UNITED STATES
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
June 30, 2001 0-24806
U.S. XPRESS ENTERPRISES, INC.
NEVADA 62-1378182
(State or other jurisdiction of (I.R.S. employer identification no.)
Incorporation or organization)
4080 Jenkins Road (423) 510-3000
CHATTANOOGA, TENNESSEE 37421 (Registrant's telephone no.)
(Address of principal executive offices)
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 June 30, 2001, 10,694,358 shares of the registrant's Class A common
stock, par value $.01 per share, and 3,040,262 shares of the registrant's Class
B common stock, par value $.01 per share, were outstanding.
U.S. XPRESS ENTERPRISES, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements............................... 3
- -------
Consolidated Statements of Operations for the Three and
Six Months Ended June 30, 2001 and 2000......................... 4
Consolidated Balance Sheets as of June 30,
2001 and December 31, 2000...................................... 5
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2001 and 2000......................... 7
Notes to Consolidated Financial Statements...................... 8
Item 2. Management's Discussion and Analysis of
- -------
Financial Condition and Results of Operations................... 12
Item 3. Quantitative and Qualitative Disclosure About Market Risk....... 18
- -------
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................ 19
- -------
Item 4. Submission of Matters to a Vote of Security Holders.............. 20
- -------
Item 6. Exhibits and Reports on Form 8-K................................. 20
- -------
SIGNATURES....................................................... 21
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 that, in the opinion of management, are necessary for a fair
statement of the financial condition and results of operations for the periods
presented. They have been prepared by the Company, without audit, in accordance
with the instructions to Form 10-Q and the rules and regulations of the
Securities and Exchange Commission and do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
Operating results for the six months ended June 30, 2001 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2001. 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 2000 Annual Report to Stockholders in the Company's
Form 10-K filed with the Securities and Exchange Commission on April 2, 2001).
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
June 30, June 30,
------------------------- --------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Operating Revenue $ 202,541 $ 202,427 $ 389,019 $ 394,267
---------- ---------- ---------- ----------
Operating Expenses:
Salaries, wages and benefits 76,956 73,616 148,248 145,700
Fuel and fuel taxes 34,054 32,856 66,160 66,723
Vehicle rents 16,249 14,886 30,849 29,746
Depreciation and amortization, net of gain on sale 8,672 8,237 17,988 16,104
Purchased transportation 24,878 27,648 48,024 52,904
Operating expense and supplies 13,677 12,859 26,202 24,405
Insurance premiums and claims 8,037 8,062 15,392 15,187
Operating taxes and licenses 3,464 3,517 6,604 6,903
Communications and utilities 2,915 2,719 5,825 5,751
General and other operating 8,855 8,905 16,809 16,881
---------- ---------- ---------- ----------
Total operating expenses 197,757 193,305 382,101 380,304
---------- ---------- ---------- ----------
Income from Operations 4,784 9,122 6,918 13,963
Interest Expense, net 4,141 3,972 8,306 7,366
---------- ---------- ---------- ----------
Income (Loss) Before Income Taxes 643 5,150 (1,388) 6,597
Income Tax Provision (Benefit) 256 2,066 (555) 2,644
---------- ---------- ---------- ----------
Net Income (Loss) $ 387 $ 3,084 $ (833) $ 3,953
========== ========== ========== ==========
Earnings (Loss) Per Share - basic $ 0.03 $ 0.22 $ (0.06) $ 0.28
========== ========== ========== ==========
Weighted average shares - basic 13,730 14,204 13,729 14,364
========== ========== ========== ==========
Earnings (Loss) Per Share - diluted $ 0.03 $ 0.22 $ (0.06) $ 0.27
========== ========== ========== ==========
Weighted average shares - diluted 13,784 14,282 13,729 14,434
========== ========== ========== ==========
(See Accompanying Notes to Consolidated Financial Statements)
4
U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
Assets June 30, 2001 December 31, 2000
- ---------------------------------------------------------- ----------------- -----------------
(Unaudited)
Current Assets:
Cash and cash equivalents $ 35 $ 34
Customer receivables, net of allowance 94,591 89,184
Other receivables 12,772 14,294
Prepaid insurance and licenses 9,265 2,664
Operating and installation supplies 3,484 4,312
Deferred income taxes 2,869 2,249
Other current assets 7,315 4,051
---------------- -----------------
Total current assets 130,331 116,788
---------------- -----------------
Property and Equipment, at cost:
Land and buildings 26,764 24,952
Revenue and service equipment 244,014 249,773
Furniture and equipment 21,869 21,299
Leasehold improvements 20,856 19,456
---------------- -----------------
313,503 315,480
Less accumulated depreciation and amortization (99,773) (96,578)
