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 September 30, 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)
3200 INDUSTRIAL PARK ROAD
VAN BUREN, ARKANSAS 72956
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(501) 471-2500
- --------------------------------------------------------------------------------
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:
9,298,008 shares of common stock, $.01 par value, were outstanding on
November 5, 1999.
2
INDEX
USA TRUCK, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited) Page
Condensed Balance Sheets -- September 30, 1999 and December 31, 1998 3
Condensed Statements of Income and Comprehensive Income -- Three
months and nine months ended September 30, 1999 and 1998 4
Condensed Statements of Cash Flows -- Nine months ended September 30,
1999 and 1998 5
Notes to Condensed Financial Statements -- September 30, 1999 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 8
Item 3. Quantitative and Qualitative Disclosure about Market Risk 17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. 18
Page 2
3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
USA TRUCK, INC.
CONDENSED BALANCE SHEETS
September 30, December 31,
1999 1998
------------- -------------
(unaudited) (note)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,013,278 $ 1,779,643
Accounts receivable:
Trade, less allowance for doubtful accounts
(1999 - $ 178,253; 1998 - $ 140,670) 18,466,321 13,928,848
Other 886,654 299,914
Inventories 286,887 236,338
Deferred income taxes 1,275,299 1,573,365
Prepaid expenses and other current assets 2,333,846 2,640,561
------------- -------------
Total current assets 24,262,285 20,458,669
PROPERTY AND EQUIPMENT 142,517,678 132,908,913
ACCUMULATED DEPRECIATION AND AMORTIZATION (42,190,982) (36,769,320)
------------- -------------
100,326,696 96,139,593
SECURITY DEPOSITS 739 1,745,478
OTHER ASSETS 305,194 1,267,479
------------- -------------
Total assets $ 124,894,914 $ 119,611,219
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank drafts payable $ 502,574 $ 425,485
Trade accounts payable 5,309,982 3,397,593
Accrued expenses 10,508,479 11,139,369
Current maturities of long-term debt 6,664,511 6,188,241
------------- -------------
Total current liabilities 22,985,546 21,150,688
LONG-TERM DEBT, LESS CURRENT MATURITIES 15,063,242 19,057,816
DEFERRED INCOME TAXES 16,220,958 14,576,038
LONG-TERM INSURANCE AND CLAIMS ACCRUALS 2,398,614 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 - 9,367,541; 1998 - 9,419,201) 93,675 94,371
Additional paid-in capital 12,171,879 12,921,342
Retained earnings 56,647,235 50,199,325
Less treasury stock, at cost (1999 - 74,533 shares; 1998 - 46,789 shares) (686,235) (480,975)
------------- -------------
Total stockholders' equity 68,226,554 62,734,063
------------- -------------
Total liabilities and stockholders' equity $ 124,894,914 $ 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.
Page 3
4
USA TRUCK, INC.
CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ ------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
OPERATING REVENUES $ 40,416,850 $ 36,266,931 $ 114,733,801 $ 108,877,380
OPERATING EXPENSES AND COSTS:
Salaries, wages and employee benefits 17,226,077 15,067,522 49,136,967 45,791,659
Operations and maintenance 10,568,323 8,389,124 27,826,856 25,399,416
Operating taxes and licenses 664,956 633,155 2,049,575 1,928,211
Insurance and claims 2,111,627 1,646,942 5,702,704 5,135,251
Communications and utilities 543,748 396,216 1,412,364 1,032,317
Depreciation and amortization 4,359,715 4,124,730 12,874,750 12,129,781
Other 1,855,864 955,532 4,220,977 2,999,304
------------- ------------- ------------- -------------
37,330,310 31,213,221 103,224,193 94,415,939
------------- ------------- ------------- -------------
OPERATING INCOME 3,086,540 5,053,710 11,509,608 14,461,441
OTHER (INCOME) EXPENSE:
Interest expense 298,310 439,572 949,658 1,387,552
(Gain) or loss on disposal of assets (1,998) (43,598) (9,758) (37,088)
Other, net 12,285 39,067 (35,407) 86,751
------------- ------------- ------------- -------------
308,597 435,041 904,493 1,437,215
------------- ------------- ------------- -------------
INCOME BEFORE INCOME TAXES 2,777,943 4,618,669 10,605,115 13,024,226
INCOME TAXES 1,088,954 1,796,662 4,157,206 5,066,424
------------- ------------- ------------- -------------
NET INCOME AND
COMPREHENSIVE INCOME $ 1,688,989 $ 2,822,007 $ 6,447,909 $ 7,957,802
============= ============= ============= =============
PER SHARE INFORMATION:
Average shares outstanding (Basic) 9,298,377 9,417,520 9,369,589 9,407,007
============= ============= ============= =============
Basic net income per share $ 0.18 $ 0.30 $ 0.69 $ 0.85
============= ============= ============= =============
Average shares outstanding (Diluted) 9,335,972 9,512,954 9,408,583 9,490,087
============= ============= ============= =============
Diluted net income per share $ 0.18 $ 0.30 $ 0.69 $ 0.84
============= ============= ============= =============
See notes to condensed financial statements.
