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 March 31, 2003
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.
(Exact name of Registrant as specified in its charter)
DELAWARE 71-0556971
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3200 INDUSTRIAL PARK ROAD 72956
VAN BUREN, ARKANSAS (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (479) 471-2500
Former name, former address and former fiscal year , if changed since
last report: Not applicable.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended).
Yes [ ] No [X]
The number of shares outstanding of the Registrant's Common Stock, par
value $ .01, as of March 31, 2003 is 9,326,732.
INDEX
USA TRUCK, INC.
PART I. FINANCIAL INFORMATION
<Table>
<Caption>
Item 1. Financial Statements Page
------
Condensed Consolidated Balance Sheets - March 31, 2003 (unaudited)
and December 31, 2002 3
Condensed Consolidated Statements of Operations (unaudited) - Three Months Ended
March 31, 2003 and 2002 4
Condensed Consolidated Statements of Cash Flows (unaudited) - Three Months Ended
March 31, 2003 and 2002 5
Notes to Condensed Consolidated Financial Statements (unaudited) - March 31, 2003 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk 13
Item 4. Controls and Procedures 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
</Table>
Page 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
USA TRUCK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
March 31, December 31,
2003 2021(1)
-------------- --------------
(unaudited) (audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,172,836 $ 1,237,698
Accounts receivable:
Trade, less allowance for doubtful accounts (2003 - $301,101; 2002 - $268,862) 29,811,879 26,630,317
Other 613,396 819,259
Inventories 486,381 478,567
Deferred income taxes 1,889,644 2,326,263
Prepaid expenses and other current assets 5,012,481 3,894,984
-------------- --------------
Total current assets 38,986,617 35,387,088
PROPERTY AND EQUIPMENT 220,663,320 227,241,609
ACCUMULATED DEPRECIATION AND AMORTIZATION (75,217,173) (73,984,708)
-------------- --------------
145,446,147 153,256,901
OTHER ASSETS 214,465 207,071
-------------- --------------
Total assets $ 184,647,229 $ 188,851,060
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank drafts payable $ 1,742,895 $ 1,609,832
Trade accounts payable 3,111,900 3,274,787
Current portion of insurance and claims accruals 6,788,692 6,662,503
Other accrued expenses 7,776,343 7,572,727
Current maturities of long-term debt 16,403,493 19,143,501
-------------- --------------
Total current liabilities 35,823,323 38,263,350
LONG-TERM DEBT, LESS CURRENT MATURITIES 48,753,548 49,451,248
DEFERRED INCOME TAXES 24,263,472 24,189,413
INSURANCE AND CLAIMS ACCRUALS, LESS CURRENT PORTION 2,843,065 2,855,465
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 9,326,732 shares
in 2003 and 9,324,908 shares in 2002 93,267 93,249
Additional paid-in capital 11,418,747 11,409,738
Retained earnings 61,475,630 62,623,933
Less treasury stock, at cost (2003 - 4,217; 2002 - 6,255) (23,823) (35,336)
-------------- --------------
Total stockholders' equity 72,963,821 74,091,584
-------------- --------------
Total liabilities and stockholders' equity $ 184,647,229 $ 188,851,060
============== ==============
</Table>
(1) The balance sheet at December 31, 2002 has been derived from the audited
consolidated 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
March 31,
------------------------------
2003 2002
------------ ------------
REVENUE:
Revenue, before fuel surcharge $ 65,714,114 $ 61,645,445
Fuel surcharge 3,672,400 196,710
------------ ------------
69,386,514 61,842,155
OPERATING EXPENSES AND COSTS:
Salaries, wages and employee benefits 25,818,035 26,675,988
Fuel and fuel taxes 15,391,014 10,715,351
Purchased transportation 5,534,186 4,114,830
Depreciation and amortization 7,450,050 6,622,782
Operations and maintenance 5,739,747 5,275,420
Insurance and claims 5,402,069 3,683,117
Operating taxes and licenses 1,030,782 1,020,109
Communications and utilities 676,913 696,923
Other 2,890,612 2,071,127
------------ ------------
69,933,408 60,875,647
------------ ------------
OPERATING (LOSS) INCOME (546,894) 966,508
OTHER EXPENSE (INCOME):
Interest expense 689,804 829,529
(Gain) loss on disposal of property and equipment (4,217) 5,641
Other, net 12,631 9,431
------------ ------------
698,218 844,601
------------ ------------
(LOSS) INCOME BEFORE INCOME TAXES (1,245,112) 121,907
INCOME TAX (BENEFIT) EXPENSE (96,809) 48,054
------------ ------------
NET (LOSS) INCOME $ (1,148,303) $ 73,853
============ ============
PER SHARE INFORMATION:
Average shares outstanding (Basic) 9,320,632 9,281,856
============ ============
Basic net (loss) income per share $ (0.12) $ 0.01
============ ============
Average shares outstanding (Diluted) 9,320,632 9,333,972
============ ============
Diluted net (loss) income per share $ (0.12) $ 0.01
============ ============
</Table>
See notes to condensed consolidated financial statements.
