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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-24806
U.S. XPRESS ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Nevada 62-1378182
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
4080 Jenkins Road
Chattanooga, Tennessee 37421
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (423) 510-3000
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: Class A Common
Stock, $0.01 Par Value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [____]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $63,125,000 as of March 21, 2002 (based upon the $10.75 per share
average of the closing bid and asked price on that date as reported by NASDAQ).
In making this calculation the registrant has assumed, without admitting for any
purpose, that all executive officers, directors, and holders of more than 10% of
a class of outstanding common stock, and no other persons, are affiliates.
As of March 21, 2002, the registrant had 10,811,882 shares of Class A Common
Stock and 3,040,262 shares of Class B Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: The information set forth under Part III,
Items 10, 11, 12, and 13 of this Report is incorporated by reference from the
registrant's definitive proxy statement mailed to stockholders for the 2002
annual meeting of stockholders to be held on May 14, 2002.
PART I
ITEM 1. BUSINESS
This report contains forward-looking statements relating to future events or the
future financial performance of the Company. Such forward-looking statements are
within the meaning of that term in Section 27A of the Securities Act and Section
21E of the Exchange Act. Such statements 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. Such risks and
uncertainties include, without limitation, those detailed in Item 7 of this
Report under the heading "Special Considerations". Future events and actual
results could differ materially from those set forth in, contemplated by or
underlying the forward-looking statements.
General
U.S. Xpress Enterprises, Inc. (the "Company") provides transportation services
in the continental United States, Canada and Mexico. The Company is the fifth
largest publicly owned truckload carrier in the United States.
The Company has two operating segments, U.S. Xpress, Inc. ("U.S. Xpress") and
CSI/Crown, Inc. ("CSI/Crown"). U.S. Xpress accounted for approximately 89.6% of
the Company's 2001 revenues. See Note 15 of the Company's 2001 Consolidated
Financial Statements for quantitative segment information.
The Company also offers logistics services through its 13% equity ownership
interest in Transplace, Inc. ("Transplace"), an Internet-based global
transportation logistics company.
U.S. Xpress provides three principal services: i) over-the-road or long-haul
services with lengths of haul generally in the range of 400 to 3,000 miles; ii)
regional services with lengths of haul generally in the range of 200 to 550
miles in the Western, Midwestern and Southeastern regions of the United States;
and iii) dedicated contract carriage services.
CSI/Crown is a leading provider of logistics services to the floorcovering
industry. Services include: i) consolidation and distribution of
less-than-truckload shipments; ii) coordination of line-haul transportation to
Company operated service centers and third-party agent facilities for local
delivery; iii) warehousing and distribution services; and iv) retail sales of
installation supplies, including the Company's private-label "Installer's
Choice" brand of floorcovering installation products.
In February of 2001, CSI/Crown further broadened its services to include
airport-to-airport transportation services to the airfreight and airfreight
forwarding industries. The Company provides scheduled ground transportation of
air cargo for integrated air cargo carriers, airlines and airfreight forwarders.
These services are provided to 75 major destination markets, nationwide, on a
one to four day basis through its 12 regional hub facilities.
The Company's mission is to provide high levels of service to customers
utilizing proven technologies and skilled employees. The Company's operating and
growth strategies are focused on its target markets, while capitalizing on
evolving trends and growth markets in the transportation industry. These
strategies include:
1) Position the Company as the premier high service provider. The Company
specializes in providing time-definite and expedited truckload services to
customers that operate supply chain management systems, particularly those that
manage their flow of raw materials, in-process products and finished goods on a
"just-in-time" basis. The Company was one of the first in the industry to
establish time-definite pickups and deliveries as a standard for service
quality. Time-definite service is a critical element in efficient supply chain
and distribution systems management. In addition, the Company provides expedited
service throughout the continental United States and in parts of Canada and
Mexico. This is particularly important to shippers that operate multiple,
geographically diverse facilities. In addition, the Company has consistently
been a leader in the truckload industry in providing customers with easy access
to operating and service-related technologies that provide value to shippers.
The Company's electronic commerce ("E-Commerce") capabilities, in particular,
differentiate the Company from many other truckload suppliers. The Company
provides its customers with the ability to use E-Commerce through the Internet,
private networks and third-party networks.
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2) Expand core carrier relationships with shippers. Most of the larger shippers
are reducing the number of carriers they use and are expanding relationships
with their most capable carriers. Those companies selected for the most
significant supplier relationships with shippers are called "core carriers". The
Company offers long-haul, mid-range and regional truckload services,
time-definite and expedited services and dedicated fleet services. This range of
capabilities, coupled with the capacity of 5,238 U.S. Xpress owned, leased and
owner-operator tractors at December 31, 2001, has positioned the Company as a
core carrier for many of the largest shippers in North America. In seeking these
relationships, the Company emphasizes its service capabilities and capacity, as
well as its commitment to flexibility, responsiveness and analytical planning.
Customers that have designated the Company as a core carrier include: Sears,
E.I. DuPont, Federal Express, Proctor and Gamble, Hewlett-Packard, Burlington
Air Express and Kimberly Clark.
3) Position the Company as a driver-friendly employer. The labor market for
qualified professional truck drivers is extremely competitive, providing an
advantage to driver-friendly employers like the Company. The Company focuses
significant resources and attention on the successful recruiting, hiring,
training and retention of qualified solo and team drivers. At December 31, 2001,
the Company operated 5,238 tractors in its fleet, an increase of 7.8% from
December 31, 2000. Management believes that its success in hiring and retaining
qualified drivers is due to its high-quality equipment; better than average
miles, which translates into better take-home pay for drivers; "driver-friendly
freight" that does not require labor or lengthy delays; flexible work schedules
that enable drivers to better meet their personal obligations and lifestyles;
and creative recruiting strategies that recognize the changing demographics of
the American work force and that seek to expand the diversity of the driver
fleet. Ongoing success in recruiting, hiring, training and retaining sufficient
drivers is critical to the Company in achieving its growth objectives.
4) Pursue acquisition opportunities. The Company has grown significantly through
eleven strategic acquisitions in the 1990s. U.S. Xpress now includes the
operations of Southwest Motor Freight, Hall Systems, National Freight Systems,
Michael Lima Transportation, JTI, Inc., Victory Express, Inc. and PST Vans, Inc.
CSI/Crown's operations include several acquired companies, including Crown
Transport Systems and CSI/Reeves and assets purchased from Great Southern Xpress
and Rosedale Transport. These acquisitions have significantly expanded the
Company's capabilities and capacity and have been a significant contributor to
the Company's growth. While acquisitions remain a part of the Company's
long-term strategy, the Company is placing its primary emphasis in 2002 on
internal growth and improving its operating results.
Services
U.S. Xpress
- -----------
Long-haul/Over-the-Road
U.S. Xpress' principal service specialty is over-the-road or long-haul services
with lengths of haul generally in the range of 400 to 3,000 miles. U.S. Xpress
offers time-definite and expedited services within long-haul/over-the-road.
Time-definite transportation requires that pickups and deliveries be performed
to exact appointment times or within a specified number of minutes. This service
is an essential point of differentiation from many other transportation
companies, which typically provide service only within time "windows" ranging
from a few hours to a few days. Time-definite service is particularly important
to U.S. Xpress' customers that operate in a "just-in-time" environment,
distribution and retail inventory systems and to customers in the air-freight
and logistics industries. U.S. Xpress' expedited service consists of the pick up
and delivery of freight on prescribed schedules at transit times comparable to
deferred airfreight service. U.S. Xpress is able to meet these transit times
using team drivers or relays at much lower cost than deferred airfreight.
Regional Service
About 70% of the freight transported in the U.S. moves over distances of less
than 1,000 miles. In addition, the average length of haul of shipments is
shrinking as manufacturers and distributors increasingly bring the various
elements of their supply and distribution chains into closer geographical
proximity. These factors make regional service capabilities an important aspect
in qualifying U.S. Xpress for core carrier relationships. U.S. Xpress provides
regional service involving shipments of 200 to 550 miles in the Western,
Midwestern and Southeastern regions of the United States.
Dedicated Contract Carriage Service
Some shippers use transportation or logistics companies to manage or operate
their private trucking operations. Many of these shippers historically have
operated their own fleets to transport their products. U.S. Xpress' management
expertise, capacity and
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systems have positioned it to provide dedicated contract carriage services in
which specific tractors, drivers and, at times, on-site personnel are assigned
to a specific customer account. As a replacement or extension of a customer's
private fleet, U.S. Xpress can provide the assurance of extra capacity to "flex"
the fleet to meet surges in the business cycle. Through dedicated service
relationships, customers obtain assurance of capacity to meet their
requirements. U.S. Xpress benefits by generating better equipment utilization,
increasing business volume from key customers and improving planning of
resources. Drivers benefit through consistent wages, enhanced scheduling,
reduced downtime between loads and more predictability of their off-duty time.
CSI/Crown
- ---------
Floorcovering Logistics
CSI/Crown is a leading provider of logistics services to the floorcovering
industry. CSI/Crown picks up floorcovering products from manufacturers;
consolidates shipments into truckloads bound for specific destinations;
contracts with truckload carriers, including U.S. Xpress, to deliver the
products to CSI/Crown service centers or to contract agents and delivery
services; and delivers the products to floorcovering distributors, retailers and
large-scale end users in the continental United States, Canada and Mexico. In
addition, CSI/Crown provides warehousing and other specialized services, such as
custom carpet cutting and the sale of floorcovering installation supplies.
Additional distribution-related services, such as pool distribution and
warehousing, have been introduced to industries other than the floorcovering
industry. These services allow CSI/Crown to better utilize its facilities and
provide an avenue for further diversification.
Airfreight and Distribution Services
CSI/Crown offers nationwide, scheduled ground transport of air cargo to
customers in the airfreight and airfreight forwarding industries as a
cost-effective and reliable alternative to traditional air transportation.
Service is provided to over 75 major markets throughout the United States and
Canada in one of the industry's largest road-feeder networks. Driven by Federal
Aviation Administration mandated changes in cargo security guidelines, many air
carriers and integrators need to shift certain goods to ground transport.
Further, these restrictions have reduced available lift capacity in passenger
aircraft resulting in more expedited traffic moving through ground networks such
as the system operated by CSI/Crown.
Marketing and Customers
U.S. Xpress' success in marketing its services is a result of commitment to
service, capabilities, capacity, flexibility, responsiveness, analytical
planning and information technology management. The Company's marketing
department and sales personnel identify new business prospects and implement
programs to obtain and retain customer accounts. The Company employs 33
full-time marketing and national account representatives who have
responsibility for specific geographic areas.
U.S. Xpress' top 50 customers, most of which have designated U.S. Xpress as a
core carrier, accounted for approximately 60.3% of its revenues in 2001. During
2001, no single customer accounted for more than 4.5% of U.S. Xpress' revenues.
CSI/Crown's top 5 customers accounted for approximately 24.8% of its revenues
in 2001. During 2001, no single customer accounted for more than 8.4% of
CSI/Crown's revenue.
Equipment
The Company determines the specifications of equipment purchases based on such
factors as vehicle and component quality, warranty service, driver preferences,
new vehicle prices and the likely resale market. Because the fleet is
standardized and has warranty agreements with original equipment suppliers, the
Company has minimized parts inventories and maintenance costs. The Company has
negotiated agreements in principle concerning the essential terms of trade-in
and/or repurchase commitments from its primary equipment vendors for disposal of
a substantial portion of its equipment. These agreements in principle are
expected to reduce the Company's risks related to equipment disposal values.
4
The following table shows the numbers, type and age of U.S. Xpress and CSI/Crown
company-owned and leased equipment at December 31, 2001:
Model Year Tractors Trailers
---------- -------- --------
2002 698 1,049
2001 865 1,198
2000 1,102 2,544
1999 1,922 3,720
1998 64 1,503
1997 0 1,274
1996 90 1,119
1995 & Prior 28 932
-------- --------
Total 4,769 13,339
======== ========
Tractors The Company purchases or leases Freightliner or Volvo tractors for
substantially all of the additions and replacements to its over-the-road fleet.
Tractors are generally replaced every 42 to 54 months, generally well in advance
of the need for major engine overhauls. This schedule can be accelerated or
delayed, subject to certain limitations, based on resale values in the used
truck market and the differential between those values and new truck prices. All
Company over-the-road tractors are equipped with Eaton Vorad anti-collision
systems, electronic speed controls, anti-lock braking systems for improved
safety and Qualcomm and in cab e-mail for improved communications. Over 97% of
the tractor fleet is equipped with Eaton automatic shift transmissions, and a
substantial portion of the fleet is equipped with automatic traction control.
All engines have fuel incentive programming for increased fuel economy.
Trailers
The Company's dry van trailers have cubic capacity that is among the largest in
the industry. In 1997, the Company began purchasing composite plate trailers
from Wabash National Corporation that are more durable, have greater cubic
capacity and stiffer sidewalls and do not fracture as easily as conventional
aluminum trailers. The Company currently purchases Wabash Duraplate trailers for
substantially all of the additions and replacements to its fleet. In addition,
substantially all of the trailers are equipped with air ride suspension, leading
to softer rides that result in less load damage.
