U.S. Xpress Enterprises (USX) 10-Q 2007 Q1 Quarterly report

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

(Mark One)

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

For the quarterly period ended March 31, 2007

or

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

For the transition period from _______________to_______________

Commission File Number: 0-24806

(Exact name of registrant as specified in its charter)

Nevada	62-1378182
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
4080 Jenkins Road
Chattanooga, Tennessee	37421
(Address of principal executive offices)	(Zip Code)

(423) 510-3000

(Registrant’s telephone number, including area code)

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

Yes xNo o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer x Non-accelerated filer o

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

Yes oNo x

As of April 30, 2007, 12,116,122 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
	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2007 and 2006 (Unaudited)	3
	Condensed Consolidated Balance Sheets as of March 31, 2007 (Unaudited) and December 31, 2006	4
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2007 and 2006 (Unaudited)	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 4.	Controls and Procedures	23
PART II.	OTHER INFORMATION
Item 1A.	Risk Factors	24
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 6.	Exhibits	24
	SIGNATURES	25

2

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	Three Months Ended March 31,
	2007			2006
Operating Revenue:
Revenue, before fuel surcharge	$	316,552		$	262,466
Fuel surcharge		44,321			37,244
Total operating revenue		360,873			299,710
Operating Expenses:
Salaries, wages and benefits		127,099			102,854
Fuel and fuel taxes		80,098			66,337
Vehicle rents		22,986			18,398
Depreciation and amortization, net of gain on sale		19,529			11,875
Purchased transportation		54,623			46,509
Operating expenses and supplies		23,637			19,325
Insurance premiums and claims		14,950			13,268
Operating taxes and licenses		4,276			3,663
Communications and utilities		2,881			2,872
General and other operating expenses		10,492			9,852
Total operating expenses		360,571			294,953
Income from Operations		302			4,757
Interest expense, net		5,481			3,098
Equity in (income) loss of affiliated companies		(124	)		217
Minority interest		(50	)		139
		5,307			3,454
Income (loss) before income taxes		(5,005	)		1,303
Income tax (benefit) provision		(2,376	)		569
Net Income (Loss)	$	(2,629	)	$	734
Earnings (Loss) Per Share - basic	$	(0.17	)	$	0.05
Weighted average shares - basic		15,276			15,325
Earnings (Loss) Per Share - diluted	$	(0.17	)	$	0.05
Weighted average shares - diluted		15,276			15,511

(See Accompanying Notes to Condensed Consolidated Financial Statements)

3

U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

ASSETS	March 31, 2007			December 31, 2006
	(Unaudited)
Current Assets:
Cash and cash equivalents	$	3,454		$	913
Customer receivables, net of allowance		164,826			168,079
Other receivables		10,521			15,398
Prepaid insurance and licenses		20,819			25,777
Operating and installation supplies		8,434			7,767
Deferred income taxes		25,545			25,545
Other current assets		12,401			10,665
Total current assets		246,000			254,144
Property and Equipment, at cost:
Land and buildings		67,879			67,358
Revenue and service equipment		552,249			537,570
Furniture and equipment		35,839			35,441
Leasehold improvements		32,139			29,857
Computer software		40,698			39,584
		728,804			709,810
Less accumulated depreciation and amortization		(193,802	)		(180,813	)
Net property and equipment		535,002			528,997
Other Assets:
Goodwill, net		95,520			94,307
Other		26,667			25,919
Total other assets		122,187			120,226
Total Assets	$	903,189		$	903,367

(See Accompanying Notes to Condensed Consolidated Financial Statements)

4

U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

LIABILITIES AND STOCKHOLDERS’ EQUITY	March 31, 2007			December 31, 2006
	(Unaudited)
Current Liabilities:
Accounts payable	$	59,310		$	47,770
Book overdraft		4,713			19,368
Accrued wages and benefits		22,403			22,562
Claims and insurance accruals, current		47,059			49,928
Other accrued liabilities		6,765			9,137
Securitization facility		42,000			37,000
Current maturities of long-term debt		60,550			51,221
Total current liabilities		242,800			236,986
Long-term debt, net of current maturities		255,219			252,313
Deferred income taxes		112,728			114,679
Other long-term liabilities		3,260			3,186
Claims and insurance accruals, long-term		39,343			40,125
Minority interest		3,529			3,579
Stockholders’ Equity:
Preferred Stock, $.01 par value, 2,000,000 shares authorized, no shares issued		-			-
Common Stock Class A, $.01 par value, 30,000,000 shares authorized, 15,964,694 and 15,958,837 shares issued at March 31, 2007 and December 31, 2006, respectively		160			160
Common Stock Class B, $.01 par value, 7,500,000 shares authorized, 3,040,262 shares issued and outstanding at March 31, 2007 and December 31, 2006		30			30
Additional paid-in capital		162,328			162,001
Retained earnings		127,575			130,373
Treasury Stock, Class A, at cost (3,883,075 and 3,683,075 shares at March 31, 2007 and December 31, 2006, respectively)		(43,766	)		(40,048	)
Notes receivable from stockholders		(17	)		(17	)
Total stockholders’ equity		246,310			252,499
Total Liabilities and Stockholders’ Equity	$	903,189		$	903,367

(See Accompanying Notes to Condensed Consolidated Financial Statements)

