Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended Commission file number
June 30, 2002 0-24806
U.S. XPRESS ENTERPRISES, INC.
NEVADA 62-1378182
(State or other jurisdiction of (I.R.S. employer identification no.)
Incorporation or organization)
4080 Jenkins Road (423) 510-3000
CHATTANOOGA, TENNESSEE 37421 (Registrant's telephone no.)
(Address of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
As of June 30, 2002, 10,815,900 shares of the registrant's Class A common
stock, par value $.01 per share, and 3,040,262 shares of the registrant's Class
B common stock, par value $.01 per share, were outstanding.
U.S. XPRESS ENTERPRISES, INC.
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Consolidated Financial Statements
Consolidated Statements of Operations for the Three
and Six Months Ended June 30, 2002 and 2001 ............... 3
Consolidated Balance Sheets as of June 30,
2002 and December 31, 2001 ................................ 4
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2002 and 2001 ................... 6
Item 1. Notes to Consolidated Financial Statements ................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ................ 13
Item 3. Quantitative and Qualitative Disclosure About Market Risk .... 21
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders .......... 22
Item 6. Exhibits and Reports on Form 8-K ............................. 22
SIGNATURES ................................................... 23
U.S. XPRESS ENTERPRISES, INC.
PART I
FINANCIAL INFORMATION
U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
2002 2001 2002 2001
--------- --------- --------- ----------
Operating Revenue $ 215,636 $ 202,541 $ 412,856 $ 389,019
--------- --------- --------- ----------
Operating Expenses:
Salaries, wages and benefits ........................ 77,262 76,956 150,593 148,248
Fuel and fuel taxes ................................. 28,956 34,054 55,291 66,160
Vehicle rents ....................................... 17,562 16,249 35,484 30,849
Depreciation and amortization, net of gain on sale .. 9,299 8,672 18,183 17,988
Purchased transportation ............................ 35,726 24,499 65,962 47,608
Operating expense and supplies ...................... 15,243 14,056 28,927 26,618
Insurance premiums and claims ....................... 11,085 8,037 20,081 15,392
Operating taxes and licenses ........................ 3,214 3,464 6,389 6,604
Communications and utilities ........................ 2,851 2,915 5,674 5,825
General and other operating ......................... 8,796 8,855 17,790 16,809
--------- --------- --------- ----------
Total operating expenses ........................... 209,994 197,757 404,374 382,101
--------- --------- --------- ----------
Income from Operations ................................ 5,642 4,784 8,482 6,918
Interest Expense, net ................................. 3,605 4,141 7,010 8,306
--------- --------- --------- ----------
Income (Loss) Before Income Taxes ..................... 2,037 643 1,472 (1,388)
Income Tax Provision (Benefit) ........................ 1,106 256 869 (555)
--------- --------- --------- ----------
Income (Loss) Before Extraordinary Item ............... 931 387 603 (833)
Extraordinary loss on early extinguishment of debt,
net of income taxes of $668 ......................... - - (1,108) -
--------- --------- --------- ----------
Net Income (Loss) ..................................... $ 931 $ 387 $ (505) $ (833)
========= ========= ========= ==========
Earnings (Loss) Per Share Before
Extraordinary Item - basic .......................... 0.07 0.03 0.04 (0.06)
Extraordinary Item - basic ............................ - - (0.08) -
--------- --------- --------- ----------
Earnings (Loss) Per Share - basic ..................... $ 0.07 $ 0.03 $ (0.04) $ (0.06)
========= ========= ========= ==========
Earnings (Loss) Per Share Before
Extraordinary Item - diluted ........................ 0.07 0.03 0.04 (0.06)
Extraordinary Item - diluted .......................... - - (0.08) -
--------- --------- --------- ----------
Earnings (Loss) Per Share - diluted ................... $ 0.07 $ 0.03 $ (0.04) $ (0.06)
========= ========= ========= ==========
Weighted average shares - basic ....................... 13,853 13,730 13,852 13,729
========= ========= ========= ==========
Weighted average shares - diluted ..................... 14,076 13,784 14,047 13,729
========= ========= ========= ==========
(See Accompanying Notes to Consolidated Financial Statements)
3
U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
Assets June 30, 2002 December 31, 2001
- ---------------------------------------------------- ------------- -----------------
(Unaudited)
Current Assets:
Cash and cash equivalents .......................... $ 129 $ 8,185
Customer receivables, net of allowance ............. 97,312 83,296
Other receivables .................................. 7,762 7,824
Prepaid insurance and licenses ..................... 7,919 5,112
Operating and installation supplies ................ 4,666 3,833
Deferred income taxes .............................. 1,095 1,406
Other current assets ............................... 6,451 6,594
-------- --------
Total current assets ........................... 125,334 116,250
-------- --------
Property and Equipment, at cost:
Land and buildings ................................. 44,070 44,768
Revenue and service equipment ...................... 231,459 216,934
Furniture and equipment ............................ 20,451 19,758
Leasehold improvements ............................. 18,106 17,748
-------- --------
314,086 299,208
Less accumulated depreciation and amortization ..... (97,950) (84,926)
-------- --------
Net property and equipment ..................... 216,136 214,282
-------- --------
Other Assets:
Goodwill, net ...................................... 68,875 68,875
Investment in Transplace ........................... 5,815 5,815
Other .............................................. 12,239 12,246
-------- --------
Total other assets ............................. 86,929 86,936
-------- --------
Total Assets ......................................... $428,399 $417,468
======== ========
(See Accompanying Notes to Consolidated Financial Statements)
4
U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands Except Share Data)
Liabilities and Stockholders' Equity June 30, 2002 December 31, 2001
- -------------------------------------------------- ------------- -----------------
(Unaudited)
Current Liabilities:
Accounts payable .................................... $ 18,268 $ 15,402
Book overdraft ...................................... 1,510 -
Accrued wages and benefits .......................... 9,859 8,147
Claims and insurance accruals ....................... 19,895 14,742
