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
September 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 September 30, 2001, 10,745,493 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
Nine Months Ended September 30, 2001 and 2000......................................... 4
Consolidated Balance Sheets as of September 30,
2001 and December 31, 2000............................................................ 5
Consolidated Statements of Cash Flows for the
Nine Months Ended September 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 4. Submission of Matters to a Vote of Security Holders...................................19
- ------
Item 6. Exhibits and Reports on Form 8-K......................................................19
- ------
SIGNATURES............................................................................20
2
U.S. XPRESS ENTERPRISES, INC.
PART I
FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
The interim consolidated financial statements contained herein reflect
all adjustments that, in the opinion of management, are necessary for a fair
statement of the financial condition and results of operations for the periods
presented. They have been prepared by the Company, without audit, in accordance
with the instructions to Form 10-Q and the rules and regulations of the
Securities and Exchange Commission and do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
Operating results for the nine months ended September 30, 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 Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
2001 2000 2001 2000
-------------- ------------ ------------- -------------
Operating Revenue $207,464 $197,135 $596,482 $591,403
-------- -------- -------- --------
Operating Expenses:
Salaries, wages and benefits 78,435 71,724 226,683 217,424
Fuel and fuel taxes 33,198 33,334 99,358 100,057
Vehicle rents 18,355 14,871 49,204 44,616
Depreciation and amortization, net of gain on sale 8,643 8,697 26,631 24,802
Purchased transportation 27,914 26,311 75,938 79,216
Operating expense and supplies 13,242 13,225 39,444 37,628
Insurance premiums and claims 7,730 7,409 23,122 22,596
Operating taxes and licenses 3,678 3,288 10,282 10,191
Communications and utilities 2,857 2,751 8,682 8,502
General and other operating 9,260 8,899 26,068 25,781
-------- -------- -------- --------
Total operating expenses 203,312 190,509 585,412 570,813
-------- -------- -------- --------
Income from Operations 4,152 6,626 11,070 20,590
Interest Expense, net 3,523 4,145 11,829 11,511
-------- -------- -------- --------
Income (Loss) Before Income Taxes 629 2,481 (759) 9,079
Income Tax Provision (Benefit) 325 1,113 (230) 3,757
-------- -------- -------- --------
Net Income (Loss) $ 304 $ 1,368 $ (529) $ 5,322
======== ======== ======== ========
Earnings (Loss) Per Share - basic $ 0.02 $ 0.10 $ (0.04) $ 0.37
======== ======== ======== ========
Weighted average shares - basic 13,783 13,904 13,747 14,210
======== ======== ======== ========
Earnings (Loss) Per Share - diluted $ 0.02 $ 0.10 $ (0.04) $ 0.37
======== ======== ======== ========
Weighted average shares - diluted 13,832 13,965 13,747 14,277
======== ======== ======== ========
(See Accompanying Notes to Consolidated Financial Statements)
4
U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
Assets September 30, 2001 December 31, 2000
- ------ ------------------ -----------------
(Unaudited)
Current Assets:
Cash and cash equivalents $ 37 $ 34
Customer receivables, net of allowance 97,981 89,184
Other receivables 22,228 14,294
Prepaid insurance and licenses 5,727 2,664
Operating and installation supplies 3,657 4,312
Deferred income taxes 3,033 2,249
Other current assets 9,053 4,051
-------- --------
Total current assets 141,716 116,788
-------- --------
Property and Equipment, at cost:
Land and buildings 26,768 24,952
Revenue and service equipment 217,825 249,773
Furniture and equipment 19,698 21,299
Leasehold improvements 17,306 19,456
-------- --------
281,597 315,480
Less accumulated depreciation and amortization (78,506) (96,578)
-------- --------
Net property and equipment 203,091 218,902
-------- --------
Other Assets:
Goodwill, net 66,117 67,498
Investment in Transplace, Inc. 5,815 5,815
Other 12,100 11,239
-------- --------
Total other assets 84,032 84,552
-------- --------
Total Assets $428,839 $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 September 30, 2001 December 31, 2000
- ------------------------------------ ------------------ -----------------
(Unaudited)
Current Liabilities:
Accounts payable $ 15,907 $19,060
Book overdraft 2,063 2,940
Accrued wages and benefits 10,495 8,523
Claims and insurance accruals 14,874 8,704
Other accrued liabilities 6,989 3,190
Current maturities of long-term debt 170,362 1,501
-------- --------
Total current liabilities 220,690 43,918
-------- --------
Term Debt, net of current maturities 11,092 179,908
-------- --------
Deferred Income Taxes 36,902 36,902
-------- --------
Other Long-Term Liabilities 4,100 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, 13,289,882 and 13,210,467
shares issued at September 30, 2001 and