5

U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	March 31,
	2007			2006
Cash Flows from Operating Activities:
Net income (loss)	$	(2,629	)	$	734
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Equity in (income) loss of affiliated companies		(124	)		217
Deferred income tax provision (benefit)		(1,188	)		285
Provision for losses on receivables		72			339
Depreciation and amortization		19,505			12,830
Stock-based compensation expense		246			27
Tax benefit realized from stock option plans		(18	)		-
Loss (gain) on sale of equipment		24			(955	)
Minority interest expense		(50	)		139
Changes in operating assets and liabilities, net of acquisitions:
Receivables		6,887			27,414
Prepaid insurance and licenses		4,958			3,572
Operating and installation supplies		(544	)		(172	)
Other assets		(3,088	)		(455	)
Accounts payable and other accrued liabilities		4,222			(4,184	)
Accrued wages and benefits		(159	)		620
Net cash provided by operating activities		28,114			40,411
Cash Flows from Investing Activities:
Payments for purchases of property and equipment		(36,017	)		(49,020	)
Proceeds from sales of property and equipment		17,159			18,416
Acquisition of businesses, net of cash acquired		(5,655	)		(6,806	)
Net cash used in investing activities		(24,513	)		(37,410	)
Cash Flows from Financing Activities:
Net borrowings under lines of credit		2,850			-
Net borrowings under securitization facility		5,000			36,000
Borrowings under long-term debt		22,532			945
Payments of long-term debt		(13,147	)		(20,143	)
Additions to deferred financing costs		-			(410	)
Book overdraft		(14,655	)		(11,789	)
Purchase of Class A Common Stock		(3,718	)		(1,601	)
Proceeds from exercise of stock options		60			317
Tax benefit from stock options		18			-
Proceeds from issuance of common stock, net		-			92
Net cash (used in) provided by financing activities		(1,060	)		3,411
Net Change in Cash and Cash Equivalents	$	2,541		$	6,412
Cash and Cash Equivalents, beginning of period	$	913		$	9,488
Cash and Cash Equivalents, end of period	$	3,454		$	15,900
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest, net of capitalized interest	$	5,232		$	1,701
Cash (refunded) paid during the period for income taxes, net	$	(3,044	)	$	6,669

6

U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(In thousands, except share and per share amounts)

1. Condensed 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 U.S. Xpress Enterprises, Inc. (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 U.S. generally accepted accounting principles for complete financial statements.

Operating results for the three months ended March 31, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007. In the opinion of management, all adjustments necessary for a fair presentation of 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, 2007).

2. Organization and Operations

U.S. Xpress Enterprises, Inc. (the “Company”) provides transportation services through two business segments: (i) U.S. Xpress, Inc. (“U.S. Xpress”), Arnold Transportation, Inc. (“Arnold”), and Total Transportation of Mississippi LLC (“Total”), comprise our truckload segment, (“Truckload”); and (ii) Xpress Global Systems, Inc. (“Xpress Global Systems”). U.S. Xpress, Arnold, and Total are truckload carriers serving the continental United States and parts of Canada and Mexico. Xpress Global Systems provides transportation, warehousing, and distribution services primarily to the floorcovering industry.

Financial Accounting Standard 131, “Disclosures about Segments of an Enterprise and Related Information”, permits for the aggregation of separate operating segments into one reporting segment if they have similar economic characteristics and if the segments are similar in each of the following areas: a) the nature and products of the services, b) the nature of the production process, c) the type or class of customer for their products and services, d) the methods used to distribute their products or provide their services, and e) if applicable, the nature of the regulatory environment. The Company notes U.S. Xpress, Arnold, and Total have these similarities and are consolidated into one reporting segment “Truckload” while Xpress Global Systems is reported separately.

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 March 31,
	2007			2006
Net Income (Loss)	$	(2,629	)	$	734
Denominator:
Weighted average common shares outstanding		15,276			15,325
Equivalent shares issuable upon exercise of stock options and vesting of restricted stock		-			186
Diluted shares		15,276			15,511
Earnings (Loss) Per Share:
Basic	$	(0.17	)	$	0.05
Diluted	$	(0.17	)	$	0.05

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4.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 materially adverse effect on the Company’s financial position or results of operations.

The Company had letters of credit of $91,036 outstanding at March 31, 2007. The letters of credit are maintained primarily to support the Company’s insurance program.

The Company currently has commitments outstanding to acquire revenue and communications equipment and development of terminals for approximately $104,311 in 2007 and $400 in 2008. 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.

5. Business Acquisitions

In January of 2007, the Company acquired certain assets of a truckload carrier for a purchase price of $5.6 million in cash. The assets acquired of approximately $4.8 million related primarily to revenue equipment and other assets. The excess of the purchase price over the fair value of the assets acquired was recorded as goodwill. The purchase price allocation is preliminary as the Company is still reviewing the valuations of certain assets.

In the fourth quarter of 2004, the Company acquired 49% of the outstanding stock of ATS Acquisition Holding Co. ("ATS"), the parent company of Arnold. In the second quarter of 2005, the Company acquired 49% of the outstanding stock of Transportation Investments Inc. ("TII"), the parent company of Total, and certain affiliated companies (together with TII, the "Total Companies"). Certain members of Arnold’s current management team controlled the remaining 51% interest as well as a majority of the board of directors of ATS, and certain members of the Total management team controlled the remaining 51% interest and a majority of the boards of directors of each of the Total Companies. The Company did not guarantee any of ATS' or the Total Companies' debt and did not have any obligation to provide funding, services, or assets. The Company accounted for ATS' and the Total Companies' operating results using the equity method of accounting.

On February 28, 2006, the Company increased its ownership interest in both ATS and the Total Companies for approximately $7.9 million in cash. In the transactions, the Company increased its holdings to 80% of the outstanding stock of ATS and the Total Companies through the purchase of stock owned by the current management teams of Arnold and Total. The Arnold and Total management teams continue to hold 20% of the outstanding stock of ATS and the Total Companies, respectively. In connection with these transactions, ATS and the Total Companies became parties to, and guarantors of, the Company's revolving credit facility.

In connection with increasing its investments in ATS and the Total Companies, the Company issued an aggregate of 40,466 shares of restricted stock to key employees of those companies under its 2002 Stock Incentive Plan.  The restricted shares vest over periods up to four years contingent upon continued employment.  The Company recorded compensation expense in accordance with SFAS 123R in relation to these shares.

