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 June 30, 2007
March 31, 2019
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: 0-24806001-38528
U.S. Xpress Enterprises, Inc.
(Exact name of registrant as specified in its charter)
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 [X] | No [ ] |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 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] | 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] |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered |
| Class A Common Stock, $0.01 par value | USX | The New York Stock Exchange |
Indicate the number of August 1, 2007, 12,130,098 shares outstanding of each of the registrant’s issuer's classes of common stock, as of the latest practicable date April 30, 2019.
Class A common stock,Common Stock, $0.01 par value $.01 per share, and 3,040,262 shares of the registrant’s value: 32,994,211
Class B common stock,Common Stock, $0.01 par value $.01 per share, were outstanding.
| Unaudited Condensed Consolidated Balance Sheets | ||||||||
| March 31, 2019 and December 31, 2018 | ||||||||
| March 31, | December 31, | |||||||
| (in thousands, except share amounts) | 2019 | 2018 | ||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 2,095 | $ | 9,892 | ||||
| Customer receivables, net of allowance of $101 and $59 at March 31, 2019 and December 31, 2018, respectively | 185,710 | 190,254 | ||||||
| Other receivables | 19,474 | 20,430 | ||||||
| Prepaid insurance and licenses | 15,793 | 11,035 | ||||||
| Operating supplies | 7,548 | 7,324 | ||||||
| Assets held for sale | 8,086 | 33,225 | ||||||
| Other current assets | 15,860 | 13,374 | ||||||
| Total current assets | 254,566 | 285,534 | ||||||
| Property and equipment, at cost | 904,209 | 898,530 | ||||||
| Less accumulated depreciation and amortization | (385,281 | ) | (379,813 | ) | ||||
| Net property and equipment | 518,928 | 518,717 | ||||||
| Other assets | ||||||||
| Operating lease right of use assets | 186,941 | - | ||||||
| Goodwill | 57,708 | 57,708 | ||||||
| Intangible assets, net | 28,492 | 28,913 | ||||||
| Other | 24,858 | 19,615 | ||||||
| Total other assets | 297,999 | 106,236 | ||||||
| Total assets | $ | 1,071,493 | $ | 910,487 | ||||
| Liabilities and Stockholder's Equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 63,368 | $ | 63,808 | ||||
| Book overdraft | 5,233 | - | ||||||
| Accrued wages and benefits | 23,588 | 24,960 | ||||||
| Claims and insurance accruals, current | 43,586 | 47,442 | ||||||
| Other accrued liabilities | 8,386 | 8,120 | ||||||
| Liabilites associated with assets held for sale | - | 6,856 | ||||||
| Current portion of operating lease liabilities | 56,893 | - | ||||||
| Current maturities of long-term debt and finance leases | 95,117 | 113,094 | ||||||
| Total current liabilities | 296,171 | 264,280 | ||||||
| Long-term debt and finance leases, net of current maturities | 314,049 | 312,819 | ||||||
| Less debt issuance costs | (1,264 | ) | (1,347 | ) | ||||
| Net long-term debt and finance leases | 312,785 | 311,472 | ||||||
| Deferred income taxes | 21,385 | 19,978 | ||||||
| Long-term liabilities associated with assets held for sale | - | 8,353 | ||||||
| Other long-term liabilities | 6,483 | 7,713 | ||||||
| Claims and insurance accruals, long-term | 60,518 | 60,304 | ||||||
| Noncurrent operating lease liabilities | 129,927 | - | ||||||
| Commitments and contingencies (Notes 6 and 7) | - | - | ||||||
| Stockholders' Equity | ||||||||
| Common stock Class A, $.01 par value, 140,000,000 shares authorized at March 31, 2019 and December 31, 2018,32,930,419 and 32,859,292 issued and outstanding at March 31, 2019 and December 31, 2018, respectively | 329 | 329 | ||||||
| Common stock Class B, $.01 par value, 35,000,000 authorized at March 31, 2019 and December 31, 2018, 15,616,551 and 15,486,560 issued and outstanding at March 31, 2019 and December 31, 2018, respectively | 156 | 155 | ||||||
| Additional paid-in capital | 252,559 | 251,742 | ||||||
| Accumulated deficit | (12,614 | ) | (17,335 | ) | ||||
| Stockholders' equity | 240,430 | 234,891 | ||||||
| Noncontrolling interest | 3,794 | 3,496 | ||||||
| Total stockholders' equity | 244,224 | 238,387 | ||||||
| Total liabilities and stockholders' equity | $ | 1,071,493 | $ | 910,487 | ||||
| See Notes to Unaudited Condensed Consolidated Financial Statements | ||||||||
| Unaudited Condensed Consolidated Statements of Comprehensive Income | ||||||||
| Three Months Ended March 31, 2019 and 2018 | ||||||||
| Three Months Ended | ||||||||
| March 31, | ||||||||
| (in thousands, except per share amounts) | 2019 | 2018 | ||||||
| Operating revenue | ||||||||
| Revenue, before fuel surcharge | $ | 375,312 | $ | 382,858 | ||||
| Fuel surcharge | 40,051 | 42,850 | ||||||
| Total operating revenue | 415,363 | 425,708 | ||||||
| Operating expenses | ||||||||
| Salaries, wages, and benefits | 124,563 | 132,924 | ||||||
| Fuel and fuel taxes | 46,904 | 58,389 | ||||||
| Vehicle rents | 18,976 | 20,022 | ||||||
| Depreciation and amortization, net of (gain) loss on sale of property | 23,062 | 24,706 | ||||||
| Purchased transportation | 114,005 | 101,776 | ||||||
| Operating expenses and supplies | 27,945 | 29,791 | ||||||
| Insurance premiums and claims | 24,353 | 20,170 | ||||||
| Operating taxes and licenses | 3,173 | 3,401 | ||||||
| Communications and utilities | 2,265 | 2,466 | ||||||
| General and other operating expenses | 17,479 | 17,209 | ||||||
| Total operating expenses | 402,725 | 410,854 | ||||||
| Operating income | 12,638 | 14,854 | ||||||
| Other expense (income) | ||||||||
| Interest expense, net | 5,603 | 12,658 | ||||||
| Equity in loss of affiliated companies | 89 | 296 | ||||||
| Other, net | 26 | (75 | ) | |||||
| 5,718 | 12,879 | |||||||
| Income before income tax provision | 6,920 | 1,975 | ||||||
| Income tax provision | 1,901 | 593 | ||||||
| Net total and comprehensive income | 5,019 | 1,382 | ||||||
| Net total and comprehensive income attributable to noncontrolling interest | 298 | 223 | ||||||
| Net total and comprehensive income attributable to controlling interest | $ | 4,721 | $ | 1,159 | ||||
| Earnings per share | ||||||||
| Basic earnings per share | $ | 0.10 | $ | 0.18 | ||||
| Basic weighted average shares outstanding | 48,394 | 6,385 | ||||||
| Diluted earnings per share | $ | 0.10 | $ | 0.18 | ||||
| Diluted weighted average shares outstanding | 49,391 | 6,385 | ||||||
| See Notes to Unaudited Condensed Consolidated Financial Statements | ||||||||
| Unaudited Condensed Consolidated Statements of Cash Flows | ||||||||
| Three Months Ended March 31, 2019 and 2018 | ||||||||
| Three Months Ended | ||||||||
| March 31, | ||||||||
| (in thousands) | 2019 | 2018 | ||||||
| Operating activities | ||||||||
| Net income | $ | 5,019 | $ | 1,382 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Deferred income tax provision | 1,407 | 190 | ||||||
| Depreciation and amortization | 21,833 | 23,901 | ||||||
| Losses on sale of equipment | 1,229 | 805 | ||||||
| Share based compensation | 856 | 208 | ||||||
| Other | 308 | 1,688 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Receivables | 3,560 | (10,706 | ) | |||||
| Prepaid insurance and licenses | (4,761 | ) | (5,242 | ) | ||||
| Operating supplies | (285 | ) | (936 | ) | ||||
| Other assets | 383 | (1,582 | ) | |||||
| Accounts payable and other accrued liabilities | (2,844 | ) | (13,936 | ) | ||||
| Accrued wages and benefits | (1,226 | ) | 2,365 | |||||
| Net cash provided by (used in) operating activities | 25,479 | (1,863 | ) | |||||
| Investing activities | ||||||||
| Payments for purchases of property and equipment | (36,604 | ) | (26,871 | ) | ||||
| Proceeds from sales of property and equipment | 13,115 | 8,176 | ||||||
| Sale of subsidiary, net of cash | (9,002 | ) | - | |||||
| Net cash used in investing activities | (32,491 | ) | (18,695 | ) | ||||
| Financing activities | ||||||||
| Borrowings under lines of credit | - | 102,676 | ||||||
| Payments under lines of credit | - | (82,950 | ) | |||||
| Borrowings under long-term debt | 14,355 | 23,438 | ||||||
| Payments of long-term debt | (31,128 | ) | (36,062 | ) | ||||
| Payments of financing costs and original issue discount | - | (14 | ) | |||||
| Payments of long-term consideration for business acquistion | (990 | ) | (1,010 | ) | ||||
| Tax withholding related to net share settlement of restricted stock awards | (39 | ) | - | |||||
| Repurchase of membership units | - | (51 | ) | |||||
| Book overdraft | 5,233 | 9,469 | ||||||
| Net cash provided by (used in) financing activities | (12,569 | ) | 15,496 | |||||
| Change in cash previously included in assets held for sale | 11,784 | - | ||||||
| Net change in cash and cash equivalents | (7,797 | ) | (5,062 | ) | ||||
| Cash and cash equivalents | ||||||||
| Beginning of year | 9,892 | 9,232 | ||||||
| End of period | $ | 2,095 | $ | 4,170 | ||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid during the year for interest | $ | 5,620 | $ | 11,249 | ||||
| Cash refunded during the year for income taxes | (91 | ) | (330 | ) | ||||
| Supplemental disclosure of significant noncash investing and financing activities | ||||||||
| Debt obligations relieved in conjunction with the divesture of Xpress Internacional | $ | 7,109 | $ | - | ||||
| Capital lease extinguishments | 33 | 764 | ||||||
| Uncollected proceeds from asset sales | - | 1,706 | ||||||
| See Notes to Unaudited Condensed Consolidated Financial Statements | ||||||||
| Three Months Ended March 31, 2019 and 2018 |
| Additional | Non | Total | Redeemable | |||||||||||||||||||||||||
| (in thousands, except share amounts) | Class A | Class B | Paid | Accumulated | Controlling | Stockholders' | Restricted | |||||||||||||||||||||
| Stock | Stock | In Capital | Deficit | Interest | Equity (Deficit) | Units | ||||||||||||||||||||||
| Balances at December 31, 2017 | $ | 64 | $ | - | $ | 1 | $ | (43,459 | ) | $ | 2,289 | $ | (41,105 | ) | $ | 3,281 | ||||||||||||
| Share based compensation | - | - | - | - | - | - | 208 | |||||||||||||||||||||
| Adoption of ASC 606 | - | - | - | 1,459 | - | 1,459 | - | |||||||||||||||||||||
| Dividend of repurchased membership units | - | - | - | - | - | - | (51 | ) | ||||||||||||||||||||
| Net income | - | - | - | 1,159 | 223 | 1,382 | - | |||||||||||||||||||||
| Balances at March 31, 2018 | $ | 64 | $ | - | $ | 1 | $ | (40,841 | ) | $ | 2,512 | $ | (38,264 | ) | $ | 3,438 | ||||||||||||
| Additional | Non | Total | ||||||||||||||||||||||||||
| (in thousands, except share amounts) | Class A | Class B | Paid | Accumulated | Controlling | Stockholders' | ||||||||||||||||||||||
| Stock | Stock | In Capital | Deficit | Interest | Equity | |||||||||||||||||||||||
| Balances at December 31, 2018 | $ | 329 | $ | 155 | $ | 251,742 | $ | (17,335 | ) | $ | 3,496 | $ | 238,387 | |||||||||||||||
| Share based compensation | - | - | 856 | - | - | 856 | ||||||||||||||||||||||
| Vesting of 201,119 restricted units | - | 1 | (39 | ) | - | - | (38 | ) | ||||||||||||||||||||
| Net income | - | - | - | 4,721 | 298 | 5,019 | ||||||||||||||||||||||
| Balances at March 31, 2019 | $ | 329 | $ | 156 | $ | 252,559 | $ | (12,614 | ) | $ | 3,794 | $ | 244,224 | |||||||||||||||
| See Notes to Unaudited Condensed Consolidated Financial Statements | ||||||||||||||||||||||||||||
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2019
U.S. Xpress Enterprises, Inc. and its consolidated subsidiaries (collectively, the “Company”, “we”, “us”, “our”, and similar expressions) provide transportation services throughout the United States and Mexico, with a focus in the densely populated and economically diverse eastern half of the United States. The Company offers its customers a broad portfolio of services using its own asset-based truckload fleet and third-party carriers through our non-asset-based truck brokerage network. The Company has two reportable segments, Truckload and Brokerage. Our Truckload segment offers asset-based truckload services, including over-the-road (“OTR”) trucking and dedicated contract services. Our Brokerage segment is principally engaged in non-asset-based freight brokerage services, where loads are contracted to third-party carriers.
