<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended Commission file number
SEPTEMBER 30, 1996 0-24806
U.S. XPRESS ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
NEVADA 62-1378182
(State or other jurisdiction of (I.R.S. employer
Incorporation or organization) identification no.)
2931 SOUTH MARKET STREET
CHATTANOOGA, TENNESSEE 37410 (423) 697-7377
(Address of principal executive offices) (Zip Code) (Registrant's
telephone no.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- -------
As of September 30, 1996, 9,037,198 shares of the registrant's Class A
common stock, par value $.01 per share, and 3,040,262 shares of Class B common
stock, par value $.01 per share, were outstanding.
Page 1 of 20 Pages
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U.S. XPRESS ENTERPRISES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements.................... 3
------
Consolidated Statements of Operations
for the Three and Six Months Ended
September 30, 1996 and 1995................................... 4
Consolidated Balance Sheets as of
September 30, 1996 and March 31, 1996......................... 5
Consolidated Statements of Cash Flows for the
Six Months Ended September 30, 1996 and 1995.................. 7
Notes to Consolidated Financial Statements.................... 8
Item 2. Management's Discussion and Analysis
------
of Financial Condition and Results
of Operations........................................ 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................... 19
------
SIGNATURES............................................................. 20
</TABLE>
EXHIBIT 10.25 Amendment No. 2 to Credit Agreement with NationsBank
2
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U.S. XPRESS ENTERPRISES, INC.
PART I
FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
The interim consolidated financial statements contained herein reflect
all adjustments which, in the opinion of management, are necessary for a fair
statement of the financial condition and results of operations for the periods
presented. They have been prepared by the Company, without audit, in accordance
with the instructions to Form 10-Q and the rules and regulations of the
Securities and Exchange Commission and do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
Operating results for the six months ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the year ending
March 31, 1997. In the opinion of management, all adjustments necessary for a
fair presentation of such financial statements have been included. Such
adjustments consisted only of items that are of a normal recurring nature.
These interim consolidated financial statements should be read in
conjunction with the Company's latest annual consolidated financial statements
(which are included in the 1996 Annual Report to Stockholders, which is
incorporated by reference in the Company's Form 10-K filed with the Securities
and Exchange Commission on June 28, 1996).
3
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U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
OPERATING REVENUE $92,106 $71,744 $179,923 $136,775
------- ------- -------- --------
OPERATING EXPENSES:
Salaries, wages and employee benefits,
including contract wages 37,821 31,255 74,029 60,381
Fuel and fuel taxes 14,767 11,619 29,118 22,625
Vehicle rents 5,195 4,374 9,901 8,317
Depreciation and amortization 3,754 3,805 8,070 7,811
Purchased transportation 5,665 4,489 12,059 7,894
Operating expenses and supplies 5,340 5,316 11,459 10,200
Insurance premiums and claims 4,203 2,961 8,492 5,946
Operating taxes and licenses 1,455 1,128 2,908 2,354
Communications and utilities 1,576 1,262 3,123 2,365
Cost of installation supplies sold 2,293 755 4,484 755
Building rental 1,220 719 2,412 1,262
Bad debt expense 204 308 412 445
General and other operating expenses 2,812 2,353 5,467 4,170
Gain on sales of equipment (225) (350) (278) (479)
Equity in earnings of unconsolidated affiliate - (30) - (106)
------- ------- -------- --------
Total operating expenses 86,080 69,964 171,656 133,940
------- ------- -------- --------
INCOME FROM OPERATIONS 6,026 1,780 8,267 2,835
------- ------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense, net (1,399) (1,229) (2,751) (2,491)
Other income (expense), net (16) 20 (9) 24
------- ------- -------- --------
Total other expense (1,415) (1,209) (2,760) (2,467)
------- ------- -------- --------
INCOME BEFORE INCOME TAX PROVISION 4,611 571 5,507 368
INCOME TAX PROVISION (1,866) (220) (2,210) (105)
------- ------- -------- --------
NET INCOME $ 2,745 $ 351 $ 3,297 $ 263
======= ======= ======== ========
EARNINGS PER COMMON SHARE $ 0.23 $ 0.03 $ 0.27 $ 0.02
======= ======= ======== ========
WEIGHTED AVERAGE COMMON SHARES
AND COMMON SHARE EQUIVALENTS OUTSTANDING 12,137 11,982 12,134 11,982
======= ======= ======== ========
</TABLE>
(See accompanying Notes to Consolidated Financial Statements)
4
<PAGE>
U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 MARCH 31, 1996
------------------ --------------
(Unaudited)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 5,610 $ 4,378
Customer receivables, net of allowance 47,586 41,910
Other receivables 4,609 4,318
Prepaid insurance and licenses 2,171 4,837
Operating supplies 4,097 4,033
Deferred income taxes 3,888 3,888
Other current assets 418 482
-------- --------
Total current assets 68,379 63,846
-------- --------
PROPERTY AND EQUIPMENT, AT COST:
Land and buildings 2,717 2,232
Revenue and service equipment 120,248 126,501
Furniture and equipment 10,519 10,325
Leasehold improvements 6,119 5,086
-------- --------
139,603 144,144
Less accumulated depreciation and amortization (42,079) (39,702)
-------- --------
Net property and equipment 97,524 104,442
-------- --------
OTHER ASSETS:
Goodwill, net 7,844 6,579
Other 3,467 2,954
-------- --------
Total other assets 11,311 9,533
-------- --------
TOTAL ASSETS $177,214 $177,821
======== ========
</TABLE>
(See accompanying Notes to Consolidated Financial Statements)
5
<PAGE>
U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 MARCH 31, 1996
