<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, 1998 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 (423) 697-7377
CHATTANOOGA, TENNESSEE 37410 (Registrant's telephone no.)
(Address of principal executive offices) (Zip Code)
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, 1998, 13,071,315 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.
1 of 20
<PAGE>
U.S. XPRESS ENTERPRISES, INC.
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements.............................. 3
- - ------
Consolidated Statements of Operations for the Three
and Nine Months Ended September 30, 1998 and 1997............. 4
Consolidated Balance Sheets as of September 30,
1998 and December 31, 1997..................................... 5
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1998 and 1997.................. 7
Notes to Consolidated Financial Statements..................... 8
Item 2. Management's Discussion and Analysis of
- - ------ Financial Condition and Results of Operations.................. 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................... 20
- - ------
SIGNATURES..................................................... 21
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 that, 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 September 30, 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998. 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 1997 Annual Report to Stockholders in the Company's
Form 10-K filed with the Securities and Exchange Commission on March 31, 1998).
3
<PAGE>
U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
---- ---- ---- ----
OPERATING REVENUE $150,165 $115,378 $412,507 $314,875
-------- -------- -------- --------
OPERATING EXPENSES:
SALARIES, WAGES AND BENEFITS 59,454 46,808 167,746 129,156
FUEL AND FUEL TAXES 18,564 17,121 55,695 49,873
VEHICLE RENTS 7,772 7,470 23,605 20,813
DEPRECIATION & AMORTIZATION 6,421 3,061 17,605 8,365
PURCHASED TRANSPORTATION 15,865 9,891 39,527 23,880
OPERATING EXPENSE & SUPPLIES 10,197 7,724 26,514 20,063
INSURANCE PREMIUMS & CLAIMS 5,861 3,961 14,578 10,481
OPERATING TAXES & LICENSES 2,861 1,745 7,173 4,951
COMMUNICATIONS & UTILITIES 2,576 1,872 6,745 5,255
GENERAL & OTHER OPERATING 8,103 6,887 21,974 20,184
-------- -------- -------- --------
TOTAL OPERATING EXPENSES 137,674 106,540 381,162 293,021
-------- -------- -------- --------
INCOME FROM OPERATIONS 12,491 8,838 31,345 21,854
-------- -------- -------- --------
OTHER INCOME AND (EXPENSES):
INTEREST EXPENSE (2,695) (1,544) (6,656) (4,511)
OTHER INCOME 3 6 53 27
-------- -------- -------- --------
(2,692) (1,538) (6,603) (4,484)
-------- -------- -------- --------
INCOME BEFORE INCOME TAX PROVISION 9,799 7,300 24,742 17,370
INCOME TAX PROVISION 3,920 2,920 9,897 6,944
-------- -------- -------- --------
NET INCOME $ 5,879 $ 4,380 $ 14,845 $ 10,426
-------- -------- -------- --------
EARNINGS PER SHARE-BASIC $ 0.39 $ 0.33 $ 0.98 $ 0.83
-------- -------- -------- --------
WEIGHTED AVERAGE SHARES - BASIC 15,143 13,267 15,077 12,489
-------- -------- -------- --------
EARNINGS PER SHARE - DILUTED $ 0.39 $ 0.33 $ 0.98 $ 0.83
-------- -------- -------- --------
WEIGHTED AVERAGE SHARES - DILUTED 15,226 13,391 15,176 12,598
-------- -------- -------- --------
(See Accompanying Notes to Consolidated Financial Statements)
4
<PAGE>
U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
ASSETS SEPTEMBER 30, 1998 DECEMBER 31, 1997
- - ---------------------------------------- ------------------ -----------------
CURRENT ASSETS:
Cash and cash equivalents $ 750 $ 2,734
Customer receivables, net of allowance 91,609 58,496
Other receivables 7,954 9,085
Prepaid insurance and licenses 4,589 1,488
Operating and Installation supplies 5,120 4,213
Deferred income taxes 9,965 3,092
Other current assets 1,255 508
-------- --------
Total current assets 121,242 79,616
-------- --------
PROPERTY AND EQUIPMENT, AT COST:
Land and buildings 10,642 6,845
Revenue and service equipment 258,651 151,081
Furniture and equipment 15,267 13,062
Leasehold improvements 12,727 9,411
-------- --------
297,287 180,399
