US XPRESS ENTERPRISES INC - Quarter Report: 2005 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended	Commission file number
September 30, 2005	0-24806

(Exact name of registrant as specified in its charter)

NEVADA		62-1378182
(State or other jurisdiction of		(I.R.S. Employer Identification Number)
incorporation or organization)


4080 JENKINS ROAD		(423) 510-3000
CHATTANOOGA, TENNESSEE 37421		(Registrant’s telephone number,
(Address of principal executive offices)		including area code)

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

Yes[ X ] No [ ]

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

Yes[ X ] No [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes[ ] No [ X ]

As of November 4, 2005, 12,331,676 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.	Financial Statements

	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2005 and 2004 (Unaudited)	3

	Consolidated Balance Sheets as of September 30, 2005 (Unaudited) and December 31, 2004	4

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2005 and 2004 (Unaudited)	6

	Notes to Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30

Item 4.	Controls and Procedures	31

PART II.	OTHER INFORMATION

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32

Item 6.	Exhibits	32

	SIGNATURES	33

TABLE OF CONTENTS

U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Per Share Data)

(Unaudited)

			Three Months Ended								Nine Months Ended
			September 30,							September 30,
			2005			2004			2005					2004
Operating Revenue:
Revenue, before fuel surcharge		$	262,623		$	272,002		$	763,605				$	754,765
Fuel surcharge			34,617			16,373			82,663					38,575
Total operating revenue			297,240			288,375			846,268					793,340

Operating Expenses:
Salaries, wages and benefits			100,756			96,434			295,928					269,405
Fuel and fuel taxes			60,680			43,735			161,790					120,802
Vehicle rents			17,140			17,079			51,608					53,033
Depreciation and amortization, net of gain on sale			12,203			12,119			35,106					34,269
Purchased transportation			49,041			55,718			147,130					147,142
Operating expense and supplies			18,524			19,239			57,048					53,119
Insurance premiums and claims			12,756			14,129			34,329					39,429
Operating taxes and licenses			3,614			3,476			10,348					10,455
Communications and utilities			2,600			2,768			8,203					8,691
General and other operating			10,625			11,254			33,492					30,817
Loss on sale and exit of business			—			—			2,787					—
Total operating expenses			287,939			275,951			837,769					767,162

Income from Operations			9,301			12,424			8,499					26,178

Interest Expense, net			1,883			2,465			5,496					7,021
Equity in income of affiliated companies			(557	)		(110	)		(1,808			)		(235	)
			1,326			2,355			3,688					6,786

Income Before Income Taxes			7,975			10,069			4,811					19,392

Income Tax Provision			3,976			4,631			2,457					8,918

Net Income	$		3,999		$	5,438		$	2,354				$	10,474

Earnings Per Share - basic	$		0.25		$	0.39		$	0.15				$	0.74
Weighted average shares - basic			15,908			14,056			16,117					14,062
Earnings Per Share - diluted	$		0.25		$	0.38		$	0.14				$	0.73
Weighted average shares - diluted			15,983			14,349			16,286					14,284

(See Accompanying Notes to Consolidated Financial Statements)

TABLE OF CONTENTS

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


Assets		September 30, 2005			December 31, 2004
		(Unaudited)
Current Assets:
Cash and cash equivalents	$	15,364		$	66
Customer receivables, net of allowance		135,599			143,282
Other receivables		17,067			9,451
Prepaid insurance and licenses		9,117			13,680
Operating and installation supplies		3,918			5,359
Deferred income taxes		14,146			14,146
Other current assets		9,770			4,408
Total current assets		204,981			190,392

Property and Equipment, at cost:
Land and buildings		39,590			43,955
Revenue and service equipment		301,852			311,404
Furniture and equipment		30,635			28,000
Leasehold improvements		29,574			24,606
Computer Software		29,141			23,769
		430,792			431,734
Less accumulated depreciation and amortization		(150,405	)		(156,121	)
Net property and equipment		280,387			275,613

Other Assets:
Goodwill, net		72,143			74,196
Other		25,012			19,966
Total other assets		97,155			94,162

Total Assets	$	582,523		$	560,167

(See Accompanying Notes to Consolidated Financial Statements)

TABLE OF CONTENTS

U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share Data)


Liabilities and Stockholders' Equity		September 30, 2005			December 31, 2004
		(Unaudited)
Current Liabilities:
Accounts payable	$	29,905		$	25,636
Book overdraft		6,235			11,246
Accrued wages and benefits		15,088			13,167
Claims and insurance accruals		57,362			53,450
Other accrued liabilities		3,894			3,949
Securitization facility		80,300			35,000
Current maturities of long-term debt		12,653			13,482
Total current liabilities		205,437			155,930

Long-Term Debt, net of current maturities		77,893			101,084

Deferred Income Taxes		70,193			68,965

Other Long-Term Liabilities		3,379			804

Stockholders' Equity:

Preferred stock, $.01 par value, 2,000,000
shares authorized, no shares issued		—			—
Common stock Class A, $.01 par value,
30,000,000 shares authorized, 15,851,465 and 15,742,812
shares issued at September 30, 2005 and December 31, 2004, respectively		159			157
Common stock Class B, $.01 par value, 7,500,000
shares authorized, 3,040,262 shares issued and
outstanding at September 30, 2005 and December 31, 2004		30			30
Additional paid-in capital		159,408			157,552
Retained earnings		103,191			100,837
Treasury Stock Class A, at cost (3,501,275 and 2,594,389 shares at
September 30, 2005 and December 31, 2004, respectively)		(37,051	)		(25,137	)
Notes receivable from stockholders		(17	)		(47	)
Unamortized compensation on restricted stock		(99	)		(8	)
Total stockholders' equity		225,621			233,384
Total Liabilities and Stockholders' Equity	$	582,523		$	560,167

(See Accompanying Notes to Consolidated Financial Statements)

TABLE OF CONTENTS

U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

	Nine Months Ended
	September 30,
		2005			2004
Cash Flows from Operating Activities:
Net Income	$	2,354		$	10,474
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income tax provision		1,228			4,459
Tax benefit realized from stock options		704			—
Provision for losses on receivables		1,967			720
Depreciation and amortization		37,519			34,472
Amortization of restricted stock		21			12
Gain on sale of equipment		(2,413	)		(203	)
Loss on sale and exit of business		2,787			—
Equity in income of affiliated companies		(1,808	)		(235	)
Change in operating assets and liabilities:
Receivables		(3,974	)		(40,140	)
Prepaid insurance and licenses		4,563			(839	)
Operating and installation supplies		1,421			(77	)
Other assets		(6,035	)		(1,198	)
Accounts payable and other accrued liabilities		4,013			20,350
Accrued wages and benefits		1,521			3,975
Net cash provided by operating activities		43,868			31,770
Cash Flows from Investing Activities:
Payments for purchase of property and equipment		(83,308	)		(65,115	)
Proceeds from sales of property and equipment		40,883			13,415
Repayment of notes receivable from stockholders		30			13
Investments in affiliate companies		(3,975	)		—
Acquisition of business		(327	)		(725	)
Proceeds from exit of airport-to-airport		12,750			—
Net cash used in investing activities		(33,947	)		(52,412	)
Cash Flows from Financing Activities:
Borrowings under securitization, net of payments		45,300			5,450
Borrowings under long-term debt		26,575			58,833
Payments of long-term debt		(50,595	)		(45,851	)
Additions to deferred financing costs		—			130
Book overdraft		(5,010	)		2,124
Purchase of Class A Common Stock		(11,914	)		(654	)
Proceeds from issuance of common stock		55			161
Proceeds from exercise of stock options		966			382
Net cash provided by financing activities		5,377			20,575
Net Increase in Cash and Cash Equivalents		15,298			(67	)
Cash and Cash Equivalents, beginning of period		66			168
Cash and Cash Equivalents, end of period		15,364			101
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest, net of capitalized interest	$	4,564		$	6,991
Cash paid during the period for income taxes	$	577		$	695
Conversion of operating leases to equipment installment notes	$	—		$	15,387

TABLE OF CONTENTS

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 and nine months ended September 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. 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 16, 2005).

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.

3. Earnings Per Share

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

		Three Months Ended September 30,				Nine Months Ended September 30,
		2005		2004			2005		2004
Net Income	$	3,999	$	5,438	$		2,354	$	10,474
Denominator:
Weighted average common shares outstanding		15,908		14,056			16,117		14,062
Equivalent shares issuable upon exercise of stock options and conversion of unvested restricted stock		75		293			169		222
Diluted shares		15,983		14,349			16,286		14,284
Earnings per share:
Basic	$	.25	$	.39	$		.15	$	.74
Diluted	$	.25	$	.38	$		.14	$	.73

4. Stock-Based Compensation

The Company applies the intrinsic value based method of Accounting Principles Board 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 plans have a grant price equal to the fair market value of the underlying common stock on the date of grant.

TABLE OF CONTENTS

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 nine months ended September 30, 2005 and 2004 as indicated below:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2005			2004				2005					2004
Net Income, as reported	$	3,999		$		5,438		$			2,354		$		10,474
Stock-based employee compensation net of tax		(150	)			(172	)				(499	)			(436	)
Pro forma net income	$	3,849		$		5,266		$			1,855		$		10,038
Earnings per share, basic, as reported	$	.25		$		.39		$			.15		$		.74
Earnings per share, basic, pro forma	$	.24		$		.37		$			.12		$		.71
Earnings per share, diluted, as reported	$	.25		$		.38		$			.14		$		.73
Earnings per share, diluted, pro forma	$	.24		$		.37		$			.11		$		.70

In June 2005, the Company issued 10,000 shares of restricted stock. The market value of these shares on the date of issuance was $11.15. This amount is being amortized using the straight-line method over the three-year vesting period from the date of issuance as additional compensation expense. The unamortized value of $99 is included as a component of stockholders’ equity.

