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US XPRESS ENTERPRISES INC - Quarter Report: 2004 June (Form 10-Q)

and incorporated herein by referenceUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

     
For the quarter ended   Commission file number
June 30, 2004   0-24806

U.S. XPRESS ENTERPRISES, INC.

     
NEVADA   62-1378182
(State or other jurisdiction of   (I.R.S. employer identification no.)
Incorporation or organization)  
     
4080 Jenkins Road   (423)   510-3000
CHATTANOOGA, TENNESSEE 37421   (Registrant's telephone no.)
(Address of principal executive offices)  

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

Yes x No o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes x No o

        As of July 31, 2004, 11,021,338 shares of the registrant’s Class A Common Stock, par value $.01 per share, and 3,040,262 shares of the registrant’s Class B Common Stock, par value $.01 per share, were outstanding.


U.S. XPRESS ENTERPRISES, INC.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION PAGE NO.

Item 1.
    Consolidated Financial Statements        
   
     Consolidated Statements of Operations for the Three
       
         and Six Months Ended June 30, 2004 and 2003       3  
   
     Consolidated Balance Sheets as of June 30, 2004
       
         and December 31, 2003       4  
   
     Consolidated Statements of Cash Flows for the
       
         Six Months Ended June 30, 2004 and 2003       6  
   
Notes to Consolidated Financial Statements
      7  

Item 2.
    Management's Discussion and Analysis of        
    Financial Condition and Results of Operations       13  

Item 3.
    Quantitative and Qualitative Disclosures About Market Risk       25  

Item 4.
    Controls and Procedures       25  

PART II.
    OTHER INFORMATION        

Item 2.
    Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities       26  

Item 4.
    Submission of Matters to a Vote of Security Holders       26  

Item 6.
    Exhibits and Reports on Form 8-K       27  
   
SIGNATURES
      28  
 
EXHIBITS
      29  

2


U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)

Three Months Ended
June 30,

Six Months Ended
June 30,

2004
2003
2004
2003
Operating Revenue:          
  Revenue, before fuel surcharge   $257,387   $223,569   $482,763   $433,968  
  Fuel surcharge   12,907   8,365   22,202   18,632  




    Total operating revenue   270,294   231,934   504,965   452,600  




Operating Expenses:  
  Salaries, wages and benefits   91,772   80,884   172,971   156,475  
  Fuel and fuel taxes   40,924   32,209   77,068   69,640  
  Vehicle rents   17,309   19,760   35,954   37,677  
  Depreciation and amortization   11,778   9,134   22,150   18,282  
  Purchased transportation   49,876   38,384   91,349   74,591  
  Operating expense and supplies   18,120   16,811   33,955   32,564  
  Insurance premiums and claims   13,672   11,779   25,300   22,684  
  Operating taxes and licenses   3,613   3,519   6,979   6,616  
  Communications and utilities   2,890   3,037   5,923   6,001  
  General and other operating   10,056   9,479   19,437   17,963  




   Total operating expenses   260,010   224,996   491,086   442,493  




Income from Operations   10,284   6,938   13,879   10,107  
Interest Expense, net   2,442   2,510   4,556   5,438  




Income Before Income Taxes   7,842   4,428   9,323   4,669  
Income Tax Provision   3,605   2,214   4,286   2,334  




Net Income   $    4,237   $    2,214   $    5,037   $    2,335  




Earnings Per Share - basic   $      0.30   $      0.16   $      0.36   $      0.17  




Weighted average shares - basic   14,067   13,949   14,065   13,940  




Earnings Per Share - diluted   $      0.30   $      0.16   $      0.35   $      0.17  




Weighted average shares - diluted   14,257   14,092   14,250   14,063  




(See Accompanying Notes to Consolidated Financial Statements)

3


U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)

Assets
June 30, 2004
December 31, 2003
(Unaudited)
Current Assets:            
  Cash and cash equivalents     $ 503   $ 168  
  Customer receivables, net of allowance       124,390     98,377  
  Other receivables       6,857     8,794  
  Prepaid insurance and licenses       8,315     4,770  
  Operating and installation supplies       5,033     5,011  
  Deferred income taxes       10,168     10,168  
  Other current assets       6,163     5,837  


      Total current assets       161,429     133,125  


  Property and equipment, at cost       404,067     345,461  
    Less accumulated depreciation and amortization       (143,329 )   (123,253 )


      Net property and equipment       260,738     222,208  


Other Assets:    
  Goodwill, net       74,190     74,181  
  Other       12,553     12,280  


      Total other assets       86,743     86,461  


Total Assets     $ 508,910   $ 441,794  


(See Accompanying Notes to Consolidated Financial Statements)

4


U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and par value amounts)


Liabilities and Stockholders' Equity
June 30, 2004
December 31, 2003
(Unaudited)
Current Liabilities:                
  Accounts payable     $ 21,579   $ 14,608  
  Book overdraft       3,052     3,010  
  Accrued wages and benefits       15,182     12,814  
  Claims and insurance accruals       41,750     35,888  
  Other accrued liabilities       2,679     4,680  
  Current maturities of long-term debt       33,388     24,982  


      Total current liabilities       117,630     95,982  


Long-Term Debt, net of current maturities       160,334     121,597  


Deferred Income Taxes       58,243     56,100  


Other Long-Term Liabilities       725     876  


Stockholders' Equity:    
  Preferred stock, $.01 par value, 2,000,000    
    shares authorized, no shares issued       -     -  
  Common stock Class A, $.01 par value,    
    30,000,000 shares authorized, 13,593,455 and 13,556,923 shares    
    issued at June 30, 2004 and December 31, 2003, respectively       135     135  
  Common stock Class B, $.01 par value, 7,500,000    
    shares authorized, 3,040,262 shares issued and    
    outstanding at June 30, 2004 and December 31, 2003       30     30  
  Additional paid-in capital       107,587     107,252  
  Retained earnings       89,448     84,411  
  Treasury Stock Class A, at cost (2,594,389 and 2,544,389 shares    
    at June 30, 2004 and December 31, 2003, respectively)       (25,137 )   (24,483 )
  Notes receivable from stockholders       (69 )   (82 )
  Unamortized compensation on restricted stock       (16 )   (24 )


      Total stockholders' equity       171,978     167,239  


Total Liabilities and Stockholders' Equity     $ 508,910   $ 441,794  


(See Accompanying Notes to Consolidated Financial Statements)

5


U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)


Six Months Ended
June 30,

2004
2003
Cash Flows from Operating Activities:            
  Net Income     $ 5,037   $ 2,335  
  Adjustments to reconcile net income to    
        net cash provided by operating activities:    
    Deferred income tax provision       2,143     1,167  
    Provision for losses on receivables       315     632  
    Depreciation and amortization       22,255     18,115  
    Amortization of restricted stock       8     8  
    (Gain) Loss on sale of equipment       (105 )   167  
    Gain on interest rate swap, net       -     (141 )
    Change in operating assets and liabilities:    
        Receivables       (26,464 )   (5,777 )
        Prepaid insurance and licenses       (3,545 )   (2,855 )
        Operating and installation supplies       45     605  
        Other assets       (874 )   (3,141 )
        Accounts payable and other accrued liabilities       11,162     6,567  
        Accrued wages and benefits       2,368     561  


        Net cash provided by operating activities       12,345     18,243  


Cash Flows from Investing Activities:    
    Payments for purchases of property and equipment       (52,280 )   (26,310 )
    Proceeds from sales of property and equipment       8,754     47,576  
    Repayment of notes receivable from stockholders       13     -  


        Net cash (used in) provided by investing activities       (43,513 )   21,266  


Cash Flows from Financing Activities:    
    Borrowings under lines of credit, net of payments       16,206     (10,026 )
    Borrowings under long-term debt       50,305     1,697  
    Payments of long-term debt       (34,755 )   (26,959 )
    Additions to deferred financing costs       43     49  
    Book overdraft       42     (4,389 )
    Purchase of Class A Common Stock       (654 )   -  
    Proceeds from exercise of stock options       242     379  
    Proceeds from issuance of common stock       74     -  


        Net cash provided by (used in) financing activities       31,503     (39,249 )


Net Change in Cash and Cash Equivalents     $ 335   $ 260  
Cash and Cash Equivalents, beginning of period       168     131  


Cash and Cash Equivalents, end of period       503     391  


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION    
  Cash paid during the period for interest     $ 4,477   $ 5,798  
  Cash paid during the period for income taxes       446     587  
  Conversion of operating leases to equipment installment notes       15,387     -  

(See Accompanying Notes to Consolidated Financial Statements)

6


U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share and per share amounts)

1. Consolidated Financial Statements

        The interim consolidated financial statements contained herein reflect all adjustments that, in the opinion of management, are necessary for a fair statement of the financial condition and results of operations for the periods presented. They have been prepared by the Company, without audit, in accordance with the instructions to Form 10-Q and the rules and regulations of the Securities and Exchange Commission and do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements.