Other accrued liabilities ........................... 4,654 3,376
Current maturities of long-term debt ................ 37,660 23,491
-------- --------
Total current liabilities ....................... 91,846 65,158
-------- --------
Long-Term Debt, net of current maturities ............. 137,646 151,540
-------- --------
Deferred Income Taxes ................................. 42,287 41,852
-------- --------
Other Long-Term Liabilities ........................... 674 3,308
-------- --------
Stockholders' Equity:
Preferred stock, $.01 par value, 2,000,000
shares authorized, no shares issued ............... -- --
Common stock Class A, $.01 par value,
30,000,000 shares authorized, 13,360,289 and
13,300,466 shares issued at June 30, 2002 and
December 31, 2001, respectively ................... 134 133
Common stock Class B, $.01 par value, 7,500,000
shares authorized, 3,040,262 shares issued and
outstanding at June 30, 2002 and December 31, 2001 30 30
Additional paid-in capital .......................... 105,949 105,586
Retained earnings ................................... 75,163 75,669
Other comprehensive income (loss) ................... (348) (778)
Treasury Stock Class A, at cost (2,544,389 shares at
June 30, 2002 and December 31, 2001) .............. (24,483) (24,483)
Notes receivable from stockholders .................. (211) (211)
Unamortized compensation on restricted stock ........ (288) (336)
-------- --------
Total stockholders' equity ...................... 155,946 155,610
-------- --------
Total Liabilities and Stockholders' Equity ............ $428,399 $417,468
======== ========
(See Accompanying Notes to Consolidated Financial Statements)
5
U.S. XPRESS ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months Ended
June 30,
-----------------------
2002 2001
--------- -------
Cash Flows from Operating Activities:
Net Loss ..................................................................... $ (505) $ (833)
Adjustments to reconcile net income to
net cash provided by operating activities:
Extraordinary item - loss on early extinguishment of debt .................. 1,776 -
Deferred income tax provision .............................................. 435 (278)
Depreciation and amortization .............................................. 17,637 18,040
(Gain) loss on sale of equipment ........................................... 546 (51)
Loss on interest rate swaps ................................................ 270 95
Change in operating assets and liabilities
Receivables ............................................................ (13,906) (3,885)
Prepaid insurance and licenses ......................................... (2,807) (6,601)
Operating and installation supplies .................................... (806) 1,011
Other assets ........................................................... (3,597) (5,027)
Accounts payable and other accrued liabilities ......................... 7,861 2,605
Accrued wages and benefits ............................................. 1,711 2,417
Other .................................................................. 77 74
-------- -------
Net cash provided by operating activities .............................. 8,692 7,567
-------- -------
Cash Flows from Investing Activities:
Payments for purchase of property and equipment ............................ (6,940) (34,093)
Proceeds from sales of property and equipment .............................. 1,051 22,990
-------- -------
Net cash used in investing activities .................................. (5,889) (11,103)
-------- -------
Cash Flows from Financing Activities:
Net borrowings under lines of credit ....................................... (12,000) 5,801
Borrowings under long-term debt ............................................ 9,222 -
Payments of long-term debt ................................................. (9,926) (1,607)
Book overdraft ............................................................. 1,510 (761)
Proceeds from exercise of stock options .................................... 43 -
Proceeds from issuance of common stock ..................................... 292 104
-------- -------
Net cash provided by (used in) financing activities .................... (10,859) 3,537
-------- -------
Net Increase (Decrease) in Cash and Cash Equivalents ........................... (8,056) 1
Cash and Cash Equivalents, beginning of period ................................. 8,185 34
-------- -------
Cash and Cash Equivalents, end of period ....................................... $ 129 $ 35
======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest, net of capitalized interest ........ $ 6,772 $ 8,170
Cash (refunded) paid during the period for income taxes ...................... $ 224 $(2,769)
Conversion of operating leases to equipment installment notes ................ $ 12,979 $ -
(See Accompanying Notes to Consolidated Financial Statements)
6
U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In Thousands, Except Per Share Data)
1. Consolidated Financial Statements
The interim consolidated financial statements contained herein reflect all
adjustments that, in the opinion of management, are necessary for a fair
statement of the financial condition and results of operations for the periods
presented. They have been prepared by the Company, without audit, in accordance
with the instructions to Form 10-Q and the rules and regulations of the
Securities and Exchange Commission and do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
Operating results for the three and six months ended June 30, 2002 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2002. In the opinion of management, all adjustments necessary for a
fair presentation of such financial statements have been included. Such
adjustments consisted only of items that are of a normal recurring nature.
These interim consolidated financial statements should be read in
conjunction with the Company's latest annual consolidated financial statements
(which are included in the 2001 Annual Report to Stockholders in the Company's
Form 10-K filed with the Securities and Exchange Commission on April 1, 2002).
2. Organization and Operations
U. S. Xpress Enterprises, Inc. (the "Company") provides transportation
services through two business segments, U.S. Xpress, Inc. ("U.S. Xpress") and
CSI/Crown, Inc. ("CSI/Crown"). U.S. Xpress is a truckload carrier serving the
continental United States and parts of Canada and Mexico. CSI/Crown provides
transportation, warehousing and distribution services to the floorcovering
industry and also provides airport-to-airport transportation services to the
airfreight and airfreight forwarding industries.
3. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany transactions and accounts
have been eliminated.
