UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
Amendment No. 1
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended Commission file number
March 31, 2002 0-24806
U.S. XPRESS ENTERPRISES, INC.
NEVADA 62-1378182
(State or other jurisdiction of (I.R.S. employer
Incorporation or organization) identification no.)
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 March 31, 2002, 10,812,888 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
Consolidated Financial Statements
Consolidated Statements of Operations for the Three
Months Ended March 31, 2002 and 2001.......................3
Consolidated Balance Sheets as of March 31,
2002 and December 31, 2001.................................4
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2002 and 2001.................6
Item 1. Notes to Consolidated Financial Statements........................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations....................13
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. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
---------------------------------
2002 2001
--------------- -------------
(As Restated)
Operating Revenue $ 197,220 $ 186,478
--------------- -------------
OPERATING EXPENSES:
Salaries, wages and benefits 73,338 71,292
Fuel and fuel taxes 26,336 32,107
Vehicle rents 17,922 14,601
Depreciation and amortization, net of gain on sale 8,883 9,316
Purchased transportation 30,778 23,146
Operating expense and supplies 13,136 12,524
Insurance premiums and claims 8,996 7,355
Operating taxes and licenses 3,174 3,140
Communications and utilities 2,823 2,909
General and other operating 8,994 7,954
--------------- -------------
Total operating expenses 194,380 184,344
--------------- -------------
Income from Operations 2,840 2,134
Interest Expense, net 3,405 4,165
--------------- -------------
Loss Before Income Taxes (565) (2,031)
Income Tax Benefit (236) (811)
--------------- -------------
Loss Before Extraordinary Item (329) (1,220)
Extraordinary loss on early extinguishment of debt,
net of income taxes of $668 (1,108) -
--------------- -------------
Net Loss $ (1,437) $ (1,220)
=============== =============
Loss Per Share Before Extraordinary Item $ (0.02) $ (0.09)
Extraordinary Item (0.08) -
--------------- -------------
Loss Per Share $ (0.10) $ (0.09)
=============== =============
Weighted average shares - basic 13,850 13,728
=============== =============
(See Accompanying Notes to Consolidated Financial Statements)
3
U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS MARCH 31, 2002 DECEMBER 31, 2001
- ------------------------------------------------ ---------------- -------------------
(Unaudited)
(As Restated)
CURRENT ASSETS:
Cash and cash equivalents $ 1,065 $ 8,185
Customer receivables, net of allowance 94,979 83,296
Other receivables 7,110 7,824
Prepaid insurance and licenses 10,994 5,112
Operating and installation supplies 4,127 3,833
Deferred income taxes 1,333 1,406
Other current assets 6,818 6,594
---------------- -------------------
Total current assets 126,426 116,250
---------------- -------------------
PROPERTY AND EQUIPMENT, AT COST:
Land and buildings 44,768 44,768
Revenue and service equipment 226,532 216,934
Furniture and equipment 20,095 19,758
Leasehold improvements 17,751 17,748
---------------- -------------------
309,146 299,208
Less accumulated depreciation and amortization (92,246) (84,926)
---------------- -------------------
Net property and equipment 216,900 214,282
---------------- -------------------
OTHER ASSETS:
Goodwill, net 68,875 68,875
Investment in Transplace 5,815 5,815
Other 11,833 12,246
---------------- -------------------
Total other assets 86,523 86,936
---------------- -------------------
Total Assets $ 429,849 $ 417,468
================ ===================
(See Accompanying Notes to Consolidated Financial Statements)
4
U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY MARCH 31, 2002 DECEMBER 31, 2001
- ---------------------------------------------------------- ---------------- -------------------
(Unaudited)
(As Restated)
CURRENT LIABILITIES:
Accounts payable $ 20,548 $ 15,402
Accrued wages and benefits 10,104 8,147
Claims and insurance accruals 15,931 14,742
Other accrued liabilities 3,355 3,376
Current maturities of long-term debt 34,906 23,491
---------------- -------------------
Total current liabilities 84,844 65,158
---------------- -------------------
Long-Term Debt, net of current maturities 146,729 151,540
---------------- -------------------
Deferred Income Taxes 41,852 41,852
---------------- -------------------
Other Long-Term Liabilities 1,581 3,308
---------------- -------------------
