UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2007
June 30, 2018
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______________to_______________to
Commission File Number:0-24806 001-38528
U.S. Xpress Enterprises, Inc.
Nevada | 62-1378182 | |
| (State or other jurisdiction of incorporation | (I.R.S. Employer Identification | |
| or organization) | ||
4080 Jenkins Road | ||
Chattanooga, Tennessee | 37421 | |
| (Address of principal executive offices) | (Zip Code) |
(423) 510-3000
(Registrant’sRegistrant's telephone number, including area code)
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 [ ] | No [X] |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
| Yes [X] | No [ ] |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.filer, smaller reporting company, or an emerging growth company. See definitionthe definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and large accelerated filer""emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] | Accelerated filer | |
Non-accelerated filer [X] (Do not check if a smaller reporting company) | Smaller reporting company [ ] | |
| Emerging growth company [ ] | ||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
| Yes [ ] | No [X] |
Class A common stock,Common Stock, $0.01 par value $.01 per share, and 3,040,262 shares of the registrant’s value: 32,807,957
Class B common stock,Common Stock, $0.01 par value $.01 per share, were outstanding.
TABLE OF CONTENTS
PART I | ||||
Page Number | ||||
| Item 1. | Three and Six Months Ended June 30, 2018 and 2017 | |||
| 3 | ||||
| 4 | ||||
| 5 | ||||
| 6 | ||||
| 7 | ||||
| Item 2. | ||||
| Item 3. | ||||
| Item 4. | ||||
PART II OTHER INFORMATION | ||||
Page Number | ||||
| Item 1. | 40 | |||
| Item 1A. | ||||
| Item 2. | ||||
| Item 3. | 40 | |||
| Item 4. | 40 | |||
| Item 5. | 40 | |||
| Item 6. | ||||
| Unaudited Condensed Consolidated Balance Sheets | ||||||||
| June 30, 2018 and December 31, 2017 | ||||||||
| June 30, | December 31, | |||||||
| (in thousands, except share amounts) | 2018 | 2017 | ||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 6,508 | $ | 9,232 | ||||
| Customer receivables, net of allowance of $69 and $122 at June 30, 2018 and December 31, 2017, respectively | 206,558 | 186,407 | ||||||
| Other receivables | 22,240 | 21,637 | ||||||
| Prepaid insurance and licenses | 7,574 | 7,070 | ||||||
| Operating supplies | 9,432 | 8,787 | ||||||
| Assets held for sale | 9,720 | 3,417 | ||||||
| Other current assets | 15,892 | 12,170 | ||||||
| Total current assets | 277,924 | 248,720 | ||||||
| Property and equipment, at cost | 844,533 | 835,814 | ||||||
| Less accumulated depreciation and amortization | (388,877 | ) | (371,909 | ) | ||||
| Net property and equipment | 455,656 | 463,905 | ||||||
| Other assets | ||||||||
| Goodwill | 57,708 | 57,708 | ||||||
| Intangible assets, net | 29,827 | 30,742 | ||||||
| Other | 21,110 | 19,496 | ||||||
| Total other assets | 108,645 | 107,946 | ||||||
| Total assets | $ | 842,225 | $ | 820,571 | ||||
| Liabilities, Redeemable Restricted Units and Stockholders' Equity (Deficit) | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 74,944 | $ | 80,555 | ||||
| Book overdraft | - | 3,537 | ||||||
| Accrued wages and benefits | 24,885 | 20,530 | ||||||
| Claims and insurance accruals | 46,839 | 47,641 | ||||||
| Other accrued liabilities | 5,420 | 13,901 | ||||||
| Current maturities of long-term debt | 110,062 | 132,332 | ||||||
| Total current liabilities | 262,150 | 298,496 | ||||||
| Long-term debt, net of current maturities | 282,209 | 480,472 | ||||||
| Less unamortized discount and debt issuance costs | (1,508 | ) | (7,266 | ) | ||||
| Net long-term debt | 280,701 | 473,206 | ||||||
| Deferred income taxes | 14,787 | 15,630 | ||||||
| Other long-term liabilities | 12,901 | 14,350 | ||||||
| Claims and insurance accruals, long-term | 58,124 | 56,713 | ||||||
| Commitments and contingencies (Notes 5 and 7) | - | - | ||||||
| Redeemable restricted units | - | 3,281 | ||||||
| Stockholders' Equity (Deficit) | ||||||||
| Preferred stock, $.01 par value, 9,333,333 authorized, no shares issued | - | - | ||||||
| Common stock Class A, $.01 par value, 140,000,000 and 30,000,000 authorized at June 30, 2018 and December 31, 2017, respectively, 32,807,957 and 6,384,887 issued and outstanding at June 30, 2018 and December 31, 2017, respectively | ||||||||
| 328 | 64 | |||||||
| Common stock Class B, $.01 par value, 35,000,000 and 0 authorized at June 30, 2018 and December 31, 2017, respectively, 15,486,560 and 0 issued and outstanding at June 30, 2018 and December 31, 2017, respectively | ||||||||
| 155 | - | |||||||
| Additional paid-in capital | 250,607 | 1 | ||||||
| Accumulated deficit | (40,460 | ) | (43,459 | ) | ||||
| Stockholders' equity (deficit) | 210,630 | (43,394 | ) | |||||
| Noncontrolling interest | 2,932 | 2,289 | ||||||
| Total stockholders' equity (deficit) | 213,562 | (41,105 | ) | |||||
| Total liabilities, redeemable restricted units and stockholders' equity (deficit) | $ | 842,225 | $ | 820,571 | ||||
| See Notes to Unaudited Condensed Consolidated Financials Statements | ||||||||
| U.S. Xpress Enterprises, Inc. | ||||||||||||||||
| Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) | ||||||||||||||||
| Three and Six Months Ended June 30, 2018 and 2017 | ||||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| (in thousands, except per share amounts) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
| Operating revenue | ||||||||||||||||
| Revenue, before fuel surcharge | $ | 402,808 | $ | 338,463 | $ | 785,666 | $ | 670,305 | ||||||||
| Fuel surcharge | 46,950 | 31,887 | 89,800 | 63,721 | ||||||||||||
| Total operating revenue | 449,758 | 370,350 | 875,466 | 734,026 | ||||||||||||
| Operating expenses | ||||||||||||||||
| Salaries, wages, and benefits | 139,701 | 135,214 | 272,625 | 265,465 | ||||||||||||
| Fuel and fuel taxes | 57,704 | 51,712 | 116,093 | 102,180 | ||||||||||||
| Vehicle rents | 19,393 | 14,773 | 39,415 | 40,168 | ||||||||||||
| Depreciation and amortization, net of (gain) loss on sale of property | 24,149 | 26,510 | 48,855 | 45,758 | ||||||||||||
| Purchased transportation | 118,681 | 68,828 | 220,457 | 137,853 | ||||||||||||
| Operating expenses and supplies | 29,073 | 33,167 | 58,864 | 64,539 | ||||||||||||
| Insurance premiums and claims | 19,165 | 17,582 | 39,335 | 35,024 | ||||||||||||
| Operating taxes and licenses | 3,509 | 3,097 | 6,910 | 6,464 | ||||||||||||
| Communications and utilities | 2,425 | 1,953 | 4,891 | 3,921 | ||||||||||||
| General and other operating expenses | 15,940 | 14,825 | 33,149 | 28,037 | ||||||||||||
| Total operating expenses | 429,740 | 367,661 | 840,594 | 729,409 | ||||||||||||
| Operating income | 20,018 | 2,689 | 34,872 | 4,617 | ||||||||||||
| Other expense (income) | ||||||||||||||||
| Interest expense, net | 12,298 | 12,906 | 24,956 | 23,424 | ||||||||||||
| Early extinguishment of debt | 7,753 | - | 7,753 | - | ||||||||||||
| Equity in (income) loss of affiliated companies | (119 | ) | 657 | 177 | 1,000 | |||||||||||
| Other, net | 242 | (216 | ) | 167 | (808 | ) | ||||||||||
| Total other expenses (income) | 20,174 | 13,347 | 33,053 | 23,616 | ||||||||||||
| Income (loss) before income tax provision (benefit) | (156 | ) | (10,658 | ) | 1,819 | (18,999 | ) | |||||||||
| Income tax benefit | (1,191 | ) | (2,261 | ) | (598 | ) | (6,195 | ) | ||||||||
| Net total and comprehensive income (loss) | 1,035 | (8,397 | ) | 2,417 | (12,804 | ) | ||||||||||
| Net total and comprehensive income attributable to noncontrolling interest | 420 | 55 | 643 | 80 | ||||||||||||
| Net total and comprehensive income (loss) attributable to controlling interest | $ | 615 | $ | (8,452 | ) | $ | 1,774 | $ | (12,884 | ) | ||||||
| Income (loss) per share | ||||||||||||||||
| Basic earnings (loss) per share | $ | 0.04 | $ | (1.32 | ) | $ | 0.17 | $ | (2.02 | ) | ||||||
| Basic weighted average shares outstanding | 14,214 | 6,385 | 10,321 | 6,385 | ||||||||||||
| Diluted earnings (loss) per share | $ | 0.04 | $ | (1.32 | ) | $ | 0.17 | $ | (2.02 | ) | ||||||
| Diluted weighted average shares outstanding | 14,456 | 6,385 | 10,443 | 6,385 | ||||||||||||
| See Notes to Unaudited Condensed Consolidated Financials Statements | ||||||||||||||||
| U.S. Xpress Enterprises, Inc. | ||||||||
| Six Months Ended June 30, 2018 and 2017 | ||||||||
| Six Months Ended | ||||||||
| June 30, | ||||||||
| (in thousands) | 2018 | 2017 | ||||||
| Operating activities | ||||||||
| Net income (loss) | $ | 2,417 | $ | (12,804 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
| Early extinguishment of debt | 7,753 | - | ||||||
| Equity in loss of affiliated companies | 177 | 1,000 | ||||||
| Deferred income tax benefit | (959 | ) | (7,077 | ) | ||||
| Provision for losses on receivables | 36 | - | ||||||
| Depreciation and amortization | 46,792 | 44,976 | ||||||
| Losses on sale of property and equipment | 2,063 | 782 | ||||||
| Share based compensation | 629 | 259 | ||||||
| Original issue discount and deferred financing amortization | 1,387 | 1,456 | ||||||
| Interest paid-in-kind | (7,516 | ) | 953 | |||||
| Purchase commitment interest (income) expense | 171 | (366 | ) | |||||
| Changes in operating assets and liabilities: | ||||||||
| Receivables | (17,531 | ) | (7,246 | ) | ||||
| Prepaid insurance and licenses | (504 | ) | (284 | ) | ||||
| Operating supplies | (1,042 | ) | (66 | ) | ||||
| Other assets | (3,777 | ) | (1,361 | ) | ||||
| Accounts payable and other accrued liabilities | (15,353 | ) | (12,934 | ) | ||||
| Accrued wages and benefits | 4,356 | (471 | ) | |||||
| Net cash provided by operating activities | 19,099 | 6,817 | ||||||
| Investing activities | ||||||||
| Payments for purchases of property and equipment | (62,864 | ) | (227,380 | ) | ||||
| Proceeds from sales of property and equipment | 15,355 | 15,270 | ||||||
| Acquisition of business | - | (2,219 | ) | |||||
| Other | (500 | ) | (618 | ) | ||||
| Net cash used in investing activities | (48,009 | ) | (214,947 | ) | ||||
| Financing activities | ||||||||
| Borrowings under lines of credit | 214,432 | 198,590 | ||||||
| Payments under lines of credit | (243,765 | ) | (158,204 | ) | ||||
| Borrowings under long-term debt | 244,677 | 216,808 | ||||||
| Payments of long-term debt | (427,341 | ) | (55,051 | ) | ||||
| Payments of financing costs | (4,151 | ) | (195 | ) | ||||
| Proceeds from IPO, net of issuance costs | 247,098 | - | ||||||
| Payments of long-term consideration for business acquisition | (1,010 | ) | - | |||||
| Repurchase of membership units | (217 | ) | (340 | ) | ||||
| Book overdraft | (3,537 | ) | 7,432 | |||||
| Net cash provided by financing activities | 26,186 | 209,040 | ||||||
| Net change in cash and cash equivalents | (2,724 | ) | 910 | |||||
| Cash and cash equivalents | ||||||||
| Beginning of year | 9,232 | 3,278 | ||||||
| End of year | $ | 6,508 | $ | 4,188 | ||||
| Supplemental disclosure of cash flow information | �� | |||||||
| Cash paid during the year for interest | $ | 37,529 | $ | 27,165 | ||||
| Cash paid during the year for income taxes | 1,110 | 316 | ||||||
| Supplemental disclosure of significant noncash investing and financing activities | ||||||||
| Lease conversion | $ | - | $ | 34,169 | ||||
| Capital lease extinguishments | 997 | 92 | ||||||
| Assumption of debt | - | 5,377 | ||||||
| Uncollected proceeds from asset sales | 206 | 2,177 | ||||||
| Costs related to our IPO accrued in accounts payable | 617 | - | ||||||
| See Notes to Unaudited Condensed Consolidated Financials Statements | ||||||||
Three Months Ended March 31, | ||||||||
2007 | 2006 | |||||||
Operating Revenue: | ||||||||
| Revenue, before fuel surcharge | $ | 316,552 | $ | 262,466 | ||||
| Fuel surcharge | 44,321 | 37,244 | ||||||
| Total operating revenue | 360,873 | 299,710 | ||||||
Operating Expenses: | ||||||||
| Salaries, wages and benefits | 127,099 | 102,854 | ||||||
| Fuel and fuel taxes | 80,098 | 66,337 | ||||||
| Vehicle rents | 22,986 | 18,398 | ||||||
| Depreciation and amortization, net of gain on sale | 19,529 | 11,875 | ||||||
| Purchased transportation | 54,623 | 46,509 | ||||||
| Operating expenses and supplies | 23,637 | 19,325 | ||||||
| Insurance premiums and claims | 14,950 | 13,268 | ||||||
| Operating taxes and licenses | 4,276 | 3,663 | ||||||
| Communications and utilities | 2,881 | 2,872 | ||||||
| General and other operating expenses | 10,492 | 9,852 | ||||||
| Total operating expenses | 360,571 | 294,953 | ||||||
Income from Operations | 302 | 4,757 | ||||||
| Interest expense, net | 5,481 | 3,098 | ||||||
| Equity in (income) loss of affiliated companies | (124 | ) | 217 | |||||
| Minority interest | (50 | ) | 139 | |||||
5,307 | 3,454 | |||||||
| Income (loss) before income taxes | (5,005 | ) | 1,303 | |||||
| Income tax (benefit) provision | (2,376 | ) | 569 | |||||
Net Income (Loss) | $ | (2,629 | ) | $ | 734 | |||
Earnings (Loss) Per Share - basic | $ | (0.17 | ) | $ | 0.05 | |||
| Weighted average shares - basic | 15,276 | 15,325 | ||||||
Earnings (Loss) Per Share - diluted | $ | (0.17 | ) | $ | 0.05 | |||
| Weighted average shares - diluted | 15,276 | 15,511 | ||||||
| U.S. Xpress Enterprises, Inc. | ||||||||||||||||||||||||||||
| Six Months Ended June 30, 2018 | ||||||||||||||||||||||||||||
| (in thousands, except share amounts) | Class A Stock | Class B Stock | Additional Paid In Capital | Accumulated Deficit | Non Controlling Interest | Total Stockholders' Equity (Deficit) | Redeemable Restricted Units | |||||||||||||||||||||
| Balances at December 31, 2017 | $ | 64 | $ | - | $ | 1 | $ | (43,459 | ) | $ | 2,289 | $ | (41,105 | ) | $ | 3,281 | ||||||||||||
| Share based compensation | - | - | 238 | - | - | 238 | 391 | |||||||||||||||||||||
| Adoption of ASC 606 | - | - | - | 1,459 | - | 1,459 | - | |||||||||||||||||||||
| Cancel 6,384,877 US Xpress Enterprises shares | (64 | ) | - | - | 64 | - | - | - | ||||||||||||||||||||
| Issuance of 16,046,624 shares of Class A Stock in Reorganization | 160 | - | (11 | ) | (149 | ) | - | - | - | |||||||||||||||||||
| Issuance of 15,486,560 shares of Class B Stock in Reorganization | - | 155 | (6 | ) | (149 | ) | - | - | - | |||||||||||||||||||
| Transfer from temporary equity to permanent equity | - | - | 3,455 | - | - | 3,455 | (3,455 | ) | ||||||||||||||||||||
Issuance of 16,668,000 shares of Class A stock in Initial Public Offering, net of underwriting discounts and offering costs | 167 | - | 246,931 | - | - | 247,098 | - | |||||||||||||||||||||
| Vesting of 93,333 restricted units | 1 | - | (1 | ) | - | - | - | - | ||||||||||||||||||||
| Dividend of repurchased membership units | - | - | - | - | - | - | (217 | ) | ||||||||||||||||||||
| Net income | - | - | - | 1,774 | 643 | 2,417 | - | |||||||||||||||||||||
| Balances at June 30, 2018 | $ | 328 | $ | 155 | $ | 250,607 | $ | (40,460 | ) | $ | 2,932 | $ | 213,562 | $ | - | |||||||||||||
| See Notes to Unaudited Condensed Consolidated Financials Statements | ||||||||||||||||||||||||||||
U.S. Xpress Enterprises, Inc.
| 1. | Organization and Operations |
U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIESXpress Enterprises, Inc. completed its initial public offering in June 2018 (the “IPO” or the “offering”). Prior to the offering U.S. Xpress Enterprises, Inc. was wholly owned by New Mountain Lake Holdings, LLC (“New Mountain Lake”). New Mountain Lake was formed on October 12, 2007 solely for the purpose of taking U.S. Xpress Enterprises, Inc. private and holding 100% ownership of U.S. Xpress Enterprises, Inc. Immediately prior to the effectiveness of the offering, we completed a series of transactions (collectively, the “Reorganization”) pursuant to which New Mountain Lake merged with and into the Company, with the Company continuing as the surviving corporation.
