1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 1999
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)
3108 INDUSTRIAL PARK ROAD
VAN BUREN, ARKANSAS 72956
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(501) 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:
9,350,253 shares of common stock, $.01 par value, were outstanding on April
27, 1999.
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INDEX
USA TRUCK, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited) Page
----
Condensed Balance Sheets -- March 31, 1999 and December 31, 1998 3
Condensed Statements of Income and Comprehensive Income -- Three
months ended March 31, 1999 and 1998 4
Condensed Statements of Cash Flows -- Three months ended March 31,
1999 and 1998 5
Notes to Condensed Financial Statements -- March 31, 1999 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 7
Item 3. Quantitative and Qualitative Disclosure about Market Risk 17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. 18
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
USA TRUCK, INC.
CONDENSED BALANCE SHEETS
March 31, December 31,
1999 1998
------------- -------------
(unaudited) (note)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,319,097 $ 1,779,643
Accounts receivable:
Trade, less allowance for doubtful accounts
(1999 - $149,671; 1998 - $140,670) 14,416,599 13,928,848
Other 619,134 299,914
Inventories 303,794 236,338
Deferred income taxes 665,851 1,573,365
Prepaid expenses and other current assets 3,314,770 2,640,561
------------- -------------
Total current assets 20,639,245 20,458,669
PROPERTY AND EQUIPMENT 133,712,518 132,908,913
ACCUMULATED DEPRECIATION AND AMORTIZATION (37,400,810) (36,769,320)
------------- -------------
96,311,708 96,139,593
SECURITY DEPOSITS 1,745,478 1,745,478
OTHER ASSETS 1,267,479 1,267,479
------------- -------------
Total assets $ 119,963,910 $ 119,611,219
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank drafts payable $ 488,817 $ 425,485
Trade accounts payable 2,626,904 3,397,593
Accrued expenses 8,680,381 11,139,369
Current maturities of long-term debt 6,100,217 6,188,241
------------- -------------
Total current liabilities 17,896,319 21,150,688
LONG-TERM DEBT, LESS CURRENT MATURITIES 20,037,050 19,057,816
DEFERRED INCOME TAXES 14,573,223 14,576,038
LONG-TERM INSURANCE AND CLAIMS ACCRUALS 2,194,614 2,092,614
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per share; 1,000,000 shares
authorized; none issued -- --
Common stock par value $.01 per share 16,000,000 shares authorized;
issued shares (1999 - 9,467,541; 1998 - 9,437,097) 94,675 94,371
Additional paid-in capital 13,099,752 12,921,342
Retained earnings 52,523,444 50,199,325
Less treasury stock at cost (1999 - 44,832 shares; 1998 - 46,789 shares) (455,167) (480,975)
------------- -------------
Total stockholders' equity 65,262,704 62,734,063
------------- -------------
Total liabilities and stockholders' equity $ 119,963,910 $ 119,611,219
============= =============
NOTE: The balance sheet at December 31, 1998 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 financial statements.
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USA TRUCK, INC.
CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended
March 31,
------------------------------
1999 1998
------------ ------------
OPERATING REVENUES $ 36,199,447 $ 35,223,203
OPERATING EXPENSES AND COSTS:
Salaries wages and employee benefits 15,656,478 15,082,429
Operations and maintenance 8,343,429 8,403,101
Operating taxes and licenses 703,307 605,564
Insurance and claims 1,638,086 1,677,394
Communications and utilities 409,891 321,625
Depreciation and amortization 4,229,216 3,916,974
Other 1,082,599 986,800
------------ ------------
32,063,006 30,993,887
------------ ------------
OPERATING INCOME 4,136,441 4,229,316
OTHER (INCOME) EXPENSE:
Interest expense 330,176 396,256
(Gain) or loss on disposal of assets (7,760) --
Other, net (8,536) 7,009
------------ ------------
313,880 403,265
------------ ------------
INCOME BEFORE INCOME TAXES 3,822,561 3,826,051
INCOME TAXES 1,498,444 1,488,334
------------ ------------
NET INCOME AND
COMPREHENSIVE INCOME $ 2,324,117 $ 2,337,717
============ ============
PER SHARE INFORMATION:
Average shares outstanding (Basic) 9,392,817 9,378,054
============ ============
Basic net income per share $ 0.25 $ 0.25
============ ============
Average shares outstanding (Diluted) 9,452,481 9,478,162
============ ============
Diluted net income per share $ 0.25 $ 0.25
============ ============
See notes to condensed financial statements.