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, 13,357,277 and 13,300,466
shares issued and outstanding at March 31,
2002 and December 31, 2001, respectively 134 133
Common stock Class B, $.01 par value, 7,500,000
shares authorized, 3,040,262 shares issued and
outstanding at March 31, 2002 and December 31, 2001 30 30
Additional paid-in capital 105,919 105,586
Retained earnings 74,232 75,669
Other comprehensive income (loss) (466) (778)
Treasury Stock Class A, at cost (2,544,389 shares at
March 31, 2002 and December 31, 2001) (24,483) (24,483)
Notes receivable from stockholders (211) (211)
Unamortized compensation on restricted stock (312) (336)
---------------- -------------------
Total stockholders' equity 154,843 155,610
---------------- -------------------
Total Liabilities and Stockholders' Equity $ 429,849 $ 417,468
================ ===================
(See Accompanying Notes to Consolidated Financial Statements)
5
U.S. XPRESS ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
------------------------------
2002 2001
------------- -------------
(As Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (1,437) $ (1,220)
Adjustments to reconcile net income to
net cash used in operating activities:
Extraordinary item - loss on early extinguishment of debt 1,776 -
Deferred income tax provision (118) (406)
Depreciation and amortization 8,795 9,400
(Gain)/Loss on sale of equipment 88 (84)
Loss on interest rate swaps 40 -
Change in operating assets and liabilities
Receivables (10,898) 1,253
Prepaid insurance and licenses (5,882) (8,492)
Operating and installation supplies (278) 1,047
Other assets (2,660) (4,176)
Accounts payable and other accrued liabilities 5,320 314
Accrued wages and benefits 1,957 1,580
Other 30 27
------------- -------------
Net cash used in operating activities (3,267) (757)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of property and equipment (1,303) (25,361)
Proceeds from sales of property and equipment 180 9,143
------------- -------------
Net cash used in investing activities (1,123) (16,218)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under lines of credit - 15,801
Borrowings of long-term debt 971
Payments of long-term debt (4,029) (1,070)
Book overdraft - 2,333
Proceeds from issuance of common stock 292 104
Proceeds from exercise of stock options 36 -
------------- -------------
Net cash provided by (used in) financing activities (2,730) 17,168
------------- -------------
Net Increase (Decrease) in Cash and Cash Equivalents (7,120) 193
Cash and Cash Equivalents, beginning of period 8,185 34
------------- -------------
Cash and Cash Equivalents, end of period $ 1,065 $ 227
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest, net of capitalized interest $ 3,493 $ 4,140
Cash (refunded) paid during the period for income taxes $ 118 $ (2,776)
Conversion of operating leases to equipment installment notes $ 9,661 $ -
(See Accompanying Notes to Consolidated Financial Statements)
6
U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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 three months ended March 31, 2002 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2002. 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 2001 Annual Report to Stockholders in the Company's
Form 10-K filed with the Securities and Exchange Commission on April 1, 2002).
2. RESTATEMENT
In the first quarter of 2002, the Company closed a $100 million five-year
senior secured revolving credit facility. In connection therewith, $45 million
in outstanding interest rate swap agreements ceased to qualify as cash flow
hedge instruments. After consultation with the Company's former independent
public accountants, a non-cash charge of $983,000 was recognized in the first
quarter of 2002 related to the cumulative change in fair value of the interest
rate swap agreements formerly recognized in other comprehensive income.
On May 17, 2002 the Board of Directors engaged new independent public
accountants. In connection with their review of the second quarter financial
statements, the independent public accountants advised the Company that they
believe the non-cash charge related to the interest rate swap agreements should
not have been recorded in the first quarter of 2002. The appropriate accounting
treatment under generally accepted accounting principles is to amortize
such amount over the remaining term of the respective interest rate swap
agreements, which will mature in 2003. The Company concurs with this conclusion
and has filed this Amendment No. 1 to its Quarterly Report on Form 10-Q for the
quarter ended March 31, 2002 to restate its previously disclosed quarterly
operating results for such period.
