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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED).
For the transition period from ____________________ to ____________________
Commission file number 0-24806
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U.S. XPRESS ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Nevada 62-1378182
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
2931 South Market Street
Chattanooga, Tennessee 37410
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (423) 697-7377
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Securities Registered Pursuant to Section 12(b) of the Act: None
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Securities Registered Pursuant to Section 12(g) of the Act: Class A Common
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Stock, $0.01 Par Value
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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
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [____]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $66,603,787 as of June 6, 1997 (based upon the $19.25 per
share average of the closing bid and asked price on that date as reported by
NASDAQ). In making this calculation the registrant has assumed, without
admitting for any purpose, that all executive officers, directors, and
holders of more than 10% of a class of outstanding common stock, and no
other persons, are affiliates.
As of June 6, 1997, the registrant had 9,073,674 shares of Class A Common
Stock and 3,040,262 shares of Class B Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: The information set forth under Part III,
Items 11, 12, and 13 of this Report is incorporated by reference from the
registrant's definitive proxy statement dated June 25, 1997 for the 1997
annual meeting of stockholders.
1
CROSS REFERENCE INDEX
The following cross reference index indicates the document and location of the
information contained herein and incorporated by reference into the Form 10-K.
Part I Document and Location
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Item 1 Business Pages 3 to 14 herein
Item 2 Properties Page 14 to 15 herein
Item 3 Legal Proceedings Page 15 herein
Item 4 Submission of matters to a Vote of Security Holders Page 15 herein
Part II
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Item 5 Market for the Registrant's Common Equity and
Related Stockholder Matters Page 15 herein
Item 6 Selected Financial Data Page 16 herein
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations Pages 17 to 21 herein
Item 8 Financial Statements and Supplementary Data Pages 22 to 37 herein
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure Page 37 herein
Part III
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Item 10 Directors and Executive Officers of the Registrant Pages 38 and 39 herein
Item 11 Executive Compensation Pages 7 to 9 of the Proxy Statement
Item 12 Security Ownership of Certain Beneficial Owners and
Management Pages 3 and 4 of the Proxy Statement
Item 13 Certain Relationships and Related Transactions Page 6 of the Proxy Statement
Part IV
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Item 14 Exhibits, Consolidated Financial Statement Schedules,
and Reports on Form 8-K Pages 40 to 44 herein
2
PART I
ITEM 1. BUSINESS
General
Except for the historical information contained herein, the following
"Business" section contains forward-looking statements that involve risks
and uncertainties. The Company's actual results could differ materially
from those discussed herein.
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, the Company's largest subsidiary, accounted for 82% of the
Company's fiscal 1997 revenues. U.S. Xpress targets customers that
require time-definite and expedited truckload services. These services
are provided in three ways: i) long-haul services utilizing two-person
driver teams that travel over lengths of haul ranging generally from 800
to 3,000 miles; ii) regional services with lengths of haul from 100 to
1,000 miles in the Western and Southeastern regions of the United States;
and iii) expedited truckload transportation brokerage services that
primarily serve the air freight industry.
CSI/Crown's target market is the floorcovering industry. CSI/Crown
consolidates floorcovering products into truckload quantities, arranges
truckload transportation to distribution centers throughout the United
States and agent facilities throughout the U.S. and Canada for local
delivery, provides warehousing facilities and sells floorcovering
installation supplies.
The Company's operating strategy is focused on seizing the opportunities
that are emerging from five evolving trends in the transportation
industry. These trends are:
1) Growth opportunities are attractive for high-service providers. U.S.
Xpress was founded in 1985 to provide high levels of transportation-
related services utilizing technology. Over the last five years, the
Company's revenues have grown at a 24% compounded annual rate. The
Company's services have attracted customers across many industries,
particularly among those who operate just-in-time systems in
manufacturing and distribution. In addition, the Company's growth is
attributable to providing services that are unique or differentiated from
other carriers in the truckload industry. The Company was one of the
first in the industry to establish time-definite pickups and deliveries
to exact appointment times as a standard for service quality. Time-
definite service is a critical element of efficient supply chain and
distribution systems management as practiced by an ever-increasing number
of shippers. In addition, the Company is one of only a few truckload
carriers that provides expedited, time-definite service to and from any
point in the Continental United States and bordering provinces of Canada.
This is particularly important to shippers that operate multiple,
geographically-separated facilities. The Company also has consistently
utilized leading-edge technologies that provide value to customers. The
most recent service enhancement is the Xpress Connect(TM) system which
enables U.S. Xpress and CSI/Crown customers to trace freight, tender
loads, exchange invoice information and perform other functions through
the Internet. Management believes that this system is a distinct
competitive advantage in the truckload industry and establishes a basis
for the Company to enhance its Internet-based services.
2) Shippers are increasingly eliminating or reducing the size of their
private fleets and reducing the number of "core carriers" they use. This
trend provides full-service carriers such as U.S. Xpress with
opportunities for growth. In order to be considered as a core carrier by
major shippers, the
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Company has positioned itself with national and regional truckload
capabilities, expedited and time-definite service, industry-leading
technology that adds value to customers' supply chain and administrative
systems, modern and efficient operating equipment, specialized equipment
to serve specific customer needs, quality management processes and
equipment and drivers that can be assigned to dedicated customers and
routes. In seeking customers, the Company emphasizes its commitment to
flexibility, responsiveness, analytical planning and information
management systems that position the Company to serve customers' demands
for time-definite pickup and delivery, expedited service, instant
information and logistics planning. The Company is a core carrier for
many of its major customers, including Federal Express, Hewlett Packard,
Avery Dennison, Carrier Corporation and Amana.
3) The labor market for qualified professional truck drivers is extremely
competitive, providing a competitive advantage to driver-friendly
employers like the Company. Due to the continuing shortage of qualified
drivers in the truckload transportation industry, particularly in the
longer haul market, the recruiting, training and retention of qualified
drivers is essential to support the Company's continued growth. The
Company focuses significant resources and attention on the successful
recruiting, hiring, and retention of qualified professional drivers. In
fiscal 1997, the Company increased its fleet size to 2,246 tractors, a
14% increase over fiscal 1996, and employed a sufficient number of
drivers to operate this larger fleet. The Company plans to increase its
fleet size in fiscal 1998 through internal growth and strategic
acquisitions. Two acquisitions were completed after the close of fiscal
1997 and the Company may pursue other acquisitions. Hiring and retaining
drivers to fuel continued growth is an essential element of the Company's
continuing growth and profitability. In fiscal 1997, the competition for
professional drivers intensified, as several competing carriers raised
driver mileage pay. Some carriers reported that they increased wages more
than ten percent. While the Company has not had a significant problem
with hiring and retaining sufficient numbers of drivers, management
believes it is critical that the Company remain in the upper tier of
carriers for total driver compensation in order to continue to keep its
growing fleet fully staffed. Therefore, mileage pay for U.S. Xpress
drivers will be increased between 0.5 to 3 cents per mile effective July
6, 1997. Most drivers will receive a 2 cent per mile increase.
4) Shippers are increasingly outsourcing their logistics and
transportation requirements to logistics firms, providing opportunities
for the Company to obtain significant new customer accounts by
establishing working relationships with important logistics suppliers.
Some shippers recognize significant cost savings and improved performance
by outsourcing transportation requirements and focusing their resources
on their core businesses. A small number of logistics providers have
jumped to the forefront of this young industry and have obtained
significant business volumes from large shippers. The Company has
established relationships with three of the leading logistics suppliers
and these relationships have resulted in significant business
opportunities. The Company believes that as it demonstrates its
capabilities and performs to the demanding requirements of logistics
suppliers, it could earn additional business opportunities with these
logistics providers. In addition, relationships are being developed with
other logistics providers.
5) The trucking industry is consolidating, with financial and service
pressures on many carriers offering attractive opportunities for well-
capitalized carriers like the Company to acquire other carriers. Many
carriers are having difficulty growing, or even surviving, in an
increasingly competitive industry. This provides growth opportunities for
the Company through acquisitions that fit its strategies, such as
national or regional truckload carriers, carriers specializing in
expedited services, floorcovering logistics providers and other high-
service providers. The Company seeks strategic acquisition opportunities
that fit the Company's established market niches and complement its
existing business. Management believes that market and financial forces
will continue to make acquisition opportunities attractive. The Company
recently made three such acquisitions: 1) in July, 1996, the Company
purchased equipment assets and assumed a customer contract of Michael
Lima
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Transportation, a California carrier involved in providing expedited
truckload services; 2) effective April 1, 1997, the Company purchased
assets of Rosedale Transport, Inc., a floorcovering logistics provider
based in Georgia in which CSI/Crown assumed the management of eight
distribution centers in the Midwest and East.; and 3) effective May 1,
1997, the Company acquired JTI, Inc., a Nebraska-based regional carrier.