Page 4
5
USA TRUCK, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended
September 30,
----------------------------
1999 1998
------------ ------------
OPERATING ACTIVITIES:
Net income $ 6,447,909 $ 7,957,802
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 12,874,750 12,129,781
Provision for doubtful accounts 27,000 22,500
Deferred income taxes 1,942,986 2,238,184
Gain on sale of assets (9,758) (37,088)
Changes in operating assets and liabilities: --
Receivables (5,151,213) (2,579,146)
Inventories and prepaid expenses 256,166 (200,419)
Bank drafts payable, accounts payable and accrued expenses 1,358,588 1,079,612
Insurance and claims accruals - long-term 306,000 306,000
------------ ------------
Net cash provided by operating activities 18,052,428 20,917,226
INVESTING ACTIVITIES:
Purchases of property and equipment (21,892,762) (19,789,795)
Proceeds from sale of assets 4,840,667 --
Proceeds from sale of investments 968,196 5,574,321
(Gain) Loss on sale of investments (5,911) --
------------ ------------
Net cash used by investing activities (16,089,810) (14,215,474)
FINANCING ACTIVITIES:
Borrowings under long-term debt 12,253,000 11,425,000
Proceeds from the exercise of stock options 178,719 286,754
Proceeds from sale of treasury stock 77,683 --
Refund of security deposits 1,744,739 --
Payments to repurchase common stock (1,211,820) (123,772)
Principal payments on long-term debt (10,653,000) (15,300,000)
Principal payments on capitalized lease obligations (5,118,304) (5,316,784)
------------ ------------
Net cash used by financing activities (2,728,983) (9,028,802)
------------ ------------
DECREASE IN CASH AND CASH EQUIVALENTS (766,365) (2,327,050)
Cash and cash equivalents at beginning of period 1,779,643 3,667,311
------------ ------------
Cash and cash equivalents at end of period $ 1,013,278 $ 1,340,261
============ ============
See notes to condensed financial statements.
Page 5
6
USA TRUCK, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 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 adjustments considered necessary for a fair presentation) have been
included. Operating results for the nine-month period ended September 30, 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 November 5, 1999, the Company had remaining commitments for the purchases
of revenue equipment in the aggregate amount of approximately $18.7 million in
1999 and $47.6 million in 2000. The Company also had remaining commitments to
purchase certain other assets for approximately $2.8 million in 1999.
NOTE C--CAPITAL STOCK TRANSACTIONS
During the nine-month period ended September 30, 1999, the Company purchased
136,200 shares of its outstanding common stock on the open market for
approximately $1.2 million pursuant to the repurchase program authorized by the
Board of Directors in July 1998. The Company distributed 7,466 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 and
nine-month period ended September 30, 1999, the Company's comprehensive income
is the same as net income.
NOTE E -- SUBSEQUENT EVENTS
On November 1, 1999, pursuant to an Asset Purchase Agreement (the "Asset
Purchase Agreement") dated October 31, 1999, the Company acquired substantially
all the assets of CARCO Carrier Corporation, an Arkansas corporation, which
operated under the name CCC Express, Inc. ("CCC"), for a purchase price of
$35,300,000. The purchase price, which is subject to certain post-closing
adjustments, consisted of (i) a cash payment of approximately $3.0 million; (ii)
the assumption of approximately $6.5 million of liabilities including equipment
notes and (iii) the refinancing of approximately $25.8
Page 6
7
million in other debt secured by equipment. The cash portion of the purchase
price was paid with available cash and proceeds of borrowings under the
Registrant's bank credit facilities. In connection with the acquisition, the
Registrant's borrowing limit under the General Line of Credit with Deposit
Guaranty National Bank was increased from $20.0 million to $35.0 million
effective October 28, 1999.