7
A summary of the effect of this restatement is as follows:
Three Months Ended
March 31, 2002
--------------------------
As Reported Restated
------------- ----------
Income from Operations $ 2,840 $ 2,840
Interest Expense, net 3,365 3,405
Other 983
------------- ----------
4,348 3,405
Loss Before Income Taxes (1,508) (565)
Income Tax Benefit (613) (236)
------------- ----------
Loss Before Extraordinary Item (895) (329)
Extraordinary loss on early extinguishment of debt,
net of income taxes of $668 (1,108) (1,108)
------------- ----------
Net Loss $ (2,003) $ (1,437)
============= ==========
Net Loss Per Share Before Extraordinary Item $ (0.06) $ (0.02)
Extraordinary Item (0.08) (0.08)
------------- ----------
Loss Per Share $ (0.14) $ (0.10)
============= ==========
3. ORGANIZATION AND OPERATIONS
U. S. Xpress Enterprises, Inc. (the "Company") provides transportation
services through two business segments, U.S. Xpress, Inc. ("U.S. Xpress") and
CSI/Crown, Inc. ("CSI/Crown"). U.S. Xpress is a truckload carrier serving the
continental United States and parts of Canada and Mexico. CSI/Crown provides
transportation, warehousing and distribution services to the floorcovering
industry and also provides airport-to-airport transportation services to the
airfreight and airfreight forwarding industries.
4. 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 are 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:
8
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.
RECLASSIFICATIONS
Certain reclassifications have been made in the 2001 financial statements
to conform to the 2002 presentation.
5. 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.
Letters of credit of $24,968 were outstanding at March 31, 2002. The
letters of credit are maintained primarily to support the Company's insurance
program.
9
6. 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 had
designated its interest rate swap agreements as cash flow hedge instruments. The
swap agreements were used to manage exposure to interest rate movement by
effectively changing the variable rate to a fixed rate. The fair value of the
interest rate swap agreements is defined as the amount the Company would receive
or would be required to pay to terminate further obligations under the
agreements. Changes in fair value of the interest rate agreements are recognized
in other comprehensive income through March 29, 2002.
On March 29, 2002, in connection with entering into a new revolving credit
agreement, the outstanding interest rate swap agreements ceased to qualify as
cash flow hedge instruments because they were not matched to the terms of the
new debt. Accordingly, they are not designated as hedging instruments from and
after such date. Effective March 29, 2002, the amount included in other
comprehensive income related to the interest rate swap agreements will be
amortized over the remaining term of the agreement. Future changes in the market
value of the swap agreements will be reflected as interest expense in the
statement of operations.
The fair market value of the interest rate swaps as of March 31, 2002 was a
liability of $1,175, which is included in other accrued liabilities.
7. OPERATING SEGMENTS
The Company has two reportable segments based on the types of services it
provides to its customers: U.S. Xpress, Inc., which provides truckload
operations throughout the continental United States and parts of Canada and
Mexico, and CSI/Crown, Inc., which provides transportation, warehousing and
distribution services to the floorcovering industry and also provides
airport-to-airport transportation services to the airfreight and airfreight
forwarding industries. 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 March 31, 2002
(As Restated)
Revenues - external customers $ 172,508 $ 24,712 $ 197,220
Intersegment revenues 5,569 -- 5,569
Operating income 2,799 41 2,840
Total assets 400,677 29,172 429,849
Three Months Ended March 31, 2001
Revenues - external customers $ 172,084 $ 14,394 $ 186,478
Intersegment revenues 2,830 -- 2,830
Operating income 2,363 (229) 2,134
Total assets 414,974 22,917 437,891
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 $3,405 and $4,165 for the three months
ended March 31, 2002 and 2001, respectively.
