UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
OR
[ ] 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 0-19858
USA TRUCK, INC.
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(Exact name of Registrant as specified in its charter)
<Table>
DELAWARE 71-0556971
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3200 INDUSTRIAL PARK ROAD
VAN BUREN, ARKANSAS 72956
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(Address of principal executive offices) (Zip Code)
</Table>
(479) 471-2500
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(Registrant's telephone number, including area code)
Not applicable
- --------------------------------------------------------------------------------
(Former name, address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
As of October 30, 2002, the Registrant had outstanding 9,324,908 shares of
common stock, $.01 par value per share.
INDEX
USA TRUCK, INC.
PART I. FINANCIAL INFORMATION
<Table>
<Caption>
Page
------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - September 30, 2002 (unaudited) and
December 31, 2001 3
Condensed Consolidated Statements of Operations (unaudited) - Three Months Ended and Nine
Months Ended September 30, 2002 and 2001 4
Condensed Consolidated Statements of Cash Flows (unaudited) - Nine Months Ended
September 30, 2002 and 2001 5
Notes to Condensed Consolidated Financial Statements (unaudited) - September 30,
2002 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 17
Item 4. Controls and Procedures 17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on FORM 8-K 18
</Table>
Page 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
USA TRUCK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
September 30, December 31,
2002 2001(1)
--------------- ---------------
(unaudited) (audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,722,504 $ 1,976,228
Accounts Receivable:
Trade - less allowance for doubtful accounts
(2002 - $292,227; 2001 - $260,771) 30,421,971 25,823,304
Other 645,150 3,068,554
Inventories 450,959 474,279
Deferred income taxes 2,087,736 673,000
Prepaid expenses and other current assets 3,666,377 2,398,410
--------------- ---------------
Total current assets 38,994,697 34,413,775
PROPERTY AND EQUIPMENT 220,893,833 207,945,810
ACCUMULATED DEPRECIATION AND AMORTIZATION (70,405,715) (60,102,406)
--------------- ---------------
150,488,118 147,843,404
OTHER ASSETS 207,177 154,295
--------------- ---------------
Total assets $ 189,689,992 $ 182,411,474
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank drafts payable $ 1,714,309 $ 1,537,585
Trade accounts payable 4,786,188 4,029,960
Accrued expenses 17,119,170 13,173,442
Current maturities of long-term debt 18,315,102 13,029,318
--------------- ---------------
Total current liabilities 41,934,769 31,770,305
LONG-TERM DEBT, LESS CURRENT MATURITIES 48,231,150 56,450,817
DEFERRED INCOME TAXES 23,262,692 20,488,511
INSURANCE AND CLAIMS ACCRUALS 2,714,465 2,528,365
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value; 1,000,000 shares authorized:
none issued -- --
Common Stock, $.01 par value; 16,000,000 shares authorized; issued shares
(2002 - 9,324,908; 2001 - 9,267,693) 93,249 92,677
Additional paid-in capital 11,406,900 11,138,506
Retained earnings 62,097,187 60,022,099
Less treasury stock, at cost (2002 - 10,981; 2001 - 14,135) (50,420) (79,806)
--------------- ---------------
Total stockholders' equity 73,546,916 71,173,476
--------------- ---------------
Total liabilities and stockholders' equity $ 189,689,992 $ 182,411,474
=============== ===============
</Table>
(1) The balance sheet at December 31, 2001 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
Page 3
USA TRUCK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<Table>
<Caption>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------------- ----------------------------------
2002 2001 2002 2001
--------------- --------------- --------------- ---------------
REVENUE:
Revenue, before fuel surcharge $ 70,651,305 $ 62,869,859 $ 201,221,745 $ 183,035,327
Fuel surcharge 1,671,810 1,997,512 2,936,385 6,961,051
--------------- --------------- --------------- ---------------
Total revenues 72,323,115 64,867,371 204,158,130 189,996,378
OPERATING EXPENSES AND COSTS:
Salaries, wages and employee benefits 27,138,295 27,349,174 81,009,783 81,082,402
Fuel and fuel taxes 12,569,554 12,605,695 35,099,029 39,009,051
Purchased transportation 7,409,328 3,185,990 18,887,875 6,736,081
Depreciation and amortization 7,067,364 6,530,735 20,488,253 19,912,967
Operations and maintenance 5,672,101 5,658,856 16,602,598 17,197,950
Insurance and claims 4,643,859 3,663,501 12,496,613 9,922,409
Operating taxes and licenses 1,131,138 856,117 3,249,394 2,962,626
Communications and utilities 722,965 669,335 2,110,382 2,029,995
Other 2,553,001 2,068,187 7,137,581 6,706,305
--------------- --------------- --------------- ---------------
68,907,605 62,587,590 197,081,508 185,559,786
--------------- --------------- --------------- ---------------
OPERATING INCOME 3,415,510 2,279,781 7,076,622 4,436,592
OTHER EXPENSES (INCOME):
Interest expense 781,540 1,075,771 2,365,430 3,520,067
(Gain) loss on disposal of assets (97,866) 234,062 (108,194) 200,459
Other, net (21,593) 3,658 (75,318) (41,602)
--------------- --------------- --------------- ---------------
662,081 1,313,491 2,181,918 3,678,924
--------------- --------------- --------------- ---------------
INCOME BEFORE INCOME TAXES 2,753,429 966,290 4,894,704 757,668
INCOME TAX EXPENSE (BENEFIT) 1,482,343 377,003 2,819,616 294,733
--------------- --------------- --------------- ---------------
NET INCOME $ 1,271,086 $ 589,287 $ 2,075,088 $ 462,935
=============== =============== =============== ===============
PER SHARE INFORMATION:
Average shares outstanding (Basic) 9,315,007 9,235,520 9,297,587 9,240,333
=============== =============== =============== ===============
Basic net income per share $ 0.14 $ 0.06 $ 0.22 $ 0.05
=============== =============== =============== ===============
Average shares outstanding (Diluted) 9,359,062 9,277,221 9,341,642 9,281,664
=============== =============== =============== ===============
Diluted net income per share $ 0.14 $ 0.06 $ 0.22 $ 0.05
=============== =============== =============== ===============
</Table>
See notes to condensed consolidated financial statements.
