-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Fe39Uqzl7Rdeb4RAs/OXxKacHHV06WusdsODTXlrFsSD/mxWEf9dcS5/AEt3oGAg j4VuqjC9noxtyTQ5QS21Mw== 0000950134-99-001944.txt : 19990326 0000950134-99-001944.hdr.sgml : 19990326 ACCESSION NUMBER: 0000950134-99-001944 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990325 FILER: COMPANY DATA: COMPANY CONFORMED NAME: USA TRUCK INC CENTRAL INDEX KEY: 0000883945 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 710556971 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-19858 FILM NUMBER: 99572272 BUSINESS ADDRESS: STREET 1: P O BOX 449 STREET 2: 3108 INDUSTRIAL PK RD CITY: VAN BUREN STATE: AK ZIP: 72956 BUSINESS PHONE: 5014712500 MAIL ADDRESS: STREET 1: 3108 INDUSTRIAL PARK ROAD CITY: VAN BUREN STATE: AK ZIP: 72956 10-K405 1 FORM 10-K FOR FISCAL YEAR END DECEMBER 31, 1998 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 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 72956 VAN BUREN, ARKANSAS (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (501) 471-2500 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Title of Class -------------- COMMON STOCK, PAR VALUE $.01 PER SHARE 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by nonaffiliates of the Registrant on February 26, 1999 was $50,120,763. (The characterization of officers and directors of the Registrant as affiliates for purposes of this computation should not be construed as an admission for any other purpose that any such person is in fact an affiliate of the Registrant). Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date. Class Outstanding at February 26, 1999 ----- -------------------------------- Common Stock, par value $.01 per share 9,440,097 shares DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K into Which the Document Document is Incorporated -------- ------------------------ Portions of the Proxy Statement to be sent to stockholders Part III in connection with 1999 Annual Meeting
2 USA TRUCK, INC. TABLE OF CONTENTS
ITEM NO. CAPTION PAGE - -------- ------- ---- PART I 1. Business................................................................................. 1 2. Properties............................................................................... 6 3. Legal Proceedings........................................................................ 6 4. Submission of Matters to a Vote of Security Holders...................................... 6 PART II 5. Market for Registrant's Common Equity and Related Stockholder Matters.................... 7 6. Selected Financial Data.................................................................. 8 7. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................................... 9 7A. Quantitative and Qualitative Disclosure about Market Risk................................ 16 8. Financial Statements and Supplementary Data.............................................. 17 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........................................................................... 31 PART III 10. Directors and Executive Officers of the Registrant....................................... 31 11. Executive Compensation................................................................... 31 12. Security Ownership of Certain Beneficial Owners and Management........................... 31 13. Certain Relationships and Related Transactions........................................... 31 PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................... 32 Signatures............................................................................... 37
3 PART I ITEM 1. BUSINESS GENERAL USA Truck, Inc. (the "Company" or "USA Truck") is engaged in the transportation of general commodity freight in interstate and foreign commerce. Operations are conducted primarily east of the Rocky Mountains, but the Company holds authority to transport and does transport freight between all points in the continental United States, other than intrastate, and between all points in the U.S., on the one hand, and the Canadian provinces of Ontario and Quebec, on the other. The Company also provides the U.S. and Canadian portions of shipments between points in the U.S. and Canadian provinces of Ontario and Quebec, on the one hand, and points in Mexico, on the other. The Company transfers freight to, or receives freight from Mexican carriers at the U.S.-Mexico border in Laredo, Texas. Revenue from foreign countries represents less than 5% of total revenues of the Company for each of the past three years. The principal types of freight transported include automotive parts and materials, tires, paper and paper products, glass, retail store merchandise, chemicals, aluminum and manufacturing materials and supplies. USA Truck does not transport Class A or Class B explosives, garbage, radioactive materials or hazardous wastes. The Company does not operate any flatbed, tanker, or other specialized trailers. USA Truck transports freight in truckload quantities from individual shippers to single or multiple destinations on an as-needed basis. Its business consists primarily of medium haul shipments, more than 700 but less than 1,000 miles. For 1996, 1997, and 1998, the average length of haul for Company tractors was 878 miles, 920 miles, and 916 miles, respectively. The Company was incorporated in 1983 as a wholly owned subsidiary of Arkansas Best Corporation. In December 1988, the stock of the Company was sold to management, and the Company completed its initial public offering of Common Stock in late March 1992. The Company's principal offices are located at 3108 Industrial Park Road, Van Buren, Arkansas 72956, and its telephone number is (501) 471-2500. BUSINESS STRATEGY USA Truck's principal competitive strength is its ability and commitment to consistently provide superior service to shippers. Although price is a primary concern to all shippers, many of the Company's customers are high-volume shippers that require a flexible and dependable source of motor carrier service tailored to specific needs, including pickup or delivery within narrow time windows. The Company's strategy is to provide a premium service to meet these needs and to charge compensating rates for such service. This approach has found increasing acceptance. See "Business -- Competition". The Company is committed to prompt freight pickup, consistent on-time delivery, and twenty-four hours a day, seven days a week dispatching. It has taken a number of steps to meet these commitments. In particular, it (i) adheres to strict maintenance and cleaning schedules to avoid breakdowns and delays; (ii) provides detailed routing instructions for, and maintains satellite communications with, drivers to expedite delivery; (iii) maintains trailer pools at strategic locations