        Operating results for the three months ended June 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. In the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included. Such adjustments consisted only of items that are of a normal recurring nature.

        These interim consolidated financial statements should be read in conjunction with the Company’s latest annual consolidated financial statements (which are included in the Company’s Form 10-K filed with the Securities and Exchange Commission on March 15, 2004).

2. Organization and Operations

    U.S. Xpress Enterprises, Inc. (the “Company”) provides transportation services through two business segments, U.S. Xpress, Inc. (“U.S. Xpress”) and Xpress Global Systems, Inc. (“Xpress Global Systems”). U.S. Xpress is a truckload carrier serving the continental United States and parts of Canada and Mexico. Xpress Global Systems provides transportation, warehousing and distribution services to the floorcovering industry and also provides airport-to-airport transportation services to the airfreight and airfreight forwarding industries.

3. Earnings Per Share

        The difference in basic and diluted weighted average shares is due to the assumed conversion of outstanding options. The computation of basic and diluted earnings per share is as follows:

 

Three Months Ended
June 30,
Six Months Ended
June 30,
2004
2003
2004
2003
Net Income     $ 4,237   $ 2,214   $ 5,037   $ 2,335  




Denominator:    
  Weighted average common shares outstanding       14,067     13,949     14,065     13,940  
  Equivalent shares issuable upon exercise of stock options       190     143     185     123  




  Diluted shares       14,257     14,092     14,250     14,063  
Earnings per share:    
  Basic     $ 0.30   $ 0.16   $ 0.36   $ 0.17  




  Diluted shares     $ 0.30   $ 0.16   $ 0.35   $ 0.17  




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4. Stock-Based Compensation

        The Company applies the intrinsic value based method of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for its stock option plans. No stock-based compensation cost is reflected in net income, as all options granted under the plan had an exercise price equal to the fair market value of the underlying common stock on the date of grant.

        Had compensation expense for stock option grants been determined based on fair value at the grant dates consistent with the method prescribed by Statement of Financial Accounting Standards (“SFAS”) No. 123, "Accounting for Stock-Based Compensation," the Company’s net income and earnings per share would have been adjusted to the pro forma amounts for the three and six months ended June 30, 2004 and 2003 as indicated below:

Three Months Ended
June 30,
Six Months Ended
June 30,
2004
2003
2004
2003
Net Income, as reported     $ 4,237   $ 2,214   $ 5,037   $ 2,335  
Stock-based employee compensation, net of tax       (135 )   (77 )   (264 )   (146 )




Pro forma net income     $ 4,102   $ 2,137   $ 4,773   $ 2,189  




Earnings per share, basic, as reported     $ 0.30   $ 0.16   $ 0.36   $ 0.17  
Earnings per share, basic, pro forma     $ 0.29   $ 0.15   $ 0.34   $ 0.16  
Earnings per share, diluted, as reported     $ 0.30   $ 0.16   $ 0.35   $ 0.17  
Earnings per share, diluted, pro forma     $ 0.29   $ 0.15   $ 0.33   $ 0.16  

5. 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 upon the advice of legal counsel, is not expected to have a material adverse effect on the Company’s financial position or results of operations.

        The Company had letters of credit of $37.0 million outstanding at June 30, 2004. The letters of credit are maintained primarily to support the Company’s insurance program.

        The Company had commitments outstanding at June 30, 2004 to acquire revenue equipment for approximately $78.8 million in 2004, $119.0 million in 2005, $128.6 million in 2006, and $76.4 million in 2007. These purchase commitments are expected to be financed by operating leases, long-term debt, proceeds from sales of existing equipment and cash flows from operations. In addition, the Company had commitments of $2.6 million as of June 30, 2004 under contracts relating to development and improvement of facilities and computer hardware and software.

6. Derivative Financial Instruments

        At times, the Company uses derivative financial instruments to manage exposure to interest rate risks inherent in variable-rate debt and does not use them for trading or speculative purposes. On March 29, 2002, the Company entered into a revolving credit agreement with Fleet Capital Corporation ("Fleet"). Prior to that date, the Company designated its then outstanding interest rate swap agreements as cash flow hedges, in which changes in fair value were recognized in other comprehensive income.

8


        In connection with entering into the revolving credit agreement with Fleet, the outstanding interest rate swap agreements ceased to qualify as cash flow hedge instruments because they were not matched to the terms of the Fleet debt. Accordingly, they were not designated as hedging instruments, resulting in the amounts included in other comprehensive income being amortized over the remaining term of the respective agreements with any future changes in the market value reflected as interest expense in the consolidated statements of operations. For the six months ended June 30, 2004 and 2003, the Company recognized $0 and $(141), respectively, as interest expense as a result of the de-designation of the interest rate swap agreements.

        As of June 30, 2004, the Company had no outstanding interest rate swap agreements. The agreements expired in February and September 2003.

7. Operating Segments

        The Company has two reportable segments based on the types of services it provides to its customers: U.S. Xpress which provides truckload operations throughout the continental United States and parts of Canada and Mexico, and Xpress Global Systems which provides transportation, warehousing and distribution services to the floorcovering industry and also provides airport-to-airport transportation services to the airfreight and airfreight forwarding industries. Substantially all intersegment sales prices are market based. The Company evaluates performance based on operating income of the respective business units.

U.S. Xpress Xpress Global Systems Consolidated
(Dollars in Thousands)
Three Months Ended June 30, 2004                
  Revenue - external customers     $ 230,214   $ 40,080   $ 270,294  
  Intersegment revenue       6,492     -     6,492  
  Operating income       9,899     385     10,284  
  Total assets       462,885     46,025     508,910  
Three Months Ended June 30, 2003    
  Revenue - external customers     $ 196,549   $ 35,385   $ 231,934  
  Intersegment revenue       8,827     -     8,827  
  Operating income       5,742     1,196     6,938  
  Total assets       369,364     39,863     409,227  
Six Months Ended June 30, 2004    
  Revenue - external customers     $ 430,479   $ 74,486   $ 504,965  
  Intersegment revenue       13,394     -     13,394  
  Operating income       13,263     616     13,879  
  Total assets       462,885     46,025     508,910  
Six Months Ended June 30, 2003    
  Revenue - external customers     $ 388,106   $ 64,494   $ 452,600  
  Intersegment revenue       17,437     -     17,437  
  Operating income       8,786     1,321     10,107  
  Total assets       369,364     39,863     409,227  

        The difference in consolidated operating income as shown above and consolidated income before income tax provision on the consolidated statements of operations is net interest expense of $2,442 and $2,510 for the three months ended June 30, 2004 and 2003, respectively, and $4,556 and $5,438 for the six months ended June 30, 2004 and 2003, respectively.

9


8. Comprehensive Income

        Comprehensive income consisted of the following components for the three and six months ended June 30, 2004 and 2003, respectively:

Three Months Ended
June 30,
Six Months Ended
June 30,
2004
2003
2004
2003
Net Income     $ 4,237   $ 2,214   $ 5,037   $ 2,335  
Amortization of hedge de-designation       -     19     -     88  




Total     $ 4,237   $ 2,233   $ 5,037   $ 2,423  




9. Long-Term Debt

        The Company’s long-term debt primarily consists of equipment installment notes, mortgage notes, a revolving credit facility and capital lease obligations. As of June 30, 2004 and 2003, $151.4 million and $92.4 million, respectively, were outstanding under the equipment installment notes, with weighted average interest rates of 4.92% and 6.92%, respectively. The equipment installment notes are secured by the related revenue equipment and mature at various dates ranging from August 2004 to July 2011.

        The outstanding mortgage notes primarily relate to the Company’s corporate headquarters and certain terminal locations, which are secured by the related real estate and mature from August 2007 to October 2010. As of June 30, 2004 and 2003, $21.9 million and $23.5 million, respectively, were outstanding under the mortgage notes, with weighted average interest rates of 5.63% and 5.60%, respectively. The Company also has capital lease obligations related to a terminal location and certain revenue equipment. As of June 30, 2004 and 2003, $3.7 million and $4.0 million were outstanding, respectively, with respect to the Company's capital lease obligations. The capital lease obligations mature from August 2004 to November 2007.

        On March 29, 2002, the Company entered into a $100.0 million senior secured revolving credit facility with Fleet. Proceeds from this facility were used to repay the then existing revolving credit facility. The revolving credit facility provides for borrowings up to $100.0 million, with availability at any given time based on specified percentages of eligible receivables and revenue equipment, less reserves, under the facility’s borrowing base formula. Letters of credit under the facility are limited to $37.0 million. The facility matures in March 2007.

