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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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, 2020

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                        to

Commission File Number: 001-38528

Graphic

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 No.)

or organization)

4080 Jenkins Road

Chattanooga, Tennessee

37421

(Address of principal executive offices)

(Zip Code)

(423) 510-3000

(Registrant’s telephone number, including area code)

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 by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

No

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

No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer 

Accelerated filer

Non-accelerated filer   

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date July 31, 2020.

Class A Common Stock, $0.01 par value: 33,936,199

Class B Common Stock, $0.01 par value: 15,667,095

Table of Contents

TABLE OF CONTENTS

PART I
FINANCIAL INFORMATION

Page
Number

Item 1.

Unaudited Condensed Consolidated Financial Statements Three and Six Months Ended June 30, 2020 and 2019

Unaudited Condensed Consolidated Balance Sheets

3

Unaudited Condensed Consolidated Statements of Comprehensive Income

4

Unaudited Condensed Consolidated Statements of Cash Flows

5

Unaudited Condensed Consolidated Statement of Stockholders’ Equity

6

Notes to Unaudited Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

36

Item 4.

Controls and Procedures

36

PART II
OTHER INFORMATION

Page
Number

Item 1.

Legal Proceedings

37

Item 1A.

Risk Factors

37

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

38

Item 3.

Defaults Upon Senior Securities

38

Item 4.

Mine Safety Disclosures

38

Item 5.

Other Information

38

Item 6.

Exhibits

38

Page 2

Table of Contents

U.S. Xpress Enterprises, Inc.

Unaudited Condensed Consolidated Balance Sheets

June 30, 2020 and December 31, 2019

June 30, 

December 31, 

(in thousands, except share amounts)

    

2020

    

2019

Assets

 

  

 

  

Current assets

 

  

 

  

Cash and cash equivalents

$

1,326

$

5,687

Customer receivables, net of allowance of $207 and $63 at June 30, 2020 and December 31, 2019, respectively

 

185,035

 

183,706

Other receivables

 

16,573

 

15,253

Prepaid insurance and licenses

 

9,392

 

11,326

Operating supplies

 

7,950

 

7,193

Assets held for sale

 

12,715

 

17,732

Other current assets

 

14,553

 

15,831

Total current assets

 

247,544

 

256,728

Property and equipment, at cost

 

912,264

 

880,101

Less accumulated depreciation and amortization

 

(400,641)

 

(388,318)

Net property and equipment

 

511,623

 

491,783

Other assets

 

  

 

  

Operating lease right of use assets

 

277,362

 

276,618

Goodwill

 

59,221

 

57,708

Intangible assets, net

 

26,364

 

27,214

Other

 

31,327

 

30,058

Total other assets

 

394,274

 

391,598

Total assets

$

1,153,441

$

1,140,109

Liabilities and Stockholders' Equity

 

  

 

  

Current liabilities

 

  

 

  

Accounts payable

$

72,459

$

68,918

Book overdraft

 

4,945

 

1,313

Accrued wages and benefits

 

26,970

 

24,110

Claims and insurance accruals, current

 

48,881

 

51,910

Other accrued liabilities

 

6,642

 

9,127

Current portion of operating lease liabilities

 

70,438

 

69,866

Current maturities of long-term debt and finance leases

 

87,106

 

80,247

Total current liabilities

 

317,441

 

305,491

Long-term debt, net of current maturities

 

295,858

 

315,797

Less unamortized discount and debt issuance costs

 

(335)

 

(1,223)

Net long-term debt

 

295,523

 

314,574

Deferred income taxes

 

20,993

 

20,692

Other long-term liabilities

 

12,325

 

5,249

Claims and insurance accruals, long-term

 

60,306

 

56,910

Noncurrent operating lease liabilities

 

206,616

 

206,357

Commitments and contingencies (Note 6)

 

 

Stockholders' Equity

Common stock Class A, $.01 par value, 140,000,000 shares authorized at June 30, 2020 and December 31, 2019, respectively, 33,697,907 and 33,314,141 issued and outstanding at June 30, 2020 and December 31, 2019, respectively

 

336

 

333

Common stock Class B, $.01 par value, 35,000,000 authorized at June 30, 2020 and December 31, 2019, respectively, 15,807,095 and 15,687,101 issued and outstanding at June 30, 2020 and December 31, 2019, respectively

 

158

 

157

Additional paid-in capital

 

258,557

 

250,700

Accumulated deficit

 

(20,700)

 

(20,982)

Stockholders' equity

 

238,351

 

230,208

Noncontrolling interest

 

1,886

 

628

Total stockholders' equity

 

240,237

 

230,836

Total liabilities and stockholders' equity

$

1,153,441

$

1,140,109

See Notes to Unaudited Condensed Consolidated Financial Statements

Page 3

Table of Contents

U.S. Xpress Enterprises, Inc.