8. COMPREHENSIVE INCOME
Comprehensive income (loss) consisted of the following components for the
three months ended March 31, 2002 and 2001, respectively:
For the Three Months Ended
March 31,
-----------------------------
2002 2001
------------- -------------
(As Restated)
(in thousands)
Net loss $ (1,437) $ (1,220)
Net gain (loss) on current period cash flow hedges 312 (447)
------------- -------------
Total $ (1,125) $ (1,667)
============= =============
9. LONG-TERM DEBT AND EXTRAORDINARY ITEM
On March 29, 2002, the Company entered into a $100 million senior secured
revolving credit facility. Proceeds from this new facility were used to repay
the then existing revolving credit facility. The revolving credit facility
provides for borrowings up to $100 million, with availability at any given time
based on specified percentages of eligible receivables and revenue equipment,
less reserves, under the facility's Borrowing Base formula. Letters of credit
under the facility are limited to $30 million. The facility matures in March
2007.
The facility allows the Company to select interest rates for all or any
portion of the outstanding balance, based on either a Base Rate (based on the
domestic prime rate) plus an Applicable Margin or LIBOR plus an Applicable
Margin. The Applicable Margin ranges from 0.75% to 1.5% for Base Rate Loans and
from 2.25% to 3.0% for LIBOR Loans, based in each case on the aggregate
availability as defined. At March 31, 2002, the Applicable Margin was 1.25% for
Base Rate Loans and 2.75% for LIBOR Loans. The facility also prescribes
additional fees for Letter of Credit transactions and a monthly commitment fee
based on the difference between the total commitment and the total borrowing
capacity utilized by the Company from time to time.
At March 31, 2002, $45 million in borrowings were outstanding under the
facility with $27 million available to borrow. The facility is secured by
substantially all assets of the Company, other than real estate and assets
securing other debt of the Company.
The new facility requires, among other things, maintenance by the Company
of prescribed minimum amounts of Consolidated Tangible Net Worth, Fixed Charge
Coverage Ratios and Leverage Ratios. It also: (i) limits the Company's future
capital expenditures; (ii) prohibits all acquisitions by the Company of its own
capital stock or the payment of dividends on such stock; and (iii) effectively
prohibits future asset acquisitions or dispositions (except in the ordinary
course of
11
business) or other business combination transactions by the Company without the
Lenders' consent.
In connection with the repayment of the former revolving credit agreement,
the Company incurred an extraordinary loss of $1.1 million, after income taxes,
related to the early extinguishment of this debt.
10. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 142, "Goodwill and Other Intangible Assets". SFAS No. 142 is effective for
fiscal years beginning after December 15, 2001. SFAS No. 142 requires 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, operationally, and for internal reporting purposes, from the other
activities, operations, and assets of the entity. The Company adopted SFAS 142
effective January 1, 2002. Based on the current levels of goodwill, the adoption
of SFAS No. 142 in fiscal 2002 will decrease annual amortization expense by
approximately $1.8 million through the elimination of goodwill amortization. The
adoption of SFAS No. 142 could have an adverse effect on the Company's future
results of operations if an impairment occurs. Subsequent to March 31, 2002, the
Company completed the required impairment tests of goodwill and noted no
impairment of goodwill.
In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment
or Disposal of Long-lived Assets". SFAS No. 144 addresses financial accounting
and reporting for the impairment of long-lived assets and for long-lived assets
to be disposed of. SFAS No. 144 supersedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and
among other factors, establishes criteria beyond that previously specified in
SFAS No. 121 to be evaluated when a long-lived asset is to be considered as held
for sale. The Company adopted SFAS No. 144 effective January 1, 2002.
12
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") and
CSI/Crown, Inc. ("CSI/Crown"). U.S. Xpress is a truckload carrier serving the
continental United States and parts of Canada and Mexico. CSI/Crown provides
transportation, warehousing and distribution services to the floorcovering
industry and also provides airport-to-airport transportation services to the
airfreight and airfreight forwarding industries.