Page 4
USA TRUCK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<Table>
<Caption>
Three Months Ended
March 31,
------------------------------
2003 2002
------------ ------------
OPERATING ACTIVITIES:
Net (loss) income $ (1,148,303) $ 73,853
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization 7,450,050 6,622,782
Provision for doubtful accounts 32,200 15,000
Deferred income taxes 510,678 152,126
(Gain) loss on disposal of property and equipment (4,217) 5,641
Changes in operating assets and liabilities:
Accounts receivable (3,007,899) 1,152,114
Inventories, prepaid expenses and other current assets (1,125,311) (3,633,620)
Bank drafts payable, trade accounts payable and accrued expenses 299,981 713,401
Insurance and claims accruals - long-term (12,400) 62,500
------------ ------------
Net cash provided by operating activities 2,994,779 5,163,797
INVESTING ACTIVITIES:
Purchases of property and equipment (485,104) (2,069,193)
Proceeds from disposal of property and equipment 850,025 83,275
(Increase) decrease in other assets (7,394) 106
------------ ------------
Net cash provided by (used by) investing activities 357,527 (1,985,812)
FINANCING ACTIVITIES:
Borrowings under long-term debt 20,421,000 9,558,000
Principal payments on long-term debt (17,835,000) (10,255,000)
Principal payments on capitalized lease obligations (6,023,708) (3,487,637)
Proceeds from the exercise of stock options 5,447 239,935
Proceeds from sale of treasury stock 15,093 17,731
------------ ------------
Net cash used by financing activities (3,417,168) (3,926,971)
------------ ------------
DECREASE IN CASH AND CASH EQUIVALENTS (64,862) (748,986)
Cash and cash equivalents:
Beginning of period 1,237,698 1,976,228
------------ ------------
End of period $ 1,172,836 $ 1,227,242
============ ============
</Table>
See notes to condensed consolidated financial statements.
Page 5
USA TRUCK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2003
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 three-month
period ended March 31, 2003, are not necessarily indicative of the results that
may be expected for the year ended December 31, 2003. 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, 2002.
NOTE B - COMMITMENTS
As of March 31, 2003, the Company had remaining commitments for purchases
of revenue equipment in the aggregate amount of approximately $67.9 million in
2003 and $16.1 million in 2004. As part of these commitments, the Company has
remaining contracts for the purchase of 754 tractors and 522 trailers during
2003 and 209 tractors in 2004. Either the Company or the vendor may cancel these
contracts within a certain time period before delivery of the equipment if
certain conditions are met.
The Company extended the useful lives and reduced the salvage value on
those groups of tractors that would have traded in 2002 under normal used
tractor market conditions. These extended lives (60 months) and reduced salvage
values (14 percent of original cost of equipment) yielded an increased
depreciation charge to pre-tax earnings in 2002 of approximately $0.4 million.
Extending the lives on tractors resulted in an increased charge to net income in
2002 for maintenance costs. The Company has instituted an aggressive trade
schedule in 2003 and plans to institute an aggressive trade schedule in 2004 to
reduce the average age of its tractor fleet and to resume trading most tractors
within 42 months from the date of purchase as it did prior to 2002. As the
average age of the tractor fleet decreases, the additional maintenance costs
should decrease as well.
NOTE C - CAPITAL STOCK TRANSACTIONS
During the three-month period ended March 31, 2003, 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 sold 2,038 treasury shares, pursuant to the Company's
Employee Stock Purchase Plan, to participants in such plan during the
three-month period ended March 31, 2003.