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USA TRUCK, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
March 31,
---------------------------
1999 1998
---------- ----------
OPERATING ACTIVITIES:
Net income $ 2,324,117 $ 2,337,717
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 4,229,216 3,916,974
Provision for doubtful accounts 9,001 7,500
Deferred income taxes 904,699 592,057
(Gain) Loss on sale of assets (7,760) --
Changes in operating assets and liabilities:
Receivables (815,972) (1,318,934)
Inventories and prepaid expenses (741,665) (19,505)
Bank drafts payable, accounts payable and accrued expenses (3,166,345) (572,241)
Insurance and claims accruals 102,000 102,000
----------- -----------
Net cash provided by operating activities 2,837,291 5,045,568
INVESTING ACTIVITIES:
Purchases of property and equipment (7,117,318) (9,643,542)
Purchases of investments -- --
Proceeds from sale of assets 2,723,747 2,186,671
Increase in other assets -- --
----------- -----------
Net cash used by investing activities (4,393,571) (7,456,871)
FINANCING ACTIVITIES:
Borrowings under long-term debt 5,753,000 5,625,000
Proceeds from the exercise of stock options 178,716 270,254
Proceeds from sale of treasury stock 25,808 --
Payments to repurchase common stock -- (19,917)
Principal payments on long-term debt (3,653,000) (2,500,000)
Principal payments on capitalized lease obligations (1,208,790) (1,828,921)
----------- -----------
Net cash provided by financing activities 1,095,734 1,546,416
----------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS: (460,546) (864,887)
Cash and cash equivalents at beginning of period 1,779,643 3,667,311
----------- -----------
Cash and cash equivalents at end of period $ 1,319,097 $ 2,802,424
=========== ===========
See notes to condensed financial statements.
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USA TRUCK, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1999
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles 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 accruals) considered necessary for a fair presentation have been
included. Operating results for the three-month period ended March 31, 1999, are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1999. 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, 1998.
NOTE B--COMMITMENTS
As of April 26, 1999, the Company had remaining commitments for the purchases of
revenue equipment in the aggregate amount of approximately $23.9 million in
1999.
NOTE C--CAPITAL STOCK TRANSACTIONS
During the three-month period ended March 31, 1999, the Company made no
purchases of its outstanding common stock on the open market pursuant to the
repurchase program authorized by the Board of Directors in July 1998. The
Company did, however, distribute 2,466 treasury shares pursuant to the Company's
Employee Stock Purchase Plan, to participants in such Plan.
NOTE D--NEW ACCOUNTING PRONOUNCEMENTS
As of January 1, 1998, the Company adopted Financial Accounting Standards Board
Statement 130, Reporting Comprehensive Income (SFAS No. 130). SFAS 130
establishes new rules for the reporting and display of comprehensive income and
its components; however, the adoption of this Statement had no impact on the
Company's net income or shareholders' equity. For the quarter ended March 31,
1999, the Company's comprehensive income is the same as net income.