Competition
The transportation services business is extremely competitive. The Company
competes primarily with other truckload carriers and providers of deferred
airfreight service. Competition from railroads and providers of intermodal
transportation likely would increase if service standards for these modes were
improved dramatically.
Generally, competition for the freight transported by the Company is based on
service, efficiency and pricing. Historically, increased competition has created
downward pressure on the truckload industry's pricing structure. Prolonged
weakness in freight markets or downward pressure on freight rates could
adversely affect the Company's results of operations or financial condition.
Some competitors have greater financial resources, operate more equipment and
transport more freight than the Company.
Regulation
The Company is a motor carrier that is subject to safety regulations promulgated
by the Federal Motor Carrier Safety Administration of the Department of
Transportation ("DOT")and various laws and regulations enforced by state
agencies. These regulatory authorities have broad powers, generally governing
activities such as authority to engage in motor carrier operations, accounting
systems, certain mergers, consolidations, acquisitions and periodic financial
reporting. Subject to federal, state and provincial regulatory authorities, the
Company may transport most types of freight to and from any point in the United
States and certain Canadian provinces, over any route selected by the Company.
The trucking industry is subject to possible regulatory and legislative change
that could affect the economics of the industry.
5
The Company's operations are also subject to various federal, state and local
environmental laws dealing with transportation, storage, presence, use, disposal
and handling of hazardous materials, discharge of storm water and underground
fuel storage tanks. The Company believes that its operations are in substantial
compliance with current laws and regulations and does not know of any existing
condition that would cause non-compliance with applicable environmental
regulations to have a material adverse effect on the Company's business or
operating results.
Safety and Risk Management
The Company is committed to safe operations. The Company's emphasis on safety is
demonstrated through equipment specifications and active safety and loss
prevention programs. These programs reinforce the importance of driving safely,
abiding by all laws and regulations, such as speed limits and driving hours,
performing regular equipment inspections and acting as good citizens on the
road. The Company's accident review committee meets regularly to review any new
accidents, take appropriate action related to drivers, examine accident trends
and implement changes in procedures or communications to address any safety
issues.
Management's emphasis on safety also is demonstrated through its equipment
specifications, such as anti-lock brakes, electronic engines, special mirrors,
conspicuity tape and the implementation of Eaton Vorad collision avoidance
systems on all tractors. The Eaton Vorad system is designed to provide drivers
with visible and audible warnings when other vehicles are beside them and when
vehicles ahead are traveling at slower speeds than the truck. The system
provides drivers with additional response time to prevent accidents.
The Company requires prospective drivers to meet higher qualification standards
than those required by the DOT. The DOT requires the Company's drivers to obtain
national commercial driver's licenses pursuant to the regulations promulgated by
the DOT. The DOT also requires that the employer implement a drug-testing
program in accordance with DOT regulations. The Company's program includes
pre-employment, random, reasonable cause and post-accident drug testing.
Interstate motor carrier operations are subject to safety requirements
prescribed by the DOT. Such matters as equipment weight and dimensions are also
subject to federal and state regulations. The DOT evaluates carriers and
provides safety fitness ratings based on conformance with requirements and
accident frequency. U.S. Xpress and CSI/Crown each have satisfactory safety
fitness ratings.
The Company secures appropriate insurance coverage at cost-effective rates. The
primary claims arising in the Company's business consist of cargo loss and
damage, auto liability (personal injury and property damage) and workers'
compensation. The Company currently purchases primary and excess coverage for
these types of claims, subject to certain retention levels at amounts that
management believes are sufficient to adequately protect the Company.
Human Resources
At December 31, 2001, the Company and its subsidiaries employed 7,287 full-time
associates, of whom 5,424 were drivers, 174 were mechanics and other maintenance
personnel, 1,047 were office associates for U.S. Xpress, the truckload division,
and 642 were employed by CSI/Crown, the non-truckload division. U.S. Xpress also
had active contracts with independent contractors (owner-operators) for the
services of 807 tractors that provide both tractor and qualified drivers. None
of the Company's employees are represented by a union or collective bargaining
agreement, and the Company considers relations with its employees to be good.
Driver Recruiting, Training and Retention
The Company recognizes that it is paramount to recruit, train and retain a
professional driver workforce. The Company also realizes that competition for
qualified drivers will remain high and will be impacted by declining
unemployment rates, changes in workforce demographics and reduced government
funding of training programs. Although the Company has experienced no
significant inability to attract qualified drivers, no assurance can be given
that a shortage of qualified drivers in the future will not adversely affect the
Company.
6
All Company drivers must meet or exceed specific guidelines relating to their
safety records, driving experience, and personal evaluations, including a
physical examination and mandatory drug testing as outlined in DOT regulations.
After an offer of employment is extended, a driver must successfully complete
training in all aspects of Company policies and operations, safety philosophy
and fuel efficiency. In addition, all drivers must successfully complete a
Company driving exam and possess a valid Commercial Drivers License. The Company
maintains an ongoing safety and efficiency program to ensure that drivers comply
with safe and efficient operating procedures.
Senior management is actively involved with the development and retention of
drivers. Recognizing the shortage of new drivers entering the industry, since
January 1998, the Company has operated a professional driving school at its
facility in Medway, Ohio. The school was certified in 1998 by the Professional
Truck Driving Institute of America and re-certified in 2000 through 2005. The
Company also contracts with driver schools managed by independent organizations
as well as community college programs throughout the United States.
Management believes that there are several key elements to recruiting and
retaining experienced professional drivers, such as an attractive compensation
and benefits package, meeting reasonable driver expectations, providing
equipment with desirable driver amenities and providing a company-wide culture
of support for driver needs. Drivers are compensated on the basis of miles
driven. The starting rate per mile is determined by the driver's experience
level and will increase with the driver's length of service with the Company.
Additional compensation may be earned through loading/unloading or stop pay and
mileage bonuses. Drivers employed by the Company are eligible to participate in
Company sponsored health, life, dental and vision plans. Further, they are
eligible to participate in a 401(k) Retirement Plan and an Employee Stock
Purchase Plan. Additional benefits include paid holidays, vacation pay and
pre-paid phone cards.
The Company believes that meeting and managing drivers' reasonable expectations
is critical to driver satisfaction and retention. From the solicitation of
driver friendly freight (no loading/unloading, decreased dwell time, drop/hook,
etc.), to training recruiters to provide candidates with a realistic view of
work requirements and the lifestyle of a long-haul driver, to getting drivers
home on a regular basis, the Company is dedicated to meeting its commitments.
The Company's late model Freightliner and Volvo conventional tractors are
designed for driver comfort and safety. Standard equipment includes automatic
transmissions, air ride suspensions, double sleeper bunks, air conditioning,
power steering, electronic engine brakes and Eaton Vorad collision avoidance
systems.
Management believes that maintaining a culture of driver support through
flexible work schedules that enable drivers to accommodate personal obligations
and lifestyles, leveraging technology (in cab e-mail, Internet services, etc.)
that enables drivers to remain in touch with their families when on the road,
managing driver home time, seeking drivers' input in the decision making process
seeking mutually satisfactory solutions and providing career advancement
opportunities for drivers are key factors for developing one of the Company's
most valuable assets.
Independent Contractors
The Company recognizes the benefits of augmenting its service capacity through
the use of independent contractors. Independent contractors provide their own
tractors and pay for all the expenses of operating their own equipment,
including wages and benefits, fuel, physical damage insurance, maintenance,
highway use taxes and debt service. Therefore, less capital is required for the
Company's growth. The Company has an aggressive independent contractor
recruiting program, with 807 contractors under active contract at December 31,
2001. The Company intends to continue adding independent contractors.
Fuel
Shortages of fuel or increases in fuel prices could have a materially adverse
effect on the operations and profitability of the Company. Many of the Company's
customer contracts contain fuel surcharge provisions to mitigate increases in
the cost of fuel (the Company recognized $25.9 million of fuel surcharge revenue
for the year ended December 31, 2001, compared to $29.5 million for the year
ended December 31, 2000). However, there is no assurance that such fuel
surcharges can be used to offset future increases in fuel prices. Additionally,
at times, fuel purchase contracts are used to mitigate the effects of increases
in the price of fuel. The Company maintains fuel storage tanks at certain of its
terminals. Leakage or damage to these tanks could subject the Company to
environmental clean-up costs. The Company believes it is in compliance with all
laws and regulations relating to maintenance of such fuel storage tanks.
7
ITEM 2. PROPERTIES
The following table provides information regarding the Company's facilities at
December 31, 2001:
Company Location Facility Functions Owned or Leased
- ---------------- ------------------ ---------------
U.S. Xpress:
Austell, Georgia Drop Yard Leased
Birmingham, Alabama Terminal Leased
Boise, Idaho Drop Yard Leased
Bordentown, New Jersey Drop Yard Leased
Bowling Green, Kentucky Drop Yard Leased
Calexico, California Drop Yard Leased
Chattanooga, Tennessee Corporate Office Leased
Chicago, Illinois Drop Yard Leased
Colton, California Terminal, Maintenance, Customer Service, Owned
Fleet Services, Driver Training
Dallas, Texas Drop Yard Leased
Denver, Colorado Drop Yard Leased
El Paso, Texas Drop Yard Leased
Greenville, South Carolina Drop Yard Leased
Houston, Texas Drop Yard Leased
Indianapolis, Indiana Drop Yard Leased
Jacksonville, Florida Drop Yard Leased
Kent, Washington Drop Yard Leased
Laredo, Texas Drop Yard Leased
Lincoln, Nebraska Terminal, Maintenance, Customer Service, Owned
Fleet Services, Driver Training, Independent
Contractor Recruiting
Long Beach, California Drop Yard Leased
Medway, Ohio Terminal, Maintenance, Customer Service, Leased
Driver Recruiting, Terminal Services, Driver School
Memphis, Tennessee Terminal, Driver Recruiting Leased
New Boston, Michigan Drop Yard Leased
Newport, Minnesota Drop Yard Leased
Oklahoma City, Oklahoma Terminal, Maintenance, Customer Service, Leased
Fleet Services, Driver Training, Driver Recruiting
Otay Mesa, California Drop Yard Leased
Phoenix, Arizona Drop Yard Leased
Portland, Oregon Drop Yard Leased
Reno, Nevada Drop Yard Leased
Sacramento, California Terminal, Fleet Services Leased
Salt Lake City, Utah Terminal, Maintenance, Customer Service, Owned
Fleet Services, Driver Training
Sioux City, South Dakota Terminal Leased
Troutdale, Oregon Drop Yard Leased
Tunnel Hill, Georgia Terminal, Maintenance, Fleet Services, Driver Training Leased
CSI/Crown:
Albany, New York Distribution Center Leased
Baltimore, Maryland Distribution Center Leased
Bensenville, Illinois Distribution Center Leased
Denver, Colorado Distribution Center Leased
8
Company Location Facility Functions Owned or Leased
- ---------------- ------------------ ---------------
Eagan, Minnesota Distribution Center Leased
Everett (Boston), Massachusetts Distribution Center Leased
Fresno, California Distribution Center Leased
Grand Prairie, Texas Distribution Center Leased
Grapevine, Texas Distribution Center Leased
Hapeville (Atlanta), Georgia Distribution Center Leased
Hawthorne, California Distribution Center Leased
Hayward, California Distribution Center Leased
Houston, Texas Distribution Center Leased
La Mirada, California Distribution Center Leased
Oklahoma City, Oklahoma Distribution Center Leased
Orlando, Florida Distribution Center Leased
Pittsburgh, Pennsylvania Distribution Center Leased
Rancho Cordova, California Distribution Center Leased
Rochester, New York Distribution Center Leased
Romeoville, Illinois Distribution Center Leased
Salt Lake City, Utah Distribution Center Leased
San Antonio, Texas Distribution Center Leased
San Diego, California Distribution Center Leased
S. San Francisco, California Distribution Center Leased
Spokane, Washington Distribution Center Leased
St. Louis, Missouri Distribution Center Leased
Tampa, Florida Distribution Center Leased
Tunnel Hill, Georgia Corporate Office, Distribution Center Leased
In late 1998, the Company entered into a long-term lease of a newly constructed
corporate office and operations facility in Chattanooga, Tennessee. The facility
encompasses nearly 100,000 square feet of office space and includes
state-of-the-art information management and communications systems.
CSI/Crown is based in Tunnel Hill, Georgia, approximately 25 miles from the
Chattanooga location. The Tunnel Hill facility includes a 101-door loading dock
facility in which floorcovering shipments from multiple manufacturers are
consolidated into truckloads for delivery to Company-owned and agent-operated
distribution service centers. Substantially all CSI/Crown facilities operate as
distribution centers performing consolidation, warehousing and local
distribution.
In the opinion of the Company, its facilities are suitable and adequate for the
Company's needs.
9
ITEM 3. LEGAL PROCEEDINGS
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 airfreight 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 these matters, in the opinion of
management, based in part on the 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.
10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended December 31, 2001, no matters were submitted to a vote
of security holders.