| 2. | Summary of Significant Accounting Policies |
Basis of Presentation
ASSETS | March 31, 2007 | December 31, 2006 | ||||||
| (Unaudited) | ||||||||
Current Assets: | ||||||||
| Cash and cash equivalents | $ | 3,454 | $ | 913 | ||||
| Customer receivables, net of allowance | 164,826 | 168,079 | ||||||
| Other receivables | 10,521 | 15,398 | ||||||
| Prepaid insurance and licenses | 20,819 | 25,777 | ||||||
| Operating and installation supplies | 8,434 | 7,767 | ||||||
| Deferred income taxes | 25,545 | 25,545 | ||||||
| Other current assets | 12,401 | 10,665 | ||||||
| Total current assets | 246,000 | 254,144 | ||||||
Property and Equipment, at cost: | ||||||||
| Land and buildings | 67,879 | 67,358 | ||||||
| Revenue and service equipment | 552,249 | 537,570 | ||||||
| Furniture and equipment | 35,839 | 35,441 | ||||||
| Leasehold improvements | 32,139 | 29,857 | ||||||
| Computer software | 40,698 | 39,584 | ||||||
728,804 | 709,810 | |||||||
| Less accumulated depreciation and amortization | (193,802 | ) | (180,813 | ) | ||||
| Net property and equipment | 535,002 | 528,997 | ||||||
Other Assets: | ||||||||
| Goodwill, net | 95,520 | 94,307 | ||||||
| Other | 26,667 | 25,919 | ||||||
| Total other assets | 122,187 | 120,226 | ||||||
Total Assets | $ | 903,189 | $ | 903,367 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | March 31, 2007 | December 31, 2006 | ||||||
| (Unaudited) | ||||||||
Current Liabilities: | ||||||||
| Accounts payable | $ | 59,310 | $ | 47,770 | ||||
| Book overdraft | 4,713 | 19,368 | ||||||
| Accrued wages and benefits | 22,403 | 22,562 | ||||||
| Claims and insurance accruals, current | 47,059 | 49,928 | ||||||
| Other accrued liabilities | 6,765 | 9,137 | ||||||
| Securitization facility | 42,000 | 37,000 | ||||||
| Current maturities of long-term debt | 60,550 | 51,221 | ||||||
| Total current liabilities | 242,800 | 236,986 | ||||||
Long-term debt, net of current maturities | 255,219 | 252,313 | ||||||
Deferred income taxes | 112,728 | 114,679 | ||||||
Other long-term liabilities | 3,260 | 3,186 | ||||||
Claims and insurance accruals, long-term | 39,343 | 40,125 | ||||||
Minority interest | 3,529 | 3,579 | ||||||
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, 15,964,694 and 15,958,837 shares issued at March 31, 2007 and December 31, 2006, respectively | 160 | 160 | ||||||
| Common Stock Class B, $.01 par value, 7,500,000 shares authorized, 3,040,262 shares issued and outstanding at March 31, 2007 and December 31, 2006 | 30 | 30 | ||||||
| Additional paid-in capital | 162,328 | 162,001 | ||||||
| Retained earnings | 127,575 | 130,373 | ||||||
| Treasury Stock, Class A, at cost (3,883,075 and 3,683,075 shares at March 31, 2007 and December 31, 2006, respectively) | (43,766 | ) | (40,048 | ) | ||||
| Notes receivable from stockholders | (17 | ) | (17 | ) | ||||
| Total stockholders’ equity | 246,310 | 252,499 | ||||||
Total Liabilities and Stockholders’ Equity | $ | 903,189 | $ | 903,367 | ||||
March 31, | ||||||||
2007 | 2006 | |||||||
Cash Flows from Operating Activities: | ||||||||
| Net income (loss) | $ | (2,629 | ) | $ | 734 | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
| Equity in (income) loss of affiliated companies | (124 | ) | 217 | |||||
| Deferred income tax provision (benefit) | (1,188 | ) | 285 | |||||
| Provision for losses on receivables | 72 | 339 | ||||||
| Depreciation and amortization | 19,505 | 12,830 | ||||||
| Stock-based compensation expense | 246 | 27 | ||||||
| Tax benefit realized from stock option plans | (18 | ) | - | |||||
| Loss (gain) on sale of equipment | 24 | (955 | ) | |||||
| Minority interest expense | (50 | ) | 139 | |||||
| Changes in operating assets and liabilities, net of acquisitions: | ||||||||
| Receivables | 6,887 | 27,414 | ||||||
| Prepaid insurance and licenses | 4,958 | 3,572 | ||||||
| Operating and installation supplies | (544 | ) | (172 | ) | ||||
| Other assets | (3,088 | ) | (455 | ) | ||||
| Accounts payable and other accrued liabilities | 4,222 | (4,184 | ) | |||||
| Accrued wages and benefits | (159 | ) | 620 | |||||
| Net cash provided by operating activities | 28,114 | 40,411 | ||||||
Cash Flows from Investing Activities: | ||||||||
| Payments for purchases of property and equipment | (36,017 | ) | (49,020 | ) | ||||
| Proceeds from sales of property and equipment | 17,159 | 18,416 | ||||||
| Acquisition of businesses, net of cash acquired | (5,655 | ) | (6,806 | ) | ||||
| Net cash used in investing activities | (24,513 | ) | (37,410 | ) | ||||
Cash Flows from Financing Activities: | ||||||||
| Net borrowings under lines of credit | 2,850 | - | ||||||
| Net borrowings under securitization facility | 5,000 | 36,000 | ||||||
| Borrowings under long-term debt | 22,532 | 945 | ||||||
| Payments of long-term debt | (13,147 | ) | (20,143 | ) | ||||
| Additions to deferred financing costs | - | (410 | ) | |||||
| Book overdraft | (14,655 | ) | (11,789 | ) | ||||
| Purchase of Class A Common Stock | (3,718 | ) | (1,601 | ) | ||||
| Proceeds from exercise of stock options | 60 | 317 | ||||||
| Tax benefit from stock options | 18 | - | ||||||
| Proceeds from issuance of common stock, net | - | 92 | ||||||
| Net cash (used in) provided by financing activities | (1,060 | ) | 3,411 | |||||
Net Change in Cash and Cash Equivalents | $ | 2,541 | $ | 6,412 | ||||
Cash and Cash Equivalents, beginning of period | $ | 913 | $ | 9,488 | ||||
Cash and Cash Equivalents, end of period | $ | 3,454 | $ | 15,900 | ||||
Supplemental Disclosure of Cash Flow Information: | ||||||||
| Cash paid during the period for interest, net of capitalized interest | $ | 5,232 | $ | 1,701 | ||||
| Cash (refunded) paid during the period for income taxes, net | $ | (3,044 | ) | $ | 6,669 | |||
The interimunaudited condensed consolidated financial statements contained herein reflect all adjustmentsinclude the accounts of the Company and its wholly owned and majority owned subsidiaries. All significant intercompany transactions and accounts have been eliminated.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with Article 10 of Regulation S-X promulgated under the Securities Act of 1933, as amended. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that inaffect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and such differences could be material. In the opinion of management, the accompanying financial statements include all adjustments that are necessary for a fair statement of the financial condition and results of operations for the interim periods presented. They have been prepared by U.S. Xpress Enterprises, Inc. (the "Company"), without audit, in accordance with the instructions to Form 10-Q and the rules and regulationspresented, such adjustments being of the Securities and Exchange Commission and do not include all the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.a normal recurring nature.
Certain information and footnote disclosures have been condensed or omitted pursuant to such rules and regulations. The December 31, 2017 balance sheet was derived from our audited balance sheet as of that date. The Company’s operating results are subject to seasonal trends when measured on a quarterly basis; therefore operating results for the three and six months ended March 31, 2007June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007. In the opinion of management, all adjustments necessary for a fair presentation of such2018. These unaudited condensed consolidated financial statements have been included. Such adjustments consisted only of items that are of a normal recurring nature.
Recognition of Revenue
The Company generates revenues primarily from shipments executed by the Company’s Truckload and Brokerage operations. Those shipments are the Company’s performance obligations, arising under contracts we have entered into with customers. Under such contracts, revenue is recognized when obligations are satisfied, which occurs over time with the transit of shipments from origin to destination. This is appropriate as the customer simultaneously receives and consumes the benefits as the Company performs its obligation. Revenue is measured as the amount of consideration the Company expects to receive in exchange for providing services. The most significant judgment used in recognition of revenue is the determination of miles driven as the basis for determining the amount of revenue to be recognized for partially fulfilled obligations. Accessorial charges for fuel surcharge, loading and unloading, stop charges, and other immaterial charges are part of the consideration we receive for the single performance obligation of delivering shipments. Contracts entered into with our customers do not contain material financing components.
Certain incremental revenue-related costs associated with obtaining a contract are capitalized. The majority of revenue contracts with our customers have a duration of one year or less and do not require any significant start-up costs, and as such, costs incurred to obtain contracts associated with these contracts are expensed as incurred. For contracts with durations exceeding one year, incremental start-up costs are capitalized and amortized on a straight line basis over the contract period which materially represents the period of revenue generation. Incremental capitalized start-up costs totaled $3.6 million with accumulated amortization of $1.4 million at June 30, 2018 and are included in other currents assets in our unaudited condensed consolidated balance sheets.
Through the Company’s Form 10-K filedBrokerage operations, the Company outsources the transportation of the loads to third-party carriers. The Company is a principal in these arrangements, and therefore records revenue associated with these contracts on a gross basis. The Company has the Securitiesprimary responsibility to meet the customer’s requirements. The Company invoices and Exchange Commissioncollects from its customers and also maintains discretion over pricing. Additionally, the Company is responsible for selection of third-party transportation providers to the extent used to satisfy customer freight requirements.
The timing of revenue recognition, billings, cash collections, and allowance for doubtful accounts results in billed and unbilled receivables on March 16, 2007).the unaudited condensed consolidated balance sheet. The Company receives the unconditional right to bill when shipments are delivered to their destination. We generally receive payment within 40 days of completion of performance obligations. Unbilled receivables recorded on the unaudited condensed consolidated balance sheet were $4.0 million and $3.9 million at June 30, 2018 and December 31, 2017, respectively and are included in customer receivables in the condensed consolidated balance sheets. The amount of revenue to be recognized related to the Company’s remaining performance obligations was $3.7 million at June 30, 2018.
The following table presents the effect of the adoption of Accounting Standard Codification 606 “Revenue from Contracts with Customers” (ASC 606) on our unaudited condensed consolidated financial statements for the three and six months ended June 30, 2018 (in thousands, except per share amounts):
| As Reported | Under ASC 605 | As Reported | Under ASC 605 | |||||||||||||||||||||
| for the Three | Adjustments | for the Three | for the Six | Adjustments | for the Six | |||||||||||||||||||
| Months Ended | Due to | Months Ended | Months Ended | Due to | Months Ended | |||||||||||||||||||
| June 30, 2018 | ASC 606 | June 30, 2018 | June 30, 2018 | ASC 606 | June 30, 2018 | |||||||||||||||||||
| Consolidated Statement of Comprehensive Income (Loss) | ||||||||||||||||||||||||
| Operating revenues | $ | 449,758 | $ | 14 | $ | 449,772 | $ | 875,466 | $ | (151 | ) | $ | 875,315 | |||||||||||
| Total operating expenses | 429,740 | 1,019 | 430,759 | 840,594 | 1,541 | 842,135 | ||||||||||||||||||
| Operating income | 20,018 | (1,005 | ) | 19,013 | 34,872 | (1,692 | ) | 33,180 | ||||||||||||||||
| Income (loss) before income tax benefit | (156 | ) | (1,005 | ) | (1,161 | ) | 1,819 | (1,692 | ) | 127 | ||||||||||||||
| Income tax provision | (1,191 | ) | (291 | ) | (1,482 | ) | (598 | ) | (491 | ) | (1,089 | ) | ||||||||||||
| Net income (loss) | 1,035 | (714 | ) | 321 | 2,417 | (1,201 | ) | 1,216 | ||||||||||||||||
| Net income (loss) attributable to controlling interest | 615 | (714 | ) | (99 | ) | 1,774 | (1,201 | ) | 573 | |||||||||||||||
| Basic earnings (loss) per share | 0.04 | (0.05 | ) | (0.01 | ) | 0.17 | (0.12 | ) | 0.06 | |||||||||||||||
| Basic weighted average shares outstanding | 14,214 | 14,214 | 14,214 | 10,321 | 10,321 | 10,321 | ||||||||||||||||||
| Diluted earnings (loss) per share | 0.04 | (0.05 | ) | (0.01 | ) | 0.17 | (0.12 | ) | 0.05 | |||||||||||||||
| Diluted weighted average shares outstanding | 14,456 | 14,456 | 14,456 | 10,443 | 10,443 | 10,443 | ||||||||||||||||||
| Reported | Adjustments | Under ASC 605 | ||||||||||||||||||||||
| Balance at | Due to | Balance at | ||||||||||||||||||||||
| Consolidated Balance Sheet | June 30, 2018 | ASC 606 | June 30, 2018 | |||||||||||||||||||||
| Customer receivables, net of allowance of $69 at June 30, 2018 | $ | 206,558 | $ | (4,003 | ) | $ | 202,555 | |||||||||||||||||
| Other current assets | 15,892 | (2,216 | ) | 13,676 | ||||||||||||||||||||
| Total current assets | 277,924 | (6,219 | ) | 271,705 | ||||||||||||||||||||
| Total assets | 842,225 | (6,219 | ) | 836,006 | ||||||||||||||||||||
| Accounts payable | 74,944 | (2,600 | ) | 72,344 | ||||||||||||||||||||
| Other accrued liabilities | 5,420 | (349 | ) | 5,071 | ||||||||||||||||||||
| Deferred income taxes | 14,787 | (609 | ) | 14,178 | ||||||||||||||||||||
| Accumulated deficit | (40,460 | ) | (2,661 | ) | (43,121 | ) | ||||||||||||||||||
| Stockholders' equity (deficit) | 210,630 | (2,661 | ) | 207,969 | ||||||||||||||||||||
| Total stockholders' equity (deficit) | 213,562 | (2,661 | ) | 210,901 | ||||||||||||||||||||
| Total liabilities, redeemable restricted units and stockholders' equity (deficit) | 842,225 | (6,219 | ) | 836,006 | ||||||||||||||||||||
| Operating Cash Flows | ||||||||||||||||||||||||
| Net income (loss) | 2,417 | (1,201 | ) | 1,216 | ||||||||||||||||||||
| Receivables | (17,531 | ) | (151 | ) | (17,682 | ) | ||||||||||||||||||
| Other assets | (3,777 | ) | (1,751 | ) | (5,528 | ) | ||||||||||||||||||
| Accounts payable and other accrued liabilities | (15,353 | ) | 210 | (15,143 | ) | |||||||||||||||||||
| Deferred income tax benefit | (959 | ) | 491 | (468 | ) | |||||||||||||||||||
Recently Issued Accounting Standards
In February 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-02, “Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which permits stranded tax effects resulting from the passing of the Tax Cuts and OperationsJobs Act of 2017 (the “Act”) to be reclassified to retained earnings. The provisions of this update are effective for fiscal years and interim periods beginning after December 15, 2018, with early adoption permitted. The Company has evaluated the provisions of the pronouncement and does not expect the adoption of ASU 2018-02 will have a material impact on the consolidated financial statements.
In January 2017, the FASB issued ASU 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” which eliminates Step 2 from the goodwill impairment testing process. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. Under the new standard, a goodwill impairment loss is measured as the excess of the carrying value of a reporting unit over its fair value. The provisions of this update are effective for fiscal years beginning after December 15, 2019. The Company has evaluated the provisions of the pronouncement and does not expect the adoption of ASU 2018-02 will have a material impact on the consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” to increase transparency and comparability by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The provisions of this update are effective for fiscal years beginning after December 15, 2018. While the Company is currently evaluating the provisions of the pronouncement and assessing the impact on the condensed consolidated financial statements, the Company expects the recognition of right-of-use assets and lease obligations will have a material impact to the consolidated balance sheet.
Page 9
Recently Adopted Accounting Standards
In March 2018, the continental United States and parts of Canada and Mexico. Xpress Global Systems provides transportation, warehousing, and distribution services primarilyFinancial Accounting Standards Board (FASB) issued ASU 2018-05, “Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118.” The standard adds SEC paragraphs pursuant to the floorcovering industry.SEC Staff Accounting Bulletin No. 118, which expresses the view of the SEC Staff regarding application of Topic 740, Income Taxes, in the reporting period that includes December 22, 2017 - the date on which the Act was signed into law. The application of this guidance did not have a material impact on the condensed consolidated financial statements.
