-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SeFfnN2aEoDIqbj4GEpZ1voMHAWtU3Kkf6d3stNpp609gWYLbduDi9otYfpvn45Y APtr/A2ps8zZraRXQiS9+Q== 0000931763-97-000172.txt : 19970222 0000931763-97-000172.hdr.sgml : 19970222 ACCESSION NUMBER: 0000931763-97-000172 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970214 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: US XPRESS ENTERPRISES INC CENTRAL INDEX KEY: 0000923571 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 621378182 STATE OF INCORPORATION: NV FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-24806 FILM NUMBER: 97533772 BUSINESS ADDRESS: STREET 1: 2931 SOUTH MARKET ST CITY: CHATTANOOGA STATE: TN ZIP: 37410 BUSINESS PHONE: 6156967377 MAIL ADDRESS: STREET 1: 2931 SOUTH MARKET ST CITY: CHATTONOOGA STATE: TN ZIP: 37410 10-Q 1 QUARTERLY REPORT 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 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 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
2 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 U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Data) (Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, 1996 1995 1996 1995 -------- -------- --------- --------- 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 ======== ======== ========= =========
4 (See accompanying Notes to Consolidated Financial Statements) U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands)
DECEMBER 31, 1996 MARCH 31, 1996 ------------------- ---------------- (Unaudited) ASSETS - -------------------------------------------------- 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 =================== ================
(See accompanying Notes to Consolidation Financial Statements) 5 U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands)
DECEMBER 31, 1996 MARCH 31, 1996 ----------------- -------------- (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY - ----------------------------------------------------------- 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 ================== ===============
6 (See accompanying Notes to Consolidated Financial Statements) U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited)
NINE MONTHS ENDED DECEMBER 31, 1996 1995 --------- --------- 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 ========= =========
(See accompanying Notes to Consolidated Financial Statements) 7 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 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 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. 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:
THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, 1996 1995 1996 1995 -------- ------- ------- ------- 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 % ======== ======= ======= =======
11 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 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 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 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 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 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 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 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 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 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS MAR-31-1996 APR-01-1996 DEC-31-1996 2,997 0 49,084 2,647 4,490 64,568 146,001 38,387 183,479 41,471 0 0 0 121 60,869 183,479 0 269,862 0 254,492 (44) 630 4,157 10,627 4,919 0 0 0 0 5,708 .47 .47
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