Unaudited Condensed Consolidated Statements of Comprehensive Income

Three and Six Months Ended June 30, 2020 and 2019

Three Months Ended

Six Months Ended

June 30, 

June 30, 

(in thousands, except per share amounts)

    

2020

    

2019

    

2020

    

2019

Operating revenue

 

  

 

  

 

  

 

  

Revenue, before fuel surcharge

$

393,964

$

371,184

$

786,784

$

746,496

Fuel surcharge

 

28,513

 

42,678

 

68,261

 

82,729

Total operating revenue

 

422,477

 

413,862

 

855,045

 

829,225

Operating expenses

 

  

 

  

 

  

 

  

Salaries, wages, and benefits

 

139,987

 

130,521

 

275,381

 

255,084

Fuel and fuel taxes

 

29,874

 

47,374

 

70,197

 

94,278

Vehicle rents

 

21,335

 

18,579

 

43,212

 

37,555

Depreciation and amortization, net of (gain) loss on sale of property

 

26,283

 

24,752

 

52,086

 

47,814

Purchased transportation

 

117,366

 

112,579

 

247,120

 

226,584

Operating expenses and supplies

 

28,126

 

29,968

 

57,800

 

57,913

Insurance premiums and claims

 

21,283

 

19,266

 

47,306

 

43,619

Operating taxes and licenses

 

3,720

 

3,406

 

7,397

 

6,579

Communications and utilities

 

2,256

 

2,185

 

4,708

 

4,450

General and other operating expenses

 

15,970

 

17,115

 

37,229

 

34,594

Gain on sale of subsidiary

(670)

(670)

Total operating expenses

 

406,200

 

405,075

 

842,436

 

807,800

Operating income

 

16,277

 

8,787

 

12,609

 

21,425

Other expense (income)

 

  

 

  

 

  

 

  

Interest expense, net

 

4,862

 

5,296

 

10,283

 

10,899

Loss on sale of equity method investment

2,000

Equity in loss of affiliated companies

 

 

90

 

 

179

Other, net

 

 

 

 

26

 

4,862

 

5,386

 

12,283

 

11,104

Income before income tax provision

 

11,415

 

3,401

 

326

 

10,321

Income tax provision

 

2,387

 

415

 

530

 

2,316

Net total and comprehensive income (loss)

 

9,028

 

2,986

 

(204)

 

8,005

Net total and comprehensive income (loss) attributable to noncontrolling interest

 

(470)

 

314

 

(486)

 

612

Net total and comprehensive income attributable to controlling interest

$

9,498

$

2,672

$

282

$

7,393

Earnings per share

 

  

 

  

 

  

 

  

Basic earnings per share

$

0.19

$

0.05

$

0.01

$

0.15

Basic weighted average shares outstanding

 

49,499

 

48,742

 

49,358

 

48,569

Diluted earnings (loss) per share

$

0.18

$

0.05

$

(0.00)

$

0.15

Diluted weighted average shares outstanding

 

50,215

 

49,312

 

49,518

 

49,184

See Notes to Unaudited Condensed Consolidated Financial Statements

Page 4

Table of Contents

U.S. Xpress Enterprises, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

Six Months Ended June 30, 2020 and 2019

Six Months Ended

June 30, 

(in thousands)

    

2020

    

2019

Operating activities

 

  

 

  

Net income (loss)

$

(204)

$

8,005

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

  

Deferred income tax provision

 

301

 

1,824

Depreciation and amortization

 

45,683

 

44,401

Losses on sale of equipment

 

6,403

 

3,413

Share based compensation

 

2,000

 

1,880

Other

 

2,967

 

572

Gain on sale of subsidiary

(670)

Changes in operating assets and liabilities, net of acquisitions:

 

 

  

Receivables

 

(3,027)

 

5,320

Prepaid insurance and licenses

 

1,933

 