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 $42.2 million outstanding at September 30, 2005. The letters of credit are maintained primarily to support the Company’s insurance program.

The Company currently has commitments outstanding to acquire revenue equipment for approximately $92,718 in 2005, $242,371 in 2006, and $78,117 in 2007. These revenue equipment commitments are cancelable, subject to certain adjustments in the underlying obligations and benefits. These purchase commitments are expected to be financed by operating leases, long-term debt, proceeds from sales of existing equipment, and cash flows from operations. In addition, the Company had commitments of $8,215 as of September 30, 2005 under contracts relating to development and improvement of facilities, which are non-cancelable. These developments are expected to be complete in the first quarter of 2006.

6. Equity Investments

In December 2004, we acquired a 49.0% interest in Arnold Transportation Services, Inc. (“Arnold”) and its affiliated companies for $6.2 million in cash. Arnold is a truckload carrier that provides primarily short-haul regional and dedicated dry van service in the Southwest, Southeast and Northeast. Certain members of Arnold’s current management team control the remaining 51% interest and a majority of the board of directors. We have not guaranteed any of Arnold’s debt and have no obligation to provide funding, services or assets. Under the agreement with Arnold’s management, we have a three-year option to acquire 100% of Arnold by purchasing management’s interest at a specified price plus an agreed upon annual return.

During the second quarter of 2005, we completed the acquisition of a 49.0% interest in Total Transportation of Mississippi and affiliated companies (“TTMS”). Certain members of the TTMS management team control the remaining 51% interest and a majority of the board of directors. We have not guaranteed any of TTMS’ debt and have no obligation to provide funding, services or assets. Under the agreement with the TTMS management team, we have an option to acquire 100% of TTMS by purchasing management’s interest at a specified price plus an agreed upon annual return. This option expires in the second quarter of 2010.

TABLE OF CONTENTS

We have accounted for these investments in affiliated companies using the equity method of accounting. As we have accounted for these investments using the equity method of accounting, our financial results include our proportionate share of income (loss) resulting from our investments. See Arnold’s and TTMS’ combined summarized financial information below subsequent to the Company’s respective investments.

	For Three Months Ended		For Nine Months Ended		For Period Ended
	September 30,		September 30			December 31,
		2005		2005					2004
Current Assets	$	48,628	$	48,628			$	34,073
Non-current Assets		128,263		128,263				86,156
Current Liabilities		47,718		47,718				50,397
Non-current Liabilities		119,754		119,754				67,414
Total Equity		9,419		9,419				2,418
Revenue		75,309		197,115				12,848
Operating Expenses		71,564		186,413				12,623
Operating Income		3,745		10,702				225
Net Income (Loss)		1,081		3,907				(90)

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. 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 September 30, 2005
Revenue - external customers	$	273,171	$	24,069	$	297,240
Intersegment revenue		2,593		—		2,593
Operating income (loss)		11,509		(2,208)		9,301
Total assets		551,358		31,165		582,523
Three Months Ended September 30, 2004
Revenue - external customers	$	246,898	$	41,477	$	288,375
Intersegment revenue		3,420		—		3,420
Operating income (loss)		13,603		(1,179)		12,424
Total assets		468,063		48,311		516,374
Nine Months Ended September 30, 2005
Revenue - external customers	$	743,341	$	102,927	$	846,268
Intersegment revenue		18,017		—		18,017
Operating income (loss)		19,799		(11,300)⁽¹⁾		8,499
Total assets		551,358		31,165		582,523
Nine Months Ended September 30, 2004
Revenue - external customers	$	677,377	$	115,963	$	793,340
Intersegment revenue		16,814		—		16,814
Operating income (loss)		26,741		(563)		26,178
Total assets		468,063		48,311		516,374

⁽¹⁾ Includes the one-time pre-tax charge of $2.8 million related to the loss on sale and exit of the airport-to-airport business. See Footnote 11, “ Loss on Sale and Exit of Business”.

TABLE OF CONTENTS

The difference in consolidated operating income, as shown above, and consolidated income before income tax provision on the consolidated statements of operations consists of net interest expense of $1,883 and $2,465 and equity in income of affiliated companies of $557 and $110 for the three months ended September 30, 2005 and 2004, respectively, and net interest expense of $5,496 and $7,021 and equity in income of affiliated companies of $1,808 and $235 for the nine months ended September 30, 2005 and 2004, respectively.

8. Long-Term Debt

Long-term debt at September 30, 2005 and December 31, 2004 consisted of the following:

		September 30, 2005				December 31, 2004
Obligation under line of credit with a group of banks, maturing October 2009	$	350		$	—
Revenue equipment installment notes with finance companies, weighted average interest rate of 5.46% and 5.29% at September 30, 2005 and December 31, 2004, respectively, due in monthly installments with final maturities at various dates to July 2011, secured by related revenue equipment		77,045			89,618
Mortgage note payable, interest rate of 6.73% at September 30, 2005 and December 31, 2004, due in monthly installments through October 2010, with final payment of $6.3 million, secured by real estate		8,191			8,421
Mortgage note payable, interest rate of 5.88% at December 31, 2004		—			12,466
Capital lease obligations maturing at various dates to November 2007		2,865			3,922
Other		2,095			139
		90,546			114,566
Less: current maturities of long-term debt		(12,653	)		(13,482)
	$	77,893		$	101,084

On October 14, 2004, the Company entered into a $100,000 senior secured revolving credit facility with a group of banks, which replaced the prior $100,000 credit facility that was scheduled to mature in March 2007. The new facility is secured by revenue equipment and certain other assets and bears interest at the base rate, as defined, plus an applicable margin of 0.00% to 0.25% or LIBOR plus an applicable margin of 0.88% to 2.00% based on the Company’s lease adjusted leverage ratio. At September 30, 2005 the applicable margin was 0.00% for base rate loans and 1.0% for LIBOR loans. The credit facility also prescribes additional fees for letter of credit transactions and a quarterly commitment fee on the unused portion of the loan commitment (1.00% and 0.20%, respectively, at September 30, 2005). The facility matures in October 2009. At September 30, 2005, $42,200 in letters of credit were outstanding under the credit facility with $57,400 available to borrow. The credit facility is secured by substantially all assets of the Company, other than real estate and assets securing other debt of the Company.

The credit facility requires, among other things, maintenance by the Company of prescribed minimum amounts of consolidated tangible net worth, fixed charge and asset coverage ratios and a leverage ratio. It also restricts the ability of the Company and its subsidiaries, without the approval of the lenders, subject to certain exceptions, as defined, to engage in sale-lease back transactions, transactions with affiliates, investment transactions, acquisitions of the Company’s own capital stock or the payment of dividends on such stock, future asset dispositions (except in the ordinary course of business) or other business combination transactions and to incur liens and future indebtedness. As of September 30, 2005, the Company was in compliance with the credit facility covenants.

9. Accounts Receivable Securitization

The Company is party to a $100,000 accounts receivable securitization facility (the “Securitization Facility”). On a revolving basis, the Company sells accounts receivable as part of a two-step securitization transaction that provides the Company with funding similar to a revolving credit facility. To facilitate this transaction, Xpress Receivables, LLC (“Xpress Receivables”) was formed as a wholly-owned subsidiary of the Company. Xpress Receivables is a

TABLE OF CONTENTS

bankruptcy remote, special purpose entity, which purchases accounts receivable from U.S. Xpress and Xpress Global Systems. Xpress Receivables funds these purchases with money borrowed under the Securitization Facility through Three Pillars Funding, LLC.

The borrowings are secured by the accounts receivable and paid down through collections of the accounts receivable. The Company can borrow up to $100,000 under the Securitization Facility, subject to eligible receivables, and pays interest on borrowings based on commercial paper interest rates, plus an applicable margin, and a commitment fee on the daily, unused portion of the facility. The Securitization Facility is reflected as a current liability in the consolidated financial statements because the term, subject to annual renewals, is October 12, 2006. As of September 30, 2005, the Company’s borrowings under the Securitization Facility were $80,300 with $16,200 available to borrow.

The Securitization Facility requires certain performance ratios be maintained with respect to accounts receivable and that Xpress Receivables preserve its bankruptcy remote nature. As of September 30, 2005, the Company was in compliance with the Securitization Facility covenants.

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 July 2012. Revenue equipment lease terms are generally 3-4 years for tractors and 5-7 years for trailers. The lease terms are substantially less than the economic lives of the equipment. A substantial number of 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 $36,933 at September 30, 2005. 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 not accrued any liabilities related to the guaranteed residual values in the accompanying consolidated balance sheets.

The Company is party to leases for buildings, forklifts, automobiles, computer equipment and airplanes which range in terms from 1-13 years. These leases are classified as operating leases.

Leasehold improvements and assets under capital leases are amortized on a straight-line basis over the shorter of their useful lives or their related lease terms. The charge to earnings is included in depreciation and amortization expense in the accompanying consolidated statements of operations.

