covenants including required ratios of notes payable to net worth and notes payable to cash flow. The future maturities of long-term debt and future minimum lease payments under capitalized lease obligations, by year and in the aggregate, consist of the following at December 31, 1998:
The Company paid interest of approximately $8,344,000 in 1998, $5,775,000 in 1997, and $4,769,000 in 1996.
6. Claims Payable
Under an agreement with its insurance underwriters through December 31, 1998, the Company 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. Excess liability is assumed by the insurance underwriters. Reserves for claims are provided in amounts which management considers adequate. Effective January 1, 1999, the Company entered into a new agreement to reduce its self-insured retention limit for accident claims. The Company self-insures employee health claims up to $175,000 per employee per policy year and workers' compensation claims up to $300,000 per employee per policy year and has provided reserves which management considers adequate for the Company's estimated liability for covered claims.
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:
The effective tax rate varied from the statutory federal income tax rate of 35% as follows:
Income tax payments (refunds) were approximately $13,078,000 in 1998, $351,000 in 1997, and $(2,046,000) in 1996.
Significant components of the Company's deferred tax liabilities and assets as of December 31 are as follows:
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 $1,318,000 in 1998, $1,098,000 for 1997, and $1,178,000 for 1996.
9. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
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 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 1998, 1997, and 1996, respectively: risk-free interest rates of 5.7% in 1998, 5.3% in 1997, and 6.6% in 1996, a volatility factor of the expected market price of the Company's common stock of .30 in 1998, .27 in 1997, and .25 in 1996; 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 period. The Company's SFAS No. 123 pro forma information follows:
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.
A summary of the Company's stock option plan activity is as follows:
Options exercisable were 315,500, 200,833 and 177,999 at December 31, 1998, 1997, and 1996, respectively. The weighted-average fair value of options granted during 1998, 1997, and 1996 was $11.43, $8.86, and $8.37, respectively. Exercise prices for options outstanding as of December 31, 1998 ranged from $7.19 to $34.25. At December 31, 1998, the Company had reserved 403,667 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, 1998:
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 on the Company's financial position or results of operations.
12. Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value. The book value of long-term obligations, including current portion, approximates fair value based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. The fair value of the Company's interest rate swap agreements is a liability of approximately $3.8 million at December 31, 1998.
13. Industry Segments
In 1998, the Company adopted Statement of Financial Accounting Standards No. 131, Disclosures About Segments of an Enterprise and Related Information, which changes the way the Company reports information about its operating segments. The information for 1997 and 1996 has been restated from the prior years' presentation in order to conform with the 1998 presentation. 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. A trucking customer, Sears, accounted for 10% or more of revenues in 1998, 1997, and 1996 with revenues of $66,428,000, $59,577,000, and $57,358,000, respectively.
Summarized segment information is shown in the following table:
Due to the minimal amount of long-lived assets required by the logistics operations, the Company does not separately report such assets and related depreciation and amortization expense in its financial records used for allocating Company resources and evaluating operating performance. The Company allocated operating overhead costs of approximately $2,930,000, $2,300,000, and $1,260,000 in 1998, 1997, and 1996, 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.
14. Selected Quarterly Data (Unaudited)
Summarized quarterly data for 1998 and 1997 follows:
Schedule II Valuation and Qualifying Accounts
M.S. Carriers, Inc.
(1) Uncollectible accounts written off, net of recoveries.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The sources of the Company's operating revenues were as follows:
(1) Includes Mexico transborder only.
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:
See accompanying notes.
See accompanying notes.
See accompanying notes.
See accompanying notes.
M.S. Carriers, Inc. Notes to Consolidated Financial statements
1. Nature of Business
M.S. Carriers, Inc. (the Company) operates 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, nonperishable foodstuffs, paper and paper products, household appliances, furniture and packaged petroleum products. The Company also provides logistics services.