Page 4
USA TRUCK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<Table>
<Caption>
Nine Months Ended
September 30,
----------------------------
2002 2001
------------ ------------
OPERATING ACTIVITIES:
Net income $ 2,075,088 $ 462,935
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 20,488,253 19,912,967
Provision for doubtful accounts 50,800 46,000
Deferred income taxes 1,359,445 (92,664)
(Gain) loss on disposal of assets (108,194) 200,459
Changes in operating assets and liabilities:
Accounts receivable (2,226,063) (71,697)
Inventories, prepaid expenses and other current assets (1,244,647) 783,661
Bank drafts payable, accounts payable and accrued expenses 4,878,680 1,802,828
Insurance and claims accruals 186,100 (109,049)
------------ ------------
Net cash provided by operating activities 25,459,462 22,935,440
INVESTING ACTIVITIES:
Purchases of property and equipment (11,908,439) (23,445,777)
Proceeds from disposal of assets 1,115,583 9,931,125
Changes in other assets (52,882) 309,618
------------ ------------
Net cash used by investing activities (10,845,738) (13,205,034)
FINANCING ACTIVITIES:
Borrowings under long-term debt 43,069,000 92,502,000
Principal payments on long-term debt (46,096,000) (91,640,000)
Principal payments on capitalized lease obligations (12,138,800) (11,036,693)
Proceeds from the exercise of stock options 239,935 11
Proceeds from sale of treasury stock 58,417 52,742
------------ ------------
Net cash used by financing activities (14,867,448) (10,121,940)
------------ ------------
DECREASE IN CASH AND CASH EQUIVALENTS (253,724) (391,534)
Cash and cash equivalents at beginning of period 1,976,228 1,674,730
------------ ------------
Cash and cash equivalents at end of period $ 1,722,504 $ 1,283,196
============ ============
</Table>
See notes to condensed consolidated financial statements.
Page 5
USA TRUCK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2002
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and with the instructions to
FORM 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments considered necessary for
a fair presentation) have been included. Operating results for the nine-month
period ended September 30, 2002, are not necessarily indicative of the results
that may be expected for the year ended December 31, 2002. For further
information, refer to the financial statements and footnotes thereto included in
the Annual Report on Form 10-K of USA Truck, Inc. (the "Company") for the year
ended December 31, 2001.
NOTE B--COMMITMENTS
As of September 30, 2002, the Company had remaining commitments for
purchases of revenue equipment in the aggregate amount of approximately $8.7
million in 2002. As part of these commitments, the Company has remaining
contracts for the purchase of 44 tractors and 329 trailers during 2002. Either
the Company or the vendor may cancel these contracts within a certain time
period before delivery of the equipment.
The Company does not intend to trade tractors during the calendar year 2002
because of the continued weakness in the used tractor market. The Company has
decided to extend the useful lives on those groups of tractors that would have
traded in 2002 under normal used tractor market conditions. These extended lives
(54 months) will yield an increased depreciation charge to pre-tax earnings in
2002 of approximately $0.4 million.
The Company will aggressively pursue selling to unrelated third parties the
tractors on which useful lives have been extended if it can secure satisfactory
pricing through its internal tractor sales efforts. Anytime the market price
equals management expectations on such equipment, it will be sold immediately
even if it has not yet served its full extended life. The Company will continue
to take all necessary measures to minimize the effects of the poor used tractor
market on the Company's operation.
Extending the lives on tractors will also result in an increased charge to
net income in 2002 for maintenance costs. Although the dollar impact cannot be
accurately estimated for the remainder of 2002, the Company is taking steps to
minimize it through an expansion of its maintenance facilities in Laredo, Texas
and Bethel, Pennsylvania as well as an expanded facility in Butler Township,
Ohio.
The Company has a commitment for the expanded terminal facility in Butler
Township, Ohio. Construction began in the third quarter of 2001 and was
completed in the second quarter of 2002. Approximately $0.1 million of the
original commitment remains outstanding.