11. Loss on Sale and Exit of Business

On May 31, 2005, Xpress Global Systems exited the airport-to-airport business and conveyed its customer list and a non-compete agreement to a company in exchange for $12.75 million in cash. Following the transaction, Xpress Global Systems continues to provide transportation, warehousing and distribution services to the floorcovering industry and pooled distribution services to commercial accounts through its network of terminal locations in North America.

In connection with the sale and exit of the airport-to-airport business, Xpress Global Systems incurred costs related to the shutdown of certain facilities, including employee severance, the write-off of certain intangible assets, and losses related to the disposal and liquidation of certain assets of the airport-to-airport business. The Company incurred a one-time (pre-tax) charge, net of proceeds from this transaction, in the amount of $2.8 million, the components of which are summarized as follows:

TABLE OF CONTENTS

Proceeds from sale	$	12,750
Less:
Severance expense		400
Provision for loss on future lease commitments		5,287
Write-off of goodwill and other intangibles		5,033
Estimated loss on disposal of fixed assets		1,830
Provision for estimated loss on liquidation of receivables		2,025
Other expenses		962
Loss on sale and exit of business	$	(2,787)

The following table is a summary of components related to the sale and exit of the airport-to-airport business and the remaining amounts included in the Company’s consolidated balance sheet in other accrued liabilities and other long-term liabilities as of September 30, 2005.

	June 30, 2005		2005 Reserve			2005			September 30, 2005
		Reserve		Additions			Payment			Reserve
Severance	$	287	$	15		$	(302	)	$	—
Future lease commitments		4,894		(15	)		(1,431	)		3,448
Other related exit costs		542		—			(346	)		196
Minimum contractual amounts		1,858		—			(93	)		1,765
	$	7,581	$	—		$	(2,172	)	$	5,409

12. Recent Accounting Pronouncements

In December, 2004, the FASB issued SFAS No. 123R, “Share-Based Payment” (“SFAS 123R”), which is a revision of FASB Statement No. 123, “Accounting for Stock-Based Compensation”, (“SFAS 123”)”, supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees (“Opinion 25”) and amends FASB Statement No. 95, “Statement of Cash Flows”. Generally, the approach in SFAS 123R is similar to the approach described in SFAS 123. However, SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. The provisions of the Statement were to be applied in the first interim or annual period beginning after June 15, 2005. On April 15, 2005 the Securities and Exchange Commission announced that it would provide for phased-in implementation of SFAS 123R. In accordance with this new implementation process, the Company is required to adopt SFAS 123R no later than January 1, 2006.

As permitted by SFAS 123, the Company currently accounts for share-based payments to employees using Opinion 25’s intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. Accordingly, the adoption of SFAS 123R’s fair value method will have a significant impact on our results of operations, although it will have no impact on our overall financial position. The impact of the adoption of SFAS 123R cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had we adopted SFAS 123R in prior periods, the impact of that standard would have approximated the impact of SFAS 123 as described in the disclosure of pro forma net income (loss) and earnings (loss) per share in Note 4 to our Consolidated Financial Statements. SFAS 123R also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. While the Company cannot estimate what those amounts will be in the future (because they depend on, among other things, when employees exercise stock options), the amount of operating cash flows recognized in prior periods for such excess tax deductions were not material to the Company’s consolidated financial position or results of operations.

In July 2005, the FASB issued an exposure draft, Accounting for Uncertain Tax Positions, an Interpretation of FASB Statement No. 109. If finalized as drafted, the Interpretation will require companies to recognize the best estimate of the impact of a tax position only if that position is probable of being sustained during a tax audit. The FASB proposes that only tax positions that meet the probable recognition threshold may be recognized as of the end of the first fiscal year ending after December 15, 2005. Management is currently evaluating the exposure draft and

TABLE OF CONTENTS

does not anticipate that it will have a material impact on the Company’s consolidated financial condition or results of operations.

13. Reclassifications

Certain reclassifications have been made to the 2004 financial statements to conform to the 2005 presentation.

14. Subsequent Events

On October 25, 2005, the Board of Directors of the Company approved the accelerated vesting of certain outstanding stock options previously granted under the Company's 2002 Stock Incentive Plan (the "2002 Plan"). The decision accelerates the vesting of all unvested options granted under the 2002 Plan before October 25, 2005, except options held by non-employee directors of the Company and certain recently hired employees. The closing price of the Company's stock on October 25, 2005 was $11.60. The decision to accelerate the vesting of the affected options was based upon a recommendation of the Compensation Committee of the Company's Board of Directors, which committee consists entirely of independent, non-employee directors. These actions were taken in accordance with the applicable provisions of the 2002 Plan, and the Company believes the decision to be in the best interest of the Company and its stockholders.

As a result of the acceleration, unvested options to purchase 231,440 shares of the Company's Class A Common Stock, which otherwise would have vested from time to time over the next sixteen months, became fully vested and immediately exercisable. The affected stock options have exercise prices ranging from $11.50 to $13.90 per share, and a weighted average exercise price of $13.04. The affected options include options to purchase124,802 shares of the Company's Class A Common Stock held by the Company's executive officers, having a weighted average exercise price of $13.23. This acceleration is effective as of October 25, 2005.

The Company's decision to accelerate the vesting of affected employee stock options was primarily to eliminate or reduce the compensation expense relating to such options that the Company would otherwise be expected to record in its statements of operations for future periods upon the adoption of Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123 (Revised 2004), "Share-Based Payment" ("SFAS No. 123R"). SFAS No. 123R will be effective for the Company beginning in the first quarter of 2006, and will require that compensation expense associated with stock options be recognized in the statements of operations, rather than as a footnote disclosure in consolidated financial statements.

Subsequent to September 30, 2005, and in accordance with the July 2005 Board approved stock repurchase authorization, the Company repurchased 31,100 shares of its Class A common stock. The repurchased shares will be held as treasury stock and may be used for issuances under the Company’s employee stock option plan or general corporate purposes, as the Board may approve.

TABLE OF CONTENTS

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

Except for certain historical information contained herein, the following discussion contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the Securities Act of 1933, as amended, that involve risks, assumptions, and uncertainties which are difficult to predict. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including without limitation: any projections of earnings, revenues, or other financial items; any statement of plans, strategies, and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; and any statements of belief and any statement of assumptions underlying any of the foregoing. Words such as “believe,” “may,” “will,” “could,” “should,” “likely,” “expects,” “estimates,” “anticipates,” “projects,” “plans,” “intends,” “hopes,” “potential,” “continue,” and “future” and variations of these words, or similar expressions, are intended to identify such forward-looking statements. Actual events or results could differ materially from those discussed in forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section entitled “Factors That May Affect Future Results,” set forth below. We do not assume, and specifically disclaim, any obligation to update any forward-looking statement contained in this report.

Business Overview

We are the fifth largest publicly traded truckload carrier in the United States, measured by revenue. Our primary business is offering a broad range of truckload services to customers throughout the United States and in portions of Canada and Mexico. We also offer transportation, warehousing, and distribution services to the floorcovering industry. Since becoming a public company, we have increased our operating revenue to $1.1 billion in 2004 from $215.4 million in 1994, a compounded annual growth rate of 17.8%. Our growth has come through expansion of business with new and existing customers, complementary acquisitions, and more recently, through the development and expansion of additional strategic business units. Our operating revenue increased 3.1% to $297.2 million in the third quarter of 2005 from $288.4 million in the third quarter of 2004. We experienced net income of $4.0 million in the 2005 quarter compared with net income of $5.4 million in the 2004 quarter.

Our Truckload Segment

Our truckload segment, U.S. Xpress, which comprised approximately 92% of our total operating revenue in the third quarter of 2005, includes the following four strategic business units, each of which is significant in its market.

•Dedicated	Our approximately 1,570 tractor dedicated unit offers our customers dedicated equipment, drivers, and on-site personnel to address customers’ needs for committed capacity and service levels, while affording us consistent equipment utilization during the contract term.
•Regional and Solo Over-the- Road	Our approximately 2,700 tractor regional and solo over-the-road unit offers our customers a high level of service in dense freight markets of the Southeast, Midwest and West, in addition to providing nationwide coverage.
•Expedited intermodal rail	Our railroad contracts for high-speed train service enable us to provide our customers incremental capacity and transit times comparable to solo-driver service in medium-to-long haul markets, while lowering our costs.
•Expedited team	Our approximately 820 team driver unit offers our customers a service advantage over medium-to-long haul rail and solo-driver truck service at a much lower cost than airfreight, while affording us premium rates and improved utilization of equipment.

TABLE OF CONTENTS

Over the past few years we have been reallocating our truckload assets to business units that we expect to be more profitable. This has resulted in significant growth in the percentage of our revenue contributed by dedicated and expedited intermodal rail services and a decrease in the percentage of our revenue contributed by our regional and solo over-the-road service. We believe the execution of this strategy has been a primary contributor to the improvements in our profitability in our truckload operations since 2002. In addition, the asset reallocation has affected the comparability of certain operating measures. For example, we are generating higher average revenue per loaded mile, excluding fuel surcharge, offset by an increase in non-revenue miles and a decrease in miles per tractor. In general, shorter hauls pay higher rates per mile but generate fewer miles per unit and involve a greater percentage of non-revenue miles for re-positioning the tractor for the next load. Also, our purchased transportation expense has remained essentially constant, despite the growth of our expedited intermodal rail service, which involves the pass-through of a portion of our freight revenue to the rail service provider as there has been a significant decrease in the average number of owner-operators in our truckload segment. Our operating measures may continue to change as we continue to execute our strategy.