to minimize the time between customer order and pickup; and (iv) provides extra trailers to high volume shippers for loading and unloading at their convenience. USA Truck utilizes cost-efficient communications throughout its operations. The Company provides EDI (electronic data interchange) arrangements with several of its largest customers, providing them with access through their computer systems to current information on the status of their shipments. Beginning in the third quarter of 1997, the Company began installing two-way, satellite based mobile messaging and position-locating equipment in all of its tractors. This equipment is designed to fulfill customers' heightened need for real time transit information as well as provide the Company with an enhanced and cost-effective method of communications between its drivers and its operations personnel. The system permits fleet managers to contact drivers virtually anywhere in the 1 4 Company's market area. These capabilities are intended to shorten response time to customers, as well as to allow drivers uninterrupted rest time while awaiting assignment. The installation of the equipment was completed in the fourth quarter of 1997. The Company has designed its own management information software systems, which it operates on a mainframe computer that the Company acquired during 1997. This system became operational during the second quarter of 1997, when the Company's software was migrated to the new computer. Prior to that, the Company was on-line with a mainframe computer through a contractual agreement with a third party. These data processing capabilities enhance operating efficiency by providing immediate access to detailed information concerning equipment, cargo, customer's location, credit history, billing arrangements and specific customer requirements. They also permit the Company to respond quickly and accurately to customers' requests and assist in balancing equipment availability throughout the market area. Management believes these information software systems and computer hardware will be sufficient to support the Company's expansion plans at least through 2000 without substantial additional expenditures in the data processing area. MARKETING AND SALES The Company focuses its marketing efforts on customers with demanding requirements and heavy shipping needs within the regions where the Company operates. This permits the Company to concentrate available equipment in its primary service area, enabling it to be more responsive to customer needs. USA Truck's Marketing and Operations Departments have primary responsibility for developing and implementing the Company's marketing strategy and retaining customer accounts. The Marketing Department solicits and responds to customer orders and maintains close customer contact regarding service requirements and rates. A high percentage of the Company's business is from repeat customers. For the year ended December 31, 1998, at least 94% of USA Truck's operating revenues was derived from customers that were customers of the Company prior to 1998. USA Truck establishes rates through individual negotiations with customers and through contracts tailored to the specific needs of shippers. For the year ended December 31, 1998, the Company's ten largest customers accounted for 42.0% of revenues and its three largest customers accounted for 22.5% of revenues, with more than 1,000 other customers accounting for the balance. One customer, Wal-Mart Stores, Inc., accounted for 10.2% of revenues for the year. No other customer accounted for more than 10% of revenues. Customers are generally required to have credit approval before dispatch. The Company bills customers at or shortly after pickup, and for the last three years receivables collection has averaged approximately 31 days from the billing date. OPERATIONS The Operations Department consists of two primary divisions: the Load Coordinator Group and the Fleet Manager Group. Load coordinators are responsible for efficiently matching available equipment with customer needs, and they serve as the contact with customers' receiving and shipping personnel. Load coordinators also have primary responsibility for minimizing empty miles, and they work closely with the Marketing Department to increase equipment utilization. The average distance between loads as a percentage of total miles (empty mile factor) is a standard measurement in the truckload industry. The empty mile factor generally decreases as average length of haul and density of trucks in an area increase. The Company's commitment to on-time pickup often requires a tractor to travel farther to complete a pickup than it would have to travel if the Company delayed the pickup until a tractor became available in the area. USA Truck's empty mile factor was 9.78% for the year ended December 31, 1998. Fleet managers supervise fleets of approximately 60 drivers each and serve as the drivers' primary contact with the Company. Fleet managers monitor the location of equipment and direct its movement in the most efficient and safe manner practicable. 2 5 DRIVERS AND OTHER PERSONNEL Driver recruitment and retention continue to be difficult. Recruitment is difficult because Company standards are high and because of declining enrollment in driving schools. Retention is difficult because of wage and job fulfillment considerations. Driver turnover, especially in the early months of employment, is a significant problem, and the competition for qualified drivers is intense. Although USA Truck has experienced difficulty with driver turnover, it has been able to attract and retain qualified drivers sufficient to support its operations. To attract and retain drivers, the Company must continue to provide safe, attractive and comfortable equipment, direct access to management, and competitive wages, benefits and financial incentives designed to encourage longer-term employment. Drivers' pay is calculated on the basis of miles driven and increases with tenure. In 1998, drivers averaged 488 miles per workday. On October 18, 1998, the Company implemented a pay increase for drivers that resulted in an average increase in total base compensation of approximately 6% per driver. Drivers are also paid bonuses based on productivity. For 1998, the Company's drivers earned bonuses totaling approximately $1,178,000. During 1998, the Company's drivers earned wages and bonuses averaging $.30 per mile. Because of the recent pay increase, the Company expects that average pay per mile will increase in 1999. At December 31, 1998, USA Truck employed 1,404 persons, of which 1,057 were drivers, none of whom was represented by a collective bargaining unit. In the opinion of management, the Company's relationship with its employees is satisfactory. SAFETY