Executive Officers of the Company
Information with respect to the executive officers of the Company is set forth
below:
Name Age Position
- -----------------------------------------------------
Cort J. Dondero 51 Director, Executive Vice President, Chief Operating Officer
Max L. Fuller 49 Co-Chairman of the Board of Directors, Vice President and Secretary
Ray M. Harlin 52 Director, Executive Vice President - Finance and Chief Financial Officer
E. William Lusk, Jr. 46 President, CSI/Crown, Inc.
Patrick E. Quinn 55 Co-Chairman of the Board of Directors, President and Treasurer
Cort J. Dondero has served as Executive Vice President and Chief Operating
Officer of the Company since July 2000. Previously, Mr. Dondero was President of
Trimac Logistics, Inc. from 1999 to July 2000 and President and founder of
Service and Administrative Institute from 1988 to 1999. Mr. Dondero has been a
director of the Company since July 2000.
Max L. Fuller has served as Co-Chairman of the Board of the Company since 1994
and Vice President and Secretary of the Company since its formation in 1989. Mr.
Fuller is a director of SunTrust Bank, Chattanooga, N. A. Mr. Fuller has served
as an officer and director of U.S. Xpress, Inc. since 1985.
Ray M. Harlin has served as Executive Vice President - Finance and Chief
Financial Officer of the Company since 1997. Previously, Mr. Harlin served for
25 years in auditing and managerial positions, and as a partner with Arthur
Andersen LLP. Mr. Harlin has been a director of the Company since 1997.
E. William Lusk, Jr. has served as President of CSI/Crown, Inc. since 2001.
Previously, Mr. Lusk was Executive Vice President of the Company from 1996 to
2000, Vice President of Marketing of the Company from 1991 to 1996 and Executive
Vice President of U.S. Xpress, Inc. from 1987 to 1994.
Patrick E. Quinn has served as Co-Chairman of the Board of the Company since
1994 and President and Treasurer of the Company since its formation in 1989. Mr.
Quinn has served as an officer and director of U.S. Xpress, Inc. since 1985.
11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Common Stock and Stockholder Data
The Company's Class A Common Stock is traded on the NASDAQ National Market
System under the symbol XPRSA. No market exists for the Company's Class B Common
Stock. At March 21, 2002, there were 199 registered stockholders and an
estimated 1,600 beneficial owners of the Company's Class A Common Stock and 2
beneficial owners of the Company's Class B Common Stock. At March 21, 2002,
there were 10,811,882 shares of Class A Common Stock outstanding and 3,040,262
shares of Class B Common Stock outstanding. On March 21, 2002, the closing price
for the Common Stock was $10.75. Listed below is the trading activity for each
quarter in the last two fiscal years:
Quarter Ending High Low
- ---------------------------------------------------------------------
March 31, 2000 10.00 5.12
June 30, 2000 8.87 6.25
September 30, 2000 8.75 5.87
December 31, 2000 7.50 5.13
March 31, 2001 8.00 5.50
June 29, 2001 7.82 5.81
September 28, 2001 9.10 5.35
December 31, 2001 9.40 4.60
Dividends
The Company does not pay cash dividends and intends to continue to retain
earnings to finance the growth of the Company for the foreseeable future.
12
ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except per share and operating data)
Year Ended Nine Months Ended
December 31, December 31,
------------------------------------------------- -----------------------
2001 2000 1999 1998 1997/(4)/
- ------------------------------------------------------------------------------------------------------- -----------------------
Income Statement Data/(1)/
Operating revenue:
U.S. Xpress $ 736,895 $ 733,583 $ 656,029 $ 513,154 $ 290,800
CSI/Crown 83,079 58,161 57,713 74,533 57,645
Intercompany (21,942) (4,659) (5,530) (6,286) (6,173)
------------------------------------------------- -----------------------
Consolidated $ 798,032 $ 787,085 $ 708,212 $ 581,401 $ 342,272
================================================= =======================
Income from operations $ 13,479 $ 19,931 $ 31,527 $ 44,405 $ 26,151
Income (Loss) before income taxes $ (1,458) $ 4,482 $ 19,139 $ 34,497 $ 21,983
Net income (loss) $ (1,128) $ 2,065 $ 11,381 $ 20,717 $ 13,191
Earnings (Loss) per share - basic $ (0.08) $ .15 $ .77 $ 1.38 $ .98
Weighted average number of shares outstanding -
basic 13,757 14,095 14,785 15,038 13,467
Earnings (Loss) per share - diluted $ (0.08) $ .15 $ .77 $ 1.37 $ .97
Weighted average number of shares outstanding -
diluted 13,757 14,148 14,852 15,162 13,582
Truckload Operating Data/(2)/
Total revenue miles (in thousands) 578,186 573,271 533,628 418,665 241,541
Average revenue per mile $ 1.22 $ 1.22 $ 1.19 $ 1.18 $ 1.16
Tractors at end of period 5,238 4,861 4,734 4,425 2,839
Trailers at end of period 12,836 11,871 11,718 10,413 5,875
Average revenue per tractor, per week $ 2,633 $ 2,726 $ 2,633 $ 2,661 $ 2,734
Total loads 643,011 603,189 578,572 464,586 239,730
Average tractors during period 5,144 4,932 4,651 3,572 2,615
Total miles (in thousands) 643,162 632,023 587,917 459,643 265,102
Balance Sheet Data
Working capital $ 51,092 $ 72,870 $ 87,836 $ 98,306 $ 44,813
Total assets $ 417,468 $ 423,461 $ 409,037 $ 426,539 $ 233,777
Long-term debt, net of current maturities $ 151,540 $ 179,908 $ 181,256 $ 202,450 $ 52,120
Stockholders' equity/(3)/ $ 155,610 $ 156,935 $ 161,527 $ 153,667 $ 128,493
/(1)/ Data for U.S. Xpress includes data for all truckload operations,
including the following from their date of acquisition: JTI, Inc. in
April 1997; Victory Express, Inc. in January 1998; and PST Vans, Inc.
in August 1998.
/(2)/ Average revenue per mile and average revenue per tractor per week are
net of fuel surcharges. Tractor and trailer data includes owned, leased
and owner-operated.
/(3)/ Reflects the sale by the Company of 2,885,000 shares of Class A Common
Stock during the 1997 transition period. Reflects in fiscal 1999 and
1998, the issuance of 41,901 and 994,447 shares of Class A Common
Stock, respectively, in connection with the purchase of PST. Reflects
the repurchase of 925,100, 485,000 and 1,134,289 shares of Class A
Common Stock in fiscal 2000, 1999 and 1998, respectively.
/(4)/ Effective December 31, 1997, the Company changed its fiscal year-end to
December 31 from March 31. As a result, the transition period ended
December 31, 1997 is a nine-month period.
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF 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:
Year Ended December 31,
2001 2000 1999
----------------------------------------------------
Operating Revenue 100.0 % 100.0% 100.0%
----------------------------------------------------
Operating Expenses:
Salaries, wages and benefits 38.2 37.0 39.2
Fuel and fuel taxes 15.9 17.3 14.2
Vehicle rents 8.5 7.6 7.7
Depreciation and amortization, net of gain/loss 4.4 4.4 4.1
Purchased transportation 13.2 13.2 11.8
Operating expense and supplies 6.4 6.5 6.3
Insurance premiums and claims 4.0 3.7 3.6
Operating taxes and licenses 1.8 1.7 2.1
Communications and utilities 1.4 1.4 1.7
General and other operating expenses 4.5 4.7 4.8
----------------------------------------------------
Total operating expenses 98.3 97.5 95.5
----------------------------------------------------
Income from Operations 1.7 2.5 4.5
Interest expense, net 1.9 1.9 1.8
----------------------------------------------------
Income (Loss) before income tax provision (0.2) 0.6 2.7
Income taxes (0.1) 0.3 1.1
----------------------------------------------------
Net Income (Loss) (0.1)% 0.3% 1.6%
====================================================
14
Comparison of the Year Ended December 31, 2001 to the Year Ended
December 31, 2000
Operating revenue in 2001 increased $10.9 million, or 1.4%, to $798.0 million,
compared to $787.1 million in 2000. U.S. Xpress revenue increased $3.3 million,
or 0.5%, due primarily to a 0.9% increase in revenue miles and a 0.2% increase
in average revenue per mile, net of fuel surcharges, to $1.222 from $1.220 in
2000, offset by a $3.6 million decrease in fuel surcharge revenue. CSI/Crown
revenues increased $24.9 million, or 42.8%. This increase reflects a $25.8
million increase due primarily to the revenues of the new deferred air business,
which began operations in February 2001. Intersegment revenue in 2001 increased
$17.3 million compared to 2000, due to truckload services provided by U.S.
Xpress for the deferred air business of CSI/Crown.
Operating expenses represented 98.3% of operating revenue for 2001, compared to
97.5% during 2000.
Salaries, wages and benefits as a percentage of revenue were 38.2% during 2001,
compared to 37.0% during 2000. U.S. Xpress wages increased $7.6 million, due
primarily to increases in workers compensation premiums and claims and group
health claims, combined with a 1.4% increase in Company driver miles to 544.1
million miles in 2001, compared to 536.7 million miles in 2000. CSI/Crown wages
increased $6.5 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 15.9% during 2001,
compared to 17.3% during 2000. This decrease was primarily due to the
approximate 7% decrease in average fuel price per gallon. 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 8.5% during 2001,
compared to 7.6% during 2000.This increase is due to a 10.9% increase in the
average number of tractors leased and a 23.1% increase in the average number of
trailers leased during 2001, compared to 2000. Depreciation and amortization as
a percentage of operating revenue were 4.4% for 2001 and 2000. Depreciation for
revenue equipment decreased 10.0% during 2001, to $21.5 million, compared to
$23.9 million during 2000. Other depreciation and amortization increased 26.0%
during 2001, to $13.6 million, compared to $10.8 million during 2000. This
increase was primarily attributable to increased amortization of 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 2001 were $.2 million, compared to a gain of $.3 million
in 2000. Overall, as a percentage of operating revenue, vehicle rents and
depreciation were 12.9% during 2001, compared to 12.0% during 2000.
Purchased transportation as a percentage of revenue was 13.2% during 2001 and
2000. During 2001, owner-operator miles increased 3.8%, or 3.6 million miles, to
98.9 million miles compared to 95.3 million miles in 2000. The increase in
owner-operator miles was offset by the Company's contribution of the logistics
business to Transplace, Inc. in July 2000. Most of the costs associated with the
logistics business contributed to Transplace were reflected in purchased
transportation.
Operating taxes and licenses as a percentage of revenue were 1.8% during 2001,
compared to 1.7% in 2000. This increase was primarily due to the 4.3% increase
in average number of tractors, combined with a 3.4% decrease in utilization as
measured by revenue per tractor per week.
Insurance premiums and claims as a percentage of operating revenue were 4.0%
during 2001, compared to 3.7% during 2000. The increase is due primarily to an
increase in premiums and claims related to liability and physical damage
insurance.
General and other operating expenses as a percentage of operating revenue were
4.5% during 2001, compared to 4.7% during 2000. During 2000, the Company
recorded a one-time charge of $2.0 million, due to the write-off of outstanding
receivables and other related expenses of a long-term customer.
Income from operations for 2001 decreased $6.4 million, or 32.4%, to $13.5
million from $19.9 million during 2000. As a percentage of operating revenue,
income from operations was 1.7% for 2001 and 2.5% for 2000.
15
Comparison of the Year Ended December 31, 2000 to the Year Ended
December 31, 1999
Operating revenue in 2000 increased $78.9 million, or 11.1%, to $787.1 million,
compared to $708.2 million in 1999. U.S. Xpress revenue increased $78.4 million,
or 12.1%, due primarily to a 7.4% increase in revenue miles, a 2.3% increase in
average revenue per mile, net of fuel surcharges, to $1.220 from $1.193 in 1999
and a $27.4 million increase in fuel surcharge revenue. Revenue miles increased
due to an increase in the average number of tractors by 281, or 6.0%, to 4,932
from 4,651, and a 3.5% increase in utilization as measured by revenue per
tractor per week. CSI/Crown revenues increased $.4 million due primarily to a
6.5% linehaul rate increase.
Operating expenses represented 97.5% of operating revenue for 2000, compared to
95.5% during 1999.
Salaries, wages and benefits as a percentage of revenue were 37.0% during 2000,
compared to 39.2% during 1999. The decrease was primarily attributable to the
increase in the number of owner-operators, which accounted for 13.6% of the
Company's total fleet in 2000, compared to 10.5% during 1999. The average number
of owner-operators increased to 673 in 2000, compared to 487 in 1999. All
owner-operator expenses are reflected as purchased transportation.
Fuel and fuel taxes as a percentage of operating revenue were 17.3% during 2000,
compared to 14.2% during 1999. This increase was due to the 32.0% increase in
average fuel cost per mile during 2000, compared to 1999, the effect of which
was partially offset by the increased use of owner-operators who are responsible
for their fuel expense. 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 7.6% during 2000,
compared to 7.7% during 1999. Depreciation and amortization as a percentage of
operating revenue were 4.4% for 2000, compared to 4.1% during 1999. The Company
includes gains and losses from the sale of revenue equipment in depreciation
expense. Net gains from the sale of revenue equipment for 2000 were $.3 million,
compared to a gain of $.8 million in 1999. Overall, as a percentage of operating
revenue, vehicle rents and depreciation were 12.0% during 2000, compared to
11.8% during 1999.