U.S. Xpress 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.
In connection with the Reorganization, we adopted the Second Amended and Restated Certificate of Incorporation of the Company, and converted into and exchanged the issued and outstanding membership units of New Mountain Lake immediately prior to the Reorganization for the Company’s common stock. We provided for the issuance of 4.6666667 shares of Class A common stock for each Class B non-voting membership unit in New Mountain Lake and 4.6666667 shares of Class B common stock for each Class A voting membership unit in New Mountain Lake. The holders of Class A common stock are entitled to one vote per share and the holders of Class B common stock are entitled to five votes per share. In the offering, the Company sold 16,668,000 shares of Class A common stock at a price of $16 per share to the public and received net proceeds of $246.6 million, after deducting underwriting discounts and commissions and offering expenses.
Under our Articles of Incorporation, our authorized capital stock consists of 140,000,000 shares of Class A common stock, par value $0.01 per share, 35,000,000 shares of Class B common stock, par value $0.01 per share, and 9,333,333 shares of preferred stock, the rights and preferences of which may be designated by the Board of Directors.
| 2. |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Operating Revenue: | ||||||||||||||||
| Revenue, before fuel surcharge | $ | 344,286 | $ | 331,976 | $ | 660,838 | $ | 594,441 | ||||||||
| Fuel surcharge | 56,061 | 57,486 | 100,382 | 94,730 | ||||||||||||
| Total operating revenue | 400,347 | 389,462 | 761,220 | 689,171 | ||||||||||||
Operating Expenses: | ||||||||||||||||
| Salaries, wages and benefits | 133,578 | 127,141 | 260,676 | 229,995 | ||||||||||||
| Fuel and fuel taxes | 92,920 | 89,196 | 173,017 | 155,533 | ||||||||||||
| Vehicle rents | 24,620 | 19,333 | 47,605 | 37,731 | ||||||||||||
| Depreciation and amortization, net of gain/loss on sale | 19,441 | 15,794 | 38,971 | 27,668 | ||||||||||||
| Purchased transportation | 60,397 | 61,304 | 115,020 | 107,813 | ||||||||||||
| Operating expenses and supplies | 24,569 | 25,233 | 48,206 | 44,557 | ||||||||||||
| Insurance premiums and claims | 15,971 | 16,285 | 30,922 | 29,553 | ||||||||||||
| Operating taxes and licenses | 4,544 | 4,328 | 8,821 | 7,991 | ||||||||||||
| Communications and utilities | 2,884 | 3,606 | 5,765 | 6,478 | ||||||||||||
| General and other operating expenses | 10,905 | 11,312 | 21,397 | 21,164 | ||||||||||||
| Loss on sale and exit of business | - | 400 | - | 400 | ||||||||||||
| Total operating expenses | 389,829 | 373,932 | 750,400 | 668,883 | ||||||||||||
Income from Operations | 10,518 | 15,530 | 10,820 | 20,288 | ||||||||||||
| Interest expense, net | 5,482 | 4,690 | 10,964 | 7,789 | ||||||||||||
| Equity in (income) loss of affiliated companies | (242 | ) | 341 | (366 | ) | 559 | ||||||||||
| Minority interest | 61 | 365 | 10 | 503 | ||||||||||||
5,301 | 5,396 | 10,608 | 8,851 | |||||||||||||
| Income before income taxes | 5,217 | 10,134 | 212 | 11,437 | ||||||||||||
| Income tax provision | 2,482 | 4,410 | 106 | 4,978 | ||||||||||||
Net Income | $ | 2,735 | $ | 5,724 | $ | 106 | $ | 6,459 | ||||||||
Earnings Per Share - basic | $ | 0.18 | $ | 0.37 | $ | 0.01 | $ | 0.42 | ||||||||
| Weighted average shares - basic | 15,155 | 15,321 | 15,215 | 15,323 | ||||||||||||
Earnings Per Share - diluted | $ | 0.18 | $ | 0.37 | $ | 0.01 | $ | 0.42 | ||||||||
| Weighted average shares – diluted | 15,318 | 15,614 | 15,407 | 15,559 | ||||||||||||
ASSETS | June 30, 2007 | December 31, 2006 | ||||||
| (Unaudited) | ||||||||
Current Assets: | ||||||||
| Cash and cash equivalents | $ | 300 | $ | 913 | ||||
| Customer receivables, net of allowance | 180,087 | 168,079 | ||||||
| Other receivables | 11,709 | 15,398 | ||||||
| Prepaid insurance and licenses | 13,943 | 25,777 | ||||||
| Operating and installation supplies | 7,658 | 7,767 | ||||||
| Deferred income taxes | 25,545 | 25,545 | ||||||
| Other current assets | 12,091 | 10,665 | ||||||
| Total current assets | 251,333 | 254,144 | ||||||
Property and Equipment, at cost: | ||||||||
| Land and buildings | 74,045 | 67,358 | ||||||
| Revenue and service equipment | 554,668 | 537,570 | ||||||
| Furniture and equipment | 36,180 | 35,441 | ||||||
| Leasehold improvements | 27,668 | 29,857 | ||||||
| Computer software | 41,437 | 39,584 | ||||||
733,998 | 709,810 | |||||||
| Less accumulated depreciation and amortization | (204,569 | ) | (180,813 | ) | ||||
| Net property and equipment | 529,429 | 528,997 | ||||||
Other Assets: | ||||||||
| Goodwill, net | 95,694 | 94,307 | ||||||
| Other | 27,099 | 25,919 | ||||||
| Total other assets | 122,793 | 120,226 | ||||||
Total Assets | $ | 903,555 | $ | 903,367 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | June 30, 2007 | December 31, 2006 | ||||||
| (Unaudited) | ||||||||
Current Liabilities: | ||||||||
| Accounts payable | $ | 66,101 | $ | 47,770 | ||||
| Book overdraft | 2,039 | 19,368 | ||||||
| Accrued wages and benefits | 21,301 | 22,562 | ||||||
| Claims and insurance accruals, current | 51,307 | 49,928 | ||||||
| Other accrued liabilities | 8,434 | 9,137 | ||||||
| Securitization facility | 20,000 | 37,000 | ||||||
| Current maturities of long-term debt | 59,010 | 51,221 | ||||||
| Total current liabilities | 228,192 | 236,986 | ||||||
Long-term debt, net of current maturities | 258,580 | 252,313 | ||||||
Deferred income taxes | 122,512 | 114,679 | ||||||
Other long-term liabilities | 2,720 | 3,186 | ||||||
Claims and insurance accruals, long-term | 38,152 | 40,125 | ||||||
Minority interest | 3,589 | 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, 16,013,173 and 15,958,837 shares issued at June 30, 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 June 30, 2007 and December 31, 2006 | 30 | 30 | ||||||
| Additional paid-in capital | 163,074 | 162,001 | ||||||
| Retained earnings | 130,329 | 130,373 | ||||||
| Treasury Stock, Class A, at cost (3,883,075 and 3,683,075 shares at June 30, 2007 and December 31, 2006, respectively) | (43,766 | ) | (40,048 | ) | ||||
| Notes receivable from stockholders | (17 | ) | (17 | ) | ||||
| Total stockholders’ equity | 249,810 | 252,499 | ||||||
Total Liabilities and Stockholders’ Equity | $ | 903,555 | $ | 903,367 | ||||
Six Months Ended June 30, | ||||||||
2007 | 2006 | |||||||
Cash Flows from Operating Activities: | ||||||||
| Net income | $ | 106 | $ | 6,459 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Equity in (income) loss of affiliated companies | (366 | ) | 559 | |||||
| Deferred income tax provision | 106 | 2,489 | ||||||
| Provision for losses on receivables | 281 | 1,041 | ||||||
| Depreciation and amortization | 38,757 | 29,398 | ||||||
| Stock-based compensation expense | 787 | 301 | ||||||
| Tax benefit realized from stock option plans | (18 | ) | (159 | ) | ||||
| Loss (gain) on sale of equipment | 214 | (1,730 | ) | |||||
| Loss on sale and exit of business | - | 400 | ||||||
| Minority interest expense | 10 | 503 | ||||||
| Changes in operating assets and liabilities, net of acquisitions: | ||||||||
| Receivables | (9,896 | ) | 10,858 | |||||
| Prepaid insurance and licenses | 11,833 | 8,410 | ||||||
| Operating and installation supplies | 232 | 168 | ||||||
| Other assets | (2,444 | ) | 792 | |||||
| Accounts payable and other accrued liabilities | 25,288 | (4,963 | ) | |||||
| Accrued wages and benefits | (1,384 | ) | 983 | |||||
| Net cash provided by operating activities | 63,506 | 55,509 | ||||||
Cash Flows from Investing Activities: | ||||||||
| Payments for purchases of property and equipment | (67,573 | ) | (102,105 | ) | ||||
| Proceeds from sales of property and equipment | 33,577 | 34,353 | ||||||
| Acquisition of businesses, net of cash acquired | (5,655 | ) | (6,806 | ) | ||||
| Investment in affiliate company | (739 | ) | - | |||||
| Net cash used in investing activities | (40,390 | ) | (74,558 | ) | ||||
Cash Flows from Financing Activities: | ||||||||
| Net borrowings under lines of credit | 1,950 | - | ||||||
| Net (payments) borrowings under securitization facility | (17,000 | ) | 22,000 | |||||
| Borrowings under long-term debt | 42,896 | 32,720 | ||||||
| Payments of long-term debt | (30,790 | ) | (32,578 | ) | ||||
| Additions to deferred financing costs | - | (613 | ) | |||||
| Book overdraft | (17,329 | ) | (7,804 | ) | ||||
| Purchase of Class A Common Stock | (3,718 | ) | (1,601 | ) | ||||
| Proceeds from exercise of stock options | 60 | 707 | ||||||
| Tax benefit from stock options | 18 | 159 | ||||||
| Proceeds from issuance of common stock, net | 184 | 179 | ||||||
| Net cash (used in) provided by financing activities | (23,729 | ) | 13,169 | |||||
Net Change in Cash and Cash Equivalents | (613 | ) | (5,880 | ) | ||||
Cash and Cash Equivalents, beginning of period | 913 | 9,488 | ||||||
Cash and Cash Equivalents, end of period | $ | 300 | $ | 3,608 | ||||
Supplemental Disclosure of Cash Flow Information: | ||||||||
| Cash paid during the period for interest, net of capitalized interest | $ | 10,692 | $ | 7,569 | ||||
| Cash (refunded) paid during the period for income taxes, net | $ | (11,391 | ) | $ | 9,208 | |||
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. Theypresented, such adjustments being of a normal recurring nature.
