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, 1997 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 September 30, 1997, 11,973,738 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 18
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 Months Ended September 30, 1997 and 1996.................4
Consolidated Balance Sheets as of
September 30, 1997 and March 31, 1997..................................5
Consolidated Statements of Cash Flows for the
Three Months Ended September 30, 1997 and 1996.........................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 three months and six months ended September
30, 1997 are not necessarily indicative of the results that may be expected for
the nine month period ending December 31, 1997. (See Note 7 regarding change in
fiscal year). 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 Company's Form 10-K for the fiscal year ended March
31, 1997 filed with the Securities and Exchange Commission on June 25, 1997).
3
U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended Six Months Ended
September 30, September 30,
1997 1996 1997 1996
-------------- ------------ ------------- -------------
OPERATING REVENUE $ 115,378 $ 92,259 $ 223,311 $ 180,077
-------------- ------------ ------------- -------------
OPERATING EXPENSES:
Cost of Goods Sold 1,781 2,293 3,620 4,484
Salaries, Wages and Benefits 46,808 37,818 90,682 73,962
Fuel and Fuel Taxes 17,121 14,921 33,571 29,271
Vehicle Rents 7,470 5,195 14,694 9,901
Depreciation & Amortization 3,673 3,753 6,846 8,070
Purchased Transportation 9,891 5,665 18,734 12,059
Operating Expense & supplies 7,724 5,378 14,650 11,514
Insurance Premiums & Claims 3,961 4,193 7,511 8,544
Operating Taxes & Licenses 1,745 1,454 3,445 2,906
Communications & Utilities 1,872 1,575 3,746 3,123
Building Rental 1,419 1,221 2,865 2,412
Bad Debt Expense 323 223 627 431
General & Other Operating 3,364 2,773 6,708 5,415
Gain on Sale of Equipment (612) (226) (1,261) (278)
-------------- ------------ ------------- -------------
Total Operating Expenses 106,540 86,236 206,438 171,814
-------------- ------------ ------------- -------------
INCOME FROM OPERATIONS 8,838 6,023 16,873 8,263
-------------- ------------ ------------- -------------
OTHER INCOME AND (EXPENSES):
Interest Expense (1,544) (1,398) (3,127) (2,751)
Other Income (Expense) 6 (14) 17 (4)
-------------- ------------ ------------- -------------
(1,538) (1,412) (3,110) (2,755)
-------------- ------------ ------------- -------------
INCOME BEFORE INCOME TAX PROVISION 7,300 4,611 13,763 5,508
INCOME TAX PROVISION 2,920 1,866 5,505 2,210
-------------- ------------ ------------- -------------
NET INCOME $ 4,380 $ 2,745 $ 8,258 $ 3,298
============== ============ ============= =============
EARNINGS PER COMMON SHARE $ 0.33 $ 0.23 $ 0.65 $ 0.27
============== ============ ============= =============
WEIGHTED AVERAGE COMMON SHARES AND
COMMON SHARE EQUIVALENTS OUTSTANDING 13,267 12,137 12,797 12,134
============== ============ ============= =============
4 (See accompanying Notes to Consolidated Financial Statements)
U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
September 30, 1997 March 31, 1997
------------------ ----------------
(Unaudited)
ASSETS
- ------------------------------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents $ 6,742 $ 5,092
Customer receivables, net of allowance 57,786 50,056
Other receivables 2,590 3,969
Notes receivable 52 -
Prepaid insurance and licenses 3,148 3,853
Operating and Installation supplies 4,754 4,904
Deferred income taxes 4,443 4,443
Other current assets 548 719
---------------- ---------------
Total current assets 80,063 73,036
---------------- ---------------
PROPERTY AND EQUIPMENT, at cost:
Land and buildings 6,662 2,717
Revenue and service equipment 158,778 112,076
Furniture and equipment 12,587 11,265
Leasehold improvements 10,242 7,619
---------------- ---------------
188,269 133,677
Less accumulated depreciation and amortization (44,142) (39,803)
---------------- ---------------
Net property and equipment 144,127 93,874
---------------- ---------------
OTHER ASSETS:
Goodwill, net 12,703 7,700
Other 4,525 3,474
---------------- ---------------
Total other assets 17,228 11,174
---------------- ---------------
TOTAL ASSETS $ 241,418 $ 178,084
================ ===============
(See accompanying Notes to Consolidated Financial Statements) 5
U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
September 30, 1997 March 31, 1997
------------------ --------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 9,470 $ 8,708
Accrued wages and benefits 6,502 5,086
Claims and insurance accruals 5,594 9,601
Other accrued liabilities 6,550 2,804
Current maturities of long-term debt 13,455 13,008
--------------- --------------
Total current liabilities 41,571 39,207
--------------- --------------
LONG-TERM DEBT, net of current maturities 60,216 59,318
--------------- --------------
DEFERRED INCOME TAXES 14,543 14,543
--------------- --------------
OTHER LONG-TERM LIABILITIES 1,624 1,854
