-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P1wvhZHx+XZrHx1yBatlPu56sf5d5WtpnwDoD7QHL8jJzaVB4lUOiVAUDfeJCmir SIuuf5DRVmZnLaZLvBpkrA== 0000931763-01-502198.txt : 20020410 0000931763-01-502198.hdr.sgml : 20020410 ACCESSION NUMBER: 0000931763-01-502198 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: US XPRESS ENTERPRISES INC CENTRAL INDEX KEY: 0000923571 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 621378182 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-24806 FILM NUMBER: 1789719 BUSINESS ADDRESS: STREET 1: 4080 JENKINS ROAD CITY: CHATTANOOGA STATE: TN ZIP: 37421 BUSINESS PHONE: 6156967377 MAIL ADDRESS: STREET 1: 4080 JENKINS ROAD CITY: CHATTONOOGA STATE: TN ZIP: 37421 10-Q 1 d10q.txt QUARTERLY FINANCIAL REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended Commission file number September 30, 2001 0-24806 U.S. XPRESS ENTERPRISES, INC. NEVADA 62-1378182 (State or other jurisdiction of (I.R.S. employer identification no.) Incorporation or organization) 4080 Jenkins Road (423) 510-3000 CHATTANOOGA, TENNESSEE 37421 (Registrant's telephone no.) (Address of principal executive offices) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- As of September 30, 2001, 10,745,493 shares of the registrant's Class A common stock, par value $.01 per share, and 3,040,262 shares of the registrant's Class B common stock, par value $.01 per share, were outstanding. U.S. XPRESS ENTERPRISES, INC. INDEX
Page No. -------- PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements..................................................... 3 - ------ Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2001 and 2000......................................... 4 Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000............................................................ 5 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2001 and 2000......................................... 7 Notes to Consolidated Financial Statements............................................ 8 Item 2. Management's Discussion and Analysis of - ------ Financial Condition and Results of Operations.........................................12 Item 3. Quantitative and Qualitative Disclosure About Market Risk.............................18 - ------ PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders...................................19 - ------ Item 6. Exhibits and Reports on Form 8-K......................................................19 - ------ SIGNATURES............................................................................20
2 U.S. XPRESS ENTERPRISES, INC. PART I FINANCIAL INFORMATION Item 1. Consolidated Financial Statements The interim consolidated financial statements contained herein reflect all adjustments that, in the opinion of management, are necessary for a fair statement of the financial condition and results of operations for the periods presented. They have been prepared by the Company, without audit, in accordance with the instructions to Form 10-Q and the rules and regulations of the Securities and Exchange Commission and do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. Operating results for the nine months ended September 30, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. In the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included. Such adjustments consisted only of items that are of a normal recurring nature. These interim consolidated financial statements should be read in conjunction with the Company's latest annual consolidated financial statements (which are included in the 2000 Annual Report to Stockholders in the Company's Form 10-K filed with the Securities and Exchange Commission on April 2, 2001). 3 U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Per Share Data) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ----------------------------- ----------------------------- 2001 2000 2001 2000 -------------- ------------ ------------- ------------- Operating Revenue $207,464 $197,135 $596,482 $591,403 -------- -------- -------- -------- Operating Expenses: Salaries, wages and benefits 78,435 71,724 226,683 217,424 Fuel and fuel taxes 33,198 33,334 99,358 100,057 Vehicle rents 18,355 14,871 49,204 44,616 Depreciation and amortization, net of gain on sale 8,643 8,697 26,631 24,802 Purchased transportation 27,914 26,311 75,938 79,216 Operating expense and supplies 13,242 13,225 39,444 37,628 Insurance premiums and claims 7,730 7,409 23,122 22,596 Operating taxes and licenses 3,678 3,288 10,282 10,191 Communications and utilities 2,857 2,751 8,682 8,502 General and other operating 9,260 8,899 26,068 25,781 -------- -------- -------- -------- Total operating expenses 203,312 190,509 585,412 570,813 -------- -------- -------- -------- Income from Operations 4,152 6,626 11,070 20,590 Interest Expense, net 3,523 4,145 11,829 11,511 -------- -------- -------- -------- Income (Loss) Before Income Taxes 629 2,481 (759) 9,079 Income Tax Provision (Benefit) 325 1,113 (230) 3,757 -------- -------- -------- -------- Net Income (Loss) $ 304 $ 1,368 $ (529) $ 5,322 ======== ======== ======== ======== Earnings (Loss) Per Share - basic $ 0.02 $ 0.10 $ (0.04) $ 0.37 ======== ======== ======== ======== Weighted average shares - basic 13,783 13,904 13,747 14,210 ======== ======== ======== ======== Earnings (Loss) Per Share - diluted $ 0.02 $ 0.10 $ (0.04) $ 0.37 ======== ======== ======== ======== Weighted average shares - diluted 13,832 13,965 13,747 14,277 ======== ======== ======== ========