------------------ --------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 7,989 $ 10,025
Accrued wages and benefits 5,845 5,543
Claims and insurance accruals 11,041 11,465
Other accrued liabilities 6,206 3,378
Current maturities of long-term debt 12,196 13,829
-------- --------
Total current liabilities 43,277 44,240
-------- --------
LONG-TERM DEBT, NET OF CURRENT MATURITIES 58,989 61,789
-------- --------
DEFERRED INCOME TAXES 10,885 10,885
-------- --------
OTHER LONG-TERM LIABILITIES 5,663 5,821
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 2,000,000
shares authorized, no shares issued - -
Common stock Class A, $.01 par value,
30,000,000 shares authorized, 9,037,198
and 9,034,884 shares issued and outstanding
at September 30, 1996 and March 31, 1996,
respectively 90 89
Common stock Class B, $.01 par value, 7,500,000
shares authorized, 3,040,262 shares issued
and outstanding at September 30, 1996 and
March 31, 1996 30 30
Additional paid-in capital 33,790 33,774
Retained earnings 24,862 21,565
Notes receivable from stockholders (372) (372)
-------- --------
Total stockholders' equity 58,400 55,086
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $177,214 $177,821
======== ========
</TABLE>
(See accompanying Notes to Consolidated Financial Statements)
6
<PAGE>
U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
1996 1995
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,297 $ 263
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred income tax provision - 104
Depreciation and amortization 8,070 7,811
Gain on sales of equipment (278) (479)
Equity in earnings of unconsolidated affiliate - (106)
Net increase in receivables (5,967) (9,782)
Decrease in prepaid insurance and licenses 2,666 1,380
Increase in operating supplies (64) (167)
Increase in other assets (2,029) (1,626)
Increase in accounts payable and other
accrued liabilities 368 5,655
Increase (decrease) in accrued wages and benefits 302 (419)
Other 16 12
------- -------
Net cash provided by operating activities 6,381 2,646
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchases of property and equipment (9,148) (9,196)
Proceeds from sales of property and equipment 9,447 7,284
Acquisition of subsidiary, net of cash acquired - (6,227)
------- -------
Net cash provided (used) in investing activities 299 (8,139)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under lines of credit 1,500 6,965
Payment of long-term debt (8,815) (8,055)
Borrowings under long-term debt 2,025 1,673
Decrease in other liabilities (158) (262)
------- -------
Net cash provided (used) in financing activities (5,448) 321
------- -------
NET INCREASE (DECREASE) IN CASH 1,232 (5,172)
Cash, beginning of period 4,378 6,367
------- -------
Cash, end of period $ 5,610 $ 1,195
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 3,000 $ 2,645
======= =======
Cash paid during the period for income taxes $ 236 $ 285
======= =======
</TABLE>
(See accompanying Notes to Consolidated Financial Statements)
7
<PAGE>
U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND OPERATIONS
U.S. Xpress Enterprises, Inc. ("Enterprises" or the "Company") is a
holding company which operates primarily through several wholly-owned
subsidiaries: U.S. Xpress, Inc. ("U.S. Xpress"), National Xpress Logistics, Inc.
("NXL"), CSI/Crown, Inc. ("CSI/Crown") and Hall Systems, Inc. ("Hall Systems").
U.S. Xpress is a time-definite truckload carrier providing service to the
continental 48 states and Canada; NXL is a contract logistics management
provider; CSI/Crown is a freight consolidator to the floorcovering industry and
Hall Systems is a regional truckload carrier providing service to 14 states in
the Southeast.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany transactions and
accounts have been eliminated.
PROPERTY AND EQUIPMENT
Depreciation and amortization of property and equipment is computed
using the straight-line method for financial reporting purposes and accelerated
methods for tax purposes over the estimated useful lives of the related assets
(net of salvage value) as follows:
Buildings.........................................10-30 years
Revenue and service equipment..................... 3-7 years
Furniture and equipment........................... 3-7 years
Leasehold improvements............................ 5-6 years
Upon the retirement of property and equipment, the related asset cost and
accumulated depreciation are removed from the accounts and any gain or loss is
reflected in the Company's statement of operations, with the exception of gains
on trade-ins, which are included in the basis of the new asset.
INCOME TAXES
Income taxes are accounted for using the provisions of Statement of
Financial Accounting Standards No. 109 ("SFAS No. 109"), "Accounting for Income
Taxes". Under SFAS No. 109, deferred tax assets and liabilities are computed
based on the difference between the financial statement and income tax basis of
assets and liabilities using the enacted marginal tax rate. Deferred income tax
expenses or credits are based on the changes in the asset or liability from
period to period.
8
<PAGE>
U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
CONTRACT WAGES
Prior to August 1996, the Company leased a substantial portion of its
personnel, including drivers, from an independent personnel leasing company.
Under the lease agreements, the Company paid a contracted amount per person and
the personnel leasing company had the responsibility for payroll, unemployment
insurance and workers' compensation claims. In August 1996, the lease
agreements with the independent personnel leasing company were terminated and
the personnel previously leased under these agreements became employees of the
Company.
EARNINGS PER SHARE
Earnings per share is computed based on the weighted average number of
common shares outstanding plus the dilutive effect of outstanding common stock
options.
RECLASSIFICATIONS
Certain reclassifications have been made in the fiscal 1996 financial
statements to conform with the fiscal 1997 presentation.