The acquired operations include a fleet of 498 tractors and 1,103 dry van
trailers, which the Registrant will use in its truckload motor carrier business.
The Registrant is, and before the acquisition CCC was, a motor carrier engaged
in common and contract carriage of truckload quantities of general commodities.
The acquisition represents an increase of 43% in the tractor fleet of the
Registrant, which operated 1,149 tractors and 2,266 dry van trailers before the
transaction. As part of the transaction, the Registrant also assumed three
leases for dedicated shop and fuel facilities.
Page 7
8
FORM 10-Q
USA TRUCK, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following table sets forth the percentage relationship of certain items to
operating revenues for the periods indicated:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
OPERATING REVENUES 100.0% 100.0% 100.0% 100.0%
OPERATING EXPENSES AND COSTS:
Salaries, wages and employee benefits 42.6 41.6 42.8 42.1
Operations and maintenance 26.2 23.1 24.3 23.3
Operating taxes and licenses 1.7 1.8 1.8 1.8
Insurance and claims 5.2 4.5 5.0 4.7
Communications and utilities 1.3 1.1 1.2 0.9
Depreciation and amortization 10.8 11.4 11.2 11.1
Other 4.6 2.6 3.7 2.8
---------- ---------- ---------- ----------
92.4 86.1 90.0 86.7
---------- ---------- ---------- ----------
OPERATING INCOME 7.6 13.9 10.0 13.3
OTHER (INCOME) EXPENSE:
Interest expense 0.8 1.2 0.8 1.2
(Gain) or loss on disposal of assets -- (0.1) -- --
Other, net -- 0.1 -- 0.1
---------- ---------- ---------- ----------
0.8 1.2 0.8 1.3
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 6.8 12.7 9.2 12.0
INCOME TAXES 2.7 4.9 3.6 4.7
---------- ---------- ---------- ----------
NET INCOME AND
COMPREHENSIVE INCOME 4.1% 7.8% 5.6% 7.3%
========== ========== ========== ==========
RESULTS OF OPERATIONS
Quarter Ended September 30, 1999 Compared to Quarter Ended September 30, 1998
Operating revenues increased 11.4% to $40.4 million in the third quarter of
1999 from $36.3 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
existing customers. Average revenue per mile increased to $1.122 in the third
quarter of 1999 from $1.118 in 1998. There was a 11.4% increase in the number of
shipments to
Page 8
9
36,114 in 1999 from 32,423 in 1998. This volume improvement was made possible by
an increase of 4.5% in the average number of tractors operated from 1,058 in
1998 to 1,134 in 1999. The net effect of the volume improvement and the
Company's continuing fleet expansion was an increase of 6.3% in miles per
tractor per week from 2,336 in 1998 to 2,482 in 1999. The empty mile factor
decreased to 9.32% in 1999 from 9.54% of paid miles in the third quarter of
1998.
Operating expenses and costs as a percentage of revenues increased to 92.4%
in 1999 from 86.1% in 1998. This change resulted from increases, on a percentage
of revenue basis, in salaries, wages, and employee benefits, in operations and
maintenance costs, in insurance and claims expense, in communications and
utilities expense and in other expenses. The increase in salaries, wages, and
employee benefits was primarily due to an increase in aggregate driver pay,
which resulted from an increase in driver total base compensation of
approximately 5% per driver in October 1998. The percentage increase, relative
to revenues, in operations and maintenance costs was primarily the result of an
increase in costs to maintain and repair road equipment and an increase of 16.1
cents per gallon in the average cost of fuel in the third quarter of this year
compared to the same period last year, partially offset by an increase in fuel
efficiency to 6.59 average miles per gallon in 1999 from 6.51 in 1998. The
increase, relative to revenues, in insurance and claims expense was due to an
increase in the number and of accidents in the third quarter of 1999 as compared
to the same period last year. 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. Other expenses increased, relative to revenues, due primarily
to our increased efforts to recruit qualified drivers in order to replace lost
drivers and grow our fleet.
As a result of the foregoing factors, operating income decreased 38.9% to
$3.1 million, or 7.64% of revenues, in 1999 from $5.1 million, or 13.9% of
revenues, in 1998.
Interest expense decreased 32.1% to $298,000 in 1999 from $440,000 in 1998,
resulting from a decrease in interest rates, in the aggregate, on both
short-term and long-term debt, and a decrease in total outstanding debt.