Our Xpress Global Systems Segment

Our Xpress Global Systems segment, which comprised approximately 8% of our total operating revenue in the third quarter of 2005, offers transportation, warehousing, and distribution services to the floorcovering industry. During the third quarter of 2005, our Xpress Global Systems segment experienced an operating loss of $2.2 million.

Revenue and Expenses

We primarily generate revenue by transporting freight for our customers. Generally, we are paid a predetermined rate per mile for our truckload services and a per pound and a per square yard basis for our transportation services provided by Xpress Global Systems. We enhance our truckload revenue by charging for tractor and trailer detention, loading and unloading activities, and other specialized services, as well as through the collection of fuel surcharges to mitigate the impact of increases in the cost of fuel. The main factors that affect our truckload revenue are the revenue per mile we receive from our customers, the percentage of miles for which we are compensated, and the number of shipments and miles we generate. These factors relate, among other things, to the general level of economic activity in the United States, inventory levels, specific customer demand, the level of capacity in the trucking industry, and driver availability. Our primary measures of revenue generation for our truckload business are average revenue per loaded mile and average revenue per tractor per week, in each case excluding fuel surcharge revenue. Average revenue per loaded mile, before fuel surcharge revenue, increased to $1.64 during the third quarter of 2005 from $1.52 in the third quarter of 2004. Average revenue per tractor per week, before fuel surcharge revenue, increased to $3,168 during the third quarter of 2005 from $3,056 in the third quarter of 2004.

The main factors that impact our profitability in terms of expenses are the variable costs of transporting freight for our customers. These costs include fuel expense, driver-related expenses, such as wages, benefits, training, and recruitment, and purchased transportation expenses, which include compensating independent contractors and providers of expedited intermodal rail services. Expenses that have both fixed and variable components include maintenance and tire expense and our total cost of insurance and claims. These expenses generally vary with the miles we travel, but also have a controllable component based on safety, fleet age, efficiency, and other factors. Our main fixed costs are acquisition and financing costs, including depreciation of long-term assets, such as revenue equipment and terminal facilities and the compensation of non-driver personnel.

The primary measure we use to evaluate our profitability is operating ratio (operating expenses, net of fuel surcharge, as a percentage of revenue, before fuel surcharge). Our operating ratio was 96.5% in the third quarter of 2005, compared to 95.4% in the third quarter of 2004.

Revenue Equipment

At September 30, 2005 we had a truckload fleet of 5,182 tractors, which included 524 owner-operator tractors. We also operated 14,198 trailers in our truckload fleet and approximately 320 tractors dedicated to local and drayage services.

TABLE OF CONTENTS

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						Nine Months Ended
	September 30,						September 30,
	2005			2004			2005			2004
Operating Revenue	100.0		%	100.0		%	100.0		%	100.0		%

Operating Expenses:
Salaries, wages and benefits	38.4			35.5			38.7			35.7
Fuel and fuel taxes	9.9			10.1			10.3			10.9
Vehicle rents	6.5			6.3			6.7			7.0
Depreciation and amortization, net of gain on sale	4.6			4.5			4.6			4.5
Purchased transportation	18.7			20.5			19.3			19.5
Operating expense and supplies	7.1			7.1			7.5			7.0
Insurance premiums and claims	4.9			5.2			4.5			5.2
Operating taxes and licenses	1.4			1.3			1.4			1.4
Communications and utilities	1.0			1.0			1.1			1.2
General and other operating	4.0			3.9			4.4			4.1
Loss on sale and exit of business	0.0			0.0			0.4			0.0
Total operating expenses	96.5			95.4			98.9			96.5

Income from Operations	3.5			4.6			1.1			3.5

Interest expense, net	0.7			0.9			0.7			0.9
Equity in income of affiliated companies	(0.2	)		(0.0	)		(0.2	)		(0.0	)
	0.5			0.9			0.5			0.9

Income before income taxes	3.0			3.7			0.6			2.6

Income tax provision	1.5			1.7			0.3			1.2

Net Income	1.5		%	2.0		%	0.3		%	1.4		%

TABLE OF CONTENTS

Comparison of the Three Months Ended September 30, 2005 to the Three Months Ended September 30, 2004

Total operating revenue increased 3.1%, to $297.2 million during the three months ended September 30, 2005 compared to $288.4 million during the same period in 2004. The increase resulted primarily from higher fuel surcharges.

Revenue, before fuel surcharge, decreased 3.5%, to $262.6 million during the three months ended September 30, 2005 compared to $272.0 million during the same period in 2004. U.S. Xpress revenue, before fuel surcharge, increased to $241.1 million during the three months ended September 30, 2005, compared to $233.9 million during the same period in 2004, due primarily to an increase of 8.2% in average revenue per loaded mile to $1.641 from $1.516 and an increase in expedited rail revenue. These gains were partially offset by a 4.5% decline in average tractors and a 4% reduction in revenue miles per tractor. Xpress Global Systems’ revenue decreased 42.0%, to $24.1 million during the three months ended September 30, 2005 compared to $41.5 million during the same period in 2004, due primarily to the sale and exit from the airport-to-airport business in the second quarter of 2005. Within Xpress Global Systems, floorcovering revenue decreased to $24.1 million for the three months ended September 30, 2005, compared to $25.8 million for the three months ended September 30, 2004. Intersegment revenue decreased to $2.6 million during the three months ended September 30, 2005, compared to $3.4 million during the same period in 2004.

Salaries, wages and benefits increased 4.6%, to $100.8 million during the three months ended September 30, 2005 compared to $96.4 million during the same period in 2004. As a percentage of revenue, before fuel surcharge, salaries, wages and benefits increased to 38.4% during the three months ended September 30, 2005 compared to 35.4% during the same period in 2004. The increases were primarily due to driver pay increases in the fourth quarter of 2004, an increase in the number of local drivers necessary to support our expedited intermodal rail program, an increase in health insurance costs and workers’ compensation claims, offset by decreases in non-driver personnel associated with the sale and exit of the airport-to-airport business.

Fuel and fuel taxes, net of fuel surcharge, decreased 4.7% to $26.1 million during the three months ended September 30, 2005 compared to $27.4 million during the same period in 2004. The increase in the average fuel price per gallon of approximately 40%, combined with the lower fuel efficiency of the new EPA-compliant engines was offset by an increase in customer fuel surcharges, increased use of expedited intermodal rail for certain medium-to-long haul truckload freight and a decline in company miles. Our exposure to increases in fuel prices in our truckload operations is mitigated to an extent by fuel surcharges to customers, which amounted to $34.6 million and $16.4 million for the three months ended September 30, 2005 and 2004, respectively. As a percentage of revenue, before fuel surcharge, fuel and fuel taxes, net of fuel surcharge, declined to 9.9% during the three months ended September 30, 2005 compared to 10.1% during the same period in 2004. As both the average number of tractors and revenue miles per tractor have declined for the three months ended September 30, 2005 as compared to the same period in 2004, this has led to a higher net fuel cost per total mile for the period ended September 30, 2005.

Vehicle rents remained essentially constant at $17.1 million during the three months ended September 30, 2005 and 2004. This remained essentially constant as the average number of tractors financed under operating leases for the three months ended September 30, 2005 decreased to 3,362 as compared to 3,478 during the same period in 2004 offset by the increase in the average number of trailers financed under operating leases to 8,575 from 8,091 for the same periods.

Depreciation and amortization remained essentially constant at $12.2 million during the three months ended September 30, 2005 compared to $12.1 million during the same period in 2004. Gains realized on the sale of revenue equipment are included in depreciation and amortization for reporting purposes. Depreciation and amortization excluding gains increased to $13.0 million for the three months ended September 30, 2005 compared to $12.2 million for the same period in 2004. This increase is primarily due to the increase in average number of owned tractors offset by a decrease in the average number of owned trailers.

Purchased transportation decreased 12.0%, to $49.0 million during the three months ended September 30, 2005 compared to $55.7 million during the same period in 2004 primarily due to the sale and exit of the airport-to-airport business. Also, owner-operators in the truckload segment decreased to 10.9% of the total fleet as of September 30, 2005, compared to 14.7% for the same period in 2004. This decrease was partially offset by the increase of rail costs.

TABLE OF CONTENTS

Operating expenses and supplies decreased 3.6%, to $18.5 million during the three months ended September 30, 2005 compared to $19.2 million during the same period in 2004. This is primarily the result of the elimination of certain operating expenses related to the airport-to-airport business.

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, decreased 9.2%, to $12.8 million during the three months ended September 30, 2005 compared to $14.1 million during the same period in 2004. The decrease was primarily due to a decrease in liability premiums and claims expense. As a percentage of revenue, before fuel surcharge, insurance and claims decreased to 4.9% during the three months ended September 30, 2005 compared to 5.2% during the same period in 2004, primarily due to the decrease in liability premiums and claims expense and the increase in average revenue per tractor per week. We are self-insured up to certain limits for cargo loss, physical damage and liability. We have adopted an insurance program with higher deductible exposure to offset the industry-wide increase in insurance premium rates. As of September 30, 2005 the retention level for cargo loss was $250,000 and the retention level for liability was $2.0 million per occurrence. We maintain insurance with licensed insurance companies above amounts for which we are self-insured for cargo and liability. We accrue for the uninsured portion of pending claims, plus any incurred but not reported claims. The accruals are estimated based on our evaluation of the type and severity of individual claims and future development based on historical trends. Insurance premiums and claims expense will fluctuate based on claims experience, premium rates and self-insurance retention levels.