612

Operating supplies

 

95

 

72

Other assets

 

1,085

 

(3,288)

Accounts payable and other accrued liabilities

 

11,822

 

(2,167)

Accrued wages and benefits

 

2,738

 

(2,401)

Net cash provided by operating activities

 

71,796

 

57,573

Investing activities

 

  

 

  

Payments for purchases of property and equipment

 

(87,270)

 

(105,137)

Proceeds from sales of property and equipment

 

24,101

 

23,041

Other

(1,880)

Sale of subsidiary, net of cash

 

 

(8,259)

Net cash used in investing activities

 

(65,049)

 

(90,355)

Financing activities

 

  

 

  

Borrowings under lines of credit

 

180,254

 

10,700

Payments under lines of credit

 

(180,254)

 

(9,900)

Borrowings under long-term debt

 

183,662

 

65,704

Payments of long-term debt and finance leases

 

(196,742)

 

(51,936)

Payments of financing costs and original issue discount

 

(1,276)

 

Payments of long-term consideration for business acquisition

 

(1,000)

 

(990)

Tax withholding related to net share settlement of restricted stock awards

 

(93)

 

(44)

Proceeds from issuance of common stock under ESPP

420

Purchase of noncontrolling interest

(8,659)

Proceeds from long-term consideration for sale of subsidiary

 

290

 

Book overdraft

 

3,631

 

9,791

Net cash (used in) provided by financing activities

 

(11,108)

 

14,666

Cash included in assets held for sale

 

 

11,784

Net change in cash and cash equivalents

 

(4,361)

(6,332)

Cash and cash equivalents

 

 

  

Beginning of year

 

5,687

 

9,892

End of period

$

1,326

$

3,560

Supplemental disclosure of cash flow information

 

  

 

  

Cash paid during the year for interest

$

9,222

$

10,622

Cash paid during the year for income taxes

 

160

 

252

Supplemental disclosure of significant noncash investing and financing activities

 

  

 

  

Subsidiary stock issued in business combination

$

7,278

$

Debt obligations relieved in conjunction with the divesture of Xpress Internacional

7,109

Property and equipment amounts accrued in accounts payable

1,245

See Notes to Unaudited Condensed Consolidated Financial Statements

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U.S. Xpress Enterprises, Inc.

Unaudited Condensed Consolidated Statement of Stockholders' Equity

Three and Six Months Ended June 30, 2020 and 2019

Additional

Non

Total

Class A

Class B

Paid

Accumulated

Controlling

Stockholders'

(in thousands, except share amounts)

    

Stock

    

Stock

    

In Capital

    

Deficit

    

Interest

    

Equity

Balances at December 31, 2019

$

333

$

157

$

250,700

$

(20,982)

$

628

$

230,836

Share based compensation

 

 

 

836

 

 

 

836

Vesting of restricted units

 

1

 

1

 

(93)

 

 

 

(91)

Issuance of common stock under ESPP

1

419

420

Net loss

 

 

 

 

(9,216)

 

(16)

 

(9,232)

Balances at March 31, 2020

335

158

251,862

(30,198)

612

222,769

Share based compensation

 

1,164

 

1,164

Vesting of restricted units

 

1

(3)

 

(2)

Issuance of subsidiary shares in business combination

 

5,534

1,744

 

7,278

Net income (loss)

9,498

(470)

9,028

Balances at June 30, 2020

$

336

$

158

$

258,557

$

(20,700)

$

1,886

$

240,237

Additional

Non

Total

Class A

Class B

Paid

Accumulated

Controlling

Stockholders'

(in thousands, except share amounts)

    

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 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

Share based compensation

 

1,024

 

1,024

Vesting of restricted stock

3

1

(10)

(6)

Purchase of noncontrolling interest

(5,187)

(3,472)

(8,659)

Net income

 

2,672

314

 

2,986

Balances at June 30, 2019

$

332

$

157

$

248,386

$

(9,942)

$

636

$

239,569

See Notes to Unaudited Condensed Consolidated Financial Statements

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U.S. Xpress Enterprises, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

June 30, 2020

1.        Organization and Operations

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, 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.

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.        Summary of Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements include 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 affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, 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 results of the interim periods presented, such adjustments being of a normal recurring nature.