December 31, 2000, respectively 133 132
Common stock Class B, $.01 par value, 7,500,000
shares authorized, 3,040,262 shares issued and
outstanding at September 30, 2001 and December 31, 2000 30 30
Additional paid-in capital 105,516 105,124
Retained earnings 76,268 76,797
Other comprehensive income (loss) (838)
Treasury Stock Class A, at cost (2,544,389 shares at
September 30, 2001 and December 31, 2000) (24,483) (24,483)
Notes receivable from stockholders (211) (233)
Unamortized compensation on restricted stock (360) (432)
-------- --------
Total stockholders' equity 156,055 156,935
-------- --------
Total Liabilities and Stockholders' Equity $428,839 $420,242
======== ========
(See Accompanying Notes to Consolidated Financial Statements)
6
U.S. XPRESS ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Nine Months Ended
September 30,
------------------------------
2001 2000
------ -------
Cash Flows from Operating Activities:
Net income (loss) $ (529) $ 5,322
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Deferred income tax provision (115) 1,880
Depreciation and amortization 26,294 25,031
(Gain)/loss on sale of equipment 337 (230)
Ineffectiveness of derivatives 146 -
Change in operating assets and liabilities, net of acquisitions
Receivables (16,731) (5,815)
Prepaid insurance and licenses (3,063) (3,726)
Operating and installation supplies 1,152 1,637
Other assets (9,113) (7,792)
Accounts payable and other accrued liabilities 8,041 3,329
Accrued wages and benefits 1,971 1,990
Other 98 35
-------- --------
Net cash provided by operating activities 8,488 21,661
-------- --------
Cash Flows from Investing Activities:
Payments for purchase of property and equipment (47,631) (40,806)
Proceeds from sales of property and equipment 39,589 7,007
Repayment of notes receivable from stockholders 22 -
Investment in Transplace, Inc. - (5,000)
-------- --------
Net cash used in investing activities (8,020) (38,799)
-------- --------
Cash Flows from Financing Activities:
Net borrowings under lines of credit 1,801 12,248
Borrowing under long-term debt agreement - 10,000
Payments of long-term debt (1,756) (1,043)
Book overdraft (877) 1,357
Proceeds from exercise of stock options 36 8
Proceeds from issuance of common stock 331 340
Purchase of Class A Common Stock - (5,988)
-------- --------
Net cash provided by (used in) financing activities (465) 16,922
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents 3 (216)
Cash and Cash Equivalents, beginning of period 34 259
-------- --------
Cash and Cash Equivalents, end of period 37 43
-------- --------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest, net of capitalized interest $ 11,895 $ 11,743
Cash (refunded) paid during the period for income taxes $ (5,986) $ (1,843)
(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 49,000 and 61,000 equivalent
shares in the three-month period ended September 30, 2001 and 2000,
respectively, and 67,000 in the nine-month period ended September 30, 2000. Due
to the loss in the nine-month period ended September 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.
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.
8
3. Commitments and Contingencies
The Company is a defendant in a lawsuit filed by Forward Air, Inc.
("Forward Air"), a deferred airfreight 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 $4,677,000 outstanding at September
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 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.
9
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 September 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 $838,726, net of
tax. For the nine months ended September 30, 2001, the interest rate swaps were
deemed to be partially ineffective cash flow hedges, and, accordingly, the
Company recorded $145,778 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.
(Dollars in Thousands)
U.S. Xpress CSI/Crown Consolidated
----------- --------- -------------
Three Months Ended September 30, 2001
- -------------------------------------
Revenues - external customers $183,252 $24,242 $207,464
Intersegment revenues 7,017 - 7,017
Operating income 4,886 (734) 4,152
Total assets 401,148 27,691 428,839
Three Months Ended September 30, 2000
- -------------------------------------
Revenues - external customers $181,387 $15,748 $197,135
Intersegment revenues 1,211 - 1,211
Operating income 5,367 1,259 6,626
Total assets 417,912 19,937 437,849
Nine Months Ended September 30, 2001
- ------------------------------------
Revenues - external customers $538,396 $58,086 $596,482
Intersegment revenues 15,406 - 15,406
Operating income (loss) 11,927 (857) 11,070
Total assets 401,148 27,691 428,839
Nine Months Ended September 30, 2000
- ------------------------------------
Revenues - external customers $546,764 $44,639 $591,403
Intersegment revenues 3,674 - 3,674
Operating income 17,871 2,719 20,590
Total assets 417,912 19,937 437,849
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 $3,523 and $4,145 for the three months ended
September 30, 2001 and 2000, respectively, and $11,829 and $11,511 for the nine
months ended September 30, 2001 and 2000, respectively.