Interest expense decreased $0.6 million, or 24.0%, to $1.9 million during the three months ended September 30, 2005 compared to $2.5 million during the same period in 2004. The decrease was due primarily to decreased average borrowings for the three months ended September 30, 2005 to $153.8 million, as compared to $185.5 million for the three months ended September 30, 2004, in addition to a lower weighted average interest rate.

Equity in income of affiliated companies increased to $557 for the three months ended September 30, 2005 compared to $110 for the same period in 2004. The increase reflects the results of equity investments in Arnold Transportation Services, Inc. completed in December 2004 and Total Transportation of Mississippi and affiliated companies in April 2005.

The effective tax rate was 50% for the three months ended September 30, 2005. The rate was higher than the federal statutory rate of 35%, primarily as a result of per diems paid to drivers which are not fully deductible for federal income tax purposes.

TABLE OF CONTENTS

Comparison of the Nine Months Ended September 30, 2005 to the Nine Months Ended September 30, 2004

Total operating revenue increased 6.7%, to $846.3 million during the nine months ended September 30, 2005 compared to $793.3 million during the same period in 2004. The increase resulted primarily from higher rates and fuel surcharges.

Revenue, before fuel surcharge, increased 1.2%, to $763.6 million during the nine months ended September 30, 2005 compared to $754.8 million during the same period in 2004. U.S. Xpress revenue, before fuel surcharge, increased 3.5%, to $678.7 million during the nine months ended September 30, 2005 compared to $655.6 million during the same period in 2004, due primarily to an increase of 8.0% in average revenue per loaded mile to $1.547 from $1.433 and an increase in expedited rail revenue. These gains were partially offset by a 7.3% decline in average tractors and a 2.5% reduction in revenue miles per tractor. Xpress Global Systems’ revenue decreased 11.2%, to $102.9 million during the nine months ended September 30, 2005 compared to $116.0 million during the same period in 2004. Within Xpress Global Systems, floorcovering revenue increased 2.3%, to $76.2 million. Airport-to-airport revenue decreased $14.8 million for the nine months ended September 30, 2005 as no revenues have been reported since the sale and exit of the airport-to-airport business during the second quarter of 2005. Intersegment revenue increased to $18.0 million during the nine months ended September 30, 2005 compared to $16.8 million during the same period in 2004.

Salaries, wages and benefits increased 9.8%, to $295.9 million during the nine months ended September 30, 2005 compared to $269.4 million during the same period in 2004. As a percentage of revenue, before fuel surcharge, salaries, wages and benefits increased to 38.7% during the nine months ended September 30, 2005 compared to 35.7% during the same period in 2004. The increases were primarily due to driver pay increases in the fourth quarter of 2004, an increase in the number of local drivers necessary to support our expedited intermodal rail program, and an increase in health insurance costs.

Fuel and fuel taxes, net of fuel surcharge, decreased 3.8% to 79.1 million during the nine months ended September 30, 2005 compared to $82.2 million during the same period in 2004. The increase in the average fuel price per gallon of approximately 35%, combined with the lower fuel efficiency of the new EPA-compliant engines was offset by an increase in customer fuel surcharges, increased use of expedited intermodal rail for certain medium-to-long haul truckload freight and a slight decline in company miles. Our exposure to increases in fuel prices in our truckload operations is mitigated to an extent by fuel surcharges to customers, which amounted to $82.7 million and $38.6 million for the nine months ended September 30, 2005 and 2004, respectively. As a percentage of revenue, before fuel surcharge, fuel and fuel taxes, net of fuel surcharge declined to 10.4% during the nine months ended September 30, 2005 compared to 10.9% during the same period in 2004. As both the average number of tractors and revenue miles per tractor have declined for the nine months ended September 30, 2005 as compared to the same period in 2004, this has led to a higher net fuel cost per total mile for the period ended September 30, 2005.

Vehicle rents decreased 2.6%, to $51.6 million during the nine months ended September 30, 2005 compared to $53.0 million during the same period in 2004. As a percentage of revenue, before fuel surcharge, vehicle rents were 6.7% during the nine months ended September 30, 2005 compared to 7.0% during the same period in 2004. The decrease was primarily due to a decrease in the average number of tractors financed under operating leases to 3,390 compared to 3,496 during the nine months ended September 30, 2005 and 2004, respectively. The decrease was partially offset by an increase in the average number of trailers financed under operating leases to 8,527 compared to 8,096 during the nine months ended September 30, 2005 and 2004, respectively, due to the expansion of our trailer fleet necessary to support the expedited intermodal rail program.

Depreciation and amortization increased 2.3%, to $35.1 million during the nine months ended September 30, 2005 compared to $34.3 million during the same period in 2004. Gains realized on the sale of revenue equipment are included in depreciation and amortization for reporting purposes. Depreciation and amortization, excluding gains, increased to $37.5 million for the nine months ended September 30, 2005, compared to $34.5 million for the same period in 2004. This increase is primarily due to the increase in average number of owned tractors and increased amortization related to computer hardware and software.

TABLE OF CONTENTS

Purchased transportation remained essentially constant at $147.1 million during the nine months ended September 30, 2005 and 2004 primarily due to the increased use of expedited intermodal rail in the truckload segment for certain medium-to-long haul truckload freight and an owner-operator pay increase of approximately 4.0% initiated in February 2004. This increase was partially offset by a decrease in the average number of owner-operators in the truckload segment during the nine months ended September 30, 2005 to 547, or 10.9% of the total fleet, compared to 824, or 15.2% of the total fleet, for the same period in 2004.

Operating expenses and supplies increased 7.3%, to $57.0 million during the nine months ended September 30, 2005 compared to $53.1 million during the same period in 2004, due in part to an increase in tractor and trailer maintenance expense. The increases in maintenance cost was related to the average age of our company tractor and trailer fleets increasing to 28 and 56 months, respectively, during the nine months ended September 30, 2005 compared to 27 and 51 months, respectively, during the same period in 2004. As a percentage of revenue, before fuel surcharges, operating expenses and supplies were 7.5% during the nine months ended September 30, 2005 compared to 7.0% during the same period in 2004. This is partially offset by certain expenses being eliminated with the sale and exit of the airport-to-airport business.

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, decreased 12.9%, to $34.3 million during the nine months ended September 30, 2005 compared to $39.4 million during the same period in 2004. The decrease was primarily due to a decrease in liability premiums and claims expense offset to an extent by an increase in cargo claims expense. As a percentage of revenue, before fuel surcharge, insurance and claims decreased to 4.5% during the nine months ended September 30, 2005 compared to 5.2% during the same period in 2004, primarily due to the decrease in liability premiums and claims expense, offset by the increase in cargo claims expense. We are self-insured up to certain limits for cargo loss, physical damage and liability. We have adopted an insurance program with higher deductible exposure to offset the industry-wide increase in insurance premium rates. As of September 30, 2005 the retention level for cargo loss was $250,000 and the retention level for liability was $2.0 million per occurrence. We maintain insurance with licensed insurance companies above amounts for which we are self-insured for cargo and liability. We accrue for the uninsured portion of pending claims, plus any incurred but not reported claims. The accruals are estimated based on our evaluation of the type and severity of individual claims and future development based on historical trends. Insurance premiums and claims expense will fluctuate based on claims experience, premium rates and self-insurance retention levels.

Loss on sale and exit of business of $2.8 million for the nine months ended September 30, 2005 related to the exit of the airport-to-airport business by Xpress Global Systems. Xpress Global Systems provided $15.6 million for costs related to the shutdown and received $12.8 million in cash. See Footnote 11, “ Loss on Sale and Exit of Business”.

Interest expense, decreased $1.5 million, or 21.4%, to $5.5 million during the nine months ended September 30, 2005 compared to $7.0 million during the same period in 2004. The decrease was due to decreased average borrowings for the nine months ended September 30, 2005 to $144.4 million as compared to $178.3 million for the nine months ended September 30, 2004, in addition to a lower weighted average interest rate.

Equity in income of affiliated companies increased to $1.8 million for the nine months ended September 30, 2005 compared to $235 for the same period in 2004. The increase reflects the results of equity investments in Arnold Transportation Services, Inc. completed in December 2004 and Total Transportation of Mississippi and affiliated companies in April 2005.

The effective tax rate was 51% for the nine months ended September 30, 2005. The rate was higher than the federal statutory rate of 35%, primarily as a result of per diems paid to drivers which were not fully deductible for federal income tax purposes.

Liquidity and Capital Resources

Our business requires significant capital investments. Our primary sources of liquidity at September 30, 2005 were funds provided by operations, borrowing under our revolving credit facility, proceeds of our accounts receivable securitization facility, and long-term equipment debt and operating leases of revenue equipment. Each of our revolving credit facility and our accounts receivable securitization facility has maximum available borrowings of $100.0 million. We believe that funds provided by operations, borrowings under our revolving credit facility and

TABLE OF CONTENTS

securitization facility, equipment installment loans and long-term equipment debt and operating lease financing will be sufficient to fund our cash needs and anticipated capital expenditures for the next twelve months.

Cash Flows

Cash provided by operations was $43.9 million and $31.8 million during the nine months ended September 30, 2005 and 2004, respectively. The change was primarily due to an increase in accounts receivable and accounts payable from December 31, 2003 to September 30, 2004 as a result of increased operating revenues and purchased transportation. The increase in net cash provided by operating activities is partially offset by a decrease in earnings for the nine months ended September 30, 2005, as compared to the same period in 2004, from $10.5 to $2.4 million.