Certain information and footnote disclosures have been condensed or omitted pursuant to such rules and regulations. The December 31, 2019 balance sheet was derived from our audited balance sheet as of that date. The Company’s operating results are subject to seasonal trends when measured on a quarterly basis; therefore operating results for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2019.

Recently Issued Accounting Standards

On December 18, 2019, the FASB issued Accounting Standards Update (“ASU”) 2019-12, which modifies Accounting Standards Codification (“ASC”) 740 to simplify the accounting for income taxes. The amendments in ASU 2019-12 are effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods therein. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. The Company has not early adopted this guidance and will continue to evaluate the impact on its financial statements.

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Recently Adopted Accounting Standards

In June 2016, the FASB issued ASU No. 2016-13 Financial Instruments-Credit Losses (Topic 326) amending how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance requires the application of a current expected credit loss model, which is a new impairment model based on expected losses. We adopted ASU 2016-13 effective January 1, 2020 and the application of this guidance did not have a material impact on our financial statements.

In January 2017, the FASB issued ASU 2017-04, “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” which eliminates Step 2 from the goodwill impairment testing process. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. Under the new standard, a goodwill impairment loss is measured as the excess of the carrying value of a reporting unit over its fair value. We adopted ASU 2017-04 effective January 1, 2020 and the application of this guidance did not have a material impact on our financial statements.

3.        Income Taxes

The Company’s provision for income taxes for the three and six months ended June 30, 2020 and 2019 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 and six months ended June 30, 2020 and 2019 (in thousands):

Three Months Ended

Six Months Ended

 

June 30, 

June 30, 

 

    

2020

    

2019

    

2020

    

2019

 

Income before income tax provision

$

11,415

$

3,401

$

326

$

10,321

Income tax provision

 

2,387

 

415

 

530

 

2,316

Effective tax rate

20.9

%  

12.2

%  

162.6

%  

 

22.4

%  

The difference between the Company’s effective tax rate for the three and six months ended June 30, 2020 and 2019 and the US statutory rate of 21% primarily relates to nondeductible expenses, federal income tax credits, state income taxes (net of federal benefit), a net increase in valuation allowances and certain discrete items.

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4.        Long-Term Debt

Long-term debt at June 30, 2020 and December 31, 2019 consists of the following (in thousands):

    

June 30, 2020

    

December 31, 2019

Line of credit, maturing January 2025

$

$

Term loan agreement, interest rate of 4.3% at December 31, 2019, terminated January 2020

150,000

Revenue equipment installment notes with finance companies, weighted average interest rate of 4.4% and 4.7% at June 30, 2020 and December 31, 2019, due in monthly installments with final maturities at various dates through March 2027, secured by related revenue equipment with a net book value of $346.3 million and $220.4 million at June 30, 2020 and December 31, 2019

346,600

208,252

Mortgage note payables, interest rates ranging from 4.17% to 6.99% at June 30, 2020 and December 31, 2019 due in monthly installments with final maturities at various dates through September 2031, secured by real estate with a net book value of $32.6 million and $20.2 million at June 30, 2020 and December 31, 2019

 

26,641

 

17,776

Other

 

1,893

 

8,795

 

375,134

 

384,823

Less: Debt issuance costs

 

(335)

 

(1,223)

Less: Current maturities of long-term debt

 

(82,774)

 

(75,596)

$

292,025

$

308,004

Credit Facility

On January 28, 2020, we entered into a new credit facility (the “Credit Facility”) and contemporaneously with the funding of the Credit Facility paid off obligations under our then existing credit facility and terminated such facility. The Credit Facility is a $250.0 million revolving credit facility, with an uncommitted accordion feature that, so long as no event of default exists, allows the Company to request an increase in the revolving credit facility of up to $75.0 million.

The Credit Facility is a five-year facility scheduled to terminate on January 28, 2025.  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 highest of (A) the Federal Funds Rate plus 0.50%, (B) the Agent’s prime rate, and (C) LIBOR plus 1.00% plus an applicable margin that is set at 0.50% through June 30, 2020 and adjusted quarterly thereafter between 0.25% and 0.75% based on the ratio of the daily average availability under the Credit Facility to the daily average of the lesser of the borrowing base or the revolving credit facility.  Eurodollar rate loans accrue interest at LIBOR plus an applicable margin that is set at 1.50% through June 30, 2020 and adjusted quarterly thereafter between 1.25% and 1.75% based on the ratio of the daily average availability under the Credit Facility to the daily average of the lesser of the borrowing base or the revolving credit facility.  The Credit Facility includes, within its $250.0 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 $25.0 million.  An unused line fee of 0.25% is applied to the average daily amount by which the lenders’ aggregate revolving commitments exceed the outstanding principal amount of revolver loans and aggregate undrawn amount of all outstanding letters of credit issued under the Credit Facility.  The Credit Facility is secured by a pledge of substantially all of the Company’s assets, excluding, among other things, any real estate or revenue equipment financed outside the Credit Facility.