Property and Equipment
Property and equipment are carried at cost. Depreciation and amortization
of property and equipment is computed using the straight-line method for
financial reporting purposes and accelerated methods for tax purposes over the
estimated useful lives of the related assets (net of salvage value) as follows:
Buildings 10-30 years
Revenue and service equipment 3-7 years
Furniture and equipment 3-7 years
Leasehold improvements 5-6 years
Expenditures for normal maintenance and repairs are expensed. Renewals
or betterments that affect the nature of an asset or increase its useful life
are capitalized.
Earnings Per Share
The difference in basic and diluted EPS is due to the assumed conversion of
outstanding options resulting in approximately 223,000 and 54,000 equivalent
shares in the three-month periods ended June 30, 2002 and 2001, respectively,
and 195,000 in the six-month period ended June 30, 2002. Due to the loss in the
six-month period ended June 30, 2001, the outstanding options are anti-dilutive
and are not considered in EPS.
Reclassifications
Certain reclassifications have been made in the 2001 financial statements
to conform to the 2002 presentation.
7
Book Overdraft
Book overdraft represents outstanding checks in excess of current cash
levels. The Company will fund the book overdraft from its line of credit and
operating cash flows.
4. Commitments and Contingencies
The Company is a defendant in a lawsuit filed by Forward Air, Inc.
("Forward Air"), a deferred airfreight service provider, in the United States
District Court in Greeneville, Tennessee, in which Forward Air has asserted a
variety of claims primarily for trademark infringement and unfair competition
allegedly arising out of the Company's use of the name "Dedicated Xpress
Services, Inc." In its lawsuit, Forward Air asserts that after Forward Air
purchased the assets of Dedicated Transportation Services, Inc. ("DTSI"), an air
freight provider, the Company entered the deferred air freight logistics service
business and is unfairly competing with Forward Air. Forward Air seeks
unspecified damages and injunctive relief preventing the Company from using the
name "Dedicated Xpress Services, Inc."
In a related case, SouthTrust Bank ("SouthTrust"), the secured lender to
DTSI, which foreclosed upon and sold the assets of DTSI to Forward Air, has
filed a lawsuit against the Company concerning certain events surrounding such
foreclosure and sale. In November 2000, the Company signed an agreement with
SouthTrust to purchase certain assets of DTSI at foreclosure by SouthTrust.
After the agreement was signed, SouthTrust advised the Company that it had
received a higher offer for the assets from Forward Air and that it would cancel
the agreement with the Company unless the Company matched the higher offer.
SouthTrust then sold the assets of DTSI to Forward Air. In its lawsuit,
SouthTrust claims the Company acted wrongfully and attempted to interfere with
SouthTrust's sale of DTSI's assets to Forward Air. The lawsuit seeks damages in
an unspecified amount from the Company, and seeks to have the Court declare that
actions taken by SouthTrust in connection with the foreclosure and sale of
DTSI's assets were lawful and did not violate any legal rights of the Company.
The Company believes that the claims asserted by Forward Air and SouthTrust
are without merit and intends to vigorously defend the lawsuits.
The Company is party to certain other legal proceedings incidental to its
business. The ultimate disposition of such other matters, in the opinion of
management, based in part upon an assessment of the likelihood of an adverse
disposition of such matters, will not have a material adverse effect on the
Company's financial position or results of operations.
Letters of credit of $24,357 were outstanding at June 30, 2002. The letters
of credit are maintained primarily to support the Company's insurance program.
5. Derivative Financial Instruments
The Company adopted the Statement of Financial Accounting Standards No. 133
(SFAS No. 133), "Accounting for Derivative Instruments and Hedging Activities,"
as amended,
8
on January 1, 2001. SFAS No. 133 requires that all derivative instruments be
recorded on the balance sheet at fair value. The Company had designated its
interest rate swap agreements as cash flow hedge instruments. The swap
agreements were used to manage exposure to interest rate movement by effectively
changing the variable rate to a fixed rate. The fair value of the interest rate
swap agreements is defined as the amount the Company would receive or would be
required to pay to terminate further obligations under the agreements. Changes
in fair value of the interest rate agreements were recognized in other
comprehensive income through March 29, 2002.
On March 29, 2002, in connection with entering into a new revolving credit
agreement, the outstanding interest rate swap agreements ceased to qualify as
cash flow hedge instruments because they were not matched to the terms of the
new debt. Accordingly, they are not designated as hedging instruments from and
after such date. Effective March 29, 2002, the amount included in other
comprehensive income related to the interest rate swap agreements are being
amortized over the remaining term of the respective agreements. Future changes
in the market value of the swap agreements will be reflected as interest expense
in the statement of operations. The fair market value of the interest rate swaps
as of June 30, 2002 was a liability of $1,169, which is included in other
accrued liabilities.
9
6. Operating Segments
The Company has two reportable segments based on the types of services it
provides to its customers: U.S. Xpress, Inc., which provides truckload
operations throughout the continental United States and parts of Canada and
Mexico, and CSI/Crown, Inc., which provides transportation, warehousing and
distribution services to the floorcovering industry and also provides
airport-to-airport transportation services to the airfreight and airfreight
forwarding industries. Substantially all intersegment sales prices are market
based. The Company evaluates performance based on operating income of the
respective business units.