Management continues to explore other acquisition opportunities that fit
its strategic direction.
Services
The Company's principal service specialty is time-definite service, which
is the pickup and delivery of freight to prescribed schedules over
distances ranging from 200 to 3,000 miles. Time-definite transportation
requires pickups and deliveries to be performed to exact appointment
times or within a specified number of minutes. This service is a key
point of differentiation from many other trucking companies, which
typically provide service only within windows ranging from several hours
to a few days. Time-definite service is particularly important to the
Company's customers that operate just-in-time manufacturing, distribution
and retail inventory systems, and to the Company's customers that operate
in the air freight industry.
Management estimates that over half of the Company's typical freight
volume is of a time-definite nature. Industry analysts estimate that
about one-third of transportation shipments in the U.S. are made on a
just-in-time basis, but that number is expected to increase to 40% by
2000. As more shippers value time-definite service for its impact on
improving asset utilization through improved inventory management, the
Company believes it is positioned to capitalize on this growth.
Management has targeted five markets and is striving to achieve 20%
annual growth in each market: expedited services, regional services,
logistics partnerships, dedicated fleets and floorcovering logistics. In
fiscal 1997, growth in each of these areas exceeded 20%. Revenue reported
for these markets do, however, have some overlap. For example, freight
that was shipped for a logistics customer, on an expedited basis, within
a defined regional service area, using a dedicated truck and driver,
would be counted as revenue in each of the target markets.
Expedited Service
U.S. Xpress specializes in the pickup and delivery of freight on a time-
definite schedule at transit times competitive to deferred air freight
service. In fiscal 1997, revenue from expedited services was $124.8
million, an increase of 176% from fiscal 1996. Customers in the air
freight industry accounted for 21% of expedited services revenue, with
the remainder provided by manufacturers, distributors, retailers, freight
forwarders and consolidators. Examples of this service are as follows:
Transit
Times
Origin Destination Miles (in hours)
- ------------------------------------------------------------------------------------------------
Charlotte, NC Los Angeles, CA 2,381 53
Atlanta, GA San Francisco, CA 2,482 55
Seattle, WA Miami, FL 3,263 73
Dallas, TX Chicago, IL 923 20
Newark, NJ Columbus, OH 527 12
Expedited truckload service is provided at a much lower cost than typical
deferred air freight service. It is used by manufacturers, distributors,
air cargo services and freight forwarders that operate geographically
separated, but tightly controlled just-in-time manufacturing,
distribution and express delivery systems.
5
Expedited service is provided primarily by two-person driver teams. In
addition, freight relays are often used among U.S. Xpress' solo
drivers. While expedited service is time critical, management directs
the Company's drivers to observe all speed limits and the Company's
tractors are equipped with electronic speed controls. The Company
monitors its drivers to assure that they comply with DOT regulations
regarding hours-of-service compliance that specify the maximum number
of hours drivers may drive in 24-hour and 70-hour periods. The
Company's integrated information and satellite communications systems
provide real-time information to the Company's operations and customers
and are used to manage all aspects of its expedited service.
U.S. Xpress also operates a logistics group that provides expedited
services. This group, formerly a separate operating subsidiary of the
Company, National Xpress Logistics ("NXL"), was merged into U.S. Xpress
on December 1, 1996. The logistics group obtains its business through
relationships with agents who secure freight accounts and through
direct relationships with customers. Freight services are provided by
U.S. Xpress equipment and drivers and by independent contractors.
In fiscal 1997, the Company almost entirely discontinued its
coordination of freight services using other transportation modes, such
as truck-rail intermodal, and its marketing of contract logistics
management services. The logistics group now focuses on truckload
services for expedited customers, with most of the customers
participating in the air freight industry. Other freight business
opportunities, such as non-expedited truckload services, are provided
by the Company through its logistics group when these opportunities do
not fit U.S. Xpress' targeted market segments or when U.S. Xpress
equipment is not available. Prior to the formation of NXL, these
opportunities were declined and the Company lost revenue opportunities.
Likewise, other carriers utilize the Company's logistics group to
reposition previously unloaded equipment, fill unused capacity with
dedicated fleet opportunities and provide flexibility to reposition
fleets and manage traffic lanes.
Regional Service
About 70% of the freight transported in the U.S. moves over distances
of less than 1,000 miles. In addition, shippers are reducing the number
of core carriers they use and are seeking carriers that offer a range
of services to meet their needs. Many shippers are also bringing the
various elements of their supply and distribution chains into closer
geographical proximity. These trends lead shippers to use carriers,
like the Company, that can provide short-haul, medium-haul and long-
haul services in key areas of the U.S. The ability to provide regional
service is an important factor to the Company obtaining certain core
carrier accounts.
Prior to 1994, the Company primarily offered medium and long-haul
services. Recognizing the strategic importance of offering regional
services, the Company embarked on a strategy to expand regional
service. In 1994, the Company began providing regional service in the
Southeast when it acquired Hall Systems, Inc., based in Birmingham,
Alabama. Hall Systems, Inc. was merged into U.S. Xpress in December
1996. In 1995, the Company began providing regional service in the
West. Regional service in the Midwest was offered by U.S. Xpress on a
limited basis as a service to key customers and to reposition
equipment. In fiscal 1997, revenue from regional services was $77.0
million, an increase of 92.5% from fiscal 1996.
Effective May 1, 1997, the Company acquired JTI, Inc. ("JTI"), based in
Lincoln, Nebraska, to expand regional service in the Midwest.
Management expects that JTI's customer base, which has little overlap
with the Company's customer base, offers opportunities to provide long-
haul service outside of JTI's operating area. In addition, JTI has
opportunities to expand regional service in the Midwest with U.S.
Xpress customers.
6
Logistics Provider Relationships
Manufacturers and distributors are increasingly outsourcing management
of their logistics and transportation requirements to third parties.
The Company has established working relationships with several premier
logistics suppliers, and in particular, with the three largest in the
industry. Logistics providers typically manage transportation
purchasing, coordination and freight allocation for their customers.
Industry analysts have estimated that about 5% of freight in the U.S.
is being managed by logistics providers, and this share is expected to
grow to 10% by the year 2000. Management believes that establishing a
reputation for consistent and excellent performance is critical to
future growth with these logistics providers. Revenue from logistics
provider relationships in fiscal 1997 was $33.1 million, an increase of
196% from fiscal 1996.
Dedicated Fleets
The Company provides equipment and drivers that are dedicated to
specific customers and specific traffic lanes. In fiscal 1996, the
Company increased its emphasis on providing dedicated equipment and
drivers to key customers as part of its core carrier strategy. The
Company and its drivers experience significant benefits from its
dedicated operations. The Company benefits by receiving increased
business volume from key customers, improving planning of equipment
requirements and enhancing the safety of its drivers who travel the
same lanes repeatedly. Drivers benefit through enhanced predictability
of their schedules, reduced downtime between loads and more predictable
off-duty time. At March 31, 1997 the Company operated 301 tractors that
were dedicated to specific customers or lanes, compared with 60
tractors at March 31, 1996.
Floorcovering Logistics
In 1994, the Company acquired Crown Transport Systems, Inc. ("Crown
Transport") as the first step in building a floorcovering logistics
business that serves the U.S. and Canada. In 1995, the Company acquired
CSI/Reeves, Inc. and merged it with Crown Transport in January 1996 to
form CSI/Crown. CSI/Crown picks up floorcovering products from
manufacturers; consolidates shipments into truckloads bound for
specific destinations; contracts with U.S. Xpress and other truckload
carriers to deliver the products to CSI/Crown service centers or to
contract agents and delivery services; and delivers the products to
floorcovering distributors and retailers in all 50 states, Canada and
Mexico. In addition, CSI/Crown provides warehouse facilities, cutting
services and retail sales of installation supplies to the floorcovering
industry.
CSI/Crown, in coordination with U.S. Xpress and other truckload
carriers, delivers floorcovering products from its primary dock
operations in North Georgia (located in close proximity to many carpet
manufacturers) to its service centers throughout the continental U.S.
with transit times that are among the best in the floorcovering
industry. In conjunction with the acquisition and merger, CSI/Crown
replaced all of its outdated tractors, trailers and forklifts with
updated equipment. The newer equipment significantly improved equipment
reliability and enabled CSI/Crown to show immediate improvements in
customer service and equipment utilization.