Less accumulated depreciation and
amortization (48,220) (44,344)
-------- --------
Net property and equipment 249,067 136,055
-------- --------
OTHER ASSETS:
Goodwill, net 56,918 12,593
Other 7,352 5,513
-------- --------
Total Other Assets 64,270 18,106
-------- --------
TOTAL ASSETS $434,579 $233,777
======== ========
(See Accompanying Notes to Consolidated Financial Statements)
5
<PAGE>
<TABLE>
<CAPTION>
U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands Except Share Data)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY SEPTEMBER 30, 1998 DECEMBER 31, 1997
- - ------------------------------------------------------------------- -------------------- -------------------
<S> <C> <C>
Accounts Payable $ 22,335 $ 8,634
Accrued Wages and Benefits 10,313 4,325
Claims and Insurance Accruals 7,431 5,750
Other Accrued Liabilities 10,559 5,200
Current Maturities of Long-Term Debt 483 10,894
-------- --------
Total current liabilities 51,121 34,803
-------- --------
LONG-TERM DEBT, NET OF CURRENT MATURITIES 202,937 52,120
-------- --------
DEFERRED INCOME TAXES 27,967 17,352
-------- --------
OTHER LONG-TERM LIABILITIES 1,682 1,009
-------- --------
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, 13,071,315 and 11,979,584
shares issued at September 30, 1998 and
December 31, 1997, respectively 131 120
Common stock Class B, $.01 par value, 7,500,000
shares authorized, 3,040,262 shares issued and
outstanding at September 30, 1998 and December 31, 1997 30 30
Additional paid-in capital 104,194 85,942
Retained earnings 57,478 42,634
Treasury Stock Class A (934,289 shares), at cost (10,728)
Notes receivable from stockholders (233) (233)
-------- --------
Total stockholders' equity 150,872 128,493
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $434,579 $233,777
======== ========
</TABLE>
(See Accompanying Notes to Consolidated Financial Statements)
6
<PAGE>
<TABLE>
<CAPTION>
U.S. XPRESS ENTERPRISES CONSOLIDATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands, Except Share Data)
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 14,845 $ 10,426
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
DEFERRED INCOME TAX PROVISION 4,883 3,103
DEPRECIATION & AMORTIZATION 17,498 9,998
GAIN/LOSS ON SALE OF EQUIPMENT 108 (1,632)
CHANGE IN RECEIVABLES (5,514) (5,591)
CHANGE IN PREPAID INSURANCE (2,473) (1,936)
CHANGE IN OPERATING SUPPLIES 3 (226)
CHANGE IN OTHER ASSETS (3,733) 582
CHANGE IN ACCOUNTS PAYABLE AND
OTHER ACCRUED LIABILITIES (3,336) (9,524)
CHANGE IN ACCRUED WAGES AND BENEFITS 3,234 3,542
OTHER 43 16
--------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 25,558 8,758
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
PAYMENTS FOR PURCHASE OF PROPERTY AND EQUIPMENT (86,044) (49,157)
PROCEEDS FROM SALES OF PROPERTY AND EQUIPMENT 43,879 19,357
ACQUISITION OF BUSINESSES, NET OF CASH ACQUIRED (62,628) (8,038)
--------- --------
NET CASH USED IN INVESTING ACTIVITIES (104,793) (37,838)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
NET BORROWING UNDER LINES OF CREDIT 169,500 1,500
PAYMENT OF LONG-TERM DEBT (84,073) (49,925)
BORROWINGS UNDER LONG-TERM DEBT - 29,218
PROCEEDS FROM EXERCISE OF STOCK OPTIONS 77 198
PROCEED FROM ISSUANCE OF COMMON STOCK, NET 403 51,855
FORFEITURE OF 9,195 SHARES RESTRICTED STOCK - (21)
PURCHASE OF 750,000 CLASS A COMMON STOCK (8,656)
--------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 77,251 32,825
--------- --------
NET INCREASE (DECREASE) IN CASH (1,984) 3,745
CASH, BEGINNING OF PERIOD 2,734 2,997
--------- --------
CASH, END OF PERIOD $ 750 $ 6,742
========= ========
CASH PAID FOR INTEREST $ 6,645 $ 4,195
========= ========
CASH PAID FOR INCOME TAXES $ 1,779 $ 3,266
========= ========
</TABLE>
(See Accompanying Notes to Consolidated Financial Statements)
7
<PAGE>
U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
1. ORGANIZATION AND OPERATIONS
U. S. Xpress Enterprises, Inc. (the "Company") provides transportation
services through two subsidiaries. U.S. Xpress, Inc. ("U.S. Xpress") is a
truckload carrier serving the Continental United States, Canada and Mexico.