Purchased transportation as a percentage of operating revenue was 13.2% during
2000, compared to 11.8% during 1999. The increase was primarily due to an
increase in the average owner-operator fleet to 673 for 2000, compared to 487 in
1999. Owner-operators provide a tractor and driver incurring substantially all
of their operating expenses in exchange for a fixed payment per mile, which is
included in purchased transportation. Owner-operator miles increased to 95.3
million miles in 2000, compared to 66.9 million miles in 1999.
Insurance premiums and claims as a percentage of operating revenue were 3.7%
during 2000, compared to 3.6% during 1999. The increase is due primarily to an
increase in premiums and increases in claims and losses related to cargo and
physical damage.
Operating taxes and licenses as a percentage of operating revenue were 1.7%
during 2000, compared to 2.1% in 1999. This decrease was primarily due to a 3.5%
increase in utilization, as measured by revenue per tractor per week.
Communications and utilities as a percentage of operating revenue were 1.4%
during 2000, compared to 1.7% in 1999. This decrease was primarily due to the
redesign of voice and data networks, which eliminated several communication
circuits.
General and other operating expenses as a percentage of operating revenue were
4.7% during 2000, compared to 4.8% during 1999. During 2000, the Company
recorded a one-time charge of $2.0 million, due to the write-off of outstanding
receivables and other related expenses of a long-term customer. During 1999, the
Company recorded a one-time charge of $1.3 million related to the settlement of
litigation with a professional employer organization that formerly administered
the Company's payroll and benefit systems.
Interest expense increased $3.0 million, or 24.7%, to $15.4 million, compared to
$12.4 million during 1999. The increase was primarily due to the average
interest rate on the Company's line of credit increasing 29.3% to 8.1% during
2000, compared to 6.3% in 1999.
16
Income from operations for 2000 decreased $11.6 million, or 36.8%, to $19.9
million from $31.5 million during 1999. As a percentage of operating revenue,
income from operations was 2.5% for 2000 and 4.5% for 1999.
The Company's effective tax rate increased to 53.9% in 2000, compared to 40.5%
for 1999, due primarily to non-deductible goodwill amortization being a larger
percentage of income before income taxes.
Special Considerations
The trucking industry is affected by economic risks and uncertainties, some of
which are beyond its control. These include economic recessions and downturns in
customers' business cycles, increases in fuel prices, the availability of
qualified drivers and fluctuations in interest rates.
The trucking industry is highly competitive and includes numerous regional,
inter-regional and national truckload carriers. Some of these carriers have
greater financial resources, equipment and freight capacity than the Company.
Management believes its strategies of controlled growth and focused marketing
will provide freight at sufficient volumes and prices to be profitable. Changes
in economic conditions could reduce both the amount of freight available and
freight rates, which could have a material adverse effect on the Company's
results.
Fuel is one of the Company's largest expenditures. Shortages of fuel or
increases in fuel prices could have a materially adverse effect on the
operations and profitability of the Company. Many of the Company's customer
contracts contain fuel surcharge provisions to mitigate increases in the cost of
fuel (the Company recognized $25.9 million of fuel surcharge revenue for the
year ended December 31, 2001, compared to $29.5 million for the same period in
2000). However, there is no assurance that such fuel surcharges can be used to
offset future increases in fuel prices. Additionally, at times, fuel purchase
contracts are used to mitigate the effects of increases in the prices of fuel.
Competition for available qualified drivers in the truckload industry is intense
and will likely remain so for the foreseeable future. The Company and many of
its competitors experience high rates of turnover and occasionally have
difficulty in attracting and retaining qualified drivers in sufficient numbers
to operate all available equipment. Management believes the Company's current
pay structure, benefits, policies and procedures related to drivers are
effective in attracting and retaining drivers. However, there can be no
assurance that it will not be affected by a shortage of qualified drivers in the
future. The inability to attract and retain qualified drivers would have a
material adverse effect on the Company's results.
The trucking industry is extremely capital intensive. The Company depends on
operating leases, lines of credit, secured equipment financing and cash flows
from operations to finance the expansion and maintenance of its modern and cost
efficient revenue equipment and facilities. At present, the Company is more
highly leveraged than some of its competitors. If the Company were unable in the
future to obtain financing at acceptable levels, it could be forced to limit the
growth or replacement of its equipment and facilities. A significant increase in
interest rates could have a material adverse effect on the Company's results.
The Company is self-insured for cargo loss, damage, liability (personal injury
and property damage) and workers' compensation claims within the Company's
established retention levels. The current retention level per occurrence is
$200,000 for Cargo Loss and $250,000 for Workers' Compensation. The first
retention level for Liability is $250,000 per claim. The Company also carries
the risk for the $1 million to $3 million level of cost per occurrence. If the
number of claims or severity of claims for which the Company is self-insured
increase from historical levels, operating results could be adversely affected.
Also, the Company maintains insurance with licensed insurance companies above
the amounts for which it is self-insured. After several years of aggressive
pricing, insurance carriers have raised premiums, which have increased the
Company's insurance and claims expense. If these expenses continue to increase
and the Company is unable to offset the increase with higher freight rates,
earnings could be materially and adversely affected.
The Company is regulated by the United States Department of Transportation
("DOT"). The DOT has broad powers and generally governs activities such as
authorization to engage in motor carrier operations, safety and other matters.
The Company may be subjected to new or more comprehensive regulations relating
to fuel emissions, driver hours of service, or other items mandated by the DOT.
For example, new engine emissions standards will become effective for truck
engine manufacturers in October 2002. These new engines have not been available
for adequate testing and may be more costly and less fuel-efficient.
Liquidity and Capital Resources
The Company's primary sources of liquidity and capital resources during 2001
were funds provided by operations, 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. In
December 2001, the Company entered into approximately $107.0 million in
equipment installment notes, the proceeds of which were used primarily to reduce
borrowings under the Company's revolving line of credit. In connection
therewith, the Company's revolving line of credit with a syndicate of banks was
amended. Under the terms of the amended agreement, the facility was reduced from
$190 million to $87 million, and the maturity date was extended to July 2003. In
June 2002, the amended facility will be reduced to $80 million. At December 31,
2001, the weighted average interest rate on the line of credit was 5.40%, and
$23.3 million was available for borrowing. Interest on outstanding borrowings is
based upon the London Interbank Offered Rate plus 3.5%. The facility is
collateralized by accounts receivable and substantially all other assets of the
Company, not otherwise encumbered.
In September 2000, the Company entered into a long-term loan agreement for $10.0
million to finance the new Colton, California terminal facility. The term of the
loan is 10 years, with amortization based on 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.
In 2002, the Company's primary sources of liquidity are expected to be funds
provided by operations, borrowings under lines of credit, proceeds from sale of
used revenue equipment and long-term operating lease financing for the
acquisition of revenue equipment.
17
Cash generated from operations decreased to $43.5 million in 2001 from $54.7
million in 2000, due in part to a $5.9 million decline in pretax income. Net
cash used in investing activities was $13.1 million in 2001 and $49.2 million
in 2000. Such amounts were used primarily to acquire net revenue equipment and,
in 2000, for the acquisition and construction of the new Colton, California
terminal facility. During 2000, the Company made a $5.0 million cash investment
to acquire a 13% equity interest in Transplace. In 2001, $53.4 million was used
to acquire additional property and equipment, compared to $56.2 million in 2000.
Proceeds from the sale of property and equipment were $40.2 million in 2001,
compared to $12.0 million in 2000. The increase in proceeds in 2001 reflects a
greater number of owned revenue equipment dispositions compared to 2000. During
2000 a significant portion of revenue equipment dispositions were related to
leased equipment.
Net cash used in financing activities was $22.2 million in 2001 and $5.7 million
in 2000. Borrowings under the line of credit were reduced by $123.2 million,
primarily with the proceeds of $106.8 million from equipment installment notes
in 2001 and $9.8 million in 2000. As authorized by the Company's board of
directors, 925,100 shares of the Company's Class A Common Stock were repurchased
in 2000 for $7.1 million.
Management believes that funds provided by operations, borrowings under its
lines of credit, equipment installment loans 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 December 31, 2001 excluding letters of credit. Letters of credit of $18,660
were outstanding at December 31, 2001. The letters of credit are maintained
primarily to support the Company's insurance program and are renewed on an
annual basis.
-------------------------------------------------------------------------------------------------------------------
Payments Due By Period
----------------------------------------------------------------------
Contractual Obligations Less than
Total 1 year 1-3 years 4-5 years After 5 years
-------------------------------------------------------------------------------------------------------------------
Long-Term Debt $ 160,163 $ 23,355 $ 81,310 $ 29,169 $ 26,329
-------------------------------------------------------------------------------------------------------------------
Capital Lease Obligations 14,868 136 13,691 632 409
-------------------------------------------------------------------------------------------------------------------
Operating Leases - Revenue Equipment 120,112 57,380 55,803 4,906 2,023
-------------------------------------------------------------------------------------------------------------------
Operating Leases - Other 32,335 9,284 12,997 7,592 2,462
-------------------------------------------------------------------------------------------------------------------
Total Contractual Cash Obligations $ 327,478 $ 90,155 $ 163,801 $ 42,299 $ 31,223
-------------------------------------------------------------------------------------------------------------------
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, shipments generally show a seasonal pattern as
customers increase shipments prior to and reduce shipments during and after the
winter holiday season. Additionally, shipments can be adversely impacted by
winter weather conditions.
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and
SFAS No. 142 "Goodwill and Other Intangible Assets" (collectively the
"Standards"). The Standards are effective for fiscal years beginning after
December 15, 2001. SFAS No. 141 requires 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 require the value of a separately
identifiable intangible asset meeting any of the criteria to be measured at its
fair value. 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
18
distinguished, physically and operationally and for internal reporting purposes,
from the other activities, operations and assets of the entity. The Company is
required to adopt SFAS 142 effective January 1, 2002. Based on the current
levels of goodwill, the adoption of the Standards 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. Management is currently evaluating the effect of this Statement on the
Company's results of operations and financial position.
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 to be disposed of" and among other factors,
establishes criteria beyond that previously specified in SFAS No. 121 to be
determined when a long-lived asset is to be considered as held for sale. The
Company adopted SFAS No. 144 effective January 1, 2002 and is currently
evaluating its impact.
19
ITEM 7A. QUANTITIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Interest Rate Risk
The Company has interest rate exposure arising from the Company's variable rate
debt. At December 31, 2001, the Company had $68.1 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. If interest rates on the
Company's existing variable rate debt, after considering interest rate swaps,
were to increase by 10% from their December 31, 2001 rates for the next twelve
months, there would be no material adverse impact on the Company's results of
operations.
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.
20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Public Accountants
To U.S. Xpress Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets of U.S. Xpress
Enterprises, Inc. (a Nevada corporation) and subsidiaries as of December 31,
2001 and 2000, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 2001. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of U.S. Xpress Enterprises, Inc.
and subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles generally accepted in
the United States.
/s/ ARTHUR ANDERSEN LLP
Chattanooga, Tennessee
January 29, 2002
21
U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Year Ended December 31,
---------------------------------------
2001 2000 1999
- ----------------------------------------------------------------------------------------------------------
Operating Revenue $ 798,032 $ 787,085 $ 708,212
---------------------------------------
Operating Expenses:
Salaries, wages and benefits 304,687 290,862 278,011
Fuel and fuel taxes 126,737 135,992 100,295
Vehicle rents 67,754 59,440 54,522
Depreciation and amortization, net of gain/loss on
disposition of equipment 35,345 34,430 29,250
Purchased transportation 105,623 104,279 83,897
Operating expenses and supplies 51,195 51,382 44,629
Insurance premiums and claims 32,277 29,020 25,490
Operating taxes and licenses 14,154 13,542 14,709
Communications and utilities 11,556 11,216 12,174
General and other operating expenses (Note 3) 35,225 36,991 33,708
---------------------------------------
Total operating expenses 784,553 767,154 676,685
---------------------------------------
Income from Operations 13,479 19,931 31,527
Interest Expense, net 14,937 15,449 12,388
---------------------------------------
Income (Loss) Before Income Tax Provision (1,458) 4,482 19,139
Income Tax Provision (Benefit) (330) 2,417 7,758
---------------------------------------
Net Income (Loss) $ (1,128) $ 2,065 $ 11,381
=======================================
Earnings (Loss) Per Share - basic $ (.08) $ .15 $ .77
=======================================
Weighted average shares - basic 13,757 14,095 14,785
=======================================
Earnings (Loss) Per Share - diluted $ (.08) $ .15 $ .77
=======================================
Weighted average shares - diluted 13,757 14,148 14,852
=======================================
The accompanying notes are an integral part of these consolidated statements.