Certain information and footnote disclosures have been prepared by U.S. Xpress Enterprises, Inc. (the "Company"), in accordance with the instructionscondensed or omitted pursuant to Form 10-Q and thesuch rules and regulationsregulations. The December 31, 2018 balance sheet was derived from our audited balance sheet as 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.
Leases
We determine if an arrangement is a lease or contains a lease at inception and perform an analysis to determine whether the lease is an operating lease or a finance lease. We measure right-of-use (“ROU”) assets and lease liabilities at the lease commencement date based on the present value of the remaining lease payments. As most of our leases do not provide a readily determinable implicit rate, we estimate an incremental borrowing rate based on the credit quality of the Company and by comparing interest rates available in the market for similar borrowings, and adjusting this amount based on the impact of collateral over the term of each lease. We use this rate to discount the remaining lease payments in measuring the ROU asset and lease liability. We use the implicit rate when readily determinable. We recognize lease expense for operating leases on a straight-line basis over the lease term. For our finance leases, we recognize amortization expense from the amortization of the ROU asset and interest expense on the related lease liability. We do not separate lease and nonlease components of contracts, except for certain leased information technology assets that are embedded within various service agreements. The lease components included in those agreements are included in the Company’s Form 10-K filedROU asset and lease liability, and the amounts are not significant.
Leases with an initial term of twelve months or less are not recorded on the condensed consolidated balance sheet. We recognize lease expense for these leases on a straight-line basis over the lease term.
Recently Issued Accounting Standards
In January 2017, the FASB issued Accounting Standards Update (“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 Securitiescarrying 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 Exchange Commissiondoes not expect the adoption of ASU 2018-02 will have a material impact on March 16, 2007).the consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” and Operationshas subsequently issued supplemental and/or clarifying ASUs (collectively “ASC 842”), in order to increase transparency and comparability by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. We adopted ASC 842 using the modified retrospective approach and applied the transition provisions with an effective date as of January 1, 2019 for leases that existed on that date. Prior period results continue to be presented under ASC 840 based on the accounting originally in effect for such periods. We elected the “package of practical expedients” under ASC 842 which permits us to not reassess our historical assessments of (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs. We also elected the practical expedient to not reassess certain land easements. We did not elect the use-of-hindsight practical expedient during the transition of ASC 842. Adoption of ASC 842 resulted in the recording of operating lease ROU assets and corresponding operating lease liabilities of approximately $183.0 million. The adoption of ASC 842 also resulted in increased disclosure, including qualitative and quantitative disclosures about the nature, amount, timing, and uncertainty of cash flows arising from leases. See the “Leases” section of this note and Note 6, Leases for additional information.
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
| Net Income | $ | 2,735 | $ | 5,724 | $ | 106 | $ | 6,459 | ||||||||
| Denominator: | ||||||||||||||||
| Weighted average common shares outstanding (in thousands) | 15,155 | 15,321 | 15,215 | 15,323 | ||||||||||||
| Equivalent shares issuable upon exercise of stock options and conversion of unvested restricted stock (in thousands) | 163 | 293 | 192 | 236 | ||||||||||||
| Diluted shares (in thousands) | 15,318 | 15,614 | 15,407 | 15,559 | ||||||||||||
| Earnings per share: | ||||||||||||||||
| Basic | $ | 0.18 | $ | 0.37 | $ | 0.01 | $ | 0.42 | ||||||||
| Diluted | $ | 0.18 | $ | 0.37 | $ | 0.01 | $ | 0.42 | ||||||||
| 3. | Divesture of Xpress Internacional |
In January 2019, we sold our 95% interest in Xpress Internacional. The purchase price was approximately $4.5 million in cash, a $6.0 million note receivable and approximately $2.5 million in contingent consideration related to the completion of selling 110 tractors. The fair value of the tractors approximated $2.5 million on January 17, 2019 and has not changed as of March 31, 2019. The business met the criteria for the presentation as held for sale as of December 31, 2018. The assets of business held for sale were not material to our consolidated revenues or consolidated operating income. We recognized an impairment in the amount of $10.7 million in December 2018, related to the disposal group as the carrying value exceeded the fair value. We did not recognize any subsequent gain or loss during the quarter ended March 31, 2019.
| 4. | Income Taxes |
The Company’s provision for income taxes for the three months ended March 31, 2019 and 2018 is based on the estimated annual effective tax rate, plus discrete items. The following table presents the provision for income taxes and the effective tax rates for the three months ended March 31, 2019 and 2018 (in thousands):
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2019 | 2018 | |||||||
| Income before Income Taxes | $ | 6,920 | $ | 1,975 | ||||
| Income tax provision | 1,901 | 593 | ||||||
| Effective tax rate | 27.5 | % | 30.0 | % | ||||
The difference between the Company’s effective tax rate for the three months ended March 31, 2019 and 2018 and the US statutory rate of 21% primarily relates to nondeductible expenses, federal income tax credits, state income taxes (net of federal benefit), Global Intangible Low-Taxed Income earned by certain foreign subsidiaries, the effect of taxes on foreign earnings and certain other immaterial discrete items.
| 5. | Long-Term Debt |
Long-term debt at March 31, 2019 and December 31, 2018 consists of the following (in thousands):
March 31, 2019 | December 31, 2018 | |||||||
| Term loan agreement, interest rate of 4.7% and 4.8% at March 31, 2019 and December 31, 2018, respectively maturing June 2023 | $ | 192,500 | $ | 195,000 | ||||
| Revenue equipment installment notes with finance companies, weighted average interest rate of 5.0% and 5.0% at March 31, 2019 and December 31, 2018, due in monthly installments with final maturities at various dates through February 2026, secured by related revenue equipment with a net book value of $188.3 million and $197.1 million in March 2019 and December 2018 | 176,954 | 184,867 | ||||||
| Mortgage note payables, interest rates ranging from 5.25% to 6.99% at March 31, 2019 andDecember 31, 2018 due in monthly installments with final maturities as various dates through September 2031, secured by real estate with a net book value of $23.8 million and $24.1 million at March 2019 and December 2018 | 18,574 | 18,861 | ||||||
| Other | 4,081 | 6,872 | ||||||
| 392,109 | 405,600 | |||||||
| Less: Debt issuance costs | (1,264 | ) | (1,347 | ) | ||||
| Less: Current maturities of long-term debt | (86,492 | ) | (106,383 | ) | ||||
| $ | 304,353 | $ | 297,870 | |||||
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 agent’s prime rate plus an applicable margin that was 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 was 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 a commitment fee on the unused portion of the Revolving Facility commitment of between 0.25% and 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 Term Facility has scheduled quarterly principal payments between 1.25% and 2.50% of 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 occurring on the last day of our fiscal quarter ending September 30, 2018. The Credit Facility will mature on June 18, 2023.
Borrowings under the Credit Facility are prepayable at 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, including a maximum leverage ratio and a minimum interest coverage ratio.
At March 31, 2019, the Revolving Facility had issued collateralized letters of credit in the face amount of $31.7 million, with $0 borrowings outstanding and $118.3 million available to borrow and the Term Facility had $192.5 million outstanding.
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 March 31, 2019, the Company was in compliance with all financial covenants prescribed by the Credit Facility.
| 6. | Leases |
We have operating and finance leases with terms of 1 year to 10 years for certain revenue and service equipment and office and terminal facilities.
The table below presents the lease-related assets and liabilities recorded on the balance sheet (in thousands):
| Leases | Classification | March 31, 2019 | ||||
| Assets | ||||||
| Operating | Operating lease right-of-use assets | $ | 186,941 | |||
| Finance | Property and equipment, net | 19,921 | ||||
| Total leased assets | $ | 206,862 | ||||
| Liabilities | ||||||
| Current | ||||||
| Operating | Current portion of operating lease liabilities | $ | 56,893 | |||
| Finance | Current maturities of long-term debt and finance leases | 8,625 | ||||
| Noncurrent | ||||||
| Operating | Noncurrent operating lease liabilities | 129,927 | ||||
| Finance | Long-term debt and finance leases, net of current maturities | 8,432 | ||||
| Total lease liabilities | $ | 203,877 | ||||
The table below presents certain information related to the lease costs for finance and operating leases (in thousands):
| Lease Cost | Classification | March 31, 2019 | ||||
| Operating lease cost | Vehicle rents and General and other operating | $ | 20,167 | |||
| Finance lease cost: | ||||||
| Amortization of finance lease assets | Depreciation and amortization | 808 | ||||
| Interest on lease liabilities | Interest expense | 318 | ||||
| Short-term lease cost | General and other operating | 311 | ||||
| Total lease cost | $ | 21,604 | ||||
Cash Flow Information | Three Months Ended March 31, 2019 | |||
| Cash paid for operating leases included in operating activities | $ | 20,167 | ||
| Cash paid for finance leases included in operating activities | $ | 318 | ||
| Cash paid for finance leases included in financing activities | $ | 3,155 | ||
| Operating lease right-of-use assets obtained in exchange for lease obligations | $ | 23,975 | ||
| Operating lease right-of-use assets and liabilities relieved in conjunction with divesture of Xpress Internacional | $ | 2,018 | ||
Lease Term and Discount Rate | Weighted-Average Remaining Lease Term (years) | Weighted-Average Discount Rate | ||||||
| Operating leases | 4.1 | 5.2 | % | |||||
| Finance leases | 3.4 | 5.3 | % | |||||
As of March 31, 2019, future maturities of lease liabilities were as follows (in thousands):
| March 31, 2019 | ||||||||
| Finance | Operating | |||||||
| 2019 | $ | 4,236 | $ | 49,948 | ||||
| 2020 | 7,544 | 52,785 | ||||||
| 2021 | 4,084 | 41,805 | ||||||
| 2022 | 1,427 | 27,115 | ||||||
| 2023 | 1,427 | 18,794 | ||||||
| Thereafter | 297 | 17,842 | ||||||
| 19,015 | 208,289 | |||||||
| Less: Amount representing interest | (1,958 | ) | (21,469 | ) | ||||
| Total | $ | 17,057 | $ | 186,820 | ||||
As of December 31, 2018, minimum lease payments under capital and operating leases were as follows (in thousands):
| December 31, 2018 | ||||||||
| Capital | Operating | |||||||
| 2019 | $ | 7,797 | $ | 60,303 | ||||
| 2020 | 7,564 | 42,632 | ||||||
| 2021 | 4,086 | 35,302 | ||||||
| 2022 | 1,427 | 20,751 | ||||||
| 2023 | 1,427 | 15,884 | ||||||
| Thereafter | 297 | 14,080 | ||||||
| 22,598 | $ | 188,952 | ||||||
| Less: Amount representing interest | (2,285 | ) | ||||||
| 20,313 | ||||||||
| Less: Current portion | (6,711 | ) | ||||||
| $ | 13,602 | |||||||
| 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 the proceedings, including 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
On December 23, 2015, a class action lawsuit was filed against us and our subsidiary U.S. Xpress, Inc. 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 has been requested. There is currently no trial date set. We are currently not able to predict the probable outcome or to reasonably estimate a range of potential losses, if any. We intend to vigorously defend the merits of these claims.