CSI/Crown, Inc. ("CSI/Crown") provides transportation and logistics services to
the floorcovering industry.
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
Property and equipment is carried at cost. Depreciation and amortization
of property and equipment are 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
---------------------- ---------
Expenditures for normal maintenance and repairs are expensed. Renewals or
betterments that affect the nature of an asset or increase its useful life are
capitalized.
CONTRACT WAGES
Effective January 1, 1997, the Company entered into an agreement with
Employee Solutions, Inc. ("ESI"), a Professional Employer Organization (PEO) in
which the PEO is a co-employer with the Company for substantially all of the
Company's personnel. The PEO is responsible for processing and administration
of the Company's payroll, including tax reporting, and provides group health
benefits and worker's compensation coverage. On July 22, 1998, the Company
filed suit against ESI in the United States District Court for the Eastern
District of Tennessee, at Chattanooga, in an action alleging breach of contract
and seeking contractual and punitive damages. The complaint alleges that ESI
agreed to perform certain employer organization services for Enterprises,
including administration of programs related to wages, payroll taxes, worker's
compensation, employee benefit programs and other insurance and related
administration services. Enterprises has alleged that ESI breached its contract
to provide such services and has wrongfully attempted to terminate the contract.
Enterprises seeks declaratory relief
8
<PAGE>
against ESI to enforce the contract's arbitration provisions, and also seeks
reimbursement of approximately $1,700,000 wrongfully withheld by ESI, and other
contractual and punitive damages. Effective August 20, 1998 the contract with
ESI terminated and U.S. Xpress assumed total control of all payroll. The Company
presently believes that the contract termination and litigation will not have a
material adverse impact on the Company.
FUEL PURCHASE COMMITMENTS
The Company uses forward purchase commitments to mitigate the effects
of fluctuations in the price of fuel. During the nine months ended September 30,
1998, the Company did not have in place any derivative financial instruments for
fuel price protection. The Company did utilize fuel purchase commitments ranging
from 1,500,000 gallons in January to 1,000,000 gallons in September 1998. The
Company has additional commitments ranging from 1,000,000 gallons per month in
October 1998 to 750,000 gallons per month in December of 1999 at varying price
levels.
EARNINGS PER SHARE
Effective for the period ended December 31, 1997, the Company adopted
Statement of Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS
No. 128"), which changes the criteria for reporting earnings per share ("EPS")
by replacing primary EPS with basic EPS and fully diluted EPS with diluted EPS.
All prior EPS data have been restated. The difference in basic and diluted EPS
is due to the assumed conversion of outstanding options resulting in
approximately 83,000 and 124,000 equivalent shares in the three month period
ended September 30, 1998 and 1997, respectively, and 99,000 and 109,000
equivalent shares in the nine month period ended September 30, 1998 and 1997,
respectively.
RECLASSIFICATIONS
Certain reclassifications have been made in the fiscal 1997 financial
statements to conform to the 1998 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 $14,136,000 outstanding at September
30, 1998. The letters of credit are maintained primarily to support the
Company's insurance program.