The above acquisitions are accounted for under the rules of SFAS 141. The Company’s investment to date in ATS and the Total companies totals $21.1 million. The allocation of the purchase cost consisted of $181.5 million in assets, of which $119.9 million is property and equipment, and $182.9 million in liabilities, of which $118.5 million is current and long-term debt. $22.4 million of this investment has been allocated to goodwill. $1.1 million of cash was acquired as of the date of the increased investment.

The primary reasons for the acquisitions and the principal factors that contributed to the recognition of goodwill are as follows: 1) ATS and the Total Companies compliment the Company’s current presence in the United States by creating a denser capacity of revenue equipment and drivers and 2) Cost savings are expected through the sharing of best practices within the three companies in addition to increased purchasing power.

8

Commencing March 1, 2006, the Company has accounted for its investments in ATS and the Total Companies on a consolidated basis. 

The following unaudited pro forma financial information presents a summary of the Company’s consolidated results of operations for the quarters ended March 31, 2007 and 2006 had the acquisitions of ATS and the Total Companies taken place as of January 1, 2006.

	Three Months Ended March 31,
	2007			2006
Revenue, net of fuel surcharge	$	316,552		$	321,359
Net income (loss)		(2,629	)		807
Earnings (loss) per share - Basic		(0.17	)		0.05
Earnings (loss) per share - Diluted		(0.17	)		0.05

In the transactions that increased the Company’s ownership to 80%, the Company also obtained the right to elect a majority of the members of the board of directors of ATS. The Company retains options to purchase the remaining 20% of each of ATS and the Total Companies through December 8, 2007 and October 1, 2008, respectively. If the Company fails to exercise such options prior to such dates, the members of the current Arnold and Total management teams will have similar options to repurchase the Company’s interests in ATS and the Total Companies, respectively.

6. Operating Segments

The Company has two reportable segments based on the types of services it provides to its customers: Truckload (U.S. Xpress, Arnold, and Total), 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.

	Truckload			Xpress Global Systems		Consolidated
Three Months Ended March 31, 2007
Revenue - external customers	$	338,317		$	22,556	$	360,873
Intersegment revenue		1,195			-		1,195
Operating income (loss)		(1,238	)		1,540		302
Total assets		882,260			20,929		903,189
Three Months Ended March 31, 2006
Revenue - external customers	$	277,277		$	22,433	$	299,710
Intersegment revenue		1,275			-		1,275
Operating income		4,388			369		4,757
Total assets		778,988			23,358		802,346

The difference in consolidated operating income, as shown above, and consolidated income before income taxes on the consolidated statements of operations for the three months ended March 31, 2007 and 2006, respectively, consists of net interest expense of $5,481 and $3,098, equity in (income) loss of affiliated companies of $(124) and $217 and minority interest of $(50) and $139, respectively.

9

7. Long-Term Debt

Long-term debt at March 31, 2007 and December 31, 2006 consisted of the following: 

	March 31, 2007			December 31, 2006
Obligation under line of credit with a group of banks, maturing March 2011	$	4,550		$	1,700
Revenue equipment installment notes with finance companies, weighted average interest rate of 6.01% and 5.99% at March 31, 2007 and December 31, 2006, respectively, due in monthly installments with final maturities at various dates through August 2013, secured by related revenue equipment with a net book value of $277.9 million at March 31, 2007 and $265.8 million at December 31, 2006		273,996			263,953
Mortgage note payable, interest rate of 6.73% at March 31, 2007 and December 31, 2006, due in monthly installments through October 2010, with final payment of $6.3 million, secured by real estate with a net book value of $12.8 million at March 31, 2007 and $12.9 million at December 31, 2006		7,696			7,782
Mortgage note payable, interest rate of 6.26% at March 31, 2007 and December 31, 2006, due in monthly installments through December 2030, secured by real estate with a net book value of $15.8 million at March 31, 2007 and $15.9 million at December 31, 2006		16,633			16,709
Mortgage note payable, interest rate of 6.98% at March 31, 2007, maturing August, 2031, secured by real estate with a net book value of $13.6 million at March 31, 2007 and $13.7 million at December 31, 2006		10,376			10,416
Mortgage notes payable, interest rate ranging from 5.0% to 7.25% maturing at various dates through January 2009, secured by real estate with a net book value of $2.9 million at March 31, 2007 and $2.4 million at December 31, 2006		1,157			1,204
Capital lease obligations maturing through September 2008		1,206			1,510
Other		155			260
		315,769			303,534
Less: current maturities of long-term debt		(60,550	)		(51,221	)
	$	255,219		$	252,313

The Company is party to a $130,000 senior secured revolving credit facility and letter of credit sub-facility with a group of banks with a maturity date in March 2011. The credit 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 March 31, 2007, the applicable margin was 0.00% for base rate loans and 1.50% for LIBOR loans. The credit facility also prescribes additional fees for letter of credit transactions and a quarterly commitment fee on the unused portion of the loan commitment (1.50% and 0.25%, respectively, at March 31, 2007). At March 31, 2007, $91,036 in letters of credit were outstanding under the credit facility with $34,414 available to borrow. The credit facility is secured by substantially all assets 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. Subject to certain defined exceptions, it also restricts the ability of the Company and its subsidiaries, without the approval of the lenders, to engage in sale-leaseback 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 March 31, 2007, the Company was in compliance with the credit facility covenants.

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8. Accounts Receivable Securitization

The Company is party to a $140,000 accounts receivable securitization facility (the "Securitization Facility"). On a revolving basis, the Company sells accounts receivable as part of a two-step securitization transaction that provides the Company with funding similar to a revolving credit facility. To facilitate this transaction, Xpress Receivables, LLC ("Xpress Receivables"), a bankruptcy-remote, special purpose entity, purchases accounts receivable from U.S. Xpress, Arnold, Total, and Xpress Global Systems. Xpress Receivables funds these purchases with money borrowed under the Securitization Facility through Three Pillars Funding, LLC.