(Dollars in Thousands)
U.S. Xpress CSI/Crown Consolidated
----------- --------- ------------
Three Months Ended June 30, 2002
- --------------------------------
Revenues - external customers ................. 187,402 $28,234 $215,636
Intersegment revenues ......................... 7,025 -- 7,025
Operating income .............................. 5,188 454 5,642
Total assets .................................. 398,949 29,450 428,399
Three Months Ended June 30, 2001
- --------------------------------
Revenues - external customers ................. 183,061 $19,480 $202,541
Intersegment revenues ......................... 5,560 -- 5,560
Operating income .............................. 4,678 106 4,784
Total assets .................................. 402,226 25,316 427,542
Six Months Ended June 30, 2002
- ------------------------------
Revenues - external customers ................. 359,910 $52,946 $412,856
Intersegment revenues ......................... 12,617 -- 12,617
Operating income .............................. 7,988 494 8,482
Total assets .................................. 398,949 29,450 428,399
Six Months Ended June 30, 2001
- ------------------------------
Revenues - external customers ................. 355,145 $33,874 $389,019
Intersegment revenues ......................... 8,390 -- 8,390
Operating income .............................. 7,041 (123) 6,918
Total assets .................................. 402,226 25,316 427,542
The difference in consolidated operating income as shown above and
consolidated income before income tax provision on the consolidated statements
of operations is net interest expense of $3,605 and $4,141 for the three months
ended June 30, 2002 and 2001, respectively, and $7,010 and $8,306 for the six
months ended June 30, 2002 and 2001, respectively.
10
7. Comprehensive Income
Comprehensive income (loss) consisted of the following components for the
six months ended June 30, 2002 and 2001, respectively:
For the Six Months Ended
June 30,
----------------------
2002 2001
---- ----
(in thousands)
Net loss $ (505) $ (833)
Net gain (loss) on current period cash flow hedges 312 (368)
Amortization of hedge de-designation 117 --
------ -------
Total $ (76) $(1,201)
====== =======
8. Long-Term Debt and Extraordinary Item
On March 29, 2002, the Company entered into a $100 million senior secured
revolving credit facility. Proceeds from this new facility were used to repay
the then existing revolving credit facility. The revolving credit facility
provides for borrowings up to $100 million, with availability at any given time
based on specified percentages of eligible receivables and revenue equipment,
less reserves, under the facility's Borrowing Base formula. Letters of credit
under the facility are limited to $30 million. The facility matures in March
2007.
The facility allows the Company to select interest rates for all or any
portion of the outstanding balance, based on either a Base Rate (based on the
domestic prime rate) plus an Applicable Margin or LIBOR plus an Applicable
Margin. The Applicable Margin ranges from 0.75% to 1.5% for Base Rate Loans and
from 2.25% to 3.0% for LIBOR Loans, based in each case on the aggregate
availability as defined. At June 30, 2002, the Applicable Margin was 1.25% for
Base Rate Loans and 2.75% for LIBOR Loans. The facility also prescribes
additional fees for Letter of Credit transactions and a monthly commitment fee
based on the difference between the total commitment and the total borrowing
capacity utilized by the Company from time to time.
At June 30, 2002, $33 million in borrowings were outstanding under the
facility with $36 million available to borrow. The facility is secured by
substantially all assets of the Company, other than real estate and assets
securing other debt of the Company.
The new facility requires, among other things, maintenance by the Company
of prescribed minimum amounts of Consolidated Tangible Net Worth, Fixed Charge
Coverage Ratios and Leverage Ratios. It also: (i) limits the Company's future
capital expenditures; (ii) prohibits all acquisitions by the Company of its own
capital stock or the payment of dividends on such stock; and (iii) effectively
prohibits future asset acquisitions or dispositions (except in the ordinary
course of business) or other business combination transactions by the Company
without the Lenders' consent.
11
In connection with the repayment of the former revolving credit agreement,
the Company incurred an extraordinary loss of $1.1 million, after income taxes,
related to the early extinguishment of this debt.
9. Goodwill
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 142, "Goodwill and Other Intangible Assets". SFAS No. 142 requires that
goodwill not be amortized, and that amounts recorded as goodwill be tested for
impairment. The Company adopted SFAS 142 effective January 1, 2002. Application
of the provisions of SFAS 142 will decrease annual amortization expense by
approximately $1.8 million. The Company tested goodwill for impairment using the
two-step process prescribed in SFAS 142. The first step is a screen for
potential impairment, while the second step measures impairment, if any. The
Company completed the required impairment tests of goodwill and noted no
impairment of goodwill.
The following table presents the Company's net income assuming goodwill had
not been amortized during the three and six months ended June 30, 2001.
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2002 2001 2002 2001
------ ------ ------- -------
Income (Loss) Before Extraordinary Item, as reported $ 931 $ 387 $ 603 $ (833)
Add goodwill, net of tax - 287 543
------ ------ ------- -------
Adjusted Income (Loss) Before Extraordinary Item $ 931 $ 674 $ 603 $ (290)
====== ====== ======= =======
Net Income (Loss), as reported $ 931 $ 387 $(1,108) $ (833)
Add goodwill, net of tax - 287 - 543
------ ------ ------- -------
Adjusted Net Income (Loss) $ 931 $ 674 $(1,108) $ (290)
====== ====== ======= =======
Earnings (Loss) Per Share Before Extraordinary Item,
as reported-basic $ 0.07 $ 0.03 $ 0.04 $ (0.06)
Add goodwill, net of tax - 0.02 - 0.04
------ ------ ------- -------
Adjusted Earnings (Loss) Per Share Before
Extraordinary Item, as reported-basic $ 0.07 $ 0.05 $ 0.04 $ (0.02)
====== ====== ======= =======
Earnings (Loss) Per Share Before Extraordinary Item,
as reported-diluted $ 0.07 $ 0.03 $ 0.04 $ (0.06)
Add goodwill, net of tax
- 0.02 - 0.04
------ ------ ------- -------
Adjusted Earnings (Loss) Per Share Before
Extraordinary Item, as reported-diluted $ 0.07 $ 0.05 $ 0.04 $ (0.02)
====== ====== ======= =======
Earnings (Loss) Per Share, as reported-basic $ 0.07 $ 0.03 $ (0.08) $ (0.06)
Add goodwill, net of tax - 0.02 - 0.04
------ ------ ------- -------
Adjusted Earnings (Loss) Per Share, as reported-basic $ 0.07 $ 0.05 $ (0.08) $ (0.02)
====== ====== ======= =======
Earnings (Loss) Per Share, as reported-diluted $ 0.07 $ 0.03 $ (0.08) $ (0.06)
Add goodwill, net of tax - 0.02 - 0.04
------ ------ ------- -------
Adjusted Earnings (Loss) Per Share,
as reported-diluted $ 0.07 $ 0.05 $ (0.08) $ (0.02)
====== ====== ======= =======
10. Recent Accounting Pronouncements
In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment
or Disposal of Long-lived Assets". SFAS No. 144 addresses financial accounting
and reporting for the impairment of long-lived assets and for long-lived assets
to be disposed of. SFAS No. 144 supersedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and
among other factors, establishes criteria beyond that previously specified in
SFAS No. 121 to be evaluated when a long-lived asset is to be considered as held
for sale. The Company adopted SFAS No. 144 effective January 1, 2002.