9
<PAGE>
4. DEBT
In January 1998, the Company obtained a new revolving credit facility
providing capacity of up to $200,000,000. A portion of the availability under
this new line was immediately used to retire the existing line of credit and pay
off other long term indebtedness bearing higher interest rates. The credit
facility operates as a revolving credit facility until its maturity in January
2001. Interest on outstanding borrowings is based the London Interbank Offered
Rate plus applicable margins, as defined in the credit agreement. The facility
has optional one year extensions, with the agreement of all parties. In August
1998 the Company entered into an agreement to increase the capacity under the
line of credit from $200,000,000 to $225,000,000. The other provisions of the
credit facility remain unchanged.
In February 1998, the Company entered into Interest Rate Swap agreements
providing for the Company to pay a fixed interest rate on $55,000,000 of its
borrowings under the Line of Credit. The agreements provide for the Company to
pay interest at a rate of approximately 5.66%, plus the applicable credit
margin, for five years.
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 receivables; or (b) $225,000,000. At September 30, 1998,
$11.9 million of available borrowings were unused under the facility.
The Credit Agreement contains a number of covenants that limit, among other
things, the payment of dividends, the incurrence of additional debt, and liens
on assets as security for other indebtedness. The Credit Agreement also
requires the Company to meet certain financial tests, including a minimum amount
of net worth, a minimum amount of fixed charge coverage and a maximum amount of
leverage. The Company was in compliance with these covenants at September 30,
1998.
LEASE ON HEADQUARTERS
In March 1998, the Company entered into an Agreement with a financial
institution to provide funding for the construction of a new headquarters
facility. When completed, the building will contain approximately 100,000
square feet of space for administrative and operating functions of the Company.
It will be located in a commercial park in Chattanooga, Tennessee. The new
building will be leased under an operating lease with an initial term of five
years and providing for mutually agreeable extension terms of up to three years
each.
Upon completion of this facility, the Company will consolidate its
administrative and operating functions and terminate its leases at its Market
Street and Shallowford Road facilities also in Chattanooga. The expected
completion date is December 1998.
10
<PAGE>
5. ACQUISITIONS OF VICTORY EXPRESS AND PST VANS, INC. AND
PRO FORMA FINANCIAL INFORMATION
Effective January 29, 1998, the Company acquired Victory Express, Inc., a
non-union truckload carrier based in Medway, Ohio, for $51 million in cash and
assumption of approximately $2 million in debt, in a transaction accounted for
by the purchase method of accounting.
Effective August 28, 1998, the Company acquired PST Vans, Inc., a non-
union truckload carrier based in Salt Lake City, Utah for $11.9 million in
cash, issuance of approximately 1.1 million shares of U.S. Xpress stock, and
the assumption of $52.0 million in debt, in a transaction accounted for by the
purchase method of accounting.
The results of operations of Victory Express and PST Vans are included in
the accompanying consolidated financial statements from the dates of their
respective acquisitions. The pro forma financial information below is based on
the historical financial statements of U.S. Xpress Enterprises, PST Vans, and
Victory Express and adjusted as if the acquisitions had occurred on January 1,
1997, with certain assumptions made that management believes to be reasonable.
This information is for comparative purposes only and does not purport to be
indicative of the results of operations that would have occurred had the
transactions been completed at the beginning of the respective periods or
indicative of the results that may occur in the future.
1998 1997
---- ----
(Unaudited)
OPERATING REVENUE $521,412 $466,761
INCOME FROM OPERATIONS 35,505 24,339
INCOME BEFORE INCOME TAX PROVISION 25,508 15,518
NET INCOME 15,532 9,251
EARNINGS PER SHARE - BASIC 0.96 0.68
EARNINGS PER SHARE - DILUTED 0.95 0.68
WEIGHTED AVERAGE SHARES - BASIC 16,177 13,589
WEIGHTED AVERAGE SHARES - DILUTED 16,276 13,698
11
<PAGE>
6. YEAR 2000 COMPLIANCE
Some computer systems that use two digits to indicate a year will not be
able to process data properly for the year 2000. The Company has assessed the
ability of its software and operating systems to function in the year 2000 and
beyond. Systems in use by the Company in operations, accounting and purchasing
are year 2000 compliant. Testing of U.S. Xpress systems for year 2000
compliance is scheduled for July 1999. Systems in use at CSI/Crown are
presently 50% compliant with year 2000 requirements. Programming to make
CSI/Crown systems compliant is expected to be completed by December 1998.