USA Truck's safety program is designed to create an accident-free working environment and to enforce governmental safety regulations. The Company controls the maximum speed of its tractors with electronic governing equipment, and all its tractors are equipped with anti-lock braking systems. The Company has received a number of awards based on its safety record, including the 1996 Fleet Safety Award for large carriers, awarded by the Truckload Carriers Association. Safety records are one of several hiring criteria used by USA Truck, and safe equipment handling techniques are an important part of new driver training. The Company also conducts pre-employment, random and post-accident drug testing in accordance with Department of Transportation ("DOT") regulations. REVENUE EQUIPMENT AND MAINTENANCE The Company's current policy is to replace most tractors within 42 months from the date of purchase, which permits the Company to maintain substantial warranty coverage throughout the period of ownership. USA Truck replaces its tractors and trailers based on various factors, including the used equipment market, prevailing interest rates, technological improvements, fuel efficiency and durability. The following table shows the number of units and age of revenue equipment operated by the Company at December 31, 1998:
TRACTORS TRAILERS ------------------------ -------------------------- AVERAGE AVERAGE MODEL MONTHS MONTHS YEAR NUMBER IN SERVICE NUMBER IN SERVICE - ---- ------ ---------- ------ ---------- 1999 177 4 -- -- 1998 471 14 599 14 1997 284 24 284 25 1996 123 37 234 36 1995 77 42 262 47 1994 -- -- 303 59 1993 -- -- 229 72 1992 -- -- 93 79 ----- --- ----- --- Total 1,132 19 2,004 39 ===== === ===== ===
3 6 At December 31, 1998, USA Truck operated 1,132 conventional sleeper tractors and 2,004 van trailers. To simplify driver and mechanic training, control the cost of spare parts and tire inventory and provide for a more efficient vehicle maintenance program, the Company buys tractors and trailers manufactured to its specifications. In deciding which equipment to buy, it considers a number of factors, including safety, economy, resale value and driver comfort. All of the Company's tractors are equipped with Detroit Diesel Series 60 12.7-liter engines, air-ride suspension, and anti-lock brakes. The Company's equipment is maintained through a strict preventive maintenance program designed to minimize equipment downtime and to enhance trade-in value. Beginning with the November 1995 trailer purchases, the Company began converting its trailer fleet from 48-foot long and 102 inches wide trailers to 53-foot long and 102 inches wide trailers. Because of this conversion process, the Company's trailer to tractor ratio was 1.8-to-1 at December 31, 1998 and will probably increase until the conversion process is substantially completed. Management believes that a 1.8-to-1 ratio is ideal for the Company's operations, in that it promotes efficiency and provides the flexibility needed to serve customer needs. As of December 31, 1998, 1,018 of the 2,004 trailers in the Company's trailer fleet were 53-foot models. All future purchases of trailers will be 53-foot models. The Company is undertaking this conversion in order to meet its customers' requirements and to continue to provide an efficient balance between trailer capacity and weight and length limitations in the various states and Canada. During 1998, the Company financed revenue equipment through its collateralized, $20 million revolving credit agreement (the "General Line of Credit" or "Line of Credit"), through conventional financing and lease-purchase arrangements. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources". All of its revenue equipment is pledged to secure its obligations under such financing arrangements. REVENUE EQUIPMENT ACQUISITION PROGRAM During 1999 and 2000, the Company plans to acquire 353 and 563 new tractors and 500 and 401 new trailers, respectively. This will result in net increases of 151 and 189 tractors and 303 and 148 trailers, respectively. As of February 26, 1999, contracts had been executed for the acquisition of all 353 tractors and 500 trailers to be acquired in 1999. Although these contracts fix the price at which the Company may acquire this equipment, the Company has the right in its discretion to decrease or increase the number of tractors or trailers to be purchased during the year at agreed prices. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." During 1998, the Company acquired 342 new tractors (a net increase of 125) and 210 new trailers (a net increase of 76). The Company purchased more new tractors and trailers in 1998 than anticipated, in response to current economic conditions and strong demand in the truckload industry. INSURANCE The primary risk areas in the motor carrier industry are cargo loss and damage, personal injury, property damage and workers' compensation claims. Management believes that its insurance coverages are sufficient in each of these areas. It is qualified as a workers' compensation self-insurer in the States of Arkansas and Louisiana. The workers' compensation self-insurance is secured by $300,000 in certificates of deposit. In June 1993, the Company received authority to self-insure for cargo loss and damage claims and up to $1.0 million per occurrence for bodily injury and property damage ("BIPD") claims. These self-insurance arrangements are secured by $1.01 million in letters of credit with the Federal Highway Administration. During 1998, the self-insurance retention levels were $1.0 million for BIPD and $500,000 for workers' compensation claims per occurrence. The Company has insurance coverage for cargo loss and damage claims exceeding $100,000 per occurrence and coverage for physical damage to its tractors and trailers with a self-insurance level of $10,000 per occurrence. The Company has excess general liability coverage in amounts substantially exceeding minimum legal requirements and believed to be sufficient to protect the Company against material loss. 4 7 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 declined during 1998, but there can be no assurance that diesel prices will continue to decrease or remain below the higher prices experienced in recent 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. COMPETITION The trucking industry is highly competitive. It is characterized by ease of entry and by many small carriers having revenues of less than $1 million per year, with relatively few carriers being able to achieve revenues exceeding $100 million per year. The principal means of competition in the truckload segment of the industry are service and price, with rate discounting being particularly intense during economic downturns. Although the Company