<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
DECEMBER 31, 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 identification no.)
Incorporation or organization)
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 December 31, 1996, 9,050,239 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
<PAGE>
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 Nine Months Ended
December 31, 1996 and 1995................................... 4
Consolidated Balance Sheets as of
December 31, 1996 and March 31, 1996......................... 5
Consolidated Statements of Cash Flows for the
Nine Months Ended December 31, 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>
2
<PAGE>
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 nine months ended December 31, 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
<PAGE>
U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING REVENUE $ 89,939 $ 81,807 $ 269,862 $ 218,583
-------- -------- --------- ---------
OPERATING EXPENSES:
Salaries, wages and employee benefits,
including contract wages 36,375 34,640 110,404 95,020
Fuel and fuel taxes 14,455 12,920 43,573 35,545
Vehicle rents 5,583 4,275 15,484 12,592
Depreciation and amortization 3,270 4,353 11,340 12,164
Purchased transportation 5,477 5,818 17,536 13,712
Operating expenses and supplies 5,557 5,803 17,016 16,003
Insurance premiums and claims 3,803 3,033 12,295 8,979
Operating taxes and licenses 1,573 1,497 4,481 3,851
Communications and utilities 1,669 1,470 4,792 3,836
Cost of installation supplies sold 2,053 2,380 6,537 3,135
Building rental 1,216 1,109 3,628 2,371
Bad debt expense 218 176 630 622
General and other operating expenses 2,857 2,644 8,324 6,814
Gain on sales of equipment (640) (461) (918) (940)
Equity in earnings of unconsolidated affiliate - (18) - (124)
-------- -------- --------- ---------
Total operating expenses 83,466 79,639 255,122 213,580
-------- -------- --------- ---------
INCOME FROM OPERATIONS 6,473 2,168 14,740 5,003
-------- -------- --------- ---------
OTHER INCOME (EXPENSE):
Interest expense, net (1,406) (1,275) (4,157) (3,766)
Other income, net 53 13 44 37
-------- -------- --------- ---------
Total other expense (1,353) (1,262) (4,113) (3,729)
-------- -------- --------- ---------
INCOME BEFORE INCOME TAX PROVISION 5,120 906 10,627 1,274
INCOME TAX PROVISION (2,709) (355) (4,919) (460)
-------- -------- --------- ---------
NET INCOME $ 2,411 $ 551 $ 5,708 $ 814
======== ======== ========= =========
EARNINGS PER COMMON SHARE $ 0.20 $ 0.05 $ 0.47 $ 0.07
======== ======== ========= =========
WEIGHTED AVERAGE COMMON SHARES
AND COMMON SHARE EQUIVALENTS OUTSTANDING 12,191 11,972 12,152 11,979
======== ======== ========= =========
</TABLE>
4 (See accompanying Notes to Consolidated Financial Statements)
<PAGE>
U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1996 MARCH 31, 1996
------------------- ----------------
(Unaudited)
ASSETS
- --------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,997 $ 4,378
Customer receivables, net of allowance 46,437 41,910
Other receivables 5,182 4,318
Prepaid insurance and licenses 749 4,837
Operating supplies 4,490 4,033
Deferred income taxes 3,888 3,888
Other current assets 825 482
------------------- ----------------
Total current assets 64,568 63,846
------------------- ----------------
PROPERTY AND EQUIPMENT, AT COST:
Land and buildings 2,717 2,232
Revenue and service equipment 125,201 126,501
Furniture and equipment 10,820 10,325
Leasehold improvements 7,263 5,086
------------------- ----------------
146,001 144,144
Less accumulated depreciation and amortization (38,387) (39,702)
------------------- ----------------
Net property and equipment 107,614 104,442
------------------- ----------------
OTHER ASSETS:
Goodwill, net 7,772 6,579
Other 3,525 2,954
------------------- ----------------
Total other assets 11,297 9,533
------------------- ----------------
TOTAL ASSETS $ 183,479 $ 177,821
=================== ================
</TABLE>
(See accompanying Notes to Consolidation Financial Statements) 5
<PAGE>
U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1996 MARCH 31, 1996
----------------- --------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 7,171 $ 10,025