2. Significant Accounting Policies
Organization and Principles of Consolidation The consolidated financial statements include the accounts of M.S. Carriers, Inc. and its wholly-owned subsidiaries, M.S. Carriers Warehousing and Distribution, Inc., M.S. Carriers Logistics Mexico, S.A. de C.V., M.S. International, Inc. and M.S. Global, Inc. 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 assets in the consolidated financial statements and is approximately $2,458,000 and $1,503,000 at December 31, 1998 and 1997, respectively. The Company recognized income of approximately $955,000 in 1998 and $306,000 in 1997 from its investment in EASO. The operations of EASO were approximately breakeven in 1996.
Revenue Recognition Operating revenues are recognized on the date freight is delivered.
Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
Property and Equipment Property and equipment are stated at cost. Depreciation, which includes amortization of assets held under capital leases, is computed on the straight- line method over the estimated useful lives as follows:
Buildings 15-30 years Revenue equipment 3-6 years Service equipment and other 3-5 years
Tires and tubes purchased as part of revenue equipment are capitalized as a cost of the equipment. Replacement tires and tubes are expensed when placed in service.
Goodwill and Other Intangible Assets Goodwill 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, which is net of accumulated amortization of $100,000 at December 31, 1998, is being amortized using the straight-line method over estimated useful lives of 5 to 10 years. Other intangible assets, which are net of accumulated amortization of $114,000 at December 31, 1998, are being amortized using the straight-line method over periods of up to five years.
Foreign Currency Translation Prior to January 1, 1997, the functional currency of the Company's foreign subsidiary and equity investee was the local currency, the Mexican peso. Balance sheet accounts were translated at exchange rates in effect at the end of the year and income statement accounts were translated at average exchange rates for the year. Translation gains and losses were included as a separate component of stockholders' equity. Effective January 1, 1997, Mexico was designated as a highly inflationary economy. As a result, the functional currency was changed from the local currency to the reporting currency. Translation gains and losses beginning January 1, 1997, are 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.
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 average number of common shares outstanding. Diluted earnings per share reflects the increase in average common shares outstanding that would result from the assumed exercise of outstanding stock options, calculated using the treasury stock method.
Risks and Uncertainties The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from those estimates.
Valuation of Long-Lived Assets Management periodically evaluates carrying values of long-lived assets, including property and equipment, strategic investments, goodwill and other intangible assets, to determine whether events and circumstances indicate that these assets have been impaired. An asset is considered impaired when undiscounted cash flows to be realized from such asset are less than its carrying value. In that event, a loss is determined based on the amount that the carrying value exceeds the fair market value of such asset.
Stock-Based Compensation The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25) and related interpretations as permitted by Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS No. 123).
Interest Rate Swaps The Company enters into interest rate swap agreements to modify the interest characteristics of its outstanding debt. These agreements involve the exchange of amounts based on a fixed interest rate for amounts based on variable interest rates over the life of the agreement without an exchange of the notional amount upon which the payments are based. The differential to be paid or received as interest rates change is accrued and recognized as an adjustment of interest expense related to the debt. The related amount payable to or receivable from counterparties is included in accrued expenses or other current assets. The fair value of the swap agreements and changes in the fair value as a result of changes in market interest rates are not recognized in the financial statements.
Concentrations of Credit and Market Risks Concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of entities comprising the Company's customer base and their dispersion across many different industries. The Company performs ongoing credit evaluations and generally does not require collateral. The Company's sales are principally denominated and collected in the U.S. dollar.
Comprehensive Income In 1998, the Company adopted Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS No. 130). SFAS No. 130 establishes rules for the reporting of comprehensive income and its components. Comprehensive income for the Company is presented in the consolidated statement of stockholders' equity. The adoption of SFAS No. 130 by the Company had no impact on total stockholders' equity. Prior year financial statements have been reclassified to conform with the requirements of SFAS No. 130. The Company's comprehensive income consists of net income and foreign currency translation adjustments.