competes primarily on the basis of service rather than rates, rate discounting continues to be a factor in obtaining and retaining business. Although the number of firms competing in the truckload segment has increased dramatically since industry deregulation in 1980, the industry appears to be undergoing a consolidation phase. Furthermore, a depressed economy tends to increase both price and service competition from alternative modes such as less-than-truckload carriers and railroads. Management believes that further growth in the truckload segment of the industry is likely to be achieved through a shift in market shares among competitors rather than through an increase in the size of the market. USA Truck competes primarily with other truckload carriers and shipper-owned fleets and, to a lesser extent, with railroads and less-than-truckload carriers. A number of truckload carriers have much greater financial resources, own more revenue equipment and carry a larger volume of freight than does the Company. The Company also competes with truckload and less-than-truckload carriers for qualified drivers. See "Business -- Drivers and Other Personnel". TRADEMARK The Company's name and logo are registered with the United States Patent and Trademark Office, the Canadian Trade Marks Office, and the Mexican Industrial Property Institute. The Company believes its trademark has significant value and is important to its marketing efforts. The trademark registration in each country is renewable indefinitely at the option of the Company. REGULATION USA Truck is a motor carrier regulated by the DOT and other federal and state agencies. The Company's business activities in the United States are subject to broad federal, state and local laws and regulations beyond those applicable to most business activities. These regulated business activities include, among other things, service area, routes traveled, equipment specifications, commodities transported, rates and charges, accounting systems, financial reporting and insurance coverages. The Company's Canadian business activities are subject to similar requirements imposed by the laws and regulations of the Dominion of Canada and provincial laws and regulations. Motor carrier operations are subject to safety requirements prescribed by the DOT, governing interstate operation, and by Canadian provincial authorities. Matters such as weight and equipment dimensions are also subject to federal, state, and provincial regulations. The Company is subject to federal, state, provincial, and local environmental laws and regulations. Management believes that the Company is in substantial compliance with such laws and regulations and that costs of such compliance will not have a material adverse effect on its competitive position, operations or financial condition or require a material increase in currently anticipated capital expenditures. 5 8 ITEM 2. PROPERTIES The Company owns its headquarters in Van Buren, Arkansas, located on 63 acres. This site has approximately 84,000-square feet of office, training, and driver housing space within two structures, a 12,000-square foot maintenance facility, and a 2,500-square foot dock. In the second quarter of 1997, the Company completed construction of a new 57,000-square foot corporate headquarters next to its existing headquarters facility in Van Buren, Arkansas. The previously existing 27,000-square foot facility will be refurbished over the next several years to house additional training, maintenance and support services. This facility also contains aboveground fuel tanks with a capacity of 40,000 gallons. The Company operates a maintenance and driver facility in West Memphis, Arkansas, situated on roughly 16 acres with 13 acres of paved tractor and trailer parking behind fence, a 17,200-square foot shop, an eight-lane drive through fueling station containing above ground fuel tanks with a capacity of 37,000 gallons and drivers' sleeping quarters that can house 36 drivers. During 1998, the Company expanded the shop by 7,200 square feet and added four additional lanes to its drive through fueling station. The drivers' quarters also include a recruiting office and driver training center for new drivers. The Company owns 13 of the 16 acres and leases the remainder under a long-term lease agreement with an initial term ending in November 2044. Located at the intersection of I-40 and I-55, this facility is an ideal location for these activities. In August 1995, the Company completed construction of and began operating its maintenance and driver facility in Shreveport, Louisiana, with 15 acres of paved tractor and trailer parking behind fence, a 12,000-square foot shop, a two-lane drive through fueling station containing above ground fuel tanks with a capacity of 37,000 gallons and a drivers' sleeping quarters that can house 32 drivers. The drivers' quarters also include a recruiting office and driver training center for new drivers. The facility is located on 20 acres of land owned by the Company near I-20 on US Hwy. 80 and is strategically located near several major customers in the area. In June 1996, the Company began operating its maintenance and driver facility in Vandalia, Ohio, with approximately five acres of paved tractor and trailer parking behind fence, a 2,400-square foot shop, a one-lane drive through fueling station containing a below ground fuel tank with a capacity of 10,000 gallons and a drivers' sleeping quarters that can house 22 drivers. The drivers' quarters also include a sales office. The Company owned facility is located near I-75 & I-70 and is strategically located for these activities. The Company leases, on a month-to-month basis, parking and office facilities in East Peoria and Blue Island, Illinois. Management believes that its facilities will be sufficient for its operations at least through 1999. See "Item 1. Business -- Revenue Equipment and Maintenance" and "Item 1. Business -- Revenue Equipment Acquisition Program" for information regarding the Company's revenue equipment. ITEM 3. LEGAL PROCEEDINGS 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 resulting from personal injury and property damage claims. Management believes that adverse results in one or more of these cases would not have a material adverse effect on the financial position of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company did not submit any matter to a vote of security holders during the fourth quarter of the fiscal year covered by this Annual Report. 6 9 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock trades on The Nasdaq Stock Market under the symbol: USAK. The following table sets forth the high and low closing sales prices for the Company's Common Stock as reported by The Nasdaq Stock Market for 1998 and 1997.