Page 6
NOTE C--CAPITAL STOCK TRANSACTIONS
During the nine-month period ended September 30, 2002, the Company did not
repurchase any of its outstanding common stock on the open market pursuant to
the repurchase program authorized by the Board of Directors in October 2001.
However, the Company did distribute 5,210 treasury shares, pursuant to the
Company's Employee Stock Purchase Plan, to participants in such plan during the
nine-month period ended September 30, 2002.
NOTE D--NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (FASB) issued Statements
of Financial Accounting Standards Board No. 141, "Business Combinations" (SFAS
141), and No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). SFAS 141
eliminates the pooling-of-interests method of accounting for business
combinations and requires any business combination completed after June 30,
2001, to be accounted for by the purchase method. Additionally, SFAS 141 changes
the criteria to recognize intangible assets apart from goodwill. Under SFAS 142,
goodwill and indefinite lived intangible assets are no longer amortized but are
reviewed annually, or more frequently if impairment indicators arise, for
impairment. Separable intangible assets that have finite lives will continue to
be amortized over their useful lives. Because of the different transition dates
for goodwill and intangible assets acquired on or before June 30, 2001, and
those acquired after that date, pre-existing goodwill and intangibles will be
amortized during this transition period until adoption, whereas new goodwill and
other intangible assets acquired after June 30, 2001, will not be amortized.
Companies are required to adopt SFAS 142 in their fiscal year beginning after
December 15, 2001. The Company adopted SFAS 142 on January 1, 2002. These
statements did not have a material impact on the Company.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" (SFAS 144). SFAS 144 supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of;" however, it retains the fundamental provisions of that
Statement related to the recognition and measurement of the impairment of
long-lived assets to be "held and used." In addition, the Statement provides
some guidance on estimating cash flows when performing a recoverability test,
requires that a long-lived asset to be disposed of other than by sale (e.g.,
abandoned) be classified as "held and used" until it is disposed of and
establishes more restrictive criteria to classify an asset as "held for sale".
The Company adopted SFAS 144 on January 1, 2002. This statement did not have a
material impact on the Company.
NOTE E -- CONTINGENCIES
A recent Department of Transportation ("DOT") compliance review has revealed
deficiencies in the Company's safety and compliance program that could result in
a downgrading of the Company's Satisfactory safety rating if the deficiencies
are not corrected before the DOT performs a follow-up compliance review within
the next few months.
A downgraded safety rating could result in regulatory fines, increased insurance
costs, increased competition for freight from carriers with Satisfactory safety
ratings and, in very rare instances, the revocation of a carrier's authority to
operate as a motor carrier. Based upon discussions the Company has had with the
DOT and the abovementioned legal counsel and consulting firm, the
Page 7
Company believes that the follow-up compliance review will result in the
retention of the Company's Satisfactory safety rating.
For further discussion see "Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations--Department of Transportation
Compliance Review."
The Company is not a party to any pending legal proceedings which management
believes to be material to the financial condition or results of operations of
the Company. The Company maintains liability insurance against risks arising out
of the normal course of its business.
Page 8
FORM 10-Q
USA TRUCK, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following table sets forth the percentage relationship of certain items
to operating revenues, before fuel surcharge, for the periods indicated:
<Table>
<Caption>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
REVENUE, BEFORE FUEL SURCHARGE 100.0% 100.0% 100.0% 100.0%
OPERATING EXPENSES AND COSTS:
Salaries, wages and employee benefits 38.4 43.5 40.3 44.3
Fuel and fuel taxes 15.4 16.9 16.0 17.5
Purchased transportation 10.5 5.1 9.4 3.7
Depreciation and amortization 10.0 10.4 10.2 10.9
Operations and maintenance (1) 8.0 9.0 8.3 9.4
Insurance and claims 6.6 5.8 6.2 5.4
Operating taxes and licenses 1.6 1.4 1.6 1.6
Communications and utilities 1.0 1.1 1.0 1.1
Other 3.6 3.3 3.5 3.7
------------ ------------ ------------ ------------
95.2 96.4 96.5 97.6
------------ ------------ ------------ ------------
OPERATING INCOME 4.8 3.6 3.5 2.4
OTHER EXPENSES (INCOME):
Interest expense 1.1 1.7 1.2 1.9
(Gain) loss on disposal of assets (0.1) 0.4 (0.1) 0.1
Other, net -- -- -- --
------------ ------------ ------------ ------------
0.9 2.1 1.1 2.0
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 3.9 1.5 2.4 0.4
INCOME TAX EXPENSE 2.1 0.6 1.4 0.2
------------ ------------ ------------ ------------
NET INCOME 1.8% 0.9% 1.0% 0.3%
============ ============ ============ ============
</Table>
(1) Net of fuel surcharge
RESULTS OF OPERATIONS
Quarter Ended September 30, 2002 Compared to Quarter Ended September 30, 2001
Operating revenue, before diesel fuel ("fuel") surcharge, increased 12.4%
to $70.7 million in the third quarter of 2002 from $62.9 million for the same
quarter of 2001. The Company believes this increase is due primarily to an
increase of 8.5% in the average number of tractors operated from 1,780
(including 29 owner-operators) in the third quarter of 2001 to 1,931
Page 9
(including 88 owner-operators) in the same quarter of 2002 and to a 146.4%
increase in third party logistics and brokerage revenues to $4.8 million in the
third quarter of 2002 from $1.9 million for the same quarter of 2001. Average
revenue per mile (exclusive of fuel surcharge) increased to $1.220 in the third
quarter of 2002 from $1.167 in the same quarter of 2001 primarily due to the
abovementioned increase in third party logistics and brokerage revenues. The
number of shipments increased 11.2% to 65,598 in the third quarter of 2002 from
58,979 in the same quarter of 2001. Miles per tractor per week decreased 2.5%
from 2,403 in the third quarter of 2001 to 2,343 in the same quarter of 2002
primarily due to a 61.6% increase in the percentage of unmanned tractors to
5.72% in the third quarter of 2002 from 3.54% for the same quarter of 2001. The
increase in the percentage of unmanned tractors was primarily the result of an
increase in the number of Company-owned tractors and driver turnover exceeding
the number of drivers hired. The empty mile factor decreased from 9.48% of paid
miles in the third quarter of 2001 to 8.92% of paid miles in the same quarter of
2002. The decreased empty mile factor was primarily the result of improved
freight demand in the Company's operating areas and, to a lesser extent, reduced
quantities of inbound loads into areas where there are few available outbound
loads.