---------------- -----------------
Net property and equipment 213,730 218,902
---------------- -----------------
Other Assets:
Goodwill, net 66,578 67,498
Investment in Transplace, Inc. 5,815 5,815
Other 11,088 11,239
---------------- -----------------
Total other assets 83,481 84,552
---------------- -----------------
Total Assets $ 427,542 $ 420,242
================ =================
(See Accompanying Notes to Consolidated Financial Statements)
5
U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands Except Share Data)
Liabilities and Stockholders' Equity June 30, 2001 December 31, 2000
- --------------------------------------------------- ---------------------- --------------------------
(Unaudited)
Current Liabilities:
Accounts payable $ 13,669 $ 19,060
Book overdraft 2,179 2,940
Accrued wages and benefits 10,940 8,523
Claims and insurance accruals 12,967 8,704
Other accrued liabilities 6,318 3,190
Current maturities of long-term debt 174,362 1,501
---------------------- --------------------------
Total current liabilities 220,435 43,918
---------------------- --------------------------
Long-Term Debt, net of current maturities 11,241 179,908
---------------------- --------------------------
Deferred Income Taxes 36,902 36,902
---------------------- --------------------------
Other Long-Term Liabilities 3,052 2,579
---------------------- --------------------------
Stockholders' Equity:
Preferred stock, $.01 par value, 2,000,000
shares authorized, no shares issued -- --
Common stock Class A, $.01 par value,
30,000,000 shares authorized, 13,238,747 and 13,210,467
shares issued at June 30, 2001 and
December 31, 2000, respectively 132 132
Common stock Class B, $.01 par value, 7,500,000
shares authorized, 3,040,262 shares issued and
outstanding at June 30, 2001 and December 31, 2000 30 30
Additional paid-in capital 105,254 105,124
Retained earnings 75,964 76,797
Other Comprehensive Income (368)
Treasury Stock Class A, at cost (2,544,389 shares at
June 30, 2001 and December 31, 2000) (24,483) (24,483)
Notes receivable from stockholders (233) (233)
Unamortized compensation on restricted stock (384) (432)
---------------------- --------------------------
Total stockholders' equity 155,912 156,935
---------------------- --------------------------
Total Liabilities and Stockholders' Equity $ 427,542 $ 420,242
====================== ==========================
(See Accompanying Notes to Consolidated Financial Statements)
6
U.S. XPRESS ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months Ended June 30,
-------------------------------------------
2001 2000
----------------- --------------------
Cash Flows from Operating Activities:
Net Income (Loss) $ (833) $ 3,953
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Deferred income tax provision (278) 1,323
Depreciation and amortization 18,040 16,425
Gain on sale of equipment (51) (321)
Ineffectiveness of derivatives 95 -
Change in operating assets and liabilities, net of acquistions
Receivables (3,885) (3,541)
Prepaid insurance and licenses (6,601) (4,998)
Operating and installation supplies 1,011 1,271
Other assets (5,027) (7,320)
Accounts payable and other accrued liabilities 2,605 181
Accrued wages and benefits 2,417 2,256
Other 74 32
----------------- --------------------
Net cash provided by operating activities 7,567 9,261
----------------- --------------------
Cash Flows from Investing Activities:
Payments for purchase of property and equipment (34,093) (31,963)
Proceeds from sales of property and equipment 22,990 5,663
Investment in Transplace - (750)
----------------- --------------------
Net cash used in investing activities (11,103) (27,050)
----------------- --------------------
Cash Flows from Financing Activities:
Net borrowings under lines of credit 5,801 15,563
Payments of long-term debt (1,607) (974)
Book overdraft (761) 7,431
Proceeds from exercise of stock options - 8
Proceeds from issuance of common stock 104 194
Purchase of Class A Common Stock - (4,642)
----------------- --------------------
Net cash provided by financing activities 3,537 17,580
----------------- --------------------
Net Increase (Decrease) in Cash and Cash Equivalents 1 (209)
Cash and Cash Equivalents, beginning of period 34 259
----------------- --------------------
Cash and Cash Equivalents, end of period 35 50
================= ====================
Cash paid during the period for interest, net of capitalized interest $ 8,170 $ 7,365
Cash refunded during the period for income taxes $ 2,769 $ 24
(See Accompanying Notes to Consolidated Financial Statements)
7
U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization and Operations
U.S. Xpress Enterprises, Inc. (the "Company") provides transportation
services through two business segments. U.S. Xpress, Inc. ("U.S. Xpress") is a
truckload carrier serving the continental United States and parts of Canada and
Mexico. CSI/Crown, Inc. ("CSI/Crown") provides transportation services to the
floorcovering industry and deferred airfreight logistics services from airport
to airport through its Dedicated Xpress operations.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany transactions and accounts
have been eliminated.