Accrued wages and benefits 2,970 5,543
Claims and insurance accruals 11,490 11,465
Other accrued liabilities 7,501 3,378
Current maturities of long-term debt 12,339 13,829
------------------ ---------------
Total current liabilities 41,471 44,240
------------------ ---------------
LONG-TERM DEBT, NET OF CURRENT MATURITIES 65,509 61,789
------------------ ---------------
DEFERRED INCOME TAXES 10,885 10,885
------------------ ---------------
OTHER LONG-TERM LIABILITIES 4,624 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, 9,050,239 and 9,034,884
shares issued and outstanding at December 31,
1996 and March 31, 1996, respectively 91 89
Common stock Class B, $.01 par value, 7,500,000
shares authorized, 3,040,262 shares issued and
outstanding at December 31, 1996 and March 31, 1996 30 30
Additional paid-in capital 33,852 33,774
Retained earnings 27,273 21,565
Notes receivable from stockholders (256) (372)
------------------ ---------------
Total stockholders' equity 60,990 55,086
------------------ ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 183,479 $ 177,821
================== ===============
</TABLE>
6 (See accompanying Notes to Consolidated Financial Statements)
<PAGE>
U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 5,708 $ 814
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income tax provision - 104
Depreciation and amortization 11,340 12,164
Gain on sales of equipment (918) (940)
Equity in earnings of unconsolidated affiliate - (124)
Net increase in receivables (4,902) (9,952)
Decrease in prepaid insurance and licenses 4,088 1,854
Increase in operating supplies (161) (1,013)
Increase in other assets (1,800) (1,355)
Increase (decrease) in accounts payable and other accrued liabilities (694) 4,459
Decrease in accrued wages and benefits (2,572) (3,066)
Other 18 14
--------- ---------
Net cash provided by operating activities 10,107 2,959
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchases of property and equipment (31,048) (23,923)
Proceeds from sales of property and equipment 18,011 14,606
Repayment of notes receivable from stockholders 94 -
Acquisition of subsidiary, net of cash acquired - (6,227)
Acquisition of remaining 50% of unconsolidated affiliate, net of cash acquired - (238)
--------- ---------
Net cash used in investing activities (12,943) (15,782)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under lines of credit 1,500 29,325
Payment of long-term debt (15,027) (32,467)
Borrowings under long-term debt 14,899 11,469
Repurchase of restricted common stock (21) (42)
Proceeds from exercise of stock options 104 -
Decrease in other liabilities - (258)
--------- ---------
Net cash provided by financing activities 1,455 8,027
--------- ---------
NET INCREASE (DECREASE) IN CASH (1,381) (4,796)
Cash, beginning of period 4,378 6,367
--------- ---------
Cash, end of period $ 2,997 $ 1,571
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 4,547 $ 3,980
========= =========
Cash paid during the period for income taxes $ 1,339 $ 292
========= =========
</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 two wholly-owned subsidiaries: U.S.
Xpress, Inc. ("U.S. Xpress"), a national truckload carrier that provides time-
definite and expedited services in the United States, Canada and Mexico,
regional truckload services in the Western and Southeastern United States and
logistics services that specialize in serving air cargo shippers; and CSI/Crown,
Inc. ("CSI/Crown") which provides logistics services to the floorcovering
industry, including freight consolidation, transportation, warehousing services
and installation supplies. Two other subsidiaries, Hall Systems, Inc. and
National Xpress Logistics, Inc., were merged into U.S. Xpress effective December
1, 1996.
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.
Effective January 1, 1997, the Company entered into an agreement with Employee
Solutions, Inc. (ESI). ESI will coordinate the processing and administration of
the Company's payroll, including tax reporting, group health benefits and
worker's compensation.
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 December 31,
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.