NOTE D - NEW ACCOUNTING PRONOUNCEMENTS
In June 2002, the Financial Accounting Standards Board issued SFAS No. 146
("SFAS 146"), Accounting for Costs Associated with Exit or Disposal Activities.
SFAS 146 supersedes Emerging Issues Task Force ("EITF") Issue No. 94-3. The
principal difference between SFAS 146 and EITF Issue No. 94-3 relates to when an
entity can recognize a liability related to exit or disposal activities. SFAS
146 requires that a liability be recognized for a cost associated with an exit
or disposal activity when the liability is incurred. EITF Issue No. 94-3 allowed
a liability related to an exit or disposal activity to be recognized at the date
an entity commits to an exit plan. The provisions of SFAS 146 are effective for
all exit or disposal activities initiated after January 1, 2003. This statement
did not have an impact on the Company.
On December 31, 2002, the Financial Accounting Standards Board issued SFAS
No. 148 ("SFAS 148"), Accounting for Stock-Based Compensation - Transition and
Disclosure. SFAS 148 amends SFAS 123, Accounting for Stock-Based Compensation,
to provide alternative methods of transition to the fair value method of
accounting for stock-based employee compensation. In addition, SFAS 148's
amendment of the transition and annual disclosure provisions of SFAS 123 is
effective for the Company for fiscal years ending after December 31, 2002. The
disclosure requirements for interim financial statements containing condensed
consolidated financial statements are effective for interim periods beginning in
2003 (See "Note G - Stock Based Compensation"). The Company does not intend to
adopt the fair value method of accounting for stock-based compensation of SFAS
123 and accordingly
Page 6
SFAS 148 is not expected to have a material impact on the Company's reported
results of operations or financial position in 2003.
NOTE E - CONTINGENCIES
The Company is a party to routine litigation incidental to its business,
primarily involving claims for personal injury and property damage incurred in
the transportation of freight. It maintains insurance covering liabilities in
excess of certain self insured retention levels for bodily injury and property
damage claims. Though management believes these claims to be routine and
immaterial to the long-term financial position of the Company, adverse results
of one or more of these claims could have a material adverse effect on the
quarterly financial position or results of operations of the Company.
NOTE F - DERIVATIVE FINANCIAL INSTRUMENTS
The Company records derivative financial instruments in the balance sheet
as either an asset or liability at fair value. Changes in the derivative
instrument's fair value must be recognized currently in earnings unless specific
hedge accounting criteria are met. For hedges which meet the criteria, the
derivative instrument's gains and losses, to the extent effective, may be
recognized in accumulated other comprehensive income rather than in current
earnings.
The Company was not required to make any transition adjustment as a result
of adopting Statement of Financial Accounting Standards No. 133, as amended
("SFAS 133"), Accounting for Derivative Instruments and Hedging Activities, on
January 1, 2001 as the Company's only derivative instrument was entered into
during the first quarter of 2003. Effective March 27, 2003, the Company entered
into an interest rate swap agreement on a notional amount of $10 million. Under
this swap agreement, the Company pays a fixed rate of 1.99%, while receiving a
floating rate equal to the "3-month" LIBOR as of the second London Business Day
prior to each floating rate reset date. The floating rate is fixed for the
three-month period following each reset date. The floating rate for the period
from March 27, 2003 through June 26, 2003 is 1.29%. This interest rate swap
agreement terminates on March 27, 2005.
The Company designates this $10 million interest rate swap as a cash flow
hedge of its exposure to variability in future cash flow resulting from the
interest payments indexed to the "3-month" LIBOR. Changes in future cash flow
from the interest rate swap will offset changes in interest rate payments on the
first $10 million of the Company's current Senior Credit Facility (as defined
under "Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources") or future "3-month"
LIBOR based borrowings that reset on the second London Business Day prior to the
start of the next interest period. The fair value of the swap agreement as of
March 31, 2003 was zero.
The Company reported no gain or loss during the three months ended March
31, 2003 as a result of hedge ineffectiveness, other derivative instruments'
gain or loss or the discontinuance of a cash flow hedge. Future changes in the
swap arrangement (including termination of the swap agreement), swap notional
amount, hedged portion or forecasted Credit Agreement borrowings below $10
million may result in a reclassification of any gain or loss reported in other
comprehensive income, into earnings.