In April 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,” which defers the effective date of ASU 2014-09. The new standard introduces a five-step model to determine when and how revenue is recognized. The premise of the new model is that an Enterpriseentity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard is effective for annual periods, and Related Information”, permitsinterim periods within those annual periods, beginning after December 15, 2017. Entities are allowed to transition to the new standard by either recasting prior periods or recognizing the cumulative effect. The Company adopted ASU 2014-09 effective January 1, 2018 by using the modified retrospective transition approach and recognizing the cumulative effect of the change in retained earnings. The primary impact of adopting ASC 606 is the earlier recognition of revenue for loads that are in route as of the balance sheet date. Prior to adopting ASC 606, the Company recognized revenue and direct costs when shipments were delivered. Under ASC 606, the Company is required to recognize revenue and related direct costs over time as the shipment is being delivered. ASC 606 also requires substantial new disclosures regarding the nature, amount, timing and uncertainty of recognized revenue, which are provided under the heading “Recognition of Revenue” above. The adoption of ASC 606 resulted in a cumulative positive adjustment to opening equity at December 31, 2017 of approximately $1.5 million.
| 3. | Income Taxes |
The Company’s provision for income taxes for the aggregation of separate operating segments into one reporting segment if they have similar economic characteristicssix months ended June 30, 2018 and if2017 is based on the segments are similar in each ofestimated annual effective tax rate, plus discrete items. The following table presents the following areas: a)provision for income taxes and the natureeffective tax rates for the three and products of the services, b) the nature of the production process, c) the type or class of customer for their productssix months ended June 30, 2018 and services, d) the methods used to distribute their products or provide their services, and e) if applicable, the nature of the regulatory environment. The Company notes U.S. Xpress, Arnold, and Total have these similarities and are consolidated into one reporting segment “Truckload” while Xpress Global Systems is reported separately.2017 (in thousands):
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Income (loss) before Income Taxes | $ | (156 | ) | $ | (10,658 | ) | $ | 1,819 | $ | (18,999 | ) | |||||
| Income tax benefit | (1,191 | ) | (2,261 | ) | (598 | ) | (6,195 | ) | ||||||||
| Effective tax rate | 763.5 | % | 21.2 | % | -32.9 | % | 32.6 | % | ||||||||
The difference between the Company’s effective tax rate for the three and six months ended June 30, 2018 and 2017 and the US statutory rates of 21% and 35%, respectively, primarily relates to nondeductible expenses, federal income tax credits, state income taxes (net of federal benefit), and the effect of taxes on foreign earnings and certain discrete items. At June 30, 2018, the Company’s estimated annual effective tax rate also includes the impact of the new Global Intangible Low-Taxed Income (“GILTI”) tax, which is effective in basic2018 as a result of the Act enacted on December 22, 2017. See further discussion below on our accounting policy associated with GILTI.
The Company recorded discrete tax items for the six months ended June 30, 2018 related to tax-deductible IPO costs and diluted weighted average sharesrestricted stock unit costs in excess of book deductible costs totaling $(0.4) million and $(0.7) million, respectively. At June 30, 2018, our analysis is duestill incomplete for provisional amounts recorded for the Act at December 31, 2017 and as such, no adjustments have been recorded in this period. The provisional amounts recorded at December 31, 2017 that continue to be evaluated include the estimation of the transition tax, state tax conformity issues of federal law changes, and changes in estimates from revaluing deferred tax liabilities that can result from filing the 2017 U.S. income tax return.
Global Intangible Low-Taxed Income:
The Act subjects a US shareholder to tax on GILTI earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. Given the complexity of the GILTI provisions, we are still evaluating the effects of the GILTI provisions and have not yet determined our accounting policy. At June 30, 2018, because we are still evaluating the GILTI provisions and our analysis of future taxable income that is subject to GILTI, we have included GILTI related to current-year operations only in our estimated annual effective tax rate and have not provided additional GILTI on deferred items.
| 4. | Long-Term Debt |
June 30, 2018 | December 31, 2017 | |||||||
| Term loan agreement, maturing May 2020, terminated June 2018, effective interest rate of 12.2% | $ | - | $ | 193,177 | ||||
| Line of credit, maturing March 2020, terminated June 2018 | - | 29,333 | ||||||
| Term loan agreement, interest rate of 4.3% at June 30, 2018, maturing June 2023 | 200,000 | - | ||||||
| Revenue equipment installment notes with finance companies, weighted average interest rate of 4.5% and 4.7% at June 30, 2018 and December 31, 2017, due in monthly installments with final maturities at various dates through August 2022, secured by related revenue equipment with a net book value of $156.4 million and $315.7 million in June 2018 and December 2017 | 147,065 | 310,850 | ||||||
| Note payable to limited liability company owned in part by certain officers of the Company, interest rate of 13.0% at December 31, 2017, maturing November 2020, terminated June 2018 | - | 25,516 | ||||||
| Mortgage note payables, interest rates ranging from 5.25% to 6.99% at June 30, 2018 and December 31, 2017 due in monthly installments with final maturities as various dates through September 2031, secured by real estate with a net book value of $24.2 million and $24.7 million at June 2018 and December 2017 | 19,457 | 20,033 | ||||||
| Capital lease obligations, maturing at various dates through April 2024 | 23,604 | 27,761 | ||||||
| Other | 2,145 | 6,134 | ||||||
| 392,271 | 612,804 | |||||||
| Less: Unamortized discount and debt issuance costs | (1,508 | ) | (7,266 | ) | ||||
| Less: Current maturities of long-term debt | (110,062 | ) | (132,332 | ) | ||||
| $ | 280,701 | $ | 473,206 | |||||
New Credit Facility
In June 2018, we entered into a new credit facility (the “Credit Facility”) that contains a $150.0 million revolving component (the “Revolving Facility”) and a $200.0 million term loan component (the “Term Facility”). The Credit Facility contains an accordion feature that, so long as no event of default exists, allows us to request an increase in the borrowing amounts under the Revolving Facility or the Term Facility by a combined maximum amount of $75.0 million. Borrowings under the Credit Facility are classified as either “base rate loans” or “Eurodollar rate loans.” Base rate loans accrue interest at a base rate equal to the assumed conversionagent’s prime rate plus an applicable margin that is set at 1.25% through September 30, 2018 and adjusted quarterly thereafter between 0.75% and 1.50% based on our consolidated net leverage ratio. Eurodollar rate loans will accrue interest at London Interbank Offered Rate, or a comparable or successor rate approved by the administrative agent, plus an applicable margin that is set at 2.25% through September 30, 2018 and adjusted quarterly thereafter between 1.75% and 2.50% based on our consolidated net leverage ratio. The Credit Facility requires payment of outstanding stock optionsa commitment fee on the unused portion of the Revolving Facility commitment of between 0.25% and unvested restricted stock.0.35% based on our consolidated net leverage ratio. In addition, the Revolving Facility includes, within its $150.0 million revolving credit facility, a letter of credit sub facility in an aggregate amount of $75.0 million and a swingline sub facility in an aggregate amount of $15.0 million. The computationTerm Facility has scheduled quarterly principal payments between 1.25% and 2.50% of basic and diluted earnings per share is as follows:the original face amount of the Term Facility plus any additional amount borrowed pursuant to the accordion feature of the Term Facility, with the first such payment to occur on the last day of our fiscal quarter ending September 30, 2018. The Credit Facility will mature on June 18, 2023.
Three Months Ended March 31, | ||||||||
2007 | 2006 | |||||||
| Net Income (Loss) | $ | (2,629 | ) | $ | 734 | |||
| Denominator: | ||||||||
| Weighted average common shares outstanding | 15,276 | 15,325 | ||||||
| Equivalent shares issuable upon exercise of stock options and vesting of restricted stock | - | 186 | ||||||
| Diluted shares | 15,276 | 15,511 | ||||||
| Earnings (Loss) Per Share: | ||||||||
| Basic | $ | (0.17 | ) | $ | 0.05 | |||
| Diluted | $ | (0.17 | ) | $ | 0.05 | |||
The Credit Facility contains restrictive covenants including, among other things, restrictions on our ability to incur additional indebtedness or issue guarantees, to create liens on our assets, to make distributions on or redeem equity interests, to make investments, to transfer or sell properties or other assets and to engage in mergers, consolidations, or acquisitions. In addition, the Credit Facility requires us to meet specified financial ratios and tests, including a maximum leverage ratio and a minimum interest coverage ratio.
At June 30, 2018, the Revolving Facility had issued collateralized letters of credit in the face amount of $37.6 million, with $0 borrowings outstanding and $112.4 million available to borrow.
The Credit Facility includes usual and customary events of default for a facility of this nature and provides that, upon the occurrence and continuation of an event of default, payment of all amounts payable under the Credit Facility may be accelerated, and the Lenders’ commitments may be terminated. At June 30, 2018, the Company was in compliance with all financial covenants prescribed by the Credit Facility.
Old Term Loan Agreement
In June 2018, as a result of the offering, the Company repaid its then existing term loan and incurred a loss on early extinguishment of debt. The loss resulted from the write-off of unamortized discount and debt issuance costs of $0.6 million and $5.3 million, respectively, payment of fees to lenders of $1.4 million and third party fees of $0.1 million. The effective interest rate for the term loan at December 31, 2017 was 12.2%, including the effect of original issue discount as discussed below
Original issue discount was recorded as an offset to long-term debt and was amortized over the term of the respective obligation using the effective interest method. Unamortized original issue discount was $0.8 million as of December 31, 2017.
Old Line of Credit
In June 2018, as a result of the offering, the Company repaid and terminated its then existing revolving credit facility and incurred a loss on early extinguishment of debt. The loss resulted from the write-off of debt issuance costs of $0.2 million and payment of fees to lenders of $0.1 million.
The Company leases certain revenue and service equipment and office and terminal facilities under long-term noncancelable operating lease agreements expiring at various dates through October 2027. Rental expense under noncancelable operating leases was approximately $20.1 million and $14.7 million for the three months ended June 30, 2018 and 2017, respectively, and $39.9 million and $40.2 million for the six months ended June 30, 2018 and 2017, respectively. Revenue equipment lease terms for new equipment are generally three to five years for tractors and five to eight years for trailers. The lease terms generally represent the estimated usage period of the equipment, which is generally substantially less than the economic lives. The Company leases certain of its revenue equipment under capital lease agreements. The terms of the capital leases expire at various dates through April 2024. Certain revenue equipment leases provide for guarantees by the Company of a portion of the specified residual value at the end of the lease term. The maximum potential amount of future payments (undiscounted) under these guarantees is approximately $28.3 million at June 30, 2018. The residual value of a portion of the related leased revenue equipment is covered by repurchase or trade agreements between the Company and the equipment manufacturer.
The Company had a $25.5 million note payable to a limited liability company controlled by certain officers of the Company as of December 31, 2017. The Company repaid the note in the amount of $26.6 million which included paid in kind interest of $8.6 million as of the payoff date.
The Company leased a terminal facility from entities owned by the two principal stockholders of New Mountain Lake and Contingenciestheir respective family trusts. The lease agreement was set to expire in 2020. Rent expense of approximately $0.5 million and $0.5 million was recognized in connection with this lease during the six months ended June 30, 2018 and 2017, respectively. The Company purchased the terminal facility with proceeds from the offering for $7.5 million.
| 7. | Commitments and Contingencies |
The Company is party to certain legal proceedings incidental to its business. The ultimate disposition of these matters, in the opinion of management, based in part uponon the advice of legal counsel, is not expected to have a materially adverse effect on the Company’s financial position or results of operations.
For the cases described below, management is unable to provide a meaningful estimate of the possible loss or range of loss because, among other reasons, (1) the proceedings are in various stages; (2) damages have not been sought; (3) damages are unsupported and/or exaggerated; (4) there is uncertainty as to the outcome of pending appeals; and/or (5) there are significant factual issues to be resolved. For these cases, however, management does not believe, based on currently available information, that the outcomes of these proceedings will have a material adverse effect on our financial condition, though the outcomes could be material to our operating results for any particular period, depending, in part, upon the operating results for such period.
California Wage and Hour Class Action Litigation
In December 2015, a class action lawsuit was filed against us in the Superior Court of California, County of San Bernardino. The case was transferred to the U.S. District Court for the Central District of California. The putative class includes current and former truck drivers employed by us who worked or work in California after the completion of their training while residing in California since December 23, 2011 to present. The case alleges that class members were not paid for off-the-clock work, were not provided duty free meal or break times, and were not paid premium pay in their absence, were not paid minimum wage for all hours worked, were not provided accurate and complete time and pay records and were not paid all accrued wages at the end of their employment, all in violation of California law. The class seeks a judgment for compensatory damages and penalties, injunctive relief, attorney fees and costs and pre- and post-judgment interest. The matter is currently in discovery, and a jury trial is set for December 4, 2018. We are currently unable to determine the possible loss or range of loss. We intend to vigorously defend the merits of these claims.
Telephone Consumer Protection Act Claim
In December 2017, a class action was filed against us in the U.S. District Court for the Western District of Virginia, alleging violations of the Telephone Consumer Protection Act, for two separate proposed classes. The putative classes include all persons within the United States to whom the Company either initiated a telephone call to a cellular telephone number using an automatic telephone dialing system or initiated a call to a residential telephone number using an artificial or pre-recorded voice at any time from December 11, 2013 to present. The lawsuit seeks statutory damages for each violation, injunctive relief and attorneys’ fees and costs. The Company has moved to dismiss certain claims, including but not limited to claims for all purported class members residing outside the State of Virginia for lack of personal jurisdiction. The matter is currently in discovery. We intend to vigorously defend the merits of these claims.
The Company had letters of credit of $91,036$37.6 million and $34.5 million outstanding at Marchas of June 30, 2018 and December 31, 2007.2017, respectively. The letters of credit are maintained primarily to support the Company’s insurance program.
The Company currently hashad cancelable commitments outstanding at June 30, 2018 to acquire revenue and communicationsother equipment and development of terminals for approximately $104,311 in 2007$193.8 million during the remainder of 2018 and $400 in 2008. These revenue equipment commitments are cancelable, subject to certain adjustments in the underlying obligations and benefits.$6.1 million during 2019. These purchase commitments are expected to be financed by long-term debt, operating leases, long-term debt, proceeds from sales of existing equipment, and cash flows from operations.
| 8. | Share-based Compensation |
In January of 2007,conjunction with the offering, the Company acquired certain assets ofvested all remaining stock appreciation rights (“SARS”) and settled the resulting liabilities related thereto. As a truckload carrier for a purchase price of $5.6 million in cash. The assets acquired of approximately $4.8 million related primarily to revenue equipment and other assets. The excess of the purchase price over the fair value of the assets acquired was recorded as goodwill. The purchase price allocation is preliminary asresult, the Company is still reviewingrecorded additional compensation expense in the valuationsamount of certain assets.
The total intrinsic value of SARS outstanding was $0.5 million as of December 31, 2017.
Restricted Stock Units
As part of the Reorganization, all of the redeemable restricted units of New Mountain Lake were converted into restricted stock units of the Company, acquired 49% ofwith the outstanding stock of Transportation Investments Inc. ("TII"),same vesting schedules. Therefore, we refer to redeemable restricted units issued prior to the parent company of Total, and certain affiliated companies (together with TII, the "Total Companies"). Certain members of Arnold’s current management team controlled the remaining 51% interestReorganization as well as a majority of the board of directors of ATS, and certain members of the Total management team controlled the remaining 51% interest and a majority of the boards of directors of each of the Total Companies. The Company did not guarantee any of ATS' or the Total Companies' debt and did not have any obligation to provide funding, services, or assets. The Company accounted for ATS' and the Total Companies' operating results using the equity method of accounting.
capital. The following unaudited pro forma financial information presentsis a summary of the Company’s consolidated results of operationsrestricted stock unit activity for the quarterssix months ended March 31, 2007 and 2006 had the acquisitions of ATS and the Total Companies taken place as of January 1, 2006.June 30, 2018:
Number of Units | Weighted Average | ||||||||
| Unvested at December 31, 2017 | 446,000 | 9.14 | |||||||
| Granted | - | ||||||||
| Vested-pre IPO | 105,307 | 7.74 | |||||||
| Forfeited-pre IPO | 6,667 | 7.52 | |||||||
| Unvested at June 13, 2018 | 334,026 | 9.62 | |||||||
| Conversion in connection with IPO | 4.6666667 | ||||||||
| Unvested post-IPO | 1,558,787 | 2.06 | |||||||
| Vested-post IPO | 93,333 | 2.96 | |||||||
| Unvested at June 30, 2018 | 1,465,454 | 2.01 | |||||||
Three Months Ended March 31, | ||||||||
2007 | 2006 | |||||||
| Revenue, net of fuel surcharge | $ | 316,552 | $ | 321,359 | ||||
| Net income (loss) | (2,629 | ) | 807 | |||||
| Earnings (loss) per share - Basic | (0.17 | ) | 0.05 | |||||
| Earnings (loss) per share - Diluted | (0.17 | ) | 0.05 | |||||
These restricted stock unit grants vest over periods ranging from three to seven years. The Company recognized compensation expense of $0.6 million and $0.3 million during the six months ended June 30, 2018 and 2017, respectively. At June 30, 2018 and December 31, 2017, the Company had $2.5 million and $3.2 million in unrecognized compensation expense related to restricted stock units, which is expected to be recognized over a period of approximately 5.2 and 5.4 years, respectively.
Incentive Plan
In June 2018, the transactions that increasedBoard approved the Company’s ownership2018 Omnibus Incentive Plan (the “Incentive Plan”) to 80%,become effective in connection with the Company also obtained the right to elect a majority of the members of the board of directors of ATS. The Company retains options to purchase the remaining 20% of each of ATS and the Total Companies through December 8, 2007 and October 1, 2008, respectively. If the Company fails to exercise such options prior to such dates, the members of the current Arnold and Total management teams will have similar options to repurchase the Company’s interests in ATS and the Total Companies, respectively.
offering. The Company has two reportable segments based onreserved an aggregate of 3,200,000 shares of its Class A common stock for issuance of awards under the typesIncentive Plan. Participants in the Incentive Plan will be selected by the Compensation Committee from the executive officers, directors, employees and consultants of services it provides to its customers: Truckload (U.S. Xpress, Arnold,the Company. Awards under the Incentive Plan may be made in the form of stock options, stock appreciation rights, stock awards, restricted stock units, performance awards, performance units, and Total), which provides truckload operations throughoutany other form established by the continental United States and parts of Canada and Mexico; and Xpress Global Systems, which provides transportation, warehousing, and distribution servicesCompensation Committee pursuant to the floorcovering industry. Substantially all intersegment sales prices are market based. TheIncentive Plan.