Testing of CSI/Crown systems is scheduled for March 1999.
U.S. Xpress is currently obtaining status updates and information
concerning the year 2000 compliance from its suppliers and customers. In the
event that any of the Company's significant suppliers or customers do not
successfully and timely achieve year 2000 compliance, the Company's business or
operations could be adversely affected. With that in mind U.S. Xpress is putting
in place a plan to replace those vendors and/or suppliers that will not be
compliant.
7. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. The Statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. The Statement
requires that changes in the derivative's fair value be recognized currently in
earnings, unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate and assess the effectiveness of transactions
that receive hedge accounting.
Statement 133 is effective for fiscal years beginning after June 15, 1999.
A company may also implement the Statement as of the beginning of any fiscal
quarter after issuance (that is, fiscal quarters beginning June 16, 1998 and
thereafter). Statement 133 cannot be applied retroactively. Statement 133 must
be applied to (a) derivative instruments and (b) certain derivative instruments
embedded in hybrid contracts that were issued,
12
<PAGE>
acquired or substantively modified after December 31, 1997 (and, at the
company's election, before January 1, 1998).
The Statement could increase the volatility in earnings and other
comprehensive income, however, based on the Company's current and anticipated
level of derivative instruments and hedging activities, the Company does not
believe the impact would be material.
8. STOCK REPURCHASE
Effective August 28, 1998, the Company was authorized by its board of
directors to purchase up to 750,000 shares of the Company's outstanding Class A
Common Stock in the open market. Through September 30, 1998, the Company
repurchased all of the 750,000 shares authorized in the open market. In
addition, the Company announced that it also has repurchased 184,289 shares of
the Company's Class A Common Stock in a private transaction with a
non-affiliated stockholder prior to September 30, 1998 and 200,000 additional
shares subsequent to September 30, 1998. In total, the Company has repurchased
1,134,289 shares in the open market and private transactions at an average price
of $11.34 per share.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
U.S. Xpress Enterprises, Inc. (the "Company") provides transportation and
logistics services in the United States, Canada and Mexico. The Company has two
operating subsidiaries, U.S. Xpress, Inc. ("U.S. Xpress") and CSI/Crown, Inc.
("CSI/Crown"). U.S. Xpress provides three principal services: i) time-definite
and expedited services with medium and long lengths of haul of 800 to 3,000
miles; ii) time-definite and expedited regional services with lengths of haul of
100 to 1,200 miles in the Western, Southeastern, Midwestern and Eastern regions
of the United States; and iii) expedited truckload transportation brokerage
services that primarily serve the air freight industry.
CSI/Crown consolidates floorcovering products into truckload quantities and
arranges truckload transportation to company-owned distribution centers and
third-party agent facilities throughout the United States and Canada for local
delivery to floorcovering distributors, retailers and contractors.
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:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
---- ---- ---- ----
OPERATING REVENUE 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
OPERATING EXPENSES:
SALARIES, WAGES AND BENEFITS 39.6 40.6 40.7 41.0
FUEL AND FUEL TAXES 12.4 14.8 13.5 15.8
VEHICLE RENTS 5.2 6.5 5.7 6.6
DEPRECIATION & AMORTIZATION 4.3 2.7 4.3 2.7
PURCHASED TRANSPORTATION 10.6 8.6 9.6 7.6
OPERATING EXPENSE & SUPPLIES 6.8 6.7 6.4 6.4
INSURANCE PREMIUMS & CLAIMS 3.9 3.4 3.5 3.3
OPERATING TAXES & LICENSES 1.9 1.5 1.7 1.7
COMMUNICATIONS & UTILITIES 1.7 1.5 1.6 1.5
GENERAL & OTHER OPERATING 5.4 6.0 5.5 6.5
----- ----- ----- -----
TOTAL OPERATING EXPENSES 91.8 92.3 92.5 93.1
----- ----- ----- -----
INCOME FROM OPERATIONS 8.2 7.7 7.5 6.9
----- ----- ----- -----
OTHER INCOME AND (EXPENSES):
INTEREST EXPENSE (1.8) (1.3) (1.6) (1.4)
----- ----- ----- -----
(1.8) (1.3) (1.6) (1.4)
----- ----- ----- -----
INCOME BEFORE INCOME TAX
PROVISION 6.4 6.4 5.9 5.5
INCOME TAX PROVISION 2.6 2.5 2.4 2.2
----- ----- ----- -----
NET INCOME 3.8% 3.9% 3.5% 3.3%
===== ===== ===== =====
14
<PAGE>
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1998 TO THE
THREE MONTHS ENDED SEPTEMBER 30, 1997
Operating revenue during the three month period ended September 30, 1998
increased $34.8 million, or 30.2%, to $150.2 million, compared to $115.4 million
during the same period in 1997. This increase resulted primarily from the
acquisitions of Victory Express in January 1998 and PST Vans in August 1998,
which together contributed $25.9 million of the $34.8 million increase.