9
<PAGE>
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 accounts receivable; or (b) $50,000,000. At
December 31, 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 December 31, 1996.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's two 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 nationally
and provides short-to-medium haul service in the Southeastern and Western
regions of the United States. CSI/Crown offers specialized transportation
services, principally to the floorcovering industry.
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 ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995
-------- ------- ------- -------
<S> <C> <C> <C> <C>
OPERATING REVENUE 100.0 % 100.0 % 100.0 % 100.0 %
-------- ------- ------- -------
OPERATING EXPENSES:
Salaries, wages and employee benefits,
including contract wages 40.4 42.4 40.9 43.4
Fuel and fuel taxes 16.1 15.8 16.1 16.3
Vehicle Rents 6.2 5.2 5.7 5.8
Depreciation and amortization 3.6 5.3 4.2 5.6
Purchased transportation 6.1 7.1 6.5 6.2
Operating expenses and supplies 6.2 7.1 6.3 7.3
Insurance premiums and claims 4.2 3.7 4.6 4.1
Operating taxes and licenses 1.7 1.8 1.7 1.8
Communications and utilities 1.9 1.8 1.8 1.8
Cost of installation supplies sold 2.3 2.9 2.4 1.4
Building rental 1.4 1.4 1.3 1.1
Bad debt expense 0.2 0.2 0.2 0.3
General and other operating expenses 3.2 3.2 3.1 3.1
Gain on sales of equipment (0.7) (0.6) (0.3) (0.4)
Equity in earnings of unconsolidated affiliate - - - (0.1)
-------- ------- ------- -------
Total operating expenses 92.8 97.3 94.5 97.7
-------- ------- ------- -------
INCOME FROM OPERATIONS 7.2 2.7 5.5 2.3
-------- ------- ------- -------
OTHER INCOME (EXPENSE):
Interest expense, net (1.6) (1.6) (1.6) (1.7)
Other income, net 0.1 - - -
-------- ------- ------- -------
Total other expense (1.5) (1.6) (1.6) (1.7)
-------- ------- ------- -------
INCOME BEFORE INCOME TAX PROVISION 5.7 1.1 3.9 0.6
INCOME TAX PROVISION (3.0) (0.4) (1.8) (0.2)
-------- ------- ------- -------
NET INCOME 2.7 % 0.7 % 2.1 % 0.4 %
======== ======= ======= =======
</TABLE>
11
<PAGE>
COMPARISON OF THE THREE MONTHS ENDED DECEMBER 31, 1996 TO THE
THREE MONTHS ENDED DECEMBER 31, 1995
The mergers of U.S. Xpress and Southwest Motor Freight into U.S. Xpress and
the merger of CSI/Reeves and Crown Transport into CSI/Crown in early 1996
improved operating efficiency and equipment utilization. On December 1, 1996,
the Company also merged its Hall Systems and National Xpress Logistics
subsidiaries into U.S. Xpress. These mergers are expected to result in
insurance, maintenance, administrative, licensing, tax and equipment-related
cost savings.
The Company's customer base continued to provide strong freight demand
throughout the quarter ended December 31, 1996. Utilization at the U.S. Xpress
linehaul operation, as measured by revenue per tractor per week, increased to
$2,848 in the third fiscal quarter, up 5.9% from $2,690 in the comparable
quarter last year. Strong demand and high utilization led the Company to add 78
tractors to the U.S. Xpress linehaul fleet during the quarter ended December 31,
1996. Future additions to the fleet will be made only as demand requires and as
the Company meets its minimum utilization goal of $2,800 per tractor per week in
the U.S. Xpress linehaul division.
Operating revenue during the three month period ended December 31, 1996
increased $8.1 million, or 10.0%, to $89.9 million, compared to $81.8 million
during the same period in 1995. This increase resulted primarily from U.S.
Xpress, which after the merger of Hall Systems and NXL contributed $8.0 million
to the increase. Increased U.S. Xpress revenue resulted from increased revenue
miles and slightly increased rates per revenue mile.