Operating expenses and costs, as a percentage of revenue, before fuel
surcharge, decreased to 95.2% in the third quarter of 2002 from 96.4% in the
same quarter of 2001.
The decrease in salaries, wages and employee benefits costs, as a
percentage of revenue, net of fuel surcharge, was primarily the result of the
Company implementing a per diem pay program for its drivers during April 2002,
the abovementioned increases in third party logistics and brokerage revenues and
the Company's owner-operator fleet and a slight decrease in driver pay per mile,
net of the per diem effect. The average number of owner-operators in the
Company's fleet increased from 29 in the third quarter of 2001 to 88 in the same
quarter of 2002. All owner-operator expenses are reflected as purchased
transportation.
The decrease in fuel and fuel taxes costs, as a percentage of revenue, net
of fuel surcharge, was primarily due to a decrease in fuel prices and the
abovementioned increases in third party logistics and brokerage revenues and the
Company's owner-operator fleet.
The increase in purchased transportation costs, as a percentage of revenue,
net of fuel surcharge, was primarily due to the significant increases in third
party logistics and brokerage revenues and the Company's owner-operator fleet
described above. Purchased transportation costs are direct costs associated with
third party logistics and brokerage revenues and the Company's owner-operator
fleet.
The decrease in depreciation and amortization expense, as a percentage of
revenue, before fuel surcharge, was primarily the result of the abovementioned
increases in third party logistics and brokerage revenues and the Company's
owner-operator fleet. These increases were partially offset by slightly higher
depreciation expense on extended lived tractors (See "Note B--Commitments").
The decrease in operations and maintenance costs, as a percentage of
revenue, net of fuel surcharge, was primarily the result of the abovementioned
increases in third party logistics and brokerage revenues and the Company's
owner-operator fleet and a reduction in operations and maintenance costs per
Company-owned tractor for the third quarter of 2002 compared to the same quarter
in 2001. The reduction in operations and maintenance costs per Company-owned
tractor is due to the Company performing a greater percentage of maintenance
work at its
Page 10
terminal facilities and implementing more cost effective methods for purchasing
tires and equipment parts.
The increase in insurance and claims was primarily due to a 502.3% increase
in liability, cargo and workers' compensation insurance premiums in the third
quarter of 2002 compared to the same quarter in 2001. These increases were
partially offset by the abovementioned increases in third party logistics and
brokerage revenues and the Company's owner-operator fleet.
As a result of the foregoing factors, operating income increased 49.8% to
$3.4 million, or 4.8% of revenue, before fuel surcharge, in 2002 from $2.3
million, or 3.6% of revenue, before fuel surcharge, in 2001.
Interest expense decreased 27.4% to $0.8 million in 2002 from $1.1 million
in 2001, resulting primarily from interest rate decreases on the Company's
Senior Credit Facility (as defined under "Liquidity and Capital Resources"
herein) and, to a lesser extent, from a decrease in average borrowings under the
Company's Senior Credit Facility described under the "Liquidity and Capital
Resources" section herein.
As a result of the above, income before income taxes increased 184.9% to
$2.8 million, or 3.9% of revenue, before fuel surcharge, in 2002 from $1.0
million, or 1.5% of revenue, before fuel surcharge, in 2001.
The Company's effective tax rate increased to 53.8% in the third quarter of
2002 compared to 39.0% in the same quarter of 2001. The effective rates varied
from the statutory federal tax rate of 34% primarily due to state income taxes
and certain non-deductible expenses including a per diem pay structure
implemented by the Company during the second quarter of 2002. Due to the
nondeductible effect of per diem, the Company's tax rate will fluctuate in
future periods as earnings fluctuate.