Additionally, U.S. Xpress linehaul operations contributed $8.9 million to the
increase from increased revenue miles and $1.2 million increase in logistics
revenue.
Operating expenses represented 91.8% of operating revenue for the three
months ended September 30, 1998, compared to 92.3% during the same period in
1997.
Salaries, wages and employee benefits as a percentage of revenue were 39.6%
during the three months ended September 30, 1998, compared to 40.6% during the
same period in 1997. The decrease is primarily attributable to an increase in
the number of owner-operators to 432 at September 30, 1998, compared to 112
during the same period in 1997. The August 28th acquisition of PST Vans
accounted for 277 of the 320-unit increase. All owner-operator expenses and
purchased linehaul services are reflected as purchased transportation.
Fuel and fuel taxes as a percentage of operating revenue were 12.4% during
the three months ended September 30, 1998, compared to 14.8% during the same
period in 1997. As a percentage of operating revenue, excluding logistics and
non-transportation revenue, fuel and fuel taxes were 13.0% during the three
months ended September 30, 1998, compared to 15.7% during the same period in
fiscal 1997. This decrease was primarily attributable to 13.4% decrease in the
average price per gallon of fuel. The decrease in fuel expense was also due in
part to the increase in the use of owner-operators, as well as a 1.7% increase
in freight rates. The Company's exposure to increases in fuel prices is managed
by fuel surcharges to its customers and, on a limited basis, by hedges against
fluctuations in fuel prices.
Vehicle rents as a percentage of operating revenue were 5.2% during the
three months ended September 30, 1998, compared to 6.5% during the same period
of 1997. Depreciation and amortization as a percentage of operating revenue was
4.3% for the three months ended September 30, 1998, compared to 2.7% during the
same period in 1997. The Company includes gains and losses from the sale of
revenue equipment in depreciation expense. Net losses from the sale of revenue
equipment for the three months ended September 30, 1998 were $0.3 million
compared to gains of $0.6 million during the same period in 1997. Overall, as a
percentage of operating revenue, vehicle rents and depreciation were 9.5% during
the three months ended September 30, 1998, compared to 9.2% during the same
period in 1997. The increase in depreciation and the corresponding decrease in
vehicle rent are due primarily to the Company exercising its purchase option on
tractors previously financed with operating leases. In August 1997, the Company
used $47.9 million of the proceeds from the secondary offering to payoff
leases.
15
<PAGE>
The savings from these payoffs were offset in part by an increase in
depreciation expense. The overall savings was offset in part by replacing some
older trailers, which were fully depreciated in 1997, with new leased trailers
in 1998.
Purchased transportation as a percentage of operating revenue was 10.6%
during the three months ended September 30, 1998, compared to 8.6% during the
same period in 1997. This increase is primarily due to an increase of the
Company's owner-operator fleet to 432 as of September 30, 1998 from 112 as of
September 30, 1997. The increase in purchased transportation expense was
also due in part to a 34.3% increase in logistics revenue, which is serviced by
outside agents.
General and other operating expenses as a percentage of operating revenue
were 5.4% during the three months ended September 30, 1998, compared to 6.0%
during the same period in 1997. This decrease was primarily due to the 30.2%
increase in revenue and that general and other operating expenses are relatively
fixed.