3. COMMITMENTS AND CONTINGENCIES
The Company is party to certain legal proceedings incidental to its
business. The ultimate disposition of these matters, in the opinion of
management, based in part on the advice of legal counsel, will not have a
material adverse effect on the Company's financial position or results of
operations.
The Company has letters of credit of $3,055,000 outstanding at September
30, 1996. The letters of credit are maintained primarily to support the
Company's insurance program.
4. REVOLVING LINE OF CREDIT AGREEMENT
The Company has an unsecured credit agreement (the "Credit Agreement") with
a group of banks. The Credit Agreement operates as a revolving credit facility
until November, 1997, at which time it will convert to a three year installment
loan, if not extended or renewed.
Borrowings (including letters of credit) under the Credit Agreement are
limited to the lesser of: (a) 90% of the book value of eligible revenue
equipment plus 85% of eligible
9
<PAGE>
accounts receivable; or (b) $50,000,000. At September 30, 1996, $13,964,000 was
unused and available to the Company under the Credit Agreement.
The Credit Agreement contains a number of covenants that limit, among other
things, the payment of dividends, the incurrence of additional debt, and the
pledge of assets as security for other indebtedness. The Credit Agreement also
requires the Company to meet certain financial tests, including a minimum amount
of tangible net worth, a minimum fixed charge coverage and a maximum amount of
leverage. The Company was in compliance with these covenants during the period
ended September 30, 1996.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's operating subsidiaries each serve different transportation
service markets but utilize an integrated operating and marketing strategy.
U.S. Xpress serves the medium-to-long haul market segment. CSI/Crown offers
specialized transportation services, principally to the floorcovering industry.
Hall Systems serves the short-to-medium haul market segment in the southeastern
United States. NXL provides contract logistics management services.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the components
of the consolidated statements of income expressed as a percentage of operating
revenue:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
OPERATING REVENUE 100% 100% 100% 100%
------ ------ ------ ------
OPERATING EXPENSES:
Salaries, wages and employee benefits,
including contract wages 41.1 43.5 41.2 44.2
Fuel and fuel taxes 16.0 16.2 16.2 16.5
Vehicle rents 5.6 6.1 5.5 6.1
Depreciation and amortization 4.1 5.3 4.5 5.7
Purchased transportation 6.2 6.2 6.7 5.8
Operating expenses and supplies 5.8 7.4 6.4 7.5
Insurance premiums and claims 4.6 4.1 4.7 4.3
Operating taxes and licenses 1.6 1.6 1.6 1.7
Communications and utilities 1.7 1.8 1.7 1.7
Cost of installation supplies sold 2.5 1.1 2.5 0.6
Building rental 1.3 1.0 1.3 0.9
Bad debt expense 0.2 0.4 0.2 0.3
General and other operating expenses 3.0 3.3 3.1 3.0
Gain on sales of equipment (0.2) (0.5) (0.2) (0.4)
Equity in earnings of unconsolidated affiliate - - - -
------ ------ ------ ------
Total operating expenses 93.5 97.5 95.4 97.9
------ ------ ------ ------
INCOME FROM OPERATIONS 6.5 2.5 4.6 2.1
------ ------ ------ ------
OTHER INCOME (EXPENSE):
Interest expense, net (1.5) (1.7) (1.5) (1.8)
Other income, net - - - -
------ ------ ------ ------
Total other expense (1.5) (1.7) (1.5) (1.8)
------ ------ ------ ------
INCOME BEFORE INCOME TAX PROVISION 5.0 0.8 3.1 0.3
INCOME TAX PROVISION (2.0) (0.3) (1.3) (0.1)
------ ------ ------ ------
NET INCOME 3.0% 0.5% 1.8% 0.2%
====== ====== ====== ======
</TABLE>
11
<PAGE>
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1996 TO THE
THREE MONTHS ENDED SEPTEMBER 30, 1995
Certain actions taken by the Company over the last year resulted in
improved performance in the second quarter of fiscal 1997 ended September 30,
1996. The mergers of four subsidiaries into two in early 1996 improved
operating efficiency and equipment utilization. In addition, the Company is
implementing a series of cost reductions, including: reduced maintenance costs,
which were nearly one cent per mile lower in the current quarter than in the
same quarter last year; and improved administrative support, where the ratio of
trucks to non-driver employees is improving.
Demand from customers in many key industries the Company serves --
electronics and appliances, air freight, industrial, retail, building products
and floor coverings -- was strong during the second fiscal quarter. The
Company's U.S. Xpress subsidiary operated at full capacity throughout the
quarter. Utilization at U.S. Xpress, as measured by revenue per tractor per
week, increased to a record $2,923 in the second fiscal quarter, up 7.8% from
$2,711 in the comparable quarter last year. Near the end of fiscal 1996, the
Company adopted a plan to reduce the growth of its tractor fleet and to add
capacity only as customer demand warranted and as certain utilization goals were
met. Strong demand, full capacity and high utilization led the Company to add
104 tractors to the U.S. Xpress fleet during the quarter ended September 30,
1996. These additions to capacity and any future ones are being made only as
market conditions dictate and as the Company meets its minimum utilization goal
of $2,800 per tractor per week in the U.S. Xpress fleet.