Telephone Consumer Protection Act Claim
A class action was filed against our subsidiary U.S. Xpress, Inc. in the U.S. District Court for the Western District of Virginia on December 11, 2017 and amended on March 7, 2018, 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 successfully moved to dismiss the claims related to calls made to residential lines on grounds that the plaintiff lacked standing to assert such claims. The Court denied the Company’s Motion to Dismiss claims for all purported class members residing outside the State of Virginia for lack of personal jurisdiction. The matter is currently in discovery and is set for trial beginning January 13, 2020. We are currently not able to predict the probable outcome or to reasonably estimate a range of potential losses, if any. We intend to vigorously defend the merits of these claims.
Stockholder Claims
As set forth below, between November 2018 and April 2019, eight substantially similar putative securities class action complaints were filed against us and certain other defendants: five in the Circuit Court of Hamilton County, Tennessee (“Tennessee State Court Cases”), two in the U.S. District Court for the Eastern District of Tennessee (“Federal Court Cases”), and one in the Supreme Court of the State of New York (“New York State Court Case”). Two of the Tennessee State Court Cases have been voluntarily dismissed. All of these matters are in preliminary stages of litigation. We are currently not able to predict the probable outcome or to reasonably estimate a range of potential losses, if any.
On November 21, 2018, a putative class action complaint was filed in the Circuit Court of Hamilton County, Tennessee against us, five of our officers or directors, and the seven underwriters who participated in our June 2018 initial public offering (“IPO”), alleging violations of Sections 11 and 15 of the Securities Act of 1933 (the “Securities Act”). The class action lawsuit is based on allegations that the Company made false and/or misleading statements in the registration statement and prospectus filed with the Securities and Exchange Commission ("SEC") in connection with the IPO. The lawsuit is purportedly brought on behalf of a putative class of all persons or entities who purchased or otherwise acquired the Company’s Class A common stock pursuant and/or traceable to the IPO, and seeks, among other things, compensatory damages, costs and expenses (including attorneys’ fees) on behalf of the putative class.
On January 23, 2019, a substantially similar putative class action complaint was filed in the Circuit Court of Hamilton County, Tennessee, by a different plaintiff alleging claims under Sections 11 and 15 of the Securities Act against the same defendants as in the action commenced on November 21, 2018. On March 7, 2019, this case was voluntarily dismissed by the plaintiff.
On January 30, 2019, a substantially similar putative class action complaint was filed in the Circuit Court of Hamilton County, Tennessee, by a different plaintiff alleging claims under Sections 11 and 15 of the Securities Act against the same defendants as in the action commenced on November 21, 2018, and also alleging a claim under Section 12 of the Securities Act.
On February 5, 2019, a substantially similar putative class action complaint was filed in the Circuit Court of Hamilton County, Tennessee, by a different plaintiff alleging claims under Sections 11 and 15 of the Securities Act against the same defendants as in the action commenced on November 21, 2018, and also alleging a claim under Section 12 of the Securities Act.
On February 6, 2019, a substantially similar putative class action complaint was filed in the Circuit Court of Hamilton County, Tennessee, by different plaintiffs alleging claims under Sections 11 and 15 of the Securities Act against the same defendants as in the action commenced on November 21, 2018. On March 19, 2019, this case was voluntarily dismissed by the plaintiff.
On March 8, 2019, a substantially similar putative class action complaint was filed in the U.S. District Court for the Eastern District of Tennessee by a different plaintiff alleging claims under Sections 11 and 15 of the Securities Act against the same defendants as in the action commenced on November 21, 2018.
On March 14, 2019, a substantially similar putative class action complaint was filed in the Supreme Court of the State of New York, County of New York, by a different plaintiff alleging claims under Sections 11 and 15 of the Securities Act against the same defendants as in the action commenced on November 21, 2018.
On April 2, 2019, a substantially similar putative class action complaint was filed in the U.S. District Court for the Eastern District of Tennessee, by a different plaintiff alleging claims under Sections 11 and 15 of the Securities Act against us and the same five of our officers and directors as in the action commenced on November 21, 2018. Unlike the previously filed complaints, this complaint did not name as defendants any of the seven underwriters who participated in our IPO.
The complaints in all the actions listed above allege that the Company made false and/or misleading statements in the registration statement and prospectus filed with the SEC in connection with the IPO, and that, as a result of such alleged statements, the plaintiffs and the members of the putative classes suffered damages. We believe the allegations made in the complaints are without merit and intend to defend ourselves vigorously in these matters.
Independent Contractor Class Action
On March 26, 2019, a putative class action complaint was filed in the U.S. District Court for the Eastern District of Tennessee against us and our subsidiaries U.S. Xpress, Inc. and U.S. Xpress Leasing, Inc. The putative class includes individuals who performed work as lease operators, who leased equipment from us, and who were designated as independent contractors. The complaint alleges that independent contractors are improperly designated as such and should be designated as employees and thus subject to the Fair Labor Standards Act (“FLSA”). The complaint further alleges that U.S. Xpress, Inc.’s pay practices with regard to the putative class members violated the minimum wage provisions of the FLSA for the period from March 26, 2016 to present. The complaint further alleges that we violated the requirements of the Truth in Leasing Act with regard to the independent contractor agreements and lease purchase agreements we entered into with the putative class members. The complaint further alleges that we failed to comply with the terms of the independent contractor agreements and lease purchase agreements entered into with the putative class members, that we violated the provisions of the Tennessee Consumer Protection Act in advertising, describing and marketing the lease purchase program to the putative class members, and that we were unjustly enriched as a result of the foregoing allegations. The matter is not yet in discovery, and we are currently not able to predict the probable outcome or to reasonably estimate a range of potential losses, if any. We believe the allegations made in the complaint are without merit and intend to defend ourselves vigorously against the complaints relating to such actions.
The Company had letters of credit of $91,036$31.7 million outstanding at June 30, 2007.as of March 31, 2019. The letters of credit are maintained primarily to support the Company’s insurance program.
The Company currently hashad cancelable commitments outstanding at March 31, 2019 to acquire revenue and communications equipment and development of terminalsreal estate for approximately $84,439 over$201.4 million and during the next 12 months. These revenue equipment commitments are cancelable, subject to certain adjustments in the underlying obligations and benefits.remainder of 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 June 2018, the Board approved the 2018 Omnibus Incentive Plan (the “Incentive Plan”) to become effective in connection with the offering. The Company has reserved an aggregate of 3.2 million shares of its Class A common stock for issuance of awards under the Incentive Plan. Participants in the Incentive Plan will be selected by the Compensation Committee from the executive officers, directors, employees and consultants of 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 any other form established by the Compensation Committee pursuant to the Incentive Plan.
The following is a summary of the Incentive Plan restricted stock and restricted stock unit activity for the three months ended March 31, 2019:
| Weighted | ||||||||
| Number of | Average Grant | |||||||
| Units | Date Fair Value | |||||||
| Unvested at December 31, 2018 | 270,742 | $ | 14.20 | |||||
| Granted | 461,775 | 8.94 | ||||||
| Vested | 31,845 | 15.77 | ||||||
| Forfeited | 5,500 | 16.00 | ||||||
| Unvested at March 31, 2019 | 695,172 | $ | 10.62 | |||||
The restricted stock grants vest over periods of one to five years. The Company recognized compensation expense of $0.6 million during the three months ended March 31, 2019. At March 31, 2019 and December 31, 2018, the Company had $6.3 million and $2.8 million in unrecognized compensation expense related to the above restricted stock awards which is expected to be recognized over a period of approximately 3.4 years and 3.3 years, respectively.
The following is a summary of the Incentive Plan stock option activity from December 31, 2018 to March 31, 2019:
| Weighted | ||||||||
| Number of | Average Grant | |||||||
| Units | Date Fair Value | |||||||
| Unvested at December 31, 2018 | 177,260 | $ | 6.09 | |||||
| Granted | 244,785 | 4.41 | ||||||
| Unvested at March 31, 2019 | 422,045 | $ | 5.12 | |||||
The stock options vest over a period of 2007,four years and expire ten years from the date of grant. The Company acquired certain assetsrecognized compensation expense of a truckload carrier$0.1 million for a purchase price of $5.6 million in cash.the three months ended March 31, 2019. 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 acquiredstock option grant was recorded as goodwill. The purchase price allocation is preliminary as the Company is still reviewing the valuations of certain assets.
| Strike price | $ | 9.40 | ||
| Risk-free interest rate | 2.50 | % | ||
| Expected dividend yield | 0 | % | ||
| Expected volatility | 45.65 | % | ||
| Expected term (in years) | 6.25 |
At March 31, 2019 and December 31, 2018, the Company had $1.7 million and $0.8 million in unrecognized compensation expense related to the stock option awards which is expected to be recognized over a period of approximately 3.0 years and 3.5 years.
Restricted Stock Units
Prior to the IPO, the Company provided for restricted membership unit awards in New Mountain Lake under the 2008 Restricted Stock Plan in order to compensate the Company’s employees and to promote the success of the increased investment.Company’s business.
same vesting schedules. The following unaudited pro forma financial information presentsis a summary of the Company’s consolidated results of operations for the periods ended June 30, 2007 and 2006 had the acquisitions of ATS and the Total Companies taken place as of January 1, 2006.