As a result of the aforementioned factors, net income increased to $1.3
million in the third quarter of 2002 from $0.6 million in the same quarter of
2001. Diluted net income per share increased to $0.14 per share for the third
quarter of 2002 from $0.06 per share in the same quarter of 2001. The number of
shares used in the calculation of diluted net income per share for the third
quarters of 2002 and 2001 were 9,359,062 and 9,277,221, respectively. Total
shares outstanding at September 30, 2002, were 9,324,908.
Nine Months Ended September 30, 2002 Compared to Nine Months Ended September 30,
2001
Operating revenue, before fuel surcharge, increased 9.9% to $201.2 million
in 2002 from $183.0 million in 2001. The Company believes this increase is due
primarily to an increase of 5.6% in the average number of tractors operated from
1,771 (including 21 owner-operators) in 2001 to 1,870 (including 81
owner-operators) in 2002 and to a 213.1% increase in third party logistics and
brokerage revenues to $11.2 million in 2002 from $3.6 million for 2001. Average
revenue per mile (exclusive of fuel surcharge) increased to $1.197 in 2002 from
$1.148 in 2001 primarily due to the abovementioned increase in third party
logistics and brokerage revenues. The number of shipments increased 8.7% to
188,146 in 2002 from 173,049 in 2001. Miles per tractor per week decreased 0.7%
from 2,369 in 2001 to 2,352 in 2002 primarily due to an increase in the
percentage of unmanned tractors. The increase in the percentage of unmanned
tractors was primarily the result of an increase in the number of Company-owned
tractors and driver turnover exceeding the number of drivers hired. The empty
mile factor decreased to
Page 11
9.41% of paid miles in 2002 from 9.68% of paid miles in 2001. The decreased
empty mile factor was primarily the result of improved freight demand in the
Company's operating areas and, to a lesser extent, reduced quantities of inbound
loads into areas where there are few available outbound loads.
Operating expenses and costs, as a percentage of revenue, before fuel
surcharge, decreased to 96.5% in 2002 from 97.6% in 2001.
The decrease in salaries, wages and employee benefits costs, as a
percentage of revenue, net of fuel surcharge, was primarily the result of the
Company implementing a per diem pay program for its drivers during April 2002
and increases in third party logistics and brokerage revenues and the Company's
owner-operator fleet. The average number of owner-operators in the Company's
fleet increased from 21 in 2001 to 81 in 2002.
The decrease in fuel and fuel taxes costs, as a percentage of revenue, net
of fuel surcharge, was primarily due to a decrease in fuel prices and the
abovementioned increases in third party logistics and brokerage revenues and the
Company's owner-operator fleet.
The increase in purchased transportation costs, as a percentage of revenue,
net of fuel surcharge, was primarily due to the significant increases in third
party logistics and brokerage revenues and the Company's owner-operator fleet
described above.
The decrease in depreciation and amortization expense, as a percentage of
revenue, before fuel surcharge, was primarily the result of the abovementioned
increases in third party logistics and brokerage revenues and the Company's
owner-operator fleet. These increases were partially offset by slightly higher
depreciation expense on extended lived tractors (See "Note B--Commitments").
The decrease in operations and maintenance costs, as a percentage of
revenue, net of fuel surcharge, was primarily the result of the abovementioned
increases in third party logistics and brokerage revenues and the Company's
owner-operator fleet and a reduction in operations and maintenance costs per
Company-owned tractor. The reduction in operations and maintenance costs per
Company-owned tractor is due to the Company performing a greater percentage of
maintenance work at its terminal facilities and implementing more cost effective
methods for purchasing tires and equipment parts.
The increase in insurance and claims was primarily due to a 291.6% increase
in liability, cargo and workers' compensation insurance premiums in 2002
compared to 2001. These increases were partially offset by the abovementioned
increases in third party logistics and brokerage revenues and the Company's
owner-operator fleet for 2002 compared to 2001.
As a result of the foregoing factors, operating income increased 59.5% to
$7.1 million, or 3.5% of revenue, before fuel surcharge, in 2002 from $4.4
million, or 2.4% of revenue, before fuel surcharge, in 2001.
Interest expense decreased 32.8% to $2.4 million in 2002 from $3.5 million
in 2001, resulting primarily from interest rate decreases on the Company's
Senior Credit Facility (as defined under "Liquidity and Capital Resources"
herein) and, to a lesser extent, from a decrease in average borrowings under the
Company's Senior Credit Facility described under the "Liquidity and Capital
Resources" section herein.
Page 12
As a result of the above, income before income taxes increased to $4.9
million, or 2.4% of revenue, before fuel surcharge, in 2002 from $0.8 million,
or 0.4% of revenue, before fuel surcharge, in 2001.
The Company's effective tax rate increased to 57.6% in 2002 compared to
38.9% in 2001. The effective rates varied from the statutory federal tax rate of
34% primarily due to state income taxes and certain non-deductible expenses
including a per diem pay structure implemented by the Company during the second
quarter of 2002. Due to the nondeductible effect of per diem, the Company's tax
rate will fluctuate in future periods as earnings fluctuate.