Revenue from floorcovering logistics in fiscal 1997 was $65.8 million,
an increase of 38% from fiscal 1996. In April 1997, CSI/Crown purchased
the floorcovering distribution system assets, including dock and
material handling equipment, and assumed leases of terminal facilities
and customer agreements of Dalton, Georgia-based Rosedale Transport,
Inc. Eight distribution centers in the Midwest and East were added to
CSI/Crown's network through the transaction. At fiscal year-end,
CSI/Crown operated 20 distribution centers and contracted with others
to provide distribution services at 31 other locations.
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Technology
The Company utilizes proven new technologies that yield both
competitive service advantages and the ability to more profitably serve
its niche markets. The Company has developed a computerized information
system that is integrated with the QUALCOMM Omnitracs satellite
communication system ("the QUALCOMM system") to enhance customer
service and equipment utilization. The Company's Electronic Data
Interchange ("EDI") capabilities provide customers with an efficient
means of tracing freight and performing several administrative
functions. In November, 1996, the Company introduced its proprietary
Internet-based "Xpress Connect" system which enables customers to trace
freight, tender loads and exchange invoice information via the
Internet. Management believes that this system is a base from which it
will provide enhanced customer service, and ultimately provide direct
connectivity between customers and drivers via the Internet.
The Company is a leader in the innovation of computer information
systems that are integrated with the QUALCOMM system. Management
believes that proven technologies provide both competitive service
advantages and the ability to more profitably serve its niche markets.
Operating Systems
Management believes that the Company's information systems are one of
principal competitive advantages. These systems integrate operations
systems and the principal back-office functions of payroll, billing,
fuel and accounting with the QUALCOMM system.
Satellite Communications
The QUALCOMM system was first implemented by the Company in 1990. The
QUALCOMM system simplifies the location of equipment and permits timely
and efficient communication of critical operating data, such as
shipment orders, loading instructions, routing, fuel, taxes paid and
mileage operated, payroll, safety, traffic and maintenance information.
For example, load planners assign loads by entering the required
information into the system. Drivers then access the previously-planned
load from the system and acquire all the necessary customer, order and
routing information through their onboard display unit, thus
eliminating waiting time and inefficient dependence on truck stop
telephones. Management estimates that carriers without satellite
communications typically lose one hour or more of productive time per
driver per day waiting for telephones. The QUALCOMM system permits
transmission of load assignments directly to the onboard display unit,
and will even signal a driver when an assignment is available so that
he or she may sleep in the tractor pending an assignment. In addition,
through the QUALCOMM system, drivers have direct access to the
Company's IBM AS/400 computer. This capability enables the driver to
access information from operations and payroll systems, such as
requesting and receiving cash advances on the road.
Load Planning/Dispatch
The Company operates the QUALCOMM Decision Support System ("QDSS"), a
dispatch optimization software system. This software package provides
the capability to efficiently allocate equipment and drivers to
available loads. QDSS maximizes utilization of the Company's equipment
and contributes to improved customer and driver satisfaction. Load
planners convert customer orders into daily pre-planned freight
dispatches. Driver managers then send instructions to drivers via the
QUALCOMM system. Drivers access the order when they are ready for the
next load assignment. Drivers can obtain shipment orders, pickup and
delivery instructions, customer location and routing information
through the onboard computer. Through QDSS, the Company seeks to
identify potential problems of too much or too little freight in a
particular geographic region. The Company seeks additional freight in
the affected area, or through its logistics group, seeks alternative
carriers to handle overflow loads.
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Electronic Data Interchange
The Company's automated administrative (e.g. billing, fuel tax,
payroll) and operating systems enable dial-up tracing and full EDI of
administrative and shipment status information between the Company and
its customers. This system provides significant operating advantages to
U.S. Xpress and its customers, including real-time information flow,
reduction or elimination of paperwork, error-free transcription and
reductions in clerical personnel. EDI allows the Company to exchange
data with its customers in a variety of formats, depending on
individual customer's capabilities, which can significantly enhance
quality control, customer service and customer efficiency.
Xpress Connect
The Company's Xpress Connect system is an Internet-based system that
makes it easier for shippers to track freight, tender loads and
communicate with the Company via Internet e-mail. The system, which is
a featured part of the Company's World Wide Web site, is designed to
assist shippers in better managing their transportation shipments by
providing up-to-date information on the location and status of active
shipments, as well as historical information on completed shipments.
The Company believes that Xpress Connect is the first World Wide Web
application of its type that permits a customer to track shipments
without prior knowledge of shipment or order numbers. Xpress Connect is
customer-specific and password protected to guarantee the security of
proprietary information. The system is being continually improved and
upgraded, and in fiscal 1998, management expects to add enhancements
that provide: 1) customers the ability to obtain proofs of delivery
from the Company's document imaging system; 2) an on-line freight
rating system; and 3) automatic notifications to customers' pagers of
expected delays in transit.
Customer Service
The Company's customer service functions are handled by three-person
teams in each geographic region. Each customer has a primary contact
within the Company who enters orders, monitors delivery status at
various times each day, coordinates order revisions and special needs
and alerts customers when scheduling revisions are required. The
Company's technology provides instant information concerning location
and estimated delivery time for shipments in transit.
Tractor and Trailer Technology
The Company's management and a group of its drivers have worked with
the Company's principal tractor supplier, Freightliner, to design
improvements in its conventional tractors, such as more spacious and
functional sleeper compartments and improved aerodynamics. In fiscal
1997, the Company was among the first to purchase the new Freightliner
Century Class tractors, which provide superior levels of operating
safety, fuel efficiency, information management capabilities and driver
comforts. At March 31, 1997, 842 Century Class tractors were operating
in the Company's fleet.
The Company was among the first to use Detroit Diesel 60 Series
engines, which provide significant performance improvements and
maintenance cost reductions over non-electronic engines. The Company's
engines are designed with enough power to enable the tractor to stay
with the flow of traffic on most upgrades, which enhances safety and
minimizes driver frustration. In addition, they contain electronic
speed controls. Many of the Company's tractors are also equipped with
anti-lock braking systems for improved safety. The Company's custom-
designed trailers feature cubic capacity that is among the largest in
the industry. The Company primarily uses Dorsey Cargo Guard trailers,
many of which include translucent trailer tops that enhance safety in
loading and unloading. In fiscal 1998, the Company will begin
purchasing composite plate trailers from Wabash National Corporation
that are more durable, have greater cubic capacity and stiffer
sidewalls and do not fracture as easily as conventional aluminum
trailers.
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Eaton Vorad
Eaton Vorad collision avoidance systems are specified equipment on
Century Class tractors used by U.S. Xpress. These radar-based systems
are designed to detect traffic ahead and to the side of trucks. The
Eaton Vorad system is designed to provide drivers with additional
response time, resulting in a safer vehicle for drivers and the
motoring public. Over 800 such systems were in operation at fiscal
year-end. In fiscal 1997, there were 87 accidents in the U.S. Xpress
fleet involving lane changes or right turns. Seven of those involved
Vorad-equipped trucks. There were 32 accidents during the fiscal year
in which U.S. Xpress trucks were involved in rear-end collisions. Four
of those involved Vorad-equipped trucks.
Document Scanning
The Company has installed an optical character recognition system that
scans documents such as bills of lading, driver logs and fuel receipts
onto optical disks or other storage media. This system has reduced
clerical and management time required to enter and retrieve
information, while enhancing the availability and increasing the
utilization of data by customers.
Debit Cards for Long Distance Telephone and Internet E-Mail
The Company also makes available to all of its drivers a debit card,
which enables a driver to prepay long distance telephone calls and
Internet e-mail. The prepaid debit card system offers per minute rates
lower than those currently offered by the three primary long distance
carriers. Drivers have the capability to easily "reload" capacity, or
add value, to the cards when the prepaid portion has been used.
Drivers
At March 31, 1997, the Company employed 3,154 drivers at U.S. Xpress.
Over 41% of the Company's drivers have been employed at least one year
with the Company, and over 29% have been employed at least three years
with the Company. Employment turnover of over-the-road drivers is a
significant industry-wide problem. Recruiting, training and retention
of qualified drivers is essential to support the Company's continued
growth. Management believes that one of the key elements to retaining
professional drivers is providing competitive compensation. Most
companies in the truckload industry pay drivers based on the miles that
they drive and provide various additional bonuses and incentives.
Management believes that drivers' primary interest in compensation is
their take-home pay rather than their base mileage pay. While other
carriers may offer marginally higher mileage pay, management believes
that the Company's drivers' compensation is comparable to those of
other carriers because the Company's high equipment utilization
maximizes driver productivity, miles driven and pay.