(See Accompanying Notes to Consolidated Financial Statements) 4 U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands)
Assets September 30, 2001 December 31, 2000 - ------ ------------------ ----------------- (Unaudited) Current Assets: Cash and cash equivalents $ 37 $ 34 Customer receivables, net of allowance 97,981 89,184 Other receivables 22,228 14,294 Prepaid insurance and licenses 5,727 2,664 Operating and installation supplies 3,657 4,312 Deferred income taxes 3,033 2,249 Other current assets 9,053 4,051 -------- -------- Total current assets 141,716 116,788 -------- -------- Property and Equipment, at cost: Land and buildings 26,768 24,952 Revenue and service equipment 217,825 249,773 Furniture and equipment 19,698 21,299 Leasehold improvements 17,306 19,456 -------- -------- 281,597 315,480 Less accumulated depreciation and amortization (78,506) (96,578) -------- -------- Net property and equipment 203,091 218,902 -------- -------- Other Assets: Goodwill, net 66,117 67,498 Investment in Transplace, Inc. 5,815 5,815 Other 12,100 11,239 -------- -------- Total other assets 84,032 84,552 -------- -------- Total Assets $428,839 $420,242 ======== ========
(See Accompanying Notes to Consolidated Financial Statements) 5 U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands Except Share Data)
Liabilities and Stockholders' Equity September 30, 2001 December 31, 2000 - ------------------------------------ ------------------ ----------------- (Unaudited) Current Liabilities: Accounts payable $ 15,907 $19,060 Book overdraft 2,063 2,940 Accrued wages and benefits 10,495 8,523 Claims and insurance accruals 14,874 8,704 Other accrued liabilities 6,989 3,190 Current maturities of long-term debt 170,362 1,501 -------- -------- Total current liabilities 220,690 43,918 -------- -------- Term Debt, net of current maturities 11,092 179,908 -------- -------- Deferred Income Taxes 36,902 36,902 -------- -------- Other Long-Term Liabilities 4,100 2,579 -------- -------- Stockholders' Equity: Preferred stock, $.01 par value, 2,000,000 shares authorized, no shares issued -- -- Common stock Class A, $.01 par value, 30,000,000 shares authorized, 13,289,882 and 13,210,467 shares issued at September 30, 2001 and December 31, 2000, respectively 133 132 Common stock Class B, $.01 par value, 7,500,000 shares authorized, 3,040,262 shares issued and outstanding at September 30, 2001 and December 31, 2000 30 30 Additional paid-in capital 105,516 105,124 Retained earnings 76,268 76,797 Other comprehensive income (loss) (838) Treasury Stock Class A, at cost (2,544,389 shares at September 30, 2001 and December 31, 2000) (24,483) (24,483) Notes receivable from stockholders (211) (233) Unamortized compensation on restricted stock (360) (432) -------- -------- Total stockholders' equity 156,055 156,935 -------- -------- Total Liabilities and Stockholders' Equity $428,839 $420,242 ======== ========
(See Accompanying Notes to Consolidated Financial Statements) 6 U.S. XPRESS ENTERPRISES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited)
Nine Months Ended September 30, ------------------------------ 2001 2000 ------ ------- Cash Flows from Operating Activities: Net income (loss) $ (529) $ 5,322 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Deferred income tax provision (115) 1,880 Depreciation and amortization 26,294 25,031 (Gain)/loss on sale of equipment 337 (230) Ineffectiveness of derivatives 146 - Change in operating assets and liabilities, net of acquisitions Receivables (16,731) (5,815) Prepaid insurance and licenses (3,063) (3,726) Operating and installation supplies 1,152 1,637 Other assets (9,113) (7,792) Accounts payable and other accrued liabilities 8,041 3,329 Accrued wages and benefits 1,971 1,990 Other 98 35 -------- -------- Net cash provided by operating activities 8,488 21,661 -------- -------- Cash Flows from Investing Activities: Payments for purchase of property and equipment (47,631) (40,806) Proceeds from sales of property and equipment 39,589 7,007 Repayment of notes receivable from stockholders 22 - Investment in Transplace, Inc. - (5,000) -------- -------- Net cash used in investing activities (8,020) (38,799) -------- -------- Cash Flows from Financing Activities: Net borrowings under lines of credit 1,801 12,248 Borrowing under long-term debt agreement - 10,000 Payments of long-term debt (1,756) (1,043) Book overdraft (877) 1,357 Proceeds from exercise of stock options 36 8 Proceeds from issuance of common stock 331 340 Purchase of Class A Common Stock - (5,988) -------- -------- Net cash provided by (used in) financing activities (465) 16,922 -------- -------- Net Increase (Decrease) in Cash and Cash Equivalents 3 (216) Cash and Cash Equivalents, beginning of period 34 259 -------- -------- Cash and Cash Equivalents, end of period 37 43 -------- -------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for interest, net of capitalized interest $ 11,895 $ 11,743 Cash (refunded) paid during the period for income taxes $ (5,986) $ (1,843)