Operating expenses represented 92.8% of operating revenue during the three
month period ended December 31, 1996, compared to 97.3% during the same period
in 1995.
As a percentage of operating revenue, salaries, wages, and employee benefits
were 40.4% during the three month period ended December 31, 1996, compared to
42.4% during the same period in 1995. This decrease is a result of the cost
control measures implemented by the Company in early 1996. These cost control
measures included the consolidation of certain operating subsidiaries and the
refocusing of the logistics operations. The consolidation of U.S. Xpress and
Southwest Motor Freight on April 1, 1996 and the consolidation of Crown
Transport and CSI/Reeves on January 1, 1996 eliminated duplicate back-office
activities previously performed at each of the companies. These cost control
measures have allowed the Company to reduce non-driver salaries, wages and
benefits in relation to the increase in revenue. Revenue increased at a 10% rate
for the three month period ended December 31, 1996, compared to the same period
in 1995. Salaries, wages and benefits increased at only a 5% rate for three
month period ended December 31, 1996, compared to the same period in 1995.
As a percentage of operating revenue, fuel and fuel taxes were 16.1% during
the three month period ended December 31, 1996, compared to 15.8% during the
same period in 1995. The Company's average price per gallon for fuel for the
three month period ended December
12
<PAGE>
31, 1996 was $1.27, compared to $1.10 for the same period in 1995. The effect of
this 15.5% increase in the average price per gallon was to increase fuel costs
by approximately $1.9 million for the three month period ended December 31, 1996
over the same period in 1995. This increase was offset by fuel surcharges billed
to U.S. Xpress customers of approximately $1.2 million, for a net increase in
fuel costs of approximately $700,000. This increase as a percent of revenue is
reduced by increased rates per revenue mile and a decrease in the empty miles
percentage.
As a percentage of operating revenue, vehicle rents were 6.2% during the
three month period ended December 31, 1996, compared to 5.2% during the same
period in 1995. Depreciation and amortization represented 3.6% of revenue during
the three month period ended December 31, 1996, compared to 5.3% during the same
period in 1995. Overall, as a percentage of operating revenue, vehicle rents and
depreciation were 9.8% during the three month period ended December 31, 1996,
compared to 10.5% during the same period in 1995. This decrease was primarily
attributable to improved equipment utilization at U.S. Xpress during the three
month period ended December 31, 1996, which resulted in increased revenue per
unit of revenue equipment. Linehaul tractor utilization, as measured by revenue
per tractor per week, increased to $2,848 during the three month period ended
December 31, 1996, compared to $2,690 during the same period in 1995.
Utilization for the combined linehaul and Southeast regional operation increased
to $2,755 during the three month period ended December 31, 1996, compared to
$2,636 during the same period in 1995.
As a percentage of operating revenue, purchased transportation was 6.1%
during the three month period ended December 31, 1996, compared to 7.1% during
the period ended December 31, 1995. This decrease is a result of a 14.4%
increase in linehaul revenue which does not require expenditures for purchased
transportation.
As a percentage of operating revenue, operating expenses and supplies were
6.2% during the three month period ended December 31, 1996, compared to 7.1%
during the same period in 1995. This decrease resulted from the implementation
of cost reductions in maintenance expenses, including the consolidation of two
of the Company's largest maintenance facilities into one.
Cost of installation supplies sold during the three month period ended
December 31, 1996 was $2.0 million, compared to $2.4 million during the same
period in 1995. This expense item reflects the cost of carpet installation
supplies which are in turn sold through CSI/Crown retail outlets. As a
percentage of revenue from the sale of installation supplies, the cost of
installation supplies sold was 75.5% during the three month period ended
December 31, 1996, compared to 80.0% during the same period in 1995.
Income from operations for the three month period ended December 31, 1996
increased $4.3 million, or 199.0%, to $6.5 million from $2.2 million during the
same period in 1995. As a percentage of operating revenue, income from
operations was 7.2% during the three month period ended December 31, 1996,
compared to 2.7% during the same period in 1995.