The borrowings are secured by, and paid down through collections on, the accounts receivable. The Company can borrow up to $140,000 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 Securitization Facility. The Securitization Facility is reflected as a current liability in the consolidated financial statements because its term, subject to annual renewals, expires October 11, 2007. As of March 31, 2007, the Company’s borrowings under the Securitization Facility were $42,000, with $85,151 available to borrow.

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 March 31, 2007, the Company was in compliance with the Securitization Facility covenants.

9. Loss on Sale and Exit of Business

On May 31, 2005, Xpress Global Systems exited the unprofitable airport-to-airport business and conveyed its customer list and a non-compete agreement to a company in exchange for $12,750 in cash. Following the transaction, Xpress Global Systems continues to provide transportation, warehousing, and distribution services to the floorcovering industry. 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 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 March 31, 2007.

	Severance			Future Lease Commitments			Other Related Exit Costs			Minimum Contractual Amounts			Total
May 31, 2005 Reserve	$	400		$	5,287		$	962		$	5,033		$	11,682
2005 Reserve Additions		15			(15	)		-			73			73
2005 Payments		(415	)		(3,780	)		(797	)		(3,268	)		(8,260	)
December31, 2005 Reserve		-			1,492			165			1,838			3,495
2006 Reserve Additions		-			305	(1)		-			148			453
2006 Payments		-			(795	)		(30	)		(476	)		(1,301	)
December 31, 2006 Reserve		-			1,002			135			1,510			2,647
2007 Reserve Additions		-			23	(1)		-			36	(1)		59
2007 Payments		-			(148	)		-			(1,177	)		(1,325	)
March 31, 2007 Reserve	$	-		$	877		$	135		$	369		$	1,381

⁽¹⁾ The component of the minimum contractual amounts liability and future lease commitments liability represents interest accretion.

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10. Income Taxes

Effective January 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, (“FIN 48”). The impact upon adoption was to decrease retained earnings by approximately $169,000 and to increase our accruals for uncertain tax positions and related interest by a corresponding amount. After recognizing these impacts at adoption of FIN 48, the total unrecognized tax benefits were approximately $2.7 million. Of this amount, approximately $1.2 million would impact our effective tax rate if recognized. The difference results from federal and state tax items that would impact goodwill and would not impact the effective rate if it were subsequently determined that such liability were not required and the indirect deferred tax benefit associated with uncertain tax positions of $0.8 million and $0.7 million, respectively.

The Company regularly evaluates the legal organizational structure and filing requirements of our entities and adjusts tax attributes to enhance planning opportunities. While we are evaluating certain transactions that could reduce the need for certain accruals during fiscal year 2007, those considerations are not yet sufficiently developed to allow further adjustment to existing balances.

The Company files income tax returns in the U.S. federal and various state jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state and local income tax examinations for years before 2003. The Company has minimal ongoing audit activity.

The Company recognizes interest related to unrecognized tax benefits in the provision for income taxes. The Company had approximately $540,000 accrued for the payment of interest as of the date of adoption.

11. Related Party Transaction

The two principal stockholders of the Company own 100% of the outstanding stock of Innovative Processing Solutions LLC, which owns 30% of the outstanding stock of a provider of onboard computers for the trucking industry. During the three months ended March 31, 2007, the Company paid this provider $2.7 million primarily for communications hardware. This product is designed specifically for in-cab use on a Windows platform to enhance communications with the driver.

12. Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This Statement does not require any new fair value measurements; however, for some entities, the application of this Statement will change current practice. SFAS 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact, if any, of SFAS 157 on its consolidated financial statements.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, (“SFAS 159”).  SFAS 159 permits entities to choose to measure certain financial assets and liabilities at fair value.  Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings.  SFAS 159 is effective for fiscal years beginning after November 15, 2007.  We are currently assessing the impact of SFAS 159 on our financial statements.

13. Reclassifications

Certain reclassifications have been made to the 2006 financial statements to conform to the 2007 presentation.

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

This Quarterly Report on Form 10-Q contains certain statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. 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. Such statements may be identified by their use of terms or phrases such as "expects," "estimates," "projects," "believes," "anticipates," "intends," and similar terms and phrases. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, which could cause future events and actual results to differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. Readers should review and consider the factors discussed in "Item 1.A Risk Factors" in our Form 10-K for the year ended December 31, 2006, along with various disclosures in our press releases, stockholder reports, and other filings with the Securities and Exchange Commission.

All such forward-looking statements speak only as of the date of this Form 10-Q. You are cautioned not to place undue reliance on such forward-looking statements. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company's expectations with regard thereto or any change in the events, conditions, or circumstances on which any such statement is based.

Business Overview

We are the fifth largest publicly traded truckload carrier in the United States, measured by revenue, according to Transport Topics, a publication of the American Trucking Associations, or ATA. Our primary business is offering a broad range of 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 $1.5 billion in 2006 from $215.4 million in 1994, a compounded annual growth rate of 17.4%. Our growth has come through expansion of business with new and existing customers and complementary acquisitions. Our operating revenue increased 20.4% to $360.9 million in the first quarter of 2007 from $299.7 million in the first quarter of 2006. We experienced a net loss of $2.6 million, or $0.17 per diluted share, compared with net income of $0.7 million, or $0.05 per diluted share, in the prior-year period.

In 2006 and continuing into the first quarter of 2007, our Xpress Global Systems segment positively impacted the results of operations by continued improvement in pricing and yield management, operational efficiencies and reduced overhead expenditures, as well as the divestiture of our unprofitable airport-to-airport business during 2005.