This interest rate swap agreement meets the specific hedge accounting
criteria of SFAS 133. The effective portion of the cumulative gain or loss will
be reported as a component of accumulated other comprehensive income or loss in
shareholders' equity and will be reclassified into current earnings by March 27,
2005, the termination date for this swap agreement. The Company records all
derivatives at fair value as assets or liabilities in the condensed consolidated
balance sheet, with classification as current or long-term depending on the
duration of the instrument.
The measurement of hedge effectiveness is based upon a comparison of the
floating-rate component of the swap and the hedged floating-rate cash flows on
the underlying liability. This method is based upon the premise that only the
floating-rate component of the swap provides the cash flow hedge, and any
changes in the swap's fair value attributable to the fixed-rate component is not
relevant to the variability of the hedged interest payments on the floating-rate
liability. The calculation of ineffectiveness involves a comparison of the
present value of the cumulative change in the expected future cash flows on the
variable component of the swap and the present value of the cumulative change in
the expected future interest cash flows on the floating-rate liability.
Page 7
NOTE G - STOCK BASED COMPENSATION
Stock based compensation to employees is accounted for based on the
intrinsic value method under Accounting Principles Board Opinion No. 25 ("APB
25"), Accounting for Stock Issued to Employees. Under APB 25, if the exercise
price of employee stock options equals the market price of the underlying stock
on the grant date, no compensation expense is recorded. The Company has adopted
the disclosure-only provisions of Statement of Financial Accounting Standards
("SFAS") No. 123 ("SFAS 123"), Accounting for Stock-Based Compensation.
Since the Company has adopted the disclosure-only provisions of SFAS 123,
no compensation cost has been recognized for the stock option plans. Had
compensation cost for the Company's two stock option plans been determined based
on the fair value at the grant date for awards in 2003 and 2002 consistent with
the provisions of SFAS 123, the Company's pro forma net income would have been
as follows:
<Table>
<Caption>
Three Months ended
March 31,
------------------------------
2003 2002
------------ ------------
Net (loss) income $ (1,148,303) $ 73,853
Pro forma expense 18,060 26,698
------------ ------------
Pro forma net (loss) income $ (1,166,363) $ 47,155
============ ============
Pro forma basic (loss) earnings per share $ (0.13) $ 0.01
Pro forma diluted (loss) earnings per share $ (0.13) $ 0.01
</Table>
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
March 31,
-------------------
2003 2002
------ ------
REVENUE, BEFORE FUEL SURCHARGE 100.0 % 100.0 %
OPERATING EXPENSES AND COSTS:
Salaries, wages and employee benefits 39.3 43.3
Fuel and fuel taxes (1) 17.8 17.0
Purchased transportation 8.4 6.7
Depreciation and amortization 11.4 10.7
Operations and maintenance 8.7 8.6
Insurance and claims 8.2 6.0
Operating taxes and licenses 1.6 1.6
Communications and utilities 1.0 1.1
Other 4.4 3.4
------ ------
100.8 98.4
------ ------
OPERATING (LOSS) INCOME (0.8) 1.6
OTHER EXPENSES (INCOME):
Interest expense 1.1 1.4
(Gain) loss on disposal of assets -- --
Other, net -- --
------ ------
1.1 1.4
------ ------
INCOME BEFORE INCOME TAXES (1.9) 0.2
INCOME TAX (BENEFIT) EXPENSE (0.2) 0.1
------ ------
NET (LOSS) INCOME (1.7)% 0.1 %
====== ======
</Table>
(1) Net of fuel surcharge
Page 8
By agreement with its customers, and consistent with industry practice, the
Company adds a surcharge to its rates as diesel fuel prices increase above an
industry-standard baseline price per gallon. The amount of this fuel surcharge
increases as fuel costs increase above certain threshold prices. The surcharge
is designed to approximately offset increases in fuel costs above the baseline.
Because fuel prices are volatile, management believes that comparing operating
costs and expenses to total revenue, including the fuel surcharge in the table
above, could provide a distorted picture of the Company's operating performance,
particularly when comparing results for current and prior periods. Therefore,
the fuel surcharge is excluded from revenue and, instead, taken as a credit
against the fuel and fuel taxes line item in the table above. Management
believes that this presentation, which is designed to minimize the potentially
distortive effect of fuel cost volatility, is a more meaningful measure of the
Company's operating performance than a presentation comparing operating costs
and expenses to total revenue, including fuel surcharge.