In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statements
No. 4, 44, and 62, Amendment of FASB Statement No. 13, and Technical
Corrections". SFAS 145 is effective for financial statements issued on or after
May 15, 2002. For most companies, SFAS 145 will require gains and losses on
extinguishments of debt to be classified as income or loss from continuing
operations rather than as extraordinary items as previously required under
Statement 4. Extraordinary treatment will be required for certain
extinguishments as provided in APB Opinion No. 30. Upon adoption, any gain or
loss on extinguishments of debt previously classified as an extraordinary item
in prior periods presented that does not meet the criteria of Opinion 30 for
such classification should be reclassified to conform with the provisions of
Statement 145. Early adoption is encouraged but not required.
12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
U. S. Xpress Enterprises, Inc. (the "Company") provides transportation
services through two business segments, U.S. Xpress, Inc. ("U.S. Xpress") and
CSI/Crown, Inc. ("CSI/Crown"). U.S. Xpress is a truckload carrier serving the
continental United States and parts of Canada and Mexico. CSI/Crown provides
transportation, warehousing and distribution services to the floorcovering
industry and also provides airport-to-airport transportation services to the
airfreight and airfreight forwarding industries.
Results of Operations
The following table sets forth, for the periods indicated, the components
of the consolidated statements of operations expressed as a percentage of
operating revenue:
Three Months Six Months
Ended Ended
June 30, June 30,
--------------- -----------------
2002 2001 2002 2001
------ ------ ------ ------
Operating Revenue 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------
Operating Expenses:
Salaries, wages and benefits ............................. 35.8 38.0 36.5 38.1
Fuel and fuel taxes ...................................... 13.4 16.8 13.4 17.0
Vehicle rents ............................................ 8.1 8.0 8.6 7.9
Depreciation and amortization, net of gain on sale ....... 4.3 4.3 4.4 4.6
Purchased transportation ................................. 16.6 12.1 16.0 12.2
Operating expense and supplies ........................... 7.1 6.9 7.0 6.8
Insurance premiums and claims ............................ 5.1 4.0 4.9 4.0
Operating taxes and licenses ............................. 1.5 1.7 1.5 1.7
Communications and utilities ............................. 1.3 1.4 1.4 1.5
General and other operating .............................. 4.2 4.4 4.2 4.4
------ ------ ------ ------
Total operating expenses ................................ 97.4 97.6 97.9 98.2
------ ------ ------ ------
Income from Operations ..................................... 2.6 2.4 2.1 1.8
Interest Expense, net ...................................... 1.7 2.1 1.8 2.1
------ ------ ------ ------
Income (Loss) Before Income Taxes .......................... 0.9 0.3 0.3 -0.3
Income Tax Provision (Benefit) ............................. 0.5 0.1 0.2 -0.1
------ ------ ------ ------
Income (Loss) Before Extraordinary Item .................... 0.4 0.2 0.1 -0.2
Extraordinary loss on early extinguishment of debt,
net of income taxes of $668 .............................. 0.0 0.0 -0.3 0.0
===== ====== ====== ======
Net Income (Loss) .......................................... 0.4% 0.2% -0.2% -0.2%
====== ====== ====== ======
13
Comparison of the Three Months Ended June 30, 2002 to the
Three Months Ended June 30, 2001
Operating revenue during the three-month period ended June 30, 2002
increased $13.1 million or 6.5% to $215.6 million, compared to $202.5 million
during the same period in 2001. U.S. Xpress revenue increased $5.8 million, or
3.1%, due primarily to a 2.2% increase in revenue miles and a 2.9% increase in
revenue per mile to $1.248 from $1.213, offset by a $4.4 million decrease in
fuel surcharge revenue. Revenue miles increased due to an increase in the
average number of tractors by 148, or 2.9%, to 5,304 from 5,156. CSI/Crown
revenue increased $8.8 million, or 25.4%, due to a $3.8 million increase in
revenues in the airport-to-airport transportation services initiated by
CSI/Crown in February 2001 and a $5.0 million increase in the floorcovering
logistics business, due primarily to increased business with a large carpet
retailer.
Operating expenses represented 97.4% of operating revenue for the three
months ended June 30, 2002, compared to 97.6% during the same period in 2001.
Salaries, wages and benefits as a percentage of operating revenue were
35.8% during the three months ended June 30, 2002, compared to 38.0% during the
same period in 2001. This decrease was primarily attributable to the increased
use of owner-operators compared to the same period in 2001. Owner-operators
accounted for 18.3% of the Company's average truck fleet during 2002, compared
to 13.2% during the same period in 2001. All owner-operator expenses are
reflected as purchased transportation.