10
6. Comprehensive Income
Comprehensive income (loss) consisted of the following components for the
nine months ended September 30, 2001 and 2000, respectively:
For the Nine Months Ended
September 30,
-----------------------------------
2001 2000
--------------- -------------
(in thousands)
Net income (loss) $ (529) $5,322
Net loss on current period cash flow hedges (838) 0
------- ------
Total $(1,367) $5,322
======= ======
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. 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 Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Operating Revenue 100.0 % 100.0 % 100.0 % 100.0 %
------------ ------------ ------------ ------------
Operating Expenses:
Salaries, wages and benefits 37.8 36.4 38.0 36.8
Fuel and fuel taxes 16.0 16.9 16.7 16.9
Vehicle rents 8.8 7.5 8.2 7.5
Depreciation and amortization, net of gain on sale 4.2 4.4 4.5 4.2
Purchased transportation 13.5 13.3 12.7 13.4
Operating expense and supplies 6.4 6.7 6.6 6.4
Insurance premiums and claims 3.7 3.8 3.9 3.8
Operating taxes and licenses 1.8 1.7 1.7 1.7
Communications and utilities 1.4 1.4 1.4 1.4
General and other operating 4.4 4.5 4.4 4.4
------------ ------------ ------------ ------------
Total operating expenses 98.0 96.6 98.1 96.5
------------ ------------ ------------ ------------
Income from Operations 2.0 3.4 1.9 3.5
Interest Expense, net 1.7 2.1 2.0 2.0
------------ ------------ ------------ ------------
Income Before Income Taxes 0.3 1.3 -0.1 1.5
Income Tax Provision 0.2 0.6 0.0 0.6
------------ ------------ ------------ ------------
Net Income 0.1 % 0.7 % -0.1 % 0.9 %
============ ============ ============ ============
12
Comparison of the Three Months Ended September 30, 2001 to the
Three Months Ended September 30, 2000
Operating revenue during the three-month period ended September 30, 2001
increased $10.3 million or 5.2% to $207.5 million, compared to $197.1 million
during the same period in 2000. U.S. Xpress revenue increased $7.7 million, or
4.2%, due primarily to a 5.0% increase in revenue miles offset by a $1.1 million
decrease in fuel surcharge revenue. U.S. Xpress revenue per mile remained
constant at $1.228 compared to the same period in 2000. CSI/Crown revenue
increased $8.5 million, or 53.7%. This increase reflects an $8.9 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 September 30,
2001 increased $5.8 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 98.0% of operating revenue for the three
months ended September 30, 2001, compared to 96.6% during the same period in
2000.
Salaries, wages and benefits as a percentage of revenue were 37.8% during
the three months ended September 30, 2001, compared to 36.4% during the same
period in 2000. U.S. Xpress wages increased $4.7 million due primarily to
Company driver miles increasing 7.0% to 140.3 million miles in the three months
ended September 30, 2001, compared to 131.1 million miles during the same period
in 2000. CSI/Crown wages increased $2.0 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 16.0% during
the three months ended September 30, 2001, compared to 16.9% during the same
period in 2000. This decrease was primarily due to decreases 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 8.8% during the
three months ended September 30, 2001, compared to 7.5% during the same period
in 2000. This increase is due to a 17.9% increase in the average number of
tractors leased and a 25.7% increase in the average number of trailers leased
during the three months ended September 30, 2001, compared to the same period in
2000. Depreciation and amortization as a percentage of operating revenue was
4.2% during the three months ended September 30, 2001, compared to 4.4% during
the same period in 2000. The Company includes gains and losses from the sale of
revenue equipment in depreciation expense. Net losses from the sale of revenue
equipment for the three months ended September 30, 2001 were $388,000, compared
to $91,000 for the same period in 2000. Overall, as a percentage of operating
revenue, vehicle rents and depreciation were 13.0% during the three months ended
September 30, 2001, compared to 11.9% during the same period in 2000.
Purchased transportation as a percentage of operating revenue was 13.5%
during the three months ended September 30, 2001, compared to 13.3% during the
same period in 2000. U.S. Xpress purchased transportation increased 2.6%
primarily due to a 3.8% increase in owner operator miles to 25.4 million miles
in the three months ended September 30, 2001 compared to 24.4 million miles in
the same period in 2000, offset by a 35.6% decrease in fuel surcharge paid to
owner operators. CSI/Crown purchased transportation
13
increased $7.0 million or 108.8%. This increase reflects a $6.6 million increase
due to the new deferred air business, which began operations in February 2001.
Intersegment purchased transportation during the three months ended September
30, 2001 increased $5.8 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 and supplies as a percentage of operating revenue were
6.4% during the three months ended September 30, 2001, compared to 6.7% during
the same period in 2000. This decrease is primarily due to decreases in
maintenance expenses.