22
U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share amounts)
December 31,
----------------------
2001 2000
- --------------------------------------------------------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ 8,185 $ 34
Customer receivables, net of allowance of $3,419 and $4,019 in 2001 and 2000,
respectively 83,296 89,184
Other receivables 7,824 14,294
Prepaid insurance and licenses 5,112 2,664
Operating and installation supplies 3,833 4,312
Deferred income taxes 1,406 2,249
Other current assets 6,594 4,051
---------- ----------
Total current assets 116,250 116,788
---------- ----------
Property and Equipment, at cost 299,208 315,480
Less accumulated depreciation and amortization (84,926) (96,578)
---------- ----------
Net property and equipment 214,282 218,902
---------- ----------
Other Assets
Goodwill, net 68,875 70,717
Investment in Transplace 5,815 5,815
Other 12,246 11,239
---------- ----------
Total other assets 86,936 87,771
---------- ----------
Total Assets $ 417,468 $ 423,461
========== ==========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 15,402 $ 19,060
Book overdraft - 2,940
Accrued wages and benefits 9,299 8,523
Claims and insurance accruals 13,590 8,704
Other accrued liabilities 3,376 3,190
Current maturities of long-term debt 23,491 1,501
---------- ----------
Total current liabilities 65,158 43,918
---------- ----------
Long-Term Debt, net of current maturities 151,540 179,908
---------- ----------
Deferred Income Taxes 41,852 40,121
---------- ----------
Other Long-Term Liabilities 3,308 2,579
---------- ----------
Commitments and Contingencies (Notes 8 and 10)
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, 13,300,466
and 13,210,467 shares issued at December 31, 2001 and 2000, respectively 133 132
Common Stock Class B, $.01 par value, 7,500,000 shares authorized, 3,040,262
shares issued and outstanding at December 31, 2001 and 2000 30 30
Additional paid-in capital 105,586 105,124
Retained earnings 75,669 76,797
Other comprehensive loss (778) --
Treasury Stock, Class A, at cost (2,544,389 shares at
December 31, 2001 and 2000) (24,483) (24,483)
Notes receivable from stockholders (211) (233)
Unamortized compensation on restricted stock (336) (432)
---------- ----------
Total stockholders' equity 155,610 156,935
---------- ----------
Total Liabilities and Stockholders' Equity $ 417,468 $ 423,461
========== ==========
The accompanying notes are an integral part of these consolidated balance
sheets.
23
U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
-------------------------------------
2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net income (loss) $ (1,128) $ 2,065 $ 11,381
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Deferred income tax provision (benefit) 2,574 10,275 1,181
Depreciation and amortization 35,119 34,711 30,014
(Gain)/loss on disposition of equipment 226 (281) (764)
Changes in operating assets and liabilities, net of acquisitions:
Receivables 12,358 6,655 4,113
Prepaid insurance and licenses (2,448) (586) 54
Operating and installation supplies 1,029 1,807 (616)
Other assets (8,399) (5,850) (4,058)
Accounts payable and other accrued liabilities 3,057 4,527 (7,424)
Accrued wages and benefits 776 1,306 606
Other 317 86 56
--------------------------------------
Net cash provided by operating activities 43,481 54,715 34,543
--------------------------------------
Cash Flows from Investing Activities:
Payments for purchases of property and equipment (53,400) (56,187) (74,622)
Proceeds from sales of property and equipment 40,231 11,966 60,773
Repayment of notes receivable from stockholders 22 -- --
Acquisition of business, net of cash acquired -- -- (1,798)
Investment in Transplace -- (5,000) --
--------------------------------------
Net cash used in investing activities (13,147) (49,221) (15,647)
--------------------------------------
Cash Flows from Financing Activities:
Net repayments under lines of credit (123,199) (9,801) (21,000)
Borrowings under long-term debt agreements 106,839 10,000 --
Payments of long-term debt (3,317) (1,229) (852)
Book overdraft (2,940) 2,054 886
Proceeds from exercise of stock options 103 8 --
Proceeds from issuance of common stock 331 340 242
Purchase of Class A Common Stock -- (7,091) (4,526)
--------------------------------------
Net cash used in financing activities (22,183) (5,719) (25,250)
--------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 8,151 (225) (6,354)
Cash and Cash Equivalents, beginning of year 34 259 6,613
--------------------------------------
Cash and Cash Equivalents, end of year $ 8,185 $ 34 $ 259
======================================
Supplemental Information:
Cash paid during the year for interest, net of capitalized interest $ 14,943 $ 16,003 $ 12,838
======================================
Cash (refunded) paid during the year for income taxes, net $ (8,365) $ (1,452) $ 6,967
======================================
Addition to property and equipment financed through capital
lease obligation $ 13,299 $ -- $ --
======================================
The accompanying notes are an integral part of these consolidated statements.
24
U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
Notes Unamortized
Additional Receivable Compensation
Common Stock Paid-In Retained Treasury From On Restricted
------------
Class A Class B Capital Earnings Stock Stockholders Stock Total
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 $ 130 $ 30 $103,255 $ 63,351 $(12,866) $ (233) $ -- $153,667
Net income -- -- -- 11,381 -- -- -- 11,381
Issuance of 5,068 shares of Class A Common
Stock for non-employee director compensation -- -- 56 -- -- -- -- 56
Issuance of 22,709 shares of Class A
Common Stock for employee stock purchase plan -- -- 242 -- -- -- -- 242
Issuance of 41,901 shares of Class A Common
Stock for PST acquisition 1 -- 706 -- -- -- -- 707
Repurchase of 485,000 shares of Class A
Common Stock -- -- -- -- (4,526) -- -- (4,526)
------------------------------------------------------------------------------------
Balance, December 31, 1999 131 30 104,259 74,732 (17,392) (233) -- 161,527
Net income -- -- -- 2,065 -- -- -- 2,065
Issuance of 5,322 shares of Class A
Common Stock for non-employee director
compensation -- -- 38 -- -- -- -- 38
Proceeds from exercise of 1,200 options -- -- 8 -- -- -- -- 8
Issuance of 56,400 shares of Class A
Common Stock for employee stock purchase plan -- -- 340 -- -- -- -- 340
Issuance of 60,000 shares of restricted
Class A Common Stock to officers 1 -- 479 -- -- -- (480) --
Amortization of restricted stock -- -- -- -- -- -- 48 48
Repurchase of 925,100 shares of
Class A Common Stock -- -- -- -- (7,091) -- -- (7,091)
------------------------------------------------------------------------------------
Balance, December 31, 2000 132 30 105,124 76,797 (24,483) (233) (432) 156,935
Net loss -- -- -- (1,128) -- -- (1,128)
Issuance of 4,258 shares of Class A
Common Stock for non-employee director
compensation -- -- 29 -- -- -- -- 29
Issuance of 70,491 shares of Class A
Common Stock for employee stock purchase plan 1 -- 330 -- -- -- -- 331
Proceeds from exercise of 15,250 options -- -- 103 -- -- -- -- 103
Other comprehensive loss, net of tax -- -- -- (778) -- -- -- (778)
Repayment of notes receivable from stockholders -- -- -- -- -- 22 -- 22
Amortization of restricted stock -- -- -- -- -- -- 96 96
------------------------------------------------------------------------------------
Balance, December 31, 2001 $ 133 $ 30 $105,586 $ 74,891 $(24,483) $ (211) $ (336) $155,610
====================================================================================
The accompanying notes are an integral part of these consolidated statements.
25
U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
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 primarily to the
floorcovering industry and deferred airfreight logistics services from airport
to airport.
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.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investment instruments with
an original maturity of three months or less.
Recognition of Revenue
For financial reporting purposes, the Company generally recognizes revenue and
direct costs when shipments are completed.
Concentration of Credit Risk
Concentrations of credit risk with respect to customer receivables are limited
due to the large number of entities comprising the Company's customer base and
their dispersion across many different industries. The Company performs ongoing
credit evaluations and generally does not require collateral.
Operating and Installation Supplies
Operating supplies consist primarily of tires, parts, materials and supplies for
servicing the Company's revenue and service equipment. Installation supplies
consist of various accessories used in the installation of floor coverings and
are held for sale at various CSI/Crown distribution centers. Operating and
installation supplies are recorded at the lower of cost (on a first-in,
first-out basis) or market. Tires and tubes purchased as part of revenue and
service equipment are capitalized as part of the cost of the equipment.
Replacement tires and tubes are charged to expense when placed in service.
Property and Equipment
Property and equipment are carried at cost. Depreciation 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). The cost and lives at
December 31, 2001 and 2000 are as follows:
Cost
----------------------
Lives 2001 2000
------------- ---------- ---------
Land and buildings 10-30 years $ 44,768 $ 24,952
Revenue and service equipment 3-7 years 216,934 249,773
Furniture and equipment 3-7 years 19,758 21,299
Leasehold improvements 5-6 years 17,748 19,456
--------- ---------
$ 299,208 $ 315,480
========= =========
26
The Company recognized $28,445, $30,593 and $27,101 in depreciation expense in
2001, 2000 and 1999, respectively. Gains/(losses) on sale of equipment of
$(226), $281 and $764 for 2001, 2000 and 1999, respectively, are included in
depreciation and amortization expense in the consolidated statements of
operations. The Company capitalized $41 and $483 of interest in 2001 and 2000,
respectively.
Upon the retirement of property and equipment, the related asset cost and
accumulated depreciation are removed from the accounts and any gain or loss is
reflected in the Company's statement of operations with the exception of gains
on trade-ins, which are included in the basis of the new asset. Expenditures for
normal maintenance and repairs are expensed. Renewals or betterments that affect
the nature of an asset or increase its useful life are capitalized.
Goodwill
The excess of the consideration paid by the Company over the estimated fair
value of identifiable net assets acquired has been recorded as goodwill and has
been amortized on the straight-line basis over periods ranging from 20 to 40
years. The Company continually evaluates whether subsequent events and
circumstances have occurred that indicate the remaining estimated useful life of
goodwill might warrant revision or that the remaining balance may not be
recoverable. When factors indicate that goodwill should be evaluated for
possible impairment, the Company uses an estimate of the future undiscounted net
cash flows of the related businesses over the remaining life of the goodwill in
measuring whether goodwill is recoverable. The Company recognized $1,842, $1,999
and $1,977 of goodwill amortization expense in 2001, 2000 and 1999,
respectively. Accumulated amortization was $8,258, and $6,416 at December 31,
2001 and 2000, respectively.
Deferred Financing Costs
Deferred financing costs are included in other assets in the accompanying
consolidated balance sheets and include fees and costs incurred to obtain long-
term financing, and are being amortized over the terms of the respective
obligation. Amortization expense was $1,931, $387 and $175 in 2001, 2000 and
1999, respectively. Accumulated amortization was $2,347 and $707 as of December
2001 and 2000, respectively.
Computer Software
The Company accounts for computer software in accordance with the AICPA's
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". Computer software is included
in other long-term assets and is being amortized on a straight-line basis over
three years. The Company recognized $2,901, $1,732 and $761 of amortization
expense in 2001, 2000 and 1999, respectively. Accumulated amortization was
$5,852 and $3,461 at December 31, 2001 and 2000, respectively.
Book Overdraft
Book overdraft represents outstanding checks in excess of current cash levels.
The Company funds its book overdraft from its line of credit and operating
cash flows.
Investment in Transplace
On July 1, 2000, the Company and five other large transportation companies
merged their logistics business units into a commonly owned, Internet-based
global transportation logistics company, Transplace. The Company's approximate
13% interest is carried on a cost basis. See Note 9 regarding certain
relationships and related transactions.
Claims and Insurance Accruals
Claims and insurance accruals consist of cargo loss, damage, liability (personal
injury and property damage) and workers' compensation claims within the
Company's established retention levels. Claims in excess of retention levels are
generally covered by insurance in amounts the Company considers adequate. Claims
accruals represent the uninsured portion of pending claims at December 31, 2001
and 2000, plus an estimated liability for incurred but not reported claims.
Accruals for cargo loss, damage, liability and workers' compensation claims are
estimated based on the Company's evaluation of the type and severity of
individual claims.
Other Long-Term Liabilities
Periodically, the Company receives volume rebates from vendors related to
certain operating leases for new revenue and service equipment. Additionally,
certain equipment leases include spare tires, which increase tire inventories.
The Company defers recognition of these rebates and amortizes such amounts as a
reduction of vehicle rent expense over the respective lease terms. At December
31, 2001 and 2000, other long-term liabilities include deferred credits of
$1,650 and $2,231, respectively.
Earnings Per Share
The difference between basic and diluted earnings per share is due to the
assumed conversion of dilutive outstanding options resulting in approximately
53,000 and 67,000 equivalent shares in 2000 and 1999, respectively. Due to the
loss in 2001, the outstanding options are anti-dilutive and are not considered
in earnings per share.
27
Stock-Based Compensation The Company accounts for its stock-based compensation
plans under Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB No. 25") and has elected the disclosure option of
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation."
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
141, "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible
Assets" (collectively the "Standards"). The Standards are effective for fiscal
years beginning after December 15, 2001. SFAS No. 141 requires 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 require the
value of a separately identifiable intangible asset meeting any of the criteria
to be measured at its fair value. 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 and
operationally and for internal reporting purposes, from the other activities,
operations and assets of the entity. The Company is required to adopt SFAS 142
effective January 1, 2002. Based on the current levels of goodwill, the adoption
of the Standards 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. Management is currently
evaluating the effect of this Statement on the Company's results of operations
and financial position.
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 to be disposed of" and among other factors,
establishes criteria beyond that previously specified in SFAS No. 121 to be
determined when a long-lived asset is to be considered as held for sale. The
Company adopted SFAS No. 144 effective January 1, 2002 and is currently
evaluating its impact.
Reclassifications
Certain reclassifications have been made in the prior year financial statements
to conform to the 2001 presentation.
3. Certain Transactions
In December 2000, the Company recorded a one-time, pre-tax charge of $2,000 to
general and other operating expenses related to the write-off of outstanding
receivables with Dedicated Transportation Services, Inc. and other related
expenses.