(See Accompanying Notes to Consolidated Financial Statements) 7 U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Organization and Operations U. S. Xpress Enterprises, Inc. (the "Company") provides transportation services through two business segments. U.S. Xpress, Inc. ("U.S. Xpress") is a truckload carrier serving the continental United States and parts of Canada and Mexico. CSI/Crown, Inc. ("CSI/Crown") provides transportation services to the floorcovering industry and deferred airfreight logistics services from airport to airport through its Dedicated Xpress operations. 2. Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions and accounts have been eliminated. Property and Equipment Property and equipment is carried at cost. Depreciation and amortization of property and equipment is computed using the straight-line method for financial reporting purposes and accelerated methods for tax purposes over the estimated useful lives of the related assets (net of salvage value) as follows: Buildings 10-30 years Revenue and service equipment 3-7 years Furniture and equipment 3-7 years Leasehold improvements 5-6 years Expenditures for normal maintenance and repairs are expensed. Renewals or betterments that affect the nature of an asset or increase its useful life are capitalized. Earnings Per Share The difference in basic and diluted EPS is due to the assumed conversion of outstanding options resulting in approximately 49,000 and 61,000 equivalent shares in the three-month period ended September 30, 2001 and 2000, respectively, and 67,000 in the nine-month period ended September 30, 2000. Due to the loss in the nine-month period ended September 30, 2001, the outstanding options are anti-dilutive and are not considered in EPS. Reclassifications Certain reclassifications have been made in the 2000 financial statements to conform to the 2001 presentation. Book Overdraft Book overdraft represents outstanding checks in excess of current cash levels. The Company will fund the book overdraft from its line of credit and operating cash flows. 8 3. Commitments and Contingencies The Company is a defendant in a lawsuit filed by Forward Air, Inc. ("Forward Air"), a deferred airfreight service provider, in the United States District Court in Greeneville, Tennessee, in which Forward Air has asserted a variety of claims primarily for trademark infringement and unfair competition allegedly arising out of the Company's use of the name "Dedicated Xpress Services, Inc." In its lawsuit, Forward Air asserts that after Forward Air purchased the assets of Dedicated Transportation Services, Inc. ("DTSI"), an air freight provider, the Company entered the deferred air freight logistics service business and is unfairly competing with Forward Air. Forward Air seeks unspecified damages and injunctive relief preventing the Company from using the name "Dedicated Xpress Services, Inc." In a related case, SouthTrust Bank ("SouthTrust"), the secured lender to DTSI, which foreclosed upon and sold the assets of DTSI to Forward Air, has filed a lawsuit against the Company concerning certain events surrounding such foreclosure and sale. In November 2000, the Company signed an agreement with SouthTrust to purchase certain assets of DTSI at foreclosure by SouthTrust. After the agreement was signed, SouthTrust advised the Company that it had received a higher offer for the assets from Forward Air and that it would cancel the agreement with the Company unless the Company matched the higher offer. SouthTrust then sold the assets of DTSI to Forward Air. In its lawsuit, SouthTrust claims the Company acted wrongfully and attempted to interfere with SouthTrust's sale of DTSI's assets to Forward Air. The lawsuit seeks damages in an unspecified amount from the Company, and seeks to have the Court declare that actions taken by SouthTrust in connection with the foreclosure and sale of DTSI's assets were lawful and did not violate any legal rights of the Company. The Company believes that the claims asserted by Forward Air and SouthTrust are without merit and intends to vigorously defend the lawsuits. The Company is party to certain other legal proceedings incidental to its business. The ultimate disposition of such other matters, in the opinion of management, based in part upon an assessment of the likelihood of an adverse disposition of such matters, will not have a material adverse effect on the Company's financial position or results of operations. The Company had letters of credit of $4,677,000 outstanding at September 30, 2001. The letters of credit are maintained primarily to support the Company's insurance program. 