In June 2018, the Company evaluates performance based on operating income ofgranted the respective business units.following equity awards under the Incentive Plan:
| Number of Shares Granted | Vesting Period in Years | Grant Date Fair Value | ||||||||||
| Restricted shares | 73,158 | 4 | $ | 16.00 | ||||||||
| Restricted stock units | 140,757 | 4 | $ | 16.00 | ||||||||
| Stock options | 192,203 | 4 | $ | 6.09 | ||||||||
Truckload | Xpress Global Systems | Consolidated | ||||||||||
Three Months Ended March 31, 2007 | ||||||||||||
Revenue - external customers | $ | 338,317 | $ | 22,556 | $ | 360,873 | ||||||
Intersegment revenue | 1,195 | - | 1,195 | |||||||||
Operating income (loss) | (1,238 | ) | 1,540 | 302 | ||||||||
Total assets | 882,260 | 20,929 | 903,189 | |||||||||
| Three Months Ended March 31, 2006 | ||||||||||||
| Revenue - external customers | $ | 277,277 | $ | 22,433 | $ | 299,710 | ||||||
| Intersegment revenue | 1,275 | - | 1,275 | |||||||||
| Operating income | 4,388 | 369 | 4,757 | |||||||||
| Total assets | 778,988 | 23,358 | 802,346 | |||||||||
March 31, 2007 | December 31, 2006 | |||||||
| Obligation under line of credit with a group of banks, maturing March 2011 | $ | 4,550 | $ | 1,700 | ||||
| Revenue equipment installment notes with finance companies, weighted average interest rate of 6.01% and 5.99% at March 31, 2007 and December 31, 2006, respectively, due in monthly installments with final maturities at various dates through August 2013, secured by related revenue equipment with a net book value of $277.9 million at March 31, 2007 and $265.8 million at December 31, 2006 | 273,996 | 263,953 | ||||||
| Mortgage note payable, interest rate of 6.73% at March 31, 2007 and December 31, 2006, due in monthly installments through October 2010, with final payment of $6.3 million, secured by real estate with a net book value of $12.8 million at March 31, 2007 and $12.9 million at December 31, 2006 | 7,696 | 7,782 | ||||||
| Mortgage note payable, interest rate of 6.26% at March 31, 2007 and December 31, 2006, due in monthly installments through December 2030, secured by real estate with a net book value of $15.8 million at March 31, 2007 and $15.9 million at December 31, 2006 | 16,633 | 16,709 | ||||||
| Mortgage note payable, interest rate of 6.98% at March 31, 2007, maturing August, 2031, secured by real estate with a net book value of $13.6 million at March 31, 2007 and $13.7 million at December 31, 2006 | 10,376 | 10,416 | ||||||
| Mortgage notes payable, interest rate ranging from 5.0% to 7.25% maturing at various dates through January 2009, secured by real estate with a net book value of $2.9 million at March 31, 2007 and $2.4 million at December 31, 2006 | 1,157 | 1,204 | ||||||
| Capital lease obligations maturing through September 2008 | 1,206 | 1,510 | ||||||
| Other | 155 | 260 | ||||||
315,769 | 303,534 | |||||||
| Less: current maturities of long-term debt | (60,550 | ) | (51,221 | ) | ||||
| $ | 255,219 | $ | 252,313 | |||||
At March 31, 2007, the applicable margin was 0.00% for base rate loans and 1.50% for LIBOR loans. The credit facility also prescribes additional fees for letter of credit transactions and a quarterly commitment fee on the unused portion of the loan commitment (1.50% and 0.25%, respectively, at March 31, 2007). At March 31, 2007, $91,036 in letters of credit were outstanding under the credit facility with $34,414 available to borrow. The credit facility is secured by substantially all assets ofJune 30, 2018, the Company other than real estate and assets securing other debthad $4.6 million in unrecognized compensation expense related to the above awards which is expected to be recognized over a period of the Company.approximately 4.0 years.
| 9. | Fair Value Measurements |
Severance | Future Lease Commitments | Other Related Exit Costs | Minimum Contractual Amounts | Total | ||||||||||||||||
| May 31, 2005 Reserve | $ | 400 | $ | 5,287 | $ | 962 | $ | 5,033 | $ | 11,682 | ||||||||||
| 2005 Reserve Additions | 15 | (15 | ) | - | 73 | 73 | ||||||||||||||
| 2005 Payments | (415 | ) | (3,780 | ) | (797 | ) | (3,268 | ) | (8,260 | ) | ||||||||||
| December31, 2005 Reserve | - | 1,492 | 165 | 1,838 | 3,495 | |||||||||||||||
| 2006 Reserve Additions | - | 305 | (1) | - | 148 | 453 | ||||||||||||||
| 2006 Payments | - | (795 | ) | (30 | ) | (476 | ) | (1,301 | ) | |||||||||||
| December 31, 2006 Reserve | - | 1,002 | 135 | 1,510 | 2,647 | |||||||||||||||
| 2007 Reserve Additions | - | 23 | (1) | - | 36 | (1) | 59 | |||||||||||||
| 2007 Payments | - | (148 | ) | - | (1,177 | ) | (1,325 | ) | ||||||||||||
| March 31, 2007 Reserve | $ | - | $ | 877 | $ | 135 | $ | 369 | $ | 1,381 | ||||||||||
The standards clarify that fair value is an exit price, representing the amount that would be received to sell an asset, based on the highest and best use of this Statement will change current practice. SFAS 157the asset, or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is effectivea market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for fiscal years beginning after Novemberevaluating such assumptions, the standards establish a three-tier fair value hierarchy, which prioritizes the inputs in measuring fair value as follows:
| Level 1 | Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. An active market is defined as a market in which transactions for the assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis. |
| Level 2 | Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active (markets with few transactions), inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that derived principally from or corroborated by observable market data correlation or other means (market corroborated inputs). |
| Level 3 | Unobservable inputs, only used to the extent that observable inputs are not available, reflect the Company’s assumptions about the pricing of an asset or liability. |
Page 15 2007. The Company is currently evaluating the impact, if any, of SFAS 157 on its consolidated financial statements.
The following table summarizes liabilities measured at fair value at June 30, 2018 and December 31, 2017 (in thousands):
| 2018 | ||||||||
| Fair Value | Input Level | |||||||
| Liabilities | ||||||||
| Forward Contract | $ | 2,156 | 3 | |||||
| 2017 | ||||||||
| Fair Value | Input Level | |||||||
| Liabilities | ||||||||
| Forward Contract | $ | 1,985 | 3 | |||||
The following table summarizes the FASB issued Statementchanges in the fair value of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, (“SFAS 159”). SFAS 159 permits entities to choose to measure certain financial assets and liabilities measured at fair value. Unrealized gainsvalue using significant unobservable inputs (Level 3) for the six months ended June 30, 2018 and losses2017 (in thousands):
| June 30, 2018 | June 30, 2017 | |||||||
| Balance at beginning of year | $ | 1,985 | $ | 2,683 | ||||
| Cash Settlement | - | - | ||||||
| Forward Contract Adjustment | 171 | (366 | ) | |||||
| Balance at end of period | $ | 2,156 | $ | 2,317 | ||||
The Company has a commitment to purchase the remaining 5% of Xpress Internacional no later than 2020, based on items for whichan earnings calculation. The obligation is considered a physically settled forward contract and the commitment liability is included in other long-term liabilities on the accompanying unaudited condensed consolidated balance sheets. This liability is classified as Level 3 under the fair value option hashierarchy and is accreted through interest to equal the settlement amount at each reporting date.
| 10. | Earnings (Loss) per Share |
Basic earnings (loss) per share is calculated by dividing net income (loss) attributable to common stockholders by the weighted average shares of common stock outstanding during the period, without consideration for common stock equivalents. Prior to the offering, there were no common stock equivalents which could have had a dilutive effect on earnings (loss) per share. The Company excluded 406,118 equity awards for the three and six months ended June 30, 2018 as inclusion would be anti-dilutive.
The basic and diluted earnings (loss) per share calculations for the three and six months ended June 30, 2018 and 2017, respectively, are presented below (in thousands, except per share amounts):
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Net income (loss) | $ | 1,035 | $ | (8,397 | ) | $ | 2,417 | $ | (12,804 | ) | ||||||
| Net income attributable to noncontrolling interest | 420 | 55 | 643 | 80 | ||||||||||||
| Net income (loss) attributable to common stockholders | $ | 615 | $ | (8,452 | ) | $ | 1,774 | $ | (12,884 | ) | ||||||
| Basic weighted average of outstanding shares of common stock | 14,214 | 6,385 | 10,321 | 6,385 | ||||||||||||
| Dilutive effect of equity awards | 242 | - | 122 | - | ||||||||||||
| Diluted weighted average of outstanding shares of common stock | 14,456 | 6,385 | 10,443 | 6,385 | ||||||||||||
| Basic earnings (loss) per share | $ | 0.04 | $ | (1.32 | ) | $ | 0.17 | $ | (2.02 | ) | ||||||
| Diluted earnings (loss) per share | $ | 0.04 | $ | (1.32 | ) | $ | 0.17 | $ | (2.02 | ) | ||||||
| 11. | Segment Information |
The Company’s business is organized into two reportable segments, Truckload and Brokerage.
The Truckload segment offers asset-based truckload services, including OTR trucking and dedicated contract services. These services are aggregated because they have similar economic characteristics and meet the aggregation criteria described in the accounting guidance for segment reporting. The Company’s OTR service offering provides solo and expedited team services through one-way movements of freight over routes throughout the United States and cross-border into and out of Mexico. The Company’s dedicated contract service offering devotes the use of equipment to specific customers and provides services through long-term contracts. The Company’s dedicated contract service offering provides similar freight transportation services, but does so pursuant to agreements where it makes equipment, drivers and on-site personnel available to a specific customer to address needs for committed capacity and service levels.
The Company’s Brokerage segment is principally engaged in non-asset-based freight brokerage services, where it outsources the transportation of loads to third-party carriers. For this segment, the Company relies on brokerage employees to procure third-party carriers, as well as information systems to match loads and carriers.
The following table summarizes our segment information (in thousands):
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Revenues | ||||||||||||||||
| Truckload | $ | 391,397 | $ | 332,982 | $ | 762,564 | $ | 658,876 | ||||||||
| Brokerage | 58,361 | 37,368 | 112,902 | 75,150 | ||||||||||||
| Total Operating Revenue | $ | 449,758 | $ | 370,350 | $ | 875,466 | $ | 734,026 | ||||||||
| Operating Income | ||||||||||||||||
| Truckload | $ | 18,590 | $ | 3,295 | $ | 31,093 | $ | 4,997 | ||||||||
| Brokerage | 1,428 | (606 | ) | 3,779 | (380 | ) | ||||||||||
| Total Operating Income | $ | 20,018 | $ | 2,689 | $ | 34,872 | $ | 4,617 | ||||||||
A measure of assets is not applicable, as segment assets are not regularly reviewed by the Chief Operating Decision Maker for evaluating performance or allocating resources.
Operating revenues for foreign countries include revenues for (i) shipments with an origin or destination in that country and (ii) other services provided in that country. If both the origin and destination are in a foreign country, the revenues are attributed to the country of origin. Information about the geographic areas in which the Company conducts business is summarized below as of and for the three and six months ended June 30, 2018 and 2017 (in thousands):
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Revenues | ||||||||||||||||
| United States | $ | 436,227 | $ | 357,721 | $ | 849,078 | $ | 708,893 | ||||||||
| Foreign countries | ||||||||||||||||
| Mexico | 13,531 | 12,629 | 26,388 | 25,133 | ||||||||||||
| Total | $ | 449,758 | $ | 370,350 | $ | 875,466 | $ | 734,026 | ||||||||
| As of | As of | |||||||
| June 30, | December 31, | |||||||
| 2018 | 2017 | |||||||
| Long-lived Assets | ||||||||
| United States | $ | 450,252 | $ | 459,021 | ||||
| Foreign countries | ||||||||
| Mexico | 5,404 | 4,884 | ||||||
| Total | $ | 455,656 | $ | 463,905 | ||||
The unaudited condensed consolidated financial statements include the accounts of U.S. Xpress Enterprises, Inc., a Nevada corporation, and its consolidated subsidiaries. References in this report to “we,” “us,” “our,” the “Company,” and similar expressions refer to U.S. Xpress Enterprises, Inc. and its consolidated subsidiaries. All significant intercompany transactions and accounts have been elected are reportedeliminated in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We are currently assessing the impact of SFAS 159 on our financial statements.consolidation.
This Quarterly Report on Form 10-Qreport contains certain statements that may be considered forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E ofsuch statements are subject to the safe harbor created by those sections and the Private Securities ExchangeLitigation Reform Act of 1934,1995, as amended. All statements, other than statements of historical or current fact, are statements that could be deemed forward-looking statements, including without limitation: any projections of earnings, revenues or other financial items; any statement of plans, strategies, andoutlook, growth prospects or objectives of management for future operations; our operational and financial targets; general economic trends, performance or conditions and trends in the industry and markets; the competitive environment in which we operate; any statements concerning proposed new services, technologies or developments; and any statement of belief and any statements of assumptions underlying any of the foregoing. In this Form 10-Q, statements relating to the impact of new accounting standards, future tax rates, expenses, and deductions, expected freight demand, capacity, and volumes, potential results of a default under our Credit Facility or other debt agreements, expected sources of working capital and liquidity (including our mix of debt, capital leases, and operating leases as means of financing revenue equipment), expected capital expenditures, expected fleet age and mix of owned versus leased equipment, future customer relationships, future use of dedicated contracts, future growth in independent contractors and related purchased transportation expense and fuel surcharge reimbursement, future growth of our lease-purchase program, future driver market conditions and driver turnover and retention rates, any projections of earnings, revenues, cash flows, dividends, capital expenditures, or other financial items, expected cash flows, expected operating improvements, including improvements in our Adjusted Operating Ratio and working capital,any statements regarding future economic conditions or performance; and any statements of belief andperformance, any statement of assumptions underlying anyplans, strategies, and objectives of management for future operations, including the anticipated impact of such plans, strategies, and objectives, future rates and prices, future utilization, future depreciation and amortization, future salaries, wages, and related expenses, including driver compensation, future insurance and claims expense, including the impact of the foregoing. Suchinstallation of event recorders, future fluctuations in fuel costs and fuel surcharge revenue, including the future effectiveness of our fuel surcharge program, strategies for managing fuel costs, future fluctuations in operating expenses and supplies, future fleet size and management, the market value of used equipment, including gain on sale, future residual value guarantees, any statements concerning proposed acquisition plans, new services or developments, the anticipated impact of legal proceedings on our financial position and results of operations, among others, are forward-looking statements. Forward-looking statements may be identified by theirthe use of terms or phrases such as "expects," "estimates," "projects," "believes," "anticipates," "intends,"“believe,” “may,” “could,” “expects,” “estimates,” “projects,” “anticipates,” “plans,” “intends” and similar terms and phrases. Such statements are based on currently available operating, financial and competitive information. 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. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section entitled “Risk Factors,” set forth in our prospectus dated June 13, 2018, filed with the Securities and Exchange Commission (the “Commission”) pursuant to Rule 424(b) of the Securities Act, which is deemed to be part of our Registration Statement on Form S-1 (File No. 333-224711), as amended (“Prospectus”). Readers should review and consider the factors discussed in "Item 1.A Risk“Risk Factors,"” set forth in our Form 10-K for the year ended December 31, 2006,Prospectus, along with various disclosures in our press releases stockholder reports, and other filings with the Securities and Exchange Commission.
All such forward-looking statements speak only as of the date of this Form 10-Q. You are cautioned not to place undue reliance on such forward-looking statements. The CompanyWe expressly disclaimsdisclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company'sour expectations with regard thereto or any change in the events, conditions, or circumstances on which any such statement is based.
Overview
Business Overview
We are the fifth largest publicly tradedasset‑based truckload carrier in the United States measured by revenue, according to Transport Topics, a publication of the American Trucking Associations, or ATA. Our primary business is offering a broad range of truckloadgenerating over $1.5 billion in total operating revenue in 2017. We provide services to customersprimarily throughout the United States, with a focus in the densely populated and economically diverse eastern half of the United States. We offer customers a broad portfolio of services using our own truckload fleet and third‑party carriers through our non‑asset‑based truck brokerage network. As of June 30, 2018, our fleet consisted of approximately 6,800 tractors and approximately 16,000 trailers, including approximately 1,500 tractors provided by independent contractors. All of our tractors have been equipped with electronic logs since 2012, and our systems and network are engineered for compliance with the recent federal electronic log mandate. Our terminal network and information technology infrastructure are established and capable of handling significantly larger volumes without meaningful additional investment.
For much of our history, we focused primarily on scaling our fleet and expanding our service offerings to support sustainable, multi-faceted relationships with customers. More recently, we have focused on our core service offerings and refined our network to focus on shorter, more profitable lanes with more density, which we believe are more attractive to drivers. Over the last three years, we have recruited and developed new executive and operational management teams with significant industry experience and instilled a new culture of professional management. These changes, which are ongoing, helped us to maintain relatively stable profitability during the weak truckload market of 2016 and early 2017, and drive significant improvements to profitability during the strong truckload market beginning in portionsthe second half of Canada2017. This momentum was reflected in our second quarter of 2018, which produced a 380 basis point improvement in our operating ratio, compared to our second quarter of 2017, and Mexico. We also offer transportation, warehousing,a 510 basis point improvement in our Adjusted Operating Ratio for the same period. For the definition of Adjusted Operating Ratio and distribution servicesa reconciliation to the floorcoveringmost directly comparable GAAP measure, see “Use of Non-GAAP Financial Information.”
Total revenue for the second quarter of 2018 increased by $79.4 million to $449.8 million as compared to the second quarter of 2017. The increase was primarily a result of an 11.4% increase in our average revenue per loaded mile (excluding fuel surcharge revenue), a 56.2% increase in brokerage revenue to $58.4 million, and a $15.1 million increase in fuel surcharge revenue. Excluding the impact of fuel surcharge revenue, second quarter revenue increased $64.3 million to $402.8 million, an increase of 19.0% as compared to the prior year quarter.