13
<PAGE>
The income tax provision for the three month period ended December 31, 1996
was $2.7 million, compared to $355,000 during the same period in 1995. This
reflects an increase in the effective tax rate to 52.9% for the three month
period ended December 31, 1996, compared to 39.2% during the same period in
1995. This increase is due to the non-deductible portion of meals and
entertainment expense included in driver per-diems, which was not applicable in
prior periods during which the Company leased its drivers from an independent
personnel leasing company. Effective January 1, 1997, the Company has eliminated
the per diems paid to drivers, therefore the higher tax rate will not continue
in future periods.
14
<PAGE>
COMPARISON OF THE NINE MONTHS ENDED DECEMBER 31, 1996 TO THE
NINE MONTHS ENDED DECEMBER 31, 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 nine month period ended December 31, 1996. During the nine month period
ended December 31, 1996, utilization for the combined linehaul and Southeast
regional operation increased 4.7% to $2,794, compared to $2,668 during the same
period in 1995.
Operating revenue during the nine month period ended December 31, 1996
increased $51.2 million, or 23.5%, to $269.9 million, compared to $218.6 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
$31.7 million of the $51.2 million increase. U.S. Xpress linehaul operations
contributed $23.2 million to the increase, while revenue from NXL decreased by
$3.7 million. Increased U.S. Xpress linehaul revenue resulted from increased
revenue miles and slightly increased rates per revenue mile.
Operating expenses represented 94.5% of operating revenue during the nine
month period ended December 31, 1996, compared to 97.7% during the same period
in 1995.
As a percentage of operating revenue, salaries, wages, and employee
benefits were 40.9% during the nine month period ended December 31, 1996,
compared to 43.4% 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 outside contract carriers at CSI/Crown. All owner-operator
expenses and purchased linehaul services are reflected as purchased
transportation. Another contributing factor to this decrease is the cost control
measures implemented by the Company in early 1996. These cost control measures
included the consolidation of certain operating subsidiaries and the refocusing
of the logistics operations. The consolidation of U.S. Xpress and Southwest
Motor Freight on April 1, 1996 and the consolidation of Crown Transport and
CSI/Reeves on January 1, 1996 eliminated duplicate back-office activities
previously performed at each of the companies.
As a percentage of operating revenue, fuel and fuel taxes were 16.1% during
the nine month period ended December 31, 1996, compared to 16.3% during the same
period in 1995. A significant increase in fuel cost and a decrease in brokerage
revenue from NXL, offset by the increase of non-transportation revenue from
CSI/Crown (as a result of the August 1995 acquisition of CSI/Reeves), the
increase 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 nine month period ended
December 31, 1996 was $1.215, compared to $1.081 for the same period in 1995.
The effect of this 12.4% increase in the average price per gallon was to
increase fuel costs by approximately $4.4 million for the nine month period
ended December 31, 1996 over the same period in 1995. This increase was offset
by fuel surcharges billed to U.S. Xpress customers of approximately $2.1
million, for a net increase in fuel costs of approximately $2.3 million. Non-
transportation revenue from CSI/Crown
15
<PAGE>
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 changes in revenue, fuel and fuel taxes as a percentage of operating
revenue would have been 17.0% during the nine month period ended December 31,
1996.
As a percentage of operating revenue, vehicle rents were 5.7% during the
nine month period ended December 31, 1996, compared to 5.8% during the same
period in 1995. Depreciation and amortization represented 4.2% of revenue during
the nine month period ended December 31, 1996, compared to 5.6% during the same
period in 1995. Overall, as a percentage of operating revenue, vehicle rents and
depreciation were 9.9% during the nine month period ended December 31, 1996,
compared to 11.4% 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 increase of owner-
operator revenue from Hall Systems and an increase in transportation revenue
from CSI/Crown, offset by a decrease in brokerage revenue from NXL.
