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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarter ended September 30, 2002

Commission file number 0-24806

U.S. XPRESS ENTERPRISES, INC.

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

Yes x No o

             As of September 30, 2002, 10,890,688 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.

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U.S. XPRESS ENTERPRISES, INC.

INDEX

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U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
(Unaudited)

(See Accompanying Notes to Consolidated Financial Statements)

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

(See Accompanying Notes to Consolidated Financial Statements)

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

(See Accompanying Notes to Consolidated Financial Statements)

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

(See Accompanying Notes to Consolidated Financial Statements)

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U.S. XPRESS ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In Thousands, Except Per Share Data)

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, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. 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 2001 Annual Report to Stockholders in the Company’s Form 10-K filed with the Securities and Exchange Commission on April 1, 2002).

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 CSI/Crown, Inc. (“CSI/Crown”). U.S. Xpress is a truckload carrier serving the continental United States and parts of Canada and Mexico. CSI/Crown provides transportation, warehousing and distribution services to the floorcovering industry and also provides airport-to-airport transportation services to the airfreight and airfreight forwarding industries.

3.       Summary of Significant Accounting Policies

Principles of Consolidation

         The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions and accounts have been eliminated.

Property and Equipment

         Property and equipment are carried at cost. Depreciation and amortization of property and equipment is computed using the straight-line method for financial reporting purposes and

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accelerated methods for tax purposes over the estimated useful lives of the related assets (net of salvage value) as follows:

         Expenditures for normal maintenance and repairs are expensed. Renewals or betterments that affect the nature of an asset or increase its useful life are capitalized.

Earnings Per Share

         The difference in basic and diluted weighted average shares is due to the assumed conversion of outstanding options resulting in approximately 179,000 and 49,000 equivalent shares in the three-month periods ended September 30, 2002 and 2001, respectively, and 190,000 in the nine-month period ended September 30, 2002. Due to the loss in the nine-month period ended September 30, 2001, the outstanding options are anti-dilutive and are not considered in EPS.

Reclassifications

         Certain reclassifications have been made in the 2001 financial statements to conform to the 2002 presentation.

4.       Commitments and Contingencies

         The Company is a defendant in a lawsuit filed by Forward Air, Inc. (“Forward Air”), a deferred airfreight service provider, in the United States District Court in Greeneville, Tennessee. Forward Air in its initial complaint asserted a variety of claims primarily for trademark infringement and unfair competition allegedly arising out of the Company’s use of the name “Dedicated Xpress Services, Inc.” Additionally, by amended complaint, Forward Air has added allegations of conversion, abuse of process, conspiracy and malicious prosecution against the Company. In its lawsuit, Forward Air asserts that after Forward Air purchased the assets of Dedicated Transportation Services, Inc. (“DTSI”), an air freight forwarder, the Company entered the deferred air freight logistics service business and is unfairly competing with Forward Air. Forward Air seeks unspecified damages and injunctive relief preventing the Company from using the name “Dedicated Xpress Services, Inc.” The trial date in this matter is currently set for January 7, 2003.

         In a related case, SouthTrust Bank (“SouthTrust”), the secured lender to DTSI, which foreclosed upon and sold the assets of DTSI to Forward Air, has filed a lawsuit against the Company concerning certain events surrounding such foreclosure and sale. In November 2000, the Company signed an agreement with SouthTrust to purchase certain assets of DTSI at foreclosure by SouthTrust. After the agreement was signed, SouthTrust advised the Company that it had received a higher offer for the assets from Forward Air and that it would cancel the agreement with the Company unless the Company matched the higher offer. SouthTrust then sold the assets of DTSI to Forward Air. In its lawsuit, SouthTrust claims the

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Company acted wrongfully and attempted to interfere with SouthTrust’s sale of DTSI’s assets to Forward Air. The lawsuit seeks damages in an unspecified amount from the Company, and seeks to have the Court declare that actions taken by SouthTrust in connection with the foreclosure and sale of DTSI’s assets were lawful and did not violate any legal rights of the Company.

         The Company believes that the claims asserted by Forward Air and SouthTrust are without merit and intends to vigorously defend the lawsuits.

         The Company is party to certain other legal proceedings incidental to its business. The ultimate disposition of such other matters, in the opinion of management, based in part upon an assessment of the likelihood of an adverse disposition of such matters, will not have a material adverse effect on the Company’s financial position or results of operations.

         Letters of credit of $24,357 were outstanding at September 30, 2002. The letters of credit are maintained primarily to support the Company’s insurance program. Subsequent to September 30, 2002, the Company’s letters of credit were increased to $37.0 million.