Property and Equipment
Property and equipment is carried at cost. Depreciation and amortization
of property and equipment is computed using the straight-line method for
financial reporting purposes and accelerated methods for tax purposes over the
estimated useful lives of the related assets (net of salvage value) as follows:
Buildings 10-30 years
Revenue and service equipment 3-7 years
Furniture and equipment 3-7 years
Leasehold improvements 5-6 years
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.
Earnings Per Share
The difference in basic and diluted EPS is due to the assumed conversion of
outstanding options resulting in approximately 54,000 and 78,000 equivalent
shares in the three month period ended June 30, 2001 and 2000, respectively, and
70,000 in the six month period ended June 30, 2000. Due to the loss in the six
month period ended June 30, 2001, the outstanding options are anti-dilutive and
are not considered in EPS.
Reclassifications
Certain reclassifications have been made in the 2000 financial statements
to conform to the 2001 presentation.
8
Book Overdraft
Book overdraft represents outstanding checks in excess of current cash
levels. The Company will fund the book overdraft from its line of credit and
operating cash flows.
3. Commitments and Contingencies
The Company is a defendant in a lawsuit filed by Forward Air, Inc.
("Forward Air"), a deferred air freight service provider, in the United States
District Court in Greeneville, Tennessee, in which Forward Air has asserted a
variety of claims primarily for trademark infringement and unfair competition
allegedly arising out of the Company's use of the name "Dedicated Xpress
Services, Inc." In its lawsuit, Forward Air asserts that after Forward Air
purchased the assets of Dedicated Transportation Services, Inc. ("DTSI"), an air
freight provider, the Company entered the deferred air freight logistics service
business and is unfairly competing with Forward Air. Forward Air seeks
unspecified damages and injunctive relief preventing the Company from using the
name "Dedicated Xpress Services, Inc."
In a related case, SouthTrust Bank ("SouthTrust"), the secured lender to
DTSI, which foreclosed upon and sold the assets of DTSI to Forward Air, has
filed a lawsuit against the Company concerning certain events surrounding such
foreclosure and sale. In November 2000, the Company signed an agreement with
SouthTrust to purchase certain assets of DTSI at foreclosure by SouthTrust.
After the agreement was signed, SouthTrust advised the company that it had
received a higher offer for the assets from Forward Air and that it would cancel
the agreement with the Company unless the Company matched the higher offer.
SouthTrust then sold the assets of DTSI to Forward Air. In its lawsuit,
SouthTrust claims the Company acted wrongfully and attempted to interfere with
SouthTrust's sale of DTSI's assets to Forward Air. The lawsuit seeks damages in
an unspecified amount from the Company, and seeks to have the Court declare that
actions taken by SouthTrust in connection with the foreclosure and sale of
DTSI's assets were lawful and did not violate any legal rights of the Company.
The Company believes that the claims asserted by Forward Air and SouthTrust
are without merit and intends to vigorously defend the lawsuits.
The Company is party to certain other legal proceedings incidental to its
business. The ultimate disposition of such other matters, in the opinion of
management, based in part upon an assessment of the likelihood of an adverse
disposition of such matters, will not have a material adverse effect on the
Company's financial position or results of operations.
The Company had letters of credit of $4,676,000 outstanding at June 30,
2001. The letters of credit are maintained primarily to support the Company's
insurance program.
4. Derivative Financial Instruments
The Company adopted the Statement of Financial Accounting Standards No. 133
(SFAS No. 133), "Accounting for Derivative Instruments and Hedging Activities,"
as amended, on January 1, 2001. SFAS No. 133 requires that all derivative
instruments be recorded on the balance sheet at fair value. The Company has
designated its interest rate swap agreements as cash flow hedge instruments.
The swap agreements are used to manage exposure to interest rate movement by
effectively changing the variable rate to a
9
fixed rate. The critical terms of the interest rate swap agreements and the
related debt are different with regard to maturity date; therefore, the Company
expects some hedge ineffectiveness in the hedge relationship. Changes in fair
value of the interest rate agreements will be recognized in other comprehensive
income, until the hedged items are recognized in earnings. The Company has
hedged its exposure to interest rate movement through September 8, 2003.