4. Derivative Financial Instruments The Company adopted the Statement of Financial Accounting Standards No. 133 (SFAS No. 133), "Accounting for Derivative Instruments and Hedging Activities," as amended, on January 1, 2001. SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at fair value. The Company has designated its interest rate swap agreements as cash flow hedge instruments. The swap agreements are used to manage exposure to interest rate movement by effectively changing the variable rate to a fixed rate. The critical terms of the interest rate swap agreements and the related debt are different with regard to maturity date; therefore, the Company expects some hedge ineffectiveness in the hedge relationship. Changes in fair value of the interest rate agreements will be recognized in other comprehensive income until the hedged items are recognized in earnings. The Company has hedged its exposure to interest rate movement through September 8, 2003. 9 The adoption of SFAS No. 133 resulted in recording a cumulative effect of a change in accounting principle of $98,635 in other comprehensive income, net of tax. At September 30, 2001, the fair market value of the swap agreements decreased due primarily to a reduction in interest rates, and accumulated other comprehensive income was adjusted to an accumulated loss of $838,726, net of tax. For the nine months ended September 30, 2001, the interest rate swaps were deemed to be partially ineffective cash flow hedges, and, accordingly, the Company recorded $145,778 of interest expense in the income statement related to the hedge ineffectiveness. 5. Operating Segments The Company has two reportable segments based on the types of services it provides to its customers: U.S. Xpress, which provides truckload operations throughout the continental United States and parts of Canada and Mexico, and CSI/Crown, which provides transportation services to the floorcovering industry and deferred air freight logistics services from airport to airport through its Dedicated Xpress operations. Substantially all intersegment sales prices are market based. The Company evaluates performance based on operating income of the respective business units.
(Dollars in Thousands) U.S. Xpress CSI/Crown Consolidated ----------- --------- ------------- Three Months Ended September 30, 2001 - ------------------------------------- Revenues - external customers $183,252 $24,242 $207,464 Intersegment revenues 7,017 - 7,017 Operating income 4,886 (734) 4,152 Total assets 401,148 27,691 428,839 Three Months Ended September 30, 2000 - ------------------------------------- Revenues - external customers $181,387 $15,748 $197,135 Intersegment revenues 1,211 - 1,211 Operating income 5,367 1,259 6,626 Total assets 417,912 19,937 437,849 Nine Months Ended September 30, 2001 - ------------------------------------ Revenues - external customers $538,396 $58,086 $596,482 Intersegment revenues 15,406 - 15,406 Operating income (loss) 11,927 (857) 11,070 Total assets 401,148 27,691 428,839 Nine Months Ended September 30, 2000 - ------------------------------------ Revenues - external customers $546,764 $44,639 $591,403 Intersegment revenues 3,674 - 3,674 Operating income 17,871 2,719 20,590 Total assets 417,912 19,937 437,849
The difference in consolidated operating income as shown above and consolidated income before income tax provision on the consolidated statements of operations is net interest expense of $3,523 and $4,145 for the three months ended September 30, 2001 and 2000, respectively, and $11,829 and $11,511 for the nine months ended September 30, 2001 and 2000, respectively. 10 6. Comprehensive Income Comprehensive income (loss) consisted of the following components for the nine months ended September 30, 2001 and 2000, respectively:
For the Nine Months Ended September 30, ----------------------------------- 2001 2000 --------------- ------------- (in thousands) Net income (loss) $ (529) $5,322 Net loss on current period cash flow hedges (838) 0 ------- ------ Total $(1,367) $5,322 ======= ======
7. Recent Accounting Pronouncements In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets" (collectively the "Standards"). The Standards will be effective for fiscal years beginning after December 15, 2001. Companies with fiscal years beginning after March 15, 2001 may early adopt, but only as of the beginning of that fiscal year and only if all existing goodwill is evaluated for impairment by the end of that fiscal year. SFAS No. 141 will require companies to recognize acquired identifiable assets separately from goodwill if control over the future economic benefits of the assets results from contractual or other legal rights or the intangible asset is capable of being separated or divided and sold, transferred, licensed, rented, or exchanged. The Standards will require the value of a separately identifiable intangible asset meeting any of the criteria to be measured at its fair value. SFAS