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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

FOR THE YEAR ENDED DECEMBER 31, 2002

OR

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

Commission file number 0-24806

U.S. XPRESS ENTERPRISES, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (423) 510-3000

Securities Registered Pursuant to Section 12(b) of the Act: None

Securities Registered Pursuant to Section 12(g) of the Act: Class A Common Stock, $0.01 Par Value

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES x NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No o

The aggregate market value of the voting stock held by non-affiliates of the registrant on June 28, 2002, the last business day of the registrant's most recently completed fiscal second quarter, was $75,175,000 (based upon the $13.11 per share average of the closing bid and asked price on that date as reported by NASDAQ). In making this calculation the registrant has assumed, without admitting for any purpose, that all executive officers, directors, and holders of more than 10% of a class of outstanding common stock, and no other persons, are affiliates.

As of March 21, 2003, the registrant had 10,904,443 shares of Class A Common Stock and 3,040,262 shares of Class B Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE: The information set forth under Part III, Items 10, 11, 12, and 13 of this Report is incorporated by reference from the registrant’s definitive proxy statement mailed to stockholders for the 2003 annual meeting of stockholders to be held on May 7, 2003.

PART I

ITEM 1.         BUSINESS

This Annual Report contains certain statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements may be identified by their use of terms or phrases such as “expects,” “estimated,” “projects,” “believes,” “anticipates,” “intends,” and similar terms and phrases, and may include, but not be limited to projections of revenues, income or loss, capital expenditures, acquisitions, plans for growth and future operations, financing needs or plans or intentions relating to acquisitions by the Company, as well as assumptions relating to the foregoing. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or qualified, which could cause future events and actual results to differ materially from those set forth in, contemplated by or underlying the forward-looking statements. Such risks and uncertainties include, but are not limited to, those factors discussed in Item 7 of this report under the heading “Factors that May Affect Future Results,” as well as other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission.

General

U.S. Xpress Enterprises, Inc. (the “Company”) provides transportation services in the continental United States, Canada and Mexico. The Company is the fifth largest publicly owned truckload carrier in the United States.

The Company has two operating segments, U.S. Xpress, Inc. (“U.S. Xpress”) and Xpress Global Systems, Inc. (“Xpress Global Systems”), formerly known as CSI/Crown, Inc. U.S. Xpress accounted for approximately 86.7% of the Company’s 2002 revenues. See Note 14 of the Company’s 2002 Consolidated Financial Statements for quantitative segment information.

The Company also offers logistics services through its 13% equity ownership interest in Transplace, Inc. (“Transplace”), an Internet-based global transportation logistics company.

U.S. Xpress provides three principal services: i) over-the-road or long-haul services with lengths of haul generally in the range of 400 to 3,000 miles; ii) regional services with lengths of haul generally in the range of 200 to 550 miles in the Western, Midwestern and Southeastern regions of the United States; and iii) dedicated contract carriage services.

Xpress Global Systems is a leading provider of logistics services to the floorcovering industry. Services include: i) consolidation and distribution of less-than-truckload shipments; ii) coordination of line-haul transportation to Company operated service centers and third-party agent facilities for local delivery; iii) warehousing and distribution services; and iv) retail sales of installation supplies, including the Company’s private-label “Installer’s Choice” brand of floorcovering installation products.

In February of 2001, Xpress Global Systems further broadened its services to include airport-to-airport transportation services to the airfreight and airfreight forwarding industries. The Company provides scheduled ground transportation of air cargo for integrated air cargo carriers, airlines and airfreight forwarders. These services are provided to 80 major destination markets, nationwide, on a one to four day basis through its 12 regional hub facilities.

The Company’s mission is to provide high levels of service to customers by utilizing proven technologies and skilled employees. The Company’s operating and growth strategies are focused on its target markets, while capitalizing on evolving trends and growth markets in the transportation industry. These strategies include:

1)          Position the Company as the premier high service provider. The Company specializes in providing time-definite and expedited truckload services to customers that operate supply chain management systems, particularly those that manage their flow of raw materials, in-process products and finished goods on a “just-in-time” basis. The Company was one of the first in the industry to establish time-definite pickups and deliveries as a standard for service quality. Time-definite service is a critical element in efficient supply chain and distribution systems management. In addition, the Company provides expedited service throughout the continental United States and in parts of Canada and Mexico. This is particularly important to shippers that operate multiple, geographically diverse facilities. In addition, the Company has consistently been a leader in the truckload industry in providing customers with easy access to operating and service-related technologies that provide value to shippers. The Company’s electronic commerce (“E-Commerce”) capabilities, in particular, differentiate the Company from many other truckload suppliers. The Company provides its customers with the ability to use E-Commerce through the Internet, private networks and third-party networks.