--------------- --------------
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, 11,973,738 and 9,046,044
shares issued and outstanding at Sept 30,
1997 and March 31, 1997, respectively 120 90
Common stock Class B, $.01 par value, 7,500,000
shares authorized, 3,040,262 shares issued and
outstanding at Sept 30, 1997 and March 31, 1997 30 30
Additional paid-in capital 85,849 33,832
Retained earnings 37,698 29,443
Notes receivable from stockholders (233) (233)
--------------- --------------
Total stockholders' equity 123,464 63,162
--------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 241,418 $ 178,084
=============== ==============
6 (See accompanying Notes to Consolidated Financial Statements)
U.S. XPRESS ENTERPRISES CONSOLIDATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
September 30,
1997 1996
================== ================
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $8,258 $3,297
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation & Amortization 6,846 8,070
Gain on sale of equipment (1,261) (278)
Change in receivables (3,184) (5,967)
Change in prepaid insurance 1,167 2,666
Change in operating supplies 188 (64)
Change in other assets (78) (2,029)
Change in accounts payable and
other accrued liabilities (2,496) 368
Change in accrued wages and benefits 1,427 302
Other 16 16
------------------ ----------------
Net cash provided by operating activities 10,883 6,381
------------------ ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of property and equipment (55,337) (10,140)
Proceeds from sales of property and equipment 12,750 9,447
Acquisition of businesses, net of cash acquired (4,990) -
------------------ ----------------
Net cash used in investing activities (47,577) (693)
------------------ ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing under lines of credit 2,000 1,500
Payment of long-term debt (38,502) (8,815)
Borrowings under long-term debt 22,817 3,017
Proceeds from exercise of stock options 175 -
Proceeds from issuance of common stock, net 51,855 -
Decrease in other liabilities - (158)
------------------ ----------------
Net cash provided by (used in) financing activities 38,345 (4,456)
------------------ ----------------
NET INCREASE IN CASH 1,651 1,232
Cash, beginning of period 5,091 4,378
------------------ ----------------
Cash, end of period $6,742 $5,610
================== ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $3,099 $3,000
Cash paid for income taxes 1,839 236
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 three 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 and
parts of Canada and Mexico, regional truckload services in the Western and
Southeastern United States and logistics services that specialize in serving air
cargo shippers; CSI/Crown, Inc. ("CSI/Crown") which provides logistics services
to the floorcovering industry, including freight consolidation, transportation,
warehousing services and installation supplies; and JTI, Inc.("JTI"), a regional
truckload carrier serving primarily a 24-state region in the Midwest and South.
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...................3-8 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 coordinates 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 1997 financial
statements to conform with the fiscal 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 $3,055,000 outstanding at
September 30, 1997. The letters of credit are maintained primarily to support
the Company's insurance program.
4. DEBT
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 August 1999, at which time it will convert to a three year
installment loan, if not extended or renewed.
Borrowings (including letters of credit) under the Credit Agreement are
limited to the lesser of: (a) 90% of the book value of eligible revenue
equipment plus 85% of eligible accounts receivable; or (b) $50,000,000. At
September 30, 1997, $12.5 million was unused and available to the Company under
the Credit Agreement.
9
The Credit Agreement contains a number of covenants that limit, among
other things, the payment of dividends, the incurrence of additional debt, and
the pledge of assets as security for other indebtedness. The Credit Agreement
also requires the Company to meet certain financial tests, including a minimum
amount of tangible net worth, a minimum fixed charge coverage and a maximum
amount of leverage. The Company was in compliance with these covenants during
the period ended September 30, 1997.
5. ACQUISITION OF ROSEDALE TRANSPORT AND JTI, INC.
The Company completed its acquisition of JTI on April 30, 1997. The
Company paid cash for JTI in a transaction accounted for as a purchase. The
Company also acquired certain assets from Rosedale Transport, Inc. ("Rosedale")
on April 1, 1997. Accordingly, the results of operations of JTI and Rosedale are
included in the Consolidated Statements of Operations from the date of
acquisition. The pro forma effect of these transactions on prior period
financial statements is not significant.