Borrowings under the new Credit Facility are subject to a borrowing base limited to the lesser of (A) $250.0 million; or (B) the sum of (i) 87.5% of eligible billed accounts receivable, plus (ii) 85.0% of eligible unbilled accounts receivable (less than 30 days), plus (iii) 85.0% of the net orderly liquidation value percentage applied to the net book value of eligible revenue equipment, plus (iv) the lesser of (a) 80.0% the fair market value of eligible real estate or (b) $25.0 million. The Credit Facility contains a single springing financial covenant, which requires a

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consolidated fixed charge coverage ratio of at least 1.0 to 1.0. The financial covenant is tested only in the event excess availability under the Credit Facility is less than the greater of (A) 10.0% of the lesser of the borrowing base or revolving credit facility or (B) $20.0 million

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.  The Credit Facility contains certain restrictions and covenants relating to, among other things, dividends, liens, acquisitions and dispositions, affiliate transactions, and other indebtedness.

At June 30, 2020, the Credit Facility had issued collateralized letters of credit in the face amount of $32.7 million, with $0 borrowings outstanding and $139.1 million available to borrow.

At June 30, 2020, the Company was in compliance with the financial covenant prescribed by the Credit Facility.

5.        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

    

June 30, 2020

Assets

 

  

 

  

Operating

 

Operating lease right-of-use assets

$

277,362

Finance

 

Property and equipment, net

 

9,123

Total leased assets

 

  

$

286,485

Liabilities

 

  

 

  

Current

 

  

 

  

Operating

 

Current portion of operating lease liabilities

$

70,438

Finance

 

Current maturities of long-term debt and finance leases

 

4,332

Noncurrent

 

  

 

Operating

 

Noncurrent operating lease liabilities

 

206,616

Finance

 

Long-term debt and finance leases, net of current maturities

 

3,498

Total lease liabilities

 

  

$

284,884

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The table below presents certain information related to the lease costs for finance and operating leases (in thousands):

Three Months Ended

Six Months Ended

June 30, 

June 30, 

Lease Cost

    

Classification

    

2020

    

2019

 

2020

    

2019

Operating lease cost

 

Vehicle rents and General and other operating

$

21,628

$

19,072

$

43,543

$

39,239

Finance lease cost:

 

  

 

  

 

  

 

  

 

  

Amortization of finance lease assets

 

Depreciation and amortization

 

442

 

797

 

880

 

1,605

Interest on lease liabilities

 

Interest expense

 

141

 

278

 

314

 

596

Short-term lease cost

 

Vehicle rents and General and other operating

 

1,780

 

792

 

3,798

 

1,103

Total lease cost

 

  

$

23,991

$

20,939

$

48,535

$

42,543

Six Months Ended

June 30, 

Cash Flow Information

    

2020

 

2019

Cash paid for operating leases included in operating activities

$

43,543

$

39,239

Cash paid for finance leases included in operating activities

$

314

$

596

Cash paid for finance leases included in financing activities

$

3,236

$

4,544

Operating lease right-of-use assets obtained in exchange for lease obligations

$

45,474

$

54,053

Operating lease right-of-use assets and liabilities relieved in conjunction with divesture of Xpress Internacional

$

$

2,018

June 30, 2020

WeightedAverage

Weighted-

 

Remaining Lease

Average

 

Lease Term and Discount Rate

    

Term (years)

    

Discount Rate

 

Operating leases

 

4.9

4.2

%

Finance leases

 

3.0

5.4

%

June 30, 2019

WeightedAverage

Weighted-

 

Remaining Lease

Average

 

Lease Term and Discount Rate

    

Term (years)

    

Discount Rate

 

Operating leases

 

4.2

 

5.0

%

Finance leases

 

3.3

 

5.3

%

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As of June 30, 2020, future maturities of lease liabilities were as follows (in thousands):