To maintain high equipment utilization, particularly during periods of
rapid additions of equipment to the fleet and periods of soft freight
demand, the Company has implemented a number of ongoing initiatives to
retain existing drivers and recruit new ones, such as handling driver-
friendly freight, adopting an attractive compensation and benefits
package, providing equipment with desirable driver amenities and
providing a Company-wide culture of support for drivers' needs.
Recruiting
Management believes that meeting drivers' reasonable expectations is
critical to driver satisfaction and retention. Driver recruiters are
trained to provide candidates with a realistic view of work
requirements and the lifestyles required of a long-haul, over-the-road
driver. The Company's recruiting efforts include targeted advertising,
recruitment by the Company drivers and other methods. Detailed
statistics are continually maintained and evaluated to determine the
effectiveness of recruiting efforts. The Company compensates its
drivers for successful recruiting efforts and periodically holds
special incentive contests to encourage drivers to assist with
recruiting.
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The Company also maintains a "quick response" system that investigates
prospective drivers' credentials and driving histories and in most
instances approves drivers for hiring within one business day of
application. Management believes that this system is critical to hiring
quality drivers who are making a job change and may have applied to
several prospective employers at the same time. New driver candidates
are carefully screened on the basis of prior driving and safety
records. In accordance with DOT requirements, the Company operates a
drug-free workplace. Accordingly, all drivers are required to submit to
pre-employment, random, reasonable cause, post-accident and post-injury
drug testing.
Training
The Company works closely with a community college in Oklahoma to
recruit and train prospective drivers. All new drivers, regardless of
experience, are trained under strict guidelines. A two-day orientation
program provides drivers with information about the Company, its
equipment and its expectations. The orientation program also stresses
safety instruction and proper operation of the tractors and trailers
used by the Company. New drivers with less over-the-road experience are
placed in the Company's driver training program and teamed with driver
trainers to gain additional over-the-road experience. Driver trainers
are carefully selected based on driving and safety records and receive
additional instruction prior to being assigned to the driver training
program. The Company has found that drivers completing this driver
training program tend to have better safety and retention records.
Driver Managers
An important aspect of driver retention is driver managers. Each
Company driver is assigned a driver manager who is responsible for all
aspects of driver satisfaction: miles, home time and helping drivers
resolve work-related issues. Driver managers' performance is evaluated
based on equipment utilization, driver turnover, driver miles and
driver safety performance. The driver managers communicate with drivers
daily through the satellite communications system and by telephone when
personal communication is warranted. Typical matters in which
assistance is provided include payroll issues and scheduling a driver's
load so that he or she can return home. The Company recognizes that the
first 90 days of employment is a critical retention and safety period
for new drivers. New drivers are assigned to specific driver managers
who are specially trained to assist new drivers. Each driver manager is
responsible for approximately 45 trucks.
Driver-Friendly Freight
Management believes that the kind of freight the Company typically
handles is a significant factor in driver retention. Although drivers
do occasionally load and unload freight, the Company focuses much of
its marketing efforts on customers with freight which is "driver-
friendly" in that it requires minimal or no loading or unloading by
drivers. The Company also is increasingly extending this driver-
friendly concept to customers that do not keep drivers waiting for
extensive periods of time while trailers are loaded and those whose
employees, usually loading dock personnel, treat the Company's drivers
as professionals.
Compensation and Benefits
The Company's compensation and benefits package has been structured to
attract and retain quality drivers. Company drivers are compensated
primarily on the basis of miles driven, with base pay per mile
increasing with a driver's length of employment. Because the Company
has an average length of haul that is longer than most truckload
carriers, drivers accumulate more miles and thus earn above average
pay. Drivers also can earn additional mileage pay through safety and
mileage incentive bonuses. Based on recent surveys performed by the
Company with respect to compensation paid by competitors, management
believes the Company's driver compensation ranks among the highest in
the truckload industry. Employee benefits include paid holidays and
vacations, health insurance and a
11
401(k) retirement plan in which the Company matches 50% of employee
contributions, up to six percent of compensation.
Driver Amenities
The Company's late-model, conventional tractors are designed for driver
comfort and safety. Standard equipment includes double sleeper bunks,
extra large cabs, air-ride suspensions and additional storage for
personal items. The Company also has developed specific satellite
communications applications that enable drivers to remain in touch with
their families, receive information about pay and expense advances,
directions to customer locations, weather updates and load assignments.
The Company also provides pre-paid telephone calling cards that contain
30 minutes of free calling time per month to drivers. Drivers have the
ability to add time to the cards by charging a personal credit card or
through payroll deduction. In July 1996 the Company began testing a
system in which drivers could send and receive electronic mail via the
Internet using their satellite communications system. The costs of
e-mail messaging are paid by drivers through their telephone calling
cards. The test was successful and in October 1996, Internet e-mail
capability was provided to the entire fleet. In fiscal 1997, the
Company began purchasing Freightliner Century Class tractors, which set
a new industry standard for efficiency and driver amenities.
Equipment
U.S. Xpress operated 2,246 Freightliner conventional tractors and 5,470
dry van trailers at March 31, 1997. Most of the trailers are 53' x 102"
high-cubic capacity vans. At fiscal year-end, management was
implementing a program to reduce the size of the trailer fleet to an
approximate 2:1 trailer to tractor ratio.
Growth of the Company's tractor and trailer fleets is managed based on
market conditions and the Company's experience and expectations with
respect to equipment utilization levels. During fiscal 1997, the
Company focused on improving equipment utilization. The fleet size was
increased only as utilization goals were achieved. Utilization of the
U.S. Xpress fleet in fiscal 1997 (including tractors associated with
Hall Systems, which was merged into U.S. Xpress during the year) was
$2,761 in revenue per tractor per week, a 4.3% increase from fiscal
1996. The U.S. Xpress fleet size increased 13.7% during fiscal 1997,
less than its revenue growth of 17.9%.
The Company determines the specifications of equipment purchases based
on such factors as vehicle and component quality, warranty service,
driver preferences, new vehicle prices and the likely resale market.
Because the fleet is standardized and has warranty maintenance
agreements with original equipment suppliers, the Company has minimized
parts inventories and maintenance costs.
Tractors are typically replaced every 36 to 48 months, generally well
in advance of the need for major engine overhauls. This schedule can be
accelerated or delayed based on resale values in the used truck market
and the differential between those values and new truck prices. The
Company maintains third party relationships that enable it to retail,
rather than wholesale, a large percentage of used equipment. Management
believes that this practice has resulted in significant gains through
the sale of used trucks over what could have been obtained from trade-
in values offered by the manufacturer. With respect to tractors and
trailers scheduled for purchase during fiscal 1998, the Company has
negotiated attractive repurchase commitments from its primary equipment
vendors. These agreements reduce the Company's risks related to
equipment disposal values.
Competition
The transportation services business is extremely competitive. The
Company competes primarily with other truckload carriers and,
particularly in the longer haul markets, with intermodal
transportation, railroads and providers of deferred air-freight
service. Competition from railroads and
12
intermodal transportation likely would increase if state or federal
highway fuel taxes were increased without a corresponding increase in
taxes imposed on fuel used by railroads.
Generally, competition for the freight transported by the Company is
based more on service and efficiency than on freight rates. However,
historically, increased competition has created downward pressure on
the truckload industry's pricing structure. Prolonged weakness in
freight markets or downward pressure on freight rates could adversely
effect the Company's results of operations or financial condition. Some
competitors do have greater financial resources, operate more equipment
and transport more freight than the Company.
Regulation
The Company is a motor carrier that ascribes to safety rules and
regulations promulgated by the Department of Transportation ("DOT") and
various laws and regulations enforced by state agencies. These
regulatory authorities have broad powers, generally governing
activities such as authority to engage in motor carrier operations,
accounting systems, certain mergers, consolidations, acquisitions and
periodic financial reporting. Subject to federal, state and provincial
regulatory authorities, the Company may transport most types of freight
to and from any point in the United States, Mexico and certain Canadian
provinces over any route selected by the Company. The trucking industry
is subject to possible regulatory and legislative changes (such as
increasingly stringent environmental regulations or limits on vehicle
weight and size) that may affect the economics of the industry by
requiring changes in operating practices or by affecting the cost of
providing truckload services.
The Company has underground storage tanks for diesel fuel in use at
terminals in Chattanooga, Tennessee, Tunnel Hill, Georgia, Oklahoma
City, Oklahoma and Birmingham, Alabama. JTI has an underground storage
tank in Lincoln, Nebraska. As a result, the Company is subject to
regulations promulgated by the EPA in 1988 governing the design,
construction and operation of underground fuel storage tanks from
installation to closure. For underground fuel storage tanks in
existence at the time the regulations were promulgated in 1988, which
include tanks at the terminal in Chattanooga, the regulations require
that tanks be upgraded to meet specified standards concerning corrosion
protection, spill or overfill protection and release detection on a
phased timetable which began in 1989 and ends in 1998. The Company
believes all of its tanks are in compliance with EPA regulations.