Six Months Ended June 30, | ||||||||
2007 | 2006 | |||||||
| Revenue, net of fuel surcharge | $ | 660,838 | $ | 642,936 | ||||
| Net income (loss) | 106 | 6,531 | ||||||
| Earnings (loss) per share - Basic | $ | 0.01 | $ | 0.43 | ||||
| Earnings (loss) per share - Diluted | $ | 0.01 | $ | 0.42 | ||||
Truckload | Xpress Global Systems | Consolidated | ||||||||||
Three Months Ended June 30, 2007 | ||||||||||||
Revenue - external customers | $ | 374,500 | $ | 25,847 | $ | 400,347 | ||||||
Intersegment revenue | 1,173 | - | 1,173 | |||||||||
Operating income | 8,526 | 1,992 | 10,518 | |||||||||
Total assets | 882,222 | 21,333 | 903,555 | |||||||||
| Three Months Ended June 30, 2006 | ||||||||||||
| Revenue - external customers | $ | 363,855 | $ | 25,607 | $ | 389,462 | ||||||
| Intersegment revenue | 1,544 | - | 1,544 | |||||||||
| Operating income | 13,836 | 1,694 | 15,530 | |||||||||
| Total assets | 782,077 | 24,299 | 806,376 | |||||||||
Six Months Ended June 30, 2007 | ||||||||||||
Revenue - external customers | $ | 712,817 | $ | 48,403 | $ | 761,220 | ||||||
Intersegment revenue | 2,369 | - | 2,369 | |||||||||
Operating income | 7,289 | 3,531 | 10,820 | |||||||||
Total assets | 882,222 | 21,333 | 903,555 | |||||||||
| Six Months Ended June 30, 2006 | ||||||||||||
| Revenue - external customers | $ | 641,131 | $ | 48,040 | $ | 689,171 | ||||||
| Intersegment revenue | 2,819 | - | 2,819 | |||||||||
| Operating income | 18,225 | 2,063 | 20,288 | |||||||||
| Total assets | 782,077 | 24,299 | 806,376 | |||||||||
| Number of | Weighted | |||||||
| Units | Average | |||||||
| Unvested at December 31, 2018 | 1,401,674 | $ | 2.00 | |||||
| Vested | 173,320 | 2.15 | ||||||
| Unvested at March 31, 2019 | 1,228,354 | $ | 1.98 | |||||
The vesting schedule for these restricted unit grants range from 3 to 7 years. The Company recognized compensation expense of $5,482$0.2 million and $4,690, equity in (income) loss of affiliated companies of $(242) and $341 and minority interest of $61 and $365.
June 30, 2007 | December 31, 2006 | |||||||
| Obligation under line of credit with a group of banks, maturing March 2011 | $ | 3,650 | $ | 1,700 | ||||
| Revenue equipment installment notes with finance companies, weighted average interest rate of 6.04% and 5.99% at June 30, 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 $275.3 million at June 30, 2007 and $265.8 million at December 31, 2006 | 277,436 | 263,953 | ||||||
| Mortgage note payable, interest rate of 6.73% at June 30, 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 June 30, 2007 and $12.9 million at December 31, 2006 | 7,609 | 7,782 | ||||||
| Mortgage note payable, interest rate of 6.26% at June 30, 2007 and December 31, 2006, due in monthly installments through December 2030, secured by real estate with a net book value of $15.7 million at June 30, 2007 and $15.9 million at December 31, 2006 | 16,556 | 16,709 | ||||||
| Mortgage note payable, interest rate of 6.98% at June 30, 2007, maturing August, 2031, secured by real estate with a net book value of $13.5 million at June 30, 2007 and $13.7 million at December 31, 2006 | 10,336 | 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 June 30, 2007 and $2.4 million at December 31, 2006 | 1,109 | 1,204 | ||||||
| Capital lease obligations maturing through September 2008 | 838 | 1,510 | ||||||
| Other | 56 | 260 | ||||||
317,590 | 303,534 | |||||||
| Less: current maturities of long-term debt | (59,010 | ) | (51,221 | ) | ||||
| $ | 258,580 | $ | 252,313 | |||||
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 | )(1) | - | 73 | (1) | 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 | (1) | 453 | |||||||||||||
| 2006 Payments | - | (795 | ) | (30 | ) | (476 | ) | (1,301 | ) | |||||||||||
| December 31, 2006 Reserve | - | 1,002 | 135 | 1,510 | 2,647 | |||||||||||||||
| 2007 Reserve Additions | - | 39 | (1) | - | 50 | (1) | 89 | |||||||||||||
| 2007 Payments | - | (245 | ) | - | (1,177 | ) | (1,422 | ) | ||||||||||||
| June 30, 2007 Reserve | $ | - | $ | 796 | $ | 135 | $ | 383 | $ | 1,314 | ||||||||||
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 November 15, 2007. The Company is currently evaluating such assumptions, the impact, if any, of SFAS 157 on its consolidated financial statements.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. |
The following table summarizes liabilities measured at fair value. Unrealized gainsvalue at March 31, 2019 and losses on items for which the fair value option has been elected are reported 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.December 31, 2018 (in thousands):
| 2019 | ||||||||
| Fair Value | Input Level | |||||||
| Liabilities | ||||||||
| Forward Contract | $ | - | 3 | |||||
| 2018 | ||||||||
| Fair Value | Input Level | |||||||
| Liabilities | ||||||||
| Forward Contract | $ | 1,793 | 3 | |||||
The following table summarizes the changes in the fair value of assets and liabilities measured at fair value using significant unobservable inputs (Level 3) for the three months ended March 31, 2019 and 2018 (in thousands):
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2019 | 2018 | |||||||
| Balance at beginning of year | $ | 1,793 | $ | 1,985 | ||||
| Divesture of Xpress Internacional | 1,793 | - | ||||||
| Forward Contract Adjustment | - | (48 | ) | |||||
| Balance at end of period | $ | - | $ | 1,937 | ||||
At December 31, 2018, the physically settled forward contract was reclassified to long term liabilities associated with assets held for sale and in January 2019 relieved in conjunction with the disposal of Xpress Internacional.
| 10. | Earnings per Share |
Basic earnings per share is calculated by dividing net income 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 per share. The Company excluded 989,717 equity awards for the three months ended March 31, 2019 as inclusion would be anti-dilutive.
The basic and diluted earnings per share calculations for the three months ended March 31, 2019 and 2018, respectively, are presented below (in thousands, except per share amounts):
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2019 | 2018 | |||||||
| Net income | $ | 5,019 | $ | 1,382 | ||||
| Net income attributable to noncontrolling interest | 298 | 223 | ||||||
| Net income attributable to common stockholders | $ | 4,721 | $ | 1,159 | ||||
| Basic weighted average of outstanding shares of common stock | 48,394 | 6,385 | ||||||
| Dilutive effect of equity awards | 997 | - | ||||||
| Diluted weighted average of outstanding shares of common stock | 49,391 | 6,385 | ||||||
| Basic earnings per share | $ | 0.10 | $ | 0.18 | ||||
| Diluted earnings per share | $ | 0.10 | $ | 0.18 | ||||
| 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, prior to the divesture of Xpress Internacional, 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. During the three months ended March 31, 2019, the Truckload segment accounted for approximately 89% of consolidated revenue.
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. During the three months ended March 31, 2019, the Brokerage segment accounted for approximately 11% of consolidated revenue.
The following table summarizes our segment information (in thousands):
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2019 | 2018 | |||||||
| Revenues | ||||||||
| Truckload | $ | 369,119 | $ | 371,167 | ||||
| Brokerage | 46,244 | 54,541 | ||||||
| Total Operating Revenue | $ | 415,363 | $ | 425,708 | ||||
| Operating Income | ||||||||
| Truckload | $ | 9,842 | $ | 12,503 | ||||
| Brokerage | 2,796 | 2,351 | ||||||
| Total Operating Income | $ | 12,638 | $ | 14,854 | ||||
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.
Information about the geographic areas in which the Company conducted business during the three months ended March 31, 2019 and 2018 is summarized below (in thousands). 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. In January 2019, we disposed of our Mexican business.
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2019 | 2018 | |||||||
| Revenues | ||||||||
| United States | $ | 412,991 | $ | 412,852 | ||||
| Foreign countries | ||||||||
| Mexico | 2,372 | 12,856 | ||||||
| Total | $ | 415,363 | $ | 425,708 | ||||
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 eliminated in 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. 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 and lease arrangements as means of financing revenue equipment), future interest expense, expected capital expenditures, expected fleet age and mix of owned versus leased equipment, expected impact of technology, including the impact of event recorders, 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, Adjusted Operating Income 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 their 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 “Item 1A. Risk Factors,” set forth in our Annual Report on Form 10-K for the year ended December 31, 2018. Readers should review and consider the factors discussed in "Item“Item 1A. Risk Factors,"” set forth in our Annual Report on Form 10-K for the year ended December 31, 2006, as supplemented in Part II below,2018, along with various disclosures in our press releases, stockholder reports, and other filings with the Securities and Exchange Commission.SEC.
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.
We are the fourthfifth 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 $1.8 billion in total operating revenue in 2018. 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 March 31, 2019, our fleet consisted of approximately 6,600 tractors and approximately 15,000 trailers, including approximately 1,900 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 four 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, were reflected in portionsour 2018 and first quarter of Canada2019 financial results where we continue to see earnings improvement as a result of these changes and Mexico.initiatives. We also offer transportation, warehousing,experienced our seventh consecutive quarter of year over year Adjusted Operating Income improvement in the first quarter of 2019 and distribution servicesthe highest adjusted earnings of any first quarter in the history of the Company. For the balance of 2019 we are focused on three main priorities. The first is optimizing our Truckload network and resulting average revenue per tractor per week through repositioning equipment and allocating capacity between our Dedicated and Over-the-Road segments. The second is improving the experience of our professional truck drivers, including their safety and security. And, the third is advancing our technology initiatives centered on digital load matching, automated load acceptance and prioritization, and our goal of achieving a 100% frictionless order.
Total revenue for the first quarter of 2019 decreased by $10.3 million to $415.4 million as compared to the floorcovering industry. Since becomingfirst quarter of 2018. The decrease was primarily a public company, we have increased our operatingresult of a 15.2% decrease in brokerage revenue to $1.5 billion$46.2 million, and a $2.8 million decrease in 2006 from $215.4fuel surcharge revenue. Excluding the impact of fuel surcharge revenue, first quarter revenue decreased $7.5 million in 1994,to $375.3 million, a compounded annual growth ratedecrease of 17.4%. Our growth has come through expansion of business with new and existing customers and complementary acquisitions. Our operating revenue increased 2.8%2.0% as compared to $400.3 million in the second quarter of 2007 from $389.5 million in the second quarter of 2006. We generated net income of $2.7 million, or $0.18 per diluted share, compared with net income of $5.7 million, or $0.37 per diluted share, in the prior-year period. For the first six months of 2007, the Company reported net income of $0.1 million, or $0.01 per diluted share, compared with net income of $6.5 million, or $0.42 per diluted share, for the prior year period.
Operating income for the first quarter of 2019 was $12.6 million compared to the $14.9 million achieved in the secondfirst quarter of 2007, includes2018. Excluding costs related to the following six strategictransition of our Mexico operations, first quarter Adjusted Operating Income was $16.0 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.”
We continue to see a limited supply of professional drivers which we believe will limit significant growth during 2019. As a result, we are continuing to focus on our driver centric initiatives, such as increased miles and modern equipment, to both retain the professional drivers who have chosen to partner with us and attract new professional drivers to our team. We will continue to focus on implementing and executing our initiatives that we expect will continue to drive sustainable improved performance over time.
During the balance of 2019, we remain positive as we expect the freight environment to improve seasonally, our network efficiency to rise as we complete the repositioning of equipment from cross-border lanes and the productivity of our operations to benefit from our many internal initiatives including our goal of achieving a frictionless order.
Reportable Segments
Our business units, eachis organized into two reportable segments, Truckload and Brokerage. Our Truckload segment offers truckload services, including over-the-road (“OTR”) trucking and dedicated contract services. Our OTR service offering transports a full trailer of whichfreight 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 is significantprincipally engaged in its market:
non‑asset‑based freight brokerage services, where loads are contracted third‑party carriers.