Operating revenue during the three month period ended September 30, 1996
increased $20.4 million, or 28.4%, to $92.1 million, compared to $71.7 million
during the same period in 1995. This increase resulted primarily from the
fiscal 1996 acquisitions of CSI/Reeves and Hall Systems, which together
contributed $13.1 million of the $20.4 million increase. U.S. Xpress
contributed $8.9 million to the increase, while revenue from NXL decreased by
$1.6 million. Increased U.S. Xpress revenue resulted from increased revenue
miles and slightly increased rates per revenue mile.
Operating expenses represented 93.5% of operating revenue during the three
month period ended September 30, 1996, compared to 97.5% during the same period
in 1995.
As a percentage of operating revenue, salaries, wages, and employee
benefits were 41.1% during the three month period ended September 30, 1996,
compared to 43.5% during the same period in 1995. This decrease resulted from
salaries and wages for both Hall Systems and CSI/Crown representing a lower
percentage of operating revenue due to the utilization of owner-operators at
Hall Systems and the utilization of outside linehaul carriers at CSI/Crown. All
owner-operator expenses and purchased linehaul services are reflected as
purchased transportation.
As a percentage of operating revenue, fuel and fuel taxes were 16.0% during
the three month period ended September 30, 1996, compared to 16.2% during the
same period in
12
<PAGE>
1995. A significant increase in fuel costs, offset by the increase in non-
transportation revenue from CSI/Crown (as a result of the August 1995
acquisition of CSI/Reeves), the addition of owner-operator revenue from Hall
Systems and an increase in transportation revenue from CSI/Crown, resulted in
this slight decrease. The Company's average price per gallon for fuel for the
three month period ended September 30, 1996 was $1.172, compared to $1.070 for
the same period in 1995. The effect of this 9.5% increase in the average price
per gallon was to increase fuel costs by approximately $1.1 million for the
three month period ended September 30, 1996 over the same period in 1995. Non-
transportation revenue from CSI/Crown does not require Company expenditures for
fuel and fuel taxes. Transportation revenue from CSI/Crown, which is served
through the Company's purchase of transportation from third parties, and owner-
operator revenue from Hall Systems also do not require expenditures for fuel and
fuel taxes. Excluding the above-mentioned increases in revenue, fuel and fuel
taxes as a percentage of operating revenue would have been 17.5% during the
three month period ended September 30, 1996.
As a percentage of operating revenue, vehicle rents were 5.6% during the
three month period ended September 30, 1996, compared to 6.1% during the same
period in 1995. Depreciation and amortization represented 4.1% of revenue during
the three month period ended September 30, 1996, compared to 5.3% during the
same period in 1995. Overall, as a percentage of operating revenue, vehicle
rents and depreciation were 9.7% during the three month period ended September
30, 1996, compared to 11.4% during the same period in 1995. This decrease was
primarily attributable to increased non-transportation revenue from CSI/Crown
for warehousing and the sale of installation supplies, the addition of owner-
operator revenue from Hall Systems and an increase in transportation revenue
from CSI/Crown. Additionally, improved equipment utilization at U.S. Xpress
during the three month period ended September 30, 1996 resulted in increased
revenue per unit of revenue equipment. Revenue from warehousing and from the
sale of installation supplies does not require expenditures for revenue
equipment. Transportation revenue from CSI/Crown, which is served through the
Company's purchase of transportation from third parties, and owner-operator
revenue from Hall Systems also do not require expenditures for revenue
equipment. Non-transportation revenue from warehousing and the sale of
installation supplies, owner-operator revenue from Hall Systems and
transportation revenue from CSI/Crown were $18.4 million during the three month
period ended September 30, 1996, compared to $9.5 million during the same period
in 1995. Excluding the above-mentioned increases in revenue, vehicle rents and
depreciation as a percentage of operating revenue would have been 10.8% for the
three month period ended September 30, 1996.
As a percentage of operating revenue, purchased transportation was 6.2%
during both the three month period ended September 30, 1996 and the three month
period ended September 30, 1995. During the three month period ended September
30, 1996, increased third party transportation purchases by CSI/Crown and
owner-operator expense from Hall Systems were offset by decreased third party
transportation purchases by NXL and increased linehaul revenue which does not
require expenditures for purchased transportation.
13
<PAGE>
As a percentage of operating revenue, operating expenses and supplies were
5.8% during the three month period ended September 30, 1996, compared to 7.4%
during the same period in 1995. This decrease results from a combination of
several factors: (i) an increase in non-transportation revenue from CSI/Crown,
the addition of owner-operator revenue from Hall Systems and an increase in
transportation revenue from CSI/Crown, which do not require incremental Company
expenditures for operating expenses and supplies; (ii) the implementation of
cost reductions in maintenance expenses, including the consolidation of the
Company's two largest maintenance facilities into one; and (iii) operating
expenses and supplies for the three month period ended September 30, 1995
reflected unusually high parts, tires and repair costs associated with preparing
used tractors for disposal.
Cost of installation supplies sold during the three month period ended
September 30, 1996 was $2.3 million, compared to $755,000 during the same period
in 1995. The three month period ended September 30, 1995 includes sales of
installation supplies for the month of September only (as a result of the August
1995 acquisition of CSI/Reeves). This expense item reflects the cost of carpet
installation supplies which are in turn sold through CSI/Crown retail outlets.
As a percentage of operating revenue, building rental was 1.3% during the
three month period ended September 30, 1996, compared to 1.0% during the same
period in 1995. This increase was primarily attributable to building rental
expenses associated with the warehousing operations acquired in the August 1995
acquisition of CSI/Reeves.