Additionally, improved equipment utilization at U.S. Xpress during the nine
month period ended December 31, 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 by CSI/Crown,
owner-operator revenue from Hall Systems, transportation revenue from CSI/Crown
and brokerage revenue from NXL was $60.1 million during the nine month period
ended December 31, 1996, compared to $42.0 million during the same period in
1995. Excluding the above-mentioned changes in revenue, vehicle rents and
depreciation as a percentage of operating revenue would have been 10.7% for the
nine month period ended December 31, 1996.
As a percentage of operating revenue, purchased transportation was 6.5%
during the nine month period ended December 31, 1996, compared to 6.2% 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
6.3% during the nine month period ended December 31, 1996, compared to 7.3%
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 increase in 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 two of
the Company's largest maintenance facilities into one; and (iii) operating
expenses and
16
<PAGE>
supplies for the nine month period ended December 31, 1995 reflected unusually
high parts, tires and repair costs associated with preparing used tractors for
disposal during the Company's second quarter of fiscal 1996.
Cost of installation supplies sold during the nine months ended December
31, 1996 was $6.5 million, compared to $3.1 million during the same period in
1995. The nine month period ended December 31, 1995 only included sales of
installation supplies for the four month period from September through December
(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 revenue from the sale of
installation supplies, the cost of installation supplies sold was 75.5% during
the nine month period ended December 31, 1996, compared to 80.0% during the same
period in 1995.
As a percentage of operating revenue, building rental was 1.3% during the
nine month period ended December 31, 1996, compared to 1.1% 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 nine month period ended December 31, 1996
increased $9.7 million, or 195.0%, to $14.7 million from $5.0 million during the
same period in 1995. As a percentage of operating revenue, income from
operations was 5.5% during the nine month period ended December 31, 1996,
compared to 2.3% during the same period in 1995.
The income tax provision for the nine month period ended December 31, 1996
was $4.9 million, compared to $460,000 during the same period in 1995. This
reflects an increase in the effective tax rate to 46.3% for the nine month
period ended December 31, 1996, compared to 36.1% during the same period in
1995. This increase is due to the non-deductible portion of meals and
entertainment expense included in driver per diems, which was not applicable in
prior periods during which the Company leased its drivers from an independent
personnel leasing company. Effective January 1, 1997, the Company has eliminated
the per diems paid to drivers, therefore the higher tax rate will not continue
in future periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity during the nine month period
ended December 31, 1996 were funds provided by operations, borrowings under
long-term debt and proceeds from sales of property and equipment. In the
remainder of fiscal 1997, the Company's primary sources of liquidity are
expected to be funds provided by operations, borrowings under lines of credit
and long-term debt and proceeds from sales of property and equipment. At
December 31, 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 $10.1 million during the first
nine months of fiscal 1997, compared to $3.0 million during the same period of
fiscal 1996. Net cash used
17
<PAGE>
in investment activities was $12.9 million during the first nine months of
fiscal 1997, compared to $15.8 million during the same period of fiscal 1996. Of
the cash used in investment activities during the first nine months of fiscal
1997, $31.0 million was used for the purchase of property and equipment and
proceeds from the disposal of used equipment were $18.0 million. For fiscal
1997, such expenditures are substantially complete, and disposals of used
equipment are expected to approximate $26.1 million.
Net cash provided by financing activities was $1.5 million during the first
nine months of fiscal 1997, compared to $8.0 million during the same period of
fiscal 1996. Net borrowings under lines of credit and long-term debt were $1.4
million during the first nine months of fiscal 1997, compared to $8.3 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, borrowings under
lines of credit and long-term debt and proceeds from sales of property and
equipment 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) 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: FEBRUARY 14, 1997 BY: /S/ PATRICK E. QUINN
----------------- -----------------------------------
PATRICK E. QUINN
PRESIDENT
DATE: FEBRUARY 14, 1997 BY: /S/ DONALD A. RUTLEDGE
----------------- -----------------------------------
DONALD A. RUTLEDGE
PRINCIPAL FINANCIAL OFFICER
20
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