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2)          Expand core carrier relationships with shippers. Most of the larger shippers are reducing the number of carriers they use and are expanding relationships with their most capable carriers. Those companies selected for the most significant supplier relationships with shippers are called “core carriers”. The Company offers long-haul, mid-range and regional truckload services, time-definite and expedited services and dedicated fleet services. This range of capabilities, coupled with the capacity of 5,530 U.S. Xpress owned, leased and owner-operator tractors at December 31, 2002, has positioned the Company as a core carrier for many of the largest shippers in North America. In seeking these relationships, the Company emphasizes its service capabilities and capacity, as well as its commitment to flexibility, responsiveness and analytical planning. Customers that have designated the Company as a core carrier include: Sears, Dollar General, Best Buy, E.I. DuPont, Federal Express, Proctor and Gamble, Hewlett-Packard, Burlington Air Express and Kimberly Clark.

3)          Position the Company as a driver-friendly employer. The labor market for qualified professional truck drivers is extremely competitive, providing an advantage to driver-friendly employers like the Company. The Company focuses significant resources and attention on the successful recruiting, hiring, training and retention of qualified solo and team drivers. At December 31, 2002, the Company operated 5,530 tractors in its fleet, an increase of 5.6% from December 31, 2001. Management believes that its success in hiring and retaining qualified drivers is due to its high-quality equipment; better than average miles, which translates into better take-home pay for drivers; “driver-friendly freight” that does not require labor or lengthy delays; flexible work schedules that enable drivers to better meet their personal obligations and lifestyles; and creative recruiting strategies that recognize the changing demographics of the American work force and that seek to expand the diversity of the driver fleet. Ongoing success in recruiting, hiring, training and retaining sufficient drivers is critical to the Company in achieving its growth objectives.

SERVICES

U.S. Xpress

Long-haul/Over-the-Road

U.S. Xpress’ largest service specialty is over-the-road or long-haul services with lengths of haul generally in the range of 500 to 3,000 miles. U.S. Xpress offers time-definite and expedited services within this service specialty. Time-definite transportation requires that pickups and deliveries be performed to exact appointment times or within a specified number of minutes. This service is an essential point of differentiation from many other transportation companies, which typically provide service only within time “windows’ ranging from a few hours to a few days. Time-definite service is particularly important to U.S. Xpress’ customers that operate in a “just-in-time” environment, distribution and retail inventory systems and to customers in the airfreight and logistics industries. U.S. Xpress’ expedited service consists of the pick up and delivery of freight on prescribed schedules at transit times comparable to deferred airfreight service. U.S. Xpress is able to meet these transit times using team drivers or relays at much lower cost than deferred airfreight.

Regional Service

About 70% of the freight transported in the U.S. moves over distances of less than 1,000 miles. In addition, the average length of haul of shipments is shrinking as manufacturers and distributors increasingly bring the various elements of their supply and distribution chains into closer geographical proximity. These factors make regional service capabilities an important aspect in qualifying U.S. Xpress for core carrier relationships. U.S. Xpress provides regional service in the Western, Midwestern and Southeastern regions of the United States.

Dedicated Contract Carriage Service

Some shippers use transportation or logistics companies to manage or operate their private trucking operations. Many of these shippers historically have operated their own fleets to transport their products. U.S. Xpress’ management expertise, capacity and systems are well positioned to provide dedicated contract carriage services in which specific tractors, drivers and, at times, on-site personnel are assigned to a specific customer account. As a replacement or extension of a customer’s private fleet, U.S. Xpress can provide the assurance of extra capacity to “flex” the fleet to meet surges in the business cycle. Through dedicated service relationships, customers obtain assurance of capacity to meet their requirements. U.S. Xpress benefits by generating better equipment utilization, increasing business volume from key customers and improving planning of resources. Drivers benefit through consistent wages, enhanced scheduling, reduced downtime between loads and more predictability of their off-duty time.

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Xpress Global Systems

Floorcovering Logistics and Distribution Services

Xpress Global Systems is a leading provider of logistics services to the floorcovering industry. Xpress Global Systems picks up floorcovering products from manufacturers; consolidates shipments into truckloads bound for specific destinations; contracts with truckload carriers, including U.S. Xpress, to deliver the products to Xpress Global Systems’ service centers or to contract agents and delivery services; and delivers the products to floorcovering distributors, retailers and large-scale end users in the continental United States, Canada and Mexico. In addition, Xpress Global Systems provides warehousing and other specialized services, such as custom carpet cutting, stocking services and the sale of floorcovering installation supplies.