Interest expense as a percentage of revenue was 1.7% during the three
months ended September 30, 2001, compared to 2.1% during the same period in
2000. This decrease was primarily due to decreased borrowings on the Company's
line of credit and decreased interest rates.
Income from operations for the three months ended September 30, 2001
decreased $2.5 million, or 37.3%, to $4.2 million from $6.6 million during the
same period in 2000. As a percentage of operating revenue, income from
operations was 2.0% for the three months ended September 30, 2001 and 3.4% for
the same period in 2000.
14
Comparison of the Nine Months Ended September 30, 2001 to the
Nine Months Ended September 30, 2000
Operating revenue during the nine-month period ended September 30, 2001
increased $5.1 million, or 0.9%, to $596.4 million, compared to $591.4 million
during the same period in 2000. U.S. Xpress revenue increased $3.4 million, or
0.6%, due primarily to a 0.3% increase in revenue miles, a 0.1% increase in
average revenue per mile to $1.218 from $1.217 in 2000, and a $2.9 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 $13.4 million or 30.1%. This
increase reflects a $16.6 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 nine-month period ended September 30, 2001 increased $11.7 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 98.1% of operating revenue for the nine
months ended September 30, 2001, compared to 96.5% during the same period in
2000.
Salaries, wages and benefits as a percentage of revenue were 38.0% during
the nine months ended September 30, 2001, compared to 36.8% during the same
period in 2000. U.S. Xpress wages increased $5.8 million due primarily to
Company driver miles increasing 1.4% to 410.7 million miles in the nine months
ended September 30, 2001 compared to 405.1 million in the same period in 2000,
increases in workers' compensation premiums and claims and group health claims.
CSI/Crown wages increased $3.8 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 8.2% during the
nine months ended September 30, 2001, compared to 7.5% during the same period in
2000. This increase is due to a 7.2% increase in the average number of tractors
leased and a 22.1% increase in the average number of trailers leased during the
nine months ended September 30, 2001, compared to the same period in 2000.
Depreciation and amortization as a percentage of operating revenue was 4.5%
during the nine months ended September 30, 2001, compared to 4.2% 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 nine
months ended September 30, 2001 were $337,000, compared to a gain of $230,000
for the same period in 2000. Overall, as a percentage of operating revenue,
vehicle rents and depreciation were 12.7% during the nine months ended September
30, 2001, compared to 11.7% during the same period in 2000.
Purchased transportation as a percentage of operating revenue was 12.7%
during the nine months ended September 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 1.4%
decrease in owner operator miles to 71.8 million miles in the nine months ended
September 30, 2001, compared to 72.8 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
6.6% during the nine months ended September 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 nine months ended September 30, 2001
decreased $9.5 million, or 46.2%, to $11.1 million from $20.6 million during the
same period in 2000. As a percentage of operating revenue, income from
operations was 1.9% for the nine months ended September 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
nine month period ended September 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. The Company's principal
credit facility is a $190 million revolving credit agreement (the Revolving
Credit Agreement) with a group of banks with a weighted-average interest rate of
7.92%, of which $15.3 million was available for borrowing at September 30, 2001.
The credit facility expires in January 2002.
Cash provided by operations was $8.5 million during the nine months ended
September 30, 2001, compared to $21.7 million during the same period last year.
Net cash used in investment activities was $8.0 million in the nine months ended
September 30, 2001, compared to $38.8 million during the same period in 2000. Of
the cash used in investment activities, $47.6 million was used to acquire
additional property and equipment for the nine months ended September 30, 2001,
compared to $40.8 million during the same period of 2000. Net cash used in
financing activities was $.5 million during the nine months ended September 30,
2001, compared to net cash provided by financing activities of 16.9 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. The Company is pursuing various new long-term
financing arrangements to replace the Revolving Credit Agreement. If a new
credit facility is obtained, management believes that such a facility, together
with funds provided by operations, proceeds from the sale of used revenue
equipment and long-term lease financing, will be sufficient to fund the
Company's cash needs and anticipated capital expenditures through at least the
next twelve months. However, there can be no assurance that any such replacement
financing can be obtained in amounts or 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
16
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 September 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. 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 September 30, 2001, the Company
had $180.0 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 September 30, 2001 rates for the next twelve months, the increase in
interest expense would be approximately $357,000.
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 4 - Submission of Matters to a Vote of Security Holders
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U.S. XPRESS ENTERPRISES, INC.
-----------------------------
(Registrant)
Date: November 14, 2001 By: /s/ Patrick E. Quinn
---------------------------
Patrick E. Quinn
President
Date: November 14, 2001 By: /s/ Ray M. Harlin
---------------------------
Ray M. Harlin
Principal Financial Officer
20