5.       Derivative Financial Instruments

         The Company adopted the Statement of Financial Accounting Standards No. 133 (SFAS No. 133), “Accounting for Derivative Instruments and Hedging Activities,” as amended, on January 1, 2001. SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at fair value. The Company had designated its interest rate swap agreements as cash flow hedge instruments. The swap agreements were used to manage exposure to interest rate movement by effectively changing the variable rate to a fixed rate. The fair value of the interest rate swap agreements is defined as the amount the Company would receive or would be required to pay to terminate further obligations under the agreements. Changes in fair value of the interest rate agreements were recognized in other comprehensive income through March 29, 2002.

         On March 29, 2002, in connection with entering into a new revolving credit agreement, the outstanding interest rate swap agreements ceased to qualify as cash flow hedge instruments because they were not matched to the terms of the new debt. Accordingly, they are not designated as hedging instruments from and after such date. Effective March 29, 2002, the amount included in other comprehensive income related to the interest rate swap agreements are being amortized over the remaining term of the respective agreements. Future changes in the market value of the swap agreements will be reflected as interest expense in the statement of operations. The fair market value of the interest rate swaps as of September 30, 2002 was a liability of $860, which is included in other accrued liabilities.

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6.       Operating Segments

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

         The difference in consolidated operating income as shown above and consolidated income before income tax provision on the consolidated statements of operations is net interest expense of $3,122 and $3,523 for the three months ended September 30, 2002 and 2001, respectively, and $10,132 and $11,829 for the nine months ended September 30, 2002 and 2001, respectively.

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7.       Comprehensive Income

         Comprehensive income (loss) consisted of the following components for the nine months ended September 30, 2002 and 2001, respectively:

8.       Long-Term Debt and Extraordinary Item

         On March 29, 2002, the Company entered into a $100 million senior secured revolving credit facility. Proceeds from this new facility were used to repay the then existing revolving credit facility. The revolving credit facility provides for borrowings up to $100 million, with availability at any given time based on specified percentages of eligible receivables and revenue equipment, less reserves, under the facility’s Borrowing Base formula. Letters of credit under the facility are limited to $30.0 million. Subsequent to September 30, 2002, the Company’s line of credit was amended and letters of credit under the facility were increased to $37.0 million. The facility matures in March 2007.

         The facility allows the Company to select interest rates for all or any portion of the outstanding balance, based on either a Base Rate (based on the domestic prime rate) plus an Applicable Margin or LIBOR plus an Applicable Margin. The Applicable Margin ranges from 0.75% to 1.5% for Base Rate Loans and from 2.25% to 3.0% for LIBOR Loans, based in each case on the aggregate availability as defined. At September 30, 2002, the Applicable Margin was 1.25% for Base Rate Loans and 2.75% for LIBOR Loans. The facility also prescribes additional fees for Letter of Credit transactions and a monthly commitment fee based on the difference between the total commitment and the total borrowing capacity utilized by the Company from time to time.

         At September 30, 2002, $30.5 million in borrowings were outstanding under the facility with $39.3 million available to borrow. The facility is secured by substantially all assets of the Company, other than real estate and assets securing other debt of the Company.

         The new facility requires, among other things, maintenance by the Company of prescribed minimum amounts of Consolidated Tangible Net Worth, Fixed Charge Coverage Ratios and Leverage Ratios. It also: (i) limits the Company’s future capital expenditures; (ii) prohibits all acquisitions by the Company of its own capital stock or the payment of dividends on such stock; and (iii) effectively prohibits future asset acquisitions or dispositions (except in the ordinary course of business) or other business combination transactions by the Company without the Lenders’ consent.

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         In connection with the repayment of the former revolving credit agreement, the Company incurred an extraordinary loss of $1.1 million, after income taxes, related to the early extinguishment of this debt.

9.       Goodwill

         In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 142, “Goodwill and Other Intangible Assets”. SFAS No. 142 requires that goodwill not be amortized, and that amounts recorded as goodwill be tested for impairment. The Company adopted SFAS 142 effective January 1, 2002. Application of the provisions of SFAS 142 will decrease annual amortization expense by approximately $1.8 million. The Company tested goodwill for impairment using the two-step process prescribed in SFAS 142. The first step is a screen for potential impairment, while the second step measures impairment, if any. The Company completed the required impairment tests of goodwill and noted no impairment of goodwill.

         The following table presents the Company’s net income assuming goodwill had not been amortized during the three and nine months ended September 30, 2002 and 2001.