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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 for the periods indicated:
Three Months Ended
March 31,
------------------------
1999 1998
----- -----
OPERATING REVENUES 100.0% 100.0%
OPERATING EXPENSES AND COSTS:
Salaries, wages and employee benefits 43.3 42.8
Operations and maintenance 23.0 23.9
Operating taxes and licenses 2.0 1.7
Insurance and claims 4.5 4.8
Communications and utilities 1.1 0.9
Depreciation and amortization 11.7 11.1
Other 3.0 2.8
----- -----
88.6 88.0
----- -----
OPERATING INCOME 11.4 12.0
OTHER (INCOME) EXPENSE:
Interest expense 0.9 1.1
(Gain) or loss on disposal of assets -- --
Other, net -- --
----- -----
0.9 1.1
----- -----
INCOME BEFORE INCOME TAXES 10.5 10.9
INCOME TAXES 4.1 4.2
----- -----
NET INCOME AND
COMPREHENSIVE INCOME 6.4% 6.7%
===== =====
RESULTS OF OPERATIONS
Quarter Ended March 31, 1999 Compared to Quarter Ended March 31, 1998
Operating revenues increased 2.8% to $36.2 million in the first quarter of
1999 from $35.2 million for the same quarter of 1998. The Company believes this
increase is due primarily to the expansion of its marketing team and the new
marketing efforts implemented for the Company's logistics services, dedicated
fleet operations, and private fleet conversions and to additional business from
new customers, partially offset by a decrease in average revenue per mile.
Average revenue per mile decreased from $1.116 in 1998 to $1.106 in 1999. There
was a 4.7%
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increase in the number of shipments to 32,084 in 1999 from 30,641 in 1998. This
volume improvement was made possible by an increase of 8.2% in the average
number of tractors operated from 1,020 in 1998 to 1,104 in 1999. The net effect
of the volume improvement and the Company's continuing fleet expansion was a
decrease of 4.2% in miles per tractor per week from 2,456 in 1998 to 2,354 in
1999. The empty mile factor decreased to 9.69% in 1999 from 10.29% of paid miles
in the first quarter of 1998.
The Company's long-term growth plan calls for an average annual fleet
expansion of approximately 15%. The 8.2% increase in the average number of
tractors noted above reflects a curtailment of equipment purchases during 1998
due to the shortage of qualified drivers and high driver turnover rate currently
affecting the Company and others in the truckload industry. This curtailment had
the effect of limiting the growth of the Company's volume of shipments and
operating revenues during the first quarter compared to the prior year. The
Company believes the driver shortage is due in large part to an increase in the
number of jobs available from competitive sources, including other irregular
route and regular route truckload carriers, less-than-truckload carriers, local
cartage companies, shippers with private fleets and the construction industry
generally. The Company has implemented a comprehensive strategy designed to make
the Company a more attractive employer to its existing drivers and potential new
drivers. This strategy involves, among other things:
o increased driver pay
o intensive recruiting and advertising efforts
o expansion of relationships with several driver training schools
o continued improvements in the comfort, safety and performance of
equipment
o the implementation of technology designed to maximize drivers' time at
home, enhance the speed of driver pay, and provide real-time satellite
and e-mail based communications in the cab.
There can be no assurance, however, that this strategy will enable the
Company to be more successful in attracting and retaining qualified drivers. The
Company believes the driver shortage is likely to continue throughout most of
1999. In addition, although driver turnover rates in recent periods have been
higher than the Company's historical average, high driver turnover rates are
inherent in the irregular route truckload industry and will always present a
challenge.
Operating expenses and costs as a percentage of revenues increased to 88.6%
in 1999 from 88.0% in 1998. This change resulted primarily from an increase, on
a percentage of revenue basis, in salaries, wages, and employee benefits, in
communications and utilities expense, in depreciation and amortization expense
and in other expenses. These increases were partially offset by decreases, on a
percentage of revenue basis, in operations and maintenance costs, and in
insurance and claims expense. The increase in salaries, wages, and employee
benefits was due to an increase in aggregate driver pay of an average of 6%
effected, as part of the strategy described above, in October 1998. The increase
in communications and utilities expense, as a percentage of revenue, reflects
the elimination of operational credits associated with installation in late 1997
and use of the Company's two-way, satellite-based mobile messaging and
position-locating equipment in all of its tractors. The increase in depreciation
and amortization expense reflects the effects of timing differences between
trade-in cycles and purchasing schedules along with an increase in the cost of
tractors and trailers when compared to those being retired. Other
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expenses increased, relative to revenues, due to a variety of factors, including
a 4% increase in recruiting expenses related to the strategy described above.