Cash used in investing activities was $33.9 million during the nine months ended September 30, 2005 compared to $52.4 million during the same period in 2004. The reduction in cash used in investing activities is primarily the result of $9.3 million in fewer net additions to property and equipment, in addition to proceeds of $12.8 million associated with the sale and exit of the airport-to-airport business.

Cash provided by financing activities was $5.4 million during the nine months ended September 30, 2005, compared to $20.6 million during the nine months ended September 30, 2004. The reduction in cash provided by financing activities is the result of an increase in cash provided by operating activities and fewer net additions to property and equipment for the nine months ended September 30, 2005 compared to the same period in 2004.

Debt

Effective October 14, 2004, we entered into a $100.0 million senior secured revolving credit facility and letter of credit sub-facility with a group of banks, which replaced the existing $100.0 million credit facility that was set to mature in March 2007. The new facility is secured by revenue equipment and certain other assets and bears interest at the base rate, as defined, plus an applicable margin of 0.00% to 0.25% or LIBOR plus an applicable margin of 0.88% to 2.00% based on our lease adjusted leverage ratio. At September 30, 2005, the applicable margin was 0.00% for base rate loans and 1.00% for LIBOR loans. The credit facility also prescribes additional fees for letter of credit transactions and a quarterly commitment fee on the unused portion of the loan commitment (1.00% and 0.20%, respectively, at September 30, 2005). The facility matures in October 2009.

The credit facility requires, among other things, maintenance by us of prescribed minimum amounts of consolidated tangible net worth, fixed charge and asset coverage ratios and a leverage ratio. It also restricts our ability to engage in certain sale-leaseback transactions, transactions with affiliates, investment transactions, acquisitions of our own capital stock, the payment of dividends, future asset dispositions (except in the ordinary course of business) or other business combination transactions and to incur liens and future indebtedness. As of September 30, 2005, we were in compliance with the revolving credit facility covenants.

We are also party to a $100.0 million accounts receivable securitization. Under the securitization, we sell accounts receivable as part of a two-step process that provides funding similar to a revolving credit facility. To facilitate this transaction, Xpress Receivables, LLC (“Xpress Receivables”) was formed as a wholly-owned subsidiary. Xpress Receivables is a bankruptcy remote, special purpose entity, which purchases accounts receivable from U.S. Xpress, Inc. and Xpress Global Systems, Inc. Xpress Receivables funds these purchases with money borrowed under a new credit facility with Three Pillars Funding, LLC. The borrowings are secured by the accounts receivable and paid down through collections on the accounts receivable. We can borrow up to $100.0 million under the securitization facility, subject to eligible receivables, and pay interest on borrowings based on commercial paper interest rates, plus an applicable margin, and a commitment fee on the daily, unused portion of the facility. The securitization facility is reflected as a current liability because the term, subject to annual renewals, is October 12, 2006.

The securitization facility requires that certain performance ratios be maintained with respect to accounts receivable and that Xpress Receivables preserve its bankruptcy remote nature. As of September 30, 2005, we were in compliance with the securitization facility covenants.

At September 30, 2005 we had $170.8 million of borrowings, of which $77.9 million was long-term, $12.6 million was current maturities and $80.3 million was the securitization facility. We also had approximately $42.2 million in unused letters of credit. At September 30, 2005 we had an aggregate of approximately $73.6 million of available

TABLE OF CONTENTS

borrowing remaining under our revolving credit facility and securitization. Current maturities include $372 in balloon payments related to maturing revenue equipment installment notes. The balloon payments are generally expected to be funded with proceeds from the sale of the related revenue equipment, which is generally covered by repurchase and/or trade agreements in principle between the equipment manufacturer and us.

Equity

At September 30, 2005 we had stockholders’ equity of $225.6 million, long-term debt, net of current maturities, of $77.9 million and total debt of $170.8 million, resulting in a debt to total capitalization ratio of 43.1% compared to 50.4% at September 30, 2004.

In July 2005, the Board of Directors authorized us to repurchase up to $15 million of our Class A common stock. The stock may be repurchased on the open market or in privately negotiated transactions at any time until July 31, 2006, at which time, or prior thereto, the Board may elect to extend the repurchase program. We are currently permitted to repurchase approximately $4.8 million of our Class A common stock under our revolving credit facility. The repurchased shares may be used for issuances under our incentive stock plan or for other general corporate purposes, as the Board may determine. During the third quarter of 2005, we repurchased 761,886 shares for approximately $10.2 million.

In June 2005, the Company issued 10,000 shares of restricted stock to certain employees. The market value of these shares on the date of issuance was $11.15. This amount is being amortized using the straight-line method over the three-year vesting period from the date of issuance as additional compensation expense. The unamortized value of $99 is included as a component of stockholders’ equity.

Equity Investment

During the second quarter of 2005, we completed the acquisition of a 49.0% interest in Total Transportation of Mississippi and affiliated companies (“TTMS”). Certain members of the TTMS management team control the remaining 51% interest and a majority of the board of directors. We have not guaranteed any of TTMS’ debt and have no obligation to provide funding, services or assets. Under the agreement with the TTMS management team, we have a three-year option to acquire 100% of TTMS by purchasing management’s interest at a specified price plus an agreed upon annual return. We have accounted for TTMS’ operating results using the equity method of accounting.

Off Balance Sheet Arrangements

We use 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, we consider interest rates, capital requirements and the tax advantages of leasing versus owning. At September 30, 2005 a substantial portion of our off-balance sheet arrangements related to non-cancelable leases for revenue equipment and office and terminal facilities with termination dates ranging from September 2006 to July 2012. Lease payments on office and terminal facilities, automobiles and airplanes are included in general and other operating expenses, lease payments on service equipment are included in operating expense and supplies, and lease payments on revenue equipment are included in vehicle rents in the consolidated statements of operations, respectively. Rental expense related to our off-balance sheet arrangements was $58.6 million for the nine months ended September 30, 2005. The remaining lease obligation as of September 30, 2005 was $172.1 million, with $70.8 million due in the next twelve months.

TABLE OF CONTENTS

Certain equipment leases provide for guarantees by us 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 $36.9 million at September 30, 2005. The residual value of a substantial portion of the leased revenue equipment is covered by repurchase or trade agreements in principle between the equipment manufacturer and us. Management estimates the fair value of the guaranteed residual values for leased revenue equipment to be immaterial. Accordingly, we have no guaranteed liabilities accrued in the accompanying consolidated balance sheets.

Cash Requirements

The following table presents our outstanding contractual obligations at September 30, 2005 excluding letters of credit of $42.2 million. The letters of credit are maintained primarily to support our 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		3-5 years		After 5 years
Securitization Facility⁽¹⁾		$	80,300	$	80,300	$	—	$	—	$	—
Long-Term Debt, Including Interest ⁽¹⁾			104,549		16,560		29,240		37,871		20,878
Capital Leases, Including Interest ⁽¹⁾			3,274		1,844		1,430		—		—
Operating Leases - Revenue Equipment ⁽²⁾			149,426		60,429		65,431		19,449		4,117
Operating Leases - Other ⁽³⁾			22,641		10,389		10,190		2,016		46
Purchase Obligations ⁽⁴⁾			421,421		100,933		320,488		—		—
Total Contractual Cash Obligations		$	781,611	$	270,455	$	426,779	$	59,336	$	25,041

⁽¹⁾Represents principal and interest payments owed on revenue equipment installment notes, mortgage notes payable and capital lease obligations at September 30, 2005. The credit facility does not require scheduled principal payments. Approximately 47% of our debt is financed with variable interest rates. In determining future contractual interest obligations for variable rate debt, the interest rate in place at September 30, 2005 was utilized. The table assumes long-term debt is held to maturity. Refer to footnote 8, “ Long-Term Debt” and footnote 9, “ Accounts Receivable Securitization”, in the accompanying consolidated financial statements for further information.

⁽²⁾Represents future obligations under operating leases for over-the-road tractors, day-cabs and trailers. The amounts included are consistent with disclosures required under SFAS No. 13, “Accounting for Leases”. 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, “ Leases” in the accompanying consolidated financial statements for further information.

⁽³⁾Represents future obligations under operating leases for buildings, forklifts, automobiles, computer equipment and airplanes. The amounts included are consistent with disclosures required under SFAS No. 13. 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. The revenue equipment purchase obligations are cancelable, subject to certain adjustments in the underlying obligations and benefits. The purchase obligations with respect to improvement of facilities and computer software are non-cancelable. Refer to footnote 5, “ Commitments and Contingencies”, in the accompanying consolidated financial statements for disclosure of our purchase commitments.

TABLE OF CONTENTS

Critical Accounting Policies and Estimates

In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of results of operations and financial position in the preparation of our financial statements in conformity with generally accepted accounting principles. Actual results could differ significantly from those estimates under different assumptions and conditions. We believe that the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our 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

We generally recognize revenue and direct costs when shipments are completed. Certain revenue of Xpress Global Systems, representing approximately 8% of consolidated revenues for the nine months ended September 30, 2005 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 our consolidated financial statements.

Income Taxes

Significant management judgment is required in determining our 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 our 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, we would use our 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 our 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 we believe will be in effect when these temporary differences reverse. We use 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 and local tax rates occur prior to or during the reversal of these items or if our filing obligations were to change materially, this could change the combined rate and, by extension, our 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). We generally use estimated useful lives of 4-5 years and 7-10 years for tractors and trailers, respectively, with estimated salvage values ranging from 25% - 50% of the capitalized cost. The depreciable lives of our 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 our equipment is covered by re-purchase or trade agreements between us and the equipment manufacturer.