Management does not believe that a reconciliation of the information
presented in the table above and corresponding information comparing operating
costs and expenses to total revenue would be meaningful. Revenue data, on both a
total basis and excluding the fuel surcharge, is included in the Condensed
Consolidated Statements of Operations (Unaudited) included in this Form 10-Q.
RESULTS OF OPERATIONS
Quarter Ended March 31, 2003 Compared to Quarter Ended March 31, 2002
Operating revenue, before fuel surcharge, increased 6.6% to $65.7 million
in the first quarter of 2003 from $61.6 million for the same quarter of 2002.
The Company believes this increase is due primarily to an increase of 5.7% in
the average number of tractors operated from 1,795 (including 59
owner-operators) in the first quarter of 2002 to 1,898 (including 37
owner-operators) in the same quarter of 2003 and to a 75.1% increase in third
party logistics ("3PL") and brokerage revenues to $3.9 million in the first
quarter of 2003 from $2.2 million for the same quarter of 2002. Direct expenses
associated with 3PL and brokerage revenues and owner-operator fees comprise
purchased transportation expense. Owner-operators are independent contractors
who provide their own tractors (including tractor maintenance), fuel and
insurance and drive for the Company on a contract basis for a fixed rate per
mile that is higher than that paid to Company drivers, who are not directly
responsible for these expenses.
Average revenue per mile, before fuel surcharge, increased to $1.214 in the
first quarter of 2003 from $1.161 in the same quarter of 2002 due to the
above-mentioned increase in 3PL and brokerage revenues and an increase in the
average rate per mile charged to customers. The number of shipments increased
11.8% to 65,282 in the first quarter of 2003 from 58,371 in the same quarter of
2002.
Average miles per tractor per week decreased 3.6% from 2,347 in the first
quarter of 2002 to 2,262 in the same quarter of 2003 primarily due to decreased
freight demand, harsh late winter weather throughout the U.S. south and Atlantic
Coast and, to a lesser extent, an increase in the percentage of unmanned
tractors to 5.5% of the fleet in the first quarter of 2003 from 4.9% of the
fleet in the same quarter of 2002. The increase in the percentage of unmanned
tractors was primarily the result of an increase in the number of Company-owned
tractors. The empty mile factor decreased from 10.2% of paid miles in the first
quarter of 2002 to 9.2% of paid miles in the same quarter of 2003. The decreased
empty mile factor was primarily the result of the Company reducing the number of
inbound loads into areas where there are few available outbound loads.
Operating expenses and costs, as a percentage of revenue, before fuel
surcharge, increased to 100.8% in the first quarter of 2003 from 98.4% in the
same quarter of 2002.
The decrease in salaries, wages and employee benefits costs, as a
percentage of revenue, before fuel surcharge, was primarily the result of the
Company implementing a per diem pay program for its drivers in April 2002, a
reduction in the driver's pay rate per mile in December 2002 and increases in
3PL and brokerage revenues. These effects were partially offset by a decrease in
the average number of owner-operators in the Company's fleet from 59 in the
first quarter of 2002 to 37 in the same quarter of 2003.
The increase in fuel and fuel taxes costs, as a percentage of revenue,
before fuel surcharge, was primarily due to a 36.8% increase in the average
price of diesel fuel per gallon in the first quarter of 2003 compared to the
first quarter of 2002 and the above-mentioned decrease in the Company's
owner-operator fleet. These effects were partially offset by increases in 3PL
and brokerage revenues.
Page 9
The increase in purchased transportation costs, as a percentage of revenue,
before fuel surcharge, was primarily due to the significant increases in 3PL and
brokerage revenues described above. These increases were partially offset by the
decrease in the Company's owner-operator fleet described above.
The increase in depreciation and amortization expense, as a percentage of
revenue, before fuel surcharge, was primarily the result of the above-mentioned
decrease in average miles per tractor per week and slightly higher depreciation
expense on extended lived tractors (See "Note B--Commitments") and, to a lesser
extent, the above-mentioned decrease in the Company's owner-operator fleet.
These effects were partially offset by the above-mentioned increase in 3PL and
brokerage revenues and increased revenue per mile.