Income from operations for the three months ended September 30, 1998
increased $3.7 million, or 42.0%, to $12.5 million from $8.8 million during the
same period in 1997. As a percentage of operating revenue, income from
operations was 8.2% for the three months ended September 30, 1998, compared to
7.7% in 1997.
16
<PAGE>
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1998 TO THE
NINE MONTHS ENDED SEPTEMBER 30, 1997
Operating revenue during the nine-month period ended September 30, 1998
increased $97.6 million, or 31.0%, to $412.5 million, compared to $314.9 million
during the same period in 1997. This increase was due in part from the
acquisitions of Victory Express in January 1998 and PST Vans in August 1998,
which together contributed $51.3 million of the $97.6 million increase.
Additionally, U.S. Xpress linehaul operations contributed $46.3 million to the
increase from increased revenue miles and $5.8 million increase in logistics
revenue.
Operating expenses represented 92.5% of operating revenue for the nine
months ended September 30, 1998, compared to 93.1% during the same period in
1997.
Salaries, wages and employee benefits as a percentage of revenue were 40.7%
during the nine months ended September 30, 1998, compared to 41.0% during the
same period in 1997. The decrease is primarily attributable to an increase
in the number of owner-operators to 432 at September 30, 1998, from 112 during
the same period in 1997. The August 28th acquisition of PST Vans accounted for
277 of the 320-unit increase. All owner-operator expenses and purchased
linehaul services are reflected as purchased transportation.
Fuel and fuel taxes as a percentage of operating revenue were 13.5% during
the nine months ended September 30, 1998, compared to 15.8% during the same
period in 1997. The percentage decrease was mitigated by logistics and non-
transportation revenue of $21.6 million during the nine months ended September
30, 1998, compared to $17.8 million during the same period in 1997. As a
percentage of operating revenue, excluding logistics and non-transportation
revenue, fuel and fuel taxes were 14.6% during the nine months ended September
30, 1998, compared to 16.8% during the same period in 1997. This decrease was
primarily attributable to 14.6% decrease in average price per gallon. The
Company's exposure to increases in fuel prices is managed by fuel surcharges to
its customers and, on a limited basis, by hedges against fluctuations in fuel
prices.
Vehicle rents as a percentage of operating revenue were 5.7% during the
nine months ended September 30, 1998, compared to 6.6% during the same period in
1997. Depreciation and amortization as a percentage of operating revenue was
4.3% for the nine months ended September 30, 1998, compared to 2.7% during the
same period in 1997. The Company includes gains and losses from the sale of
revenue equipment in depreciation expense. Net losses from the sale of revenue
equipment for the nine months ended September 30, 1998 were $0.1 million
compared to gains of $1.6 million during the same period in 1997. Overall, as a
percentage of operating revenue, vehicle rents and depreciation were 10.0%
during the nine months ended September 30, 1998, compared to 9.3% during the
same period in 1997. In August 1997, the Company used $47.9 million of the
proceeds from the secondary offering to payoff leases. The savings from
17
<PAGE>
these payoffs were off set in part by an increase in depreciation expense. The
overall increase in expense was due in part to replacing older fully depreciated
trailers in 1997 with new leased trailers in 1998.
Purchased transportation as a percentage of operating revenue was 9.6%
during the nine months ended September 30, 1998, compared to 7.6% during the
same period in 1997. This increase is primarily due to an increase in the use of
owner-operators to 432 at September 30, 1998, as compared to 112 at September
30, 1997. Additionally, logistics revenue increased 63.7% to $14.9 million
during the nine months ended September 1998 from $9.1 million during the same
period 1997. Logistics revenue is serviced primarily by outside agents.
General and other operating expenses as a percentage of operating revenue
were 5.5% during the nine months ended September 30, 1998, compared to 6.5%
during the same period in 1997. This decrease was primarily due to the 31.0%
increase in revenue and that many costs associated with general and other
operating expenses are relatively fixed. Additionally, the Company eliminated
some terminals during the second and third quarters in 1997, which reduced
building rent and overhead expenses in 1998.