1998 HIGH LOW - ---- ---- --- First Quarter.............................................. $ 16.13 $ 10.88 Second Quarter............................................. $ 16.94 $ 14.25 Third Quarter.............................................. $ 17.00 $ 10.25 Fourth Quarter............................................. $ 12.38 $ 9.50
1997 HIGH LOW - ---- ---- --- First Quarter ............................................. $ 9.00 $ 7.75 Second Quarter............................................. $ 11.63 $ 9.00 Third Quarter.............................................. $ 12.50 $ 10.75 Fourth Quarter............................................. $ 13.88 $ 11.38
As of February 26, 1999, there were 287 holders of record (including brokerage firms and other nominees) of the Company's Common Stock. The Company estimates that there were approximately 2,150 beneficial owners of the Common Stock as of that date. The Company has never paid a cash dividend on its Common Stock. It is the current intention of the Company's Board of Directors to continue to retain earnings to finance the growth of the Company rather than to pay cash dividends. Any future payments of cash dividends will depend upon the financial condition, results of operations and capital commitments of the Company as well as other factors deemed relevant by the Board of Directors. Covenants contained in the Company's General Line of Credit may limit the Company's ability to pay dividends. 7 10 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth, for the periods and at the dates indicated, selected financial data of the Company. The data should be read in conjunction with the financial statements and related notes contained in Item 8 of this Annual Report and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations".
YEAR ENDED DECEMBER 31 ------------------------------------------------------------- 1998 1997 1996 1995 1994 ------------------------------------------------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STATEMENT OF OPERATIONS DATA: Operating revenues .......................... $ 145,216 $ 129,507 $ 108,313 $ 102,400 $ 92,511 Operating expenses and costs: Salaries, wages and employee benefits .... 61,297 53,122 45,122 42,860 38,094 Operations and maintenance ............... 33,401 34,189 31,064 26,909 23,144 Operating taxes and licenses ............. 2,547 2,160 1,964 1,822 1,575 Insurance and claims ..................... 7,250 6,773 6,422 5,146 3,632 Communications and utilities ............. 1,469 1,828 1,612 1,285 980 Depreciation and amortization ............ 16,179 13,608 11,839 11,145 9,125 Other .................................... 4,113 3,659 4,038 2,794 2,075 --------- --------- --------- --------- --------- 126,256 115,339 102,061 91,961 78,625 --------- --------- --------- --------- --------- Operating income ............................ 18,960 14,168 6,252 10,439 13,886 Other (income) expenses: Interest expense ......................... 1,715 1,380 730 799 781 Gain on disposal of assets ............... (37) (2) (9) (1) (118) Other, net ............................... 102 (191) (4) (152) 138 --------- --------- --------- --------- --------- 1,780 1,187 717 646 801 --------- --------- --------- --------- --------- Income before income taxes .................. 17,180 12,981 5,535 9,793 13,085 Income taxes ................................ 6,683 5,078 2,153 3,756 5,018 --------- --------- --------- --------- --------- Net Income .................................. $ 10,497 $ 7,903 $ 3,382 $ 6,037 $ 8,067 ========= ========= ========= ========= ========= Basic: Net income per share ..................... $ 1.12 $ 0.84 $ 0.36 $ 0.62 $ 0.84 ========= ========= ========= ========= ========= Average shares outstanding ............... 9,400 9,356 9,463 9,684 9,651 ========= ========= ========= ========= ========= Diluted: Net income per share ..................... $ 1.11 $ 0.83 $ 0.35 $ 0.60 $ 0.81 ========= ========= ========= ========= ========= Average shares outstanding ............... 9,466 9,485 9,620 10,028 9,904 ========= ========= ========= ========= ========= Cash dividends per share .................... -- -- -- -- -- BALANCE SHEET DATA (AT END OF YEAR): Current assets .............................. $ 20,459 $ 20,292 $ 16,825 $ 16,008 $ 12,516 Current liabilities ......................... 21,151 20,762 15,193 13,295 10,764 Total assets ................................ 119,611 113,518 86,330 78,980 66,435 Long-term debt, less current maturities ..... 19,058 27,057 15,867 13,361 9,427 Stockholders' equity ........................ 62,734 52,373 44,424 43,157 38,645
8 11 ITEM 7. 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 years indicated:
YEAR ENDED DECEMBER 31, --------------------------------- 1998 1997 1996 --------------------------------- Operating revenues ...................... 100.0% 100.0% 100.0% Operating expenses and costs: Salaries, wages and employee benefits 42.2 41.0 41.7 Operations and maintenance .......... 23.0 26.4 28.7 Operating taxes and licenses ........ 1.8 1.7 1.8 Insurance and claims ................ 5.0 5.2 5.9 Communications and utilities ........ 1.0 1.4 1.5 Depreciation and amortization ....... 11.1 10.5 10.9 Other ............................... 2.8 2.9 3.7 ----- ----- ----- 86.9 89.1 94.2 ----- ----- ----- Operating income ........................ 13.1 10.9 5.8 Other (income) expenses: Interest expense .................... 1.2 1.1 0.7 Gain on disposal of assets .......... -- -- -- Other, net .......................... 0.1 (0.2) -- ----- ----- ----- 1.3 0.9 0.7 ----- ----- ----- Income before income taxes .............. 11.8 10.0 5.1 Income taxes ............................ 4.6 3.9 2.0 ----- ----- ----- Net income .............................. 7.2% 6.1% 3.1% ===== ===== =====