Income from operations for the three month period ended September 30, 1996
increased $4.2 million, or 238.5%, to $6.0 million from $1.8 million during the
same period in 1995. As a percentage of operating revenue, income from
operations was 6.5% during the three month period ended September 30, 1996,
compared to 2.5% during the same period in 1995.
14
<PAGE>
COMPARISON OF THE SIX MONTHS ENDED SEPTEMBER 30, 1996 TO THE
SIX MONTHS ENDED SEPTEMBER 30, 1995
The Company's continuing efforts to improve equipment utilization and to
reduce operating expenses as a percent of revenue had favorable results during
the six month period ended September 30, 1996. During the six month period
ended September 30, 1996, U.S. Xpress revenue per tractor per week increased
7.1% to $2,864, compared to $2,675 during the same period in 1995.
Operating revenue during the six month period ended September 30, 1996
increased $43.1 million, or 31.6%, to $179.9 million, compared to $136.8 million
during the same period in 1995. This increase resulted primarily from the
fiscal 1996 acquisitions of CSI/Reeves and Hall Systems, which together
contributed $30.8 million of the $43.1 million increase. U.S. Xpress
contributed $14.8 million to the increase, while revenue from NXL decreased by
$2.5 million. Increased U.S. Xpress revenue resulted from increased revenue
miles and slightly increased rates per revenue mile.
Operating expenses represented 95.4% of operating revenue during the six
month period ended September 30, 1996, compared to 97.9% during the same period
in 1995.
As a percentage of operating revenue, salaries, wages, and employee benefits
were 41.2% during the six month period ended September 30, 1996, compared to
44.2% during the same period in 1995. This decrease is a result of salaries and
wages for both Hall Systems and CSI/Crown representing a lower percentage of
operating revenue due to the utilization of owner-operators at Hall Systems and
the utilization of outside linehaul carriers at CSI/Crown. All owner-operator
expenses and purchased linehaul services are reflected as purchased
transportation.
As a percentage of operating revenue, fuel and fuel taxes were 16.2% during
the six month period ended September 30, 1996, compared to 16.5% during the same
period in 1995. A significant increase in fuel costs, offset by the increase of
non-transportation revenue from CSI/Crown (as a result of the August 1995
acquisition of CSI/Reeves), the addition of owner-operator revenue from Hall
Systems and an increase in transportation revenue from CSI/Crown, resulted in
this slight decrease. The Company's average price per gallon for fuel for the
six month period ended September 30, 1996 was $1.189, compared to $1.072 for the
same period in 1995. The effect of this 10.9% increase in the average price per
gallon was to increase fuel costs by approximately $2.5 million for the six
month period ended September 30, 1996 over the same period in 1995. Non-
transportation revenue from CSI/Crown does not require Company expenditures for
fuel and fuel taxes. Transportation revenue from CSI/Crown, which is served
through the Company's purchase of transportation from third parties, and owner-
operator revenue from Hall Systems also do not require expenditures for fuel and
fuel taxes. Excluding the above-mentioned increases in revenue, fuel and fuel
taxes as a percentage of operating revenue would have been 18.2% during the six
month period ended September 30, 1996.
15
<PAGE>
As a percentage of operating revenue, vehicle rents were 5.5% during the six
month period ended September 30, 1996, compared to 6.1% during the same period
in 1995. Depreciation and amortization represented 4.5% of revenue during the
six month period ended September 30, 1996, compared to 5.7% during the same
period in 1995. Overall, as a percentage of operating revenue, vehicle rents
and depreciation were 10.0% during the six month period ended September 30,
1996, compared to 11.8% during the same period in 1995. This decrease was
primarily attributable to increased non-transportation revenue from CSI/Crown
from warehousing and the sale of installation supplies, the addition of owner-
operator revenue from Hall Systems and an increase in transportation revenue
from CSI/Crown. Additionally, improved equipment utilization at U.S. Xpress
during the six month period ended September 30, 1996 resulted in increased
revenue per unit of revenue equipment. Revenues from warehousing and from the
sale of installation supplies do not require expenditures for revenue equipment.
Transportation revenue from CSI/Crown, which is served through the Company's
purchase of transportation from third parties, and owner-operator revenue from
Hall Systems also do not require expenditures for revenue equipment. Non-
transportation revenue from warehousing and the sale of installation supplies,
owner-operator revenue from Hall Systems and transportation revenue from
CSI/Crown were $37.4 million during the six month period ended September 30,
1996, compared to $15.3 million during the same period in 1995. Excluding the
above-mentioned increases in revenue, vehicle rents and depreciation as a
percentage of operating revenue would have been 11.4% for the six month period
ended September 30, 1996.
As a percentage of operating revenue, purchased transportation was 6.7%
during the six month period ended September 30, 1996, compared to 5.8% during
the same period in 1995. This increase resulted primarily from increased third
party transportation purchases by CSI/Crown and owner-operator expense from Hall
Systems, offset by decreased third party transportation purchases by NXL and
increased linehaul revenue which does not require expenditures for purchased
transportation.
As a percentage of operating revenue, operating expenses and supplies were
6.4% during the six month period ended September 30, 1996, compared to 7.5%
during the same period in 1995. This decrease results from a combination of
several factors: (i) an increase in non-transportation revenue from CSI/Crown,
the addition of owner-operator revenue from Hall Systems and an increase in
transportation revenue from CSI/Crown, which do not require incremental Company
expenditures for operating expenses and supplies; (ii) the implementation of
cost reductions in maintenance expenses, including the consolidation of the
Company's two largest maintenance facilities into one; and (iii) operating
expenses and supplies for the six month period ended September 30, 1995
reflected unusually high parts, tires and repair costs associated with preparing
used tractors for disposal.