However, no single factor accounted for more than half of the increase in other
expenses. The percentage decrease, relative to revenues, in operations and
maintenance costs was primarily the result of a decrease of 10.5 cents per
gallon in the average cost of fuel in the first quarter of this year compared to
the same period last year, and by an increase in fuel efficiency to 6.24 average
miles per gallon in 1999 from 6.14 in 1998. The percentage decrease, relative to
revenues, in insurance and claims expense was due to a decrease in the number
and severity of accidents in the first quarter of 1999 as compared to the same
period last year.
As a result of the foregoing factors, operating income decreased 2.2% to
$4.1 million, or 11.4% of revenues, in 1999 from $4.2 million, or 12.0% of
revenues, in 1998.
Interest expense decreased 16.7% to $330,000 in 1999 from $396,000 in 1998,
resulting primarily from a decrease in interest rates, in the aggregate, on both
short-term and long-term debt, partially offset by an increase in borrowings
used primarily in connection with revenue equipment purchases.
As a result of the above, income before income taxes remained relatively
unchanged at $3.8 million, or 10.5% of revenues in 1999 and 10.9% of revenues in
1998.
The Company's effective tax rate increased to 39.2% in 1999 from 38.9% in
1998. The effective rates varied from the statutory Federal tax rate of 34%
primarily due to state income taxes and certain non-deductible expenses.
As a result of the aforementioned factors, net income decreased 0.6% to
$2.32 million, or 6.4% of revenues, in 1999 from $2.34 million, or 6.7% of
revenues, in 1998, and diluted net income per share remaining unchanged at $.25.
The number of shares used in the calculation of diluted net income per share for
the first quarters of 1999 and 1998 were 9,452,481 and 9,478,162, respectively.
Total shares outstanding at March 31, 1999, were 9,467,541.
Quarter Ended March 31, 1998 Compared to Quarter Ended March 31, 1997
Operating revenues increased 14.9% to $35.2 million in the first quarter of
1998 from $30.7 million for the same quarter of 1997, resulting from increased
business with existing customers and additional business from new customers plus
an increase in average revenue per mile. Average revenue per mile increased to
$1.116 in 1998 from $1.109 in 1997. The empty mile factor increased to 10.29% in
1998 from 9.91% of paid miles in the first quarter of 1997. There was a 11.8%
increase in the number of shipments to 30,641 in 1998 from 27,401 in 1997. This
volume improvement was made possible by an increase of 17.0% in the average
number of tractors operated from 872 in 1997 to 1,020 in 1998. The net effect of
the volume improvement and the Company's continuing fleet expansion was a
decrease of 3.9% in miles per tractor per week from 2,556 in 1997 to 2,456 in
1998.
Operating expenses and costs as a percentage of revenues decreased to 88.0%
in 1998 from 92.4% in 1997. This change resulted primarily from a decrease, on a
percentage of revenue basis, in operations and maintenance costs, in
communications and utilities expense and in other expenses. These decreases were
partially offset by increases, on a percentage of revenue basis, in salaries,
wages, and employee benefits and depreciation and amortization expense. The
percentage decrease, relative to revenues, in operations and maintenance costs
was primarily the
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result of a decrease of 19.4 cents per gallon in the average cost of fuel in the
first quarter of this year compared to the same period last year, and by an
increase in fuel efficiency to 6.14 average miles per gallon in 1998 from 6.01
in 1997. The decrease in communications and utilities expense, as a percentage
of revenue and actual dollars, reflects the installation and use of the
Company's two-way, satellite-based mobile messaging and position-locating
equipment in all of its tractors. This equipment has greatly reduced the
Company's telephone expenses and increased the efficiency of communications with
drivers. In addition, these devices have enabled the Company to eliminate the
cost associated with the global paging system the Company was previously
utilizing in its operations. Other expenses decreased, relative to revenues, due
to a variety of factors, no single one of which accounted for more than half of
the decrease. The increase in salaries, wages, and employee benefits was due to
an increase in aggregate driver pay along with an increase in incentives earned
by employees due to improved operating and financial performance of the Company
in the first quarter of this year compared to the same period last year. The
increase in depreciation and amortization expense reflects the effects of timing
differences between trading cycles and purchasing schedules along with an
increase in the cost of tractors and trailers when compared to those being
retired.