RESULTS OF OPERATIONS Year Ended December 31, 1998 Compared to Year Ended December 31, 1997 Operating revenues increased 12.1% to $145.2 million in 1998 from $129.5 million in 1997, resulting from increased business with existing customers and additional business from new customers. Average revenue per mile increased to $1.12 in 1998 from $1.11 in 1997. The empty mile factor decreased to 9.78% in 1998 from 10.05% of paid miles in 1997. There was a 12.4% increase in the number of shipments to 128,179 in 1998 from 114,022 in 1997. This volume improvement was made possible by an increase of 13.2% in the average number of tractors operated from 935 in 1997 to 1,058 in 1998. The net effect of the volume improvement and the Company's continuing fleet expansion was a decrease of 1.4% in miles per tractor per week from 2,475 in 1997 to 2,441 in 1998. Operating expenses and costs as a percentage of revenues improved to 86.9% in 1998 from 89.1% in 1997. This change resulted primarily from a decrease, on a percentage of revenue basis, in operations and maintenance costs, in insurance and claims expense and in communications and utilities expense. These decreases were partially offset by increases, on a percentage of revenue basis, in salaries, wages, and employee benefits and in depreciation and amortization expense. The percentage decrease, relative to revenues, in operations and maintenance costs was primarily the result of a decrease of 16 cents per gallon in the average cost of fuel in 1998 compared to 1997, and by an increase in fuel efficiency to 6.41 average miles per gallon in 1998 from 6.29 in 1997. The percentage decrease, relative to revenues, in insurance and claims expense was due to a decrease in the number and severity of accidents in 1998 as compared to 1997. The decrease in communications and utilities expense, as a percentage of revenue and in actual dollars, reflects the installation in December 1997 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. The increase in salaries, wages, and employee benefits was due to an increase in aggregate driver pay, an increase in driver total base compensation of approximately 6% per driver in October 1998, 9 12 along with an increase in incentives earned by employees due to improved operating and financial performance of the Company in 1998 compared to 1997. 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. As a result of the foregoing factors, operating income increased 33.8% to $19.0 million, or 13.1% of revenues, in 1998 from $14.2 million, or 10.9% of revenues, in 1997. Interest expense increased 24.3% to $1.7 million in 1998 from $1.4 million in 1997, resulting primarily from an increase in borrowings to facilitate equipment purchases, partially offset by a decrease in interest rates, in the aggregate, on both short-term and long-term debt. The Company had other income, net, of $191,000 in 1997, compared to other expense, net, of $102,000 in 1998. This increase in other expense, net was due to a variety of factors, no single one of which accounted for more than half of the increase. As a result of the above, income before income taxes increased 32.3% to $17.2 million, or 11.8% of revenues, in 1998 from $13.0 million, or 10.0% of revenues, in 1997. The Company's effective tax rate decreased to 38.9% in 1998 from 39.1% in 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 32.8% to $10.5 million, or 7.2% of revenues, in 1998 from $7.9 million, or 6.1% of revenues, in 1997, an increase of 33.8% in diluted net income per share to $1.11 from $.83. The number of shares used in the calculation of diluted net income per share for 1998 and 1997 were 9,465,971 and 9,484,570, respectively. Year Ended December 31, 1997 Compared to Year Ended December 31, 1996 Operating revenues increased 19.6% to $129.5 million in 1997 from $108.3 million in 1996, resulting from increased business with existing customers and additional business from new customers. Average revenue per mile remained unchanged at $1.11 in both 1997 and 1996. The empty mile factor decreased to 10.05% in 1997 from 10.16% of paid miles in 1996. There was a 14.0% increase in the number of shipments to 114,022 in 1997 from 99,979 in 1996. This volume improvement was made possible by an increase of 16.6% in the average number of tractors operated from 802 in 1996 to 935 in 1997. The net effect of the volume improvement and the Company's continuing fleet expansion was an increase of 2.8% in miles per tractor per week to 2,475 in 1997 from 2,407 in 1996. Operating expenses and costs as a percentage of revenues improved to 89.1% in 1997 from 94.2% in 1996. This change resulted primarily from a decrease, on a percentage of revenue basis, in salaries, wages and employee benefits expenses, in operations and maintenance costs, in insurance and claims expenses, in depreciation and amortization expense and in other expenses. Salaries, wages and employee benefits decreased, relative to revenues, primarily from favorable experience in employee health benefits. The percentage decrease, relative to revenues, in operations and maintenance was primarily the result of a decrease of 2.2 cents per gallon in the average cost of fuel in 1997 compared to 1996, and of an increase in fuel efficiency to 6.29 average miles per gallon in 1997 from 6.12 in 1996. The percentage decrease, relative to revenues, in insurance and claims expenses was due to a decrease in the number and severity of accidents in 1997 as compared to 1996. The overall net cost of those accidents incurred was reduced by insurance coverage for physical damage to tractors and trailers with a self-insurance level of $10,000 per occurrence, effective January 1, 1997. The decrease in depreciation and amortization expense, as a percentage of revenue, reflects the 2.8% increase in utilization as mentioned above. Other expenses decreased, in both dollars and relative to revenues, due to a variety of factors, no single one of which accounted for more than half of the decrease. As a result of the foregoing factors, operating income increased 126.6% to $14.2 million, or 10.9% of revenues, in 1997 from $6.3 million, or 5.8% of revenues, in 1996. 