        The facility allows the Company to select interest rates for all or any portion of the outstanding balance, based on either a base rate (based on the domestic prime rate) plus an applicable margin or LIBOR plus an applicable margin. The applicable margin ranges from 0.75% to 1.50% for base rate loans and from 2.25% to 3.00% for LIBOR loans, based in each case on the aggregate availability as defined. At June 30, 2004, the applicable margin was 0.75% for base rate loans and 2.25% for LIBOR loans. The facility also prescribes additional fees for letter of credit transactions and a monthly commitment fee based on the difference between the total commitment and the total borrowing capacity utilized by the Company from time to time. The interest rate for the base rate and LIBOR loans as of June 30, 2004 and 2003 was 4.75% and 3.55% and 5.25% and 4.07%, respectively.

        At June 30, 2004, $16.2 million in borrowings and $37.0 million in letters of credit were outstanding under the facility with $40.8 million available to borrow. The facility is secured by substantially all assets of the Company, other than real estate and assets securing other debt of the Company.

10


        The facility requires, among other things, maintenance by the Company of prescribed minimum amounts of consolidated tangible net worth, fixed charge coverage ratios and leverage ratios. It also: (1) limits the Company’s future capital expenditures; (2) prohibits all acquisitions by the Company of its own capital stock or the payment of dividends on such stock; and (3) effectively prohibits future asset acquisitions or dispositions (except in the ordinary course of business) or other business combination transactions by the Company without the lenders’ consent. As of June 30, 2004, the Company was in compliance with all covenants under the revolving credit facility.

10. Leases

        The Company leases certain revenue and service equipment and office and terminal facilities under long-term, non-cancelable operating lease agreements expiring at various dates through February 2011. Revenue equipment lease terms are generally 3-4 years for tractors and 5-7 years for trailers. Certain equipment leases provide for guarantees by the Company of a portion of the residual amount under certain circumstances at the end of the lease term. The maximum potential amount of future payments (undiscounted) under these guarantees is approximately $69.5 million at June 30, 2004. The residual value of a substantial portion of the leased revenue equipment is covered by repurchase or trade agreements in principle between the Company and the equipment manufacturer. In accordance with the provisions of Financial Accounting Standards Board ("FASB") Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an Interpretation of FASB Statement Nos. 5, 57 and 107 and Rescission of FASB Interpretation No. 34", management estimates the fair values of the guaranteed residual values for leased revenue equipment to be immaterial. Accordingly, the Company has no liabilities related to the guaranteed residual values accrued in the accompanying consolidated balance sheets.

11. Other Assets

        Other long-term assets consisted of the following at June 30, 2004 and December 31, 2003:

2004
2003
Deferred financing costs, net     $ 1,145   $ 1,300  
Investment in unconsolidated affiliates       6,293     6,167  
Notes receivable       1,128     1,164  
Deposits       1,445     1,242  
Commissions       169     211  
Cash surrender value of life insurance       2,373     2,196  


Total other assets     $ 12,553   $ 12,280  


12. Stockholders’ Equity

        Effective May 24, 2004, the board of directors authorized the Company to repurchase up to $10 million of its Class A Common Stock. The stock may be purchased at any time until May 24, 2005, at which time the board of directors may elect to extend the repurchase program. The repurchased shares will be held as treasury stock and may be used for issuances under the Company’s employee stock option plan or for other general corporate purposes, as the board of directors may determine. In June 2004, the Company repurchased 50,000 shares of Class A Common Stock for $654.

11


13. Recent Accounting Pronouncements

        In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51”. The Interpretation requires the consolidation of entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Currently, entities are generally consolidated by an enterprise when it has a controlling interest through ownership of a majority voting interest in the entity. In December 2003, the FASB issued a revision of the Interpretation, which deferred the effective date to the first reporting period after March 15, 2004. The Interpretation permits consolidation at historical carrying amounts as if the Interpretation had always been applied, or at fair value, if determining historical amounts is impracticable. The Interpretation may be applied prospectively with a cumulative-effect adjustment as of the date on which it is first applied or by restating previously issued financial statements for one or more years with a cumulative effective adjustment as of the beginning of the first year restated. The adoption of Interpretation No. 46 had no impact on the Company’s financial statements.

        In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”. SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. In particular, SFAS No. 149 clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative as discussed in SFAS No. 133 and it clarifies when a derivative contains a financing component that warrants special reporting in the statement of cash flows. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003 and is to be applied prospectively. The adoption of SFAS No. 149 had no impact on the Company’s financial statements.

        In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity”, which specifies that instruments within its scope are obligations of the issuer and, therefore, the issuer must classify them as liabilities. Financial instruments within the scope of the pronouncement include mandatory redeemable financial instruments, obligations to repurchase the issuer’s equity shares by transferring assets and certain obligations to issue a variable number of shares. SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003. The adoption of SFAS No. 150 had no impact on the Company’s financial statements.

14. Reclassifications

        Certain reclassifications have been made to the 2003 financial statements to conform to the 2004 presentation.

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Item 2.   Management’s Discussion and Analysis of Financial Condition
                and Results of Operations

General

       U.S. Xpress Enterprises, Inc. (the “Company”) provides transportation services through two business segments, U.S. Xpress, Inc. (“U.S. Xpress”) and Xpress Global Systems, Inc. (“Xpress Global Systems”). U.S. Xpress is a truckload carrier serving the continental United States and parts of Canada and Mexico. Xpress Global Systems provides transportation, warehousing and distribution services to the floorcovering industry and also provides airport-to-airport transportation services to the airfreight and airfreight forwarding industries.

Overview

        The Company’s truckload segment comprises the majority of its operations, representing 85.2% of consolidated revenues in the second quarter of 2004. Revenues are primarily earned by transporting freight for customers. Additionally, revenues are derived from fuel surcharges to customers and accessorial charges such as loading and unloading fees and equipment detention. The main factors that impact revenue include the revenue per mile earned from customers, the number of miles driven and the percentage of miles driven for which the Company is compensated. The aforementioned factors relate primarily to the general level of economic activity in the United States, inventory levels, customer demand and the level of truck capacity.

       The main factors that impact the truckload segment's profitability on the expense side are the variable costs of transporting freight for customers.  These costs include fuel expense, driver-related expenses, such as wages, benefits, training, and recruitment, and owner-operator costs, which are recorded under purchased transportation.  Expenses that have both fixed and variable components include maintenance and tire expense and the total cost of insurance and claims.  These expenses generally vary with the miles traveled, but also have a controllable component based on safety, fleet age, efficiency and other factors.  The main fixed costs are the acquisition and financing of long-term assets, such as revenue equipment and operating terminals, and the compensation of non-driver personnel.  Effectively controlling expenses is an important element of assuring the Company's profitability.  The primary measure the Company uses to evaluate its profitability is operating ratio, excluding the impact of fuel surcharge revenue.

       U.S. Xpress offers its customer base expertise in serving the specialized needs of medium-to-long haul solo, team-expedited and regional and dedicated contract carriage. In recent years U.S. Xpress has diversified its truckload services by focusing on growth in regional and dedicated contract services while reducing its dependency on long-haul solo freight. The approximate percentage of truckload revenue, net of fuel surcharge, by service type for the three month period ending June 30, 2004 is medium-to-long haul solo 58.0%, team expedited 16.0%, regional 12.0% and dedicated contract 14.0%.  The medium-to-long haul and regional revenue includes approximately $21.0 million in revenue from the expedited rail program that was initiated in 2003. 

        Xpress Global Systems offers its customer base expertise in serving the specialized needs of floorcovering logistic services and airport-to-airport transportation. The approximate percentage of Xpress Global Systems’ revenue by service type in the second quarter of 2004 was floorcovering logistics 65.0% and airport-to-airport 35.0%.

        Prior to the second half of 2003, the economic environment was sluggish which resulted in lower freight demand and excess capacity within the truckload industry. Accordingly, the truckload industry generally experienced declines in asset utilization, limited ability to improve rates and lower operating margins. However, in the second half of 2003 and the first half of 2004, the U.S. economy and freight tonnage experienced stronger growth. This growth along with the reduction in capacity, enabled the industry to increase pricing during 2003 and the first half of 2004. During the second quarter of 2004, U.S. Xpress achieved an 11.0% increase in the average rate per mile compared to the same period in 2003.

        The Company experienced a 91.4% increase in earnings for the three months ended June 30, 2004 compared to the same period in 2003. The improvement in operating results was primarily due to the increase in rate per mile and the growth in the dedicated and expedited rail operations as the Company continued to shift operating assets to more profitable segments of the truckload business. 