As a result of the foregoing factors, operating income increased 82.2% to
$4.2 million, or 12.0% of revenues, in 1998 from $2.3 million, or 7.6% of
revenues, in 1997.
Interest expense increased 92.3% to $396,000 in 1998 from $206,000 in 1997,
resulting primarily from an increase in borrowings, partially offset by a
decrease in interest rates, in the aggregate, on both short-term and long-term
debt.
As a result of the above, income before income taxes increased 82.4% to
$3.8 million, or 10.9% of revenues, in 1998 from $2.1 million, or 6.8% of
revenues, in 1997.
The Company's effective tax rate remained unchanged at 38.9% for both 1998
and 1997. The effective rates varied from the statutory Federal tax rate of 34%
primarily due to state income taxes and certain non-deductible expenses.
As a result of the aforementioned factors, net income increased 82.4% to
$2.3 million, or 6.7% of revenues, in 1998 from $1.3 million, or 4.1% of
revenues, in 1997, an increase of 78.6% in diluted net income per share to $.25
from $.14. The number of shares used in the calculation of diluted net income
per share for the first quarter of 1998 and 1997 were 9,478,162 and 9,415,695,
respectively. Total shares outstanding at March 31, 1998, were 9,419,201.
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 is dependent upon the availability of diesel
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 USA Truck.
Fuel prices have fluctuated widely and fuel
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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 recover all but the most significant increases in
fuel costs and fuel taxes from customers through increased freight rates. Diesel
prices generally declined during 1998 and the three-month period ended March 31,
1999 but have increased subsequent to that date. There can be no assurance that
diesel prices will not increase further or that they will remain below the
higher prices experienced in prior periods. There also 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
The continued growth of the Company's business has required significant
investments in new equipment. USA Truck has financed revenue equipment purchases
with cash flows from operations and through borrowings under the Company's
collateralized revolving credit agreement (the "General Line of Credit") and
conventional financing and lease-purchase arrangements. Working capital needs
have generally been met with cash flows from operations and occasionally with
borrowings under the General Line of Credit. Although the Company has not relied
significantly on the General Line of Credit to meet working capital
requirements, it does experience cyclical cash flow needs common to the
industry. The Company uses the General Line of Credit to minimize these
fluctuations and to provide flexibility in financing revenue equipment
purchases. Cash flows from operations were $2.8 million for the three-month
period ended March 31, 1999 as compared to $5.0 million in the comparable period
of 1998.
The Company's General Line of Credit provides for available borrowings of
up to $20.0 million, including letters of credit not exceeding $5.0 million. The
Company decreased the maximum borrowing limit from $28.5 million to the current
level in October 1998 based upon its evaluation of the Company's borrowing
requirements. As of March 31, 1999, approximately $14.0 million was available
under the General Line of Credit. The General Line of Credit matures on April
30, 2001, prior to which time, subject to certain conditions, the amount
outstanding can be converted at any time, at the Company's option, to a
four-year term loan requiring 48 equal monthly principal payments plus interest.
The interest rate on the General Line of Credit fluctuates between the lender's
prime rate, or prime plus 1/2% or LIBOR plus a certain 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 General Line of
Credit for the three-month period ending March 31, 1999 was 6.35%. Under the
General Line of Credit, the Company has the right to borrow at a rate related to
the Eurodollar rate when this rate is less than the lender's prime rate. A
quarterly commitment fee of 1/4% per annum is payable on the unused amount. The
principal maturity can be accelerated if the borrowing base (based on
percentages of receivables and otherwise unsecured equipment) does not support
the principal balance outstanding. The General Line of Credit is collateralized
by accounts receivable and all otherwise unencumbered equipment. The Company has
the option under certain conditions and at certain rates to fix the rate and
term on portions of the outstanding balance of the General Line of Credit.