10 13 Interest expense increased 89.0% to $1.4 million in 1997 from $730,000 in 1996, resulting primarily from an increase in borrowings to facilitate equipment purchases, partially offset by a decrease in interest rates, in the aggregate, on both short-term and long-term debt. Other income, net, increased, both in dollar amount and on a percentage of revenue basis, from $4,000 in 1996 to $191,000 in 1997. This was due to a variety of factors, no single one of which accounted for more than half of the increase. As a result of the above, income before income taxes increased 134.5% to $13.0 million, or 10.0% of revenues, in 1997 from $5.5 million, or 5.1% of revenues, in 1996. The Company's effective tax rate increased to 39.1% in 1997 from 38.9% in 1996. 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 133.7% to $7.9 million, or 6.1% of revenues, in 1997 from $3.4 million, or 3.1% of revenues, in 1996, an increase of 137.1% in diluted net income per share to $.83 from $.35. The number of shares used in the calculation of diluted net income per share for 1997 and 1996 were 9,484,570 and 9,619,919, respectively. INFLATION The effect of inflation on operating costs has been minimal in recent years. Most of the Company's operating expenses are inflation sensitive, with increases in inflation generally resulting in increased operating costs and expenses. The effect of inflation-driven cost increases on the Company's overall operating costs would not be expected to be greater for the Company than for its competitors. SEASONALITY In the trucking industry generally, revenues decrease as customers reduce shipments during the winter holiday season and as inclement weather impedes operations. At the same time, operating expenses increase, due primarily to decreased fuel efficiency and increased maintenance costs. 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 declined during 1998, but there can be no assurance that diesel prices will continue to decrease or remain below the higher prices experienced in recent 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. 11 14 OPERATIONAL DATA The following table sets forth certain operational information for the last three fiscal years:
YEAR ENDED DECEMBER 31, ------------------------------------------- 1998 1997 1996 ---- ---- ---- Total loads moved during the year ..................... 128,179 114,022 99,979 Average number of tractors operated during the year ... 1,058 935 802 Number of tractors operated at year end ............... 1,132 1,007 862 Number of trailers operated at year end ............... 2,004 1,928 1,510 Total tractor miles during the year ................... 148,590,937 133,941,037 113,406,333
LIQUIDITY AND CAPITAL RESOURCES The continued growth of the Company's business has required significant investments in new revenue equipment. USA Truck has financed revenue equipment purchases with cash flows from operations and through borrowings, including borrowings under the General Line of Credit, and capitalized lease obligations. 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. Cash flows from operations were $28.5 million for 1998 and $28.3 million for 1997. 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 based upon its evaluation of the Company's borrowing requirements. As of December 31, 1998, approximately $16.1 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 year ending December 31, 1998 was 6.81%. 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. See Note 4 to the Financial Statements. 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 December 31, 1998, $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 December 31, 1998, capital leases in the aggregate principal amount of $8.6 million were outstanding under the Equipment TRAC Lease Commitment with an average interest rate of 4.04% per annum. As of December 31, 1998, capital leases in the aggregate principal amount of $12.8 million were outstanding under a prior lease commitment with an average interest rate of 5.25% per annum. 12 15 The Company's long-term debt, excluding current portion, decreased by 29.6% to $19.1 million at December 31, 1998 from $27.1 million at December 31, 1997. This decrease was from the retirement of $14.8 million in debt, partially offset by increased borrowings under the Equipment TRAC Lease Commitment for revenue equipment purchases. The retired debt had an average interest rate of approximately 6.60% and was retired with cash flow from operations. During the years 1999 and 2000, the Company plans to make approximately $82.7 million in capital expenditures. At December 31, 1998, USA Truck was committed to spend $31.9 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 December 31, 1998, 7,961 of the remaining 9,750 repurchased shares had been resold under the Company's Employee Stock Purchase Plan. In addition, on July 9, 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 new authorization became effective in September 1998 upon the expiration of the Company's existing stock repurchase program. As of December 31, 1998, 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 13 16 testing efforts. Based upon its identification and assessment efforts to date, the Company believes that certain computer equipment and software it currently uses will require replacement or modification. 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 February 15, 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.