No. 142 will require that goodwill not be amortized, and that amounts recorded as goodwill be tested for impairment. Upon adoption of SFAS No. 142, goodwill will be reduced if it is found to be impaired. Annual impairment tests will have to be performed at the lowest level of an entity that is a business and that can be distinguished, physically and operationally and for internal reporting purposes, from the other activities, operations, and assets of the entity. The Company does not have the option of early adoption, thus there will be no financial statement impact in fiscal year 2001. Based on the current levels of goodwill, the adoption of the Standards in fiscal 2002 would decrease annual amortization expense by approximately $1.8 million through the elimination of goodwill amortization. The Company has not yet determined the impact of the new goodwill impairment standards. 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General U.S. Xpress Enterprises, Inc. (the "Company") provides transportation services through two business segments. U.S. Xpress, Inc. ("U.S. Xpress") is a truckload carrier serving the continental United States and parts of Canada and Mexico. CSI/Crown, Inc. ("CSI/Crown") provides transportation services to the floorcovering industry and deferred airfreight logistics services from airport to airport through its Dedicated Xpress operations. Results of Operations The following table sets forth, for the periods indicated, the components of the consolidated statements of operations expressed as a percentage of operating revenue:
Three Months Ended Nine Months Ended September 30, September 30, --------------------------- --------------------------- 2001 2000 2001 2000 ------------ ------------ ------------ ------------ Operating Revenue 100.0 % 100.0 % 100.0 % 100.0 % ------------ ------------ ------------ ------------ Operating Expenses: Salaries, wages and benefits 37.8 36.4 38.0 36.8 Fuel and fuel taxes 16.0 16.9 16.7 16.9 Vehicle rents 8.8 7.5 8.2 7.5 Depreciation and amortization, net of gain on sale 4.2 4.4 4.5 4.2 Purchased transportation 13.5 13.3 12.7 13.4 Operating expense and supplies 6.4 6.7 6.6 6.4 Insurance premiums and claims 3.7 3.8 3.9 3.8 Operating taxes and licenses 1.8 1.7 1.7 1.7 Communications and utilities 1.4 1.4 1.4 1.4 General and other operating 4.4 4.5 4.4 4.4 ------------ ------------ ------------ ------------ Total operating expenses 98.0 96.6 98.1 96.5 ------------ ------------ ------------ ------------ Income from Operations 2.0 3.4 1.9 3.5 Interest Expense, net 1.7 2.1 2.0 2.0 ------------ ------------ ------------ ------------ Income Before Income Taxes 0.3 1.3 -0.1 1.5 Income Tax Provision 0.2 0.6 0.0 0.6 ------------ ------------ ------------ ------------ Net Income 0.1 % 0.7 % -0.1 % 0.9 % ============ ============ ============ ============
12 Comparison of the Three Months Ended September 30, 2001 to the Three Months Ended September 30, 2000 Operating revenue during the three-month period ended September 30, 2001 increased $10.3 million or 5.2% to $207.5 million, compared to $197.1 million during the same period in 2000. U.S. Xpress revenue increased $7.7 million, or 4.2%, due primarily to a 5.0% increase in revenue miles offset by a $1.1 million decrease in fuel surcharge revenue. U.S. Xpress revenue per mile remained constant at $1.228 compared to the same period in 2000. CSI/Crown revenue increased $8.5 million, or 53.7%. This increase reflects an $8.9 million increase due to the revenues of the new deferred air business, which began operations in February 2001, offset by decreases in the floorcovering logistics business. Intersegment revenue during the three-month period ended September 30, 2001 increased $5.8 million compared to the same period in 2000, due to truckload services provided by U.S. Xpress for the deferred air business of CSI/Crown. Operating expenses represented 98.0% of operating revenue for the three months ended September 30, 2001, compared to 96.6% during the same period in 2000. Salaries, wages and benefits as a percentage of revenue were 37.8% during the three months ended September 30, 2001, compared to 36.4% during the same period in 2000. U.S. Xpress wages increased $4.7 million due primarily to Company driver miles increasing 7.0% to 140.3 million miles in the three months ended September 30, 2001, compared to 131.1 million miles during the same period in 2000. CSI/Crown wages increased $2.0 million due primarily to the expansion of the new deferred air services, which were introduced in February 2001. Fuel and fuel taxes as a percentage of operating revenue were 16.0% during the three months ended September 30, 2001, compared to 16.9% during the same period in 2000. This decrease was primarily due to decreases in fuel prices. The Company's exposure to increases in fuel prices is partially mitigated by fuel surcharges to its customers. Vehicle rents as a percentage of operating revenue were 8.8% during the three months ended September 30, 2001, compared to 7.5% during