        The trucking industry and the Company continued to experience an increase in operating costs during the second quarter of 2004, including fuel prices, purchased transportation, insurance premiums and claims and the cost of truck

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ownership, including lower residual values for used trucks combined with the cost of the new EPA-compliant truck engines. The industry and the Company also continued to experience a difficult driver and owner-operator recruiting environment in the second quarter of 2004. The Company believes that capacity will continue to be constrained within the industry for the foreseeable future due to the shortage of qualified drivers and the high costs of entering the truckload market.

        Xpress Global, which accounts for approximately 15% of consolidated revenue, continued to experience an increase in revenue of approximately 13.3% for the three months ended June 30, 2004 compared to the same period in 2003.  Although revenue increased in this segment, operating income decreased to $385,000 compared to $1.2 million in the second quarter of 2003.  The primary factor contributing to the decline was lower than anticipated revenue in the airport-to-airport operations.  In order to improve this segment of the business, the Company has initiated a number of actions, including the acquisition of a less-than-truckload airport-to-airport business in July 2004.

Consolidated Results of Operations

        The following table sets forth the percentage relationships of expense items to total revenue, excluding fuel surcharge, for each of the periods indicated below. Fuel surcharge revenue is offset against fuel and fuel taxes. Management believes that eliminating the impact of this source of revenue provides a more consistent basis for comparing results of operations from period to period.

 
Three Months Ended
June 30,

Six Months Ended
June 30,

2004
2003
2004
2003
Operating Revenue       100.0 %   100.0 %   100.0 %   100.0 %




Operating Expenses:    
  Salaries, wages and benefits       35.7     36.2     35.8     36.1  
  Fuel and fuel taxes       10.9     10.7     11.4     11.8  
  Vehicle rents       6.7     8.8     7.4     8.7  
  Depreciation and amortization       4.6     4.1     4.6     4.2  
  Purchased transportation       19.4     17.2     18.9     17.2  
  Operating expense and supplies       7.0     7.5     7.0     7.5  
  Insurance premiums and claims       5.3     5.3     5.2     5.2  
  Operating taxes and licenses       1.4     1.6     1.4     1.5  
  Communications and utilities       1.1     1.4     1.2     1.4  
  General and other operating       4.0     4.1     4.3     4.1  




   Total operating expenses       96.1     96.9     97.2     97.7  




Income from Operations       3.9     3.1     2.8     2.3  

  

  Interest Expense, net

      0.9     1.1     0.9     1.3  




  Income Before Income Taxes       3.0     2.0     1.9     1.0  

  

  Income Tax Provision

      1.4     1.0     0.9     0.5  




Net Income       1.6 %   1.0 %   1.0 %   0.5 %




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Comparison of the Three Months Ended June 30, 2004 to the Three Months Ended June 30, 2003

Operating revenue, net of fuel surcharge, increased 15.1% to $257.4 million during the three months ended June 30, 2004 compared to $223.6 million during the same period in 2003. U.S. Xpress revenue, net of fuel surcharge, increased 13.6% to $223.8 million during the three months ended June 30, 2004 compared to $197.0 million during the same period in 2003, due primarily to an increase of 11.0% in average revenue per mile to $1.427 from $1.286. The increase in average revenue per mile was primarily due to increased rates combined with growth in regional and dedicated operations, which generally provide for a shorter length of haul and higher rate per mile. Xpress Global Systems’ revenue increased 13.3% to $40.1 million during the three months ended June 30, 2004 compared to $35.4 million during the same period in 2003. Within Xpress Global Systems, floorcovering revenue increased 14.4% to $26.2 million due primarily to an increase in revenue per pound of 8.8%, combined with an increase in shipment volume of 1.4%. Airport-to-airport revenue increased 11.2% to $13.9 million due primarily to revenue generated by the acquisition of an airport-to-airport operation in October 2003, combined with an increase in revenue per pound of 2.2%.

Salaries, wages and benefits, as a percentage of operating revenue, was 35.7% during the three months ended June 30, 2004 compared to 36.2% during the same period in 2003. Salaries, wages and benefits increased 13.5% to $91.8 million during the three months ended June 30, 2004 compared to $80.9 million during the same period in 2003. The increase was primarily due to a driver pay increase of approximately 8% in February 2004 and an increase in the number of local drivers necessary to support the Company's expedited rail program. The increase can also be attributed to growth in non-driver personnel as a result of the increased volume of business for both of the Company’s business segments.

Fuel and fuel taxes net of fuel surcharge, as a percentage of operating revenue, was 10.9% during the three months ended June 30, 2004 compared to 10.7% during the same period in 2003. Fuel and fuel taxes, net of fuel surcharge, increased approximately $0.03 per Company tractor mile, or 16.8%, due primarily to an approximate 22.0% increase in the average fuel price per gallon compared to the same period in 2003, combined with the lower fuel efficiency of the new EPA-compliant engines. The Company’s exposure to increases in fuel prices is partially mitigated by fuel surcharges to its customers, which amounted to $12.9 million and $8.4 million for the three months ended June 30, 2004 and 2003, respectively.

Vehicle rents, as a percentage of operating revenue, was 6.7% during the three months ended June 30, 2004 compared to 8.8% during the same period in 2003. Vehicle rents decreased 12.6% to $17.3 million during the three months ended June 30, 2004 compared to $19.8 million during the same period in 2003. The decrease was primarily due to a decrease in the average number of tractors financed under operating leases to 3,420 compared to 4,293 during the three months ended June 30, 2004 and 2003, respectively. The decrease was partially offset by an increase in the average number of trailers financed under operating leases to 8,143 compared to 7,032 during the three months ended June 30, 2004 and 2003, respectively, due to the expansion of the Company’s trailer fleet necessary to support the expedited rail program.

Depreciation and amortization, as a percentage of operating revenue, was 4.6% during the three months ended June 30, 2004 compared to 4.1% during the same period in 2003. Depreciation and amortization increased 29.7% to $11.8 million during the three months ended June 30, 2004 compared to $9.1 million during the same period in 2003. The increase was primarily due to the increased cost of the new EPA-compliant engines and lower residual values, combined with an increase in the average number of owned tractors and trailers to 1,997 and 8,738, respectively, during the three months ended June 30, 2004 compared to 1,046 and 6,373, respectively, during the same period in 2003. The increase in depreciation and amortization reflects the Company’s decision to finance its fleet additions during the quarter with debt versus operating leases, combined with the expansion of its trailer fleet necessary to support the expedited rail program.

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Purchased transportation, as a percentage of operating revenue, was 19.4% during the three months ended June 30, 2004 compared to 17.2% during the same period in 2003. The increase was primarily due to the increased use of rail transportation for certain medium-to-long haul truckload freight and an owner-operator pay increase of approximately 4.0% initiated in February 2004. The increase was partially offset by a decrease in the average number of owner-operators during the three months ended June 30, 2004 to 833, or 15.1% of the total fleet, compared to 956 or 17.4% of the total fleet, for the same period in 2003.

Operating expenses and supplies, as a percentage of operating revenue, was 7.0% during the three months ended June 30, 2004 compared to 7.5% during the same period in 2003. Operating expenses and supplies increased 7.7% to $18.1 million during the three months ended June 30, 2004 compared to $16.8 million during the same period in 2003. The increase was primarily due to an increase in driver recruiting and retention costs.

Insurance premiums and claims remained consistent as a percentage of operating revenue at 5.3% during the three months ended June 30, 2004 and 2003. Insurance premiums and claims, consisting primarily of premiums and deductible amounts for liability (personal injury and property damage), physical damage and cargo damage insurance and claims, increased 16.1% to $13.7 million during the three months ended June 30, 2004 compared to $11.8 million during the same period in 2003. The increase was primarily due to increased insurance premiums combined with an increase in liability claims expense of $4.6 million. The increase in liability claims was primarily due to an increase in current year claims combined with adverse development related to claims for prior years.  The increase in liability claims was partially offset by a decrease in physical damage and cargo claims. The Company is self-insured up to certain limits for cargo loss, physical damage and liability. As of June 30, 2004, the retention level per occurrence for cargo loss was $250,000 ($200,000 for the same period in 2003) and the retention level for liability was $2.0 million per occurrence ($500,000 for the same period in 2003 with the risk for the $1.0 million to $3.0 million level of cost per occurrence). The Company maintains insurance with licensed insurance companies above amounts for which it is self-insured for cargo and liability. The Company accrues for the uninsured portion of pending claims, plus any incurred but not reported claims. The accruals are estimated based on the Company’s evaluation of the type and severity of individual claims and future development based on historical trends combined with the assistance of independent actuaries. Insurance premiums and claims expense will fluctuate based on claims experience, premium rates and self-insurance retention levels.