Income from operations for the nine months ended September 30, 1998
increased $9.5 million, or 43.4%, to $31.4 million from $21.9 million during the
same period in 1997. As a percentage of operating revenue, income from
operations was 7.5% for the nine months ended September 30, 1998, compared to
6.9% during the same period in 1997.
18
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity during the nine month period
ended September 30, 1998, were funds provided by operations, lines of credit and
proceeds from the sale of used property and equipment. At September 30, 1998,
the Company had in place a $225.0 million credit facility with a group of banks
with a weighted average interest rate of 6.33%, of which $11.9 million was
available for borrowing. In the remainder of fiscal 1998, the Company's primary
sources of liquidity are expected to be funds provided by operations and
borrowings under lines of credit.
Cash generated from operations was $25.6 million during the first nine
months of fiscal 1998, compared to $8.8 million during the same period last
year. Net cash used in investment activities was $104.8 million in the first
nine months of fiscal 1998, compared to $37.8 million during the same period in
1997. Of the cash used in investment activities, $86.0 million was used to
acquire additional property and equipment for the first nine months of fiscal
1998. The Company used $62.6 million, net of cash acquired, in business
acquisitions in the first nine months of fiscal 1998, compared to $8.0 million
during the same period in 1997. This increase is primarily due to $50.3 million
used to acquire Victory Express and $11.8 million used to acquire PST Vans.
Net cash provided by financing activities was $77.3 million during the
first nine months of fiscal 1998, compared to $32.8 million during the same
period of 1997. Net borrowings under lines of credit and long-term debt were
$85.4 million during the first nine months of fiscal 1998, compared to net
repayments of $19.2 million during the same period of 1997. This increase is
primarily due to the borrowings associated with the purchase of Victory Express
and PST Vans and refinancing of equipment previously financed through operating
leases.
During 1998, the Company entered into a $225.0 million loan and security
agreement maturing January 15, 2001. Interest on outstanding borrowings is based
upon the London Interbank Offered Rate plus applicable margins, as defined in
the credit agreement. The note is collateralized by certain property and
equipment of the Company.
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.
19
<PAGE>
U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) A Form 8-K was filed on September 14, 1998 to report the Acquisition
of PST Vans, Inc. pursuant to the Agreement and Plan of Merger dated
July 7, 1998 by and among U.S. Xpress Enterprises and PST Acquisition
Corp.
(b) A Form 8-K/A was filed on September 18, 1998 to report the financial
and pro forma statements in relation to the Acquisition of PST Vans,
Inc.
(c) Financial Data Schedule (for SEC use only)
20
<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 16, 1998 BY: /S/ PATRICK E. QUINN
------------------------------
PATRICK E. QUINN
PRESIDENT
DATE: NOVEMBER 16, 1998 BY: /S/ RAY M. HARLIN
------------------------------
RAY M. HARLIN
PRINCIPAL FINANCIAL OFFICER
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JUL-01-1998 JAN-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 750 0
<SECURITIES> 0 0
<RECEIVABLES> 95,843 0
<ALLOWANCES> 4,234 0
<INVENTORY> 5,120 0
<CURRENT-ASSETS> 12,242 0
<PP&E> 297,287 0
<DEPRECIATION> 48,220 0
<TOTAL-ASSETS> 434,579 0
<CURRENT-LIABILITIES> 51,121 0
<BONDS> 0 0
0 0
0 0
<COMMON> 161 0
<OTHER-SE> 150,711 0
<TOTAL-LIABILITY-AND-EQUITY> 434,579 0
<SALES> 0 0
<TOTAL-REVENUES> 150,165 412,507
<CGS> 0 0
<TOTAL-COSTS> 137,303 380,375
<OTHER-EXPENSES> 3 53
<LOSS-PROVISION> 371 787
<INTEREST-EXPENSE> 2,695 6,656
<INCOME-PRETAX> 9,799 24,742
<INCOME-TAX> 3,920 9,897
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5,879 14,845
<EPS-PRIMARY> .39 .98
<EPS-DILUTED> .39 .98
</TABLE>