the same period in 2000. This increase is due to a 17.9% increase in the average number of tractors leased and a 25.7% increase in the average number of trailers leased during the three months ended September 30, 2001, compared to the same period in 2000. Depreciation and amortization as a percentage of operating revenue was 4.2% during the three months ended September 30, 2001, compared to 4.4% during the same period in 2000. The Company includes gains and losses from the sale of revenue equipment in depreciation expense. Net losses from the sale of revenue equipment for the three months ended September 30, 2001 were $388,000, compared to $91,000 for the same period in 2000. Overall, as a percentage of operating revenue, vehicle rents and depreciation were 13.0% during the three months ended September 30, 2001, compared to 11.9% during the same period in 2000. Purchased transportation as a percentage of operating revenue was 13.5% during the three months ended September 30, 2001, compared to 13.3% during the same period in 2000. U.S. Xpress purchased transportation increased 2.6% primarily due to a 3.8% increase in owner operator miles to 25.4 million miles in the three months ended September 30, 2001 compared to 24.4 million miles in the same period in 2000, offset by a 35.6% decrease in fuel surcharge paid to owner operators. CSI/Crown purchased transportation 13 increased $7.0 million or 108.8%. This increase reflects a $6.6 million increase due to the new deferred air business, which began operations in February 2001. Intersegment purchased transportation during the three months ended September 30, 2001 increased $5.8 million compared to the same period in 2000, due to truckload services provided by U.S. Xpress for the deferred air business of CSI/Crown. Operating expenses and supplies as a percentage of operating revenue were 6.4% during the three months ended September 30, 2001, compared to 6.7% during the same period in 2000. This decrease is primarily due to decreases in maintenance expenses. Interest expense as a percentage of revenue was 1.7% during the three months ended September 30, 2001, compared to 2.1% during the same period in 2000. This decrease was primarily due to decreased borrowings on the Company's line of credit and decreased interest rates. Income from operations for the three months ended September 30, 2001 decreased $2.5 million, or 37.3%, to $4.2 million from $6.6 million during the same period in 2000. As a percentage of operating revenue, income from operations was 2.0% for the three months ended September 30, 2001 and 3.4% for the same period in 2000. 14 Comparison of the Nine Months Ended September 30, 2001 to the Nine Months Ended September 30, 2000 Operating revenue during the nine-month period ended September 30, 2001 increased $5.1 million, or 0.9%, to $596.4 million, compared to $591.4 million during the same period in 2000. U.S. Xpress revenue increased $3.4 million, or 0.6%, due primarily to a 0.3% increase in revenue miles, a 0.1% increase in average revenue per mile to $1.218 from $1.217 in 2000, and a $2.9 million increase in fuel surcharge revenue. Included in 2000 revenue was $3.6 million related to U.S. Xpress logistics business, which was contributed to Transplace, Inc. in July 2000. CSI/Crown revenue increased $13.4 million or 30.1%. This increase reflects a $16.6 million increase due to the revenues of the new deferred air services, which began operations in February 2001, offset by decreases in the floorcovering logistics business. Intersegment revenue during the nine-month period ended September 30, 2001 increased $11.7 million compared to the same period in 2000, due to truckload services provided by U.S. Xpress for the deferred air business of CSI/Crown. Operating expenses represented 98.1% of operating revenue for the nine months ended September 30, 2001, compared to 96.5% during the same period in 2000. Salaries, wages and benefits as a percentage of revenue were 38.0% during the nine months ended September 30, 2001, compared to 36.8% during the same period in 2000. U.S. Xpress wages increased $5.8 million due primarily to Company driver miles increasing 1.4% to 410.7 million miles in the nine months ended September 30, 2001 compared to 405.1 million in the same period in 2000, increases in workers' compensation premiums and claims and group health claims. CSI/Crown wages increased $3.8 million due to the expansion of the new deferred air services business, which was introduced in February 2001. Vehicle rents as a percentage of operating revenue were 8.2% during the nine months ended September 30, 2001, compared to 7.5% during the same period in 2000. This increase is due to a 7.2% increase in the average number of tractors leased and a 22.1% increase in the average number of trailers leased during the nine months ended September 30, 2001, compared to the same period in 2000. Depreciation and amortization as a percentage of operating revenue was 4.5% during the nine months ended September 30, 2001, compared