June 30, 2020

    

Finance

    

Operating 

2020

$

1,491

$

40,452

2021

 

4,081

 

77,274

2022

 

1,423

 

68,937

2023

 

1,423

 

53,362

2024

 

296

 

25,572

Thereafter

 

 

43,808

 

8,714

 

309,405

Less: Amount representing interest

 

(884)

 

(32,351)

Total

$

7,830

$

277,054

6.        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 on 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 the Company and its subsidiary U.S. Xpress, Inc. in the Superior Court of California, County of San Bernardino. The Company removed the case from state court to the U.S. District Court for the Central District of California. The plaintiff’s initial proposed class certification (any employee driver who has driven in California at any time since December 23, 2011) was denied by the district court under Rule 26 due to lack of commonality amongst the putative class members.  The Court granted the plaintiff’s revised Motion for Class Certification, and the certified class now consists of all employee drivers who resided in California and who have driven in the State of California on behalf of U.S. Xpress at any time since December 23, 2011. The case alleges that class members were not paid for off-the-clock work, were not provided duty free meal or rest breaks, and were not paid premium pay in their absence, were not paid the California minimum wage for all hours worked in that state, were not provided accurate and complete itemized wage statements 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, costs and pre- and post-judgment interest. On May 2, 2019, the district court dismissed on grounds of preemption the claims alleging failure to provide duty free meal and rest breaks or to pay premium pay for failure to provide such breaks under California law. The parties also filed cross-motions for summary judgment on the remaining claims, and the Company filed a motion to decertify the class. The court recently issued it ruling on the pending cross-motions: (1) the court denied the Company’s motion to decertify the class; (2) the court granted the Company’s motion for summary judgment on the plaintiff’s minimum wage claim for non-driving duties such as pre-trip and post-trip inspection, fueling, receiving dispatches, waiting to load or unload, and handling paperwork for the loads for January 1, 2013 forward (leaving the minimum wage claim only for the approximate one-year time period from December 23, 2011 to December 31, 2012); (3) the court granted the plaintiff’s motion for summary judgment for the time spent taking Department of Transportation-required 10-hour breaks while hauling high value loads in California for solo drivers and for the designated team driver responsible for the load; and (4) the court denied the balance of cross-motions.

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The plaintiff has filed a petition for permission to file an interlocutory appeal of the court’s decision on the minimum wage claim, which the court has granted and is presently before the Ninth Circuit Court of Appeals for final determination as to whether the plaintiff will be given permission to file the appeal. The parties will complete expert discovery over the next several months, and a jury trial is set to begin on February 16, 2021. 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 the Company 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 and one of the Federal Court Cases have been voluntarily dismissed. All of these matters are in preliminary stages of litigation, and discovery has not yet begun. 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 the Company, 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 May 9, 2019, this case was voluntarily dismissed by the plaintiff.

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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. The parties have stipulated to extend the time for defendants to respond to the complaint in this matter pending resolution of the motions to dismiss filed (or to be filed) in the remaining of the Tennessee State Court Cases and the Federal Court Cases.

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 the Company and the same five 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; however, an amended complaint was filed on October 8, 2019 (“Amended Federal Complaint”) which added all underwriters who participated in the IPO as defendants.

The three remaining Tennessee State Court Cases have been consolidated, and discovery is currently stayed pending a decision on a motion to dismiss filed by the Company and the other defendants. On June 28, 2019, the defendants filed a Motion to Dismiss the Tennessee State Court Cases for failure to allege facts sufficient to support a violation of either Section 11, 12 or 15 of the Securities Act. On July 18, 2019, the court presiding over the remaining of the Federal Court Cases issued an order appointing lead plaintiff and lead counsel. Pursuant to a stipulation entered in that matter, the appointed lead plaintiff filed the Amended Federal Complaint on October 8, 2019.  

The Amended Federal Complaint is made on behalf of a putative class that consists of all persons who purchased or otherwise acquired the Class A common stock of the Company between June 14, 2018 and November 1, 2018 and who were allegedly damaged thereby. In addition, the Amended Federal Complaint alleges additional violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”) against the Company, its Chief Executive Office and its Chief Financial Officer. On December 23, 2019, the defendants filed a motion to dismiss the Amended Federal Complaint in its entirety for failure to allege facts sufficient to state a claim under either the Securities Act or the Exchange Act. Plaintiffs filed their Opposition to that Motion on March 9, 2020, and the Company filed its Reply brief on April 23, 2020.