Our Truckload Segment

Our truckload segment, U.S. Xpress, Inc. (“U.S. Xpress”), Arnold Transportation, Inc. (“Arnold”), and Total Transportation of Mississippi LLC (“Total”), which comprised approximately 94% of our total operating revenue in the first quarter of 2007, includes the following six strategic business units, each of which is significant in its market:

●U.S. Xpress dedicated	Our approximately 1,400 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.
●U.S. Xpress regional and solo over-the-road	Our approximately 3,350 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.
●U.S. Xpress 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.
●U.S. Xpress expedited team	Our approximately 750 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.
●Arnold	Arnold is a dry van truckload carrier headquartered in Florida with approximately 1,550 trucks, and offers regional, dedicated, and medium length-of-haul service primarily in the Northeast, Southeast, and Southwest United States.
●Total	Total is a dry van truckload carrier headquartered in Mississippi with approximately 600 trucks, and offers regional, dedicated, and medium length-of-haul services primarily in the Eastern United States.

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During the first quarter of 2007, our truckload segment experienced an operating loss of $1.2 million compared to operating income of $4.4 million in the same period in 2006. The primary reason for the decrease in earnings was a decline in asset utilization, evidenced by a 6.2% decline in average freight revenue per tractor per week. Lower freight demand and severe weather in February negatively impacted miles per tractor in our truckload business.

Our truckload segment primarily generates revenue by transporting freight for our customers. Generally, we are paid a predetermined rate per mile for our truckload services. 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 $1.60 during the first quarter of 2007 from $1.55 in the first quarter of 2006. Average revenue per tractor per week, before fuel surcharge revenue, decreased to $2,790 during the first quarter of 2007 from $2,968 in the first quarter of 2006 (excluding rail revenue).

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 include rentals and depreciation of long-term assets, such as revenue equipment and terminal facilities, and the compensation of non-driver personnel.

Our Xpress Global Systems Segment

Our Xpress Global Systems segment, which comprised approximately 6% of our total operating revenue in the first quarter of 2007, offers transportation, warehousing, and distribution services to the floorcovering industry. During the first quarter of 2007, our Xpress Global Systems segment experienced operating income of $1.5 million, compared to $0.4 million in the same period in 2006.

Xpress Global Systems primarily generates revenue by transporting less-than-truckload freight for our customers. Generally, we are paid a predetermined rate per square yard for carpet and per pound for all other commodities. The rates vary based on miles, type of service and type of freight we are hauling. We enhance our less-than-truckload revenue by charging for storage, warehousing and other specialized services, as well as through the collection of fuel surcharges to mitigate the impact of increases in the cost of fuel. The main factors that affect our less-than-truckload revenue are the revenue per pound we receive from our customers, the average weight per shipment we haul and the number of shipments we generate. These factors relate, among other things, to the general level of economic activity in the United States, especially in the housing industry, inventory levels, specific customer demand, the level of capacity in the trucking industry, and driver availability. Our primary measures of revenue generation for our less-than-truckload business are average revenue per pound (excluding fuel surcharge revenue), total tonnage and number of loads hauled per day.

The main factors that impact our profitability in terms of expenses are the variable costs of transporting the freight for our customers. These costs include purchased transportation, fuel expense and the cost paid to our agents to deliver the freight. Expenses that have both fixed and variable components include driver and dock related expenses, such as wages, benefits, training, and recruitment, maintenance and tire expense and our total cost of insurance and claims. These expenses generally vary with the miles we travel and the tonnage of freight we handle, but also have a controllable component based on load factor, safety, fleet age, efficiency and other factors. Our main fixed costs include rentals and depreciation of long-term assets, such as revenue equipment and terminal facilities and the compensation of non-driver and non-dock worker personnel.

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Revenue and Expenses

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 99.9% in the first quarter of 2007, compared to 98.2% in the first quarter of 2006.

Revenue Equipment

At March 31, 2007, we had a truckload fleet of 7,722 tractors including 950 owner-operator tractors. We also operated 22,253 trailers in our truckload fleet and approximately 200 tractors dedicated to local and drayage services. At Xpress Global Systems, we operated 186 pickup and delivery tractors and 420 trailers.

Consolidated Results of Operations

The following table sets forth the percentage relationships of expense items to total operating revenue, and revenue, excluding fuel surcharge, for each of the periods indicated below. Fuel and fuel taxes as a percentage of revenue, before fuel surcharge, is calculated using fuel and fuel taxes, net of fuel surcharge. 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.

	Total Operating Revenue Three Months Ended March 31,						Revenue before Fuel Surcharge Three Months Ended March 31,
	2007			2006			2007			2006
Operating Revenue		100.0	%		100.0	%		100.0	%		100.0	%
Operating Expenses:
Salaries, wages and benefits		35.2			34.3			40.1			39.2
Fuel and fuel taxes		22.2			22.1			11.3			11.1
Vehicle rents		6.4			6.2			7.3			7.0
Depreciation and amortization, net of gain on sale		5.4			4.0			6.2			4.5
Purchased transportation		15.2			15.5			17.3			17.7
Operating expense and supplies		6.5			6.4			7.5			7.4
Insurance premiums and claims		4.1			4.4			4.7			5.1
Operating taxes and licenses		1.2			1.2			1.3			1.4
Communications and utilities		0.8			1.0			0.9			1.1
General and other operating		2.9			3.3			3.3			3.7
Total operating expenses		99.9			98.4			99.9			98.2
Income from Operations		0.1			1.6			0.1			1.8
Interest expense, net		1.5			1.1			1.7			1.2
Equity in (income) loss of affiliated companies		(0.0	)		0.1			(0.0	)		0.1
Minority interest		(0.0	)		0.0			(0.0	)		0.0
		1.5			1.2			1.7			1.3
Income (Loss) before income taxes		(1.4	)		0.4			(1.6	)		0.5
Income tax (benefit) provision		(0.7	)		0.2			(0.8	)		0.2
Net Income (Loss)		(0.7	)%		0.2	%		(0.8	)%		0.3	%

There are minor rounding differences in the above table.