Recently Issued Accounting Pronouncements During 1998, the Financial Accounting Standards Board 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 values of a derivative are accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. SFAS No. 133 is effective for the Company's fiscal year 2000. Management anticipates that the adoption of SFAS No. 133 will not have a significant effect on the results of operations or financial position of the Company.
Reclassifications Certain amounts in the 1997 and 1996 consolidated financial statements have been reclassified to conform with the 1998 presentation.
3. Change in Accounting Estimate
Effective February 1, 1996, the Company changed the estimated salvage value of substantially all of its trailers to more accurately reflect market conditions. This change in accounting estimate decreased depreciation expense in 1996 by approximately $3,500,000, resulting in an increase in net income of approximately $2,200,000 and an increase in both basic and diluted earnings per share of $.18 per share for the year ended December 31, 1996.
4. 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. The acquisition resulted in goodwill of $500,000. In November 1998, the Company acquired substantially all of the assets, consisting primarily of revenue equipment, and assumed certain liabilities of a truckload caier 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. The acquisition resulted in goodwill of $450,000. In September 1997, the Company acquired substantially all of the assets and assumed certain liabilities of a truckload carrier located in Arkansas. The Company acquired assets, which consisted primarily of revenue equipment, totaling approximately $19,575,000 and assumed liabilities, which consisted primarily of capitalized lease obligations, totaling approximately $15,943,000. In connection with this acquisition, the Company issued to the seller 153,468 shares of the Company's common stock valued at $3,575,805, recorded approximately $443,000 in deferred payments and paid cash of $673,000. The acquisition resulted in goodwill of approximately $1,060,000. 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.
5. Long-Term Obligations
Long-term obligations consist of the following:
The Company has a line of credit available for borrowings of up to $60,000,000 with interest at the lower of the bank's prime rate or the 30-day LIBOR rate plus .45% (5.99% at December 31, 1998). The balance outstanding under this line of credit was $38,575,000 and $38,472,189 at December 31, 1998 and 1997, respectively. There are no commitment fees or compensating balance requirements for the line of credit, which expires June 1, 2000. The Company also has an agreement with a bank to provide for borrowings of up to $10,000,000 under a line of credit. The line of credit bears interest at varying rates based upon the lower of the bank's prime rate or the 30-day LIBOR rate plus .45% (5.9 at December 31, 1998). The balance outstanding under this line of credit, which expires June 3, 1999, was $10,000,000 at December 31, 1998 and 1997. This amount is classified as a long-term obligation in the accompanying consolidated balance sheets because the Company intends to refinance the line of credit on a long-term basis through a new credit facility or through the existing $60,000,000 line of credit. During 1998, the Company entered into an agreement with a bank to provide for borrowings of up to $10,000,000 under a new line of credit. The line of credit bears interest at the lower of the banks' prime rate or the 30-day LIBOR rate plus .45% (5.99% at December 31, 1988) and expires April 26, 2000. The balance outstanding under this line of credit was $10,000,000 at December 31, 1998. During 1998, the Company entered into various lease agreements to lease revenue equipment with a fair value of approximately $86,802,000. These capital leases are secured by the related revenue equipment and bear interest at fixed and variable rates. Additionally, in connection with the 1998 acquisitions described in Note 4, 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.