The increase in insurance and claims was primarily due to the payment of
some litigation settlements during the quarter and a significant increase in
adverse claims accruals during the quarter and, to a lesser extent, increases in
liability, cargo and workers' compensation insurance premiums in the first
quarter in 2003 compared to the same quarter in 2002 and the above-mentioned
decrease in the Company's owner-operator fleet. These effects were partially
offset by the above-mentioned increase in 3PL and brokerage revenues.
As a result of the foregoing factors, operating income decreased to a loss
of $0.5 million, or 0.8% of revenue, before fuel surcharge, in 2003 from income
of $1.0 million or 1.6% of revenue, before fuel surcharge, in 2002.
Interest expense decreased 16.8% to $0.7 million in 2003 from $0.8 million
in 2002, resulting primarily from interest rate decreases on the Company's
Senior Credit Facility described under the heading "Liquidity and Capital
Resources" below and the Company's retirement of capital leases with higher
interest rates as they mature while entering into new capital leases at lower
interest rates.
As a result of the above, income before income taxes decreased to a net
loss of $1.2 million, or 1.9% of revenue, before fuel surcharge, in 2003 from
net income of $0.1 million or 0.2% of revenue, before fuel surcharge, in 2002.
The Company's effective tax rate decreased to 7.8% in the first quarter of
2003 compared to 39.4% in the same quarter of 2002. The effective rates varied
from the statutory federal tax rate of 34% primarily due to state income taxes,
certain non-deductible expenses including a per diem pay structure implemented
by the Company during the second quarter of 2002, and the fact the Company
incurred a loss during the first quarter of 2003. 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, earnings decreased to a net loss
of $1.1 million in the first quarter of 2003 from net income of $0.1 million in
the same quarter of 2002. Diluted earnings per share decreased to a net loss of
$0.12 for the first quarter of 2003 from $0.01 net income per share in the same
quarter of 2002. The number of shares used in the calculation of diluted net
income per share for the first quarters of 2003 and 2002 were 9,338,956 and
9,333,972, respectively. Total shares outstanding at March 31, 2003, were
9,326,732.
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. Typically, the Company is not able to fully recover
increases in fuel prices through fuel surcharges. Fuel prices increased during
the first quarter of 2003. 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.
Page 10
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 March
31, 2003, approximately $30.3 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 incremental percentage or LIBOR plus
a certain incremental percentage, which is determined based on the Company's
attainment of certain financial ratios. The effective interest rate on the
Company's borrowings under the Senior Credit Facility for the quarter ended
March 31, 2003 was 3.5%. A quarterly commitment fee is payable on the unused
credit line at a rate determined based on the Company's attainment of certain
financial ratios. As of March 31, 2003, 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
Senior Credit Facility and capital lease-purchase arrangements. The Company has
historically met its working capital needs with cash flows from operations and
occasionally 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 $3.0 million for the three-month period ended March 31, 2003 and
$5.2 million for the three-month period ended March 31, 2002.
As of March 31, 2003, the Company had capital lease obligations in the
aggregate principal amount of approximately $37.7 million, with an average
interest rate of 4.6% per annum. For 2003, the Company has capital lease
commitments providing up to $37.0 million of available borrowings, at variable
interest rates based on the three-year Treasury Note rate, LIBOR or lessor's
cost of funds plus a pricing spread, which rates are fixed upon lease execution.
During the first quarter of 2003, the Company made no borrowings under these
lease commitments.
As of March 31, 2003, the Company had debt obligations of approximately
$65.2 million, including amounts borrowed under the Senior Credit Facility and
lease commitments, of which approximately $16.4 million were current
obligations. During the three-month period ended March 31, 2003, the Company
made borrowings under the Senior Credit Facility and lease commitments of $20.4
million, while retiring $23.9 million in debt under these facilities. The
borrowings had an average interest rate of approximately 3.5% while the retired
debt had an average interest rate of approximately 4.1%.
During the years 2003 and 2004, the Company plans to make approximately
$178.2 million in capital expenditures. At March 31, 2003, the Company was
committed to spend $67.9 million and budgeted to spend an additional $0.6
million of this amount for revenue equipment in 2003, and the Company was
committed to spend $16.1 million and budgeted to spend an additional $93.0
million of this amount for revenue equipment in 2004. The commitments to
purchase revenue equipment are cancelable by the Company if certain conditions
are met. The balance of the expected capital expenditures of $0.6 million will
be used for maintenance and office equipment and facility improvements.