Additional distribution-related services, such as pool distribution, freight consolidation and public warehousing, have been introduced to a variety of industries other than floorcovering. These services take advantage of the existing infrastructure and allow Xpress Global to better utilize its facilities and provide an avenue for further diversification.

Airfreight and Distribution Services

Xpress Global Systems offers nationwide, scheduled ground transport of air cargo to customers in the airfreight and airfreight forwarding industries as a cost-effective and reliable alternative to traditional air transportation. Service is provided to over 80 major markets throughout the United States and Canada in one of the industry’s largest road-feeder networks. Driven by Federal Aviation Administration mandated changes in cargo security guidelines and the reliable and economical service provided by Xpress Global Systems, many air carriers and integrators have shifted goods to ground transport. Further, these restrictions have reduced available lift capacity in passenger aircraft resulting in more expedited traffic moving through ground networks, such as the system operated by Xpress Global Systems.

MARKETING AND CUSTOMERS

The Company’s success in marketing its services is a result of commitment to service, capabilities, capacity, flexibility, responsiveness, analytical planning and information technology management. The Company’s marketing departments and sales personnel identify new business prospects and implement programs to obtain and retain customer accounts. U.S. Xpress employs 26 full-time marketing and national account representatives who have responsibility for specific geographic areas. Xpress Global Systems employs 27 full-time marketing and national account representatives who have specific geographic and service responsibilities.

U.S. Xpress’ top 50 customers, most of which have designated U.S. Xpress as a core carrier, accounted for approximately 61.6% of its revenues in 2002. During 2002, no single customer accounted for more than 3.7% of U.S. Xpress’ revenues. Xpress Global Systems’ top customer accounted for 22.8% of its revenue in 2002. No other single customer accounted for more than 3.5% of Xpress Global Systems’ revenues.

EQUIPMENT

The Company determines the specifications of equipment purchases based on such factors as vehicle and component quality, warranty service, driver preferences, new vehicle prices and the likely resale market. Because the fleet is standardized and has warranty agreements with original equipment suppliers, the Company has minimized parts inventories and maintenance costs. The Company has negotiated agreements in principle concerning the essential terms of trade-in and/or repurchase commitments from its primary equipment vendors for disposal of a substantial portion of its equipment. These agreements in principle are expected to reduce the Company’s risks related to equipment disposal values.

The following table shows the numbers, type and age of U.S. Xpress and Xpress Global Systems company-owned and leased equipment at December 31, 2002:

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Tractors

The Company purchases or leases Freightliner or Volvo tractors for substantially all of the additions and replacements to its over-the-road fleet. Tractors are generally replaced every 36 to 54 months, generally well in advance of the need for major engine overhauls. This schedule can be accelerated or delayed, subject to certain limitations, based on resale values in the used truck market and the differential between those values and new truck prices. All Company over-the-road tractors are equipped with Eaton Vorad anti-collision systems, electronic speed controls, anti-lock braking systems for improved safety and satellite communications and in-cab e-mail for improved communications. Over 98% of the tractor fleet is equipped with Eaton automatic shift transmissions, and a substantial portion of the fleet is equipped with automatic traction control. All engines have fuel incentive programming for increased fuel economy.

Trailers

In 1997, the Company began purchasing composite plate trailers from Wabash National Corporation that the Company believes are more durable, have greater cubic capacity and stiffer sidewalls and do not fracture as easily as conventional aluminum trailers. The Company currently purchases or leases Wabash Duraplate trailers for substantially all of the additions and replacements to its fleet. In addition, substantially all of the trailers are equipped with air ride suspension, leading to softer rides that result in less load damage. At December 31, 2002, approximately 73% of the trailer fleet was composite plate trailers from Wabash.

Competition

The transportation services business is extremely competitive. The Company competes primarily with other truckload carriers and providers of deferred airfreight service. Competition from railroads and providers of intermodal transportation likely would increase if service standards for these modes were improved dramatically.

Generally, competition for the freight transported by the Company is based on service, efficiency and pricing. Historically, increased competition has created downward pressure on the truckload industry’s pricing structure. Prolonged weakness in freight markets or downward pressure on freight rates could adversely affect the Company’s results of operations or financial condition. Some competitors have greater financial resources, operate more equipment and transport more freight than the Company.