On December 30, 1998, the Company amended its lease commitment agreement
(the "Equipment TRAC Lease Commitment"), dated November 19, 1997 with another
financial institution to facilitate the leasing of tractors. The Equipment TRAC
Lease Commitment was amended to extend the commitment term to December 31, 1999
and provide for a maximum borrowing amount of $12.4 million during 1999. Each
capital lease will have a repayment
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period of 42 months. Borrowings are limited based on the amounts outstanding
under capital leases entered into under this agreement. As of March 31, 1999,
$12.4 million remained available under the Equipment TRAC Lease Commitment. The
interest rate on the capital leases under the Equipment TRAC Lease Commitment
fluctuates in relation to the interest rate for 3 1/2-year Treasury Notes as
published in The Wall Street Journal and is fixed upon execution of a lease. As
of March 31, 1999, capital leases in the aggregate principal amount of $8.1
million were outstanding under the Equipment TRAC Lease Commitment with an
average interest rate of 4.07% per annum.
As of March 31, 1999, capital leases in the aggregate principal amount of
$11.4 million were outstanding under a prior lease commitment with an average
interest rate of 5.38% per annum.
At March 31, 1999, the Company had debt obligations of approximately $26.1
million, including amounts borrowed under the facilities described above, of
which approximately $6.1 million were current obligations. During the first
quarter of 1999, the Company made borrowings under the General Line of Credit of
$5.8 million, while retiring $4.9 million in debt. The retired debt had an
average interest rate of approximately 6.00%.
During the years 1999 and 2000, the Company plans to make approximately
$82.7 million in capital expenditures, including $7.1 million expended as of
March 31, 1999. At March 31, 1999, USA Truck was committed to spend an
additional $24.8 million of this amount for revenue equipment in 1999, and $47.2
million of this amount is currently budgeted for revenue equipment in 2000. The
commitments to purchase revenue equipment are cancelable by the Company if
certain conditions are met. The balance of the expected capital expenditures
will be used for maintenance and office equipment and facility improvements.
The General Line of Credit, the Equipment TRAC Lease Commitment, equipment
leases and cash flows from operations should be adequate to fund the Company's
operations and expansion plans through the end of 1999. 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, equipment leases, the General Line
of Credit, and the Equipment TRAC Lease Commitment for the foreseeable future.
In September 1995, the Board of Directors authorized the Company to
repurchase up to 500,000 shares of its outstanding common stock, on the open
market or in privately negotiated transactions, from time to time over a period
of three years. In September 1998, this repurchase authorization expired. Upon
expiration of this authorization, the Company had purchased 449,250 shares
pursuant to this authorization at an aggregate purchase price of $4.6 million.
On May 7, 1997, the Board of Directors authorized the retirement of all shares
purchased prior to May 6, 1997 and not previously retired, which resulted in the
retirement of 185,500 shares of treasury stock that had been purchased at an
aggregate cost of $1.6 million. The Company had previously retired 254,000
shares of treasury stock on May 8, 1996. In addition, as of March 31, 1999,
7,568 of the remaining 9,750 repurchased shares had been resold under the
Company's Employee Stock Purchase Plan.
In July 1998, 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 dependent upon market conditions. Common stock purchases under the
authorization may be made from time to time on
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the open market or in privately negotiated transactions at prices determined by
the Chairman of the Board or President of the Company. This new authorization
became effective in September 1998 upon the expiration of the Company's prior
stock repurchase program. As of March 31, 1999, the Company had purchased 45,000
shares pursuant to this new authorization at an aggregate purchase price of
$462,000. The Company may continue to 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 General Line of Credit.
YEAR 2000 ISSUES
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. The Company
recognizes that the arrival of the year 2000 poses a unique worldwide challenge
to the ability of systems to recognize the date change from December 31, 1999 to
January 1, 2000. The Year 2000 issue could result, at the Company and elsewhere,
in system failures or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions or
to engage in other normal business activities.