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Comparison of the Three Months Ended March 31, 2007 to the Three Months Ended March 31, 2006

Total operating revenue increased 20.4% to $360.9 million during the three months ended March 31, 2007 compared to $299.7 million during the same period in 2006. The increase resulted primarily from the inclusion of $86.7 million in revenue from Arnold and Total for three months ended March 31, 2007 compared to $33.0 million for the same period in 2006. The $53.7 million increase in revenue is the result of three months of Arnold and Total operating revenue included in the 2007 first quarter compared to one month in 2006 first quarter.

Revenue, before fuel surcharge, increased 20.6% to $316.6 million during the three months ended March 31, 2007 compared to $262.5 million during the same period in 2006. Truckload revenue, before fuel surcharge, increased 22.3% to $295.1 million during the three months ended March 31, 2007, compared to $241.3 million during the same period in 2006, due primarily to the addition of three months of Arnold and Total revenues in the amount of $76.5 million in the first quarter of 2007 compared to one month in the amount of $29.1 million in the first quarter of 2006. U.S. Xpress revenues increased 3.0% to $218.6 million during the three months ended March 31, 2007 compared to $212.2 million during the same period in 2006 as a result of an increase in seated trucks by approximately 375 partially offset by an approximate 25% decrease in rail volume compared to the first quarter of 2006. Xpress Global Systems’ revenue increased 0.5% to $22.6 million during the three months ended March 31, 2007, compared to $22.4 million during the same period in 2006. Intersegment revenue decreased to $1.2 million during the three months ended March 31, 2007, compared to $1.3 million during the same period in 2006.

Salaries, wages, and benefits increased 23.5% to $127.1 million during the three months ended March 31, 2007 compared to $102.9 million during the same period in 2006. The increase is primarily due to the increase of wages for Arnold and Total in the amount of $17.5 million for three months ended March 31, 2007 compared to one month ended March 31, 2006. U.S. Xpress salaries, wages, and benefits increased $6.7 million as a result of an increase in company driver miles by approximately 6.0 million and an approximate 5% increase in office employees. As a percentage of revenue, before fuel surcharge, salaries, wages, and benefits increased to 40.1% for the three months ended March 31, 2007, compared to 39.2% for the three months ended March 31, 2006.

Fuel and fuel taxes, net of fuel surcharge, increased 23.0% to $35.8 million during the three months ended March 31, 2007 compared to $29.1 million during the same period in 2006. The increase is due primarily to the increase of net fuel and fuel tax expense for Arnold and Total in the amount of $5.7 million for three months ended March 31, 2007 compared to one month ended March 31, 2006, and an approximate 6.0 million increase in U.S. Xpress company miles. As a percentage of revenue before fuel surcharge, fuel and fuel taxes,net of fuel surcharge, increased slightly to 11.3% during the three months ended March 31, 2007 compared to 11.1% during the same period in 2006.

Vehicle rents increased 25.0% to $23.0 million during the three months ended March 31, 2007 compared to $18.4 million during the same period in 2006. This increase is due primarily to the increase in the average number of tractors financed under operating leases by approximately 28%, increased interest rates, and higher prices of new revenue equipment compared to the same period in 2006. As a percentage of revenue, before fuel surcharge, vehicle rents increased slightly to 7.3% during the three months ended March 31, 2007 compared to 7.0% during the same period in 2006.

Depreciation and amortization increased 63.9% to $19.5 million during the three months ended March 31, 2007 compared to $11.9 million during the same period in 2006. Gains/losses realized on the sale of revenue equipment are included in depreciation and amortization for reporting purposes. Depreciation and amortization, excluding gains/losses, increased to $19.5 million during the three months ended March 31, 2007 compared to $12.8 million during the same period in 2006. This increase is primarily the result of an increase in the average number of tractors and trailers by approximately 90.2% and 34.5%, respectively, combined with higher prices of new revenue equipment compared to the same period in 2006. As a percentage of revenue, before fuel surcharge, depreciation and amortization increased to 6.2% during the three months ended March 31, 2007 compared to 4.5% during the same period in 2006, primarily due to lower revenue per tractor per week less effectively covering these costs, an increase in the percentage of our fleet consisting of purchased equipment, and higher prices of new equipment.

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Purchased transportation increased 17.4% to $54.6 million during the three months ended March 31, 2007 compared to $46.5 million during the same period in 2006 primarily due to the increase of purchased transportation amounts for Arnold and Total in the amount of $10.4 million for three months ended March 31, 2007 compared to one month ended March 31, 2006. This increase is partially offset by decreased expenditures to the railroads due to an approximate 25% reduction in rail volumes. As a percentage of revenue, before fuel surcharge, purchased transportation decreased to 17.3% in the 2007 period from 17.8% in the 2006 period.

Operating expense and supplies increased 22.3% to $23.6 million during the three months ended March 31, 2007 compared to $19.3 million during the same period in 2006. This is primarily the result of the increase of operating expense and supplies amounts for Arnold and Total in the amount of $3.5 million for three months ended March 31, 2007 compared to one month ended March 31, 2006. As a percentage of revenue, before fuel surcharge, operating expense and supplies increased slightly to 7.5% during the three months ended March 31, 2007 compared to 7.3% during the same period in 2006.

Insurance premiums and claims, consisting primarily of premiums and deductible amounts for liability (personal injury and property damage), physical damage, and cargo damage insurance and claims, increased 12.8% to $15.0 million during the three months ended March 31, 2007 compared to $13.3 million during the same period in 2006. The increase is due primarily to the increase of insurance premium and claims expenses for Arnold and Total in the amount of $1.9 million for three months ended March 31, 2007 compared to one month ended March 31, 2006.  Excluding Arnold and Total amounts, insurance premiums and claims decreased 1.0% to $11.4 million compared to $11.5 million during the same period in 2006.  This decrease is due primarily to a reduction in physical damage and cargo claims expense partially offset by an increase in liability claims expense.  As a percentage of revenue, before fuel surcharge, insurance and claims decreased to 4.7% during the three months ended March 31, 2007, compared to 5.1% during the same period in 2006. We are self-insured up to certain limits for cargo loss, physical damage, and liability. We have adopted an insurance program with higher deductible exposure to offset the industry-wide increase in insurance premium rates. Refer to "Critical Accounting Policies and Estimates—Claims Reserves and Estimates" below for our various retention levels.  We maintain insurance with licensed insurance companies above amounts for which we are self-insured for cargo and liability. We accrue for pending claims, plus any incurred but not reported claims. The accruals are estimated based on our evaluation of the type and severity of individual claims and future development based on historical trends. Insurance premiums and claims expense will fluctuate based on claims experience, premium rates, and self-insurance retention levels.