Other, net expense decreased 68.6% to $12,000 in 1999 from $39,000 in 1998,
resulting primarily from a reduction in officer life insurance premium expense
offset slightly by a reduction in the amount of detention charges imposed on
customers for detaining equipment.
As a result of the above, income before income taxes decreased 39.9% to
$2.8 million, or 6.9% of revenues, in 1999 from $4.6 million, or 12.7% 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 40.1% to
$1.7 million, or 4.2% of revenues, in 1999 from $2.8 million, or 7.8% of
revenues, in 1998, a decrease of 40.0% in diluted net income per share to $.18
from $.30. The number of shares used in the calculation of diluted net income
per share for the third quarters of 1999 and 1998 were 9,355,972 and 9,512,954,
respectively. Total shares outstanding at September 30, 1999, were 9,367,541.
Page 9
10
Nine-Months Ended September 30, 1999 Compared to Nine-Months Ended
September 30, 1998
Operating revenues increased 5.4% to $114.7 million in 1999 from $108.9
million in 1998, resulting from increased business with existing customers and
additional business from new customers offset by a slight decrease in average
revenue per mile. Average revenue per mile decreased to $1.115 in 1999 from
$1.118 in 1998. The empty mile factor decreased to 9.50% in 1999 from 9.93% of
paid miles in the first nine months of 1999. There was a 5.9% increase in the
number of shipments to 101,943 in 1999 from 96,267 in 1998. This volume
improvement was made possible by an increase of 5.7% in the average number of
tractors operated from 1,054 in 1998 to 1,114 in 1999. The net effect of the
volume improvement and the Company's continuing fleet expansion was that miles
per tractor per week remained relatively unchanged at 2,432 in 1998 and 2,430 in
1999.
Operating expenses and costs as a percentage of revenues increased to 90.0%
in 1999 from 86.7% in 1998. This change resulted from increases, on a percentage
of revenue basis, in salaries, wages, and employee benefits, in operations and
maintenance costs, in insurance and claims expense, in communications and
utilities expense, in depreciation and amortization expense and in other
expenses. The increase in salaries, wages, and employee benefits was due to an
increase in aggregate driver pay, which resulted from an increase in driver
total base compensation of approximately 5% per driver in October 1998. The
increase in operations and maintenance costs resulted primarily from an increase
in costs to maintain and repair road equipment and an increase of 2.4 cents per
gallon in the average cost of fuel in 1999 compared to 1998, partially offset by
an increase in fuel efficiency to 6.52 average miles per gallon in 1999 from
6.37 in 1998. The increase in insurance and claims expense, on a percentage of
revenue basis, was due primarily to an increase in the number of accidents in
1999 as compared to 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 expenses increased, relative to revenues, due to a
variety of factors, including a 63% increase in recruiting expenses.
As a result of the foregoing factors, operating income decreased 20.4% to
$11.5 million, or 10.0% of revenues, in 1999 from $14.5 million, or 13.3% of
revenues, in 1998.
Interest expense decreased 31.6% to $950,000 in 1999 from $1,388,000 in
1998, resulting from a decrease in interest rates, in the aggregate, on both
short-term and long-term debt, and a decrease in total outstanding debt.
Other, net expense decreased 140.8% to $(35,000) in 1999 from $87,000 in
1998, resulting primarily from a reduction in officer life insurance premium
expense and an increase in the amount of detention charges imposed on customers
for detaining equipment.
As a result of the above, income before income taxes decreased 18.6% to
$10.6 million, or 9.2% of revenues, in 1999 from $13.0 million, or 12.0% 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.
Page 10
11
As a result of the foregoing factors, net income decreased 19.0% to $6.4
million, or 5.6% of revenues, in 1999 from $8.0 million, or 7.3% of revenues, in
1998, a decrease of 17.9% in diluted net income per share to $.69 from $.84. The
number of shares used in the calculation of diluted net income per share for the
nine-month periods ended September 30, 1999 and 1998 were 9,408,583 and
9,490,087, respectively.
SEASONALITY
In the motor carrier industry generally, revenues are lower in the first
and fourth quarters as customers decrease shipments during the winter holiday
season and as inclement weather impedes operations. These factors historically
have tended to decrease net income in the first and fourth quarters. Future
revenues could be impacted if customers reduce shipments due to temporary plant
closings, which historically have occurred during July and December.
FUEL AVAILABILITY AND COST
The motor carrier industry 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 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 $18.1 million for the nine-month
period ended September 30, 1999 as compared to $20.9 million in the comparable
period of 1998.