On May 27, 1999, a settlement agreement and release was completed between the
Company and Employee Solutions, Inc., pursuant to which certain pending claims
between the Company and ESI were resolved. As a result of the settlement, the
Company recorded a charge to general and other operating expenses of $1,250 in
1999.
4. Acquisitions
Under the terms of the purchase agreements for acquisitions prior to 1999 and in
settlement of certain contingent purchase price arrangements, the Company
recorded approximately $4,000 of additional consideration in 1999, of which
approximately $1,800 was paid in cash.
28
5. Income Taxes
The income tax provision (benefit) for 2001, 2000 and 1999 consisted of the
following:
2001 2000 1999
--------------------------------------------
Current:
Federal $ (3,139) $ (7,976) $ 5,979
State 235 118 598
--------------------------------------------
(2,904) (7,858) 6,577
Deferred 2,574 10,275 1,181
--------------------------------------------
$ (330) $ 2,417 $ 7,758
============================================
A reconciliation of the income tax provision (benefit) as reported in the
consolidated statements of operations to the amounts computed by applying
federal statutory rates is as follows:
2001 2000 1999
-------------------------------------
Federal income tax at statutory rate $ (510) $ 1,524 $ 6,699
State income taxes, net of federal income tax benefit (38) 78 395
Nondeductible goodwill amortization 391 553 548
Other, net (173) 262 116
-----------------------------------
Income tax provision (benefit) $ (330) $ 2,417 $ 7,758
====================================
The tax effect of temporary differences that give rise to significant portions
of deferred tax assets and liabilities at December 31, 2001 and 2000 consisted
of the following:
2001 2000
----------------------
Deferred tax assets:
Allowance for doubtful accounts $ -- $ 567
Insurance and claims reserves 2,255 2,307
Alternative minimum tax credit carry forwards 5,416 4,808
Other reserves 323 200
Net operating loss carry forwards 5,338 5,687
Other 17 794
----------------------
Total deferred tax assets $ 13,349 $ 14,363
======================
Deferred tax liabilities:
Allowance for doubtful accounts $ 359 $ --
Book over tax basis of property and equipment 45,061 44,025
Deductible goodwill amortization 7,127 7,312
Prepaid license fees 306 269
Other 942 629
----------------------
Total deferred tax liabilities $ 53,795 $ 52,235
======================
At December 31, 2001, the Company had approximately $8,951 of net operating loss
("NOL") carry forwards from the PST acquisition, which will expire in 2010 and
2011. The utilization of the NOL carry forwards is limited to future taxable
income. Management believes it will be able to utilize the NOL carry forwards
prior to their expiration. The Company also has approximately $5,416 of
alternative minimum tax ("AMT") credit carry forwards. AMT credits may generally
be carried forward indefinitely and used in future years to the extent the
Company's regular tax liability exceeds the AMT liability for such future years.
29
6. Long-Term Debt
Long-term debt at December 31, 2001 and 2000 consisted of the following:
2001 2000
----------------------------
Obligation under line of credit with a group of banks, weighted average
interest rate of 5.40% at December 31, 2001, maturing July 2003 $ 45,000 $ 168,000
Installment notes with finance companies, weighted average interest rate of
7.43% at December 31, 2001, due in monthly installments with final
maturities at various dates ranging from December 2002 to September 2008 105,469 --
Mortgage note payable, interest rate of 4.19% at December 31, 2001,
due in monthly installments through October 2010, with final
payment of $7.1 million in October 2010 9,556 9,969
Capital lease obligation, interest rate of 5.4% at
December 31, 2001, due July 2003 13,299 --
Capital lease obligation maturing January 2008 1,569 1,676
Other 138 1,764
----------------------------
175,031 181,409
Less: current maturities of long-term debt (23,491) (1,501)
----------------------------
$ 151,540 $ 179,908
============================
In December 2001, the Company entered into approximately $107 million in
equipment installment notes, the proceeds of which were used primarily to reduce
borrowings under the Company's revolving line of credit. In connection
therewith, the Company's revolving line of credit with a syndicate of banks was
amended. Under the terms of the amended agreement, the facility was reduced from
$190 million to $87 million, and the maturity date was extended to July 2003. In
June 2002, the amended facility will be reduced to $80 million. Borrowings under
the line of credit bear interest, at the option of the Company, equal to either
(i) the greater of the bank's prime rate or the federal funds rate plus 2.0% or
(ii) the rate offered in the Eurodollar market for amounts and periods
comparable to the relevant loan plus 3.5%.
Borrowings (including letters of credit) under the line of credit are limited to
a specified percentage of eligible accounts receivable and the net book value of
specified revenue equipment. Letters of credit are limited to an aggregate of
$25,000 under the line. The credit agreement is collateralized by substantially
all of the assets of the Company not otherwise encumbered. Letters of credit
outstanding at December 31, 2001 against the line of credit were $18,660. At
December 31, 2001, $23,340 was available for borrowing under the facility.
During 1998, the Company entered into a long-term operating lease of a corporate
office and operations facility. In connection with the amendment of the
revolving credit facility in 2001, the Company amended the terms of the lease
whereby the lease is now accounted for as a capital lease. Payments under the
lease are based on LIBOR rates plus 3.5% with a final termination payment of
$13.3 million due in July 2003.
Borrowings under the mortgage note payable bear interest 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.
The line of credit agreement subjects the Company to certain restrictions and
financial covenants related to, among other matters, dividends, net worth,
additional borrowings, acquisitions and dispositions and maintenance of certain
financial ratios.
The aggregate annual maturities of long-term debt for each of the next five
years are:
2002 $ 23,491
------------------------------
2003 82,297
-------------------------------
2004 12,704
------------------------------
2005 11,301
------------------------------
2006 18,500
------------------------------
30
7. Comprehensive Income (Loss)
Comprehensive income (loss) consisted of the following components for
the years ended December 31, 2001, 2000 and 1999, respectively:
2001 2000 1999
---- ---- ----
Net income (loss) $ (1,128) $ 2,065 $ 11,381
Net loss on current period cash flow hedges (778) 0 0
-------- ------- --------
Total $ (1,906) $ 2,065 $ 11,381
======== ======= ========
8. Leases
The Company leases certain revenue and service equipment and office and
terminal facilities under long-term non-cancelable operating lease agreements
expiring at various dates through September 2009. Rental expense under
non-cancelable operating leases was approximately $77,533, $65,950 and
$60,335 for 2001, 2000 and 1999, respectively. Revenue equipment lease terms
are generally 3 years for tractors and 5-7 years for trailers. Substantially
all revenue equipment leases provide for guarantees by the Company of a
portion of the residual amount under certain circumstances at the end of the
lease term.
Approximate aggregate minimum future rentals payable under these operating
leases for each of the next five years are:
-------------------------------------------------
Revenue
Equipment Other Total
-------------------------------------------------
2002 $57,380 $9,284 $66,664
-------------------------------------------------
2003 40,128 6,759 46,887
-------------------------------------------------
2004 15,675 6,239 21,914
-------------------------------------------------
2005 2,883 4,722 7,605
-------------------------------------------------
2006 2,023 2,870 4,893
-------------------------------------------------
Thereafter 2,023 2,461 4,484
-------------------------------------------------
9. Related Party Transactions
The Company leases certain office and terminal facilities from entities owned
by the two principal stockholders of the Company. The lease agreements are
for five-year terms and provide the Company with the option to renew the
lease agreements for four three-year terms. Rent expense of approximately
$888, $851 and $868 was recognized in connection with these leases during
2001, 2000 and 1999, respectively.
The two principal stockholders of the Company and certain partnerships
controlled by their families own 100% of the outstanding common stock of
Paragon Leasing LLC ("Paragon"). Paragon leased certain revenue and service
equipment to the Company. Rent expense of approximately $326, $473 and $590
was recognized in connection with these leases during 2001, 2000 and 1999,
respectively.
The two principal stockholders of the Company and certain partnerships
controlled by their families own 45% of the outstanding common stock of
Transcommunications, Inc. ("Transcom"). Beginning in 1999, the Company began
utilizing Transcom charge cards for over-the-road fuel purchases. The Company
paid Transcom $230, $212 and $204 in fees for these services in 2001, 2000
and 1999 respectively. Transcom provides communications services to the
Company and its drivers. Total payments by the Company to Transcom for these
services were approximately $445, $511 and $441 in 2001, 2000 and 1999,
respectively.
On July 1, 2000, the Company and five other large transportation companies
contributed their non-asset based logistics business units into a commonly
owned, Internet-based transportation logistics company, Transplace. The
Company earned revenues of approximately $30.8 million and $12.6 million from
Transplace in 2001 and 2000, respectively, for providing transportation
services.
31
10. 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
airfreight 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 these matters, in the opinion of
management, based in part on the 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 $18,660 were outstanding at December 31, 2001. The
letters of credit are maintained primarily to support the Company's insurance
program (see Note 2). The Company pays commitment fees of 3.50% on the
outstanding portion of the letters of credit.
11. Derivative Financial Instruments
The Company adopted 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 adoption of SFAS No. 133 resulted in recording a cumulative effect of a
change in accounting principle of $99. Due to the immateriality of this
amount, the cumulative effect of adoption was not broken out separately in
the Statement of Stockholders' Equity, but was included in other
comprehensive loss for the year ended December 31, 2001. At December 31,
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 $778, net of tax. For the year ended at
December 31, 2001, the interest rate swaps were deemed to be partially
ineffective cash flow hedges, and, accordingly, the Company recorded $192 of
interest expense in the income statement related to the hedge
ineffectiveness. Under these agreements, the Company receives interest
payments at rates equal to LIBOR reset quarterly, and pays interest at fixed
rates shown below:
Notional Fixed Rate Variable Rate Effective Expiration
Amounts Component Component Date Date
------- --------- ----------- ----------------- ------------------
$10,000 5.730% 2.200% February 6, 1998 February 6, 2003
15,000 5.705 2.200 February 6, 1998 February 6, 2003
10,000 5.145 2.200 August 6, 1999 February 6, 2003
10,000 5.565 2.020 September 8, 1998 September 8, 2003
32
The Company is exposed to credit losses, in the event of non-performance by
the counterparties, to its interest rate swap agreements. The Company
anticipates, however, that the counterparties will be able to fully satisfy
their obligations under the contracts. The Company does not obtain collateral
or other security to support financial instruments subject to credit risk but
monitors the credit-worthiness of counterparties.
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. At December 31, 2001, the Company estimates
the amount it would be required to pay to terminate the agreements
approximates $1,639.
12. Employee Benefit Plan
The Company has a 401(k) retirement plan covering substantially all employees
of the Company, whereby participants may contribute a percentage of their
compensation, as allowed under applicable laws. The plan provides for a
matching contribution by the Company. Participants are 100% vested in
participant contributions and become vested in employer matching
contributions over a period of six years. The Company recognized $1,277,
$1,127 and $1,425 in expense under this employee benefit plan for 2001, 2000
and 1999, respectively.
13. Stockholders' Equity
Common Stock
Holders of Class A Common Stock are entitled to one vote per share. Holders
of Class B Common Stock are entitled to two votes per share. Once the Class B
Common Stock is no longer held by the two principal stockholders of the
Company or their families as defined, the stock is automatically converted
into Class A Common Stock on a share per share basis.
Preferred Stock
Effective December 31, 1993, the Board of Directors approved the designation
of 2,000,000 shares of preferred stock with par value of $.01 per share. The
Board of Directors has the authority to issue these shares and to determine
the rights, terms and conditions of the preferred stock as needed.
Stock Buyback
As authorized by its Board of Directors, the Company purchased 925,100 and
485,000 shares of the Company's outstanding Class A Common Stock in the open
market and in private transactions at a cost of $7,091 and $4,526 for 2000
and 1999, respectively.
Incentive Stock Plan
The Company maintains the U.S. Xpress Enterprises, Inc. Incentive Stock Plan
(the "Plan"). The Plan provides for the issuance of shares of restricted
common stock of the Company, as well as both incentive and nonstatutory stock
options. There may be issued under the Plan (as restricted stock, in payment
of performance grants or pursuant to the exercise of stock options) an
aggregate of not more than 1,038,138 shares of Class A Common Stock.
Participants of the Plan may include key employees as selected by the
compensation committee of the Board of Directors. Under the terms of the
Plan, the Company may issue restricted shares of common stock, grant options
or issue performance grants to participants in amounts and for such prices as
determined by the compensation committee. All options will vest immediately
in the event of a change in control of the Company, or upon the death,
disability or retirement of the employee.
Under a 1993 sale of restricted stock to certain stockholder employees, notes
receivable from stockholders were issued. The notes bear interest at 6% and
are due to the Company upon demand.
On July 1, 2000, 60,000 restricted shares of Class A Common Stock were issued
to certain executive officers. The restrictions on these 60,000 shares expire
ratably over a five-year period beginning July 3, 2001. Restrictions on these
shares expire in the event of a change in control of the Company, or upon the
death, disability or retirement of the employee.