The adoption of SFAS No. 133 resulted in recording a cumulative effect of a
change in accounting principle of $98,635 in other comprehensive income, net of
tax. At June 30, 2001, the fair market value of the swap agreements decreased
due primarily to a reduction in interest rates, and accumulated other
comprehensive income was adjusted to an accumulated loss of $368,329, net of
tax. At June 30, 2001, the interest rate swaps were deemed to be partially
ineffective cash flow hedges, and, accordingly, the Company recorded $95,401 of
interest expense in the income statement related to the hedge ineffectiveness.
5. Operating Segments
The Company has two reportable segments based on the types of services it
provides to its customers: U.S. Xpress, which provides truckload operations
throughout the continental United States and parts of Canada and Mexico, and
CSI/Crown, which provides transportation services to the floorcovering industry
and deferred air freight logistics services from airport to airport through its
Dedicated Xpress operations. Substantially all intersegment sales prices are
market based. The Company evaluates performance based on operating income of
the respective business units.
U.S. Xpress CSI/Crown Consolidated
----------- --------- ------------
Three Months Ended June 30, 2001
- --------------------------------
Revenues - external customers $183,061 $19,480 $202,541
Intersegment revenues 5,560 - 5,560
Operating income 4,678 106 4,784
Total assets 402,226 25,316 427,542
Three Months Ended June 30, 2000
- --------------------------------
Revenues - external customers $186,891 $15,536 $202,427
Intersegment revenues 1,175 - 1,175
Operating income 8,081 1,041 9,122
Total assets 413,368 20,164 433,532
Six Months Ended June 30, 2001
- ------------------------------
Revenues - external customers $355,145 $33,874 $389,019
Intersegment revenues 8,390 - 8,390
Operating income (loss) 7,041 (123) 6,918
Total assets 402,226 25,316 427,542
Six Months Ended June 30, 2000
- ------------------------------
Revenues - external customers $365,375 $28,892 $394,267
Intersegment revenues 2,463 - 2,463
Operating income 12,502 1,461 13,963
Total assets 413,368 20,164 433,532
10
The difference in consolidated operating income as shown above and consolidated
income before income tax provision on the consolidated statements of operations
is net interest expense of $4,141 and $3,972 for the three months ended June 30,
2001 and 2000, respectively, and $8,306 and $7,366 for the six months ended June
30, 2001 and 2000, respectively.
6. Comprehensive Income
Comprehensive income (loss) consisted of the following components for the
six months ended June 30, 2001 and 2000, respectively:
For the Six Months Ended
June 30,
------------------------
2001 2000
------- -------
(in thousands)
Net income (loss) $ (833) $ 3,953
Net loss on current period cash flow hedges (368) 0
------- -------
Total $(1,201) $ 3,953
======= =======
7. Recent Accounting Pronouncements
In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and
SFAS No. 142 "Goodwill and Other Intangible Assets" (collectively the
"Standards"). The Standards will be effective for fiscal years beginning after
December 15, 2001. Companies with fiscal years beginning after March 15, 2001
may early adopt, but only as of the beginning of that fiscal year and only if
all existing goodwill is evaluated for impairment by the end of that fiscal
year. SFAS No. 141 will require companies to recognize acquired identifiable
assets separately from goodwill if control over the future economic benefits of
the assets results from contractual or other legal rights or the intangible
asset is capable of being separated or divided and sold, transferred, licensed,
rented, or exchanged. The Standards will require the value of a separately
identifiable intangible asset meeting any of the criteria to be measured at its
fair value. SFAS No. 142 will require that goodwill not be amortized, and that
amounts recorded as goodwill be tested for impairment. Upon adoption of SFAS No
142, goodwill will be reduced if it is found to be impaired. Annual impairment
tests will have to be performed at the lowest level of an entity that is a
business and that can be distinguished, physically and operationally and for
internal reporting purposes, from the other activities, operations, and assets
of the entity. The Company does not have the option of early adoption, thus
there will be no financial statement impact in fiscal year 2001. Based on the
current levels of goodwill, the adoption of the Standards in fiscal 2002 would
decrease annual amortization expense by approximately $1.8 million through the
elimination of goodwill amortization. However, the Company has not yet
determined the impact of the new goodwill impairment standards.
11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
U.S. Xpress Enterprises, Inc. (the "Company") provides transportation
services through two business segments. U.S. Xpress, Inc. ("U.S. Xpress") is a
truckload carrier serving the continental United States and parts of Canada and
Mexico. CSI/Crown, Inc. ("CSI/Crown") provides transportation services to the
floorcovering industry and deferred airfreight logistics services from airport
to airport through its Dedicated Xpress operations.