The Company has undertaken various initiatives intended to ensure that its
computer equipment and software will function properly with respect to dates in
the Year 2000 and thereafter. For this purpose, the term "computer equipment and
software" includes systems that are commonly thought of as IT systems, including
accounting, data processing, dispatch, and telephone/PBX systems, and other
miscellaneous systems, as well as systems that are not commonly thought of as IT
systems, such as heating and air conditioning systems, fax machines, tractor
engine electronic control modules, or other miscellaneous systems. Both IT and
non-IT systems may contain imbedded technology, which complicates the Company's
identification, assessment, remediation, and testing efforts. Based upon its
identification and assessment efforts, the Company has replaced or modified
certain computer equipment and software. The Company has also determined that
certain equipment and software used in non-IT systems will require replacement
or modification. The Company anticipates that such replacement and modification
will be completed by June 1999. In addition, in the ordinary course of replacing
computer equipment and software, the Company attempts to obtain replacements
that are Year 2000 compliant. Utilizing both internal and external resources to
identify and assess needed Year 2000 remediation, the Company currently
anticipates that its Year 2000 identification, assessment, remediation, and
testing efforts, which began in November 1997, will be completed by June 30,
1999, and that such efforts will be completed prior to any currently anticipated
impact on its computer equipment and software. As of April 26, 1999, the Company
estimates that it had completed approximately 95% of the initiatives that it
believes will be necessary to fully address potential Year 2000 issues relating
to its computer equipment and software. The projects comprising the remaining 5%
of the initiatives are in process and expected to be completed on or about June
30, 1999.
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- ---------------------------------------------------------------------------------- ------------------- -----------------
PERCENT
YEAR 2000 INITIATIVE TIME FRAME COMPLETE
- ---------------------------------------------------------------------------------- ------------------- -----------------
Initial IT system assessment 11/97 - 09/98 100%
- ---------------------------------------------------------------------------------- ------------------- -----------------
Remediation of central system issues 01/98 - 10/98 100%
- ---------------------------------------------------------------------------------- ------------------- -----------------
Remediation of departmental system issues 01/98 - 12/98 100%
- ---------------------------------------------------------------------------------- ------------------- -----------------
Upgrades to telephone/PBX and other systems 01/98 - 12/98 100%
- ---------------------------------------------------------------------------------- ------------------- -----------------
Electronic data interchange trading partner conversions 01/98 - 12/98 100%
- ---------------------------------------------------------------------------------- ------------------- -----------------
Desktop and individual systems assessment and remediation 01/98 - 12/98 100%
- ---------------------------------------------------------------------------------- ------------------- -----------------
Assessment of non-IT systems 01/98 - 09/98 100%
- ---------------------------------------------------------------------------------- ------------------- -----------------
Remediation of non-IT systems 05/98 - 06/99 90%
- ---------------------------------------------------------------------------------- ------------------- -----------------
The Company has also conducted telephone surveys and mailed letters to
significant vendors and service providers, and has verbally communicated with
many strategic customers to determine the extent to which interfaces with such
entities are vulnerable to Year 2000 issues and whether the products obtained
from and services provided by such entities are Year 2000 compliant. As of April
26, 1999, the Company had received responses from approximately 99% of such
third parties. However, only 9% of the companies that have responded have
provided either verbal or written assurances that they expect to address all
their significant Year 2000 issues on a timely basis. A follow-up telephone
survey to significant vendors, service providers, and customers that did not
initially respond, or whose responses were deemed unsatisfactory by the Company,
was completed by November 1, 1998, with responses due by January 15, 1999. As a
result of the second telephone survey, only an additional 18% of all third
parties contacted provided either verbal or written assurances that they expect
to address all their significant Year 2000 issues on a timely basis. The Company
continues to send written requests to new customers to inquire about their
significant Year 2000 issues and how they are going to address those issues. In
light of the low response rate to the Company's inquiries, the Company can give
no assurance that interfaces with third parties will not be vulnerable to Year
2000 issues or that disruptions to the Company's business will not occur as a
result of such issues.
The Company believes that the cost of its Year 2000 identification,
assessment, remediation and testing efforts, as well as currently anticipated
costs to be incurred by the Company with respect to Year 2000 issues of third
parties, will not exceed $95,000, which will be funded from operating cash
flows. Such amount represents approximately 2.5% of the Company's total actual
and anticipated IT expenditures for fiscal 1998 through fiscal 1999. As of March
31, 1999, the Company had incurred costs of approximately $27,000 related to its
Year 2000 program. All of the $27,000 relates to analysis, repair, or
replacement of existing software, upgrades of existing software, or evaluation
of information received from significant vendors, service providers, or
customers. Other non-Year 2000 IT efforts have not been materially delayed or
impacted by Year 2000 projects. The Company presently believes that the Year
2000 issue will not pose significant operational problems for the Company.