Cost of installation supplies sold during the six months ended September 30,
1996 was $4.5 million, compared to $755,000 during the same period in 1995. The
six month period ended September 30, 1995 includes sales of installation
supplies for the month of September only (as a result of the August 1995
acquisition of CSI/Reeves). This expense item reflects the cost of carpet
installation supplies which are in turn sold through CSI/Crown retail outlets.
16
<PAGE>
As a percentage of operating revenue, building rental was 1.3% during the
six month period ended September 30, 1996, compared to .9% during the same
period in 1995. This increase was primarily attributable to building rental
expenses associated with the warehousing operations acquired in the August 1995
acquisition of CSI/Reeves.
Income from operations for the six month period ended September 30, 1996
increased $5.5 million, or 191.6%, to $8.3 million from $2.8 million during the
same period in 1995. As a percentage of operating revenue, income from
operations was 4.6% during the six month period ended September 30, 1996,
compared to 2.1% during the same period in 1995.
17
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity during the six month period ended
September 30, 1996 were funds provided by operations and borrowings under lines
of credit and long-term debt. In the remainder of fiscal 1997, the Company's
primary sources of liquidity are expected to be funds provided by operations and
borrowings under lines of credit and long-term debt. At September 30, 1996, the
Company had in place an unsecured credit agreement with a group of banks with
approximately $14.0 million available for borrowing.
Cash provided by operations increased to $6.4 million during the first six
months of fiscal 1997, compared to $2.6 million during the same period of fiscal
1996. Net cash provided in investment activities was $299,000 during the first
six months of fiscal 1997, compared to net cash used in investment activities of
$8.1 million during the same period of fiscal 1996. Cash used in investment
activities during fiscal 1996 is directly related to the Company's cash
acquisition of CSI/Reeves. During fiscal 1996, the Company expended
approximately $28.2 million for the purchase of property and equipment. Such
expenditures are expected to be approximately $12.0 million in fiscal 1997,
which includes $2.0 million for tractors, $7.0 million for trailers and $3.0
million for additions to properties and facilities. Disposals of used equipment
are expected to approximate $38.0 million in fiscal 1997. The decrease in
amounts expected to be expended for purchases of new equipment reflects the
expectation that the Company will lease more revenue equipment under operating
leases rather than purchase such equipment, due to the favorable terms currently
available under such operating leases.
Net cash used in financing activities was $5.4 million during the first six
months of fiscal 1997, compared to $321,000 provided in financing activities
during the same period of fiscal 1996. Net borrowings under lines of credit
were $1.5 million during the first six months of fiscal 1997, compared to $7.0
million during the same period of fiscal 1996. Borrowings under long-term debt
during the first six months of fiscal 1997 were $2.0 million, compared to $1.7
million during the same period of fiscal 1996. Decreased borrowings under lines
of credit and long-term debt resulted from the increase in cash provided by
operations.
Management believes that funds provided by operations and from borrowings
under lines of credit will be sufficient to fund its cash needs and anticipated
capital expenditures through at least the next twelve months.
This Form 10-Q contains certain forward looking information that is subject
to certain risks and uncertainties that could cause actual results to differ
materially from those projected. Without limitation, these risks and
uncertainties include economic recessions or downturns in customers' business
cycles, excessive increases in capacity within the truckload markets, decreased
demand of transportation services offered by the Company, rapid fluctuations in
fuel pricing or availability, increases in interest rates, and the availability
of qualified drivers. Readers are urged to carefully review and consider the
various disclosures made by the Company in this Form 10-Q and in the Company's
Form 10-K for the year ended March 31, 1996.
18
<PAGE>
U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 10.25 Amendment No. 2 to Credit Agreement
with NationsBank
(b) No reports on Form 8-K were filed during the
quarter for which this report is filed.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U.S. XPRESS ENTERPRISES, INC.
(REGISTRANT)
DATE: NOVEMBER 14, 1996 BY: /S/ PATRICK E. QUINN
----------------- ------------------------------------
PATRICK E. QUINN
PRESIDENT
DATE: NOVEMBER 14, 1996 BY: /S/ DONALD A. RUTLEDGE
----------------- ------------------------------------
DONALD A. RUTLEDGE
PRINCIPAL FINANCIAL OFFICER
20
<PAGE>
AMENDMENT NO. 2 TO CREDIT AGREEMENT
THIS AMENDMENT AGREEMENT (this "Amendment"), dated as of July 1, 1996,
---------
among U.S. XPRESS, ENTERPRISES, INC., a Nevada corporation (the "Borrower"), the
--------
various banks and lending institutions parties hereto (each a "Bank" and
collectively, the "Banks"), and NATIONSBANK, N.A. (SOUTH), a national banking
-----
association, as agent for the Banks (in such capacity, the "Agent");
-----
W I T N E S S E T H:
WHEREAS, pursuant to that certain Credit Agreement, dated as of November
21, 1995, as amended as of March 31, 1996 (the "Existing Credit Agreement"),
-------------------------
among the parties hereto, the Banks have agreed to make loans to the Borrower;
and
WHEREAS, the Borrower, the Banks and the Agent desire to make certain
amendments to the Existing Credit Agreement;
NOW, THEREFORE, in consideration of the agreements herein contained, the
parties hereby agree as follows:
PART I
DEFINITIONS
SUBPART 1.1. Certain Definitions. Unless otherwise defined herein or the
-------------------
context otherwise requires, terms used in this Amendment, including its preamble
and recitals, have the following meanings (such meanings to be equally
applicable to the singular and plural forms thereof):
"Amended Credit Agreement" means the Existing Credit Agreement as amended
------------------------
hereby.