Interest expense, as a percentage of operating revenue, was 0.9% during the three months ended June 30, 2004 compared to 1.1% during the same period in 2003. Interest expense decreased $68,000, or 2.7%, to $2.4 million during the three months ended June 30, 2004 compared to $2.5 million during the same period in 2003.  The decrease was primarily attributable to a decrease in the weighted average interest rate to 4.96% during the period ended June 30, 2004 compared to 6.42% during the same period in 2003, which more than offset the increased percentage of the Company's fleet financed with debt versus operating leases.

The effective tax rate was 46.0% for the three months ended June 30, 2004. The rate was higher than the statutory rate of 37.0%, primarily as a result of per diems paid to drivers which were not fully deductible for federal income tax purposes. The Company initiated the per diem driver pay plan in February 2002.

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Comparison of the Six Months Ended June 30, 2004 to the Six Months Ended June 30, 2003

Operating revenue, net of fuel surcharge, increased 11.2% to $482.8 million during the six months ended June 30, 2004 compared to $434.0 million during the same period in 2003. U.S. Xpress revenue, net of fuel surcharge, increased 9.0% to $421.7 million during the six months ended June 30, 2004 compared to $386.9 million during the same period in 2003, due primarily to an increase of 8.6% in average revenue per mile to $1.391 from $1.281. The increase in average revenue per mile was primarily due to increased rates combined with growth in regional and dedicated operations, which generally provide for a shorter length of haul and higher rater per mile. The effect of the increase in average revenue per mile was offset by a slight decrease in the average number of trucks during the period. Xpress Global Systems’ revenue increased 15.5% to $74.5 million during the six months ended June 30, 2004 compared to $64.5 million during the same period in 2003. Within Xpress Global Systems, floorcovering revenue increased 18.8% to $48.7 million due primarily to an increase in revenue per pound of 8.4%, combined with an increase in shipment volume of 6.9%. Airport-to-airport revenue increased 9.8% to $25.8 million due primarily to revenue generated by the acquisition of an airport-to-airport operation in October 2003, combined with an increase in revenue per pound of 2.7%.

Salaries, wages and benefits, as a percentage of operating revenue, was 35.8% during the six months ended June 30, 2004 compared to 36.1% during the same period in 2003. Salaries, wages and benefits increased 10.5% to $173.0 million during the six months ended June 30, 2004 compared to $156.5 million during the same period in 2003. The increase was primarily due to a driver pay increase of approximately 8% in February 2004 and an increase in the number of local drivers necessary to support the expedited rail program. The increase can also be attributed to growth in non-driver personnel as a result of the increased volume of business for both of the Company’s business segments.

Fuel and fuel taxes net of fuel surcharge, as a percentage of operating revenue, was 11.4% during the six months ended June 30, 2004 compared to 11.8% during the same period in 2003. Fuel and fuel taxes, net of fuel surcharge, increased 7.6% to $54.9 million during the six months ended June 30, 2004 compared to $51.0 million during the same period in 2003. The increase was due to an approximately $0.02 per Company tractor mile, or 6.8%, increase in fuel and fuel taxes, net of fuel surcharge, due primarily to an approximate 9.4% increase in the average fuel price per gallon, combined with the lower fuel efficiency of the new EPA-compliant engines. The increase in fuel and fuel taxes net of fuel surcharge, was offset by a slight decline in Company miles. The Company’s exposure to increases in fuel prices is partially mitigated by fuel surcharges to its customers, which amounted to $22.2 million and $18.6 million for the six months ended June 30, 2004 and 2003, respectively.

Vehicle rents, as a percentage of operating revenue, was 7.4% during the six months ended June 30, 2004 compared to 8.7% during the same period in 2003. Vehicle rents decreased 4.5% to $36.0 million during the six months ended June 30, 2004 compared to $37.7 million for the same period in 2003. The decrease was primarily due to a decline in the average number of tractors financed under operating leases to 3,505 compared to 4,194 during the six months ended June 30, 2004 and 2003, respectively. The decrease was partially offset by an increase in the average number of trailers financed under operating leases to 8,099 compared to 6,997 during the six months ended June 30, 2004 and 2003, respectively, due to the expansion of the Company’s trailer fleet necessary to support the expedited rail program.

Depreciation and amortization, as a percentage of operating revenue, was 4.6% during the six months ended June 30, 2004 compared to 4.2% during the same period in 2003. Depreciation and amortization increased 21.3% to $22.2 million during the six months ended June 30, 2004 compared to $18.3 million during the same period in 2003. The increase was primarily due to the increased cost of the new EPA-compliant engines and lower residual values, combined with an increase in the average number of owned tractors and trailers to 1,802 and 8,004, respectively, during the period ending June 30, 2004 compared to 1,210 and 6,284, respectively, during the same period in 2003. The increase in depreciation and amortization reflects the Company’s decision to finance its fleet additions during the six months ended June 30, 2004

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with debt versus operating leases, combined with the expansion of its trailer fleet necessary to support the expedited rail program.

Purchased transportation, as a percentage of operating revenue, was 18.9% during the six months ended June 30, 2004 compared to 17.2% during the same period in 2003. The increase was primarily  due to the increased use of rail transportation for certain medium-to-long haul truckload freight and an owner-operator pay increase of approximately 4.0% initiated in February 2004. The increase was partially offset by a decrease in the average number of owner-operators during the six months ended June 30, 2004 to 842, or 15.4% of the total fleet, compared to 978 or 17.8% of the total fleet, for the same period in 2003.

Operating expenses and supplies, as a percentage of operating revenue, was 7.0% during the six months ended June 30, 2004 compared to 7.5% during the same period in 2003. Operating expenses and supplies increased 4.3% to $34.0 million during the six months ended June 30, 2004, compared to $32.6 million during the same period in 2003. The increase was due primarily to an increase in driver recruiting and retention costs, offset by a decrease in maintenance expense due to a slight decline in the average age of the Company’s tractor fleet.

Insurance premiums and claims remained consistent as a percentage of operating revenue at 5.2% during the six months ended June 30, 2004 and 2003. Insurance premiums and claims, consisting primarily of premiums and deductible amounts for liability (personal injury and property damage), physical damage and cargo damage insurance and claims, increased 11.5% to $25.3 million during the six months ended June 30, 2004 compared to $22.7 million during the same period in 2003. The increase was primarily due to increased insurance premiums combined with an increase in liability claims expense of $7.8 million. The increase in liability claims expense was primarily due to an increase in current year claims combined with adverse development related to claims for prior years. The increase in liability claims was partially offset by a decrease in physical damage and cargo claims. The Company is self-insured up to certain limits for cargo loss, physical damage and liability. As of June 30, 2004, the retention level per occurrence for cargo loss was $250,000 ($200,000 for the same period in 2003) and the retention level for liability was $2.0 million per occurrence ($500,000 for the same period in 2003 with the risk for the $1.0 million to $3.0 million level of cost per occurrence). The Company maintains insurance with licensed insurance companies above amounts for which it is self-insured for cargo and liability. The Company accrues for the uninsured portion of pending claims, plus any incurred but not reported claims. The accruals are estimated based on the Company’s evaluation of the type and severity of individual claims and future development based on historical trends.

Interest expense, as a percentage of operating revenue, was 0.9% during the six months ended June 30, 2004 compared to 1.3% during the same period in 2003.  Interest expense decreased $882,000, or 14.8%, to $4.6 million during the six months ended June 30, 2004 compared to $5.4 million during the same period in 2003. The decrease was primarily attributable to a decrease in the weighted average interest rate to 4.96% during the period ended June 30, 2004 compared to 6.42% during the same period in 2003, which more than offset the increased percentage of the Company's fleet financed with debt versus operating leases.

The effective tax rate was 46.0% for the six months ended June 30, 2004. The rate was higher than the statutory rate of 37.0%, primarily as a result of per diems paid to drivers which were not fully deductible for federal income tax purposes. The Company initiated the per diem driver pay plan in February 2002.

Liquidity and Capital Resources

Cash Flows

Cash provided by operations was $12.3 million and $18.2 million during the six months ended June 30, 2004 and 2003, respectively. The change was primarily due to an increase in working capital resulting from an increase in operating revenue of 11.6 % combined with a slight increase in the Company’s day sales outstanding.

Cash used in investing activities was $43.5 million during the six months ended June 30, 2004 compared to cash provided by investing activities of $21.3 million during the same period in 2003. The cash used during the six months ended June 30, 2004 related to the financing of tractors through long-term debt versus operating leases, combined with the purchase

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of trailers to support the expansion of the Company’s regional truckload business and the expedited rail program. Net cash provided by investing activities during the same period in 2003 resulted primarily from the Company selling significantly more revenue equipment generating cash proceeds, while the replacement of revenue equipment was primarily funded through the use of operating leases.