Results of Operations
The following table sets forth, for the periods indicated, the components
of the consolidated statements of operations expressed as a percentage of
operating revenue:
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
------- ------- ------- -------
Operating Revenue 100.0% 100.0% 100.0% 100.0%
------- ------- ------- -------
Operating Expenses:
Salaries, wages and benefits 38.0 36.4 38.1 36.9
Fuel and fuel taxes 16.8 16.2 17.0 16.9
Vehicle rents 8.0 7.4 7.9 7.5
Depreciation and amortization, net of gain on sale 4.3 4.1 4.6 4.1
Purchased transportation 12.3 13.7 12.3 13.4
Operating expense and supplies 6.8 6.4 6.7 6.2
Insurance premiums and claims 4.0 4.0 4.0 3.9
Operating taxes and licenses 1.7 1.7 1.7 1.8
Communications and utilities 1.4 1.3 1.5 1.5
General and other operating 4.4 4.3 4.4 4.3
------- ------- ------- -------
Total operating expenses 97.7 95.5 98.2 96.5
------- ------- ------- -------
Income from Operations 2.3 4.5 1.8 3.5
Interest Expense, net 2.0 2.0 2.1 1.8
------- ------- ------- -------
Income Before Income Taxes 0.3 2.5 -0.3 1.7
Income Tax Provision 0.1 1.0 -0.1 0.7
------- ------- ------- -------
Net Income 0.2% 1.5% -0.2% 1.0%
======= ======= ======= =======
12
Comparison of the Three Months Ended June 30, 2001 to the
Three Months Ended June 30, 2000
Operating revenue during the three-month period ended June 30, 2001 was
essentially unchanged from the same period in 2000. U.S. Xpress revenue
increased $.6 million, or .3%, due primarily to a 1.1% increase in revenue miles
offset by a 1.0% decrease in average revenue per mile to $1.213 from $1.225 in
2000, and a $1.6 million increase in fuel surcharge revenue. Included in 2000
revenue was $1.7 million related to U.S. Xpress logistics business, which was
contributed to Transplace, Inc. in July 2000. CSI/Crown revenue increased $3.9
million, or 25.4%. This increase reflects a $5.7 million increase due to the
revenues of the new deferred air business, which began operations in February
2001, offset by decreases in the floorcovering logistics business. Intersegment
revenue during the three-month period ended June 30, 2001 increased $4.4 million
compared to the same period in 2000, due to truckload services provided by U.S.
Xpress for the deferred air business of CSI/Crown.
Operating expenses represented 97.7% of operating revenue for the three
months ended June 30, 2001, compared to 95.5% during the same period in 2000.
Salaries, wages and benefits as a percentage of revenue were 38.0% during
the three months ended June 30, 2001, compared to 36.4% during the same period
in 2000. U.S. Xpress wages increased $2.3 million due primarily to Company
driver miles increasing 2.5% to 140.7 million miles in the three months ended
June 30, 2001, compared to 137.3 million miles during the same period in 2000.
CSI/Crown wages increased $1.2 million due primarily to the expansion of the new
deferred air services, which were introduced in February 2001.
Fuel and fuel taxes as a percentage of operating revenue were 16.8% during
the three months ended June 30, 2001, compared to 16.2% during the same period
in 2000. This increase was primarily due to a slight decrease in revenue per
mile, and a slight increase in fuel prices. The Company's exposure to increases
in fuel prices is partially mitigated by fuel surcharges to its customers.
Vehicle rents as a percentage of operating revenue were 8.0% during the
three months ended June 30, 2001, compared to 7.4% during the same period in
2000. This increase is due to a 7.0% increase in the average number of tractors
leased and a 21.6% increase in the average number of trailers leased during the
three months ended June 30, 2001, compared to the same period in 2000.
Depreciation and amortization as a percentage of operating revenue was 4.3%
during the three months ended June 30, 2001, compared to 4.1% during the same
period in 2000. The increase is primarily due to increased depreciation and
amortization related to other operating assets and deferred loan costs. The
Company includes gains and losses from the sale of revenue equipment in
depreciation expense. Net losses from the sale of revenue equipment for the
three months ended June 30, 2001 were $33,000, compared to a gain of $124,000
for the same period in 2000. Overall, as a percentage of operating revenue,
vehicle rents and depreciation were 12.3% during the three months ended June 30,
2001, compared to 11.5% during the same period in 2000.