However, if all Year 2000 issues are not properly identified, remediation and
testing is not effected with respect to problems that are identified, or such
remediation and testing are not completed timely, there can be no assurance that
the Year 2000 issue will not materially adversely affect the Company's
relationships with customers, vendors, or others. Additionally, there can be no
assurance that the Year 2000 issues of other entities will not have a material
adverse impact on the Company's systems or business.
Page 14
15
The Company has begun, but not yet completed, a comprehensive analysis of
the operational problems and costs (including loss of revenues) that would be
reasonably likely to result from the failure by the Company and certain third
parties to complete efforts necessary to achieve Year 2000 compliance on a
timely basis. A contingency plan has not been developed for dealing with the
most reasonably likely worst case scenario, and such scenario has not yet been
clearly identified. The Company currently plans to complete such analysis and
contingency planning by September 30, 1999.
The Company does not plan to engage an independent expert to evaluate its
Year 2000 identification, assessment, remediation, and testing efforts. However,
the Company has had certain of its systems reviewed and assessed by third
parties, who focused on the Year 2000 compliance of systems essential to the
performance by the Company of its obligations to such third parties. After these
reviews and assessments, the third parties have given such systems a
"satisfactory" rating relating to Year 2000 compliance.
The costs of the Company's Year 2000 identification, assessment,
remediation, and testing efforts and the dates on which the Company believes it
will complete such efforts are based upon management's best estimates, which
were derived using numerous assumptions regarding future events, including the
continued availability of certain resources, third-party remediation plans, and
other factors. There can be no assurance that these estimates will prove to be
accurate and actual results could differ materially from those currently
anticipated. Specific factors that could cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in Year 2000 issues, the ability to locate and correct all relevant computer
codes, the ability to identify, assess, remediate, and test all embedded
technology, and similar uncertainties.
NEW ACCOUNTING PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS No.
130). The provisions of SFAS No. 130 require companies to classify items of
comprehensive income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the financial statements. The Company
has no comprehensive income items for the periods presented, therefore
comprehensive income is the same as net income for the periods presented.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements and information that are
based on management's belief as well as assumptions made by, and information
currently available to management. 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
Page 15
16
adversely impact the Company's operating results and its ability to grow.
Because of the pervasiveness and complexity of the Year 2000 problem, it is
unlikely that the Company and all third parties with which the Company does
business will be able to fully remediate all non-compliant systems on a timely
basis, and the failure by the Company and/or such third parties to do so could
materially adversely affect the Company's results of operations. 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
17
FORM 10-Q
USA TRUCK, INC.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
The Company's General Line of Credit agreement provides for borrowings,
which bear interest at variable rates based on either a prime rate or the LIBOR.
At March 31, 1999, the Company had $5.0 million outstanding pursuant to the
General Line of Credit. 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 diesel fuel
or any other commodity.
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FORM 10-Q
USA TRUCK, INC.
PART II. OTHER INFORMATION
INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(A) Exhibits
11.1 Statement Re: Computation of Earnings Per Share
27 Financial Data Schedule
(B) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
three months ended March 31, 1999.
Page 18
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
USA TRUCK, INC.
-----------------------------------------
(Registrant)
Date: 04/28/99 /s/ ROBERT M. POWELL
---------------- -----------------------------------------
ROBERT M. POWELL
President and Chief Executive Officer
Date: 04/28/99 /s/ JERRY D. ORLER
---------------- -----------------------------------------
JERRY D. ORLER
Vice President-Finance and
Chief Financial Officer
Page 19
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FORM 10-Q
INDEX TO EXHIBITS
USA TRUCK, INC.
Sequentially
Exhibit Numbered
Number Exhibit Page
------ -------------------------------------------------------------------- ------------
11.1 Statement Re: Computation of Earnings Per Share 20
27 Financial Data Schedule 21