6. HEDGING
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are periodically
used to hedge the effects of fluctuations in the price of fuel. The resulting
gains or losses are accounted for as a decrease or increase in fuel expense in
the period the fuel is purchased. At September 30, 1997, the Company had
commitments to purchase approximately 1,500,000 gallons of fuel a month through
April 1998. The fair value of the fuel contracts are not significant. The
Company is exposed to fuel hedging transaction losses in the event of
non-performance by counter parties, but management does not expect any counter
party to fail to meet its obligations.
7. CHANGE IN FISCAL YEAR
On October 2, 1997, the Company announced it will change to a fiscal
year ending December 31. The Company intends to file a Form 10-K for a nine
month transition period ending December 31, 1997 and will begin its first full
fiscal year on the new basis on January 1, 1998.
8. ISSUANCE OF COMMON STOCK
The Company registered an additional 2.9 million shares of Class A
Common stock effective as of August 22, 1997. The Company received net proceeds
of $52.1 million in connection with the offering. Approximately $47.9 million of
the net proceeds were used to acquire revenue equipment previously leased by the
Company under operating leases. The balance of the net proceeds were used to pay
installment notes incurred primarily to acquire revenue equipment.
10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company provides transportation and logistics services throughout
the United States and in parts of Canada and Mexico, specializing in
time-definite and expedited long- haul and regional truckload services. U.S.
Xpress provides time-definite and expedited long-haul and regional truckload
services, as well as transportation and logistics services to the air freight
industry. CSI/Crown is the leader in providing logistics services to
manufacturers and retailers in the floorcovering industry. JTI provides regional
truckload carrier services in the Midwest.
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 Six Months Ended
September 30, September 30,
1997 1996 1997 1996
-------------- ------------ ------------- -------------
OPERATING REVENUE 100.0% 100.0% 100.0% 100.0%
-------------- ------------ ------------- -------------
OPERATING EXPENSES:
Cost of Goods Sold 1.5 2.5 1.6 2.5
Salaries, Wages and Benefits 40.6 41.0 40.6 41.1
Fuel and Fuel Taxes 14.8 16.2 15.0 16.3
Vehicle Rents 6.5 5.6 6.6 5.5
Depreciation & Amortization 3.2 4.1 3.1 4.5
Purchased Transportation 8.6 6.1 8.4 6.7
Operating Expense & supplies 6.7 5.8 6.6 6.4
Insurance Premiums & Claims 3.4 4.6 3.3 4.8
Operating Taxes & Licenses 1.5 1.6 1.5 1.6
Communications & Utilities 1.6 1.7 1.7 1.7
Building Rental 1.2 1.3 1.3 1.3
Bad Debt Expense 0.3 0.2 0.3 0.2
General & Other Operating 2.9 3.0 3.0 3.0
Gain on Sale of Equipment (0.5) (0.2) (0.6) (0.2)
-------------- ------------ ------------- -------------
Total Operating Expenses 92.3 93.5 92.4 95.4
-------------- ------------ ------------- -------------
INCOME FROM OPERATIONS 7.7 6.5 7.6 4.6
-------------- ------------ ------------- -------------
OTHER INCOME AND (EXPENSES):
Interest Expense (1.3) (1.5) (1.4) (1.5)
Other Income (Expense) 0.0 (0.0) 0.0 (0.0)
-------------- ------------ ------------- -------------
(1.3) (1.5) (1.4) (1.5)
-------------- ------------ ------------- -------------
INCOME BEFORE INCOME TAX PROVISION 6.6 5.0 6.2 3.1
INCOME TAX PROVISION 2.5 2.0 2.5 1.2
-------------- ------------ ------------- -------------
NET INCOME 3.8% 3.0% 3.7% 1.8%
============== ============ ============= =============
11
Comparison of the Three Months Ended September 30, 1997 to the
Three Months Ended September 30, 1996
Operating revenue during the three month period ended September 30,
1997 increased $23.1 million, or 25.1%, to $115.4 million, compared to $92.3
million during the same period in fiscal 1997. This increase in operating
revenue is primarily due to the expansion of the Company's fleet size during the
three month period to an average of 2,621 tractors as of September 30, 1997
compared to an average of 2,115 tractors as of September 30, 1996. The fleet
growth was partially due to the acquisition in April 1997 of JTI which operated
267 tractors.
Operating expenses represented 92.3% of operating revenue for the three
months ended September 30, 1997, compared to 93.5% during the same period in
fiscal 1997.