Truckload Segment
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 37.5% of our Truckload operating revenue, and approximately 38.0% of our Truckload revenue, before fuel surcharge, for 2018, 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, decreased slightly to $1.612 during the second quarter of 2007 from $1.616 in the second quarter of 2006. Average revenue per tractor per week, before fuel surcharge revenue, decreased to $2,996 during the second quarter of 2007 from $3,121 in the second 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 record an operating lease right of use asset and an operating lease liability on our consolidated balance sheet, and the lease payments in respect of such equipment are reflected in our consolidated statement of comprehensive income 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 finance leases and operating leases with individual decisions being based on competitive bids, tax projections and contractual restrictions. Because of the inverse relationship between vehicle rents and depreciation and amortization, we review both line items together.
Approximately 26.4% of our total tractor fleet was operated by independent contractors at March 31, 2019. 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 second 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 second 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 Income We define Adjusted Operating Income as revenue less operating expenses, net of Mexico transition costs. We believe our presentation of Adjusted Operating Income is useful because it provides investors and securities analysts the same information 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 calculating Adjusted Operating Income. 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.
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2019 | 2018 | |||||||
| Consolidated GAAP Presentation | (dollars in thousands) | |||||||
| Total operating revenue | $ | 415,363 | $ | 425,708 | ||||
| Total operating expenses | 402,725 | 410,854 | ||||||
| Operating Income | $ | 12,638 | $ | 14,854 | ||||
| Consolidated Non-GAAP Presentation | ||||||||
| Total operating revenue | $ | 415,363 | $ | 425,708 | ||||
| Fuel Surcharge | (40,051 | ) | (42,850 | ) | ||||
| Revenue, before fuel surcharge | 375,312 | 382,858 | ||||||
| Total operating expenses | 402,725 | 410,854 | ||||||
| Adjusted for: | ||||||||
| Fuel Surcharge | (40,051 | ) | (42,850 | ) | ||||
| Mexico transition costs | (3,400 | ) | – | |||||
| Adjusted total operating expenses | 359,274 | 368,004 | ||||||
| Adjusted Operating Income | $ | 16,038 | $ | 14,854 | ||||
Results of $2.0 million, compared to $1.7 million in the same period in 2006.Operations
Revenue
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 measures of revenue generation for our less-than-truckload business are average revenue per pound (excluding fuel surcharge revenue), total tonnage and number of loads hauled per day.
A summary of our agents to deliverrevenue generated by type for the freight. Expenses that have both fixedthree months ended March 31, 2019 and variable components include driver and dock related expenses, such2018 is as wages, benefits, training, and recruitment, maintenance and tire expense andfollows:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2019 | 2018 | |||||||
| (dollars in thousands) | ||||||||
| Revenue before fuel surcharge | $ | 375,312 | $ | 382,858 | ||||
| Fuel surcharge | 40,051 | 42,850 | ||||||
| Total operating revenue | $ | 415,363 | $ | 425,708 | ||||
For the quarter ended March 31, 2019, our total cost of insuranceoperating revenue decreased by $10.3 million, or 2.4%, compared to the same quarter in 2018, and claims. These expenses generally vary with the miles we travel and the tonnage of freight we handle, but also have a controllable component based on load factor, safety, fleet age, efficiency and other factors. Our main fixed costs include rentals and depreciation of long-term assets, such as revenue equipment and terminal facilities and the compensation of non-driver and non-dock worker personnel.
2018. The following table sets forthprimary factors driving the percentage relationships of expense items toincreases in total operating revenue and revenue, excludingbefore fuel surcharge, excluding our Mexico operations, were improved pricing in our Truckload segment combined with increased miscellaneous revenues, partially offset by decreased volumes and pricing in our Brokerage segment and decreased fuel surcharge revenues. While we are not seeing the same opportunities in the spot market in 2019 compared to 2018, we expect contract rates to continue to increase sequentially during the remainder of 2019 and to outpace cost inflation, absent changes in the macroeconomic environment.
A summary of our revenue generated by segment for eachthe three months ended March 31, 2019 and 2018 is as follows:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2019 | 2018 | |||||||
| (dollars in thousands) | ||||||||
| Truckload revenue, before fuel surcharge | $ | 329,068 | $ | 328,317 | ||||
| Fuel surcharge | 40,051 | 42,850 | ||||||
| Total Truckload revenue | 369,119 | 371,167 | ||||||
| Brokerage revenue | 46,244 | 54,541 | ||||||
| Total operating revenue | $ | 415,363 | $ | 425,708 | ||||
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 months ended March 31, 2019 and 2018. Average tractors, average company‑owned tractors and average independent contractor tractors exclude tractors in Mexico.
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2019 | 2018 | |||||||
| Over the road | ||||||||
| Average revenue per tractor per week | $ | 3,616 | $ | 3,850 | ||||
| Average revenue per mile | $ | 1.985 | $ | 1.972 | ||||
| Average revenue miles per tractor per week | 1,822 | 1,952 | ||||||
| Average tractors | 3,617 | 3,622 | ||||||
| Dedicated | ||||||||
| Average revenue per tractor per week | $ | 3,961 | $ | 3,544 | ||||
| Average revenue per mile | $ | 2.337 | $ | 2.183 | ||||
| Average revenue miles per tractor per week | 1,695 | 1,623 | ||||||
| Average tractors | 2,658 | 2,623 | ||||||
| Consolidated | ||||||||
| Average revenue per tractor per week | $ | 3,762 | $ | 3,721 | ||||
| Average revenue per mile | $ | 2.128 | $ | 2.051 | ||||
| Average revenue miles per tractor per week | 1,768 | 1,814 | ||||||
| Average tractors | 6,275 | 6,245 | ||||||
For the quarter ended March 31, 2019, our Truckload revenue, before fuel surcharge increased by $0.8 million, or 0.2%, compared to the same quarter in 2018. Excluding our Mexico operations, Truckload revenue before fuel surcharge increased $11.2 million or 3.6%. The primary factors driving the increase in Truckload revenue were a 3.8% increase in revenue per loaded mile due to increased contract rates, a slight increase in average available tractors, an increase of $8.5 million in miscellaneous revenue, partially offset by 2.5% decrease in average revenue miles per tractor. Fuel surcharge revenue decreased by $2.8 million, or 6.5%, to $40.1 million, compared with $42.9 million in the same quarter in 2018. The Department of Energy (“DOE”) national weekly average fuel price per gallon remained essentially constant for the quarter ended March 31, 2019 compared to the same quarter in 2018. The decrease in fuel surcharge revenue primarily relates to decreased revenue miles of 2.7% compared to the same quarter in 2018.
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 months ended March 31, 2019 and 2018.
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2019 | 2018 | |||||||
| Gross margin percentage | 17.5 | % | 14.0 | % | ||||
For the quarter ended March 31, 2019, our Brokerage revenue decreased by $8.3 million, or 15.2%, compared to the same quarter in 2018. The primary factors driving the decrease in Brokerage revenue were a 13.8% decrease in load count combined with a 1.6% decrease in average revenue per load. Average revenue per load decreased due to non-contracted spot rates declining more than 20.0%. We experienced an increase in our gross margin to 17.5% in the first quarter of 2019 compared to 14.0% in the same period of the periods indicated below. prior year as a result of sourcing third party capacity more efficiently.
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.
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 months ended March 31, 2019 and 2018:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2019 | 2018 | |||||||
| (dollars in thousands) | ||||||||
| Salaries, wages and benefits | $ | 124,563 | $ | 132,924 | ||||
| % of total operating revenue | 30.0 | % | 31.2 | % | ||||
| % of revenue, before fuel surcharge | 33.2 | % | 34.7 | % | ||||
For the quarter ended March 31, 2019, salaries, wages and benefits decreased $8.4 million, or 6.3%, compared with the same quarter in 2018. This decrease in absolute dollar terms was due primarily to $4.5 million of lower driver wages as our company driver miles decreased 12.6% as compared to the same quarter in 2018, due primarily to independent contractor miles comprising a greater percentage of our miles. Our OTR driver pay on a per mile basis increased as a result of higher incentive-based pay as compared to the same quarter in 2018. Our office wages decreased primarily due to the divesture of our Mexico business. During the three months ended March 31, 2019, our workers’ compensation expense and group health claims expense decreased approximately 21.4%, due to positive trends in our workers’ compensation claims, partially offset by increased group health claims expense as compared to the same quarter in 2018. 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.
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 months ended March 31, 2019 and 2018:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2019 | 2018 | |||||||
| (dollars in thousands) | ||||||||
| Fuel and fuel taxes | $ | 46,904 | $ | 58,389 | ||||
| % of total operating revenue | 11.3 | % | 13.7 | % | ||||
| % of revenue, before fuel surcharge | 12.5 | % | 15.3 | % | ||||
For the quarter ended March 31, 2019, fuel and fuel taxes decreased $11.5 million, or 19.7%, compared with the same quarter in 2018. The decrease in fuel and fuel taxes was primarily the result of a 12.6% decrease in company driver miles, a $2.5 million decrease due to the divesture of our Mexico business, and a 2.9% increase in our average miles per gallon compared to the same quarter in 2018. The average DOE fuel price per gallon remained essentially constant for the quarter ended March 31, 2019, compared to the same quarter in 2018.