Operating income for the second quarter of 2018 was $20.0 million which compares favorably to the $2.7 million achieved in the second quarter of 2017. Excluding one-time costs related to the IPO completed in June 2018, second quarter Adjusted Operating Income was $26.5 million. For the definition of Adjusted Operating Income and a reconciliation to the most directly comparable GAAP measure, see “Use of Non-GAAP Financial Information.” Our operating ratio for the second quarter of 2018 was 95.3% and our Adjusted Operating Ratio was 93.4%, which represents our lowest Adjusted Operating Ratio in 20 years, and we expect to see year-over-year quarterly Adjusted Operating Ratio improvement for the next six quarters, absent changes in macroeconomic conditions.
We continue to see an erosion of professional driver availability. As a result, we are continuing to focus on our driver centric initiatives to both retain the professional drivers who have chosen to partner with us and attract new professional drivers to our team. We believe this focus allowed us to offset the difficult conditions which have created a significant professional driver supply challenge for the broader industry. Since becoming a public company, we haveWe slightly increased our operating revenue to $1.5 billion in 2006 from $215.4 million in 1994, a compounded annual growth rate of 17.4%. Our growth has come through expansion of business with new and existing customers and complementary acquisitions. Our operating revenue increased 20.4% to $360.9 million intractor count during the firstsecond quarter of 2007 from $299.7 million2018 and had an 11% reduction in the first quarter of 2006.our driver turnover percentage, which we expect will continue to improve. We experienced a net loss of $2.6 million, or $0.17 per diluted share, compared with net income of $0.7 million, or $0.05 per diluted share, in the prior-year period.will continue to focus on implementing and executing our initiatives that we expect will continue to drive sustainable improved performance over time.
Our business is organized into two reportable segments, Truckload and continuing into the first quarter of 2007, our Xpress Global Systems segment positively impacted the results of operations by continued improvement in pricing and yield management, operational efficiencies and reduced overhead expenditures, as well as the divestiture of our unprofitable airport-to-airport business during 2005.
Brokerage. Our Truckload Segment
segment offers truckload services, including over-the-road (“OTR”) trucking and dedicated contract services. Our truckloadOTR service offering transports a full trailer of freight for a single customer from origin to destination, typically without intermediate stops or handling pursuant to short‑term contracts and spot moves that include irregular route moves without volume and capacity commitments. Tractors are operated with a solo driver or, when handling more time‑sensitive, higher‑margin freight, a team of two drivers. Our dedicated contract service offering provides similar freight transportation services, but with contractually assigned equipment, drivers and on‑site personnel to address customers’ needs for committed capacity and service levels pursuant to multi‑year contracts with guaranteed volumes and pricing. Our Brokerage segment U.S. Xpress, Inc. (“U.S. Xpress”), Arnold Transportation, Inc. (“Arnold”), and Total Transportation of Mississippi LLC (“Total”), which comprised approximately 94% of our total operating revenueis principally engaged in the first quarter of 2007, includes the following six strategic business units, each of which is significant in its market:
non‑asset‑based freight brokerage services, where loads are contracted third‑party carriers.
In our truckloadTruckload segment, experienced an operating loss of $1.2 million compared to operating income of $4.4 million in the same period in 2006. The primary reason for the decrease in earnings was a decline in asset utilization, evidenced by a 6.2% decline in average freight revenue per tractor per week. Lower freight demand and severe weather in February negatively impacted miles per tractor in our truckload business.
We are typically paid a predetermined rate per load or per mile for our truckloadTruckload services. We enhance our truckload revenue by charging for tractor and trailer detention, loading and unloading activities and other specialized services,services. Consistent with industry practice, our typical customer contracts (other than those contracts in which we have agreed to dedicate certain tractor and trailer capacity for use by specific customers) do not guarantee load levels or tractor availability. This gives us and our customers a certain degree of flexibility to negotiate rates up or down in response to changes in freight demand and trucking capacity. In our dedicated contract service offering, which comprised approximately 36.2% of our Truckload operating revenue, and approximately 36.8% of our Truckload revenue, before fuel surcharge, for 2017, we provide service under contracts with fixed terms, volumes and rates. Dedicated contracts are often used by our customers with high service and high priority freight, sometimes to replace private fleets previously operated by them.
Generally, in our Truckload segment, we receive fuel surcharges on the miles for which we are compensated by customers. Fuel surcharge revenue mitigates the effect of price increases over a negotiated base rate per gallon of fuel; however, these revenues may not fully protect us from all fuel price increases. Our fuel surcharges to customers may not fully recover all fuel increases due to engine idle time, out of route miles and non revenue generating miles that are not generally billable to the customer, as well as throughto the collectionextent the surcharge paid by the customer is insufficient. The main factors that affect fuel surcharge revenue are the price of diesel fuel and the number of revenue miles we generate. Although our surcharge programs vary by customer, we generally attempt to negotiate an additional penny per mile charge for every five cent increase in the U.S. Department of Energy’s (the “DOE”) national average diesel fuel index over an agreed baseline price. Our fuel surcharges to mitigate the impact of increasesare billed on a lagging basis, meaning we typically bill customers in the costcurrent week based on a previous week’s applicable index. Therefore, in times of increasing fuel prices, we do not recover as much as we are currently paying for fuel. In periods of declining prices, the opposite is true. Based on the current status of our empty miles percentage and the fuel efficiency of our tractors, we believe that our fuel surcharge recovery is effective.
The main factors that affect our truckloadoperating revenue in our Truckload segment are the average revenue per mile we receive from our customers, the percentage of miles for which we are compensated and the number of shipments and miles we generate. These factors relate, among other things, to the general level of economic activity in the United States, inventory levels, specific customer demand, the level of capacity in the trucking industry, and driver availability. Our primary measures of revenue generation for our truckload businessTruckload segment are average revenue per loaded mile and average revenue per tractor per week,period, in each case excluding fuel surcharge revenue. Average revenue per loaded mile, beforeand revenue and miles from services in Mexico.
In our Truckload segment, our most significant operating expenses vary with miles traveled and include (i) fuel, surcharge revenue, increased to $1.60 during the first quarter of 2007 from $1.55 in the first quarter of 2006. Average revenue per tractor per week, before fuel surcharge revenue, decreased to $2,790 during the first quarter of 2007 from $2,968 in the first quarter of 2006 (excluding rail revenue).
non driver personnel and other general and administrative expenses.
Our Xpress Global SystemsTruckload segment requires substantial capital expenditures for purchase of new revenue equipment. We use a combination of operating leases and secured financing to acquire tractors and trailers, which comprised approximately 6%we refer to as revenue equipment. When we finance revenue equipment acquisitions with operating leases, we do not record an asset or liability on our consolidated balance sheet, and the lease payments in respect of such equipment are reflected in our consolidated statement of comprehensive income (loss) in the line item “Vehicle rents.” When we finance revenue equipment acquisitions with secured financing, the asset and liability are recorded on our consolidated balance sheet, and we record expense under “Depreciation and amortization” and “Interest expense.” Typically, the aggregate monthly payments are similar under operating lease financing and secured financing. We use a mix of capital leases and operating leases with individual decisions being based on competitive bids, tax projections and contractual restrictions. We expect our vehicle rents, depreciation and amortization, interest expense and amount of on balance sheet versus off balance sheet financing will be impacted by changes in the percentage of our revenue equipment acquired through operating leases versus equipment owned or acquired through capital leases. Because of the inverse relationship between vehicle rents and depreciation and amortization, we review both line items together.
Approximately 22.1% of our total tractor fleet was operated by independent contractors at June 30, 2018. Independent contractors provide a tractor and a driver and are responsible for all of the costs of operating their equipment and drivers, including interest and depreciation, vehicle rents, driver compensation, fuel and other expenses, in exchange for a fixed payment per mile or percentage of revenue per invoice plus a fuel surcharge pass through. Payments to independent contractors are recorded in the first quarter“Purchased transportation” line item. When independent contractors increase as a percentage of 2007, offersour total tractor fleet, our “Purchased transportation” line item typically will increase, with offsetting reductions in employee driver wages and related expenses, net of fuel (assuming all other factors remain equal). The reverse is true when the percentage of our total fleet operated by company drivers increases.
Brokerage Segment
In our Brokerage segment, we retain the customer relationship, including billing and collection, and we outsource the transportation warehousing,of the loads to third‑party carriers. For this segment, we rely on brokerage employees to procure third‑party carriers, as well as information systems to match loads and distribution servicescarriers.
Our Brokerage segment revenue is mainly affected by the rates we obtain from customers, the freight volumes we ship through our third‑party carriers and our ability to secure third‑party carriers to transport customer freight. We generally do not have contracted long‑term rates for the floorcovering industry. Duringcost of third‑party carriers, and we cannot assure that our results of operations will not be adversely impacted in the first quarterfuture if our ability to obtain third‑party carriers changes or the rates of 2007,such providers increase.
The most significant expense of our Xpress Global SystemsBrokerage segment, experiencedwhich is primarily variable, is the cost of purchased transportation that we pay to third‑party carriers, and is included in the “Purchased transportation” line item. This expense generally varies depending upon truckload capacity, availability of third‑party carriers, rates charged to customers and current freight demand and customer shipping needs. Other operating expenses are generally fixed and primarily include the compensation and benefits of non‑driver personnel (which are recorded in the “Salaries, wages and benefits” line item) and depreciation and amortization expense.
The key performance indicator in our Brokerage segment is gross margin percentage (which is calculated as brokerage revenue less purchased transportation expense expressed as a percentage of total operating revenue). Gross margin percentage can be impacted by the rates charged to customers and the costs of securing third‑party carriers.
Our Brokerage segment does not require significant capital expenditures and is not asset intensive like our Truckload segment.
Use of Non‑GAAP Financial Information
In addition to our net income and operating ratio determined in accordance with GAAP, we evaluate operating performance using certain non-GAAP measures, including Adjusted Operating Ratio and Adjusted Operating Income. We define Adjusted Operating Ratio as operating expenses, net of fuel surcharge revenue, IPO related costs and gain or loss on fuel purchase arrangements, expressed as a percentage of revenue before fuel surcharge revenue. We define Adjusted Operating Income as operating income, net of $1.5 million, comparedfuel surcharge revenue, IPO related costs and gain or loss on fuel purchase arrangements. We believe the use of Adjusted Operating Income and Adjusted Operating Ratio allows us to $0.4 millionmore effectively compare periods, while excluding the potentially volatile effect of changes in fuel prices (including with respect to our fuel purchase arrangements in prior years). We focus on our Adjusted Operating Income and Adjusted Operating Ratio as indicators of our performance from period to period. We believe our presentation of Adjusted Operating Income and Adjusted Operating Ratio are useful because they provide investors and securities analysts the same periodinformation that we use internally to assess our core operating performance.
The non-GAAP information provided is used by our management and may not be comparable to similar measures disclosed by other companies, because of differing methods used by other companies in 2006.calculating Adjusted Operating Income and Adjusted Operating Ratio. The non-GAAP measures used herein have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. Management compensates for these limitations by relying primarily on GAAP results and using non-GAAP financial measures on a supplemental basis.
The table below compares our GAAP operating income to our non-GAAP Adjusted Operating Income and our GAAP operating ratio to our non‑GAAP Adjusted Operating Ratio.
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Consolidated GAAP Presentation | (dollars in thousands) | |||||||||||||||
| Total operating revenue | $ | 449,758 | $ | 370,350 | $ | 875,466 | $ | 734,026 | ||||||||
| Total operating expenses | 429,740 | 367,661 | 840,594 | 729,409 | ||||||||||||
| Operating Income | $ | 20,018 | $ | 2,689 | $ | 34,872 | $ | 4,617 | ||||||||
| Operating ratio | 95.5 | % | 99.3 | % | 96.0 | % | 99.4 | % | ||||||||
| Truckload GAAP Presentation | ||||||||||||||||
| Total Truckload operating revenue | $ | 391,397 | $ | 332,982 | $ | 762,564 | $ | 658,876 | ||||||||
| Total Truckload operating expenses | 372,807 | 329,687 | 731,471 | 653,880 | ||||||||||||
| Truckload Operating Income | $ | 18,590 | $ | 3,295 | $ | 31,093 | $ | 4,996 | ||||||||
| Truckload operating ratio | 95.3 | % | 99.0 | % | 95.9 | % | 99.2 | % | ||||||||
| Consolidated Non-GAAP Presentation | ||||||||||||||||
| Total operating revenue | $ | 449,758 | $ | 370,350 | $ | 875,466 | $ | 734,026 | ||||||||
| Fuel Surcharge | (46,950 | ) | (31,887 | ) | (89,800 | ) | (63,721 | ) | ||||||||
| Revenue, before fuel surcharge | 402,808 | 338,463 | 785,666 | 670,305 | ||||||||||||
| Total operating expenses | 429,740 | 367,661 | 840,594 | 729,409 | ||||||||||||
| Adjusted for: | ||||||||||||||||
| Fuel Surcharge | (46,950 | ) | (31,887 | ) | (89,800 | ) | (63,721 | ) | ||||||||
| IPO related costs | (6,437 | ) | – | (6,437 | ) | – | ||||||||||
| Fuel purchase arrangements | – | (2,361 | ) | – | (2,361 | ) | ||||||||||
| Adjusted total operating expenses | 376,353 | 333,413 | 744,357 | 663,327 | ||||||||||||
| Adjusted Operating Income | $ | 26,455 | $ | 5,050 | $ | 41,309 | $ | 6,978 | ||||||||
| Adjusted Operating Ratio | 93.4 | % | 98.5 | % | 94.7 | % | 99.0 | % | ||||||||
| Truckload Non-GAAP Presentation | ||||||||||||||||
| Total Truckload operating revenue | $ | 391,397 | $ | 332,982 | $ | 762,564 | $ | 658,876 | ||||||||
| Fuel Surcharge | (46,950 | ) | (31,887 | ) | (89,800 | ) | (63,721 | ) | ||||||||
| Truckload revenue, before fuel surcharge | 344,447 | 301,095 | 672,764 | 595,155 | ||||||||||||
| Total operating expenses | 372,807 | 329,687 | 731,471 | 653,880 | ||||||||||||
| Adjusted for: | ||||||||||||||||
| Fuel Surcharge | (46,950 | ) | (31,887 | ) | (89,800 | ) | (63,721 | ) | ||||||||
| IPO related costs | (6,437 | ) | – | (6,437 | ) | – | ||||||||||
| Fuel purchase arrangements | – | (2,361 | ) | – | (2,361 | ) | ||||||||||
| Adjusted total Truckload operating expenses | 319,420 | 295,439 | 635,234 | 587,798 | ||||||||||||
| Adjusted Truckload Operating Income | $ | 25,027 | $ | 5,656 | $ | 37,530 | $ | 7,357 | ||||||||
| Truckload Adjusted Operating Ratio | 92.7 | % | 98.1 | % | 94.4 | % | 98.8 | % | ||||||||
Results of Operations
Revenue
We generate revenue byfrom two primary sources: transporting less-than-truckload freight for our customers. Generally, wecustomers (including related fuel surcharge revenue) and arranging for the transportation of customer freight by third‑party carriers. We have two reportable segments: our Truckload segment and our Brokerage segment. Truckload revenue, before fuel surcharge and truckload fuel surcharge are paid a predetermined rate per square yard for carpetprimarily generated through trucking services provided by our two Truckload service offerings (OTR and per pound for all other commodities. The rates vary based on miles, type of service and type ofdedicated contract). Brokerage revenue is primarily generated through brokering freight we are hauling. We enhance our less-than-truckloadto third‑party carriers.
Our total operating revenue is affected by charging for storage, warehousing and other specialized services, as well as through the collection of fuel surcharges to mitigate the impact of increases in the cost of fuel. The maincertain factors that affect our less-than-truckload revenue are the revenue per pound we receive from our customers, the average weight per shipment we haul and the number of shipments we generate. These factors relate to, among other things, to the general level of economic activity in the United States, especially in the housing industry,customer inventory levels, specific customer demand, the level of capacity in the truckingtruckload and brokerage industry, the success of our marketing and driver availability. Our primary measuressales efforts and the availability of drivers, independent contractors and third‑party carriers.
A summary of our revenue generationgenerated by type for our less-than-truckload business are average revenue per pound (excluding fuel surcharge revenue), total tonnagethe three and number of loads hauled per day.six months ended June 30, 2018 and 2017 is as follows:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
| Revenue before fuel surcharge | $ | 402,808 | $ | 338,463 | $ | 785,666 | $ | 670,305 | ||||||||
| Fuel surcharge | 46,950 | 31,887 | 89,800 | 63,721 | ||||||||||||
| Total operating revenue | $ | 449,758 | $ | 370,350 | $ | 875,466 | $ | 734,026 | ||||||||
For the periods indicated below. six-month period ended June 30, 2018, our total operating revenue increased by $141.4 million, or 19.3%, compared to the same period in 2017, and our revenue, before fuel surcharge, increased by $115.4 million, or 17.2%. The primary factors driving the increases in total operating revenue and revenue, before fuel surcharge, were improved pricing in each of our segments and increased volumes in our Brokerage segment combined with increased fuel surcharge revenues. We expect contract rates to continue to increase sequentially during the remainder of 2018 and to outpace cost inflation, absent changes in the macroeconomic environment.