13
Purchased transportation as a percentage of operating revenue was 12.3%
during the three months ended June 30, 2001, compared to 13.7% during the same
period in 2000. The decrease reflects the contribution of the Company's
logistics business to Transplace, Inc. in July 2000, combined with the 5.5%
decrease in owner operator miles to 24.3 million miles in the three months ended
June 30, 2001, compared to 25.7 million miles during the same period in 2000.
Most of the costs associated with logistics revenue were reflected in purchased
transportation.
Operating expenses and supplies as a percentage of operating revenue were
6.8% during the three months ended June 30, 2001, compared to 6.4% during the
same period in 2000. This increase is primarily due to increases in maintenance
expenses.
Income from operations for the three months ended June 30, 2001 decreased
$4.3 million, or 47.6%, to $4.8 million from $9.1 million during the same period
in 2000. As a percentage of operating revenue, income from operations was 2.3%
for the three months ended June 30, 2001 and 4.5% for the same period in 2000.
14
Comparison of the Six Months Ended June 30, 2001 to the
Six Months Ended June 30, 2000
Operating revenue during the six-month period ended June 30, 2001 decreased
$5.2 million, or 1.3%, to $389.0 million, compared to $394.3 million during the
same period in 2000. U.S. Xpress revenue decreased $4.3 million, or 1.2%, due
primarily to a 2.0% decrease in revenue miles offset by a .2% increase in
average revenue per mile to $1.213 from $1.211 in 2000, and a $4.0 million
increase in fuel surcharge revenue. Included in 2000 revenue was $3.6 million
related to U.S. Xpress logistics business, which was contributed to Transplace,
Inc. in July 2000. CSI/Crown revenue increased $5.0 million or 17.2%. This
increase reflects a $7.9 million increase due to the revenues of the new
deferred air services, which began operations in February 2001, offset by
decreases in the floorcovering logistics business. Intersegment revenue during
the six-month period ended June 30, 2001 increased $5.9 million compared to the
same period in 2000, due to truckload services provided by U.S. Xpress for the
deferred air business of CSI/Crown.
Operating expenses represented 98.2% of operating revenue for the six
months ended June 30, 2001, compared to 96.5% during the same period in 2000.
Salaries, wages and benefits as a percentage of revenue were 38.1% during
the six months ended June 30, 2001, compared to 36.9% during the same period in
2000. This increase was primarily attributable to increases in workers'
compensation premiums and claims and group health claims. CSI/Crown wages
increased $1.8 million due to the expansion of the new deferred air services
business, which was introduced in February 2001.
Vehicle rents as a percentage of operating revenue were 7.9% during the six
months ended June 30, 2001, compared to 7.5% during the same period in 2000.
This increase is due to a 1.7% increase in the average number of tractors leased
and a 20.3% increase in the average number of trailers leased during the six
months ended June 30, 2001, compared to the same period in 2000. Depreciation
and amortization as a percentage of operating revenue was 4.6% during the six
months ended June 30, 2001, compared to 4.1% during the same period in 2000.
The increase is primarily due to increased depreciation and amortization related
to other operating assets and deferred loan costs. The Company includes gains
and losses from the sale of revenue equipment in depreciation expense. Net
gains from the sale of revenue equipment for the six months ended June 30, 2001
were $51,000, compared to a gain of $321,000 for the same period in 2000.
Overall, as a percentage of operating revenue, vehicle rents and depreciation
were 12.5% during the six months ended June 30, 2001, compared to 11.6% during
the same period in 2000.
Purchased transportation as a percentage of operating revenue was 12.3%
during the six months ended June 30, 2001, compared to 13.4% during the same
period in 2000. The decrease reflects the contribution of the Company's
logistics business to Transplace, Inc. in July 2000, combined with a 3.9%
decrease in owner operator miles to 46.4 million miles in the six months ended
June 30, 2001, compared to 48.3 million miles during the same period in 2000.
Most of the costs associated with logistics revenue were reflected in purchased
transportation.
15
Operating expenses and supplies as a percentage of operating revenue were
6.7% during the six months ended June 30, 2001, compared to 6.2% during the same
period in 2000. This increase is primarily due to increases in maintenance
expenses.
Interest expense as a percentage of revenue was 2.1% during the six months
ended June 30, 2001, compared to 1.8% during the same period in 2000. This
increase was primarily due to increased rates on the Company's line of credit
and increased borrowings for the Company's Colton, California facility.