The Senior Credit Facility, capital leases and cash flows from operations
should be adequate to fund the Company's operations and expansion plans through
the end of 2003. 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 and capital leases for the foreseeable future.
Through the Senior Credit Facility the Company can elect to borrow at LIBOR
rates, plus a pricing spread. Therefore, the Company's forecasted future cash
flow is exposed to interest rate risk related to variability in LIBOR rates. For
this reason, the Company has hedged its exposure to the volatility in variable
interest rates. In March 2003 the Company entered into an interest rate swap
effective March 27, 2003, on a notional amount of $10 million (See "Note F -
Derivative Financial Instruments"). The transaction entered into is intended to
provide interest rate
Page 11
protection by creating an interest rate neutral position by specifically
matching notional amounts, maturity dates and interest rate indices, and does
not provide any additional borrowing capacity to the Company. The Company
anticipates it will continue to have interest rate exposure beyond the maturity
of its current Senior Credit Facility.
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 Facility. As of March 31, 2003, the Company had purchased no
shares pursuant to this authorization.
The following table represents the Company's outstanding contractual
obligations at March 31, 2003, excluding letters of credit.
<Table>
<Caption>
PAYMENTS DUE BY PERIOD
(IN THOUSANDS)
CONTRACTUAL OBLIGATIONS TOTAL 2003 2004 - 2005 2006 - 2007 THEREAFTER
----------------------- -------- -------- ----------- ----------- ----------
Long-Term Debt Obligations (1) $ 27,500 $ -- $ 27,500 $ -- $ --
Capital Lease Obligations (2) 40,992 15,809 20,929 4,254 --
Operating Lease Obligations 236 118 85 33 --
Purchase Obligations (3) 84,000 67,900 16,100 -- --
-------- -------- ----------- ----------- ----------
TOTAL $152,728 $ 83,827 $ 64,614 $ 4,287 $ --
======== ======== =========== =========== ==========
</Table>
(1) Long-Term Debt Obligations consist of the Company's Senior Credit
Facility that matures on April 28, 2005 as described above.
(2) Capital Lease Obligations in this table include interest payments not
included in the balance sheet.
(3) Purchase Obligations are cancelable if certain criteria are not met.
NEW ACCOUNTING PRONOUNCEMENTS
See Note D to the financial statements included in this Form 10-Q for a
description of the most recent accounting pronouncements and their effect, if
any, on the Company.
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", "may", "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 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 have also
been, and will continue to 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 have
adversely impacted the Company's operating results and its ability to grow, and
will continue to do so. Results for any specific period may also be affected by
various unforeseen events, such as unusual levels of equipment failure or
vehicle accident claims.
Page 12
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,
as amended, provides for borrowings that bear interest at variable rates based
on either a prime rate or the LIBOR. At March 31, 2003, the Company had $27.5
million outstanding pursuant to the Senior Credit Facility. In an effort to
manage the risks associated with changing interest rates the Company entered
into an interest rate swap effective March 27, 2003, on a notional amount of $10
million (See "Note F - Derivative Financial Instruments"). 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 not material.
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 March 31,
2003. There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect internal controls subsequent
to March 31, 2003.
Page 13
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
three months ended March 31, 2003.
Page 14
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: April 18, 2003 /s/ ROBERT M. POWELL
--------------------------- -------------------------------------
ROBERT M. POWELL
Chairman and Chief
Executive Officer
Date: April 18, 2003 /s/ JERRY D. ORLER
--------------------------- -------------------------------------
JERRY D. ORLER
President
Date: April 18, 2003 /s/ CLIFTON R. BECKHAM
--------------------------- -------------------------------------
CLIFTON R. BECKHAM
Vice President - Finance, Chief
Financial Officer and Secretary
Page 15
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 we 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: April 18, 2003
/s/ ROBERT M. POWELL
-------------------------------------
Robert M. Powell
Chairman and Chief Executive Officer
Page 16
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 we 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: April 18, 2003
/s/ CLIFTON R. BECKHAM
-----------------------------------
Clifton R. Beckham
Vice President - Finance, Chief Financial
Officer and Secretary
Page 17
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 18