to 4.2% during the same period in 2000. The increase is primarily due to increased depreciation and amortization related to other operating assets and deferred loan costs. The Company includes gains and losses from the sale of revenue equipment in depreciation expense. Net losses from the sale of revenue equipment for the nine months ended September 30, 2001 were $337,000, compared to a gain of $230,000 for the same period in 2000. Overall, as a percentage of operating revenue, vehicle rents and depreciation were 12.7% during the nine months ended September 30, 2001, compared to 11.7% during the same period in 2000. Purchased transportation as a percentage of operating revenue was 12.7% during the nine months ended September 30, 2001, compared to 13.4% during the same period in 2000. The decrease reflects the contribution of the Company's logistics business to Transplace, Inc. in July 2000, combined with a 1.4% decrease in owner operator miles to 71.8 million miles in the nine months ended September 30, 2001, compared to 72.8 million miles during the same period in 2000. Most of the costs associated with logistics revenue were reflected in purchased transportation. 15 Operating expenses and supplies as a percentage of operating revenue were 6.6% during the nine months ended September 30, 2001, compared to 6.4% during the same period in 2000. This increase is primarily due to increases in maintenance expenses. Income from operations for the nine months ended September 30, 2001 decreased $9.5 million, or 46.2%, to $11.1 million from $20.6 million during the same period in 2000. As a percentage of operating revenue, income from operations was 1.9% for the nine months ended September 30, 2001 and 3.5% for the same period in 2000 Liquidity and Capital Resources The Company's primary sources of liquidity and capital resources during the nine month period ended September 30, 2001 were borrowings under lines of credit, proceeds from sales of used revenue equipment and the use of long-term operating leases for revenue equipment acquisitions. The Company's principal credit facility is a $190 million revolving credit agreement (the Revolving Credit Agreement) with a group of banks with a weighted-average interest rate of 7.92%, of which $15.3 million was available for borrowing at September 30, 2001. The credit facility expires in January 2002. Cash provided by operations was $8.5 million during the nine months ended September 30, 2001, compared to $21.7 million during the same period last year. Net cash used in investment activities was $8.0 million in the nine months ended September 30, 2001, compared to $38.8 million during the same period in 2000. Of the cash used in investment activities, $47.6 million was used to acquire additional property and equipment for the nine months ended September 30, 2001, compared to $40.8 million during the same period of 2000. Net cash used in financing activities was $.5 million during the nine months ended September 30, 2001, compared to net cash provided by financing activities of 16.9 million during the same period of 2000. In July 2001, the Company entered into an amendment of its Revolving Credit Agreement ("Credit Agreement"). Under the terms of the amendment, the aggregate commitments under the Credit Agreement were reduced to $195.0 million, with a further reduction to $190.0 million on September 30, 2001. Additionally, financial covenants for the remaining term of the agreement were amended and the Company agreed to the payment of certain future fees under certain conditions. The Company is in compliance with the terms of the amended Credit Agreement. The Company believes that borrowings under the amended Credit Agreement, together with cash flows from operations, proceeds from the sale of used revenue equipment and long term lease financing will provide sufficient liquidity for the Company's planned operations through the remaining term of the agreement which expires in January 2002. The Company is pursuing various new long-term financing arrangements to replace the Revolving Credit Agreement. If a new credit facility is obtained, management believes that such a facility, together with funds provided by operations, proceeds from the sale of used revenue equipment and long-term lease financing, will be sufficient to fund the Company's cash needs and anticipated capital expenditures through at least the next twelve months. However, there can be no assurance that any such replacement financing can be obtained in amounts or on terms acceptable to the Company. In 2000, the Company entered into a $10.0 million long-term loan agreement to finance the new Colton, California terminal facility. The term of the loan is 10 years, with an 16 amortization of 20 years, and carries a variable interest rate that is based on the 30-day commercial paper rate, plus a margin. This rate can be converted to a fixed rate at any time up to September 2002. Recent Accounting Pronouncements In September 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets" (collectively