Safety and Risk Management
The Company is committed to ensuring that it has safe drivers. The
Company regularly communicates with drivers to promote safety and to
instill safe work habits through Company media, safety review sessions
and ethics and responsibility training. These programs reinforce the
importance of driving safely, abiding by all laws and regulations such
as speed limits and driving hours, performing regular equipment
inspections and acting as good citizens on the road. The Company's
accident review committee meets regularly to review any new accidents,
take appropriate action related to drivers, examine accident trends and
implement changes in procedures or communications to address any safety
issues.
Management's emphasis on safety also is demonstrated through its
equipment specifications, such as anti-lock brakes, electronic engines,
special mirrors, conspicuity tape and the implementation of Eaton Vorad
collision avoidance systems on all Freightliner Century Class tractors.
The Eaton Vorad systems are designed to provide drivers with visible
and audible warnings when other vehicles are beside them and when
vehicles ahead are traveling at slower speeds than the truck. The
system provides drivers with additional response time to prevent
accidents.
The Company requires prospective drivers to meet higher qualification
standards than those required by the DOT. The DOT requires the
Company's drivers to obtain national commercial driver's licenses
13
pursuant to the regulations promulgated by the DOT. The DOT also
requires that the employer implement a drug-testing program in
accordance with DOT regulations. The Company's program includes pre-
employment, random, reasonable cause, post-accident and post-injury
drug testing.
Interstate motor carrier operations are subject to safety requirements
prescribed by the DOT. Such matters as equipment weight and dimensions
are also subject to federal and state regulations. An unpublished March
1993 change in the enforcement standards applied by the DOT has
resulted in the reclassification of a number of motor carriers' safety
ratings from "satisfactory" to "conditional" or "unsatisfactory".
Currently, U.S. Xpress, JTI and CSI/Crown each have satisfactory
ratings.
The Company's Director of Risk Management and Chief Financial Officer
are responsible for securing appropriate insurance coverage at cost
effective rates. The primary claims arising in the Company's business
consist of cargo loss and damage and auto liability (personal injury
and property damage). The Company currently purchases primary and
excess coverage for these types of claims in levels which management
believes are sufficient to adequately protect the Company from
significant claims. The Company also maintains primary and excess
coverage for employee medical expenses and hospitalization, damage to
physical properties and equipment damage resulting from collisions or
other losses.
Personnel
The Company considers relations with its employees, all of whom are
non-union, to be good. At March 31, 1997, the Company and its
subsidiaries employed 4,416 persons, including 3,154 drivers at U.S.
Xpress. In addition, 50 independent contractor/drivers provided
services to U.S. Xpress.
On August 1, 1996, the Company ended its arrangement with a third-party
leasing company in which the Company leased its drivers and most office
and maintenance employees. On that date, all persons employed through
the leasing company became employees of the Company or its
subsidiaries. On January 1, 1997, the Company entered into an
arrangement with a third party in which the Company outsources payroll
and benefits administration, unemployment insurance and workers'
compensation. Under this arrangement, the Company pays the third party
a fixed amount per employee. The Company believes that this arrangement
enables it to achieve cost savings on payroll administration, personnel
benefits and insurance premiums.
ITEM 2. PROPERTIES
All of the Company's offices and terminals are leased. The Company's
headquarters are located in two leased buildings in Chattanooga,
Tennessee. U.S. Xpress is also based in Chattanooga. CSI/Crown is based
in Tunnel Hill, Georgia, approximately 25 miles from the Chattanooga
location. In addition to the headquarters locations, U.S. Xpress
operates 14 terminal facilities and CSI/Crown operates 20 distribution
service centers.
Effective April 1, 1997, the Company purchased assets from Rosedale
Transport, Inc. and assumed the operation and existing leases of
floorcovering service centers in Eagan, Minnesota; Grand Rapids and
Detroit, Michigan; Akron, Ohio; Pittsburgh, Pennsylvania; Newark,
Delaware; and Rochester and Syracuse, New York. Effective May 1, 1997
the Company acquired JTI, Inc., which owns a headquarters facility and
terminal in Lincoln, Nebraska and leases terminals in N. Sioux City,
South Dakota, Green Bay, Wisconsin and Loudon, Tennessee.
Each of the Company's terminals and service centers are headed by a
terminal or service center manager. Six U.S. Xpress terminals and one
JTI terminal include maintenance facilities. Several terminals include
driver lounges and customer service functions for local pickups and
deliveries. In fiscal 1997, expansion of the CSI/Crown consolidation
dock facility was completed and expansion of the U.S. Xpress
maintenance facility at Tunnel Hill was begun. The Company believes
that its current facilities are suitable and adequate for its present
needs. The Company also periodically seeks improved locations and
facilities and has not encountered any significant impediments to the
location of new or additional facilities.
14
ITEM 3. LEGAL PROCEEDINGS
The Company is party to various legal proceedings arising in the normal
course of its business. Management does not believe that the outcome of
any of these proceedings will have a material adverse effect on the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the year ended March 31, 1997, no matters
were submitted to a vote of security holders.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Common Stock and Stockholder Data
Class A Common Stock is traded on the NASDAQ National Market System
under the symbol XPRSA. At June 6, 1997, there were 164 registered
stockholders and an estimated 1,650 beneficial owners. At June 6, 1997
there were 9,073,674 shares of Class A Common Stock outstanding and
3,040,262 shares of Class B Common Stock outstanding. Listed below is
the trading activity for each quarter in the last two fiscal years.
Average
Quarter Ending High Low Daily Volume
----------------------------------------------------------------------------------
June 30, 1995 11.125 8.125 37,881
September 30, 1995 11.125 7.00 22,099
December 31, 1995 9.50 6.75 20,395
March 31, 1996 8.75 6.625 5,154
June 30, 1996 8.50 6.625 8,998
September 30, 1996 9.75 5.75 19,869
December 31, 1996 16.125 8.50 36,735
March 31, 1997 17.75 12.25 22,081
Dividends
The Company does not pay cash dividends and intends to continue to
retain earnings to finance growth of the Company.
15
ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except per share and operating data)
Year Ended March 31, 1997 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
Income Statement Data/(1)/
Operating revenue
U.S. Xpress $ 296,974 $ 251,880 $ 230,416 $ 191,403 $ 164,856 $ 135,389
CSI/Crown 65,845 47,817 23,915 24,001 21,288 21,827
-----------------------------------------------------------------------------
Consolidated $ 362,819 $ 299,697 $ 254,331 $ 215,404 $ 186,144 $ 157,216
=============================================================================
Income from operations $ 19,716 $ 5,251 $ 18,159 $ 14,095 $ 7,790 $ 6,038
Income before taxes and cumulative
effect of change in accounting method 14,236 75 13,557 9,714 3,313 3,678
Net income 7,878 94 8,263 6,042 1,867 2,454
Earnings per share .65 .01 .76 .63 .19 .25
Weighted average number
of shares outstanding 12,168 12,003 10,806 9,665 9,665 9,665
Truckload Operating Data/(2)/
Total revenue miles (in thousands) 261,596 222,496 204,804 180,609 160,664 134,770
Average revenue per mile $ 1.15 $ 1.14 $ 1.14 $ 1.09 $ 1.08 $ 1.06
Tractors (at end of period) 2,246 1,975 1,721 1,504 1,323 1,095
Average revenue per tractor per week $ 2,761 $ 2,646 $ 2,807 $ 2,796 $ 2,795 $ 2,637
Balance Sheet Data
Working capital $ 33,829 $ 19,606 $ 10,786 $ 2,636 $ 8,611 $ 10,949
Total assets 178,084 177,821 146,070 103,385 89,412 53,267
Long-term debt, net of current
maturities 59,318 61,789 46,157 49,871 51,628 29,307
Stockholders' equity/(3)/ 63,162 55,086 54,082 13,436 7,394 5,527
/(1)/ Data for U.S. Xpress includes data for all truckload operations. Data
for CSI/Crown includes data for CSI/Reeves from its date of acquisition
in August 1995.
/(2)/ Data for U.S. Xpress truckload operations. Average revenue per mile is
net of fuel surcharges. Tractor data includes owned and leased
tractors.
/(3)/ Reflects the sale by the Company of 2,500,000 shares of Class A Common
Stock on October 6, 1994.