Cash provided by financing activities was $31.5 million during the six months ended June 30, 2004 compared to cash used in financing activities of $39.2 million during the same period in 2003. During the six months ended June 30, 2004, the Company had net borrowings of $31.8 million, compared to net repayments of $35.3 million for the same period in 2003. The increase in net borrowings was primarily the result of an increase in the proportion of revenue equipment financed with debt versus operating leases. Current maturities of long-term debt at June 30, 2004 of $33.4 million included $10.3 million in balloon payments related to maturing revenue equipment installment notes. The balloon payments are expected to be funded primarily with proceeds from the sale of the related revenue equipment, which are generally covered by repurchase and/or trade agreements in principle between the Company and the equipment manufacturer.

Revolving Credit Agreement

On March 29, 2002, the Company entered into a $100.0 million senior secured revolving credit facility with Fleet Capital Corporation. Proceeds from this facility were used to repay the then existing revolving credit facility. The revolving credit facility provides for borrowings up to $100.0 million, with availability at any given time based on specified percentages of eligible receivables and revenue equipment, less reserves, under the facility’s borrowing base formula. Letters of credit under the facility are limited to $37.0 million. The facility matures in March 2007.

The facility allows the Company to select interest rates for all or any portion of the outstanding balance, based on a base rate (based on the domestic prime rate) plus an applicable margin or LIBOR plus an applicable margin. The applicable margin ranges from 0.75% to 1.50% for base rate loans and from 2.25% to 3.00% for LIBOR loans, based in each case on the aggregate availability as defined. At June 30, 2004, the applicable margin was 0.75% for base rate loans and 2.25% for LIBOR loans. The facility also prescribes additional fees for letter of credit transactions and a monthly commitment fee based on the difference between the total commitment and the total borrowing capacity utilized by the Company from time to time. The interest rate for the base rate and LIBOR loans as of June 30, 2004 was 4.75% and 5.25%, respectively.

The facility requires, among other things, maintenance by the Company of prescribed minimum amounts of consolidated tangible net worth, fixed charge coverage ratios and leverage ratios. It also: (1) limits the Company’s future capital expenditures; (2) prohibits all acquisitions by the Company of its own capital stock or the payment of dividends on such stock; and (3) effectively prohibits future asset acquisitions or dispositions (except in the ordinary course of business) or other business combination transactions by the Company without the lenders’ consent. The Company was in compliance with these covenants as of June 30, 2004.

At June 30, 2004, $16.2 million in borrowings and $37.0 million in letters of credit were outstanding under the facility, with $40.8 million available to borrow. The facility is secured by substantially all assets of the Company, other than real estate and assets securing other debt.

Off Balance Sheet Arrangements

The Company uses non-cancelable operating leases as a source of financing for 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, the Company considers interest rates, capital requirements and the tax advantages of leasing versus owning. At June 30, 2004, a substantial portion of the Company’s off-balance sheet arrangements related to non-cancelable leases for revenue equipment and office and terminal facilities with termination dates ranging from July 2004 to February 2011. Lease payments on office and terminal facilities, automobiles and

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airplanes are included in general and other operating expenses and lease payments on service equipment are included in operating expense and supplies in the consolidated statements of operations, respectively. Rental expense related to the Company’s off-balance sheet arrangements was $40.8 million for the six months ended June 30, 2004. The remaining lease obligation as of June 30, 2004 was $193.2 million, with $66.8 million due in the next twelve months.

Certain equipment leases provide for guarantees by the Company of a portion of the residual amount under certain circumstances at the end of the lease term. The maximum potential amount of future payments (undiscounted) under these guarantees is approximately $69.5 million at June 30, 2004. The residual value of a substantial portion of the leased revenue equipment is covered by repurchase or trade agreements in principle between the Company and the equipment manufacturer. Management estimates the fair value of the guaranteed residual values for leased revenue equipment to be immaterial. Accordingly, the Company has no guaranteed liabilities accrued in the accompanying consolidated balance sheets.

Cash Requirements

Management believes that funds provided by operations, borrowings under its revolving credit facility, equipment installment loans and long-term operating lease financing will be sufficient to fund its cash needs and anticipated capital expenditures for the next twelve months. The Company’s business will continue to require over the long-term, significant capital investments in revenue equipment, which may require the Company to seek additional borrowings or equity capital. The availability of additional capital will depend upon prevailing market conditions, the market price of the Company’s common stock, as well as our financial condition and results of operations. Based on recent operating results, anticipated future cash flows and sources of financing expected to be available, the Company does not expect any significant liquidity constraints in the foreseeable future.

The following table presents the Company’s outstanding contractual obligations at June 30, 2004, excluding letters of credit of $37.0 million. The letters of credit are maintained primarily to support the Company’s insurance program and are renewed on an annual basis.

Payments Due By Period
(Dollars in Thousands)


Contractual Obligations Total
Less than 1
year

1-3 years
4-5 years
After 5 years
Long-Term Debt Including Interest (1)     $ 216,718   $ 21,893   $ 76,402   $ 81,548   $ 36,875  
Capital Lease Obligations (1)       4,354     871     2,534     949     -  
Operating Leases - Revenue Equipment (2)       166,754     30,229     96,411     31,871     8,243  
Operating Leases - Other (3)       26,403     6,070     13,805     5,543     985  
Purchase Obligations (4)       405,439     81,400     247,680     76,359     -  







Total Contractual Cash Obligations     $ 819,668   $ 140,463   $ 436,832   $ 196,270   $ 46,103

 



(1) Represents principal and interest payments owed on revenue equipment installment notes, mortgage notes payable and capital lease obligations at June 30, 2004. Includes principal payments due under the terms of the revolving credit facility. The credit facility does not require scheduled principal payments. Approximately 27.0% of the Company’s debt is financed with variable interest rates. In determining future contractual interest obligations for variable rate debt, the interest rate in place at June 30, 2004 was utilized. The Company’s variable rate debt primarily bears interest at LIBOR plus spreads ranging from 2.00% to 3.60%. The table assumes long-term debt is held to maturity. Refer to footnote 9 in the accompanying consolidated financial statements for further information.

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  (2) Represents future obligations under operating leases for over-the-road tractors, day-cabs and trailers. Substantially all lease agreements for revenue equipment have fixed payment terms based on the passage of time. The tractor lease agreements generally stipulate maximum miles and provide for mileage penalties for excess miles. Lease terms for tractors and trailers range from 36 to 54 months and 60 to 84 months, respectively. Refer to Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Off-Balance Sheet Arrangements” and footnote 10 in the accompanying consolidated financial statements for further information.

  (3) Represents future obligations under operating leases for buildings, forklifts, automobiles and airplanes. Substantially all lease agreements, with the exception of building leases, have fixed payment terms based on the passage of time. Lease terms range from 1 to 13 years.

  (4) Represents purchase obligations for revenue equipment (tractors and trailers), development and improvement of facilities and computer hardware and software. With respect to revenue equipment, includes projected obligations under existing agreements in principle and such projected obligations totaling $307.0 million under a proposal to amend the existing agreements in principle in a letter dated March 2004 (as described below), that is intended to supercede the existing agreements in principle. The proposal is subject to negotiation of final terms and execution of a definitive agreement. Refer to footnote 5 in the accompanying consolidated financial statements for further information on the Company’s purchase commitments.

    The Company has signed a letter proposal to enter a definitive agreement that would supersede the existing agreement in principle with respect to purchase of a substantial portion of its revenue equipment for the years 2004 through 2007. It is anticipated that a definitive agreement will be executed by the parties in the near term and that such definitive agreement will contain provisions requiring the manufacturer to repurchase revenue equipment at its residual values.

Critical Accounting Policies and Estimates

In the ordinary course of business, the Company has made a number of estimates and assumptions relating to the reporting of results of operations and financial position in the preparation of its financial statements in conformity with generally accepted accounting principles. Actual results could differ significantly from those estimates under different assumptions and conditions. The Company believes that the following discussion addresses the Company’s most critical accounting policies, which are those that are most important to the portrayal of the Company’s financial condition and results of operations and require management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Recognition of Revenue

The Company generally recognizes revenue and direct costs when shipments are completed. Certain revenue of Xpress Global Systems, representing approximately 10.0% of consolidated revenues at June 30, 2004, is recognized upon manifest, that is, the time when the trailer of the independent carrier is loaded, sealed and ready to leave the dock. Estimated expenses are recorded simultaneous with the recognition of revenue. Had revenue been recognized using another method, such as completed shipment, the impact would have been insignificant to the Company’s consolidated financial statements.