As of September 30, 1999, 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. Approximately $14.49 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
Page 11
12
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 nine-month period ending
September 30, 1999 was 6.10%. 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.
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 period of 42 months. Borrowings are limited
based on the amounts outstanding under capital leases entered into under this
agreement. As of September 30, 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 and is fixed upon execution of a lease. As of
September 30, 1999, capital leases in the aggregate principal amount of $5.9
million were outstanding under the Equipment TRAC Lease Commitment with an
average interest rate of 4.60% per annum.
As of September 30, 1999, capital leases in the aggregate principal amount
of $10.0 million were outstanding under a prior lease commitment with an average
interest rate of 5.38% per annum.
As of September 30, 1999, the Company had debt obligations of approximately
$21.7 million, including amounts borrowed under the facilities described above,
of which approximately $6.7 million were current obligations. During the first
nine months of 1999, the Company made borrowings under the General Line of
Credit of $12.3 million, while retiring $10.7 million in debt. The retired debt
had an average interest rate of approximately 6.15%.
During the years 1999 and 2000, the Company plans to make approximately
$88.6 million in capital expenditures, including $19.4 million expended as of
September 30, 1999. As of September 30, 1999, USA Truck was committed to spend
an additional $18.7 million of this amount for revenue equipment in 1999, and
$47.6 million of this amount is currently committed 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 certain other assets.
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 at least through the end of 2000. 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.
Page 12
13
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 the open market or in privately
negotiated transactions at prices determined by the Chairman of the Board or
President of the Company. This authorization became effective in September 1998
upon the expiration of the Company's prior stock repurchase program. As of
September 30, 1999, the Company had purchased 181,200 shares pursuant to this
new authorization at an aggregate purchase price of $1,684,000. On May 5, 1999,
the Board of Directors authorized the retirement of 100,000 shares of treasury
stock that had been purchased at an aggregate cost of $928,876. In addition, as
of September 30, 1999, 6,667 of the remaining 81,200 repurchased shares had been
resold under the Company's Employee Stock Purchase Plan. 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 replaced or
modified certain equipment and software used in non-IT systems. The Company
anticipates that such replacement and modification relating to non-IT systems
will be completed by December 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's
Year 2000 identification, assessment, remediation, and testing efforts, which
began in November 1997, were substantially completed by September 30, 1999,
prior to any impact on its computer equipment and software. As of November 5,
1999, the Company estimates that it had completed approximately 99% of the
initiatives that it believes will be necessary to fully address potential Year
2000 issues relating to its computer equipment and software.
Page 13
14
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 - 12/99 98%
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
November 5, 1999, the Company had received responses from approximately 99% of
such third parties. However, only 28% of the companies that responded to the
initial survey in April 1998 and a follow up survey in the fall of 1998 have
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
rate of satisfactory responses 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 $35,000, which will be funded from operating cash
flows. Such amount represents approximately 1.0% of the Company's total actual
and anticipated IT expenditures for fiscal 1998 through fiscal 1999. As of
September 30, 1999, the Company had incurred costs of approximately $40,000
related to its Year 2000 program. All of the $40,000 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.
The Company began, but did not complete, 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 been
clearly
Page 14
15
identified. Management believes that the disruption, if any, that is reasonably
likely to result from Year 2000 problems would not be significant enough to
justify the management time and expense of further contingency planning.
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, the dates on which the Company believes it
will complete such efforts and the likelihood of business disruptions based on
Year 2000 problems 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 and, 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 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
Page 15
16
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 Disclosures about Market Risk
The Company's General Line of Credit agreement provides for borrowings that
bear interest at variable rates based on either a prime rate or the LIBOR. At
September 30, 1999, the Company had $4.5 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.
Page 17
18
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
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 September 30, 1999.
Page 18
19
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: 11/15/99 /s/ ROBERT M. POWELL
-------------- ------------------------------------------
ROBERT M. POWELL
President and Chief Executive Officer
Date: 11/15/99 /s/ JERRY D. ORLER
-------------- ------------------------------------------
JERRY D. ORLER
Vice President-Finance and
Chief Financial Officer
Page 19
20
FORM 10-Q
INDEX TO EXHIBITS
USA TRUCK, INC.
Exhibit
Number Exhibit
------- -------
11.1 Statement Re: Computation of Earnings Per Share
27 Financial Data Schedule