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Comparison of the Year Ended March 31, 1997 to the Year Ended
March 31, 1996
The Company's initiatives to improve equipment utilization and to
reduce operating expenses as a percent of revenue had favorable results
for the fiscal year ended March 31, 1997. In this period, utilization
for the combined truckload operations increased 4.3% to $2,761 in
revenue per tractor per week, compared to $2,646 during the same period
in 1996. The operating ratio (operating expenses as a percentage of
revenue) improved 3.6 percentage points, reflecting a 21% increase in
revenue versus a 16.5% increase in operating expenses. The smaller
increase in operating expenses, compared to revenues, was due to
reductions in several fixed and variable expense items.
Operating revenue during the fiscal year ended March 31, 1997 increased $63.1
million, or 21.1%, to $362.8 million, compared to $299.7 million during
the same period in 1996. This increase resulted partially from the
fiscal 1996 acquisitions of CSI/Reeves and Hall Systems, which together
contributed $29.7 million of the $63.1 million increase. U.S. Xpress
linehaul operations contributed $33.4 million to the increase.
Increased U.S. Xpress linehaul revenue resulted from increased revenue
miles and a slight increase in the rate per revenue mile.
Operating expenses represented 94.6% of operating revenue for the year ended
March 31, 1997, compared to 98.2% during the same period in 1996.
Salaries, wages and employee benefits as a percentage of operating revenue was
41.0% for the year ended March 31, 1997, compared to 43.0% during the
same period in 1996. This decrease is a result of salaries and wages
for both Hall Systems and CSI/Crown representing a lower percentage of
operating revenue due to the utilization of owner-operators at Hall
Systems and the utilization of outside linehaul carriers at CSI/Crown.
All owner-operator expenses and purchased linehaul services are
reflected as purchased transportation.
Fuel and fuel taxes as a percentage of operating revenue was 16.9% for the year
ended March 31, 1997, compared to 16.3% during the same period in 1996.
This increase was primarily attributable to an 11.0% increase in the
average prices per gallon, offset by a 2.2% increase in average miles
per gallon.
Vehicle rents as a percentage of operating revenue was 6.0% for the year ended
March 31, 1997, compared to 5.8% for the same period in 1996.
Depreciation and amortization as a percentage of operating revenue was
4.0% for the year ended March 31, 1997, compared to 5.6% during the
same period in 1996. Overall, as a percentage of operating revenue,
vehicle rents and depreciation were 10.0% for the year ended March 31,
1997, compared to 11.4% during the same period in 1996. This decrease
was due in part to increased non-transportation revenue from CSI/Crown
and an increase in owner-operator revenue from Hall Systems, both of
which do not require expenditures for revenue equipment. Additionally,
utilization for U.S. Xpress linehaul operations increased to $2,761 in
revenue per tractor per week for the year ended March 31, 1997, a 4.3%
increase from the previous fiscal year, which reduced the number of
tractors required.
Purchased transportation as a percentage of operating revenue was 6.3% for the
fiscal year 1997, compared to 6.6% in the same period in 1996. This
decrease is due to increased non-transportation revenue at CSI/Crown
which does not require expenditures for purchased transportation.
Operating expenses and supplies as a percentage of operating revenue was 6.3%
for the year ended March 31, 1997, compared to 7.1% during the same
period in 1996. This decrease results from two factors: 1) an increase
in non-transportation revenue from CSI/Crown and an increase in owner-
operator revenue from Hall Systems, which do not require
17
incremental company expenditures for operating expenses and supplies;
and 2) reductions in maintenance expenses.
Cost of installation supplies sold during the year ended March 31, 1997 was $8.2
million, compared to $5.2 million during the same period in 1996. This
increase is due to an increase in installation supplies sold to $11.0
million in 1997, from $6.6 million in 1996. This expense item reflects
the cost of carpet installation supplies which are sold through
CSI/Crown retail outlets.
Income from operations for the year ended March 31, 1997 increased $14.5
million, or 275.5 %, to $19.7 million from $5.3 million during the same
period in 1996. As a percentage of operating revenue, income from
operations was 5.4% during the year ended March 31, 1997, compared to
1.8% during the same period in 1996.
Income tax provision for the year ended March 31, 1997 was $6.4 million,
compared to a $19,000 benefit during the same period in 1996. This
reflects an effective federal and state income tax rate of 44.7% for
fiscal 1997 as compared to the statutory federal and state rate of
approximately 39.0%. This higher rate is primarily the result of non-
deductible per diems paid to drivers during part of fiscal 1997.
Subsequent to December 31, 1996 per diems paid to drivers were
eliminated. Comparison of the Year Ended March 31, 1996 to the Year
Ended March 31, 1995.
18
Operating expenses represented 98.2% of operating revenue during the year ended
March 31, 1996 and 92.9% during the same period in 1995.
Salaries, wages and employee benefits as a percentage of operating revenue was
43.0% during the year ended March 31, 1996, compared to 42.5% during
the same period in 1995. This increase was due to a 6.0% increase in
driver pay in mid-March 1995 and an increase in the empty miles
percentage to 6.9% of total miles in fiscal 1996, compared to 5.5% in
fiscal 1995. Partly offseting these factors was lower salaries and
wages at Hall Systems as a percentage of operating revenue, due to that
company's utilization of owner-operators. All owner-operator expenses
are reflected as purchased transportation.
Fuel and fuel taxes as a percentage of operating revenue was 16.3% during the
year ended March 31, 1996, compared to 16.8% during the same period in
1995. This decrease resulted from an increase of $5.4 million in
logistics revenues and the addition of $7.9 million of non-
transportation revenue from the newly acquired CSI/Reeves, both of
which do not require Company expenditures for fuel and fuel taxes. As a
percentage of operating revenue, excluding the increase in logistics
and non-transportation revenue, fuel and fuel taxes was 17.0% during
the year ended March 31, 1996.
Vehicle rents as a percentage of operating revenue was 5.8% during the year
ended March 31, 1996, compared to 6.6% during the same period in 1995.
Depreciation and amortization represented 5.6% of operating revenue in
1996, compared to 5.9% in 1995. Overall, as a percentage of operating
revenue, vehicle rents and depreciation were 11.4% during the year
ended March 31, 1996, compared to 12.5% during the same period in 1995.
This decrease was primarily attributable to increased revenues from
warehousing, transportation logistics services and the sale of
installation supplies, none of which required significant expenditures
for revenue equipment. Revenue from warehousing, logistics services and
the sale of installation supplies was $19.2 million during the year
ended March 31, 1996, compared to $5.9 million in the same period in
1995. As a percentage of operating revenue, excluding the increase in
logistics and non-transportation revenue, vehicle rents and
depreciation were 11.9% during the year ended March 31, 1996.
Purchased transportation as a percentage of operating revenue was 6.6% during
the year ended March 31, 1996, compared to 4.1% during the same period
in 1995. This increase resulted primarily from increased third-party
transportation purchases by CSI/Reeves and NXL, and owner-operator
expense from Hall Systems. The majority of transportation services
provided by NXL and CSI/Reeves result in the purchase of transportation
from third parties.
Operating expenses and supplies as a percentage of operating revenue was 7.1%
during the year ended March 31, 1996, compared to 6.8% during the same
period in 1995. This increase reflected high parts, tires and repair
costs incurred in fiscal 1996 associated with preparing used tractors
for disposal during the Company's second quarter.
Cost of installation supplies sold during the year ended March 31, 1996 reflects
costs of carpet installation supplies sold through CSI/Reeves retail
outlets from the date of acquisition (August 31, 1995).
19
Building rental as a percentage of operating revenue was 1.2% during the year
ended March 31, 1996, compared to 0.8% during the same period in 1995.
This increase is primarily attributable to building rental expenses
associated with the acquired warehousing operations of CSI/Reeves.
Gain on sales of equipment as a percentage of operating revenue was 0.4% during
the year ended March 31, 1996, compared to 1.1% during the same period
in 1995. Proceeds from the disposals of used equipment were $17,383
during the year ended March 31, 1996, compared to $17,582 during the
same period in 1995.
Income from operations for the year ended March 31, 1996 decreased $12.9
million, or 71.1%, to $5.3 million from $18.2 million. As a percentage
of operating revenue, income from operations was 1.8% in the year ended
March 31, 1996, compared to 7.1% during the same period in 1995.
Special Considerations
- ----------------------
Certain factors affect U.S. Xpress Enterprises and the transportation industry.
The trucking industry is affected by economic risks and uncertainties,
some of which are beyond its control. These include economic recessions
and downturns in customers' business cycles, increases in fuel prices,
the availability of qualified drivers and fluctuations in interest
rates.