Regulation

The Company is a motor carrier that is subject to safety regulations promulgated by the Federal Motor Carrier Safety Administration of the Department of Transportation (“DOT”) and various laws and regulations enforced by state agencies. These regulatory authorities have broad powers, generally governing activities such as authority to engage in motor carrier operations, accounting systems, certain mergers, consolidations, acquisitions and periodic financial reporting. Subject to federal, state and provincial regulatory authorities, the Company may transport most types of freight to and from any point in the United States and certain Canadian provinces, over any route selected by the Company. The trucking industry is subject to possible regulatory and legislative change that could affect the economics of the industry.

The Company’s operations are also subject to various federal, state and local environmental laws dealing with transportation, storage, presence, use, disposal and handling of hazardous materials, discharge of storm water and underground fuel storage tanks. The Company believes that its operations are in substantial compliance with current laws and regulations and does not know of any existing condition that would cause non-compliance with applicable environmental regulations to have a material adverse effect on the Company’s business or operating results.

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SAFETY AND RISK MANAGEMENT

The Company is committed to safe operations. The Company’s emphasis on safety is demonstrated through equipment specifications and active safety and loss prevention programs. These programs reinforce the importance of driving safely, abiding by all laws and regulations, such as speed limits and driving hours, performing regular equipment inspections and acting as good citizens on the road. The Company’s accident review committee meets regularly to review any new accidents, take appropriate action related to drivers, examine accident trends and implement changes in procedures or communications to address any safety issues.

Management’s emphasis on safety also is demonstrated through its equipment specifications, such as anti-lock brakes, electronic engines, special mirrors, conspicuity tape and the implementation of Eaton Vorad collision avoidance systems on all tractors. The Eaton Vorad system is designed to provide drivers with visible and audible warnings when other vehicles are beside them and when vehicles ahead are traveling at slower speeds than the truck. The system provides drivers with additional response time to prevent accidents.

The Company requires prospective drivers to meet higher qualification standards than those required by the DOT. The DOT requires the Company’s drivers to obtain national commercial driver’s licenses pursuant to the regulations promulgated by the DOT. The DOT also requires that the employer implement a drug-testing program in accordance with DOT regulations. The Company’s program includes pre-employment, random, reasonable cause and post-accident drug testing.

Interstate motor carrier operations are subject to safety requirements prescribed by the DOT. Such matters as equipment weight and dimensions are also subject to federal and state regulations. The DOT evaluates carriers and provides safety fitness ratings based on conformance with requirements and accident frequency. U.S. Xpress and Xpress Global Systems each have satisfactory safety fitness ratings.

The Company secures appropriate insurance coverage at cost-effective rates. The primary claims arising in the Company’s business consist of cargo loss and damage, auto liability (personal injury and property damage) and workers’ compensation. The Company currently purchases primary and excess coverage for these types of claims, subject to certain retention levels, at amounts that management believes are sufficient to adequately protect the Company.

HUMAN RESOURCES

At December 31, 2002, the Company and its subsidiaries employed 8,007 full-time associates, of whom 5,813 were drivers, 229 were mechanics and other maintenance personnel, 1,095 were office associates for U.S. Xpress, the truckload division, and 870 were employed by Xpress Global Systems, the non-truckload division. U.S. Xpress also had active contracts with independent contractors (owner-operators) for the services of 1,106 tractors that provide both tractor and qualified drivers. None of the Company’s employees are represented by a union or collective bargaining agreement, and the Company considers relations with its employees to be good.

Driver Recruiting, Training and Retention

The Company recognizes that it is paramount to recruit, train and retain a professional driver workforce. The Company also realizes that competition for qualified drivers will remain high and will be impacted by changes in unemployment rates, changes in workforce demographics and reduced government funding of training programs. Although the Company has experienced no significant inability to attract qualified drivers, no assurance can be given that a shortage of qualified drivers in the future will not adversely affect the Company.

All Company drivers must meet or exceed specific guidelines relating to their safety records, driving experience, and personal evaluations, including a physical examination and mandatory drug testing as outlined in DOT regulations. After a conditional offer of employment is extended, a driver must successfully complete training in all aspects of Company policies and operations, safety philosophy and fuel efficiency. In addition, all drivers must successfully complete a Company driving exam and possess a valid Class A Commercial Drivers License. The Company maintains an ongoing safety and efficiency program to ensure that drivers comply with safe and efficient operating procedures.