Salaries, wages and employee benefits as a percentage of revenue were
40.6% during the three months ended September 30, 1997, compared to 41.0% during
the same period in fiscal 1997. This decrease is due in part to increased use of
owner-operators from the acquisition of JTI and increased use of outside
linehaul carriers from the acquisition of Rosedale. All owner-operator expenses
and purchased linehaul services are reflected as purchased transportation.
Additionally, shop wages were reduced due to outsourcing equipment maintenance
which in turn increased maintenance expenses. These decreases were offset by a
$.02 per mile pay increase to drivers that went into effect July 5, 1997.
Fuel and fuel taxes as a percentage of operating revenue were 14.8%
during the three months ended September 30, 1997, compared to 16.2% during the
same period in fiscal 1997. This decrease was primarily attributable to a 6.4%
decrease in average price per gallon, and a 1.7% increase in average miles per
gallon. Additionally, fuel taxes have decreased slightly due to reduced fuel tax
rates in some states. 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 6.5% during the
three months ended September 30, 1997, compared to 5.6% during the same period
of fiscal 1997. Depreciation and amortization as a percentage of operating
revenue was 3.2% for the three months ended September 30, 1997, compared to 4.1%
during the same period in fiscal 1997. Overall, as a percentage of operating
revenue, vehicle rents and depreciation were 9.7% during the three months ended
September 30, 1997, compared to 9.7% during the same period in fiscal 1997. The
increase in vehicle rents and decrease in depreciation is due to financing
additional revenue equipment through operating leases as opposed to debt
financing.
12
Purchased transportation as a percentage of operating revenue was 8.6%
during the three months ended September 30, 1997, compared to 6.1% during the
same period in fiscal 1997. This increase was a result of increased third party
transportation purchases by CSI/Crown, due in part to the acquisition of
Rosedale in April 1997 and increased owner-operator expenses from the April 1997
acquisition of JTI.
Operating expenses and supplies as a percentage of operating revenue
were 6.7% during the three months ended September 30, 1997, compared to 5.8%
during the same period in fiscal 1997. This increase was due primarily to the
outsourcing of the Company's equipment maintenance which also reduced shop
wages.
Insurance premiums and claims as a percentage of revenue were 3.4%
during the three months ended September 30, 1997, compared to 4.5% during the
same period in fiscal 1997. This decrease was primarily due to obtaining new
insurance policies in 1997 at rates more favorable to the Company.
Income from operations for the three months ended September 30, 1997
increased $2.8 million, or 46.7%, to $8.8 million from $6.0 million during the
same period in fiscal 1997. As a percentage of operating revenue, income from
operations was 7.7% for the three months ended September 30, 1997, compared to
6.5% in fiscal 1997.
13
Comparison of the Six Months Ended September 30, 1997 to the
Six Months Ended September 30, 1996
Operating revenue during the six month period ended September 30, 1997
increased $43.2 million, or 24.0%, to $223.3 million, compared to $180.1 million
during the same period in fiscal 1997. This increase in operating revenue is
primarily due to the expansion of the Company's fleet size during the six month
period to an average of 2,528 tractors as of September 30, 1997 compared to
an average of 2,051 tractors as of September 30, 1996. The fleet growth was
partially due to the acquisition in April 1997 of JTI which operated 267
tractors.
Operating expenses represented 92.4% of operating revenue for the six
months ended September 30, 1997, compared to 95.4% during the same period in
fiscal 1997.
Salaries, wages and employee benefits as a percentage of revenue were
40.6% during the six months ended September 30, 1997, compared to 41.1% during
the same period in fiscal 1997. This decrease is due in part to an increase in
owner-operators resulting from the acquisition of JTI and increased use of
outside linehaul carriers resulting from the acquisition of Rosedale . All
owner-operator expenses and purchased linehaul services are reflected as
purchased transportation. Additionally, shop wages were reduced due to
outsourcing equipment maintenance which in turn increased maintenance expenses.
These decreases were offset by a $.02 per mile pay increase to drivers that went
into effect July 5, 1997.
Fuel and fuel taxes as a percentage of operating revenue were 15.0%
during the six months ended September 30, 1997, compared to 16.3% during the
same period in fiscal 1997. This decrease was primarily attributable to a 5.6%
decrease in average price per gallon, and a 2.4% increase in average miles per
gallon. Additionally, fuel taxes have decreased slightly due to reduced fuel tax
rates in some states. The Company's exposure to increases in fuel prices is
generally offset by fuel surcharges to its customers and, on a limited basis,
hedges against fluctuations in fuel prices.