Periodically, we evaluate the useful lives and salvage values of our 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 our estimates, could have a material impact on financial results. Further, if our equipment manufacturer does not perform under the terms of the agreements for guaranteed trade-in values, such non-performance could have a materially negative impact on financial results.

TABLE OF CONTENTS

Goodwill

The excess of the consideration paid over the estimated fair value of identifiable net assets acquired has been recorded as goodwill.

Effective January 1, 2002 we adopted the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets”, (“SFAS 142”). As required by the provisions of SFAS 142, we test goodwill for impairment using a two-step process, based on the reporting unit fair value. The first step is a screen for potential impairment, while the second step measures impairment, if any. We completed the required impairment tests of goodwill and noted no impairment of goodwill in 2004, 2003 and 2002.

Goodwill impairment tests are highly subjective. Such tests include estimating the fair value of our reporting units. As required by SFAS No. 142, we compared the estimated fair value of the reporting units with their respective carrying amounts including goodwill. We define 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. Our 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 our established retention levels. Claims in excess of retention levels are generally covered by insurance in amounts we consider adequate. 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 our evaluation of the type and severity of individual claims and historical information, primarily our own claims experience, along with assumptions about future events combined with the assistance of independent actuaries in the case of workers’ compensation and liability. 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 and liability are estimated by an independent third-party actuary and we refer 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, we 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. Our actual experience may be different than our estimates, sometimes significantly. Additionally, changes in assumptions made in actuarial studies could potentially have a material effect on the provision for workers’ compensation and liability claims.

We have experienced significant increases in insurance premiums and claims expense since September 2001 primarily related to workers’ compensation and liability insurance. The increases have resulted 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 liability and workers’ compensation 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, we had no retention for workers’ compensation insurance, which has increased to ranges of $250,000 to $500,000 in subsequent periods. Our 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-insurance retention levels since November 2000 and September 2001 has caused insurance and claims expense to be higher and more volatile than in historical periods.

TABLE OF CONTENTS

Factors that May Affect Future Results

Our future results may be affected by a number of factors over which we have little or no control. The following issues and uncertainties, among others, should be considered in evaluating our business and growth outlook.

Our business is subject to general economic and business factors that are largely out of our control, any of which could have a materially adverse effect on our operating results.

Our business is dependent on a number of factors that may have a materially adverse effect on our results of operations, many of which are beyond our control. The most significant of these factors are recessionary economic cycles, changes in customers’ inventory levels, excess tractor or trailer capacity, and downturns in customers’ business cycles, particularly in market segments and industries where we have a significant concentration of customers, such as our floorcovering operation, and in regions of the country where we have a significant amount of business. Economic conditions may adversely affect our customers and their ability to pay for our services. Customers encountering adverse economic conditions represent a greater potential for loss, and we may be required to increase our allowance for doubtful accounts. We also are affected by increases in interest rates, fuel prices, taxes, tolls, license and registration fees, insurance costs, and the rising costs of healthcare for our employees. We could be affected by strikes or other work stoppages at our facilities or at customer, port, border, or other shipping locations.

In addition, we cannot predict the effects on the economy or consumer confidence of actual or threatened armed conflicts or terrorist attacks, efforts to combat terrorism, military action against a foreign state or group located in a foreign state, or heightened security requirements. Any of these could lead to border crossing delays or the temporary closing of the United States/Canada or United States/Mexico border. Enhanced security measures could impair our operating efficiency and productivity and result in higher operating costs.

We operate in a highly competitive industry, and our business may suffer if we are unable to adequately address downward pricing pressures and other results of competition.

Numerous competitive factors could impair our ability to maintain or improve our current profitability. These factors include the following.

• We compete with many other truckload carriers of varying sizes and, to a lesser extent, with less-than-truckload carriers, railroads, airfreight forwarders, and other transportation companies. Many of our competitors have more equipment, a wider range of services, greater capital resources, or other competitive advantages.

• Many of our competitors periodically reduce their freight rates to gain business, especially during times of reduced growth in the economy. This may limit our ability to maintain or increase freight rates or to continue to expand our business.

• Many of our customers also operate their own private trucking fleets, and they may decide to transport more of their own freight.

• In recent years, many shippers have reduced the number of carriers they use by selecting “core carriers” as approved service providers. As this trend continues, some of our customers may not select us as a “core carrier.”

• Many customers periodically solicit bids from multiple carriers for their shipping needs, and this process may depress freight rates or result in a loss of business to competitors.

If we are unable to successfully execute our business strategy, our growth and profitability could be adversely affected.

Our strategy for increasing our revenue and profitability includes continuing to allocate more of our resources to our dedicated and expedited intermodal rail strategic business units, improving the profitability of all of our strategic business units through yield management and cost control efforts. We may experience difficulties and higher than expected expenses in reallocating our assets and developing new business. If we are unable to continue to grow and improve the profitability of our business units, our growth prospects, results of operations, and financial condition will be adversely affected.

TABLE OF CONTENTS

Ongoing insurance and claims expenses could significantly affect our earnings.

Our future insurance and claims expenses may exceed historical levels, which could reduce our earnings. We self-insure for a significant portion of our claims exposure from workers’ compensation, auto liability, general liability, and cargo and property damage, as well as employees’ health costs. We also are responsible for our legal expenses within our self-insured retentions for liability and workers’ compensation claims. We currently reserve for anticipated losses and expenses and regularly evaluate and adjust our claims reserves to reflect actual experience. However, ultimate results may differ from our estimates, which could result in losses above reserved amounts. Our self-insured retention limit for auto liability claims is $2.0 million per occurrence, $500,000 per occurrence for workers’ compensation claims, and $250,000 per occurrence for cargo claims. Because of our substantial self-insured retention amounts, we have significant exposure to fluctuations in the number and severity of claims. Our operating results will be adversely affected if we experience an increase in the frequency and severity of claims for which we are self-insured, accruals of significant amounts within a given period, or claims proving to be more severe than originally assessed.

We maintain insurance above the amounts for which we self-insure with insurance carriers that we believe are financially sound. Although we believe our aggregate insurance limits are sufficient to cover reasonably expected claims, it is possible that one or more claims could exceed those limits. Insurance carriers recently have been raising premiums for many businesses, including trucking companies. As a result, our insurance and claims expense could increase, or we could find it necessary to again raise our self-insured retention or decrease our aggregate coverage limits when our policies are renewed or replaced. Our operating results and financial condition may be adversely affected if these expenses increase, if we experience a claim in excess of our coverage limits, or if we experience a claim for which we do not have coverage.

Our revenue growth may not continue at historical rates, which could adversely affect our stock price.

We have achieved significant revenue growth since becoming a public company in 1994. Over the past several years, however, our revenue growth rate has slowed. There is no assurance that our revenue growth rate will return to historical levels or that we can effectively adapt our management, administrative, and operating systems to respond to any future growth. Our operating margins could be adversely affected by future changes in and expansion of our business or by changes in economic conditions. Slower or less profitable growth could adversely affect our stock price.

Increases in driver compensation or difficulty in attracting and retaining drivers could affect our profitability and ability to grow.

Like nearly all trucking companies, we experience substantial difficulty in attracting and retaining sufficient numbers of qualified drivers, including independent contractors. In addition, due in part to current economic conditions, including the higher cost of fuel, insurance, and tractors, the available pool of independent contractor drivers has been declining. Because of the shortage of qualified drivers, the availability of alternative jobs due to the current economic expansion, and intense competition for drivers from other trucking companies, we expect to continue to face difficulty increasing the number of our drivers, including independent contractor drivers, who are one of our principal sources of planned growth. In addition, our industry suffers from high turnover rates of drivers. This turnover rate requires us to continually recruit a substantial number of drivers in order to operate existing equipment. If we are unable to continue to attract a sufficient number of drivers and independent contractors, we could be required to adjust our compensation packages, let trucks sit idle, or operate with fewer trucks and face difficulty meeting shipper demands, all of which would adversely affect our growth and profitability. In addition, the compensation we offer our drivers and independent contractors is subject to market forces, and we may find it necessary to continue to increase their compensation in future periods. Any increase in our operating costs or in the number of tractors without drivers would adversely affect our growth and profitability.

Fluctuations in the price or availability of fuel may increase our cost of operation, which could materially and adversely affect our profitability.

We require large amounts of diesel fuel to operate our tractors, and diesel fuel is one of our largest operating expenses. Diesel fuel prices fluctuate greatly, and prices and availability of all petroleum products are subject to economic, political, and other market factors beyond our control. Substantially all of our customer contracts contain

TABLE OF CONTENTS

fuel surcharge provisions to mitigate the effect of price increases over base amounts set in the contract. However, these arrangements do not fully protect us from fuel price increases and also may result in our not receiving the full benefit of any fuel price decreases. Our fuel surcharges to customers do not fully recover all fuel increases because engine idle time, out-of-route miles, and non-revenue miles are not generally billable to the customer. We currently do not have any fuel hedging contracts in place.

If we are unable to retain our senior officers, our business, financial condition, and results of operations could be harmed.