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Senior management is actively involved with the development and retention of drivers. Recognizing the shortage of new drivers entering the industry, since January 1998, the Company has operated a professional driving school at its facility in Medway, Ohio. The school was certified in 1998 by the Professional Truck Driving Institute of America and re-certified in 2000 through 2005. The Company also contracts with driver schools managed by independent organizations as well as community college programs throughout the United States.

Management believes that there are several key elements to recruiting and retaining experienced professional drivers, such as an attractive compensation and benefits package, meeting reasonable driver expectations, providing equipment with desirable driver amenities and providing a company-wide culture of support for driver needs. Drivers are compensated on the basis of miles driven. The starting rate per mile is determined by the driver’s experience level and will increase with the driver’s length of service with the Company. Additional compensation may be earned through loading/unloading or stop pay and mileage bonuses. Drivers employed by the Company are eligible to participate in Company sponsored health, life, dental and vision plans. Further, they are eligible to participate in a 401(k) Retirement Plan. Additional benefits include paid holidays, vacation pay and pre-paid phone cards.

The Company’s late model Freightliner and Volvo conventional tractors are designed for driver comfort and safety. Standard equipment includes automatic transmissions, air ride suspensions, double sleeper bunks, air conditioning, power steering, electronic engine brakes and Eaton Vorad collision avoidance systems.

Management believes that maintaining a culture of driver support through flexible work schedules that enable drivers to accommodate personal obligations and lifestyles, leveraging technology (in cab e-mail, Internet services, etc.) that enables drivers to remain in touch with their families when on the road, managing driver home time, seeking drivers’ input in the decision making process seeking mutually satisfactory solutions and providing career advancement opportunities for drivers are also key factors in recruiting and retaining experienced professional drivers.

Independent Contractors

The Company recognizes the benefits of augmenting its service capacity through the use of independent contractors. Independent contractors provide their own tractors and pay for all the expenses of operating their own equipment, including wages and benefits, fuel, physical damage insurance, maintenance, highway use taxes and debt service. Therefore, less capital is required for the Company’s growth. The Company has an aggressive independent contractor recruiting program, with 1,106 contractors under active contract at December 31, 2002. The Company intends to continue adding independent contractors.

FUEL

Shortages of fuel or increases in fuel prices could have a materially adverse effect on the operations and profitability of the Company. Substantially all of the Company’s customer contracts contain fuel surcharge provisions to mitigate increases in the cost of fuel (the Company recognized $15.6 million of fuel surcharge revenue for the year ended December 31, 2002, compared to $25.9 million for the year ended December 31, 2001). However, fuel surcharges to customers do not fully recover all of fuel increases due to engine idle time and out-of-route miles not billable to the customer. Additionally, at times, fuel purchase contracts are used to mitigate the effects of increases in the price of fuel. The Company maintains fuel storage tanks at certain of its terminals. Leakage or damage to these tanks could subject the Company to environmental clean-up costs. The Company believes it is in compliance with all laws and regulations relating to maintenance of such fuel storage tanks.

INTERNET WEBSITE

The Company maintains an Internet website through which additional information concerning its business can be found. The website address is www.usxpress.com. The Company makes available on its website, free of charge, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such reports are electronically filed with or furnished to the Securities and Exchange Commission.

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ITEM 2.         PROPERTIES

The following table provides information regarding the Company’s facilities at December 31, 2002:

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The Company’s corporate headquarters are located in Chattanooga, Tennessee. The facility encompasses nearly 100,000 square feet of office space and includes state-of-the-art information management and communications systems.

Xpress Global Systems’ corporate headquarters are based in Tunnel Hill, Georgia, approximately 25 miles from the Chattanooga location. The Tunnel Hill facility includes a 101-door loading dock facility in which floorcovering shipments from multiple manufacturers are consolidated into truckloads for delivery to Company-owned and agent-operated distribution service centers. Substantially all Xpress Global Systems facilities operate as distribution centers performing consolidation, warehousing and local distribution.

In the opinion of the Company, its facilities are suitable and adequate for the Company’s needs.

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ITEM 3.         LEGAL PROCEEDINGS

Effective November 15, 2002, the Company entered into an agreement with Forward Air, Inc. (“Forward Air”) to settle all claims in the action brought by Forward Air against the Company and certain of its subsidiaries. Forward Air, a deferred airfreight service provider, had filed a lawsuit in the United States District Court in Greenville, Tennessee, in which Forward Air 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.” As a result of the settlement, the Company recorded a litigation charge of $1.7 million in the fourth quarter, which includes fees and expenses associated with the litigation.

The Company is party to various other legal proceedings arising in the normal course of its business. Management does not belie