Operating taxes and licenses increased 16.2% to $4.3 million during the three months ended March 31, 2007 compared to $3.7 million during the same period in 2006. This is primarily the result of the increase for Arnold and Total in the amount of $0.8 million for three months ended March 31, 2007 compared to one month ended March 31, 2006. As a percentage of revenue, operating taxes and license decreased slightly to 1.3% during the three months ended March 31, 2007, compared to 1.4% during the same period in 2006.

General and other operating increased 6.1% to $10.5 million during the three months ended March 31, 2007 compared to $9.9 million during the same period in 2006. This is primarily the result of the increase of general and other operating amounts for Arnold and Total in the amount of $1.0 million for three months ended March 31, 2007 compared to one month ended March 31, 2006. As a percentage of revenue, before fuel surcharge, general and other operating decreased to 3.3% during the three months ended March 31, 2007, compared to 3.7% during the same period in 2006.

Interest expense increased 77.4% to $5.5 million during the three months ended March 31, 2007 compared to $3.1 million during the same period in 2006. The increase is due primarily to the increase of interest expense for Arnold and Total in the amount of $1.6 million for three months ended March 31, 2007 compared to one month ended March 31, 2006, increased debt, and higher interest rates.

Minority interest of $(50) for the three months ended March 31, 2007 is representative of the 20.0% minority shareholders interest in the net loss of Arnold and Total.

The effective tax rate was 47.5% for the three months ended March 31, 2007. The rate was higher than the federal statuary rate of 35.0%, primarily as a result of per diems paid to drivers at U.S. Xpress and Total which are not fully deductible for federal income tax purposes.

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Liquidity and Capital Resources

Our business is expected to require significant capital investments over the short-term and long-term. Our primary sources of liquidity at March 31, 2007 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. Our revolving credit facility has maximum available borrowings of $130.0 million and our accounts receivable securitization facility has maximum available borrowings, subject to eligible receivables, of $140.0 million. We believe that funds provided by operations, borrowings under our revolving credit facility and 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. Although changes in economic conditions, credit and leasing markets, and our financial condition and results of operations, over time may cause fluctuations in the terms and conditions and amounts of available financing, we believe that these same sources of liquidity will be available to us over a longer-term and we, therefore, do not expect to experience significant liquidity constraints in the foreseeable future.

Cash Flows

Net cash provided by operating activities was $28.1 million and $40.4 million during the three months ended March 31, 2007 and 2006, respectively. The decrease in net cash provided by operating activities is primarily due to decreased earnings and a lower reduction in accounts receivable for the three months ended March 31, 2007, as compared to the same period in 2006.

Net cash used in investing activities was $24.5 million and $37.4 million during the three months ended March 31, 2007 and 2006 respectively. The decrease in cash used in investing activities is primarily the result of $11.8 million less in net additions to property and equipment.

Net cash used in financing activities was $1.1 million during the three months ended March 31, 2007, compared to $3.4 million provided by financing activities during the same period in 2006. The decrease in cash provided by financing activities is the result of net decreased borrowings and increased purchases of common stock for the three months ending March 31, 2007 as compared to the same period in 2006.

Debt

The Company is party to a $130,000 senior secured revolving credit facility and letter of credit sub-facility with a group of banks with a maturity date in March 2011. The credit 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 March 31, 2007, the applicable margin was 0.00% for base rate loans and 1.50% for LIBOR loans. The credit facility also prescribes additional fees for letter of credit transactions and a quarterly commitment fee on the unused portion of the loan commitment (1.50% and 0.25%, respectively, at March 31, 2007). At March 31, 2007, $91,036 in letters of credit were outstanding under the credit facility with $34,414 available to borrow. The credit facility is secured by substantially all assets 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. Subject to certain defined exceptions, it also restricts the ability of the Company and its subsidiaries, without the approval of the lenders, to engage in sale-leaseback 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 March 31, 2007, the Company was in compliance with the credit facility covenants.

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The Company is party to a $140,000 accounts receivable securitization facility (the "Securitization Facility"). On a revolving basis, the Company sells accounts receivable as part of a two-step securitization transaction that provides the Company with funding similar to a revolving credit facility. To facilitate this transaction, Xpress Receivables, LLC ("Xpress Receivables"), a bankruptcy-remote, special purpose entity, purchases accounts receivable from U.S. Xpress, Arnold, Total, and Xpress Global Systems. Xpress Receivables funds these purchases with money borrowed under the Securitization Facility through Three Pillars Funding, LLC.

The borrowings are secured by, and paid down through collections on, the accounts receivable. The Company can borrow up to $140,000 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 Securitization Facility. The Securitization Facility is reflected as a current liability in the consolidated financial statements because its term, subject to annual renewals, expires October 11, 2007. As of March 31, 2007, the Company’s borrowings under the Securitization Facility were $42,000, with $85,151 available to borrow.

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 March 31, 2007, the Company was in compliance with the Securitization Facility covenants.

At March 31, 2007, we had $357.8 million of borrowings, of which $255.2 million was long-term, $60.6 million was current maturities, and $42.0 million consisted of borrowings under the Securitization Facility. We also had approximately $91.0 million in unused letters of credit. At March 31, 2007, we had an aggregate of approximately $119.6 million of available borrowing remaining under our revolving credit facility and the Securitization Facility.