"Amendment No. 2 Effective Date" is defined in Subpart 3.1.
------------------------------ -----------
SUBPART 1.2. Other Definitions. Unless otherwise defined herein or the
-----------------
context otherwise requires, terms used in this Amendment, including its preamble
and recitals, have the meanings provided in the Amended Credit Agreement.
<PAGE>
PART II
AMENDMENTS TO EXISTING CREDIT AGREEMENT
Effective on (and subject to the occurrence of) the Amendment No. 2
Effective Date, the Existing Credit Agreement is hereby amended in accordance
with this Part II. Except as so amended, the Existing Credit Agreement, the
-------
Notes and the other Credit Documents shall continue in full force and effect.
SUBPART 2.1 Amendments to Article I. Article I of the Existing Credit
-----------------------
Agreement is hereby amended by inserting, in the alphabetically appropriate
place, the following definitions:
"Amendment No. 2" means Amendment No. 2 to Credit Agreement, dated as
---------------
of July 1, 1996, among the Borrower, the Agent and the Banks, amending this
Credit Agreement as then in effect.
SUBPART 2.2 Additional Amendments to Article I. Article I of the Existing
----------------------------------
Credit Agreement is hereby further amended by amending in their entirety the
following definitions so that such definitions now read as follows:
"Applicable Fee Margin" means, for any fiscal quarter, (I) .425% per
annum if the Consolidated Leverage Ratio as of the last day of the prior
fiscal quarter (computed for the four fiscal quarterly periods then ending)
is greater than 2.8 to 1.0, (ii) .375% per annum if the Consolidated
Leverage Ratio as of the last day of the prior fiscal quarter (computed for
the four fiscal quarterly periods then ending) is equal to or less than 2.8
to 1.0 but greater than 2.5 to 1.0, (iii) .30% per annum if the
Consolidated Leverage Ratio as of the last day of the prior fiscal quarter
(computed for the four fiscal quarterly periods then ending) is equal to or
less than 2.5 to 1.0 but greater than 2.0 to 1.0, (iv) .25% per annum if
the Consolidated Leverage Ratio as of the last day of the prior fiscal
quarter (computed for the four fiscal quarterly periods then ending) is
equal to or less than 2.0 to 1.0 but greater than 1.5 to 1.0 and (v) .22%
per annum if the Consolidated Leverage Ratio as of the last day of the
prior fiscal quarter (computed for the four fiscal quarterly periods then
ending) is equal to or less than 1.5 to 1.0.
"Applicable Interest Rate Margin" means, with respect to Eurodollar
Loans for any fiscal quarter, (I) 1.40% per annum if the Consolidated
Leverage Ratio as of the last day of the prior fiscal quarter (computed for
the four fiscal quarterly periods then ending) is greater than 2.8 to 1.0,
(ii) 1.25% per annum if the Consolidated Leverage Ratio as of the last day
of the prior fiscal quarter (computed for the four fiscal quarterly periods
then ending) is equal to or less than 2.8 to 1.0 but greater than 2.5 to
1.0, (iii) 1.0% per annum if the Consolidated Leverage Ratio as of the last
- 2 -
<PAGE>
day of the prior fiscal quarter (computed for the four fiscal quarterly
periods then ending) is equal to or less than 2.5 to 1.0 but greater than
2.0 to 1.0, (iv) .75% per annum if the Consolidated Leverage Ratio as of
the last day of the prior fiscal quarter (computed for the four fiscal
quarterly periods then ending) is equal to or less than 2.0 to 1.0 but
greater than 1.5 to 1.0 and (v) .625% per annum if the Consolidated
Leverage Ratio as of the last day of the prior fiscal quarter (computed for
the four fiscal quarterly periods then ending) is equal to or less than 1.5
to 1.0.
SUBPART 2.3 Amendments to Section 2.01. Section 2.01 is amended as
--------------------------
follows:
(I) the first sentence of such Section is amended by replacing the
reference to "November 21, 1997" contained in line 5 thereof with a
reference to "August 31, 1998";
(ii) the third sentence of such Section is amended in its entirety
so that such sentence now reads as follows:
The Borrower may by notice to the Agent delivered on or before
June 30, 1997 or each June 30 thereafter, make written request of the
Banks to extend the Termination Date for an additional period of one
year.
(iii) the fifth sentence of such Section is amended in its entirety so
that such sentence now reads as follows:
Each Bank shall make a determination not later than 30 days after
the date of its receipt of such notice as to whether or not it will
agree to extend the Termination Date as requested; provided, however,
-------- -------
that failure by any Bank to make a timely response to the Borrower's
request for extension of the Termination Date shall be deemed to
constitute a refusal by the Bank to extend the Termination Date.
SUBPART 2.4 Amendments to Section 5.16. Section 5.16 is amended in its
--------------------------
entirety so that such Section now reads as follows:
SECTION 5.16 Consolidated Fixed Charge Coverage Ratio. The Borrower
----------------------------------------
will maintain a Consolidated Fixed Charge Coverage Ratio of at least (I)
1.10 to 1.0 as of the last day of the fiscal quarter ending June 30, 1996,
(ii) 1.16 to 1.0 as of the last day of the fiscal quarter ending September
30, 1996, (iii) 1.2 to 1.0 as of the last day of the fiscal quarters ending
December 31, 1996, March 31, 1997 and June 30, 1997 and (iv) 1.35 to 1.0 as
of the last day of each fiscal quarter thereafter.