As a result of the aforementioned factors, net income increased to $2.1 million
in 2002 from $0.5 million in 2001. Diluted net income per share increased to
$0.22 per share for 2002 from $0.05 per share in 2001. The number of shares used
in the calculation of diluted net income per share for 2002 and 2001 were
9,341,642 and 9,281,664, respectively.
SEASONALITY
In the motor carrier industry generally, revenues are lower in the first
and fourth quarters as customers decrease shipments during the winter holiday
season and as inclement weather impedes operations. These factors historically
have tended to decrease net income in the first and fourth quarters. Future
revenues could be impacted if customers reduce shipments due to temporary plant
closings, which historically have occurred during July and December.
FUEL AVAILABILITY AND COST
The motor carrier industry depends upon the availability of fuel, and fuel
shortages or increases in fuel taxes or fuel costs have adversely affected, and
may in the future adversely affect, the profitability of the Company. Fuel
prices have fluctuated greatly and fuel taxes have generally increased in recent
years. The Company has not experienced difficulty in maintaining necessary fuel
supplies, and in the past the Company generally has been able to partially
offset significant increases in fuel costs and fuel taxes through increased
freight rates and through a fuel surcharge which increases incrementally as the
price of fuel increases. Fuel prices decreased during 2001 but have risen over
the first nine months of 2002. However, the average cost per gallon of fuel was
lower for the first nine months of 2002 than the same period of 2001. There can
be no assurance that the Company will be able to recover any future increases in
fuel costs and fuel taxes through increased rates.
LIQUIDITY & CAPITAL RESOURCES
On April 28, 2000, the Company signed a senior credit facility (the
"Senior Credit Facility") that provides a working capital line of credit of
$60.0 million, including letters of credit not exceeding $5.0 million. Bank of
America, N.A. is the agent bank and SunTrust Bank and U.S. Bank (formerly
Firstar Bank, N.A.) are participants in the Senior Credit Facility. As of
September 30, 2002, approximately $35.6 million was available under the Senior
Credit Facility. The Senior Credit Facility matures on April 28, 2005. At any
time prior to April 28, 2005, subject to certain conditions, the balance
outstanding on the Senior Credit Facility may be converted, at the Company's
option, to a four-year term loan requiring 48 equal monthly principal payments
plus interest. The Senior Credit Facility bears variable interest based on the
lenders prime rate, or federal funds rate plus a certain percentage or LIBOR
plus a certain percentage, which is determined based on the Company's attainment
of certain financial ratios.
Page 13
The effective interest rate on the Company's borrowings under the Senior Credit
Facility for the quarter ended September 30, 2002 was 4.00%. A quarterly
commitment fee is payable on the unused credit line and bears a rate which is
determined based on the Company's attainment of certain financial ratios. As of
September 30, 2002, the rate was 0.20%. This credit facility is collateralized
by accounts receivable and all otherwise unencumbered equipment.
The continued growth of the Company's business has required significant
investments in new equipment. The Company has financed revenue equipment
purchases with cash flows from operations and through borrowings under the
Company's Senior Credit Facility, conventional financing and lease-purchase
arrangements. The Company has historically met its working capital needs with
cash flows from operations and with borrowings under the Senior Credit Facility.
The Company uses the Senior Credit Facility to minimize fluctuations in cash
flow needs and to provide flexibility in financing revenue equipment purchases.
Cash flows from operations were $25.5 million for the nine-month period ended
September 30, 2002 and $22.9 million for the nine-month period ended September
30, 2001.
As of September 30, 2002, capital lease obligations in the aggregate
principal amount of $21.6 million were outstanding under prior lease commitments
with an average interest rate of 5.41% per annum.
On January 11, 2000, the Company entered into a lease commitment
agreement (the "2000 Equipment TRAC Lease Commitment A") to facilitate the
leasing of tractors. The 2000 Equipment TRAC Lease Commitment A was amended on
November 7, 2000 to provide for a maximum borrowing amount of approximately
$16.5 million through the end of 2001. The 2000 Equipment TRAC Lease Commitment
A was amended again on November 5, 2001 to provide for a maximum borrowing
amount of $5.5 million during the calendar year 2002. Each capital lease under
this lease commitment has a repayment period of 42 months. Borrowings are
limited based on the principal amounts outstanding under capital leases entered
into under this lease commitment. During the nine-month period ended September
30, 2002, the Company entered into capital leases under this lease commitment in
the amount of $5.2 million. As of September 30, 2002, $0.3 million remained
available under the 2000 Equipment TRAC Lease Commitment A. The interest rate on
the capital leases under this lease commitment fluctuates in relation to the
interest rate for the three-year Treasury Note as published in The Wall Street
Journal and is fixed upon execution of each lease. As of September 30, 2002,
capital leases in the aggregate principal amount of $15.4 million were
outstanding under this lease commitment with an average interest rate of 4.84%
per annum.