Equity

In January 2007, the Board of Directors authorized us to repurchase up to $15.0 million of our Class A common stock. The stock could be repurchased on the open market or in privately negotiated transactions at any time until January 26, 2008. The repurchased shares may be used for issuances under our incentive stock plan or for other general corporate purposes, as the Board may determine. In the first quarter of 2007, we repurchased 200,000 shares for approximately $3.7 million.

Business Acquisitions

In January of 2007, the Company acquired certain assets of a truckload carrier for a purchase price of $5.6 million in cash. The assets acquired of approximately $4.8 million related primarily to revenue equipment and other assets. The excess of the purchase price over the fair value of the assets acquired was recorded as goodwill. The purchase price allocation is preliminary as the Company is still reviewing the valuations of certain assets.

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 March 31, 2007, a substantial portion of our off-balance sheet arrangements related to non-cancelable leases for revenue equipment and office and terminal facilities with termination dates ranging from April 2007 to August 2013. 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 $25.3 million for the three months ended March 31, 2007. The remaining lease obligations as of March 31, 2007 were $303.9 million, with $99.0 million due in the next twelve months.

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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 $33.0 million at March 31, 2007. The residual value of a 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.

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 6% of consolidated revenues for the three months ended March 31, 2007, 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 simultaneously 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 of $178 has been deemed necessary at March 31, 2007 and December 31, 2006. If the facts or financial results were to change, 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. 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 portion our equipment is covered by re-purchase or trade agreements between us and the equipment manufacturer.

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Periodically, we evaluate the useful lives and salvage values of our revenue equipment and other long-lived assets based upon, but not limited to, our 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.

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 any years.

Goodwill impairment tests are highly subjective. Such tests include estimating the fair value of our reporting units. As required by SFAS 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 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 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.

Our insurance and claims expense varies based on the frequency and severity of claims, the premium expense, and the level of self-insured retention. Prior to September 1, 2006, the retention levels for liability insurance at U.S. Xpress, Arnold and Total were $2.0 million, $1.0 million and $2.0 million, respectively. Prior to September 1, 2006, the retention levels for workers’ compensation at U.S. Xpress, Arnold, and Total were $0.5 million, $0.8 million and $0.5 million, respectively. Beginning September 1, 2006, the retention levels for liability and workers’ compensation for all companies is $3.0 million and $1.0 million respectively.

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Accounting for Business Combinations

Our consolidated financial statements are inclusive of our accounts and the accounts of majority-owned subsidiaries. We consolidate all of majority-owned subsidiaries and record a minority interest representing the remaining shares held by the minority shareholders. All transactions and balances with and related to our majority owned subsidiaries have been eliminated.

In accordance with business combination accounting, we allocate the purchase price of acquired companies to the tangible and intangible assets acquired, and liabilities assumed based on their estimated fair values. We engaged a third-party appraisal firm to assist management in determining the fair values of certain assets acquired. Such a valuation requires management to make significant estimates and assumptions, especially with respect to intangible assets.

Management makes estimates of fair value based upon assumptions believed to be reasonable. These estimates are based on historical experience and information obtained from the management of the acquired companies and are inherently uncertain. Unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions, estimates, or actual results.

For business combinations, we must record deferred taxes relating to the book versus tax basis of acquired assets and liabilities. Generally, such business combinations result in deferred tax liabilities as the book values are reflected at fair values where as the tax basis is carried over from the acquired company. Such deferred taxes are initially estimated based on preliminary information and are subject to change as valuations and tax returns are finalized.

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.

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 the Securitization Facility and our revolving credit facility. We are exposed to fixed interest rate risk principally from equipment notes and mortgages. At March 31, 2007, we had borrowings totaling $357.8 million, comprising $55.9 million of variable rate borrowings and $301.9 million of fixed rate borrowings. Holding other variables constant (such as borrowing levels), the earnings impact of a one-percentage point increase/decrease in interest rates would not have a material impact on our consolidated statements of operations.

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.

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Item 4. Controls and Procedures

As required by Rule 13a-15 under 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.

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U.S. XPRESS ENTERPRISES, INC.

PART II - OTHER INFORMATION

Item 1A. Risk Factors

While we attempt to identify, manage, and mitigate risks and uncertainties associated with our business, some level of risk and uncertainty will always be present. Our Annual Report on Form 10-K for the year ended December 31, 2006 (“2006 Form 10-K”), in the section entitled “Item 1A. Risk Factors,”describes some of the risks and uncertainties associated with our business. These risks and uncertainties have the potential to materially affect our business, financial condition, results of operations, cash flows, projected results, and future prospects. We do not believe there have been any material changes to the risks factors previously disclosed in our 2006 Form 10-K.

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)
January 1, 2007 - January 31, 2007		-	$	-		-	$	15,000,000
February 1, 2007 - February 28, 2007		-		-		-		15,000,000
March 1, 2007 - March 31, 2007		200,000		18.59		200,000		11,282,399
Total		200,000	$	18.59		200,000	$	11,282,399

⁽¹⁾In January, 2007, our Board of Directors authorized us to repurchase up to $15.0 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 credit facility for the same amount. The stock may be repurchased at any time until January 26, 2008, unless further extended by our Board.

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 to this report and incorporated herein by reference
(2)	4.2	Restated Bylaws of the Company filed as Exhibit 3.2 to this report 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
#	31.1	Certification pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
#	31.2	Certification pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted 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 to the Company's Registration Statement on Form S-1 filed May 20, 1994 (File No. 33-79208).

⁽²⁾ Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed November 9, 2004 (File No. 0-24806).

# Filed herewith.

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SIGNATURES

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

	U.S. XPRESS ENTERPRISES, INC.
	(Registrant)
Date:May 10, 2007	By:	/s/Ray M. Harlin
		Ray M. Harlin
		Chief Financial Officer