the "Standards"). The Standards will be effective for fiscal years beginning after December 15, 2001. Companies with fiscal years beginning after March 15, 2001 may early adopt, but only as of the beginning of that fiscal year and only if all existing goodwill is evaluated for impairment by the end of that fiscal year. SFAS No. 141 will require companies to recognize acquired identifiable assets separately from goodwill if control over the future economic benefits of the assets results from contractual or other legal rights or the intangible asset is capable of being separated or divided and sold, transferred, licensed, rented, or exchanged. The Standards will require the value of a separately identifiable intangible asset meeting any of the criteria to be measured at its fair value. SFAS No. 142 will require that goodwill not be amortized, and that amounts recorded as goodwill be tested for impairment. Upon adoption of SFAS No. 142, goodwill will be reduced if it is found to be impaired. Annual impairment tests will have to be performed at the lowest level of an entity that is a business and that can be distinguished, physically and operationally and for internal reporting purposes, from the other activities, operations, and assets of the entity. The Company does not have the option of early adoption, thus there will be no financial statement impact in fiscal year 2001. Based on the current levels of goodwill, the adoption of the Standards in fiscal 2002 would decrease annual amortization expense by approximately $1.8 million through the elimination of goodwill amortization. The Company has not yet determined the impact of the new goodwill impairment standards. Inflation Inflation has not had a material effect on the Company's results of operations or financial condition during the past three years. However, inflation higher than experienced during the past three years could have an adverse effect on the Company's future results. Seasonality In the trucking industry, revenue generally shows a seasonal pattern as customers reduce shipments during and after the winter holiday season and as a result of inherent weather variations. The Company's operating expenses also have historically been higher in the winter weather. This Quarterly Report contains certain statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements may be identified by their use of terms or phrases such as "expects," "estimated," "projects," "believes," "anticipates," intends," and similar terms and phrases, and may include, but not be limited to, projections of revenues, income or loss, capital expenditures, acquisitions, plans for growth and future operations, financing needs or plans or intentions relating to acquisitions by the Company, as well as assumptions relating to the foregoing. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, which could cause future events and actual results to differ materially from those set forth in, contemplated by or underlying the forward-looking statements. Such risks and uncertainties include, but are not limited to, those factors discussed under the heading "Special Considerations" in the Company's Annual Report on Form 10-K, as well as other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission. 17 Item 3. Quantitative and Qualitative Disclosure About Market Risk Interest Rate Risk The Company has interest rate exposure arising from the Company's line of credit, which has variable interest rates. At September 30, 2001, the Company had $180.0 million of variable rate debt. The Company has interest rate swap agreements which convert floating rates to fixed rates for a total notional amount of $45 million. For example, if interest rates on the Company's variable rate debt, after considering interest rate swaps, were to increase by 10% from their September 30, 2001 rates for the next twelve months, the increase in interest expense would be approximately $357,000. Commodity Price Risk Fuel is one of the Company's largest expenditures. The price and availability of diesel fuel fluctuates due to changes in production, seasonality and other market factors generally outside the Company's control. Many of the Company's customer contracts contain fuel surcharge provisions to mitigate increases in the cost of fuel. However, there is no assurance that such fuel surcharges could be used to offset future increases in fuel prices. 18 U.S. XPRESS ENTERPRISES, INC. PART II - OTHER INFORMATION Item 4 - Submission of Matters to a Vote of Security Holders None Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits None (b) Reports on Form 8-K None 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. U.S. XPRESS ENTERPRISES, INC. ----------------------------- (Registrant) Date: November 14, 2001 By: /s/ Patrick E. Quinn --------------------------- Patrick E. Quinn President Date: November 14, 2001 By: /s/ Ray M. Harlin --------------------------- Ray M. Harlin Principal Financial Officer 20 -----END PRIVACY-ENHANCED MESSAGE-----