- 3 -
<PAGE>
SUBPART 2.5 Amendments to Section 5.17. Section 5.17 is amended in its
--------------------------
entirety so that such Section now reads as follows:
SECTION 5.17 Consolidated Leverage Ratio. The Borrower will not
---------------------------
permit its Consolidated Leverage Ratio to exceed (I) 3.10 to 1.0 as of the
last day of the fiscal quarters ending June 30, 1996, September 30, 1996,
December 31, 1996 and March 31, 1997, (ii) 3.00 to 1.0 as of the last day
of the fiscal quarter ending June 30, 1997 and (iii) 2.80 to 1.0 as of the
last day of each fiscal quarter thereafter.
SUBPART 2.6 Amendments to Section 5.20. Section 5.20 is deleted.
--------------------------
PART III
CONDITIONS TO EFFECTIVENESS
SUBPART 3.1. Amendment No. 2 Effective Date. This Amendment shall be and
------------------------------
become effective on such date (the "Amendment No. 2 Effective Date") on or prior
------------------------------
to July 1, 1996, when all of the conditions set forth in this Subpart 3.1 shall
-----------
have been satisfied, and thereafter, this Amendment shall be known, and may be
referred to, as "Amendment No. 2."
SUBPART 3.1.1. Execution of Counterparts. The Agent shall have received
-------------------------
counterparts of this Amendment, each of which shall have been duly executed on
behalf of the Borrower, the Agent and each Bank.
SUBPART 3.1.2. Consent. The Agent shall have received, from each person
-------
listed on the signature pages of the Consent attached hereto as Appendix A, an
----------
executed copy of such Consent.
SUBPART 3.1.3. Legal Details, Etc. All documents executed or submitted
-------------------
pursuant hereto shall be satisfactory in form and substance to the Agent and its
counsel. The Agent and its counsel shall have received all information, and
such counterpart originals or such certified or other copies of such originals,
as the Agent or its counsel may reasonably request, and all legal matters
incident to the transactions contemplated by this Amendment shall be
satisfactory to the Agent and its counsel. In addition, the Agent shall have
received such other agreements, documents or instruments as it may from time to
time reasonably request.
PART IV
MISCELLANEOUS
SUBPART 4.1 Cross-References. References in this Amendment to any Part or
----------------
Subpart are, unless otherwise specified, to such Part or Subpart of this
Amendment.
- 4 -
<PAGE>
SUBPART 4.2 Instrument Pursuant to Existing Credit Agreement. This
------------------------------------------------
Amendment is a document executed pursuant to the Existing Credit Agreement and
shall (unless otherwise expressly indicated therein) be construed, administered
and applied in accordance with the terms and provisions of the Existing Credit
Agreement.
SUBPART 4.3 Notes and Credit Documents. The Borrower hereby confirms and
--------------------------
agrees that the Notes and the other Credit Documents are, and shall continue to
be, in full force and effect, and hereby ratifies and confirms in all respects
its obligations thereunder, except that, upon the effectiveness of, and on and
after the date of, this Amendment, all references in each Note and each Credit
Document to the "Credit Agreement", "thereunder", "thereof" or words of like
import referring to the Existing Credit Agreement shall mean the Amended Credit
Agreement.
SUBPART 4.4 Counterparts, Effectiveness, Etc. This Amendment may be
--------------------------------
executed by the parties hereto in several counterparts, each of which shall be
deemed to be an original and all of which shall constitute together but one and
the same agreement.
SUBPART 4.5 Governing Law; Entire Agreement. THIS AMENDMENT SHALL BE
-------------------------------
DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE
STATE OF NORTH CAROLINA WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES
THEREOF.
SUBPART 4.6 Successors and Assigns. This Amendment shall be binding upon
----------------------
and inure to the benefit of the parties hereto and their respective successors
and assigns.
SUBPART 4.7 Representations and Warranties. The Borrower represents and
------------------------------
warrants to the Agent and the Banks that (I) the representations and warranties
made in Article IV of the Existing Credit Agreement are true and correct on and
as of the Amendment No. 2 Effective Date as though made on such date, (ii) no
Default or Event of Default has occurred and remains uncured as of the Amendment
No. 2 Effective Date, (iii) the Borrower is in full compliance with the terms
and provisions of the Amended Credit Agreement, and (iv) all financial reports
and information submitted to the Agent or the Banks since the date of the
Existing Credit Agreement accurately state and reflect the financial condition
of the Borrower.
- 5 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 5,610
<SECURITIES> 0
<RECEIVABLES> 50,297
<ALLOWANCES> 2,711
<INVENTORY> 4,097
<CURRENT-ASSETS> 68,379
<PP&E> 139,603
<DEPRECIATION> 42,079
<TOTAL-ASSETS> 177,214
<CURRENT-LIABILITIES> 43,277
<BONDS> 0
0
0
<COMMON> 120
<OTHER-SE> 58,280
<TOTAL-LIABILITY-AND-EQUITY> 177,214
<SALES> 0
<TOTAL-REVENUES> 179,923
<CGS> 0
<TOTAL-COSTS> 171,244
<OTHER-EXPENSES> 9
<LOSS-PROVISION> 412
<INTEREST-EXPENSE> 2,751
<INCOME-PRETAX> 5,507
<INCOME-TAX> 2,210
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,297
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
</TABLE>