On June 30, 2020, the court presiding over the remaining Federal Court Cases issued its ruling granting in part and denying in part the defendants’ motions to dismiss the Amended Federal Complaint. The court dismissed entirely plaintiffs’ claims for alleged violations of the Exchange Act and further held that plaintiffs failed to state a claim for violation of the Securities Act with respect to the majority of statements challenged as false or misleading in the Federal Amended Complaint. The court, however, held that the Federal Amended Complaint sufficiently alleged violations of the Securities Act to survive a motion to dismiss with respect to two statements from the June 2018 IPO registration statement and prospectus that plaintiffs alleged to be false or misleading, both on theories of alleged misrepresentations and material omissions. Accordingly, the court allowed this action to proceed beyond the pleading stage, but only with respect to the statements deemed sufficient to support a Securities Act claim when assuming the truth of plaintiffs’ allegations. Defendants’ answers to the Federal Amended Complaint are to be filed by August 14, 2020, and the case will proceed to the discovery phase.

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. The Amended Federal Complaint additionally alleged that the Company, its Chief Executive Officer and its Chief Financial Officer made false and/or misleading statements and/or material omissions in press releases, earnings calls, investor conferences, television interviews, and filings made with the SEC subsequent to the IPO; however, claims with respect to those challenged statements were dismissed in the court’s June 30, 2020 ruling on defendants’ motions to dismiss. We believe the allegations made in the complaints are without merit and intend to defend ourselves vigorously in these matters.

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Stockholder Derivative Action

On June 7, 2019, a stockholder derivative lawsuit was filed in the District Court for Clark County, Nevada against five of our executives and all five of our independent board members (collectively, the “Individual Defendants”), and naming the Company as a nominal defendant. The complaint alleges 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 the Individual Defendants breached their fiduciary duties by causing or allowing the Company to make such statements. The complaint alleges that the Company has been damaged by the alleged wrongful conduct as a result of, among other things, being subjected to the time and expense of the securities class action lawsuits that have been filed relating to the IPO. In addition to a claim for alleged breach of fiduciary duties, the lawsuit alleges claims against the Individual Defendants for unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets. The parties have stipulated to a stay of this proceeding pending the filing of an answer or a dismissal in the remaining of the Tennessee State Court Cases or the Federal Court Cases. This matter is in the preliminary stages of litigation and discovery has not yet begun. 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 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 the Company and its subsidiaries U.S. Xpress, Inc. and U.S. Xpress Leasing, Inc. The putative class includes all individuals who performed work for U.S. Xpress, Inc. or U.S. Xpress Leasing, Inc. as lease drivers from March 26, 2016 to present. 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 for 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 the Company violated the requirements of the Truth in Leasing Act with regard to the independent contractor agreements and lease purchase agreements it entered into with the putative class members. The complaint further alleges that the Company failed to comply with the terms of the independent contractor agreements and lease purchase agreements entered into with the putative class members, that it 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 it was unjustly enriched as a result of the foregoing allegations. We filed a Motion to Compel Arbitration on October 18, 2019. On January 17, 2020, the court granted that motion, in part, compelling arbitration on all of the plaintiff’s claims and denying the plaintiff’s motion for conditional certification of a collective action. The court further stayed the matter pending arbitration, rather than dismissing it entirely. On March 6, 2020, the plaintiff petitioned the court to certify the decision for an interlocutory appeal. The Company filed an opposition to plaintiff’s motion on March 20, 2020, and plaintiff filed her reply on April 3, 2020, purportedly relying, in part, on a recent case from Massachusetts. In response to that newly cited case, the Company was granted leave to file a surreply, which it filed on April 13, 2020. The district court has not yet ruled on the plaintiff’s petition for interlocutory appeal. There has been no discovery in this matter, 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.