A summary of our revenue generated by segment for the three and six months ended June 30, 2018 and 2017 is as follows:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
| Truckload revenue, before fuel surcharge | $ | 344,447 | $ | 301,095 | $ | 672,764 | $ | 595,155 | ||||||||
| Fuel surcharge | 46,950 | 31,887 | 89,800 | 63,721 | ||||||||||||
| Total Truckload revenue | 391,397 | 332,982 | 762,564 | 658,876 | ||||||||||||
| Brokerage revenue | 58,361 | 37,368 | 112,902 | 75,150 | ||||||||||||
| Total operating revenue | $ | 449,758 | $ | 370,350 | $ | 875,466 | $ | 734,026 | ||||||||
The following is a summary of our key Truckload segment performance indicators, before fuel surcharge and excluding miles from services in Mexico, for the three and six months ended June 30, 2018. Average tractors, average company‑owned tractors and average independent contractor tractors exclude tractors in Mexico.
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| Over the road | ||||||||||||||||
| Average revenue per tractor per week | $ | 3,957 | $ | 3,302 | $ | 3,890 | $ | 3,306 | ||||||||
| Average revenue per mile | $ | 2.023 | $ | 1.785 | $ | 1.997 | $ | 1.774 | ||||||||
| Average revenue miles per tractor per week | 1,956 | 1,849 | 1,952 | 1,863 | ||||||||||||
| Average tractors | 3,578 | 3,837 | 3,605 | 3,835 | ||||||||||||
| Dedicated | ||||||||||||||||
| Average revenue per tractor per week | $ | 3,647 | $ | 3,735 | $ | 3,598 | $ | 3,649 | ||||||||
| Average revenue per mile | $ | 2.234 | $ | 2.064 | $ | 2.209 | $ | 2.076 | ||||||||
| Average revenue miles per tractor per week | 1,632 | 1,810 | 1,629 | 1,757 | ||||||||||||
| Average tractors | 2,721 | 2,353 | 2,672 | 2,369 | ||||||||||||
| Consolidated | ||||||||||||||||
| Average revenue per tractor per week | $ | 3,823 | $ | 3,467 | $ | 3,771 | $ | 3,437 | ||||||||
| Average revenue per mile | $ | 2.105 | $ | 1.890 | $ | 2.078 | $ | 1.885 | ||||||||
| Average revenue miles per tractor per week | 1,816 | 1,834 | 1,814 | 1,823 | ||||||||||||
| Average tractors | 6,299 | 6,190 | 6,277 | 6,204 | ||||||||||||
For the quarter ended June 30, 2018, our Truckload revenue, before fuel surcharge increased by $43.4 million, or 14.4%, compared to the same quarter in 2017. The primary factors driving the increase in Truckload revenue were an 11.4% increase in revenue per loaded mile due to increased contract rates and increased pricing in the spot market compared to the same quarter in 2017, combined with a slight increase in average available tractors, due to a stronger freight environment and our continued focus on executing our operating initiatives. We experienced a 9.8% decrease in our revenue miles per tractor per week in our dedicated division during the quarter due to certain accounts’ shipping patterns that performed differently than expected. We negotiated rate increases on these accounts that we expect will improve our average revenue per loaded mile in our dedicated division by approximately 3.5% sequentially. Fuel surcharge revenue increased by $15.1 million, or 47.2%, to $47.0 million, compared with $31.9 million in the same quarter in 2017. The Department of Energy (“DOE”) national weekly average fuel price per gallon averaged approximately $0.64 per gallon higher in the quarter ended June 30, 2018 compared to the same quarter in 2017. The increase in fuel surcharge revenue relates to the increased fuel prices combined with a slight increase in revenue miles compared to the same quarter in 2017.
For the six months ended June 30, 2018, our Truckload revenue, before fuel surcharge increased by $77.6 million, or 13.0%, compared to 2017. The primary factors driving the increase in Truckload revenue were a 10.2% increase in revenue per loaded mile, combined with a slight increase in average available tractors, due to a stronger freight environment and our operating improvements. During mid‑2017, the freight market began improving from its 2016 and early 2017 state and strengthened throughout the remainder of the year and through the first half of 2018. Fuel surcharge revenue increased by $26.1 million in the six months ended June 30, 2018, or 40.9%, to $89.8 million, compared with $63.7 million in 2017. The DOE national weekly average fuel price per gallon averaged approximately $0.54 per gallon higher in the six months ended June 30, 2018 compared with the same period in 2017. The increase in fuel surcharge revenue relates to the increased fuel prices combined with an approximately 1.0% increase in revenue miles compared with 2017.
The key performance indicator of our Brokerage segment is gross margin percentage (brokerage revenue less purchased transportation expense expressed as a percentage of total operating revenue). Gross margin percentage can be impacted by the rates charged to customers and the costs of securing third‑party carriers. The following table lists the gross margin percentage for our Brokerage segment for the three and six months ended June 30, 2018 and 2017.
| Three Months Ended | Six Months Ended | ||||||
| June 30, | June 30, | ||||||
| 2018 | 2017 | 2018 | 2017 | ||||
| Gross margin percentage | 12.2% | 10.9% | 13.1% | 12.3% | |||
For the quarter ended June 30, 2018, our Brokerage revenue increased by $21.0 million, or 56.2%, compared to the same quarter in 2017. The primary factors driving the increase in Brokerage revenue were a 21.4% increase in load count combined with a 28.6% increase in average revenue per load. Average revenue per load improved due to stronger pricing and higher fuel prices.
For the six months ended June 30, 2018, our Brokerage revenue increased by $37.8 million, or 50.2%. The primary factors driving the increase in Brokerage revenue were a 19.4% increase in load count combined with a 25.7% increase in average revenue per load. Average revenue per load improved due to a stronger freight market and higher fuel prices.
Operating Expenses
For comparison purposes in the discussion below, we use total operating revenue and revenue, before fuel surcharge when discussing changes as a percentage of revenue. As it relates to the comparison of expenses to revenue, before fuel surcharge, we believe that removing fuel surcharge revenue, which is sometimes a volatile source of revenue affords a more consistent basis for comparing the results of operations from period‑to‑period.
Individual expense line items as a percentage of total operating revenue also are affected by fluctuations in the percentage of our revenue generated by independent contractor and brokerage loads. Expense line items relating to fuel costs for the three and six months ended June 30, 2017 are also affected by the fuel purchase arrangements that were in place through December 31, 2017. We have determined that our fuel surcharge program adequately protects us from risks relating to fluctuating fuel prices, and accordingly, we terminated all fuel purchase arrangements as of December 31, 2017, and do not expect to enter into fuel purchase arrangements in the near term.
Salaries, Wages and Benefits
Salaries, wages and benefits consist primarily of compensation for all employees. Salaries, wages and benefits are primarily affected by the total number of miles driven by company drivers, the rate per mile we pay our company drivers, employee benefits such as health care and workers’ compensation, and to a lesser extent by the number of, and compensation and benefits paid to, non‑driver employees.
The following is a summary of our salaries, wages and benefits for the three and six months ended June 30, 2018 and 2017:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
| Salaries, wages and benefits | $ | 139,701 | $ | 135,214 | $ | 272,625 | $ | 265,465 | ||||||||
| % of total operating revenue | 31.1 | % | 36.5 | % | 31.1 | % | 36.2 | % | ||||||||
| % of revenue, before fuel surcharge | 34.7 | % | 39.9 | % | 34.7 | % | 39.6 | % | ||||||||
For the quarter ended June 30, 2018, salaries, wages and benefits increased $4.5 million, or 3.3%, compared with the same quarter in 2017. This increase in absolute dollar terms was due primarily to compensation expense related to the payout of our SARS and offering bonuses totaling $6.4 million, partially offset by $3.2 million of lower driver wages as our company driver miles decreased 10.4% as compared to the same quarter in 2017. Our OTR driver pay on a per mile basis increased as a result of higher utilization and incentive-based pay as compared to the same quarter in 2017. During the three months ended June 30, 2018, our group health and workers’ compensation expense decreased approximately 3.0%, due to positive trends in our group health claims compared to the same quarter in 2017.
For the six months ended June 30, 2018, salaries, wages and benefits increased $7.2 million, or 2.7%, compared with the same period in 2017. This increase in absolute dollar terms was due primarily to compensation expense related to the payout of our SARS and offering bonuses totaling $6.4 million, partially offset by $2.0 million of lower driver wages as our company driver miles decreased 7.6% as compared to the same period in 2017. Our OTR driver pay on a per mile basis increased as a result of higher utilization and incentive-based pay as compared to the same period in 2017. In the near term, we believe salaries, wages and benefits will increase as a result of a tight driver market, wage inflation and higher healthcare costs. As a percentage of revenue, we expect salaries, wages and benefits will fluctuate based on our ability to generate offsetting increases in average revenue per total mile and the percentage of revenue generated by independent contractors and brokerage operations, for which payments are reflected in the “Purchased transportation” line item.
Fuel and Fuel Taxes
Fuel and fuel taxes consist primarily of diesel fuel expense and fuel taxes for our company‑owned and leased tractors. The primary factors affecting our fuel and fuel taxes expense are the cost of diesel fuel, the miles per gallon we realize with our equipment and the number of miles driven by company drivers. Additionally, for the three and six months ended June 30, 2017, our fuel expense included approximately $2.4 million, respectively, in net losses under fuel purchase arrangements. These arrangements were terminated as of December 31, 2017. We believe our fuel surcharge program adequately protects us from risks relating to fluctuating fuel prices. We do not expect to enter into fuel purchase arrangements in the near term.
We believe that the most effective protection against net fuel cost increases in the near term is to maintain an effective fuel surcharge program and to operate a fuel‑efficient fleet by incorporating fuel efficiency measures, such as auxiliary heating units, installation of aerodynamic devices on tractors and trailers and low‑rolling resistance tires on our tractors, engine idle limitations and computer‑optimized fuel‑efficient routing of our fleet.
The following is a summary of our fuel and fuel taxes for the three and six months ended June 30, 2018 and 2017:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
| Fuel and fuel taxes | $ | 57,704 | $ | 51,712 | $ | 116,093 | $ | 102,180 | ||||||||
| % of total operating revenue | 12.8 | % | 14.0 | % | 13.3 | % | 13.9 | % | ||||||||
| % of revenue, before fuel surcharge | 14.3 | % | 15.3 | % | 14.8 | % | 15.2 | % | ||||||||
For the quarter ended June 30, 2018, fuel and fuel taxes increased $6.0 million, or 11.6%, compared with the same quarter in 2017. The increase in fuel and fuel taxes was primarily the result of an increase in diesel fuel prices compared with the same quarter in 2017, partially offset by decreased company driver miles. The average DOE fuel price per gallon increased 25.0% to $3.19 per gallon in the quarter ended June 30, 2018, compared to the same quarter in 2017, which increased the percentage of our fuel surcharge revenue passed through to independent contractors.
For the six months ended June 30, 2018, fuel and fuel taxes increased $13.9 million, or 13.6%, compared with the same period in 2017. The increase in fuel and fuel taxes was primarily the result of an increase in diesel fuel prices compared with the same period in 2017, partially offset by decreased company driver miles. The average DOE fuel price per gallon increased 21.2% to $3.10 per gallon in the six months ended June 30, 2018 compared with the same period in 2017.
To measure the effectiveness of our fuel surcharge program, we calculate “net fuel expense” by subtracting fuel surcharge revenue (other than the fuel surcharge revenue we reimburse to independent contractors, which is included in purchased transportation) and gain or loss on fuel purchase arrangements from our fuel expense. Our net fuel expense as a percentage of revenue, before fuel surcharge, is calculated usingaffected by the cost of diesel fuel and fuel taxes, net of fuel surcharge. Management believes that eliminatingsurcharge collection, the impactpercentage of this sourcemiles driven by company tractors and our percentage of non‑revenue provides a more consistent basisgenerating miles, for comparing results of operations from period to period.
Total Operating Revenue Three Months Ended March 31, | Revenue before Fuel Surcharge Three Months Ended March 31, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Operating Revenue | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Operating Expenses: | ||||||||||||||||
| Salaries, wages and benefits | 35.2 | 34.3 | 40.1 | 39.2 | ||||||||||||
| Fuel and fuel taxes | 22.2 | 22.1 | 11.3 | 11.1 | ||||||||||||
| Vehicle rents | 6.4 | 6.2 | 7.3 | 7.0 | ||||||||||||
| Depreciation and amortization, net of gain on sale | 5.4 | 4.0 | 6.2 | 4.5 | ||||||||||||
| Purchased transportation | 15.2 | 15.5 | 17.3 | 17.7 | ||||||||||||
| Operating expense and supplies | 6.5 | 6.4 | 7.5 | 7.4 | ||||||||||||
| Insurance premiums and claims | 4.1 | 4.4 | 4.7 | 5.1 | ||||||||||||
| Operating taxes and licenses | 1.2 | 1.2 | 1.3 | 1.4 | ||||||||||||
| Communications and utilities | 0.8 | 1.0 | 0.9 | 1.1 | ||||||||||||
| General and other operating | 2.9 | 3.3 | 3.3 | 3.7 | ||||||||||||
| Total operating expenses | 99.9 | 98.4 | 99.9 | 98.2 | ||||||||||||
Income from Operations | 0.1 | 1.6 | 0.1 | 1.8 | ||||||||||||
| Interest expense, net | 1.5 | 1.1 | 1.7 | 1.2 | ||||||||||||
| Equity in (income) loss of affiliated companies | (0.0 | ) | 0.1 | (0.0 | ) | 0.1 | ||||||||||
| Minority interest | (0.0 | ) | 0.0 | (0.0 | ) | 0.0 | ||||||||||
1.5 | 1.2 | 1.7 | 1.3 | |||||||||||||
| Income (Loss) before income taxes | (1.4 | ) | 0.4 | (1.6 | ) | 0.5 | ||||||||||
| Income tax (benefit) provision | (0.7 | ) | 0.2 | (0.8 | ) | 0.2 | ||||||||||
Net Income (Loss) | (0.7 | )% | 0.2 | % | (0.8 | )% | 0.3 | % | ||||||||
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
| Fuel surcharge revenue | $ | 46,950 | $ | 31,887 | $ | 89,800 | $ | 63,721 | ||||||||
| Less: fuel surcharge revenue reimbursed to independent contractors | 10,514 | 4,255 | 18,470 | 8,642 | ||||||||||||
| Company fuel surcharge revenue | 36,436 | 27,632 | 71,330 | 55,079 | ||||||||||||
| Total fuel and fuel taxes | $ | 57,704 | $ | 51,712 | $ | 116,093 | $ | 102,180 | ||||||||
| Less: company fuel surcharge revenue | 36,436 | 27,632 | 71,330 | 55,079 | ||||||||||||
| Less: fuel purchase arrangements | - | 2,361 | - | 2,361 | ||||||||||||
| Net fuel expense | $ | 21,268 | $ | 21,719 | $ | 44,763 | $ | 44,740 | ||||||||
| % of total operating revenue | 4.7 | % | 5.9 | % | 5.1 | % | 6.1 | % | ||||||||
| % of revenue, before fuel surcharge | 5.3 | % | 6.4 | % | 5.7 | % | 6.7 | % | ||||||||
For the quarter ended June 30, 2018, net fuel expense decreased $0.5 million, or 2.1%, compared with the same quarter in 2017. During the quarter ended June 30, 2018, independent contractors accounted for 21.3% of the average tractors available compared to 40.1% for11.3% in the threesame quarter of 2017.
For the six months ended March 31, 2007,June 30, 2018, net fuel expense remained essentially constant compared to 39.2% for the three months ended March 31, 2006.
Vehicle Rents and Depreciation and Amortization
Vehicle rents increased slightly to 7.3% duringconsist primarily of payments for tractors and trailers financed with operating leases. The primary factors affecting this expense item include the three months ended March 31, 2007 compared to 7.0% duringsize and age of our tractor and trailer fleets, the same period in 2006.cost of new equipment and the relative percentage of owned versus leased equipment.
Depreciation and amortization increased 63.9%consists primarily of depreciation for owned tractors and trailers. The primary factors affecting these expense items include the size and age of our tractor and trailer fleets, the cost of new equipment and the relative percentage of owned equipment and equipment acquired through debt or capital leases versus equipment leased through operating leases. We use a mix of capital leases and operating leases to $19.5 million during the three months ended March 31, 2007 compared to $11.9 million during the same period in 2006. Gains/finance our revenue equipment with individual decisions being based on competitive bids and tax projections. Gains or losses realized on the sale of owned revenue equipment are included in depreciation and amortization for reporting purposes. Depreciation
Vehicle rents and depreciation and amortization excluding gains/losses, increased to $19.5 million duringare closely related because both line items fluctuate depending on the relative percentage of owned equipment and equipment acquired through capital leases versus equipment leased through operating leases. Vehicle rents increase with greater amounts of equipment acquired through operating leases, while depreciation and amortization increases with greater amounts of owned equipment and equipment acquired through capital leases. Because of the inverse relationship between vehicle rents and depreciation and amortization, we review both line items together.
The following is a summary of our vehicle rents and depreciation and amortization for the three and six months ended March 31, 2007June 30, 2018 and 2017:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
| Vehicle Rents | $ | 19,393 | $ | 14,773 | $ | 39,415 | $ | 40,168 | ||||||||
| Depreciation and amortization, net of (gains) losses on sale of property | 24,149 | 26,510 | 48,855 | 45,758 | ||||||||||||
| Vehicle Rents and Depreciation and amortization of property and equipment | $ | 43,542 | $ | 41,283 | $ | 88,270 | $ | 85,926 | ||||||||
| % of total operating revenue | 9.7 | % | 11.1 | % | 10.1 | % | 11.7 | % | ||||||||
| % of revenue, before fuel surcharge | 10.8 | % | 12.2 | % | 11.2 | % | 12.8 | % | ||||||||
For the quarter ended June 30, 2018, vehicle rents increased $4.6 million, or 31.3%, compared to $12.8 million during the same periodquarter in 2006. This2017. The increase isin vehicle rents was primarily the result ofdue to an increase in the average number of tractors and trailers by approximately 90.2% and 34.5%, respectively,financed under operating leases, combined with higher pricesthe increased costs of new tractors and trailers. Depreciation and amortization, net of (gains) losses on sale of property and equipment decreased $2.4 million, or 8.9%, compared to the same quarter in 2017. The decrease was primarily due to a decrease in average tractors and trailers owned.