Income Taxes

Significant management judgment is required in determining the Company’s provision for income taxes and in determining whether deferred tax assets will be realized in full or in part. Deferred tax assets and liabilities are measured using enacted tax rates that are expected to apply to taxable income in years in which the temporary differences are expected to be reversed. When it is more likely than not that all or some portion of specific deferred tax assets, such as state tax credit carry-forwards or state net operating loss carry-forwards will not be realized, a valuation allowance must be established for the amount of the deferred tax assets that are determined to be not realizable. A valuation allowance for deferred tax assets has not been deemed necessary due to the Company’s profitable operations on both a consolidated and separate legal entity basis. However, if the facts or financial results were to change, thereby impacting the likelihood of the realization of the deferred tax assets, the Company would use its judgment to determine the amount of the valuation allowance required at that time for that period.

The determination of the combined tax rate used to calculate the Company’s provision for income taxes for both current and deferred income taxes also requires significant judgment by management. Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes", requires that the net deferred tax asset or liability be valued using enacted tax rates that management believes will be in effect when these temporary differences reverse. The Company uses the combined tax rates in effect at the time the financial statements are prepared since no better information is available. If changes in the federal statutory rate or significant changes in the statutory state

21


and local tax rates occur prior to or during the reversal of these items or if the filing obligations of the Company were to change materially, this could change the combined rate and, by extension, the Company’s provision for income taxes.

Depreciation

Property and equipment are carried at cost. Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the related assets (net of estimated salvage value or trade-in value). The Company generally uses estimated useful lives of 4-5 years and 7-10 years for tractors and trailers, respectively, with estimated salvage values ranging from 30% — 50% of the capitalized cost. The depreciable lives of the Company’s revenue equipment represent the estimated usage period of the equipment, which is generally substantially less than the economic lives. The residual value of a substantial portion of the Company’s equipment is covered by repurchase or trade agreements in principle between the Company and the equipment manufacturer.

Periodically, the Company evaluates the useful lives and salvage values of its revenue equipment and other long-lived assets based upon, but not limited to, its experience with similar assets including gains or losses upon dispositions of such assets, conditions in the used equipment market and prevailing industry practices. Changes in useful lives or salvage value estimates, or fluctuations in market values that are not reflected in the Company’s estimates, could have a material impact on financial results. Further, if the Company’s equipment manufacturer does not perform under the terms of the agreements in principle for guaranteed trade-in values, such non-performance could have a materially negative impact on financial results.

Goodwill

The excess of the consideration paid by the Company over the estimated fair value of identifiable net assets acquired has been recorded as goodwill and prior to 2002, had been amortized on the straight-line basis over periods ranging from 20 to 40 years. The Company previously evaluated whether subsequent events and circumstances occurred that indicated the remaining estimated useful life of goodwill might warrant revision or that the remaining balance may not have been recoverable. When factors indicated that goodwill should be evaluated for possible impairment, the Company used an estimate of the future undiscounted net cash flows of the related businesses over the remaining life of the goodwill in measuring whether goodwill is recoverable.

In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 142, “Goodwill and Other Intangible Assets”. SFAS No. 142 requires that goodwill not be amortized, and that amounts recorded as goodwill are to be tested for impairment. The Company adopted SFAS No. 142 effective January 1, 2002. The Company tested goodwill for impairment using the two-step process prescribed in SFAS No. 142. The first step is a screen for potential impairment, while the second step measures impairment, if any. The Company completed the required impairment tests of goodwill and noted no impairment of goodwill in 2003. The impairment tests for fiscal 2004 will be conducted during the fourth quarter to determine any impairment issues.

Goodwill impairment tests are highly subjective. Such tests include estimating the fair value of the Company’s reporting units. As required by SFAS No. 142, the Company compared the estimated fair value of the reporting units with their respective carrying amounts including goodwill. The Company defines a reporting unit as an operating segment. Under SFAS No. 142, fair value refers to the amount for which the entire reporting unit could be bought or sold. The Company’s methods for estimating reporting unit values include asset and liability fair values and other valuation techniques, such as discounted cash flows and multiples of earnings, or other financial measures. Each of these methods involve significant estimates and assumptions, including estimates of future financial performance and the selection of appropriate discount rates and valuation multiples.

Claims Reserves and Estimates

Claims reserves consist of estimates of cargo loss, physical damage, liability (personal injury and property damage), employee medical expenses and workers’ compensation claims within the Company’s established retention levels. Claims in excess of retention levels are generally covered by insurance in amounts the Company considers adequate.

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Claims accruals represent the uninsured portion of pending claims including estimates of adverse development of known claims, plus an estimated liability for incurred but not reported claims. Accruals for cargo loss, physical damage, liability and workers’ compensation claims are estimated based on the Company’s evaluation of the type and severity of individual claims and historical information, primarily its own claims experience, along with assumptions about future events combined with the assistance of independent actuaries. Changes in assumptions as well as changes in actual experience could cause these estimates to change in the near future.

Workers’ compensation and liability claims are particularly subject to a significant degree of uncertainty due to the potential for growth and development of the claims over time. Claims and insurance reserves related to workers’ compensation are estimated by an independent third-party actuary and the Company refers to these estimates in establishing the reserve. Liability reserves are estimated based on historical experience and trends, the type and severity of individual claims and assumptions about future costs. Further, in establishing the workers’ compensation and liability reserves, the Company must take into account and estimate various factors, including, but not limited to, assumptions concerning the nature and severity of the claim, the effect of the jurisdiction on any award or settlement, the length of time until ultimate resolution, inflation rates in health care and in general, interest rates, legal expenses and other factors. The Company’s actual experience may be different than its estimates, sometimes significantly. Additionally, changes in assumptions made in actuarial studies could potentially have a material effect on the provision for workers’ compensation claims.

The Company has experienced significant increases in insurance premiums and claims expense since September 2001 primarily related to workers’ compensation and liability insurance. The increases have resulted primarily from a significant increase in excess insurance premiums, adverse development in prior year losses, unfavorable accident experience and an increase in retention levels related to workers' compensation and liability claims. The retention level for liability insurance was $3,000 prior to September 2001 and has increased to ranges of $250,000 to $2.0 million in subsequent periods.  Prior to November 2000, the Company had no retention for workers' compensation insurance, which has increased to $250,000 in subsequent periods. The Company’s insurance and claims expense varies based on the frequency and severity of claims, the premium expense and the level of self-insured retention. The increase in self-insured retention since November 2000 and September 2001 has caused insurance and claims expense to be higher and more volatile than in historical periods.

Recent Accounting Pronouncements

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51.” The Interpretation requires the consolidation of entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Currently, entities are generally consolidated by an enterprise when it has a controlling interest through ownership of a majority voting interest in the entity. In December 2003, the FASB issued a revision of the Interpretation, which deferred the effective date to the first reporting period after March 15, 2004. The Interpretation permits consolidation at historical carrying amounts as if the Interpretation had always been applied, or at fair value, if determining historical amounts is impracticable. The Interpretation may be applied prospectively with a cumulative-effect adjustment as of the date on which it is first applied or by restating previously issued financial statements for one or more years with a cumulative effective adjustment as of the beginning of the first year restated. The adoption of Interpretation No. 46 had no impact on the Company’s financial statements.

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In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”. SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. In particular, SFAS No. 149 clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative as discussed in SFAS No. 133 and it clarifies when a derivative contains a financing component that warrants special reporting in the statement of cash flows. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003 and is to be applied prospectively. The adoption of SFAS No. 149 had no impact on the Company’s financial statements.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity”, which specifies that instruments within its scope are obligations of the issuer and, therefore, the issuer must classify them as liabilities. Financial instruments within the scope of the pronouncement include mandatory redeemable financial instruments, obligations to repurchase the issuer’s equity shares by transferring assets and certain obligations to issue a variable number of shares. SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003. The adoption of SFAS No. 150 had no impact on the Company’s financial statements.

Inflation

Inflation could have an adverse impact on the Company’s costs of operations. A period of inflation may cause interest rates, revenue equipment prices, wages paid to attract and retain qualified drivers and fuel prices to increase, which would adversely affect results of operations unless corresponding increases in freight rates could be achieved. However, inflation has not had a material effect on the Company’s results of operations or financial condition during the past three years.

Seasonality

In the trucking industry, results of operations generally show a seasonal pattern as customers increase shipments prior to and reduce shipments during and after the winter holiday season. Additionally, shipments can be adversely impacted by winter weather conditions. The Company’s operating expenses have historically been higher in the winter months due primarily to decreased fuel efficiency, increased maintenance costs of revenue equipment in colder weather and increased insurance and claims costs due to adverse winter weather conditions. Revenue can also be affected by bad weather and holidays, since revenue is directly related to available working days of shippers.