Non-Employee Directors Stock Plan
In August 1995, the Company adopted the 1995 Non-Employee Directors Stock
Award and Option Plan (the "Directors Stock Plan") providing for the issuance
of stock options to non-employee directors upon their election to the
Company's Board of Directors. The Directors Stock Plan also provides
non-employee directors the option to receive certain board-related
compensation in the form of the Company's Class A Common Stock in lieu of
cash. The number of shares of Class A Common Stock available for option or
issue under the Directors Stock Plan may not exceed 50,000 shares.
The Directors Stock Plan provides for the grant of 1,200 options to purchase
the Company's Class A Common Stock to each non-employee director upon the
election or re-election of each such director to the board. The exercise
price of options issued under
33
the Directors Stock Plan is set at the fair market value of the Company's
stock on the date granted. Options vest ratably on each of the first, second
and third anniversaries of the date of grant.
If a board member elects to receive board-related compensation in the form of
stock, the number of shares issued to each director in lieu of cash is
determined based on the amount of earned compensation divided by the fair
market value of the Company's stock on the date compensation is earned.
Employee Stock Purchase Plan
In August 1997, the Company adopted an Employee Stock Purchase Plan (the
"ESPP") through which employees meeting certain eligibility criteria may
purchase shares of the Company's common stock at a discount. Under the ESPP,
eligible employees may purchase shares of the Company's common stock, subject
to certain limitations, at a 15% discount. Common stock is purchased for
employees in January and July of each year. Employees may not purchase more
than 1,250 shares in any six-month period or purchase stock having a market
value of more than $25 per calendar year. The Company has reserved
300,000 shares for issuance under the ESPP. In January and July 2001,
employees purchased 22,042 and 48,449 shares of the Company's Class A Common
Stock at $4.73 and $4.68 per share, respectively. In January and July 2000,
employees purchased 30,899 and 25,501 shares of the Company's Class A Common
Stock at $6.27 and $5.74 per share, respectively. In January and July 1999,
employees purchased 9,752 and 12,957 shares of the Company's Class A Common
Stock at $12.75 and $9.09 per share, respectively. At December 31, 2001,
124,392 shares were available for purchase under the ESPP. In January 2002,
employees purchased 50,796 shares of the Company's Class A Common Stock at
$5.76 per share.
Stock Options
Stock options generally vest over periods ranging from three to six years and
expire ten years from the date of grant. As options were granted at fair
value, no compensation expense has been recognized. A summary of the
Company's stock option activity for 2001, 2000 and 1999 follows:
Weighted Average
Shares Option Price Exercise Price
-----------------------------------------------------------------------
Outstanding at December 31, 1998 357,126 $ 4.72 - $20.88 $ 11.70
Granted at market price 51,300 10.13 - 15.00 13.13
Canceled or expired (14,000) 12.25 - 19.13 14.71
---------------
Outstanding at December 31, 1999 394,426 4.72 - 20.88 11.78
Granted at market price 387,150 6.50 - 8.06 7.11
Exercised (1,200) 6.63 6.63
Canceled or expired (73,950) 6.50 - 20.88 10.84
---------------
Outstanding at December 31, 2000 706,426 4.72 - 20.88 9.33
Granted at market price 50,600 6.88 - 7.10 6.89
Exercised (15,250) 6.50 - 6.88 6.75
Canceled or expired (76,000) 6.50 - 19.13 10.11
---------------
Outstanding at December 31, 2001 665,776 $ 4.72 - $20.88 $ 9.11
===============
For SFAS No. 123 purposes, the fair value of each option grant and each stock
purchase right under the ESPP has been estimated as of the date of grant
using the Black-Scholes pricing model with the following weighted average
assumptions for 2001, 2000 and 1999, respectively: risk-free interest rate of
5.09%, 6.44% and 5.26%, expected life of five years, expected dividend yield
of 0% and expected volatility of 62.5%, 60% and 60%. Using these assumptions,
the fair value of the awards granted in 2001, 2000 and 1999 is $453, $1,292
and $473, respectively, which would be amortized as compensation expense over
the vesting period. Had compensation cost for the plan been determined in
accordance with SFAS No. 123, utilizing the assumptions detailed above, the
Company's pro forma net income (loss) would have been $(1,788), $1,592 and
$11,083 for 2001, 2000 and 1999, respectively. Pro forma basic earnings
(loss) per share would have been $(0.13), $0.11 and $0.75 for 2001, 2000 and
1999, respectively. Pro forma diluted earnings (loss) per share would have
been $(0.13), $0.11 and $0.75 for the same periods.
The weighted average fair value of options granted during 2001, 2000 and 1999
was $3.97, $4.10 and $7.42, respectively. Of the options outstanding at
December 31, 2001, 489,076 have exercise prices between $4.72 and $8.06, with
a weighted average exercise price of $6.77 and a weighted average remaining
contractual life of 7.0 years. Of these options, 195,926 are exercisable at a
weighted average exercise price of $6.11. Options to exercise 68,100 shares
have exercise prices between $9.50 and $12.25, with a weighted average
exercise price of $12.06 and a weighted average remaining contractual life of
6.8 years. Of these options, 50,175 are exercisable at a weighted average
exercise price of $12.08. Options to exercise the
34
remaining 108,600 shares have exercise prices between $15.00 and $20.88, with
a weighted average exercise price of $17.84 and a weighted average remaining
contractual life of 6.0 years. Of these options, 63,600 were exercisable at a
weighted average exercise price of $18.93. As of December 31, 2001, 309,701
of the options outstanding were exercisable with a weighted average exercise
price of $9.71 per share. As of December 31, 2000, 235,731 of the options
outstanding were exercisable with a weighted average exercise price of $10.11
per share. As of December 31, 1999, 209,564 of the options outstanding were
exercisable with a weighted average exercise price of $9.13 per share.
14. Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, customer and other
receivables, accounts payable and accrued liabilities are reasonable
estimates of their fair values because of the short maturity of these
financial instruments. Based on the borrowing rates available to the Company
for long-term debt with similar terms and average maturities, the carrying
amounts approximate the fair value of such financial instruments.
15. 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 airfreight logistics services from airport to airport.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. 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
----------- --------- ------------
1999
----
Revenues - external customers $ 650,499 $ 57,713 $ 708,212
Intersegment revenues 5,530 0 5,530
Operating income 28,869 2,658 31,527
Depreciation and amortization 28,932 1,082 30,014
Total assets 390,922 18,115 409,037
Capital expenditures 74,180 442 74,622
2000
----
Revenues - external customers $ 728,924 $ 58,161 $ 787,085
Intersegment revenues 4,659 0 4,659
Operating income 17,107 2,824 19,931
Depreciation and amortization 33,447 1,264 34,711
Total assets 403,440 20,021 423,461
Capital expenditures 55,455 732 56,187
2001
----
Revenues - external customers $ 714,953 $ 83,079 $ 798,032
Intersegment revenues 21,942 0 21,942
Operating income (loss) 15,103 (1,624) 13,479
Depreciation and amortization 33,730 1,389 35,119
Total assets 391,256 26,212 417,468
Capital expenditures 52,505 895 53,400
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 $14,937, $15,449 and
$12,388 in 2001, 2000 and 1999, respectively.
The difference in consolidated depreciation and amortization as shown above
and consolidated depreciation and amortization, net of gain/loss on
disposition of equipment on the consolidated statements of operations is
gain/(loss) on sale of equipment of $(226), $281 and $764 in 2001, 2000 and
1999, respectively.
35
16. Quarterly Financial Data (Unaudited)
Quarter Ended
-----------------------------------------------------------
March 31 June 30 September 30 December 31 Total
-------------------------------------------------------------------------
Year Ended December 31, 2001
Operating revenue $ 186,478 $ 202,541 $ 207,464 $ 201,549 $ 798,032
Income from operations 2,134 4,784 4,152 2,409 13,479
Income (loss) before income taxes (2,031) 643 629 (699) (1,458)
Net income (loss) (1,220) 387 304 (599) (1,128)
Earnings (loss) per share - basic (.09) .03 .02 (.04) (.08)
Earnings (loss) per share - diluted (.09) .03 .02 (.04) (.08)
Year Ended December 31, 2000
Operating revenue $ 191,841 $ 202,427 $ 197,135 $ 195,682 $ 787,085
Income (loss) from operations 4,842 9,122 6,626 (659) 19,931
Income (loss) before income taxes 1,447 5,150 2,481 (4,596) 4,482
Net income (loss) 868 3,084 1,368 (3,255) 2,065
Earnings (loss) per share - basic /(1)/ 0.06 0.22 0.10 (0.24) 0.15
Earnings (loss) per share - diluted /(1)/ 0.06 0.22 0.10 (0.24) 0.15
/(1)/ The sum of quarterly earnings per share differs from annual earnings per
share because of differences in the weighted average number of common shares
used in the quarterly and annual computations.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
No items have occurred within the 24 months prior to December 31, 2001 involving
a change of accountants or disagreements on accounting and financial disclosure
matters.
36
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The section entitled "Nominees for Directorships" in the Proxy Statement of
the registrant for the annual meeting of shareholders to be held May 14,
2002 is incorporated herein by reference. Information regarding the
executive officers of the registrant is presented in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive Compensation and
Other Information" of the Proxy Statement is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Voting Securities and Principal
Holders Thereof" of the Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Election of Directors" and
"Certain Transactions" of the Proxy Statement is incorporated herein by
reference.
37
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
The financial statements are set forth in Part II, Item 8.
2. Financial Statement Schedules:
Report of Independent Public Accountants
Schedule II - - Valuation and Qualifying Accounts
3. Exhibits:
See the Exhibit Index listing on Page 41 of this Form 10-K.
(b) Reports on Form 8-K
A Form 8-K was filed on December 28, 2001 with the Securities and
Exchange Commission to report the amendment of the Company's
Revolving Credit Agreement and certain revenue equipment
borrowings.
38
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To U.S. Xpress Enterprises, Inc.:
We have audited in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements of U.S. XPRESS ENTERPRISES,
INC. (a Nevada corporation) AND SUBSIDIARIES included in this Form 10-K and have
issued our report thereon dated January 29, 2002. Our audit was made for the
purpose of forming an opinion on the financial statements taken as a whole.
Schedule II is the responsibility of the Company's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic consolidated financial statements. This schedule
has been subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Chattanooga, Tennessee
January 29, 2002
- ------------------
39
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED
DECEMBER 31, 1999, 2000 AND 2001
(In Thousands)
Balance at
Beginning Charged to Charged to Balance at End
Description of Period Cost/Expenses Other /(1)/ Deductions/(2)/ of Period
- -------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED 12/31/99
Reserve for doubtful accounts $ 3,751 $ 1,419 $ 683 $ 2,598 $ 3,255
FOR THE YEAR ENDED 12/31/00
Reserve for doubtful accounts $ 3,255 $ 4,500 $ 204 $ 3,940 $ 4,019
FOR THE YEAR ENDED 12/31/01
Reserve for doubtful accounts $ 4,019 $ 1,223 $ 194 $ 2,017 $ 3,419
/(1)/ For the year ended 12/31/99
Recoveries on accounts written off $ 283
Final adjustment resulting from purchase of PST Vans 400
-----------
$ 683
===========
For the year ended 12/31/00
Recoveries on accounts written off $ 204
===========
For the year ended 12/31/01
Recoveries on accounts written off $ 194
===========
/(2)/ Accounts written off
40
(c) Exhibits
Exhibit No. Description
- -----------------------------
/(1)/ 3.1 Restated Articles of Incorporation of the Company.
/(1)/ 3.2 By-Laws of the Company.
/(1)/ 4.1 Restated Articles of Incorporation of the Company filed as
Exhibit 3.1 and incorporated herein by reference.
/(1)/ 4.2 By-Laws of the Company filed as Exhibit 3.2 and incorporated
herein by reference.
/(1)/ 4.3 Stock Purchase Agreement dated June 10, 1993 by and among Max
L. Fuller, Patrick E. Quinn and the Company.
/(1)/ 4.4 Agreement of Right of First Refusal with regard to Class B
Shares of the Company dated May 11, 1994 by and between Max L.
Fuller and Patrick E. Quinn.
/(1)/ 10.1 Accounts Financing Agreement (Security Agreement) dated
February 2, 1988, as amended, between Congress Financial Corp.
(Southern) and Southwest Motor Freight, Inc.
/(1)/ 10.2 Security Agreement dated December 18, 1985, as amended, by and
between Exchange National Bank of Chicago and U.S. Xpress,
Inc.
/(1)/ 10.3 Security Agreement dated September 17, 1987, as amended, by
and between Exchange National Bank of Chicago and Crown
Transport Systems, Inc.
/(1)/ 10.4 1993 Incentive Stock Plan of the Company.
/(1)/ 10.5 Stock Option Agreement Under 1993 Incentive Stock Plan.
/(1)/ 10.6 Stock Rights and Restrictions Agreement for Restricted Stock
Award Under 1993 Incentive Stock Plan.
/(1)/ 10.7 Self-Funded Employee Benefits Plan Document of the Company.
/(1)/ 10.8 Service Agreement dated May 2, 1994 by and between TTC,
Illinois, Inc. and the Company for the provision of leased
personnel to the Company.
/(1)/ 10.9 Salary Continuation Agreement dated June 10, 1993 by and
between the Company and Max L. Fuller.
/(1)/ 10.10 Salary Continuation Agreement dated June 10, 1993 by and
between the Company and Patrick E. Quinn.