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) 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 June 30, | (Revenue, before fuel surcharge) Three Months Ended June 30, | (Total operating revenue) Six Months Ended June 30, | (Revenue, before fuel surcharge) Six Months Ended June 30, | |||||||||||||||||||||||||||||
2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | |||||||||||||||||||||||||
Operating Revenue | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||||||||
Operating Expenses: | ||||||||||||||||||||||||||||||||
| Salaries, wages and benefits | 33.4 | 32.6 | 38.8 | 38.3 | 34.2 | 33.4 | 39.5 | 38.7 | ||||||||||||||||||||||||
| Fuel and fuel taxes | 23.2 | 22.9 | 10.7 | 9.5 | 22.7 | 22.6 | 11.0 | 10.2 | ||||||||||||||||||||||||
| Vehicle rents | 6.2 | 5.0 | 7.2 | 5.8 | 6.3 | 5.5 | 7.2 | 6.4 | ||||||||||||||||||||||||
| Depreciation and amortization, net of gain on sale | 4.9 | 4.1 | 5.7 | 4.8 | 5.1 | 4.0 | 5.9 | 4.7 | ||||||||||||||||||||||||
| Purchased transportation | 15.1 | 15.8 | 17.6 | 18.6 | 15.1 | 15.7 | 17.4 | 18.2 | ||||||||||||||||||||||||
| Operating expense and supplies | 6.1 | 6.4 | 7.1 | 7.5 | 6.3 | 6.4 | 7.3 | 7.4 | ||||||||||||||||||||||||
| Insurance premiums and claims | 4.0 | 4.2 | 4.6 | 4.9 | 4.1 | 4.3 | 4.7 | 5.0 | ||||||||||||||||||||||||
| Operating taxes and licenses | 1.1 | 1.1 | 1.3 | 1.3 | 1.2 | 1.2 | 1.3 | 1.3 | ||||||||||||||||||||||||
| Communications and utilities | 0.7 | 0.9 | 0.8 | 1.1 | 0.8 | 0.9 | 0.9 | 1.1 | ||||||||||||||||||||||||
| General and other operating | 2.7 | 2.9 | 3.2 | 3.4 | 2.8 | 3.0 | 3.2 | 3.5 | ||||||||||||||||||||||||
| Loss on sale and exit of business | 0.0 | 0.1 | 0.0 | 0.1 | 0.0 | 0.1 | 0.0 | 0.1 | ||||||||||||||||||||||||
| Total operating expenses | 97.4 | 96.0 | 97.0 | 95.3 | 98.6 | 97.1 | 98.4 | 96.6 | ||||||||||||||||||||||||
Income from Operations | 2.6 | 4.0 | 3.0 | 4.7 | 1.4 | 2.9 | 1.6 | 3.4 | ||||||||||||||||||||||||
| Interest expense, net | 1.4 | 1.2 | 1.6 | 1.4 | 1.4 | 1.1 | 1.7 | 1.3 | ||||||||||||||||||||||||
| Equity in (income) loss of affiliated companies | (0.1 | ) | 0.1 | (0.1 | ) | 0.1 | 0.0 | 0.1 | (0.1 | ) | 0.1 | |||||||||||||||||||||
| Minority interest | 0.0 | 0.1 | 0.0 | 0.1 | 0.0 | 0.1 | 0.0 | 0.1 | ||||||||||||||||||||||||
1.3 | 1.4 | 1.5 | 1.6 | 1.4 | 1.3 | 1.6 | 1.5 | |||||||||||||||||||||||||
| Income before income taxes | 1.3 | 2.6 | 1.5 | 3.1 | 0.0 | 1.6 | 0.0 | 1.9 | ||||||||||||||||||||||||
| Income tax provision | 0.6 | 1.1 | 0.7 | 1.3 | 0.0 | 0.7 | 0.0 | 0.8 | ||||||||||||||||||||||||
Net Income | 0.7 | % | 1.5 | % | 0.8 | % | 1.8 | % | 0.0 | % | 0.9 | % | 0.0 | % | 1.1 | % | ||||||||||||||||
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2019 | 2018 | |||||||
| (dollars in thousands) | ||||||||
| Fuel surcharge revenue | $ | 40,051 | $ | 42,850 | ||||
| Less: fuel surcharge revenue reimbursed to independent contractors | 10,480 | 7,956 | ||||||
| Company fuel surcharge revenue | 29,571 | 34,894 | ||||||
| Total fuel and fuel taxes | $ | 46,904 | $ | 58,389 | ||||
| Less: company fuel surcharge revenue | 29,571 | 34,894 | ||||||
| Net fuel expense | $ | 17,333 | $ | 23,495 | ||||
| % of total operating revenue | 4.2 | % | 5.5 | % | ||||
| % of revenue, before fuel surcharge | 4.6 | % | 6.1 | % | ||||
For the quarter ended March 31, 2019, net fuel expense decreased $6.2 million, or 26.2%, compared with the same quarter in 2018. During the quarter ended March 31, 2019, the decrease in net fuel expenses was primarily the result of a $2.5 million decrease due to the divesture of our Mexico business, 2.9% increase in average miles per gallon, and benefits increaseda decrease in the fuel surcharge per mile paid to 38.8%independent contractors. Independent contractors accounted for 25.4% of the three months ended June 30, 2007,average tractors available compared to 38.3% during17.5% in the same period in 2006.
Vehicle Rents and Depreciation and Amortization
Vehicle rents increased 27.5% to $24.6 million during consist primarily of payments for tractors and trailers financed with operating leases. The primary factors affecting this expense item include the three months ended June 30, 2007 compared to $19.3 million duringsize and age of our tractor and trailer fleets, the same period in 2006. This increase is duecost of new equipment and the relative percentage of owned versus leased equipment.
Depreciation and amortization consists primarily toof depreciation for owned tractors and trailers. The primary factors affecting these expense items include the increase insize and age of our tractor and trailer fleets, the average numbercost of tractors financed undernew equipment and the relative percentage of owned equipment and equipment acquired through debt or finance leases versus equipment leased through operating leases. We use a mix of finance leases and operating leases to 4,160 during the second quarter of 2007 compared to 3,200 for the same period in 2006. As a percentage offinance our revenue before fuel surcharge, vehicle rents increased to 7.2% for the three months ended June 30, 2007, compared to 5.8% during the same period in 2006.
Vehicle rents and depreciation and amortization excluding gain/losses, increased to $19.2 million duringare closely related because both line items fluctuate depending on the relative percentage of owned equipment and equipment acquired through finance 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 finance 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 months ended June 30, 2007March 31, 2019 and 2018:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2019 | 2018 | |||||||
| (dollars in thousands) | ||||||||
| Vehicle Rents | $ | 18,976 | $ | 20,022 | ||||
| Depreciation and amortization, net of (gains) losses on sale of property | 23,062 | 24,706 | ||||||
| Vehicle Rents and Depreciation and amortization of property and equipment | $ | 42,038 | $ | 44,728 | ||||
| % of total operating revenue | 10.1 | % | 10.5 | % | ||||
| % of revenue, before fuel surcharge | 11.2 | % | 11.7 | % | ||||
For the quarter ended March 31, 2019, vehicle rents decreased $1.0 million, or 5.2%, compared to $16.6 million during the same periodquarter in 2006. This increase2018. The decrease in vehicle rents was primarily due to a decrease in the short term trailer rentals and the divesture of our Mexico business as compared to the same quarter in 2018. Depreciation and amortization, net of (gains) losses on sale of property and equipment decreased $1.6 million, or 6.6%, compared to the same quarter in 2018. Over the balance of 2019, we currently plan to replace owned tractors with new owned tractors as they reach approximately 475,000 miles, and a portion of our leased tractors with owned equipment when their respective lease terminates. As a result of our 2019 replacement cycle, which is above normalized levels due to a large purchase of more fuel efficient tractors approximately four years ago, we expect the average age of our company tractor fleet will reduce from 28 months as of December 31, 2018 to approximately 18 months as we exit 2019. Our mix of owned and leased equipment may vary over time due to tax, financing and flexibility, among other factors.
Purchased Transportation
Purchased transportation consists of the payments we make to independent contractors, including fuel surcharge reimbursements paid to independent contractors, in partour Truckload segment, and payments to third‑party carriers in our Brokerage segment.
The following is a summary of our purchased transportation for the three months ended March 31, 2019 and 2018:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2019 | 2018 | |||||||
| (dollars in thousands) | ||||||||
| Purchased transportation | $ | 114,005 | $ | 101,776 | ||||
| % of total operating revenue | 27.4 | % | 23.9 | % | ||||
| % of revenue, before fuel surcharge | 30.4 | % | 26.6 | % | ||||
For the quarter ended March 31, 2019, purchased transportation increased equipment costs, an$12.2 million, or 12.0%, compared to the same quarter in 2018. The increase in owned tractors,purchased transportation was primarily due to a 45.9% increase in average independent contractors, a $2.5 million increase in fuel surcharge reimbursement to independent contractors, partially offset by an $8.3 million decrease in Brokerage revenue as compared to the same quarter in 2018.
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 the amortization of communication equipment. Asas a percentage of revenue, before fuel surcharge, depreciationas shown below:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2019 | 2018 | |||||||
| (dollars in thousands) | ||||||||
| Purchased transportation | $ | 114,005 | $ | 101,776 | ||||
| Less: fuel surcharge revenue reimbursed to independent contractors | 10,480 | 7,956 | ||||||
| Purchased transportation, net of fuel surcharge reimbursement | $ | 103,525 | $ | 93,820 | ||||
| % of total operating revenue | 24.9 | % | 22.0 | % | ||||
| % of revenue, before fuel surcharge | 27.6 | % | 24.5 | % | ||||
For the quarter ended March 31, 2019, purchased transportation, net of fuel surcharge reimbursement, increased $9.7 million, or 10.3%, compared to the same quarter in 2018. This increase was primarily due to the 45.9% increase in average independent contractors, partially offset by the $8.3 million decrease in Brokerage revenue compared to the same quarter in 2018. This expense category will fluctuate with the number and amortizationpercentage of loads hauled by independent contractors and third‑party carriers, as well as the amount of fuel surcharge revenue passed through to independent contractors. If industry‑wide trucking capacity continues to tighten in relation to freight demand, we may need to increase the amounts we pay to third‑party carriers and independent contractors, which could increase this expense category on an absolute basis and as a percentage of total operating revenue and revenue, before fuel surcharge, absent an offsetting increase in revenue. Our recent success in growing our lease-purchase program and independent contractor drivers have contributed to increased purchased transportation expense. If we are successful in continuing these efforts, we would expect this line item to 5.7%increase as a percentage of total operating revenue and revenue, before fuel surcharge.
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 three months ended June 30, 2007, compared to 4.8% duringMarch 31, 2019 and 2018:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2019 | 2018 | |||||||
| (dollars in thousands) | ||||||||
| Operating expenses and supplies | $ | 27,945 | $ | 29,791 | ||||
| % of total operating revenue | 6.7 | % | 7.0 | % | ||||
| % of revenue, before fuel surcharge | 7.4 | % | 7.8 | % | ||||
For the same period in 2006, primarily due to lower revenue per tractor per week less effectively covering these costs.
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 premiums. The primary factors affecting our insurance premiums and claims 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 increase 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. We renewed our liability insurance policies on September 1, 2018 and reduced our deductible to $3.0 million per occurrence.
The following is a summary of our insurance premiums and claims expense for the three months ended March 31, 2019 and 2018:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2019 | 2018 | |||||||
| (dollars in thousands) | ||||||||
| Insurance premiums and claims | $ | 24,353 | $ | 20,170 | ||||
| % of total operating revenue | 5.9 | % | 4.7 | % | ||||
| % of revenue, before fuel surcharge | 6.5 | % | 5.3 | % | ||||
For the quarter ended March 31, 2019, insurance premiums and claims increased $4.2 million, or 20.7%, compared to the same quarter in 2018. Insurance premiums and claims increased primarily due to increased physical damage and liability claims primarily as a result of adverse weather in the first quarter of 2019 as compared to the same quarter in 2018. We do not expect our insurance and claims experience in the first quarter of 2019 to be ongoing. During the fourth quarter of 2017, we began installing event recorders on our tractors, and we had installed event recorders in substantially all of our tractors in our fleet as of the second quarter of 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.
Interest
Interest expense consists of cash 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 months ended March 31, 2019 and 2018:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2019 | 2018 | |||||||
| (dollars in thousands) | ||||||||
| Interest expense, excluding non-cash items | 5,444 | 11,835 | ||||||
| Original issue discount and deferred financing amortization | 159 | 871 | ||||||
| Purchase commitment interest | - | (48 | ) | |||||
| Interest expense, net | $ | 5,603 | $ | 12,658 | ||||
For the quarter ended March 31, 2019, interest expense decreased 1.8%$7.1 million, primarily due to $16.0decreased equipment and revolver borrowings combined with lower interest rates related to our term loan compared to the same quarter in 2018. Based on the repayment of our prior credit arrangements in connection with the IPO, along with the entry into our existing Credit Facility, we expect our interest expense to approximate $22.0 million for 2019.
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 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 least 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 reflected as net capital expenditures. The availability of financing and equity capital will depend upon our financial condition and results of operations as well as prevailing market conditions.
At March 31, 2019, we had approximately $31.7 million of outstanding letters of credit, $0 in outstanding borrowings and $118.3 million of availability under our $150.0 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 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 agent’s prime rate plus an applicable margin that was 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 was 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 a commitment fee on the unused portion of the Revolving Facility commitment of between 0.25% and 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 Term Facility has scheduled quarterly principal payments between 1.25% and 2.50% of 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 occurring on the last day of our fiscal quarter ending September 30, 2018. The Credit Facility will mature on June 18, 2023.