For the six months ended June 30, 2018, vehicle rents decreased $0.8 million, or 1.9%, compared with the same period in 2017. The decrease in vehicle rents was primarily due to fewer tractors financed under operating leases offset by an increase in the number of trailers financed under operating leases and the higher cost of new trailers. Depreciation and amortization, net of (gains) losses on sale of property, increased $3.1 million, or 6.8%, compared with the same period in 2017. This increase was primarily due to an increase in average tractors owned offset by a decrease in average trailers owned. Over the balance of 2018, we currently plan to replace owned tractors, with new owned tractors as they reach approximately 475,000 miles, which we expect will keep a consistent average fleet age and the mix of leased versus owned tractors approximately the same as 2017. Our mix of owned and leased equipment may vary over time due to tax, financing and flexibility, among other factors. We do not expect to have gains on sale of equipment during the balance of 2018.
Purchased Transportation
Purchased transportation consists of the payments we make to independent contractors, including fuel surcharge reimbursements paid to independent contractors, in our Truckload segment, and payments to third‑party carriers in our Brokerage segment.
The following is a summary of our purchased transportation for the three and six months ended June 30, 2018 and 2017:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
| Purchased transportation | $ | 118,681 | $ | 68,828 | $ | 220,457 | $ | 137,853 | ||||||||
| % of total operating revenue | 26.4 | % | 18.6 | % | 25.2 | % | 18.8 | % | ||||||||
| % of revenue, before fuel surcharge | 29.5 | % | 20.3 | % | 28.1 | % | 20.6 | % | ||||||||
For the quarter ended June 30, 2018, purchased transportation increased $49.9 million, or 72.4%, compared to the same quarter in 2017. The increase in purchased transportation was primarily due to the $21.0 million increase in Brokerage revenue, equipmenta $6.3 million increase in fuel surcharge reimbursement to independent contractors and a 92.0% increase in average independent contractors compared to the same quarter in 2017.
For the six months ended June 30, 2018, purchased transportation increased $82.6 million, or 59.9%, compared with the same period in 2017. The increase in purchased transportation was primarily due to the $37.8 million increase in Brokerage revenue and $9.8 million in additional fuel surcharge reimbursement to independent contractors combined with a 66.8% increase in average independent contractors compared to the same period in 2006. As2017.
Because we reimburse independent contractors for fuel surcharges we receive, we subtract fuel surcharge revenue reimbursed to them from our purchased transportation. The result, referred to as purchased transportation, net of fuel surcharge reimbursements, is evaluated as a percentage of total operating revenue and as a percentage of revenue, before fuel surcharge, depreciation and amortizationas shown below:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
| Purchased transportation | $ | 118,681 | $ | 68,828 | $ | 220,457 | $ | 137,853 | ||||||||
| Less: fuel surcharge revenue reimbursed to independent contractors | 10,514 | 4,255 | 18,470 | 8,642 | ||||||||||||
| Purchased transportation, net of fuel surcharge reimbursement | $ | 108,167 | $ | 64,573 | $ | 201,987 | $ | 129,211 | ||||||||
| % of total operating revenue | 24.1 | % | 17.4 | % | 23.1 | % | 17.6 | % | ||||||||
| % of revenue, before fuel surcharge | 26.9 | % | 19.1 | % | 25.7 | % | 19.3 | % | ||||||||
For the quarter ended June 30, 2018, purchased transportation, net of fuel surcharge reimbursement, increased $43.6 million, or 67.5%, compared to 6.2% during the threesame quarter in 2017. This increase was primarily due to the $21.0 million increase in Brokerage revenue, combined with a 92.0% increase in average independent contractors compared to the same quarter in 2017.
For the six months ended March 31, 2007June 30, 2018, purchased transportation, net of fuel surcharge reimbursement, increased $72.8 million, or 56.3%, compared to 4.5% duringwith the same period in 2006,2017. The increase in purchased transportation was primarily due to lower revenue per tractor per week less effectively covering these costs, anthe $37.8 million increase in the percentage of our fleet consisting of purchased equipment, and higher prices of new equipment.
Operating Expenses and Supplies
Operating expenses and supplies consist primarily of ordinary vehicle repairs and maintenance costs, driver on‑the‑road expenses, tolls and advertising expenses related to driver recruiting. Operating expenses and supplies are primarily affected by the age of our company‑owned and leased fleet of tractors and trailers, the number of miles driven in a period and driver turnover.
The following is a summary of our operating expenses and supplies for the 2007 period from 17.8% in the 2006 period.three and six months ended June 30, 2018 and 2017:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
| Operating expenses and supplies | $ | 29,073 | $ | 33,167 | $ | 58,864 | $ | 64,539 | ||||||||
| % of total operating revenue | 6.5 | % | 9.0 | % | 6.7 | % | 8.8 | % | ||||||||
| % of revenue, before fuel surcharge | 7.2 | % | 9.8 | % | 7.5 | % | 9.6 | % | ||||||||
For the six months ended March 31, 2007June 30, 2018, operating expenses and supplies decreased by $5.7 million, or 8.8%, compared to $19.3 million duringwith the same period in 2006.2017. This isdecrease was attributable primarily to decreased trailer maintenance expense as the average age has declined by 10 months from the average age at June 30, 2017, combined with a reduction in tractor maintenance expense as a result of the increase of operating expense and supplies amounts for Arnold and Total in the amount of $3.5 million for three months ended March 31, 2007increased independent contractors compared to one month ended March 31, 2006. As a percentage of revenue, before fuel surcharge, operating expense and supplies increased slightly to 7.5% during the three months ended March 31, 2007 compared to 7.3% during the same period in 2006.2017. Independent contractors accounted for 19.5% of the total average tractors compared to 11.8% in the prior year period. During the six months ended June 30, 2018, our company tractor maintenance cost per mile remained constant despite the average tractor fleet age increasing five months compared to the same period in 2017. Generally, as equipment ages, the maintenance costs increase on a per‑mile basis. However, our preventive maintenance initiatives have contributed to a meaningful improvement in our cost of operating expenses and supplies on a cost per company mile basis.
Insurance Premiums and Claims
Insurance premiums and claims consisting consists primarily of premiums and deductibleretained amounts for liability (personal injury and property damage), physical damage and cargo damage, as well as insurance and claims, increased 12.8% to $15.0 million during the three months ended March 31, 2007 compared to $13.3 million during the same period in 2006.premiums. The increase is due primarily to the increase of insurance premium and claims expenses for Arnold and Total in the amount of $1.9 million for three months ended March 31, 2007 compared to one month ended March 31, 2006. Excluding Arnold and Total amounts,primary factors affecting our insurance premiums and claims decreased 1.0%are the frequency and severity of accidents, trends in the development factors used in our actuarial accruals and developments in large, prior year claims. The number of accidents tends to $11.4increase with the miles we travel. With our significant retained amounts, insurance claims expense may fluctuate significantly and impact the cost of insurance premiums and claims from period‑to‑period, and any increase in frequency or severity of claims or adverse loss development of prior period claims would adversely affect our financial condition and results of operations.
The following is a summary of our insurance premiums and claims expense for the three and six months ended June, 2018 and 2017:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
| Insurance premiums and claims | $ | 19,165 | $ | 17,582 | $ | 39,335 | $ | 35,024 | ||||||||
| % of total operating revenue | 4.3 | % | 4.7 | % | 4.5 | % | 4.8 | % | ||||||||
| % of revenue, before fuel surcharge | 4.8 | % | 5.2 | % | 5.0 | % | 5.2 | % | ||||||||
For the quarter ended June 30, 2018, insurance premiums and claims increased $1.6 million, or 9.0%, compared to $11.5 million during the same periodquarter in 2006. This decrease is2017. Insurance premiums and claims increased primarily due primarily to a reduction in physical damage and cargo claims expense partially offset by an increase in liability claims expense. As a percentage of revenue, before fuel surcharge,frequency and severity combined with increased physical damage frequency compared to the same quarter in 2017.
For the six months ended June 30, 2018, insurance premiums and claims decreased to 4.7% during the three months ended March 31, 2007,increased by $4.3 million, or 12.3%, compared to 5.1% duringwith the same period in 2006. We are self-insured up to certain limits for cargo loss, physical damage, and liability. We have adopted an insurance program with higher deductible exposure to offset the industry-wide2017. The increase in insurance premium rates. Referand claims was primarily due to "Critical Accounting Policies and Estimates—Claims Reserves and Estimates" below for our various retention levels. We maintain insurance with licensed insurance companies above amounts for which we are self-insured for cargo and liability. We accrue for pending claims, plus any incurred but not reported claims. The accruals are estimated based on our evaluation of the typeincreased frequency and severity of individualliability claims combined with increased frequency of physical damage claims compared to the prior year period. During the fourth quarter of 2017, we began installing event recorders on our tractors, and future development based on historical trends. Insurance premiumswe have installed event recorders in substantially all of our tractors in our fleet as of June 30, 2018. We believe event recorders will give us the ability to better train our drivers with respect to safe driving behavior, which in turn may help reduce insurance costs over time. We expect to begin seeing measurable results from the event recorder installation in the second half of 2019.
Operating Taxes and claims expense will fluctuate based on claims experience, premium rates, and self-insurance retention levels.Licenses
For the quarter ended June 30, 2018, operating taxes and licenses increased 16.2%$0.4 million, or 13.3%, compared to $4.3the same quarter in 2017. For the six months ended June 30, 2018, operating taxes and licenses increased by $0.4 million, duringor 6.9%, compared with the same period of 2017. The increase in operating taxes and licenses for the quarter and six months ended June 30, 2018 was primarily due to a permit fee refund recorded in the second quarter of 2017.
Communications and Utilities
For the quarter ended June 30, 2018, communications and utilities increased $0.5 million, or 24.2%, compared to the same quarter in 2017. Communications and utilities increased as we began installing event recorders in the fourth quarter of 2017 and have installed event recorders in substantially all of our tractors in our fleet as of June 30, 2018. For the six months ended June 30, 2018, communications and utilities increased by $1.0 million, or 24.7%, compared with the same period ended in 2017. This line item has historically fluctuated slightly due to changes in revenue equipment tracking, information technology and communications costs.
General and Other Operating Expenses
General and other operating expenses consist primarily of driver recruiting costs, legal and professional services fees, general and administrative expenses and other costs.
The following is a summary of our general and other operating expenses for the three and six months ended March 31, 2007June 30, 2018 and 2017:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
| General and other operating expenses | $ | 15,940 | $ | 14,825 | $ | 33,149 | $ | 28,037 | ||||||||
| % of total operating revenue | 3.5 | % | 4.0 | % | 3.8 | % | 3.8 | % | ||||||||
| % of revenue, before fuel surcharge | 4.0 | % | 4.4 | % | 4.2 | % | 4.2 | % | ||||||||
For the quarter ended June 30, 2018, general and other operating expenses increased $1.1 million, or 7.5%, compared to $3.7the same quarter in 2017. General and other operating expenses increased primarily due to professional and other administrative expenses.
For the six months ended June 30, 2018, general and other operating expenses increased $5.1 million, duringor 18.2%, compared with the same period in 2006. This is2017, primarily due to approximately $2.6 million related to our IPO, increased professional and administrative expenses and higher driver hiring related costs. Excluding the resultimpact of theIPO-related expenses, we expect general and other operating expenses to increase for Arnold and Total in the amountfuture due in part to higher driver recruiting costs related to the tightening driver market.
Interest
Interest expense consists of $0.8 millioncash interest, amortization of original issuance discount and deferred financing fees and purchase commitment interest related to our obligation to acquire the remaining equity interest in Xpress Internacional.
The following is a summary of our interest expense for the three and six months ended March 31, 2007June 30, 2018 and 2017:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
| Interest expense, excluding non-cash items | 11,563 | 12,440 | 23,398 | 22,334 | ||||||||||||
| Original issue discount and deferred financing amortization | 516 | 732 | 1,387 | 1,456 | ||||||||||||
| Purchase commitment interest | 219 | (266 | ) | 171 | (366 | ) | ||||||||||
| Interest expense, net | $ | 12,298 | $ | 12,906 | $ | 24,956 | $ | 23,424 | ||||||||
For the quarter ended June 30, 2018, interest expense decreased $0.9 million, primarily due to decreased equipment and revolver borrowings compared to one month ended March 31, 2006. As a percentagethe same quarter in 2017. We had 64.9% of revenue, operating taxes and license decreased slightlyour tractors financed with equipment installment notes in the second quarter of 2018, compared to 1.3%71.8% during the threesecond quarter of 2017. Based on the repayment in connection with the IPO of our prior term loan facility, the 2007 term note and the borrowings outstanding under our prior revolving credit facility, along with the entry into our existing Credit Facility, we expect our interest expense will be reduced by $30.0 million on an annual basis.
For the six months ended March 31, 2007,June 30, 2018, interest expense increased $1.1 million compared to 1.4% during the same period in 2006.2017, primarily due to the conversion of approximately 2,700 tractors from operating leases to secured financing in March 2017.
Equity in (Income)Loss of Affiliated Companies
We hold non‑controlling investments in the following entities, which are accounted for using the equity method of accounting and are reflected as a component of other long‑term assets in our consolidated balance sheets: (i) Xpress Global Systems, in which we received preferred and common equity interests representing 10% of the outstanding equity interests of Xpress Global Systems Acquisition, the purchaser of our Xpress Global Systems business in our April 2015 disposition of substantially all of our equity in that business; (ii) Parker Global Enterprises, into which we contributed substantially all of the assets and liabilities of Arnold Tranportation Services, Inc. and its affiliates, and in which we hold a 45% investment; (iii) Dylka Distribuciones Logisti K, S.A. DE C.V, and XPS Logisti-K Systems, S.A. P.I. de C.V., providers of intra‑Mexico transportation services and brokerage and brokerage services, respectively, which are controlled by certain members of the management team of Xpress Internacional; and (iv) DriverTech, the provider of our in‑cab communication units.
We record our share of the net income or loss of our equity method investees in “Equity in loss of affiliated companies.” The amount of losses recorded reduces the carrying amount of our non‑controlling investments. Once our portion of net losses in a non‑controlling investment exceeds its carrying amount, we carry our equity method investment as zero until such time as the investee’s cumulative income exceeds cumulative losses.
Income Taxes
The following is a summary of our income tax benefit for the three and six months ended June 30, 2018 and 2017:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
| Income (loss) before Income Taxes | $ | (156 | ) | $ | (10,658 | ) | $ | 1,819 | $ | (18,999 | ) | |||||
| Income tax benefit | (1,191 | ) | (2,261 | ) | (598 | ) | (6,195 | ) | ||||||||
| Effective tax rate | 763.5 | % | 21.2 | % | -32.9 | % | 32.6 | % | ||||||||
For the three and six months ended March 31, 2007 compared to $9.9 million during the same period in 2006. This is primarily the result of the increase of general and other operating amounts for Arnold and Total in the amount of $1.0 million for three months ended March 31, 2007 compared to one month ended March 31, 2006. As a percentage of revenue, before fuel surcharge, general and other operating decreased to 3.3% during the three months ended March 31, 2007, compared to 3.7% during the same period in 2006.
Liquidity and Capital Resources
Overview
Our business requires substantial amounts of cash to cover operating expenses as well as to fund capital expenditures, working capital changes, principal and interest payments on our obligations, lease payments, letters of credit to support insurance requirements and tax payments when we generate taxable income. Recently, we have financed our capital requirements with borrowings under our Credit Facility, cash flows from operating activities, direct equipment financing, operating leases and proceeds from equipment sales.
We make substantial net capital expenditures to maintain a modern company tractor fleet, refresh our trailer fleet and strategically expand our fleet. Over the balance of 2018, we plan to replace tractors under operating leases that expire with newly leased tractors and, in the case of owned tractors, replace such owned tractors with new owned tractors as they reach approximately 475,000 miles and we expect the mix of owned versus leased tractors will approximate the same as 2017. Our mix of owned and leased equipment may vary over time due to tax, financing and flexibility, among other factors.
We believe we can fund our expected cash needs, including debt repayment, in the short‑term with projected cash flows from operating activities, borrowings under our Credit Facility and direct debt and lease financing we believe to be available for at U.S. Xpress and Totalleast the next 12 months. Over the long‑term, we expect that we will continue to have significant capital requirements, which may require us to seek additional borrowings, lease financing or equity capital. We have obtained a significant portion of our revenue equipment under operating leases, which are not fully deductible for federal income tax purposes.
At June 30, 2018, we had approximately $37.6 million of outstanding letters of credit, $0 in outstanding borrowings and $112.4 million of availability under our $150.0 million revolving credit facility. At December 31, 2017, we had approximately $34.5 million of outstanding letters of credit, $29.3 million in outstanding borrowings, a borrowing base of $155.0 million and $91.2 million of availability under our then existing $155.0 million revolving credit facility.
Sources of Liquidity
Credit Facility
In June 2018, we entered into a new credit facility (the “Credit Facility”) that contains a $150.0 million revolving component (the “Revolving Facility”) and a $200.0 million term loan component (the “Term Facility”). The Credit Facility contains an accordion feature that, so long as no event of default exists, allows us to request an increase in the terms and conditions andborrowing amounts under the Revolving Facility or the Term Facility by a combined maximum amount of available financing, we believe that these same sources of liquidity will be available to us over$75.0 million. Borrowings under the Credit Facility are classified as either “base rate loans” or “Eurodollar rate loans.” Base rate loans accrue interest at a longer-term and we, therefore, do not expect to experience significant liquidity constraints in the foreseeable future.
Borrowings under the Credit Facility are prepayable at March 31, 2007). any time without premium and are subject to mandatory prepayment from the net proceeds of certain asset sales and other borrowings. The Credit Facility is secured by a pledge of substantially all of our assets, excluding, among other things, certain real estate and revenue equipment financed outside the Credit Facility.