Vehicle rents as a percentage of operating revenue were 6.6% during the
six months ended September 30, 1997, compared to 5.5% during the same period of
fiscal 1997. Depreciation and amortization as a percentage of operating revenue
was 3.1% for the six months ended September 30, 1997, compared to 4.5% during
the same period in fiscal 1997. Overall, as a percentage of operating revenue,
vehicle rents and depreciation were 9.7% during the six months ended September
30, 1997, compared to 10.0% during the same period in fiscal 1997. This increase
in vehicle rents and decrease in depreciation is due to financing additional
revenue equipment through operating leases as opposed to debt financing.
14
Purchased transportation as a percentage of operating revenue was 8.4%
during the six months ended September 30, 1997, compared to 6.7% during the same
period in fiscal 1997. This increase was a result of increased third party
transportation purchases by CSI/Crown, due in part to the acquisition of
Rosedale in April 1997 and increased owner-operator expenses from the April 1997
acquisition of JTI.
Operating expenses and supplies as a percentage of operating revenue
were 6.6% during the six months ended September 30, 1997, compared to 6.4%
during the same period in fiscal 1997. This increase was due primarily to the
outsourcing of the Company's equipment maintenance which also reduced shop
wages.
Insurance premiums and claims as a percentage of revenue were 3.4%
during the six months ended September 30, 1997, compared to 4.7% during the same
period in fiscal 1997. This decrease was primarily due to obtaining new
insurance policies in 1997 at rates more favorable to the Company.
Income from operations for the six months ended September 30, 1997
increased $8.6 million, or 104.2%, to $16.9 million from $8.3 million during the
same period in fiscal 1997. As a percentage of operating revenue, income from
operations was 7.6% for the six months ended September 30, 1997, compared to
4.6% in fiscal 1997.
Liquidity and Capital Resources
The Company's primary sources of liquidity during the six month period
ended September 30, 1997, were funds provided by operations, borrowings under
long-term debt facilities, lines of credit, proceeds from sales of used property
and equipment and the sale of 2.9 million shares of common stock at a price of
$19 per share. At September 30, 1997, the Company had in place a $50.0 million
credit facility with a group of banks with a weighted average interest rate of
7.15%, of which $12.5 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 and long-term debt.
Cash generated from operations was $10.9 million during the first six
months of fiscal 1998, compared to $6.4 million during the same period of fiscal
1997. Net cash used in investment activities was $47.6 million in the first six
months of fiscal 1998, compared to $0.3 million net cash provided during the
same period of fiscal 1997. Of the cash used in investment activities, $55.3
million was used to acquire additional property and equipment for the first six
months of fiscal 1998. The Company used $5.0 million for the acquisition of JTI
and Rosedale in the first quarter of fiscal 1998.
Net cash provided by financing activities was $38.3 million in the
first six months of fiscal 1998, compared to $5.4 million used for financing
activities during the same period
15
of fiscal 1997. Net repayments under lines of credit and long-term debt were
$13.7 million in the first six months of fiscal 1998, compared to $5.3 million
during the same period of fiscal 1997. Net borrowings under lines of credit were
$2.0 million in the first six months of fiscal 1998, compared to $1.5 million
during the same period of fiscal 1997. In late August 1997 the Company offered
2.9 million shares of common stock to the public of which proceeds received net
of expenses was $51.8 million.
On June 24, 1997, the Company entered into a $10 million loan and
security agreement maturing July 1, 2001. Interest on outstanding borrowings is
based upon on the London Interbank Offered Rate plus applicable margins, as
defined in the credit agreement. The rate at June 30, 1997 was 6.65%. The note
is collateralized by certain property and equipment of the Company.
Management believes that funds provided by operations, borrowings
under installment notes payable, available borrowings under the Company's
existing line of credit, and the use of operating leases will be sufficient to
fund its cash needs and anticipated capital expenditures through at least the
next twelve months. However, if the Company were to make a significant cash
acquisition, it is likely that the Company would need to increase its borrowing
capacity under its existing line of credit.
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, 1997.
16
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 October 2, 1997 advising of a change
in the Company's fiscal year end from March 31 to December 31,
effective December 31, 1997.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U.S. XPRESS ENTERPRISES, INC.
(Registrant)
Date: November 14, 1997 By: /s/ Patrick E. Quinn
----------------- ----------------------------
Patrick E. Quinn
President
Date: November 14, 1997 By: /s/ Ray M. Harlin
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Ray M. Harlin
Principal Financial Officer
18