On November 5, 2001, the Company entered into a lease commitment
agreement (the "2002 Equipment TRAC Lease Commitment A"), to facilitate the
leasing of tractors. The 2002 Equipment TRAC Lease Commitment A provides for a
maximum borrowing amount of approximately $5.5 million during the calendar year
2002. Each capital lease under this lease commitment has a repayment period of
42 months. Borrowings are limited based on the principal amounts outstanding
under capital leases entered into under this lease commitment. During the
nine-month period ended September 30, 2002, the Company entered into capital
leases under this lease commitment in the amount of $5.5 million. As of
September 30, 2002, no funds remained available under the 2002 Equipment TRAC
Lease Commitment A. The interest rate on the capital leases under this lease
commitment fluctuates in relation to either the interest rate for the three-year
Treasury Note or the one year LIBOR as published in The Wall Street Journal,
whichever provides for the higher interest rate, and is fixed upon execution of
a lease.
Page 14
As of September 30, 2002, capital leases in the aggregate principal amount of
$4.9 million were outstanding under this lease commitment with an average
interest rate of 4.34% per annum.
On November 8, 2001, the Company entered into a lease commitment
agreement (the "2002 Equipment TRAC Lease Commitment B"), to facilitate the
leasing of tractors. The 2002 Equipment TRAC Lease Commitment B provides for a
maximum borrowing amount of approximately $7.0 million during the calendar year
2002. Each capital lease under this lease commitment has a repayment period of
42 months. Borrowings are limited based on the principal amounts outstanding
under capital leases entered into under this lease commitment. During the
nine-month period ended September 30, 2002, the Company entered into capital
leases under this lease commitment in the amount of $1.6 million. As of
September 30, 2002, $5.4 million remained available under the 2002 Equipment
TRAC Lease Commitment B. The interest rate on the capital leases under this
lease commitment fluctuates in relation to lessor's cost of funds and is fixed
upon execution of a lease.
As of September 30, 2002, the Company had debt obligations of
approximately $66.5 million, including amounts borrowed under the Senior Credit
Facility and lease commitments described above, of which approximately $18.3
million were current obligations. During the nine-month period ended September
30, 2002, the Company made borrowings under the Senior Credit Facility and lease
commitments described above of $43.1 million, while retiring $46.1 million in
debt under these facilities. The borrowings had an average interest rate of
approximately 4.03% while the retired debt had an average interest rate of
approximately 4.35%.
During the years 2002 and 2003, the Company plans to make approximately
$118.0 million in capital expenditures. As of September 30, 2002, the Company
has spent $18.6 million of this amount for revenue equipment in 2002. The
Company has committed to spend another $8.7 million of this amount for revenue
equipment in the remainder of 2002. The commitments to purchase revenue
equipment are cancelable by the Company if certain conditions are met. The
Company has budgeted, but not committed, $86.9 million of this amount for
revenue equipment in 2003. The balance of the expected capital expenditures will
be used for maintenance equipment, office equipment and facility improvements.
The Senior Credit Facility, the 2000 TRAC Lease Commitment A, the 2002
TRAC Lease Commitment A, the 2002 TRAC Lease Commitment B, cash received from
selling tractors and trailers and cash flows from operations should be adequate
to fund the Company's operations and expansion plans through the end of 2002.
There can be no assurance, however, that such sources will be sufficient to fund
Company operations and all expansion plans through such date, or that any
necessary additional financing will be available, if at all, in amounts required
or on terms satisfactory to the Company. The Company expects to continue to fund
its operations with cash flows from operations, the Senior Credit Facility, the
2002 TRAC Lease Commitment B and other TRAC leases for the foreseeable future.
On October 17, 2001, the Company's Board of Directors authorized the
Company to purchase up to 500,000 shares of its outstanding common stock over a
three-year period ending October 16, 2004 dependent upon market conditions.
Common stock purchases under the authorization may be made from time to time on
the open market or in privately negotiated transactions at prices determined by
the Chairman of the Board or President of the Company. The Company may purchase
shares in the future if, in the view of management, the common stock is
undervalued relative to the Company's performance and prospects for continued
growth. Any such purchases would be funded with cash flows from operations or
the Senior Credit
Page 15
Facility. As of September 30, 2002, the Company had purchased no shares pursuant
to this authorization.
NEW ACCOUNTING PRONOUNCEMENTS
See Note D to the financial statements of this quarter's FORM 10-Q for a
description of the most recent accounting pronouncements and their affect, if
any, on the Company.
DEPARTMENT OF TRANSPORTATION COMPLIANCE REVIEW
A recent Department of Transportation ("DOT") compliance review has revealed
deficiencies in the Company's safety and compliance program that could result in
a downgrading of the Company's Satisfactory safety rating if the deficiencies
are not corrected before the DOT performs a follow-up compliance review within
the next few months.
The Company is taking the review very seriously. Though most of the deficiencies
are administrative, the Company will seek to meet all federal and state laws and
regulations, especially in the area of safety. The Company has already taken
significant steps to correct the review deficiencies and fully intends to
maintain its Satisfactory safety rating. In addition to tightening internal
policies and procedures, the Company has hired legal counsel and a consulting
firm that both specialize in transportation compliance to advise it. The Company
also appreciates, and is taking advantage of, the DOT's efforts to assist in
this process. As the Company's safety track record indicates, it is committed to
be among the safest carriers on the road.