During 1997, the Company entered into a sale-leaseback transaction related to revenue equipment with a fair value of approximately $18,300,000. These capital leases are secured by the related revenue equipment and bear interest at varying rates based upon the 30-day LIBOR less .60%. Additionally, in connection with the 1997 acquisition described in Note 4, the Company assumed approximately $15,700,000 in capitalized lease obligations related to acquired revenue equipment with a fair value of approximately $19,175,000 at the time of acquisition. The Company's capital leases, including new leases entered into or assumed in 1998 and 1997, 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, 1998 and 1997, of approximately $116,256,000 and $56,445,000, respectively, which is net of accumulated amortization of $17,962,000 and $10,630,000, respectively, and bear interest at fixed and variable rates ranging from 4.2% to 8.0%. The weighted-average interest rate on the Company's fixed-rate debt is approximately 5.9% at December 31, 1998. At December 31, 1998, the Company has entered into interest rate swaps which convert floating interest rates to fixed interest rates ranging from 5.74% to 6.50% for a total notional amount of $70 million. Certain of the Company's debt agreements contain covenants including required ratios of notes payable to net worth and notes payable to cash flow. The future maturities of long-term debt and future minimum lease payments under capitalized lease obligations, by year and in the aggregate, consist of the following at December 31, 1998:
The Company paid interest of approximately $8,344,000 in 1998, $5,775,000 in 1997, and $4,769,000 in 1996.
6. Claims Payable
Under an agreement with its insurance underwriters through December 31, 1998, the Company 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. Excess liability is assumed by the insurance underwriters. Reserves for claims are provided in amounts which management considers adequate. Effective January 1, 1999, the Company entered into a new agreement to reduce its self-insured retention limit for accident claims. The Company self-insures employee health claims up to $175,000 per employee per policy year and workers' compensation claims up to $300,000 per employee per policy year and has provided reserves which management considers adequate for the Company's estimated liability for covered claims.
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:
The effective tax rate varied from the statutory federal income tax rate of 35% as follows:
Income tax payments (refunds) were approximately $13,078,000 in 1998, $351,000 in 1997, and $(2,046,000) in 1996.
Significant components of the Company's deferred tax liabilities and assets as of December 31 are as follows:
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 $1,318,000 in 1998, $1,098,000 for 1997, and $1,178,000 for 1996.
9. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
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 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 1998, 1997, and 1996, respectively: risk-free interest rates of 5.7% in 1998, 5.3% in 1997, and 6.6% in 1996, a volatility factor of the expected market price of the Company's common stock of .30 in 1998, .27 in 1997, and .25 in 1996; 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 period. The Company's SFAS No. 123 pro forma information follows:
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.
A summary of the Company's stock option plan activity is as follows:
Options exercisable were 315,500, 200,833 and 177,999 at December 31, 1998, 1997, and 1996, respectively. The weighted-average fair value of options granted during 1998, 1997, and 1996 was $11.43, $8.86, and $8.37, respectively. Exercise prices for options outstanding as of December 31, 1998 ranged from $7.19 to $34.25. At December 31, 1998, the Company had reserved 403,667 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, 1998:
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 on the Company's financial position or results of operations.
12. Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value. The book value of long-term obligations, including current portion, approximates fair value based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. The fair value of the Company's interest rate swap agreements is a liability of approximately $3.8 million at December 31, 1998.
13. Industry Segments
In 1998, the Company adopted Statement of Financial Accounting Standards No. 131, Disclosures About Segments of an Enterprise and Related Information, which changes the way the Company reports information about its operating segments. The information for 1997 and 1996 has been restated from the prior years' presentation in order to conform with the 1998 presentation. 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. A trucking customer, Sears, accounted for 10% or more of revenues in 1998, 1997, and 1996 with revenues of $66,428,000, $59,577,000, and $57,358,000, respectively.
Summarized segment information is shown in the following table:
Due to the minimal amount of long-lived assets required by the logistics operations, the Company does not separately report such assets and related depreciation and amortization expense in its financial records used for allocating Company resources and evaluating operating performance. The Company allocated operating overhead costs of approximately $2,930,000, $2,300,000, and $1,260,000 in 1998, 1997, and 1996, 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.
14. Selected Quarterly Data (Unaudited)
Summarized quarterly data for 1998 and 1997 follows:
Schedule II Valuation and Qualifying Accounts
M.S. Carriers, Inc.
(1) Uncollectible accounts written off, net of recoveries.
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