On June 25, 2020, a second putative collective and class action complaint was filed against the Company and its subsidiaries U.S. Xpress, Inc. and U.S. Xpress Leasing, Inc. in the U.S. District Court for the Eastern District of Tennessee. The putative class and collective action includes all current and former over-the-road truck drivers classified as independent contractors and employed by us during the applicable statute of limitations. The complaint alleges that independent contractors are improperly designated as such and should be designated as employees subject to the FLSA. The complaint alleges that U.S. Xpress, Inc.’s pay practices for the putative collective and class members violated the minimum wage provisions of the FLSA for the period from June 25, 2017 to the present. The complaint further alleges that we failed to pay the plaintiff and members of the class for all miles they drove and breached the contract between the parties and that we were unjustly enriched as a result of the foregoing allegations. The parties have met and conferred to discuss the plaintiff’s claims, and the plaintiff has agreed to file

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a joint stipulation that his claim would be submitted to individual arbitration and asking the court to stay the case pending arbitration. There has been no discovery in this matter, 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

Phishing Attack Class Action

On June 5, 2020, a putative class action lawsuit was filed against the Company in the U.S. District Court for the Eastern District of Tennessee arising out of a September 2019 phishing attack on the Company. Plaintiffs allege their personally identifiable information (“PII”) was compromised. Plaintiffs further allege that the Company failed to implement adequate security measures to prevent the phishing attack and failed to provide individuals whose PII was potentially impacted with timely and accurate notice. Plaintiffs bring the lawsuit on behalf of themselves and a putative class of “[a]ll persons residing in the United States whose PII was exposed” as a result of the phishing attack. Plaintiffs also assert a Florida-specific subclass. Plaintiffs assert claims for negligence, negligence per se, breach of confidence, and breach of implied contract. The Company’s deadline for responding to the complaint is August 3, 2020. We believe all of the counts in the complaint are without merit and intend to defend ourselves vigorously in this matter.

Other

The Company had letters of credit of $32.7 million outstanding as of June 30, 2020. The letters of credit are maintained primarily to support the Company’s insurance program.

The Company had cancelable commitments outstanding at June 30, 2020 to acquire revenue equipment for approximately $87.4 million during the remainder of 2020. These purchase commitments are expected to be financed by operating leases, long-term debt and proceeds from sales of existing equipment.

7.        Share-based Compensation

2018 Omnibus Incentive Plan

In June 2018, the Board approved the 2018 Omnibus Incentive Plan (the “Incentive Plan”) to become effective in connection with the offering. The Company had reserved an aggregate of 3.2 million shares of its Class A common stock for issuance of awards under the Incentive Plan. In May 2020, the stockholders approved the Amended and Restated Omnibus Plan which, among other things, increased the number of shares remaining to issue to 5.8 million shares. 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 six months ended June 30, 2020:

Weighted

Number of

Average Grant

    

Units

    

Date Fair Value

Unvested at December 31, 2019

 

908,088

$

8.73

Granted

 

1,010,461

5.01

Vested

 

(209,627)

 

9.06

Forfeited

 

(55,952)

 

6.84

Unvested at June 30, 2020

 

1,652,970

$

6.48

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Service based restricted stock grants vest over periods of one to five years and account for 1,392,970 of the unvested shares. Performance based awards account for 260,000 of the unvested shares and vest based upon achievement of certain performance goals, as defined by the Company. During the six months ended June 30, 2020, the Company recognized $0.1 million in compensation expense related to performance based awards. The Company recognized compensation expense related to service based awards of $0.8 million and $1.4 million during the three and six months ended June 30, 2020 and $0.6 million and $1.2 million during the three and six months ended June 30, 2019, respectively. At June 30, 2020, the Company had $7.6 million in unrecognized compensation expense related to the service based restricted stock awards which is expected to be recognized over a weighted average period of approximately 3.0 years.

The following is a summary of the Incentive Plan stock option activity from December 31, 2019 to June 30, 2020:

Weighted

Number of

Average Grant

    

Units

    

Date Fair Value

Unvested at December 31, 2019

 

359,259

$

4.95

Vested

(87,476)

5.05

Forfeited/Canceled

(42,515)

5.00

Unvested at June 30, 2020

 

229,268

$

4.90

The stock options vest over a period of four years and expire ten years from the date of grant. The Company recognized compensation expense of $0.1 million and $0.1 million during the three and six months ended June 30, 2020 and $0.2 million and $0.3 million during the three and six months ended June 30, 2019, respectively. The fair value of the stock options granted was estimated using the Black-Scholes method as of the grant date.

At June 30, 2020, the Company had $0.9 million in unrecognized compensation expense related to the stock option awards which is expected to be recognized over a weighted average period of approximately 2.4 years. As of June 30, 2020,