Fuel and fuel taxes as a percentage of operating revenue were 13.4% during
the three months ended June 30, 2002, compared to 16.8% during the same period
in 2001. This decrease was primarily due to the approximately 12.0% decrease in
the average fuel price per gallon during the three months ended June 30, 2002
compared to the same period in 2001, as well as the increased use of
owner-operators who pay for their fuel purchases. 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 8.1% during the
three months ended June 30, 2002, compared to 8.0% during the same period in
2001. Depreciation and amortization as a percentage of operating revenue was
4.3% during the three months ended June 30, 2002, compared to 4.3% during the
same period in 2001. The Company includes gains and losses from the sale of
revenue equipment in deprecation expense. Net losses from the sale of revenue
and other equipment for the three months ended June 30, 2002 were $458,000,
compared to $33,000 during the same period in 2001. The sale of other equipment
during the three months ended June 30, 2002 was $455,000 of the loss compared to
$15,000 during the same period in 2001. Overall, as a percentage of operating
revenue vehicle rents and depreciation were 12.4% during the three months ended
June 30, 2002, compared to 12.3% during the same period in 2001.
Purchased transportation as a percentage of operating revenue was 16.6%
during the three months ended June 30, 2002, compared to 12.1% during the same
period in 2001. This
14
increase was primarily due to an increase in the average number of
owner-operators in the three months ended June 30, 2002 to 1,970, or 18.3% of
the total fleet, compared to 678, or 13.2% of the total fleet, for the same
period in 2001.
Insurance premiums and claims, as a percentage of operating revenue, were
5.1% during the three months ended June 30, 2002, compared to 4.0% during the
same period in 2001. This increase is due in part to higher premiums incurred
for excess and reinsurance coverage related to liability claims (personal injury
and property damage). Prior to September 1, 2001, the Company's retention level
was $3,000 per claim. After that date, the first retention level increased to
$250,000 per claim, and the Company also assumed the risk for the $1 million to
$3 million level of claim costs per occurrence. In addition, the Company's cost
for primary coverage plus the estimated cost of claims in 2002 exceeded the cost
of premiums for primary coverage in 2001.
Interest expense decreased $.5 million to $3.6 million during the three
months ended June 30, 2002, compared to $4.1 million during the same period in
2001. This decrease was primarily attributable to decreased borrowings and a
decrease in the average interest rate.
The effective tax rate was 54.3% during the three months ended June 30,
2002, compared to 39.8% during the same period in 2001. The higher rate is
primarily the result of non-deductible per diems paid to drivers during the
three months ended June 30, 2002. The Company initiated a per diem driver pay
plan in February 2002.
Income from operations for the three months ended June 30, 2002 increased
$.8 million, or 17.9%, to $5.6 million from $4.8 million during the same period
in 2001. As a percentage of operating revenue, income from operations was 2.6%
for the three months ended June 30, 2002 and 2.4% for the same period in 2001.
15
Comparison of the Six Months Ended June 30, 2002 to the
Six Months Ended June 30, 2001
Operating revenue during the six-month period ended June 30, 2002 increased
$23.8 million or 6.1% to $412.9 million, compared to $389.0 million during the
same period in 2001. U.S. Xpress revenue increased $9.0 million, or 2.5%, due
primarily to a 3.0% increase in revenue miles and a 2.4% increase in revenue per
mile to $1.242 from $1.213, offset by a $10.9 million decrease in fuel surcharge
revenue. Revenue miles increased due to an increase in the average number of
tractors by 231, or 4.6%, to 5,282 from 5,051. CSI/Crown revenue increased $19.1
million, or 56.3%, due to a $9.8 million increase in revenues in the
airport-to-airport transportation services initiated by CSI/Crown in February
2001 and a $9.3 million increase in the floorcovering logistics business, due
primarily to increased business with a large carpet retailer.
Operating expenses represented 97.9% of operating revenue for the six
months ended June 30, 2002, compared to 98.2% during the same period in 2001.
Salaries, wages and benefits as a percentage of operating revenue were
36.5% during the six months ended June 30, 2002, compared to 38.1% during the
same period in 2001. This decrease was primarily attributable to the increased
use of owner-operators compared to the same period in 2001. Owner-operators
accounted for 17.1% of the Company's average truck fleet during 2002, compared
to 13.5% during the same period in 2001. All owner-operator expenses are
reflected as purchased transportation.
Fuel and fuel taxes as a percentage of operating revenue were 13.4% during
the six months ended June 30, 2002, compared to 17.0% during the same period in
2001. This decrease was primarily due to the approximately 16.0% decrease in the
average fuel price per gallon during the six months ended June 30, 2002 compared
to the same period in 2001, as well as the increased use of owner-operators who
pay for their own fuel purchases. 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 8.6% during the six
months ended June 30, 2002, compared to 7.9% during the same period in 2001.
This increase is due to a 13.9% increase in the average number of tractors
leased and a 7.8% increase in the average number of trailers leased during the
six months ended June 30, 2002, compared to the same period in 2001.
Depreciation and amortization as a percentage of operating revenue was 4.4%
during the six months ended June 30, 2002, compared to 4.6% during the same
period in 2001. Revenue equipment depreciation increased 5.7% to $11.6 million
during the six months ended June 30, 2002, compared to $11.0 million during the
same period in 2001. Other depreciation and amortization decreased 14.5% to $6.0
million during the six months ended June 30, 2002, compared to $7.1 million
during the same period in 2001. This decrease was primarily due to the
elimination of goodwill amortization of approximately $.9 million. The Company
includes gains and losses from the sale of revenue and other equipment in
deprecation expense. Net losses from the sale of revenue equipment for the six
months ended June 30, 2002 were $546,000, compared to a gain of $51,000 during
the same period in 2001. The sale of other equipment during the six months ended
June 30, 2002 was $455,000
16
of the loss compared to $15,000 during the same period in 2001. Overall, as a
percentage of operating revenue vehicle rents and depreciation were 13.0% during
the six months ended June 30, 2002, compared to 12.5% during the same period in
2001.