A downgraded safety rating could result in regulatory fines, increased
insurance costs, increased competition for freight from carriers with
Satisfactory safety ratings and, in very rare instances, the revocation of a
carrier's authority to operate as a motor carrier. Based upon discussions the
Company has had with the DOT and the abovementioned legal counsel and consulting
firm, the Company believes that the follow-up compliance review will result in
the retention of the Company's Satisfactory safety rating.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements and information that are
based on management's current beliefs and expectations and assumptions made by
it based upon information currently available. Forward-looking statements
include statements relating to the Company's plans, strategies, objectives,
expectations, intentions, and adequacy of resources, may be identified by words
such as "will", "could", "should", "believe", "expect", "intend", "plan",
"schedule", "estimate", "project" and similar expressions. These statements are
based on current expectations and are subject to uncertainty and change.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will be realized. Should one or more of the risks or uncertainties
underlying such expectations materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those expected. Among the key
factors that are not within the Company's control and that may have a direct
bearing on operating results are increases in diesel prices, adverse weather
conditions and the impact of increased rate competition. The Company's results
may also be significantly affected by fluctuations in general economic
conditions, as the Company's utilization rates are directly related to business
levels of shippers in a variety of industries. In addition, shortages of
qualified drivers and intense or increased competition for drivers may adversely
impact the Company's operating results and its ability to grow. Results for any
specific period could also be affected by various unforeseen events, such as
unusual levels of equipment failure or vehicle accident claims.
Page 16
FORM 10-Q
USA TRUCK, INC.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As reported in the notes to the financial statements and in the Liquidity
and Capital Resources section of this FORM 10-Q, the Company entered into the
Senior Credit Facility with a multi-bank group on April 28, 2000 and amended the
Senior Credit Facility on March 30, 2001. The Senior Credit Facility agreement
provides for borrowings that bear interest at variable rates based on either a
prime rate or the LIBOR. At September 30, 2002, the Company had $24.4 million
outstanding pursuant to the Senior Credit Facility. The Company believes that
the effect, if any, of reasonably possible near-term changes in interest rates
on the Company's financial position, results of operations, and cash flows
should not be material.
All customers are required to pay for the Company's services in U.S.
dollars. Although the Canadian Government makes certain payments, such as tax
refunds, to the Company in Canadian dollars, any foreign currency exchange risk
associated with such payments is insignificant.
The Company does not engage in hedging transactions relating to fuel or any
other commodity.
Item 4. Controls and Procedures
Within the 90 days prior to the date of this report, an evaluation was
performed under the supervision and with the participation of the Company's
management, including the Chief Executive Officer (the "CEO") and the Chief
Financial Officer (the "CFO"), of the effectiveness of the design and operation
of the Company's disclosure controls and procedures. Based on that evaluation,
the Company's management, including the CEO and CFO, concluded that the
Company's disclosure controls and procedures were effective as of September 30,
2002. There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect internal controls subsequent
to September 30, 2002.
Page 17
FORM 10-Q
USA TRUCK, INC.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on FORM 8-K.
(A) Exhibits
11.1 Statement Re: Computation of Earnings Per Share
99.1 Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(B) Reports on FORM 8-K
The Company did not file any reports on FORM 8-K during the
nine months ended September 30, 2002.
Page 18
SIGNATURES
In accordance with 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.
USA TRUCK, INC.
(Registrant)
-------------------------------------
Date: October 31, 2002 /s/ ROBERT M. POWELL
--------------------------- -------------------------------------
ROBERT M. POWELL
Chairman and Chief
Executive Officer
Date: October 31, 2002 /s/ JERRY D. ORLER
--------------------------- -------------------------------------
JERRY D. ORLER
President
Date: October 31, 2002 /s/ CLIFTON R. BECKHAM
--------------------------- -------------------------------------
CLIFTON R. BECKHAM
Vice President - Finance, Chief
Financial Officer and Secretary
Page 19
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
USA TRUCK, INC.
- --------------------------------------------------------------------------------
I, Robert M. Powell, certify that:
1. I have reviewed this quarterly report on Form 10-Q of USA Truck, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have;
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: October 31, 2002
/s/ ROBERT M. POWELL
------------------------------------
Robert M. Powell
Chairman and Chief Executive Officer
Page 20
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
USA TRUCK, INC.
- --------------------------------------------------------------------------------
I, Clifton R. Beckham, certify that:
1. I have reviewed this quarterly report on Form 10-Q of USA Truck, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have;
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: October 31, 2002
/s/ CLIFTON R. BECKHAM
-----------------------------------------
Clifton R. Beckham
Vice President - Finance, Chief Financial
Officer and Secretary
Page 21
FORM 10-Q
INDEX TO EXHIBITS
USA TRUCK, INC.
<Table>
<Caption>
Exhibit
Number Exhibit
----------------- ------------------------------------------------------
11.1 Statement Re: Computation of Earnings Per Share
99.1 Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
</Table>
Page 22