The trucking industry is highly competitive and includes numerous
regional, inter-regional and national truckload carriers. Many of these
carriers have greater financial resources, equipment and freight
capacity than the Company. Management believes its strategies of
controlled growth and focused marketing will continue to provide
freight at sufficient volumes and prices to remain profitable. Changes
in economic conditions could reduce both the amount of freight
available and freight rates, which could have a material adverse effect
on the Company's results.
Fuel is one of the Company's largest expenditures. In April 1996, the
industry experienced a rapid increase in fuel prices. These increased
prices remained throughout fiscal 1997. The Company partially offset
the effect of these increases through fuel surcharges to customers or
rate increases in lieu of fuel surcharges. Future increases or
decreases in fuel prices are uncertain. To the extent the Company is
unable to offset fuel price increases through fuel surcharges or rate
increases, increased fuel prices could have a material adverse effect
on the Company's results.
Competition for available qualified drivers in the truckload industry
is intense, and will likely remain so for the foreseeable future. The
Company and many of its competitors experience high rates of turnover
and occasionally have difficulty in attracting and retaining qualified
drivers in sufficient numbers to operate all available equipment.
Management believes the Company's current pay structure, benefits,
policies and procedures related to drivers are effective in attracting
and retaining drivers. However, there can be no assurance that it will
not be affected by a shortage of qualified drivers in the future. The
inability to attract and retain qualified drivers would have a material
adverse effect on the Company's results.
The trucking industry is extremely capital intensive. The Company
depends on operating leases, lines of credit, secured equipment
financing and cash flows from operations to finance the expansion and
maintenance of its modern and cost efficient revenue equipment and
facilities. At present, the Company is more highly leveraged than some
of its competitiors. If the Company were unable in the future to obtain
financing at acceptable levels it could be forced to limit the growth
or replacement of its equipment and facilities. If interest rates
increased significantly it could have a material adverse effect on the
Company's results.
20
Liquidity and Capital Resources
- -------------------------------
The Company's primary sources of liquidity during the year ended March 31, 1997
were funds provided by operations, borrowings under long-term debt
facilities, lines of credit and proceeds from the sales of used
property and equipment. At March 31, 1997, the Company had in place a
$50.0 million credit facility with a group of banks, of which $14.5
million was available for borrowing. In fiscal 1998, the Company's
primary sources of liquidity are expected to be funds provided by
operations, borrowings under installment notes payable and borrowings
under lines of credit.
Cash generated from operations decreased to $7.9 million in fiscal 1997 from
$9.0 million in fiscal 1996. Net cash used in investment activities was
$3.2 million in fiscal 1997 and $17.3 million in fiscal 1996. Of the
cash used in investment activities in fiscal 1997, $24.8 million was
used to acquire additional property and equipment, compared to $28.2
million in fiscal 1996. The decrease in amounts expended for purchases
of new equipment in fiscal 1997, compared to fiscal 1996, reflects the
Company's leasing of more revenue equipment under operating leases
rather than purchasing such equipment.
Net cash used for financing activities was $4.1 million in fiscal 1997, compared
to $6.3 million provided in fiscal 1996. This decrease relates
primarily to the Company's greater use of leased equipment in fiscal
1997. As a result, the net repayments under lines of credit and long-
term debt during the year ended March 31, 1997 was $4.1 million,
compared to net borrowings of $5.4 million during fiscal 1996. Net
borrowings under lines of credit were $1.0 million during the year
ended March 31, 1997, compared to net borrowings of $30.3 million
during fiscal 1996. During fiscal 1996, the Company obtained a new
revolving line of credit with capacity up to $50.0 million. A portion
of the availability under this new line was immediately used to repay
certain existing long-term indebtedness bearing higher interest rates.
Management believes that funds provided by operations, borrowings under
installment notes payable and available borrowings under the Company's
existing line of credit will be sufficient to fund its cash needs and
anticipated capital expenditures through at least the next twelve
months.
Inflation
- ---------
Inflation has not had a material effect on the Company's results of operations
or financial condition during the past three years. However, inflation
higher than experienced during the past three years could have an
adverse effect on the Company's future results.
Seasonality
- -----------
In the trucking industry, revenue generally shows a seasonal pattern as
customers reduce shipments during and after the winter holiday season
and its inherent weather variations. The Company's operating expenses
also have historically been higher in the winter months, due primarily
to decreased fuel efficiency and increased maintenance costs for
revenue equipment in colder weather.
21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information set forth under the following captions are contained
on the following pages in this Form 10K.
Report of Independent Public Accountants................................ 22
Consolidated Statements of Operations................................... 23
Consolidated Balance Sheets.............................................24-25
Consolidated Statements of Cash Flows................................... 26
Consolidated Statements of Stockholders' Equity......................... 27
Notes to Consolidated Financial Statements..............................28-37
Financial Statement Schedules...........................................40-41
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of U.S. Xpress Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets of U.S.
Xpress Enterprises, Inc. (a Nevada corporation) and subsidiaries as of March 31,
1997 and 1996 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended March 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of U.S. Xpress
Enterprises, Inc. and subsidiaries as of March 31, 1997 and 1996 and the results
of their operations and their cash flows for each of the three years in the
period ended March 31, 1997 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Chattanooga, Tennessee
May 7, 1997
22
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Year Ended March 31, 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
Operating Revenue $ 362,819 $299,697 $ 254,331
------------------------------------------------
Operating Expenses:
Salaries, wages and employee benefits, including contract wages 148,850 129,311 108,074
Fuel and fuel taxes 61,268 48,782 42,586
Vehicle rents 21,603 17,263 16,767
Depreciation and amortization 14,492 16,765 15,070
Purchased transportation 22,682 19,929 10,493
Operating expenses and supplies 22,503 21,321 17,398
Insurance premiums and claims 15,265 12,874 10,457
Operating taxes and licenses 5,984 5,227 4,608
Communications and utilities 6,301 5,343 4,332
Cost of installation supplies sold 8,180 5,214 --
Building rental 4,878 3,495 2,063
Bad debt expense 880 784 543
General and other operating expenses 11,506 9,582 6,949
Gain on sales of equipment (1,289) (1,320) (2,979)
Equity in earnings of unconsolidated affiliate -- (124) (189)
-------------------------------------------------
Total operating expenses 343,103 294,446 236,172
-------------------------------------------------
Income from Operations 19,716 5,251 18,159
-------------------------------------------------
Other Income (Expense):
Interest expense, net (5,542) (5,251) (4,796)
Other income, net 62 75 194
-------------------------------------------------
Total other expense (5,480) (5,176) (4,602)
-------------------------------------------------
Income Before Income Tax Provision 14,236 75 13,557
Income Tax (Provision) Benefit (6,358) 19 (5,294)
-------------------------------------------------
Net Income $ 7,878 $ 94 $ 8,263
=================================================
Earnings Per Share $ .65 $ .01 $ .76
=================================================
Weighted Average Common Shares and Common
Share Equivalents Outstanding 12,168 12,003 10,806
=================================================
The accompanying notes are an integral part of these consolidated statements.
23
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
March 31, 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ 5,092 $ 4,378
Customer receivables, net of allowance of $2,733 in 1997 and $3,033 in 1996 50,056 41,910
Other receivables 3,969 4,318
Prepaid insurance and licenses 3,853 4,837
Operating and installation supplies 4,904 4,033
Deferred income taxes 4,443 3,888
Other current assets 719 482
--------------------------------
Total current assets 73,036 63,846
--------------------------------
Property and Equipment, at cost
Land and buildings 2,717 2,232
Revenue and service equipment 112,076 126,501
Furniture and equipment 11,265 10,325
Leasehold improvements 7,619 5,086
--------------------------------
133,677 144,144
Less accumulated depreciation and amortization (39,803) (39,702)
--------------------------------
Net property and equipment 93,874 104,442
--------------------------------
Other Assets
Goodwill, net 7,700 6,579
Other 3,474 2,954
--------------------------------
Total other assets 11,174 9,533
--------------------------------
Total Assets $ 178,084 $ 177,821
================================
The accompanying notes are an integral part of these consolidated balance
sheets.
24
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
March 31, 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 8,708 $ 10,025
Accrued wages and benefits 5,086 5,543
Claims and insurance accruals 9,601 11,465
Other accrued liabilities 2,804 3,378
Current maturities of long-term debt 13,008 13,829
--------------------------------
Total current liabilities 39,207 44,240
--------------------------------
Long-Term Debt, net of current maturities 59,318 61,789
--------------------------------
Deferred Income Taxes 14,543 10,885
--------------------------------
Other Long-Term Liabilities 1,854 5,821
--------------------------------
Commitments and Contingencies (Notes 6 and 8)
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,
9,046,044 and 9,034,884 shares issued and outstanding at
March 31, 1997 and 1996, respectively 90 89
Common Stock Class B, $.01 par value, 7,500,000 shares authorized,
3,040,262 shares issued and outstanding at March 31, 1997 and 1996 30 30
Additional paid-in capital 33,832 33,774
Retained earnings 29,443 21,565
Notes receivable from stockholders (233) (372)
--------------------------------
Total stockholders' equity 63,162 55,086
--------------------------------
Total Liabilities and Stockholders' Equity $ 178,084 $ 177,821
================================
The accompanying notes are an integral part of these consolidated balance
sheets.