Purchased transportation as a percentage of operating revenue was 16.0%
during the six months ended June 30, 2002, compared to 12.2% during the same
period in 2001. This increase was primarily due to an increase in the average
number of owner-operators in the six months ended June 30, 2002 to 904, or 17.1%
of the total fleet, compared to 684, or 13.5% of the total fleet, for the same
period in 2001.
Insurance premiums and claims, as a percentage of operating revenue, were
4.9% during the six months ended June 30, 2002, compared to 4.0% during the same
period in 2001. This increase is due in part to higher premiums incurred for
excess and reinsurance coverage related to liability claims (personal injury and
property damage). Prior to September 1, 2001, the Company's retention level was
$3,000 per claim. After that date, the first retention level increased to
$250,000 per claim, and the Company also assumed the risk for the $1 million to
$3 million level of claim costs per occurrence. In addition, the Company's cost
for primary coverage plus the estimated cost of claims in 2002 exceeded the cost
of premiums for primary coverage in 2001.
Interest expense decreased $1.3 million to $7.0 million during the six
months ended June 30, 2002, compared to $8.3 million during the same period in
2001. This decrease was primarily attributable to decreased borrowings and a
decrease in the average interest rate.
The effective tax rate was 59.0% during the six months ended June 30, 2002,
compared to 40.0% during the same period in 2001. The higher rate is primarily
the result of non-deductible per diems paid to drivers during the six months
ended June 30, 2002. The Company initiated a per diem driver pay plan in
February, 2002.
Income from operations for the six months ended June 30, 2002 increased
$1.6 million, or 22.6%, to $8.5 million from $6.9 million during the same period
in 2001. As a percentage of operating revenue, income from operations was 2.1%
for the six months ended June 30, 2002 and 1.8% for the same period in 2001.
In connection with the repayment of the former revolving credit agreement,
the Company incurred an extraordinary loss of $1.1 million, after income taxes,
related to fees and additional costs incurred in connection with the early
extinguishment of this debt.
Liquidity and Capital Resources
The Company's primary sources of liquidity and capital resources during the
six month period ended June 30, 2002 were borrowings under lines of credit and
equipment installment notes, proceeds from sales of used revenue equipment and
the use of long-term operating leases for revenue equipment acquisitions.
On March 29, 2002, the Company entered into a $100 million senior secured
revolving credit facility. Proceeds from this new facility were used to repay
the then existing revolving credit facility. The revolving credit facility
provides for borrowings up to $100 million, with availability at any given time
based on specified percentages of eligible receivables and
17
revenue equipment, less reserves, under the facility's Borrowing Base formula.
Letters of credit under the facility are limited to $30 million. The facility
matures in March 2007.
The facility allows the Company to select interest rates for all or any
portion of the outstanding balance, based on either a Base Rate (based on the
domestic prime rate) plus an Applicable Margin or LIBOR plus an Applicable
Margin. The Applicable Margin ranges from 0.75% to 1.5% for Base Rate Loans and
from 2.25% to 3.0% for LIBOR Loans, based in each case on the aggregate
availability as defined. At June 30, 2002, the Applicable Margin was 1.25% for
Base Rate Loans and 2.75% for LIBOR Loans. The facility also prescribes
additional fees for Letter of Credit transactions and a monthly commitment fee
based on the difference between the total commitment and the total borrowing
capacity utilized by the Company from time to time.
At June 30, 2002, $33.0 million in borrowings were outstanding under the
facility with $36.0 million available to borrow. The facility is secured by
substantially all assets of the Company, other than real estate and assets
securing other debt of the Company.
The new facility requires, among other things, maintenance by the Company
of prescribed minimum amounts of Consolidated Tangible Net Worth, Fixed Charge
Coverage Ratios and Leverage Ratios. It also: (i) limits the Company's future
capital expenditures; (ii) prohibits all acquisitions by the Company of its own
capital stock or the payment of dividends on such stock; and (iii) effectively
prohibits future asset acquisitions or dispositions (except in the ordinary
course of business) or other business combination transactions by the Company
without the Lenders' consent.
Cash provided by operations increased to $8.7 million during the six months
ended June 30, 2002, compared to $7.6 million during the same period in 2001,
due in part to an increase in payables and other accrued liabilities offset by
an increase in receivables. Net cash used in investing activities decreased to
$5.9 million during the six months ended June 30, 2002, compared to $11.1
million during the same period in 2001. This decline was due primarily to the
Company acquiring fewer tractors and trailers in 2002 compared to 2001. Net cash
used in financing activities was $10.9 million, compared to cash provided by
financing activities of $3.5 million during the same period in 2001. This use of
funds in financing activities reflects the decline in capital expenditures
during the six months ended June 30, 2002, compared to the same period in 2001.
Management believes that the aggregate funds provided by operations,
borrowings under its lines of credit, equipment installment loans, sales of used
revenue equipment and long-term operating lease financing will be sufficient to
fund its cash needs and anticipated capital expenditures through 2002.
The following table represents the Company's outstanding contractual
obligations at June 30, 2002 excluding letters of credit. Letters of credit of
$24,357 were outstanding at June 30, 2002. The letters of credit are maintained
primarily to support the Company's insurance program and are renewed on an
annual basis.