Income from operations for the six months ended June 30, 2001 decreased
$7.0 million, or 50.5%, to $6.9 million from $14.0 million during the same
period in 2000. As a percentage of operating revenue, income from operations
was 1.8% for the six months ended June 30, 2001 and 3.5% for the same period in
2000
Liquidity and Capital Resources
The Company's primary sources of liquidity and capital resources during the
six month period ended June 30, 2001 were borrowings under lines of credit,
proceeds from sales of used revenue equipment and the use of long-term operating
leases for revenue equipment acquisitions. Currently, the Company has in place
a $195.0 million credit facility with a group of banks with a weighted-average
interest rate of 7.77%, of which $16.3 million was available for borrowing.
Cash provided by operations was $7.6 million during the six months ended
June 30, 2001, compared to $9.3 million during the same period last year. Net
cash used in investment activities was $11.1 million in the six months ended
June 30, 2001, compared to $27.1 million during the same period in 2000. Of the
cash used in investment activities, $34.1 million was used to acquire additional
property and equipment for the six months ended June 30, 2001, compared to $32.0
million during the same period of 2000. Net cash provided by financing
activities was $3.5 million during the six months ended June 30, 2001, compared
to $17.6 million during the same period of 2000.
In July 2001, the Company entered into an amendment of its Revolving Credit
Agreement ("Credit Agreement"). Under the terms of the amendment, the aggregate
commitments under the Credit Agreement were reduced to $195.0 million, with a
further reduction to $190.0 million on September 30, 2001. Additionally,
financial covenants for the remaining term of the agreement were amended and the
Company agreed to the payment of certain future fees under certain conditions.
The Company is in compliance with the terms of the amended Credit Agreement.
The Company believes that borrowings under the amended Credit Agreement,
together with cash flows from operations, proceeds from the sale of used revenue
equipment and long term lease financing will provide sufficient liquidity for
the Company's planned operations through the remaining term of the agreement
which expires in January 2002. Currently, the Company is also pursuing various
new long-term financing arrangements to replace the existing Credit Agreement.
Management believes that funds provided by operations, proceeds from the sale of
used revenue equipment and long-term lease financing, together with a new long-
term financing arrangement, will be sufficient to fund its cash needs and
anticipated capital expenditures through at least the next twelve
16
months. However, there can be no assurance that any such replacement financing
agreement can be obtained on terms acceptable to the Company.
In 2000, the Company entered into a $10.0 million long-term loan agreement
to finance the new Colton, California terminal facility. The term of the loan is
10 years, with an amortization of 20 years, and carries a variable interest rate
that is based on the 30-day commercial paper rate, plus a margin. This rate can
be converted to a fixed rate at any time up to September 2002.
Recent Accounting Pronouncements
In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and
SFAS No. 142 "Goodwill and Other Intangible Assets" (collectively the
"Standards"). The Standards will be effective for fiscal years beginning after
December 15, 2001. Companies with fiscal years beginning after March 15, 2001
may early adopt, but only as of the beginning of that fiscal year and only if
all existing goodwill is evaluated for impairment by the end of that fiscal
year. SFAS No. 141 will require companies to recognize acquired identifiable
assets separately from goodwill if control over the future economic benefits of
the assets results from contractual or other legal rights or the intangible
asset is capable of being separated or divided and sold, transferred, licensed,
rented, or exchanged. The Standards will require the value of a separately
identifiable intangible asset meeting any of the criteria to be measured at its
fair value. SFAS No. 142 will require that goodwill not be amortized, and that
amounts recorded as goodwill be tested for impairment. Upon adoption of SFAS No
142, goodwill will be reduced if it is found to be impaired. Annual impairment
tests will have to be performed at the lowest level of an entity that is a
business and that can be distinguished, physically and operationally and for
internal reporting purposes, from the other activities, operations, and assets
of the entity. The Company does not have the option of early adoption, thus
there will be no financial statement impact in fiscal year 2001. Based on the
current levels of goodwill, the adoption of the Standards in fiscal 2002 would
decrease annual amortization expense by approximately $1.8 million through the
elimination of goodwill amortization. However, the Company has not yet
determined the impact of the new goodwill impairment standards.
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 as a
result of inherent weather variations. The Company's operating expenses also
have historically been higher in the winter weather.
This Quarterly Report contains certain statements that may be considered
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Such statements may be identified by their use of terms or phrases
such as "expects," "estimated," "projects," "believes," "anticipates," intends,"
and similar terms and phrases, and may include, but not be limited to,
projections of revenues, income or loss, capital expenditures, acquisitions,
plans for growth and future operations, financing needs or plans or intentions
relating to acquisitions by the Company, as well as assumptions relating to the
foregoing. Forward-looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified, which could
cause future events and actual results to differ materially from those set forth
in, contemplated by or underlying the forward-looking statements. Such risks
and uncertainties include, but are not limited to, those factors discussed under
the heading "Special Considerations" in the Company's Annual Report on Form 10-
K, as well as other risks detailed from time to time in the Company's filings
with the Securities and Exchange Commission.