/(1)/ 10.11 Stock Purchase Agreement dated November 28, 1990 by and
between the Company and Clyde Fuller for the acquisition by
the Company of the capital stock of Southwest Motor Freight,
Inc. held by Mr. Fuller, such stock constituting all of the
issued and outstanding capital stock of Southwest Motor
Freight, Inc.
/(1)/ 10.12 Stock Purchase Agreement dated September 30, 1992 by and
between the Company and Clyde Fuller for the acquisition by
the Company of the capital stock of Chattanooga Leasing, Inc.
held by Mr. Fuller, such stock constituting all of the issued
and outstanding capital stock of Chattanooga Leasing, Inc.
/(1)/ 10.13 Articles of Merger and Plan of Merger filed February 24, 1993,
pursuant to which Chattanooga Leasing, Inc. was merged with
and into Southwest Motor Freight, Inc.
41
Exhibit No. Description
- -----------------------------
/(1)/ 10.14 Stock Purchase Agreement dated January 1, 1993 by and among
Max L. Fuller, Patrick E. Quinn and the Company for the
acquisition by the Company of the capital stock of U.S.
Xpress, Inc. held by Messrs. Fuller and Quinn, such stock
constituting all of the issued and outstanding capital stock
of U.S. Xpress, Inc.
/(1)/ 10.15 Stock Purchase Agreement dated January 1, 1993 by and among
Max L. Fuller, Patrick E. Quinn and the Company for the
acquisition by the Company of the capital stock of U.S. Xpress
Leasing, Inc. held by Messrs. Fuller and Quinn, such stock
constituting all of the issued and outstanding capital stock
of U.S. Xpress Leasing, Inc.
/(1)/ 10.16 Stock Purchase Agreement dated March 10, 1994 by and between
the Company and L.D. Miller, III for the acquisition by the
Company of the capital stock of Crown Transport Systems, Inc.
held by Mr. Miller, such stock constituting 40% of the issued
and outstanding capital stock of Crown Transport Systems, Inc.
/(1)/ 10.17 Stock Purchase Agreement dated March 17, 1994 by and between
the Company, Patrick E. Quinn and Max L. Fuller for the
acquisition by the Company of the capital stock of Crown
Transport Systems, Inc. held by Messrs. Quinn and Fuller, such
stock constituting 60% of the issued and outstanding capital
stock of Crown Transport Systems, Inc.
/(1)/ 10.18 Stock Purchase Agreement dated March 18, 1994 by and between
the Company and Ken Adams for the acquisition by the Company
of 50% of the capital stock of Hall Systems, Inc. held by Mr.
Adams and the grant of an option to the Company to purchase
the remaining 50% of the capital stock of Hall Systems, Inc.
from Mr. Adams, exercisable beginning April 1, 1997.
/(2)/ 10.19 Software Acquisition Agreement dated September 15, 1994 by and
among Qualcomm Incorporated, Xpress Data Services, Inc., U.S.
Xpress Enterprises, Inc., Patrick E. Quinn, Max L. Fuller,
Information Management Solutions, Inc. and James Coppinger.
/(3)/ 10.20 Stock Purchase Agreement dated October 31, 1994 by and between
the Company and Ken Frohlich for the acquisition by the
Company of the capital stock of National Freight Systems, Inc.
held by Mr. Frohlich, such stock constituting all of the
issued and outstanding capital stock of National Freight
Systems, Inc.
/(4)/ 10.21 Asset Purchase Agreement with respect to acquisition of
CSI/Reeves, Inc.
/(5)/ 10.22 Stock Purchase Agreement with respect to Hall Systems, Inc.
/(5)/ 10.23 Credit Agreement with NationsBank.
/(6)/ 10.24 Amendment No. 1 to Credit Agreement with NationsBank.
/(7)/ 10.25 Asset Purchase Agreement dated June 18, 1996 with
respect to acquisition of Michael Lima Transportation, Inc.
/(7)/ 10.26 Asset Purchase Agreement dated April 1, 1997 with respect to
acquisition of assets from Rosedale Transport, Inc. and
Rosedale Transport, Ltd.
/(7)/ 10.27 Asset Purchase Agreement dated April 25, 1997 with respect to
acquisition of JTI, Inc.
/(8)/ 10.28 Loan and Security Agreement dated June 24, 1997 by and between
Wachovia Bank, N.A. and U.S. Xpress Leasing.
42
Exhibit No. Description
- -----------------------------
/(9)/ 10.29 Stock Purchase Agreement dated as of December 24, 1997 by and
between U.S. Xpress Enterprises, Inc. and Richard H. Schaffer,
Richard H. Schaffer Irrevocable Trust dated December 24, 1991
and Richard H. Schaffer Irrevocable Non-Withdrawal Trust dated
December 24, 1991.
/(9)/ 10.30 Credit Agreement dated as of January 15, 1998 among U.S.
Xpress Enterprises, Inc., Wachovia Bank, N.A., NationsBank,
N.A., BankBoston, N.A., SunTrust Bank, Chattanooga, N.A. and
the banks listed therein.
/(10)/ 10.31 Investment and Participation Agreement between U.S. Xpress
Enterprises, Inc. and Wachovia Capital Markets, Inc.
/(10)/ 10.32 Acquisition, Agency, Indemnity and Support Agreement between
U.S. Xpress Enterprises, Inc. and Wachovia Capital Markets,
Inc.
/(10)/ 10.33 Lease Agreement between U.S. Xpress Enterprises, Inc. and
Wachovia Capital Markets, Inc.
/(11)/ 10.34 Agreement and Plan of Merger dated as of July 7, 1998 among
U.S. Xpress Enterprises, Inc., PST Acquisition Corp. and PST
Vans, Inc.
/(12)/ 10.35 First Amendment to Credit Agreement dated as of January 15,
1998 among U.S. Xpress Enterprises, Inc., Wachovia Bank, N.A.,
NationsBank, N.A., BankBoston, N.A., SunTrust Bank,
Chattanooga, N.A. and the banks listed therein.
/(12)/ 10.36 Second Amendment to Credit Agreement dated as of January 15,
1998 among U.S. Xpress Enterprises, Inc., Wachovia Bank, N.A.,
NationsBank, N.A., BankBoston, N.A., SunTrust Bank,
Chattanooga, N.A. and the banks listed therein.
/(12)/ 10.37 Third Amendment to Credit Agreement dated as of January 15,
1998 among U.S. Xpress Enterprises, Inc., Wachovia Bank, N.A.,
NationsBank, N.A., BankBoston, N.A., SunTrust Bank,
Chattanooga, N.A. and the banks listed therein.
/(12)/ 10.38 Fourth Amendment to Credit Agreement dated as of January 15,
1998 among U.S. Xpress Enterprises, Inc., Wachovia Bank, N.A.,
NationsBank, N.A., BankBoston, N.A., SunTrust Bank,
Chattanooga, N.A. and the banks listed therein.
/(13)/ 10.39 First Amendment to the Investment and Participation Agreement
dated as of November 12, 2000, among U.S. Xpress Enterprises,
Inc. and Wachovia Capital Investments, Inc.
/(13)/ 10.40 Second Amendment to the Investment and Participation Agreement
dated as of March 30, 2000, among U.S. Xpress Enterprises,
Inc. and Wachovia Capital Investments, Inc.
/(13)/ 10.41 Third Amendment to the Investment and Participation Agreement
dated as of June 13, 2000, among U.S. Xpress Enterprises, Inc.
and Wachovia Capital Investments, Inc.
/(13)/ 10.42 U.S. Xpress Enterprises Employment Agreement with Cort J.
Dondero dated as of June 13, 2000 by and between U.S. Xpress
Enterprises, Inc. and Cort J. Dondero.
/(13)/ 10.43 Initial Subscription Agreement of Transplace.com, LLC, entered
into as of April 19, 2000 by Transplace.com, LLC, a Nevada
Limited Liability Company, and Covenant Transport, Inc., J.B.
Hunt Transport Services, Inc., M.S. Carriers, Inc., Swift
Transportation Co., Inc., U.S. Xpress Enterprises, Inc., and
Werner Enterprises, Inc.
/(13)/ 10.44 Operating Agreement of Transplace.com, LLC, made and entered
into as of April 19, 2000 by Transplace.com, LLC, a Nevada
Limited Liability Company, and Covenant Transport, Inc., J.B.
Hunt Transport Services, Inc., M.S. Carriers, Inc., Swift
Transportation Co., Inc., U.S. Xpress Enterprises, Inc., and
Werner Enterprises, Inc. and Transplace.com, LLC.
43
Exhibit No. Description
- -----------------------------
/(14)/ 10.45 Amended and Restated Credit Agreement dated as of January 31,
2001 among U.S. Xpress Enterprises, Inc., Wachovia Bank, N.A.,
Bank of America, N.A., Fleet National Bank, SunTrust Bank, and
the banks listed therein.
/(15)/ 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.
/(15)/ 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 Manhattan Bank,
LaSalle Bank National Association, and first Tennessee Bank,
N.A.
/(16)/ 10.48 Fourth Amendment to Amended and Restated Credit Agreement
dated December 21, 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, as
Documentation Agent, SunTrust Bank, as Co-Agent, and Wachovia
Bank, N.A., Bank of America, N.A., Fleet National Bank,
SunTrust Bank, AmSouth Bank, JP Morgan Chase Bank (formerly,
The Chase Manhattan Bank), LaSalle Bank National Association,
and First Tennessee Bank, N.A., as Banks.
10.49 Term Loan Agreement, dated December 21, 2001, by and between
U.S. Xpress Leasing, Inc. and DaimlerChrysler Services North
America LLC.
10.50 Security Agreement dated December 21, 2001, by and between
U.S. Xpress Leasing, Inc. and DaimlerChrysler Services North
America LLC.
10.51 First Amendment to Security Agreement dated January 30, 2002,
by and between U.S. Xpress Leasing, Inc. and DaimlerChrysler
Services North America LLC
10.52 Security Agreement dated December 21, 2001, and related form
of Promissory Note by and between U.S. Xpress, Leasing, Inc.
and Transport International Pool, Inc.
21 List of the current subsidiaries of the Company.
23 Consent of Independent Public Accountants.
99 Letter from the Company to the SEC with respect to
representations received from Arthur Andersen LLP
----------------------------------
/(1)/ Filed in Registration Statement on Form S-1 dated May 20,
1994. (SEC File No. 33-79208)
/(2)/ Filed in Pre-Effective Amendment No. 2 to Registration
Statement on Form S-1 dated October 4, 1994. (SEC File No.
33-79208)
/(3)/ Filed in Form 10-Q dated November 17, 1994 (SEC Commission
File No. 0-24806)
/(4)/ Filed in Form 10-Q dated November 10, 1995 (SEC Commission
File No. 0-24806)
/(5)/ Filed in Form 10-Q dated February 13, 1996 (SEC Commission
File No. 0-24806)
/(6)/ Filed in Form 10-Q dated November 14, 1996 (SEC Commission
File No. 0-24806)
/(7)/ Filed in Form 10-K dated March 31, 1997 (SEC Commission File
No. 0-24806)
/(8)/ Filed in Registration Statement Form S-1 dated August 19, 1997
/(9)/ Filed in Form 8-K dated January 29, 1998 (SEC Commission File
No. 0-24806)
/(10)/ Filed in Form 10-Q dated March 31, 1998 (SEC Commission File
No. 0-24806)
/(11)/ Filed in Form S-4 dated July 30, 1998 (SEC Commission File No.
333-59377)
/(12)/ Filed in Form 10-Q dated March 31, 2000 (SEC Commission File
No. 0-24806)
/(13)/ Filed in Form 10-Q dated June 30, 2000 (SEC Commission File
No. 0-24806)
/(14)/ Filed in Form 10-K dated April 2, 2001 (SEC Commission File
No. 0-24806)
/(15)/ Filed in Form 10-Q dated June 30, 2001 (SEC Commission File
No. 0-24806)
/(16)/ Filed in Form 8-K dated December 28, 2001 (SEC Commission File
No. 0-24806)
44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on the
1st day of April, 2002.
U.S. XPRESS ENTERPRISES, INC.
Date: April 1, 2002 By: /s/ Ray M. Harlin
----------------------------- ------------------------
Ray M. Harlin
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Patrick E. Quinn Co-Chairman of the Board of Directors, April 1, 2002
----------------------------- --------------
Patrick E. Quinn President and Treasurer
/s/ Max L. Fuller Co-Chairman of the Board of Directors, April 1, 2002
----------------------------- --------------
Max L. Fuller Vice President and Secretary
/s/ Ray M. Harlin Director, Executive Vice President of Finance April 1, 2002
----------------------------- --------------
Ray M. Harlin and Chief Financial Officer (principal
financial and accounting officer)
/s/ Cort J. Dondero Director and Chief Operating Officer April 1, 2002
----------------------------- --------------
Cort J. Dondero
/s/ James E. Hall Director April 1, 2002
----------------------------- --------------
James E. Hall
/s/ Robert J. Sudderth, Jr. Director April 1, 2002
----------------------------- --------------
Robert J. Sudderth, Jr.
/s/ A. Alexander Taylor, II Director April 1, 2002
----------------------------- --------------
A. Alexander Taylor, II
45