25
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the Year Ended March 31, 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net income $ 7,878 $ 94 $ 8,263
Adjustments to reconcile net income to net cash provided
by operating activities:
Deferred income tax provision 3,103 2,737 1,953
Depreciation and amortization 14,492 16,765 15,070
Gain on sales of equipment (1,289) (1,320) (2,979)
Equity in earnings of unconsolidated affiliate -- (124) (189)
Increase in receivables (7,309) (9,674) (3,279)
(Increase) decrease in prepaid insurance and licenses 984 (497) (1,484)
(Increase) decrease in operating supplies (575) (688) 10
(Increase) decrease in other assets (1,141) (559) 190
Increase (decrease) in accounts payable and
other accrued liabilities (7,722) 3,606 2,669
Increase (decrease) in accrued wages and benefits (457) (1,317) 2,190
Other 18 16 --
-------------------------------------------------------------
Net cash provided by operating activities 7,982 9,039 22,414
-------------------------------------------------------------
Cash Flows from Investing Activities:
Payments for purchases of property and equipment (24,868) (28,247) (61,072)
Proceeds from sales of property and equipment 24,618 17,383 17,582
Repayment of notes receivable from stockholders 94 -- 838
Acquisition of business, net of cash acquired (3,048) (6,227) (308)
Acquisition of remaining 50% of unconsolidated
affiliate, net of cash acquired -- (239) --
-------------------------------------------------------------
Net cash used in investing activities (3,204) (17,330) (42,960)
-------------------------------------------------------------
Cash Flows from Financing Activities:
Net borrowings (payments) under lines of credit 1,000 30,325 (7,158)
Payment of long-term debt (26,450) (36,355) (31,305)
Borrowings under long-term debt 21,300 11,468 32,215
Proceeds from exercise of stock options 128 -- --
Proceeds from issuance of common stock -- -- 31,588
Repurchase of restricted common stock (42) (42) (42)
Increase in other liabilities -- 906 481
-------------------------------------------------------------
Net cash provided by (used in) financing activities (4,064) 6,302 25,779
-------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 714 (1,989) 5,233
Cash and Cash Equivalents, beginning of year 4,378 6,367 1,134
-------------------------------------------------------------
Cash and Cash Equivalents, end of year $ 5,092 $ 4,378 $ 6,367
=============================================================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest $ 5,643 $ 5,198 $ 5,227
=============================================================
Cash paid (refunded) during the year for income taxes, net $ 2,766 $ (470) $ 2,621
=============================================================
Supplemental Disclosure of Significant Noncash
Investing and Financing Activities:
Issuance of long-term debt in connection
with purchase of business $ 792 $ -- $ 600
=============================================================
The accompanying notes are an integral part of these consolidated statements.
26
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
Notes
Additional Receivable
For the years ended March 31, Common Stock Paid-In Retained From
1995, 1996 and 1997 Class A Class B Capital Earnings Stockholders Total
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1994 $ 73 $ 22 $ 1,433 $ 13,208 $ (1,300) $ 13,436
Net income -- -- -- 8,263 -- 8,263
Conversion of 815,680 shares of
Class A Common Stock to
Class B Common Stock (8) 8 -- -- -- --
Issuance of 2,500,000 shares of
Class A Common Stock in initial
public offering 25 -- 31,563 -- -- 31,588
Repayment of notes receivable
from stockholders -- -- -- -- 838 838
Repurchase of 18,390 shares of
restricted stock (1) -- (87) -- 45 (43)
--------------------------------------------------------------------------------------
Balance, March 31, 1995 89 30 32,909 21,471 (417) 54,082
Net income -- -- -- 94 -- 94
Repurchase of 18,390 shares of
restricted stock (1) -- (87) -- 45 (43)
Issuance of 1,744 shares of Class A
Common Stock for non-employee
director compensation -- -- 16 -- -- 16
Issuance of 110,182 shares of
Class A Common Stock for
purchase of Hall Systems 1 -- 936 -- -- 937
--------------------------------------------------------------------------------------
Balance, March 31, 1996 89 30 33,774 21,565 (372) 55,086
Net income -- -- -- 7,878 -- 7,878
Repurchase of 18,390 shares of
restricted stock -- -- (87) -- 45 (42)
Repayment of notes receivable
from stockholders -- -- -- -- 94 94
Issuance of 2,542 shares of Class A
Common Stock for non-employee
director compensation -- -- 18 -- -- 18
Proceeds from exercise of 27,008
stock options 1 -- 127 -- -- 128
--------------------------------------------------------------------------------------
Balance, March 31, 1997 $ 90 $ 30 $ 33,832 $ 29,443 $ (233) $ 63,162
======================================================================================
The accompanying notes are an integral part of these consolidated statements.
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. Acquisitions
- ----------------
Effective March 31, 1994, the Company acquired 50% of the outstanding
stock of Hall Systems, Inc. ("Hall Systems") for $625,000 cash and a
$625,000 note payable. Effective October 31, 1995, the Company acquired
the remaining 50% of the outstanding stock of Hall Systems for
$1,000,000 cash and 110,182 shares of the Company's Class A Common Stock
in a transaction accounted for by the purchase method of accounting.
Effective August 31, 1995, the Company acquired 100% of the outstanding
stock of CSI/Reeves, Inc. ("CSI/Reeves") for cash of $6,240,000 in a
transaction accounted for by the purchase method of accounting.
Effective January 1, 1996, CSI/Reeves was merged into the Company's
existing freight consolidator (Crown Transport Systems, Inc.) to form
CSI/Crown, Inc.
The results of operations of CSI/Reeves and Hall Systems are included in
the accompanying consolidated financial statements from the dates of
their respective acquisition. On a pro forma (unaudited) basis,
operating revenue for the Company would have been approximately $332
million and $310 million, respectively, for fiscal 1996 and 1995, had
the acquisitions taken place at the beginning of the respective periods.
The impact on net income and earnings per share is insignificant. This
information is for comparative purposes only and does not purport to be
indicative of the results of operations had the transactions been
completed at the beginning of the respective periods or indicative of
the results which may occur in the future.
In June 1996, the Company acquired certain equipment and the right to
fulfill a contract to provide expedited truckload services in the
Western United States to a major air freight company from Michael Lima
Transportation for $3,048,000 cash and a $792,000 note payable. In
addition, $1,000,000 will be paid to the seller if the Company is able
to extend the contract. The pro forma effect of this transaction on
prior period financial statements is immaterial. Subsequent to March 31,
1997, the Company acquired eight distribution centers and certain
equipment from Rosedale Transport, Inc. and acquired JTI, Inc.
3. 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.
Use of Estimates in the Preparation of Financial Statements The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents Cash and cash equivalents include all highly liquid
investment instruments with an original maturity of three months or
less.
28
Recognition of Revenue For financial reporting purposes, the Company recognizes
revenue and direct cost when shipments are completed.
Concentration of Credit Risk Concentrations of credit risk with respect to
customer receivables are limited due to the large number of entities
comprising the Company's customer base and their dispersion across many
different industries. The Company performs ongoing credit evaluations
and generally does not require collateral.
Operating and Installation Supplies Operating supplies consist primarily of
tires, parts, materials and supplies for servicing the Company's revenue
and service equipment. Installation supplies consist of various
accessories used in the installation of floorcoverings and are held for
sale at various CSI/Crown distribution centers. Operating and
installation supplies are recorded at the lower of cost (on a first-in,
first-out basis) or market. Tires and tubes purchased as part of revenue
and service equipment are capitalized as part of the cost of the
equipment. Replacement tires and tubes are charged to expense when
placed in service.
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
The Company recognized $13,837,000, $16,066,000 and $14,813,000 in
depreciation expense during the years ended March 31, 1997, 1996 and
1995, respectively. 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.
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.
Goodwill The excess of the consideration paid by the Company over the estimated
fair value of net assets acquired has been recorded as goodwill and is
being amortized on the straight-line basis over periods ranging from 20
to 40 years. The Company continually evaluates whether subsequent events
and circumstances have occurred that indicate that the remaining
estimated useful life of goodwill may warrant revision or that the
re