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
----------------------------
MARCH 31,
2002 2001
------------- -----------
(As Restated)
------------- -----------
Operating Revenue 100.0% 100.0%
------------- -----------
OPERATING EXPENSES:
Salaries, wages and benefits 37.2 38.2
Fuel and fuel taxes 13.4 17.2
Vehicle rents 9.1 7.8
Depreciation and amortization, net of gain
on sale 4.5 5.0
Purchased transportation 15.6 12.4
Operating expense and supplies 6.7 6.7
Insurance premiums and claims 4.6 3.9
Operating taxes and licenses 1.6 1.7
Communications and utilities 1.4 1.6
General and other operating 4.5 4.4
------------- -----------
Total operating expenses 98.6 98.9
------------- -----------
Income from Operations 1.4 1.1
Interest Expense, net 1.7 2.2
------------- -----------
Loss Before Income Taxes (0.3) (1.1)
Income Tax Benefit (0.1) (0.4)
-------------- -----------
Loss before Extraordinary Item (0.2) (0.7)
Extraordinary loss on early extinguishment
of debt, net of income taxes of $668 (0.6) -
------------- -----------
Net Loss (0.8)% (0.7)%
============= ===========
13
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2002 TO THE
THREE MONTHS ENDED MARCH 31, 2001
Operating revenue during the three-month period ended March 31, 2002
increased $10.7 million or 5.8% to $197.2 million, compared to $186.5 million
during the same period in 2001. U.S. Xpress revenue increased $3.2 million, or
1.8%, due primarily to a 3.8% increase in revenue miles and a 1.6% increase in
revenue per mile to $1.235 from $1.216, offset by a $6.6 million decrease in
fuel surcharge revenue. Revenue miles increased due to an increase in the
average number of tractors by 316, or 6.4%, to 5,261 from 4,945. CSI/Crown
revenue increased $10.3 million, or 71.7%, due to a $6.1 million increase in
revenues in the airport-to-airport transportation services initiated by
CSI/Crown in February 2001 and a $4.2 million increase in the floorcovering
logistics business, due primarily to the increased business with a large carpet
retailer.
Operating expenses represented 98.6% of operating revenue for the three
months ended March 31, 2002, compared to 98.9% during the same period in 2001.
Salaries, wages and benefits as a percentage of operating revenue were
37.2% during the three months ended March 31, 2002, compared to 38.2% during the
same period in 2001. This decrease was primarily attributable to the increased
use of owner-operators compared to the same period in 2001. Owner-operators
accounted for 15.9% of the Company's average truck fleet during 2002, compared
to 13.2% during the same period in 2001. All owner-operator expenses are
reflected as purchased transportation.
Fuel and fuel taxes as a percentage of operating revenue were 13.4% during
the three months ended March 31, 2002, compared to 17.2% during the same period
in 2001. This decrease was primarily due to the approximate 19.0% decrease in
the average fuel price per gallon during the three months ended March 31, 2002,
compared to the same period in 2001. 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 9.1% during the
three months ended March 31, 2002, compared to 7.8% during the same period in
2001. This increase is due to a 31.8% increase in the average number of tractors
leased and a 15.7% increase in the average number of trailers leased during the
three months ended March 31, 2002, compared to the same period in 2001.
Depreciation and amortization as a percentage of operating revenue was 4.5%
during the three months ended March 31, 2002, compared to 5.0% during the same
period in 2001. Revenue equipment depreciation decreased 6.2% to $5.6 million
during the three months ended March 31, 2002, compared to $6.0 million during
the same period in 2001, due to the increase in leased equipment. Other
depreciation and amortization decreased 6.9% to $3.2 million during the three
months ended March 31, 2002, compared to $3.4 million during the same period in
2001. This decrease was primarily due to the elimination of goodwill
amortization of approximately $.5 million offset by increases in software
amortization and building depreciation. 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 March 31, 2002 were
$88,000, compared to a gain of $84,000 during the same period in 2001. Overall,
as a percentage of operating revenue vehicle rents and depreciation were 13.6%
during the three months ended March 31, 2002, compared to 12.8% during the same
period in 2001.
14
Purchased transportation as a percentage of operating revenue was 15.6%
during the three months ended March 31, 2002, compared to 12.4% during the same
period in 2001. This increase was primarily due to an increase in the average
number of owner-operators in the three months ended March 31, 2002 to 838, or
15.9% of the total fleet, compared to 653, or 13.2% of the total fleet, for the
same period in 2001.