We are highly dependent upon the services of the following senior officers: Patrick E. Quinn, our Co-Chairman of the Board, President, and Treasurer; Max L. Fuller, our Co-Chairman of the Board, Chief Executive Officer, and Secretary; Ray M. Harlin, Executive Vice President — Finance and Chief Financial Officer; and Jeffrey S. Wardeberg, Executive Vice President — Operations and Chief Operating Officer. We do not have employment agreements with any of these persons, except for salary continuation agreements with Messrs. Quinn and Fuller. The loss of any of their services could have a materially adverse effect on our operations and future profitability. We must continue to develop and retain a core group of managers if we are to realize our goal of expanding our operations and continuing our growth, and we may be unable to do so.

Increased prices, reduced productivity, and restricted availability of new revenue equipment may adversely affect our earnings and cash flows.

We have experienced higher prices for new tractors over the past three years, partially as a result of government regulations applicable to newly manufactured tractors and diesel engines. More restrictive Environmental Protection Agency, or EPA, emissions standards for 2007 will require vendors to introduce new engines, and some carriers may seek to purchase large numbers of tractors with pre-2007 engines, possibly leading to shortages. Our business could be harmed if we are unable to continue to obtain an adequate supply of new tractors and trailers for these or other reasons. As a result, we expect to continue to pay increased prices for equipment and incur additional expenses and related financing costs for the foreseeable future. Furthermore, the new engines are expected to reduce equipment productivity and lower fuel mileage and, therefore, increase our operating expenses. We have agreements covering the terms of trade-in and/or repurchase commitments from our primary equipment vendors for disposal of a substantial portion of our revenue equipment. The prices we expect to receive under these arrangements may be higher than the prices we would receive in the open market. We may suffer a financial loss upon disposition of our equipment if these vendors refuse or are unable to meet their financial obligations under these agreements, if we fail to enter into definitive agreements that reflect the terms we expect, if we fail to enter into similar arrangements in the future, or if we do not purchase the required number of replacement units from the vendors.

Our substantial indebtedness and operating lease obligations could adversely affect our ability to respond to changes in our industry or business.

As a result of our level of debt, operating lease obligations, and encumbered assets:

• Our vulnerability to adverse economic conditions and competitive pressures is heightened;

• We will continue to be required to dedicate a substantial portion of our cash flows from operations to operating lease payments and repayment of debt, limiting the availability of cash for other purposes;

• Our flexibility in planning for, or reacting to, changes in our business and industry will be limited;

• Our profitability is sensitive to fluctuations in interest rates because some of our debt obligations are subject to variable interest rates, and future borrowings and lease financing arrangements will be affected by any such fluctuations; and

• Our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, or other purposes may be limited.

Our operating leases and debt obligations could materially and adversely affect our ability to finance our future operations or capital needs or to engage in other business activities. There is no assurance that additional financing will be available when required or, if available, will be on terms satisfactory to us.

TABLE OF CONTENTS

Service instability in the railroad industry could increase our operating costs and reduce our ability to offer expedited intermodal rail services, which could adversely affect our revenues and operating results.

We depend on the major U.S. railroads for our expedited intermodal rail services. In most markets, rail service is limited to a few railroads or even a single railroad. Any reduction in service by the railroads with whom we have relationships is likely to increase the cost of the rail-based services we provide and reduce the reliability, timeliness, and overall attractiveness of our rail-based services.

For example, current service disruptions in the railroad industry have impacted expedited rail service throughout the United States. Although the disruptions have been primarily with railroads other than our major providers, it is possible that future service disruptions that affect our operations may occur, which would decrease demand for, or the profitability of, our expedited intermodal rail business. In addition, because most of the railroads’ workforce is subject to collective bargaining agreements, our business could be adversely affected by labor disputes between the railroads and their union employees. Further, railroads are relatively free to adjust shipping rates up or down as market conditions permit. Price increases could result in higher costs to our customers and our ability to offer expedited intermodal rail services.

We operate in a highly regulated industry and increased costs of compliance with, or liability for violation of, existing or future regulations could have a materially adverse effect on our business.

Our operations are regulated and licensed by various U.S., Canadian, and Mexican agencies. Our company drivers and independent contractors also must comply with the safety and fitness regulations of the United States Department of Transportation, or DOT, including those relating to drug and alcohol testing and hours-of-service. Such matters as weight and equipment dimensions are also subject to U.S. and Canadian regulations. We also may become subject to new or more restrictive regulations relating to fuel emissions, drivers’ hours-of-service, ergonomics, or other matters affecting safety or operating methods. Future laws and regulations may be more stringent and require changes in our operating practices, influence the demand for transportation services, or require us to incur significant additional costs. Higher costs incurred by us or by our suppliers who pass the costs onto us through higher prices would adversely affect our results of operations.

The Department of Transportation adopted revised hours-of-service regulations for drivers on August 25, 2005 that became effective on October 1, 2005. The revised regulations could reduce the potential or practical amount of time that drivers can spend driving, if we are unable to limit their other on-duty activities. These changes could adversely affect our profitability if shippers are unwilling to assist us in managing the drivers’ non-driving activities, such as loading, unloading, and waiting. If these changes reduce our miles per truck or increase our costs and these effects are not offset by higher rates or the collection of detention or other charges, our operating results could be materially and adversely affected.

We may not make acquisitions in the future, or if we do, we may not be successful in integrating the acquired businesses.

We have made eleven acquisitions since becoming a public company in 1994. Accordingly, acquisitions have provided a substantial portion of our growth. There is no assurance that we will be successful in identifying, negotiating, or consummating any future acquisitions. If we fail to make any future acquisitions, our growth rate could be materially and adversely affected.

Any acquisitions we undertake could involve the dilutive issuance of equity securities and/or incurring indebtedness. In addition, acquisitions involve numerous risks, including difficulties in assimilating the acquired company’s operations, the diversion of our management’s attention from other business concerns, risks of entering into markets in which we have had no or only limited direct experience, and the potential loss of customers, key employees, and drivers of the acquired company, all of which could have a materially adverse effect on our business and operating results. If we make acquisitions in the future, there is no assurance that we will be able to negotiate favorable terms or successfully integrate the acquired companies or assets into our business. If we fail to do so, or we experience other risks associated with acquisitions, our financial condition and results of operations could be materially and adversely affected.

TABLE OF CONTENTS

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. Our 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.

Recent Accounting Pronouncements

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

Our market risk is affected by changes in interest rates. Historically, we have used a combination of fixed rate and variable rate obligations to manage our interest rate exposure. Fixed interest rate obligations expose us to the risk that interest rates might fall. Variable interest rate obligations expose us to the risk that interest rates might rise.

We are exposed to variable interest rate risk principally from our securitization facility and revolving credit facility. We are exposed to fixed interest rate risk principally from equipment notes and mortgages. At September 30, 2005 we had borrowings totaling $170.8 million comprised of $80.7 million of variable rate borrowings and $90.2 million of fixed rate borrowings. Holding other variables constant (such as borrowing levels), the earnings impact of a one-

TABLE OF CONTENTS

percentage point increase/decrease in interest rates would not have a material impact on our statements of operations.

Commodity Price Risk

Fuel is one of our largest expenditures. The price and availability of diesel fuel fluctuates due to changes in production, seasonality and other market factors generally outside our control. Many of our 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 required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we have carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our controls and procedures were effective as of the end of the period covered by this report. There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected or that are reasonably likely to materially affect our internal control over financial reporting.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer as appropriate, to allow timely decisions regarding disclosures.

We have confidence in our internal controls and procedures. Nevertheless, our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure procedures and controls or our internal controls will prevent all errors or intentional fraud. An internal control system, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of such internal controls are met. Further, the design of an internal control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all internal control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected.

TABLE OF CONTENTS

U.S. XPRESS ENTERPRISES, INC.

PART II - OTHER INFORMATION

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs⁽¹⁾	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs⁽¹⁾
July 1, 2005 – July 31, 2005					$	15,000,000
August 1, 2005 – August 31, 2005	385,000	$	13.49	385,000	$	9,804,673
September 1, 2005 – September 30, 2005	376,886	$	13.24	376,886	$	4,814,049
Total	761,886	$	13.37	761,886	$	4,814,049

⁽¹⁾	In July 2005 our Board of Directors authorized us to repurchase up to $15 million of our Class A common stock on the open market or in privately negotiated transactions. This authorization has been approved by the lending group on the facility for the same amount.

Item 6.

Exhibits

(a)

Exhibits

⁽¹⁾	3.1	Restated Articles of Incorporation of the Company.

⁽²⁾	3.2	Restated Bylaws of the Company.

⁽¹⁾	4.1	Restated Articles of Incorporation of the Company filed as Exhibit 3.1 and incorporated herein by reference.
⁽²⁾	4.2	Restated Bylaws of the Company filed as Exhibit 3.2 and incorporated herein by reference.

⁽¹⁾	4.3	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.



	10.42	Second Amendment to Revolving Credit and Letter of Credit Loan Agreement by and between the Company and SunTrust Bank, Bank of America, N.A., LaSalle Bank, National Association, Branch Banking and Trust Company, National City Bank and Regions Financial Corporation as Lenders, and SunTrust Bank as Lender and Administrative Agent for the Lenders.

	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

	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

⁽¹⁾	Incorporated by reference from Registration Statement on Form S-1 dated May 20, 1994 (SEC File No. 33-79208)
⁽²⁾	Incorporated by reference from Form 10-Q on November 9, 2004 (SEC Commission File No. 0-24806)

TABLE OF CONTENTS

SIGNATURES

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

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


Date: November 9, 2005	By: /s/ Ray M. Harlin
	Ray M. Harlin
	Chief Financial Officer