The Credit Facility contains restrictive covenants including, among other things, restrictions on our ability to incur additional indebtedness or issue guarantees, to create liens on our assets, to make distributions on or redeem equity interests, to make investments, to transfer or sell properties or other assets and to engage in mergers, consolidations, or acquisitions. In addition, the Credit Facility requires us to meet specified financial ratios and tests.
At March 31, 2007, $91,036 inJune 30, 2018, the Revolving Facility had issued collateralized letters of credit werein the face amount of $37.6 million, with $0 borrowings outstanding and $112.4 million available to borrow.
The Credit Facility includes usual and customary events of default for a facility of this nature and provides that, upon the occurrence and continuation of an event of default, payment of all amounts payable under the credit facility with $34,414 available to borrow. The credit facility is secured by substantially all assets ofCredit Facility may be accelerated, and the Company, other than real estate and assets securing other debt of the Company.
Secured Notes Payable
We have outstanding mortgage notes payable on three of our real property locations, including our two headquarters properties in Chattanooga, Tennessee and our facility covenants.in Springfield, Ohio. At June 30, 2018, the aggregate outstanding principal balance of these mortgages was $19.5 million, with interest at rates ranging from 5.25% to 6.99% and maturity dates through September 2031.
Equipment Installment Notes
We routinely finance the purchase of equipment, and at June 30, 2018, we had notes payable with a weighted average interest rate of approximately 4.5% per annum and an aggregate outstanding principal balance of $147.1 million, which were secured by the equipment purchased with the proceeds of such notes payable.
Miscellaneous Notes
At June 30, 2018, we had outstanding other principal indebtedness of $2.1 million. This other indebtedness is evidenced by various promissory notes bearing interest at rates ranging from 3.5% to 7.0% and maturing at various dates through August 2021.
Capital Lease Obligations
We lease certain revenue and other operating equipment under capital lease obligations. At June 30, 2018, we had capital lease obligations with an aggregate outstanding principal balance of $23.6 million secured by the equipment and maturity dates through April 2024.
Cash Flows
Our summary statements of cash flows for the six months ended June 30, 2018 and 2017 are set forth in the table below:
| Six Months Ended | ||||||||
| June 30, | ||||||||
| 2018 | 2017 | |||||||
| (dollars in thousands) | ||||||||
| Net cash provided by operating activities | $ | 19,099 | $ | 6,817 | ||||
| Net cash used in investing actitivies | $ | (48,009 | ) | $ | (214,947 | ) | ||
| Net cash provided by financing activities | $ | 26,186 | $ | 209,040 | ||||
Operating Activities
For the six months ended June 30, 2018, we generated cash flows from operating activities of $19.1 million, an increase of $12.3 million compared to the same period in 2017. The increase was due primarily to a $32.3 million increase in net income adjusted for noncash items, offset by an $11.5 million increase in our operating assets and liabilities combined with $8.6 million of paid in kind interest. The increase in net income adjusted for noncash items was primarily attributable to a 10.2% increase in revenue per loaded mile, increased volumes and overall improved operating performance in the six months ended June 30, 2018 as compared to the same period in 2017, partially offset by increased operating expenses and general and other corporate expenses. Our operating assets and liabilities increased $11.5 million during the six months ended June 30, 2018 as compared to the same period in 2017, due in part to an increase in accounts receivable related to increased operating revenue, partially offset by an increase in accrued wages and benefits due to the timing of payments.
Investing Activities
For the six months ended June 30, 2018, net cash flows used in investing activities were $48.0 million, a decrease of $166.9 million compared to the same period in 2017. This decrease is primarily the result of decreased equipment purchases as compared to the same period in 2017. During the first quarter of 2017, we converted approximately 2,700 tractors operating leases to secured financing. We expect our capital expenditures for 2018 will approximate $170.0 million to $190.0 million and will be financed with secured debt. This is primarily the result of the mix of this year’s equipment replacements which will be 100% purchased with no planned off balance sheet financing.
Financing Activities
For the six months ended June 30, 2018, net cash flows generated by financing activities were $26.2 million, a decrease of $182.9 million compared to the same period in 2017. The decrease is primarily due to decreased revenue equipment borrowings as compared to the same quarter in 2017. During the first quarter of 2017, we converted approximately 2,700 tractors operating leases to secured financing. During June 2018, we completed our IPO and received approximately $247.1 million in cash net of expenses. The proceeds from the IPO were primarily used to pay down existing debt resulting in a net decrease of approximately $236.2 million.
In addition to the net cash capital expenditures discussed above, we also acquired revenue equipment with operating leases. In the second quarter of 2018, we terminated tractor and trailer operating leases with originating values of $1.2 million and $0.4 million, respectively. In the second quarter of 2017, we acquired tractors through operating leases with gross values of $3.3 million, which were offset by operating lease terminations with originating values of $1.8 million for tractors. We acquired trailers through operating leases in the second quarter of 2017 with gross values of $2.9 million, which were offset by operating lease terminations with originating values of $1.0 million for trailers.
Working Capital
As of June 30, 2018, we had a working capital surplus of $15.8 million, representing a $26.4 million increase in our working capital from June 30, 2017, primarily resulting from increased customer receivables partially offset by increased accounts payable and accrued wages and benefits. When we analyze our working capital, we typically exclude balloon payments in the current maturities of long-term debt as these payments are typically either funded with the proceeds from equipment sales or addressed by extending the maturity of such payments. We believe this facilitates a more meaningful analysis of our changes in working capital from period-to-period. Excluding balloon payments included in current maturities of long-term debt as of June 30, 2018, we had a working capital surplus of $66.6 million, compared with a working capital deficit of $6.5 million at June 30, 2017.
Working capital deficits are common to many trucking companies that operate by financing revenue equipment purchases through borrowing or capitalized leases. When we finance revenue equipment through borrowing or capitalized leases, the principal amortization scheduled for the next twelve months is party to a $140,000 accounts receivable securitization facility (the "Securitization Facility"). On a revolving basis, the Company sells accounts receivable as part of a two-step securitization transaction that provides the Company with funding similar to a revolving credit facility. To facilitate this transaction, Xpress Receivables, LLC ("Xpress Receivables"), a bankruptcy-remote, special purpose entity, purchases accounts receivable from U.S. Xpress, Arnold, Total, and Xpress Global Systems. Xpress Receivables funds these purchases with money borrowed under the Securitization Facility through Three Pillars Funding, LLC.
Contractual Obligations
The table below summarizes our contractual obligations as of March 31, 2007, the Company’s borrowings under the Securitization Facility were $42,000, with $85,151 available to borrow.June 30, 2018:
| Payments Due by Period | ||||||||||||||||||||
| Less than 1 year | 1-3 years | 3-5 years | More than 5 years | Total | ||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||
| Long-term debt obligations (1) | $ | 117,058 | $ | 97,934 | $ | 188,657 | $ | 17,411 | $ | 421,060 | ||||||||||
| Capital lease obligations (2) | 9,093 | 10,545 | 4,957 | 1,010 | 25,605 | |||||||||||||||
| Operating lease obligations (3) | 73,969 | 86,225 | 43,128 | 20,055 | 223,377 | |||||||||||||||
| Purchase obligations (4) | 193,820 | 6,104 | - | - | 199,924 | |||||||||||||||
| Other obligations (5) | 1,149 | 3,224 | - | 4,373 | ||||||||||||||||
| Total contractual obligations (6) | $ | 395,089 | $ | 204,032 | $ | 236,742 | $ | 38,476 | $ | 874,339 | ||||||||||
| (1) | Including interest obligations on long-term debt, excluding fees. The table assumes long-term debt is held to maturity and does not reflect events subsequent to June 30, 2018. |
| (2) | Including interest obligations on capital lease obligations. |
| (3) | We lease certain revenue and service equipment and office and service center facilities under long‑term, non‑cancelable operating lease agreements expiring at various dates through October 2027. Revenue equipment lease terms are generally three to five years for tractors and five to eight years for trailers. The lease terms and any subsequent extensions generally represent the estimated usage period of the equipment, which is generally substantially less than the economic lives. Certain revenue equipment leases provide for guarantees by us of a portion of the specified residual value at the end of the lease term. The maximum potential amount of future payments (undiscounted) under these guarantees is approximately $28.3 million at June 30, 2018. The residual value of a portion of the related leased revenue equipment is covered by repurchase or trade agreements between us and the equipment manufacturer. |
| (4) | We had commitments outstanding at June 30, 2018 to acquire revenue equipment and event recorders. The revenue equipment commitments are cancelable, subject to certain adjustments in the underlying obligations and benefits. These purchase commitments are expected to be financed by operating leases, long‑term debt, proceeds from sales of existing equipment and cash flows from operating activities. |
| (5) | Represents a commitment to purchase remaining 5% interest in Xpress Internacional in 2020, based on projected earnings calculation and to fund the remaining purchase price of a small truckload carrier we acquired in 2017. |
| (6) | Excludes deferred taxes and long or short‑term portion of self‑insurance claims accruals. |
Seasonality
Critical Accounting Policies
We have reviewed our critical accounting policies and claims costs dueconsidered whether any new critical accounting estimates or other significant changes to adverse winter weather conditions. Revenue can also be affected by bad weather and holidays,our accounting policies require any additional disclosures. There have been no significant changes to these policies since revenue is directly related to available working days of shippers.
the disclosures made in our Prospectus.
Our market risks have not changed materially from the market risks reported in our Prospectus
Our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report.June 30, 2018. This evaluation was carried outis performed to determine if our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the supervision,Exchange Act is accumulated and with the participation of, ourcommunicated to management, including our Chief Executive OfficerCEO and Chief Financial Officer. Based uponCFO, as appropriate, to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms. Due to the material weaknesses described below and the Company’s evaluation, our Chief Executive Officerthe CEO and Chief Financial OfficerCFO have concluded that our disclosure controls and procedures were not effective as of June 30, 2018.
Material Weaknesses
As described in our Prospectus, during the endcourse of preparing for our IPO, we identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis. We did not maintain effective internal control over financial reporting related to the control activities component of Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the period covered by this report.Treadway Commission, the COSO framework. The control activities material weakness contributed to the following additional material weaknesses: (i) ineffective design of information technology general computer controls with respect to program development, change management, computer operations, and user access, as well as inappropriate segregation of duties with respect to creating and posting journal entries; (ii) ineffective design of controls over income tax accounting; and (iii) insufficient evidential matter to support design of our controls. While these deficiencies did not result in a material misstatement to the consolidated financial statements included in the Prospectus, the income tax material weakness described above did result in a revision to the 2016 financial statements. There is a risk that these deficiencies could result in misstatements potentially impacting all financial statement accounts and disclosures that would not be prevented or detected.
Changes in Internal Control Over Financial Reporting
We are currently in the process of remediating the above material weaknesses and have taken numerous steps to enhance our internal control environment and address the underlying causes of the material weaknesses. These efforts include designing and implementing the appropriate IT general computer controls, including ensuring proper segregation of duties with respect to creating and posting journal entries, and controls over income tax accounting. In addition, we are enhancing our process to retain evidential matter that supports the design and implementation of our controls. We are committed to maintaining a strong internal control environment, and we expect to continue our efforts to ensure the material weaknesses described above are remediated. While we intend to complete our remediation process as quickly as possible, we cannot estimate a time when the remediation will be complete. Other than the implementation of these additional controls, there were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected or that are reasonably likely to materially affect our internal control over financial reporting.
Our disclosure controls and procedures are controls and other procedures thatinternal control over financial reporting are designed to ensure that information required to be disclosed in our reports filed or submitted underprovide reasonable assurance of achieving the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated todesired control objectives. Our management, including our Chief Executive Officer as appropriate, to allow timely decisions regarding disclosures.
is incorporated herein by reference.
There have been no material changes from the risk factors disclosed in the Prospectus.
Use of Proceeds
Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1) | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(1) | ||||||||||||
| January 1, 2007 - January 31, 2007 | - | $ | - | - | $ | 15,000,000 | ||||||||||
| February 1, 2007 - February 28, 2007 | - | - | - | 15,000,000 | ||||||||||||
| March 1, 2007 - March 31, 2007 | 200,000 | 18.59 | 200,000 | 11,282,399 | ||||||||||||
Total | 200,000 | $ | 18.59 | 200,000 | $ | 11,282,399 | ||||||||||
Not applicable.
Not applicable.
| ITEM 6. | ||
Exhibit Number | Description | |
| Second Amended and Restated Articles of Incorporation of U.S. Xpress Enterprises, Inc., dated and effective as of June 8, 2018 (incorporated by reference to Exhibit 3.1 filed with the | ||
| Company’s Registration Statement on Form S-1/A (File No. 333-224711) filed on June 11, 2018). | ||
| Amended and Restated Bylaws of U.S. Xpress Enterprises, Inc., dated and effective as of June 8, 2018 (incorporated by reference to Exhibit 3.2 filed with the | ||
| Company’s Registration Statement on Form S-1/A (File No. 333-224711) filed on June 11, 2018). | ||
10.2* | U.S. Xpress Enterprises, Inc. 2018 Omnibus Incentive Plan, dated as of June 8, 2018 (incorporated by reference to Exhibit 4.5 filed with the Company’s Registration Statement on Form S-8 (File No. 333-225701) filed on June 18, 2018). | |
10.3* | U.S. Xpress Enterprises, Inc. Employee Stock Purchase Plan, dated as of June 8, 2018 (incorporated by reference to Exhibit 4.6 filed with the Company’s Registration Statement on Form S-8 (File No. 333-225701) filed on June 18, 2018). | |
10.4* | Form of Restricted Stock Award Notice for use under the U.S. Xpress Enterprises, Inc. 2018 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2 filed with the Company’s Registration Statement on Form S-1 (File No. 333-224711) filed on May 7, 2018). | |
10.5* | Form of Stock Option Award Notice for use under the U.S. Xpress Enterprises, Inc. 2018 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.3 filed with the Company’s Registration Statement on Form S-1 (File No. 333-224711) filed on May 7, 2018). | |
10.6* | Form of Restricted Stock Unit Award Notice for Directors for use under the U.S. Xpress Enterprises, Inc. 2018 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.4 filed with the Company’s Registration Statement on Form S-1 (File No. 333-224711) filed on May 7, 2018). | |
10.7* | Amended and Restated | |
10.8* | Amended and Restated Employment Agreement between U.S. Xpress Enterprises, Inc. and Eric Peterson, dated April 30, 2018 (incorporated by reference to Exhibit 10.8 filed with the Company’s Registration Statement on Form S-1 (File No. 333-224711) filed on May 7, 2018). | |
10.9* | Amended and Restated Employment Agreement between U.S. Xpress Enterprises, Inc. and Max Fuller, dated April 30, 2018 (incorporated by reference to Exhibit 10.9 filed with the Company’s Registration Statement on Form S-1 (File No. 333-224711) filed on May 7, 2018). | |
| Amended and Restated Employment Agreement between U.S. Xpress Enterprises, Inc. and Lisa Quinn Pate, dated April 30, 2018 (incorporated by reference to Exhibit 10.10 filed with the Company’s Registration Statement on Form S-1/A (File No. 333-224711) filed on May 23, 2018). | ||
| Amended and Restated Employment and Noncompetition Agreement between U.S. Xpress Enterprises, Inc. and John White, dated April 30, 2018 (incorporated by reference to Exhibit 10.11 filed with the Company’s Registration Statement on Form S-1 (File No. 333-224711) filed on May 7, 2018). | ||
| Amended and Restated Employment and Noncompetition Agreement between U.S. Xpress Enterprises, Inc. and Leigh Anne Battersby, dated April 30, 2018 (incorporated by reference to Exhibit 10.12 filed with the Company’s Registration Statement on Form S-1 (File No. 333-224711) filed on May 7, 2018). | ||
| Credit Agreement, dated June 18, 2018, by and among the Company, | ||
| joint bookrunners, and Bank of America, N.A., as Administrative Agent, Swingline Lender, and L/C Issuer. | ||
| Max L. Fuller 2008 Irrevocable Trust FBO Christopher M. Fuller. | ||
| Registration Rights Agreement, dated June 13, 2018, by and among the Company, Lisa M. Pate, Anna Marie Quinn 2012 Irrevocable Trust FBO Lisa M. Pate, Quinn Family Partners, L.P., Patrick Quinn Non-GST Marital Trust, Patrick Quinn GST Marital Trust, Patrick Quinn GST Tennessee Gap Trust, Patrick Brian Quinn, Anna Marie Quinn 2012 Irrevocable Trust FBO Patrick Brian Quinn, Anna Marie Quinn 2012 Irrevocable Trust FBO Renee A. Daly, Max L. Fuller, Fuller Family Enterprises, LLC, William E. Fuller, Max L. Fuller 2008 Irrevocable Trust FBO William E. Fuller, Max Fuller Family Limited Partnership, Max L. Fuller 2008 Irrevocable Trust FBO Stephen C. Fuller, and Max L. Fuller 2008 Irrevocable Trust FBO Christopher M. Fuller. | ||
31.1# | Certification pursuant to | |
| by Eric Fuller, the Company's Principal Executive Officer | ||
31.2# | Certification pursuant to | |
| by Eric Peterson, the Company's Principal Financial Officer | ||
| Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, | ||
| by Eric Fuller, the Company's Chief Executive Officer | ||
| Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Eric Peterson, the Company's Chief Financial Officer | ||
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Taxonomy Extension Schema Document | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | XBRL Taxonomy Extension Labels Linkbase Document | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
* Management contract or compensatory plan or arrangement.
# Filed herewith.
## Furnished herewith.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
U.S. XPRESS ENTERPRISES, INC. | |||
| Date: August 9, 2018 | By: | /s/ Eric Peterson | |
Chief Financial Officer | |||