Insurance premiums and claims, as a percentage of operating revenue, were
4.6% during the three months ended March 31, 2002, compared to 3.9% during the
same period in 2001. This increase is due in part to higher premiums incurred
for excess and reinsurance coverage related to liability claims (personal injury
and property damage). Prior to September 1, 2001, the Company's retention level
was $3,000 per claim. After that date, the first retention level increased to
$250,000 per claim, and the Company also assumed the risk for the $1 million to
$3 million level of claim costs per occurrence. In addition, the Company's cost
for primary coverage plus the estimated cost of claims in 2002 exceeded the cost
of premiums for primary coverage in 2001.
Interest expense decreased $0.8 million to $3.4 million during the three
months ended March 31, 2002, compared to $4.2 million during the same period in
2001. This decrease was primarily attributable to decreased borrowings and a
decrease in the average interest rate.
Income from operations for the three months ended March 31, 2002 increased
$.7 million, or 33.1%, to $2.8 million from $2.1 million during the same period
in 2001. As a percentage of operating revenue, income from operations was 1.4%
for the three months ended March 31, 2002 and 1.1% for the same period in 2001.
In connection with the repayment of the former revolving credit agreement,
the Company incurred an extraordinary loss of $1.1 million, after income taxes,
related to fees and additional costs incurred in connection with the early
extinguishment of this debt.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity and capital resources during the
three month period ended March 31, 2002 were borrowings under lines of credit
and equipment installment notes, proceeds from sales of used revenue equipment
and the use of long-term operating leases for revenue equipment acquisitions.
On March 29, 2002, the Company entered into a $100 million senior secured
revolving credit facility. Proceeds from this new facility were used to repay
the then existing revolving credit facility. The revolving credit facility
provides for borrowings up to $100 million, with availability at any given time
based on specified percentages of eligible receivables and revenue equipment,
less reserves, under the facility's Borrowing Base formula. Letters of credit
under the facility are limited to $30 million. The facility matures in March
2007.
The facility allows the Company to select interest rates for all or any
portion of the outstanding balance, based on either a Base Rate (based on the
domestic prime rate) plus an Applicable Margin or LIBOR plus an Applicable
Margin. The Applicable Margin ranges from 0.75% to 1.5% for Base Rate Loans and
from 2.25% to 3.0% for LIBOR Loans, based in each case on the aggregate
availability as defined. At March 31, 2002, the Applicable Margin was 1.25% for
Base
15
Rate Loans and 2.75% for LIBOR Loans. The facility also prescribes additional
fees for Letter of Credit transactions and a monthly commitment fee based on the
difference between the total commitment and the total borrowing capacity
utilized by the Company from time to time.
At March 31, 2002, $45 million in borrowings were outstanding under the
facility with $27 million available to borrow. The facility is secured by
substantially all assets of the Company, other than real estate and assets
securing other debt of the Company.
The new facility requires, among other things, maintenance by the Company
of prescribed minimum amounts of Consolidated Tangible Net Worth, Fixed Charge
Coverage Ratios and Leverage Ratios. It also: (i) limits the Company's future
capital expenditures; (ii) prohibits all acquisitions by the Company of its own
capital stock or the payment of dividends on such stock; and (iii) effectively
prohibits future asset acquisitions or dispositions (except in the ordinary
course of business) or other business combination transactions by the Company
without the Lenders' consent.
Cash used in operations increased to $3.3 million during the three months
ended March 31, 2002, compared to $0.8 million during the same period in 2001,
due in part to an increase in receivables offset to an extent by an increase in
accounts payables and other accrued liabilities. Net cash used in investing
activities decreased to $1.1 million during the three months ended March 31,
2002, compared to $16.2 million during the same period in 2001. This decline was
due primarily to the Company acquiring fewer tractors and trailers in 2002
compared to 2001. Net cash used in financing activities was $2.7 million,
compared to cash provided by financing activities of $17.2 million during the
same period in 2001. This use of funds in financing activities reflects the
decline in capital expenditures during the three months ended March 31, 2002,
compared to the same period in 2001.