This Quarterly Report contains certain statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements may be identified by their use of terms or phrases such as “expects”, “estimates”, “projects”, “believes”, “anticipates”, “intends”, and similar terms and phrases, and may include, but not be limited to projections of revenues, income or loss, capital expenditures, acquisitions, plans for growth and future operations, financing needs or plans or intentions relating to acquisitions by the Company, as well as assumptions relating to the foregoing. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, which could cause future events and actual results to differ materially from those set forth in, contemplated by or underlying the forward-looking statements. The following factors among others, could cause actual results to differ materially from those in forward looking statements: excess tractor or trailer capacity in the trucking industry; decrease in demand for the Company’s services; inventory levels; recessionary economic cycles and downturns in customers’ business cycles; increases or rapid fluctuations in fuel prices, interest rates, fuel taxes, tolls and license and registration fees; increases in the prices paid for new revenue equipment; resale value of used revenue equipment; the ability to obtain long-term debt financing and the continued availability of financing in the amounts and on the terms necessary to support the Company’s future business; difficulty in attracting and retaining qualified drivers and owner-operators; increased experience in the severity and frequency of claims relating to liability, cargo loss, physical damage, workers’ compensation and health insurance related claims; increased premiums and deductibles; seasonal factors such as weather conditions; regulatory requirements including the new hours of service rules. Readers should review and consider the factors discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Factors that May Affect Future Results" of the Company's Annual Report on Form 10-K, filed on March 15, 2004, along with the various disclosures in the Company's press releases, stockholder reports and other filings with the Securities and Exchange Commission.  The Company disclaims any obligation to update or revise any forward-looking statements to reflect actual results or changes in the factors affecting the forward-looking information.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

The Company has interest rate exposure arising from the Company’s line of credit and other installment notes, which have variable interest rates. At June 30, 2004, the Company had $52.8 million of variable rate debt. Assuming the current level of borrowings, a one-percentage point increase in interest rates would increase the Company’s interest expense by approximately $530,000.

Commodity Price Risk

Fuel is one of the Company’s largest expenditures. The price and availability of diesel fuel fluctuates due to changes in production, seasonality and other market factors generally outside the Company’s control. Many of the Company’s customer contracts contain fuel surcharge provisions to mitigate increases in the cost of fuel. Fuel surcharges to customers do not fully recover all of fuel increases due to engine idle time and out-of-route and empty miles not billable to the customer.

Item 4. Controls and Procedures

As of the end of the period covered by this Form 10-Q, an evaluation under Rule 13a-15 of the Securities Exchange Act of 1934 was performed under the supervision and with the participation of our management, including our principal executive and financial officers, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our principal executive and financial officers concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report. There have been no changes in our internal controls over financial reporting that materially affected or are reasonably likely to materially affect internal control over financial reporting during the second fiscal quarter.

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PART II — OTHER INFORMATION

Item 2.    Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

 

Period
Total Number
of Shares Purchased

Average Price
Per Share

Total Number
of Shares Purchased
as Part of Publicly
Announced Plans or Programs(a)

Approximate Dollar Value of
Shares that May Yet Be
Purchased Under the
Plans or Programs

April 1-30, 2004                    -       -                  -    $ 10,000,000  
May 1-31, 2004                   -       -                  -   $ 10,000,000
June 1-30, 2004 
 
 
 
      50,000
 
$
13.07
 
 
         50,000
 
$
9,346,500
Total             50,000   $ 13.07              50,000   $ 9,346,500

 

(a) The Company announced the stock repurchase program on May 24, 2004. The Board of Directors authorized the Company to repurchase up to $10 million of its Class A Common Stock on the open market or in privately negotiated transactions at any time until May 25, 2005, at which time the Board may elect to extend the program.

Item 4. Submission of Matters to a Vote of Security Holders

        The annual meeting of shareholders was held on May 18, 2004. The meeting was held to consider and vote upon the election of Directors for the following year. All Directors were elected with the results of the vote summarized as follows:

           FOR     WITHHELD     ABSTAIN        TOTAL    
Max L. Fuller   15,906,874          838,704             0     16,745,578    
James E. Hall     16,667,162           78,416            0     16,745,578    
John W. Murrey, III     16,666,862           78,716            0     16,745,578    
Patrick E. Quinn     15,906,874         838,704            0     16,745,578    
Robert J. Sudderth, Jr     16,666,649           78,929            0     16,745,578    

        At the same meeting, the following proposals were also adopted by our Shareholders. The voting was as follows:

           FOR     AGAINST     ABSTAIN       TOTAL    
Ratification of the appointment of     16,737,479         8,085           14     16,745,578    
Ernst & Young LLP as independent    
auditors for 2004    

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Item 6. Exhibits and Reports on Form 8-K

(a)        Exhibits

(1) 3.1 Restated Articles of Incorporation of the Company and incorporated herein by reference.

(1) 3.2 By-Laws of the Company and incorporated herein by reference.

(1) 4.1 Restated Articles of Incorporation of the Company filed as Exhibit 3.2 and incorporated herein by reference.

(1) 4.2 By-Laws of the Company filed as Exhibit 3.2 and incorporated herein by reference.

(1) 4.3 Stock Purchase Agreement dated June 10, 1993 by and among Max L. Fuller, Patrick E. Quinn and the Company and incorporated herein by reference.

(1) 4.4 Agreement of Right of First Refusal with regard to Class B Shares of the Company dated May 11, 1994 by and between Max L. Fuller and Patrick E. Quinn and incorporated herein by reference.

  10.63 Consent to repurchase up to $10,000,000 of Common Stock dated May 26, 2004 by and among U.S. Xpress Enterprises, Inc., Fleet Capital Corporation, as Administrative Agent, Fleet Securities, Inc., as Arranger and LaSalle Bank National Association, as Syndication Agent.

  10.64 Consent to acquisition of CRST Van Expedited, Inc., dated July 20, 2004, by and among U.S. Xpress Enterprises, Inc., Fleet Capital Corporation, as Administrative Agent, Fleet Securities, Inc., as Arranger and LaSalle Bank National Association, as Syndication Agent.

  31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

  31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

  31.3 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

  32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

  32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b)       Reports on Form 8-K

            The following items were reported:


  A Current Report dated July 16, 2004, to furnish copies of the Company's earnings release dated July 15, 2004.

  A Current Report dated May 24, 2004, to furnish copies of the Company's announcement of its intent to repurchase shares dated May 24, 2004.



  (1) Filed in Registration Statement on Form S-1 dated May 20, 1994. (SEC File No. 33-79208)

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SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

         U.S. XPRESS ENTERPRISES, INC.  
           (Registrant)  


Date: August 9, 2004
  By: /s/ Patrick E. Quinn  
         Patrick E. Quinn  
         President  

Date: August 9, 2004
  By: /s/ Ray M. Harlin  
         Ray M. Harlin  
         Chief Financial Officer  

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EXHIBIT 31.1

CERTIFICATIONS

I, Ray M. Harlin, certify that:

1.     I have reviewed this Quarterly Report on Form 10-Q of U.S. Xpress Enterprises, Inc.;

  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

  4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

(a)         Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)         Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)         Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

  5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)         All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)         Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: August 9, 2004


BY: /s/ Ray M. Harlin
——————————————
Chief Financial Officer

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EXHIBIT 31.2

CERTIFICATIONS

I, Patrick E. Quinn, certify that:

  1. I have reviewed this Quarterly Report on Form 10-Q of U.S. Xpress Enterprises, Inc.;

  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

  4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

(a)         Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)         Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)         Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

  5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)         All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)         Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: August 9, 2004


BY: /s/ Patrick E. Quinn
——————————————
President

30


EXHIBIT 31.3

CERTIFICATIONS

I, Max L. Fuller, certify that:

  1. I have reviewed this Quarterly Report on Form 10-Q of U.S. Xpress Enterprises, Inc.;

  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

  4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

(a)         Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)         Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)         Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

  5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)         All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)         Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: August 9, 2004


BY: /s/Max L. Fuller
——————————————
Vice-President

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EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

        In connection with the Quarterly Report of U.S. Xpress Enterprises, Inc. (the “Company”) on Form 10-Q for the three months ending June 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certifies, pursuant to 18 U.S.C. § 1350 (as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002) that he is the President (the Chief Executive Officer) of the Company and that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/Patrick E. Quinn
——————————————
Patrick E. Quinn
Co-Chairman of the Board of Directors,
President and Treasurer

Date: August 9, 2004

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Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

        In connection with the Quarterly Report of U.S. Xpress Enterprises, Inc. (the “Company”) on Form 10-Q for the three months ending June 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certifies, pursuant to 18 U.S.C. § 1350 (as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002) that he is the Chief Financial Officer of the Company and that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/Ray M. Harlin
——————————————
Ray M. Harlin
Executive Vice President of Finance,
and Chief Financial Officer

Date: August 9, 2004

33