18
Payments Due By Period
(in thousands)
Contractual Obligations Total 2002 2003-2004 2005-2006 Thereafter
----------------------- ----- ---- --------- --------- ----------
Long-Term Debt $160,502 $19,372 $ 45,718 $33,674 $61,738
Capital Lease Obligations 14,804 72 13,691 632 409
Operating Leases - Revenue 111,273 31,324 68,180 9,623 2,146
Equipment
Operating Leases - Other 30,595 5,231 15,399 6,958 3,007
Total Contractual Cash $317,174 $55,999 $142,988 $50,887 $67,300
Obligations
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 142, "Goodwill and Other Intangible Assets". SFAS No. 142 requires that
goodwill not be amortized, and that amounts recorded as goodwill be tested for
impairment. The Company adopted SFAS 142 effective January 1, 2002. Application
of the provisions of SFAS 142 will decrease annual amortization expense by
approximately $1.8 million. The Company tested goodwill for impairment using the
two-step process prescribed in SFAS 142. The first step is a screen for
potential impairment, while the second step measures impairment, if any. The
Company completed the required impairment tests of goodwill and noted no
impairment of goodwill. See Footnote 9 of Notes to Consolidated Financial
Statements.
In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment
or Disposal of Long-lived Assets". SFAS No. 144 addresses financial accounting
and reporting for the impairment of long-lived assets and for long-lived assets
to be disposed of. SFAS No. 144 supersedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and
among other factors, establishes criteria beyond that previously specified in
SFAS No. 121 to be evaluated when a long-lived asset is to be considered as held
for sale. The Company adopted SFAS No. 144 effective January 1, 2002.
In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statements
No. 4, 44, and 62, Amendment of FASB Statement No. 13, and Technical
Corrections". SFAS 145 is effective for financial statements issued on or after
May 15, 2002. For most companies, SFAS 145 will require gains and losses on
extinguishments of debt to be classified as income or loss from continuing
operations rather than as extraordinary items as previously required under
Statement 4. Extraordinary treatment will be required for certain
extinguishments as provided in APB Opinion No. 30. Upon adoption, any gain or
loss on extinguishments of debt previously classified as an extraordinary item
in prior periods presented that does not meet the criteria of Opinion 30 for
such classification should be reclassified to conform with the provisions of
Statement 145. Early adoption is encouraged but not required.
19
Inflation
Inflation has not had a material effect on the Company's results of
operations or financial condition during the past three years. However,
inflation higher than experienced during the past three years could have an
adverse effect on the Company's future results.
Seasonality
In the trucking industry, revenue generally shows a seasonal pattern as
customers reduce shipments during and after the winter holiday season and as a
result of inherent weather variations. The Company's operating expenses also
have historically been higher during the winter months.
This Quarterly Report contains certain statements that may be
considered forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Such statements may be identified by their use of terms
or phrases such as "expects," "estimated," "projects," "believes,"
"anticipates," intends," and similar terms and phrases, and may include, but not
be limited to, projections of revenues, income or loss, capital expenditures,
acquisitions, plans for growth and future operations, financing needs or plans
or intentions relating to acquisitions by the Company, as well as assumptions
relating to the foregoing. Forward-looking statements are inherently subject to
risks and uncertainties, some of which cannot be predicted or quantified, which
could cause future events and actual results to differ materially from those set
forth in, contemplated by or underlying the forward-looking statements. Such
risks and uncertainties include, but are not limited to, those factors discussed
under the heading "Special Considerations" in the Company's Annual Report on
Form 10-K, as well as other risks detailed from time to time in the Company's
filings with the Securities and Exchange Commission.
20
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Interest Rate Risk
The Company has interest rate exposure arising from the Company's line of
credit, which has variable interest rates. At June 30, 2002, the Company had
$55.5 million of variable rate debt. The Company has interest rate swap
agreements which convert floating rates to fixed rates for a total notional
amount of $45 million. For example, if interest rates on the Company's variable
rate debt, after considering interest rate swaps, were to increase by 10% from
their June 30, 2002 rates for the next twelve months, the increase in interest
expense would be approximately $178,000.
Commodity Price Risk
Fuel is one of the Company's largest expenditures. The price and
availability of diesel fuel fluctuates due to changes in production, seasonality
and other market factors generally outside the Company's control. Many of the
Company's customer contracts contain fuel surcharge provisions to mitigate
increases in the cost of fuel. However, there is no assurance that such fuel
surcharges could be used to offset future increases in fuel prices.
21
U.S. XPRESS ENTERPRISES, INC.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting of shareholders was held on May 13, 2002.
(b) The meeting was held to consider and vote upon the election of
Directors for the following year. All Directors were elected with the
results of the vote summarized as follows:
FOR WITHHELD ABSTAIN TOTAL
Cort J. Dondero 11,725,767 468,527 0 12,194,294
Max L. Fuller 11,725,667 468,627 0 12,194,294
James E. Hall 12,011,742 182,552 0 12,194,294
Ray M. Harlin 11,725,767 468,527 0 12,194,294
Patrick E. Quinn 11,725,767 468,527 0 12,194,294
Robert J. Sudderth, Jr. 12,011,342 182,952 0 12,194,294
A. Alexander Taylor, II 12,011,642 182,652 0 12,194,294
At the annual meeting, Shareholders also ratified the
approval of the 2002 Stock Incentive Plan. The results
of the vote are summarized as follows:
FOR AGAINST ABSTAIN NO VOTES
6,848,789 1,650,287 864 3,694,354
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated May 17, 2002,
reporting the Board of Directors' decision to engage Ernst & Young,
LLP to serve as the Company's independent accountants for fiscal year
2002, replacing Arthur Andersen, LLP.
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U.S. XPRESS ENTERPRISES, INC
(Registrant)
Date: August 14, 2002 By: /s/ Patrick E. Quinn
----------------------------
Patrick E. Quinn
President
Date: August 14, 2002 By: /s/ Ray M. Harlin
----------------------------
Ray M. Harlin
Principal Financial Officer
23