Management believes that the aggregate funds provided by operations,
borrowings under its lines of credit, equipment installment loans, sales of used
revenue equipment and long-term operating lease financing will be sufficient to
fund its cash needs and anticipated capital expenditures through 2002.
The following table represents the Company's outstanding contractual
obligations at March 31, 2002 excluding letters of credit. Letters of credit of
$24,968 were outstanding at March 31, 2002. The letters of credit are maintained
primarily to support the Company's insurance program and are renewed on an
annual basis.
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PAYMENTS DUE BY PERIOD
(IN THOUSANDS)
--------------------------------------------------------------------
CONTRACTUAL OBLIGATIONS TOTAL 2002 2003-2004 2005-2006 THEREAFTER
-------------------------------------------------------------------------------------------------
Long-Term Debt $ 166,798 $ 23,296 $ 42,250 $ 29,339 $ 71,913
-------------------------------------------------------------------------------------------------
Capital Lease Obligations 14,837 105 13,691 632 409
-------------------------------------------------------------------------------------------------
Operating Leases -
Revenue Equipment 117,258 47,189 62,502 5,423 2,144
-------------------------------------------------------------------------------------------------
Operating Leases - Other 38,455 8,261 16,694 10,337 3,163
-------------------------------------------------------------------------------------------------
Total Contractual Cash
Obligations $ 337,348 $ 78,851 $ 135,137 $ 45,731 $ 77,629
-------------------------------------------------------------------------------------------------
16
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 142, "Goodwill and Other Intangible Assets". SFAS No. 142 is effective for
fiscal years beginning after December 15, 2001. SFAS No. 142 requires 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, operationally, and for internal reporting purposes, from the other
activities, operations, and assets of the entity. The Company adopted SFAS 142
effective January 1, 2002. Based on the current levels of goodwill, the adoption
of SFAS No. 142 in fiscal 2002 will decrease annual amortization expense by
approximately $1.8 million through the elimination of goodwill amortization. The
adoption of SFAS No. 142 could have an adverse effect on the Company's future
results of operations if an impairment occurs. Subsequent to March 31, 2002, the
Company completed the required impairment tests of goodwill and noted no
impairment of goodwill.
In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment
or Disposal of Long-lived Assets". SFAS No. 144 addresses financial accounting
and reporting for the impairment of long-lived assets and for long-lived assets
to be disposed of. SFAS No. 144 supersedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and
among other factors, establishes criteria beyond that previously specified in
SFAS No. 121 to be evaluated when a long-lived asset is to be considered as held
for sale. The Company adopted SFAS No. 144 effective January 1, 2002.
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 during the winter months.
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 March 31, 2002, the Company had
$58.1 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 March 31, 2002 rates for the next twelve months, the increase in interest
expense would be approximately $154,000.
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
Exhibit No.
-----------
10.53/(1)/ Revolving Credit Agreement dated March 29, 2002, by and among
U.S. Xpress Enterprises, Inc., Fleet Capital Corporation, as
Administrative Agent, Fleet Securities, Inc., as Arranger,
LaSalle Bank National Association, as Syndication Agent, and the
participating Lenders thereon.
10.54/(1)/ Security Agreement dated March 29, 2002, by and among U.S. Xpress
Enterprises, Inc., U.S. Xpress, Inc., CSI/Crown, Inc., Xpress
Air, Inc., Xpress Company Store, Inc., CSI Acquisition
Corporation, Dedicated Xpress Services, Inc. and Fleet Capital
Corporation.
(b) Reports on Form 8-K
None
- ----------
/1/ Filed On May 15, 2002 with the original 10-Q
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U.S. XPRESS ENTERPRISES, INC.
-----------------------------
(Registrant)
Date: August 14, 2002 By: /s/ Patrick E. Quinn
-------------------------------
Patrick E. Quinn
President
Date: August 14, 2002 By: /s/ Ray M. Harlin
-------------------------------
Ray M. Harlin
Principal Financial Officer
20