Borrowings under the Credit Facility are prepayable at 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, 2019, the Revolving Facility had issued collateralized letters of credit in the face amount of $31.7 million, with $0 borrowings outstanding and $118.3 million available to borrow and the Term Facility had $192.5 million outstanding.
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 March 31, 2019, the Company was in compliance with all financial covenants prescribed by the Credit Facility.
Cash Flows
Our summary statements of cash flows for the three months ended March 31, 2019 and 2018 are set forth in the table below:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2019 | 2018 | |||||||
| (dollars in thousands) | ||||||||
| Net cash provided by (used in) operating activities | $ | 25,479 | $ | (1,863 | ) | |||
| Net cash used in investing actitivies | $ | (32,491 | ) | $ | (18,695 | ) | ||
| Net cash provided by (used in) financing activities | $ | (12,569 | ) | $ | 15,496 | |||
Operating Activities
For the three months ended March 31, 2019, we generated cash flows from operating activities of $25.5 million, an increase of $27.3 million compared to the same period in 2018. The increase was due primarily to a $2.5 million increase in net income adjusted for noncash items, and a $24.9 million decrease in our operating assets and liabilities. The increase in net income adjusted for noncash items was primarily attributable to a 3.8% increase in revenue per loaded mile, improved operating performance at our Brokerage segment and lower interest expense in the three months ended March 31, 2019 as compared to the same period in 2018, partially offset by increased insurance premiums and claims expense. Our operating assets and liabilities decreased $24.9 million during the three months ended June 30, 2007March 31, 2019 as compared to $16.3 million during the same period in 2006. This decrease is2018, due primarilyin part to a reduction in liability claims expense partially offset by an increase in physical damage claims. As a percentageincreased accounts receivable collections, and decreased payments for accounts payable and other accrued liabilities related to timing of revenue, before fuel surcharge, insurance and claims decreased to 4.6% duringpayments.
Investing Activities
For the three months ended June 30, 2007,March 31, 2019, net cash flows used in investing activities were $32.5 million, an increase of $13.8 million compared to 4.9% during 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-wide increase in insurance premium rates. Refer 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 type and severity of individual claims and future development based on historical trends. Insurance premiums and claims expense will fluctuate based on claims experience, premium rates, and self-insurance retention levels.
Working Capital
As of March 31, 2019, we had a working capital deficit of $41.6 million, during the six months ended June 30, 2007 compared to $37.7representing an $8.0 million during the same period in 2006. This increase is due primarily to the addition of vehicle rents for Arnold and Total in the amount of $10.6 million for six months ended June 30, 2007 compared to $4.6 million for four months ended June 30, 2006 and an increase in the average number of tractors financed under operating leases to 4,130 compared to 3,247 during the same period in 2006. As a percentage of revenue, before fuel surcharge, vehicle rents increased to 7.2% during the six months ended June 30, 2007 compared to 6.4% during the same period in 2006.
Working capital deficits are common to many trucking companies that operate by financing revenue equipment purchases due to the winding down of a large tractor purchase commitment in 2006 ahead of new engine requirements in 2007.
We use non-cancelableleased approximately 2,100 tractors and 7,900 trailers under operating leases as aat March 31, 2019. Operating leases have been an important source of financing for our revenue and service equipment, office and terminal facilities, automobiles, and airplanes. In making the decision to finance through long-term debt or by entering into non-cancelable lease agreements, we consider interest rates, capital requirements, and the tax advantages of leasing versus owning. At June 30, 2007, a substantial portion of our off-balance sheet arrangements related to non-cancelable leases for revenue equipment and office and terminal facilities with termination dates ranging from July 2007 to March 2014.equipment. Lease payments on office and terminal facilities, automobiles, and airplanes are included in general and other operating expenses, lease payments on servicerespect of such equipment are includedreflected in operating expense and supplies, and lease payments on revenue equipment are included in vehicle rents in theour unaudited condensed consolidated statements of operations, respectively. Rental expense related to our off-balance sheet arrangements was $26.9 million for the three months ended June 30, 2007. The remaining lease obligations as of June 30, 2007 were $284.5 million, with $96.9 million duecomprehensive income in the next twelve months.
line item “Vehicle rents.” Our revenue equipment rental expense including short term rentals was $19.0 million in the first quarter of 2019, compared with $20.0 million in the first quarter of 2018. The lease terms 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 amount under certain circumstancesvalue at the end of the lease term. The maximum potential amount of future payments (undiscounted) under these guarantees is approximately $30.9$27.6 million at June 30, 2007.as of March 31, 2019. The residual value of a portion of the related leased revenuetractor equipment is covered by repurchase or trade agreements in principle between theus and equipment manufacturer and us. Management estimatesmanufacturers. We expect the fair market value of the guaranteedequipment at the end of the lease term will be approximately equal to the residual values for leased revenue equipment to be immaterial. Accordingly, we have no guaranteed liabilities accrued in the accompanying consolidated balance sheets.value.
Seasonality
In the trucking industry, results of operations generally show a seasonal patternrevenue has historically decreased as customers increase shipments prior to and reduce shipments during and afterfollowing the winter holiday season. Additionally, shipments can be adversely impacted by winterseason and as inclement weather conditions. Ourimpedes operations. At the same time, operating expenses have historically been higher in the winter months due primarily to decreasedgenerally increased, with fuel efficiency increased maintenance costsdeclining because of revenueengine idling and weather, causing more physical damage equipment repairs and insurance claims and costs. For the reasons stated, first quarter results historically have been lower than results in colder weathereach of the other three quarters of the year. Over the past several years, we have seen increases in demand at varying times, including surges between Thanksgiving and increased insurancethe year‑end holiday season.
Contractual Obligations
During the three months ended March 31, 2019, there were no material changes in our commitments or contractual obligations.
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. We adopted ASC 842, Leases, on January 1, 2019. See Note 2, Summary of Significant Accounting Policies, to our condensed consolidated financial statements included under Part 1, Item 1 of this report. There have been no other significant changes to our accounting policies since revenue is directly related to available working days of shippers.
the disclosures made in our Annual Report on Form 10-K for the year ended December 31, 2018.
Our market risk is affected by changes in interest rates. Historically, werisks have used a combination of fixed rate and variable rate obligations to manage our interest rate exposure. Fixed interest rate obligations expose us to the risk that interest rates might fall. Variable interest rate obligations expose us to the risk that interest rates might rise.
Evaluation of Disclosure Controls and Procedures
Our management, including our Chief Executive Officer (“CEO”) and our revolving credit facility. We are exposed to fixed interest rate risk principally from equipment notes and mortgages. At June 30, 2007, we had borrowings totaling $337.6 million, comprising $31.6 million of variable rate borrowings and $306.0 million of fixed rate borrowings. Holding other variables constant (such as borrowing levels)Chief Financial Officer (“CFO”), the earnings impact of a one-percentage point increase/decrease in interest rates would not have a material impact on our consolidated statements of operations.
Material Weaknesses in Internal Control over Financial Reporting as of December 31, 2018
As described in our Annual Report on Form 10-K for the endyear ended December 31, 2018, during the course of preparing for our IPO, we identified material weaknesses in our internal control over financial reporting, some of which continue to exist as of March 31, 2019. 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 coveredTreadway 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; (ii) ineffective design of controls over income tax accounting; and (iii) insufficient evidential matter to support design of our controls. These deficiencies did not result in a material misstatement to our annual or interim consolidated financial statements. However, 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.
Remediation of a Component of a Previously Disclosed Material Weakness
The material weakness related to the ineffective design of information technology general controls with respect to program management, change management computer operations and user access also included a component related to inappropriate segregation of duties with respect to creating and posting journal entries. We have remediated the component of the material weakness related to segregation of duties over creating and posting journal entries by this report. Theredesigning, implementing, and testing controls to ensure that journal entries posted into the general ledger are reviewed by a separate individual, thus resulting in proper segregation of duties.
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 information technology general controls 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 and new controls related to our adoption of ASC 842, Leases, there were no changes in our internal control over financial reporting that occurred during the period covered by this reportquarter ended March 31, 2019 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.
PART II OTHER INFORMATION
We are involved in various other litigation and claims primarily arising in the normal course of business, which include claims for personal injury or property damage incurred in the transportation of freight. Our insurance program for liability, physical damage and cargo damage involves varying risk retention levels. Claims in excess of these risk retention levels are covered by insurance in amounts that management considers to be adequate. Based on its knowledge of the facts and, in certain cases, advice of outside counsel, management believes the resolution of claims and pending litigation, taking into account existing reserves, will not have a materially adverse effect on us. Information relating to legal proceedings is included in Note 7 to our unaudited condensed consolidated financial statements, and is incorporated herein by reference.
While we attempt to identify, manage, and mitigate risks and uncertainties associated with our business, some level of risk and uncertainty will always be present. Our Annual Report on Form 10-K for the year ended December 31, 2006 (“2006 Form 10-K”),2018, in the section entitled “Item"Item 1A. Risk Factors,,”" describes some of the risks and uncertainties associated with our business. These risks and uncertainties have the potential to materially affect our business, financial condition, results of operations, cash flows, projected results, and future prospects. In addition to the risk factors set forth on our Form 10-K, we believe that the following additional issues, uncertainties, and risks, should be considered in evaluating our business and growth outlook:
The payment of cash dividends is currently limited by our financing arrangements, including certain covenants under the Plan. As any future repurchases would likely be funded from cash flow from operations and/or possible borrowings under the Company’s credit arrangement, such repurchasing of shares could reduce the amount of cash on hand or increase debt, and reduce the Company’s liquidity.Credit Facility.
Not applicable.
ITEM 4.The current trading price for our Class A common stock is above the trading price prior to the Mountain Lake Acquisition Company (“MLAC“) announcement of the contemplated "going private" transaction and above the priceat which the stockmight otherwise trade. There can be no assurance such transaction will close.MINE SAFETY DISCLOSURES
Not applicable.
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) | ||||||||||||
| April 1, 2007 – April 30, 2007 | - | $ | - | - | $ | 11,282,399 | ||||||||||
| May1, 2007 – May 31, 2007 | - | - | - | 11,282,399 | ||||||||||||
| June 1, 2007 – June 30, 2007 | - | - | - | 11,282,399 | ||||||||||||
Total | - | $ | - | - | $ | 11,282,399 | ||||||||||
Votes FOR | Votes WITHHELD | ABSTENTIONS | ||||||||||
| Patrick E. Quinn | 16,297,346 | 495,495 | 0 | |||||||||
| Max L. Fuller | 16,368,714 | 424,127 | 0 | |||||||||
| James E. Hall | 16,511,715 | 281,126 | 0 | |||||||||
| John W. Murrey, III | 16,429,848 | 362,993 | 0 | |||||||||
| Robert J. Sudderth, Jr. | 16,511,015 | 281,826 | 0 | |||||||||
Description |
| 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). | ||
10.1*# | The Executive Nonqualified Excess Plan Adoption Agreement. | |
31.1# | Certification pursuant to | |
| by Eric Fuller, the Company's Principal Executive Officer | ||
31.2# | Certification pursuant to | |
| 2002, by Eric Peterson, the Company's Principal Financial Officer | ||
32.1## | 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 | ||
32.2## | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of | |
| 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 |
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: May 7, 2019 | By: | /s/ Eric Peterson | |
Chief Financial Officer | |||