17
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Interest Rate Risk
The Company has interest rate exposure arising from the Company's line of
credit, which has variable interest rates. At June 30, 2001, the Company had
$183.8 million of variable rate debt. The Company has interest rate swap
agreements which convert floating rates to fixed rates for a total notional
amount of $45 million. For example, if interest rates on the Company's variable
rate debt, after considering interest rate swaps, were to increase by 10% from
their June 30, 2001 rates for the next twelve months, the increase in interest
expense would be approximately $.6 million.
Commodity Price Risk
Fuel is one of the Company's largest expenditures. The price and
availability of diesel fuel fluctuates due to changes in production, seasonality
and other market factors generally outside the Company's control. Many of the
Company's customer contracts contain fuel surcharge provisions to mitigate
increases in the cost of fuel. However, there is no assurance that such fuel
surcharges could be used to offset future increases in fuel prices.
18
U.S. XPRESS ENTERPRISES, INC.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
The Company has filed an answer and counterclaim in the lawsuit by
SouthTrust Bank pending in the U.S. District Court for the Northern District of
Alabama, which was reported in the Company's Annual Report on Form 10-K for the
year ended December 31, 2000. As previously reported, the pending suit is a
claim for unspecified damages by SouthTrust arising out of events which occurred
when SouthTrust terminated its agreement to sell certain assets of Dedicated
Transportation Services, Inc. to the Company. In June 2001, the Company filed a
third-party complaint against Forward Air. Inc. (a plantiff in a related case,
discussed below), alleging that Forward Air is responsible for any damages
asserted by SouthTrust in the pending lawsuit.
In the Company's report on Form 10-Q for the quarter ending March 31, 2001,
the Company initially reported a lawsuit filed by Forward Air, Inc., which is
pending in the U.S. District court for the Eastern District of Tennessee at
Greeneville. The Company has filed an answer and counterclaim in this action.
19
Item 4 - Submission of Matters to a Vote of Security Holders
(a) The annual meeting of shareholders was held on May 14, 2001.
(b) The meeting was held to consider and vote upon the election of
Directors for the following year. All Directors were elected with the results of
the vote summarized as follows:
FOR WITHHELD ABSTAIN TOTAL
Cort J. Dondero 10,481,593 452,403 0 10,933,996
Max L. Fuller 10,480,593 453,403 0 10,933,996
James E. Hall 10,749,193 184,803 0 10,933,996
Ray M. Harlin 10,481,593 452,403 0 10,933,996
Patrick E. Quinn 10,480,593 453,403 0 10,933,996
Robert J. Sudderth, Jr. 10,748,993 185,003 0 10,933,996
A. Alexander Taylor, II 10,748,981 185,015 0 10,933,996
At the annual meeting, Shareholders also ratified the appointment of Arthur
Andersen LLP as independent accountants for the forthcoming fiscal year. The
results of the vote are summarized as follows:
FOR AGAINST ABSTAIN TOTAL
10,929,284 3,098 1,615 10,933,996
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
(i) Exhibits Incorporated by Reference
None
(ii) Exhibits Filed with this Report
10.46 Waiver under and First Amendment to Credit Agreement dated April 27,
2001, but effective as of March 31, 2001, among U.S. Xpress
Enterprises, Inc., the Banks listed in the waiver and amendment, and
Wachovia Bank, N.A., as Administrative Agent, Bank of America, N.A.,
as Syndication Agent, Fleet National Bank, as Documentation Agent, and
SunTrust Bank, as Co-Agent.
10.47 Second Amendment to and Waiver under Amended and Restated Credit
Agreement dated July 11, 2001, by and among U.S. Xpress Enterprises,
Inc., Wachovia Bank, N.A. as Administrative Agent, Bank of America,
N.A., as Syndication Agent, Fleet National Bank, N.A., Bank of
America, N.A., Fleet National Bank, Suntrust Bank, AmSouth Bank, The
Chase Manhatten Bank, LaSalle Bank National Association, and First
Tennessee Bank, N.A.
(b) Reports on Form 8-K
None
20
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: August 10, 2001 By: /s/ Patrick E. Quinn
------------------------------
Patrick E. Quinn
President
Date: August 10, 2001 By: /s/ Ray M. Harlin
----------------------------
Ray M. Harlin
Principal Financial Officer
21