- ------------------------------------------------------------------------------------------------------------- PERCENT YEAR 2000 INITIATIVE TIME FRAME COMPLETE - -------------------------------------------------------------------------- ------------------ --------------- Initial IT system assessment 11/97 - 09/98 100% ------------------ --------------- Remediation of central system issues 01/98 - 06/99 100% ------------------ --------------- Remediation of departmental system issues 01/98 - 06/99 100% ------------------ --------------- Upgrades to telephone/PBX and other systems 01/98 - 06/99 100% ------------------ --------------- Electronic data interchange trading partner conversions 01/98 - 06/99 100% ------------------ --------------- Desktop and individual systems assessment and remediation 01/98 - 06/99 100% ------------------ --------------- 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 February 15, 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 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 December 31, 1998, the Company had incurred costs of approximately $21,000 related to its Year 2000 program. All of the $21,000 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 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. 14 17 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 No. 128, Earnings per Share (SFAS 128). The standard replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts for all periods in this Annual Report have been presented, and where appropriate, restated to conform to the SFAS 128 requirements. In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS 130). The provisions of SFAS 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's comprehensive income items are not material; accordingly, the adoption of this statement in 1998 had no impact on the Company's financial statements. In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information (SFAS 131). The Company's operations are comprised entirely of one segment. This statement was adopted in 1998 and had no impact on the disclosures in the Company's financial statements. In 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. This statement provides guidance on the capitalization of certain costs incurred in developing or acquiring internal-use computer software. This statement was adopted in 1998 and did not have a significant impact on the Company's financial statements. 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 or driver turnover and the impact of increased rate competition or competition for qualified drivers. 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. Results for any specific period could also be affected by various unforeseen events, such as unusual levels of equipment failure or accident claims. 15 18 ITEM 7A. 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 December 31, 1998, the Company had $2.9 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 Company 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. 16 19 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA USA TRUCK, INC. ANNUAL REPORT ON FORM 10-K YEAR ENDED DECEMBER 31, 1998 INDEX TO FINANCIAL STATEMENTS
Page ---- Report of Independent Auditors ......................................................................... 18 Balance Sheets as of December 31, 1998 and 1997......................................................... 19 Statements of Income for the years ended December 31, 1998, 1997 and 1996............................... 20 Statements of Stockholders' Equity for the years ended December 31, 1998, 1997 and 1996................. 21 Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996........................... 22 Notes to Financial Statements........................................................................... 23
17 20 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Stockholders USA Truck, Inc. We have audited the accompanying balance sheets of USA Truck, Inc. as of December 31, 1998 and 1997, and the related statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1998. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of USA Truck, Inc. at December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. ERNST & YOUNG LLP Little Rock, Arkansas January 20, 1999 18 21 USA TRUCK, INC. BALANCE SHEETS
December 31, -------------------------------- 1998 1997 -------------------------------- ASSETS Current assets: Cash and cash equivalents .............................. $ 1,779,643 $ 3,667,311 Receivables (Note 4): Trade, less allowance for doubtful accounts of $140,670 in 1998 and $170,250 in 1997 .............. 13,928,848 12,613,314 Other ................................................ 299,914 282,407 Inventories ............................................ 236,338 291,691 Deferred income taxes (Note 6) ......................... 1,573,365 1,956,115 Prepaid expenses and other current assets (Note 2) ..... 2,640,561 1,481,317 ------------- ------------- Total current assets ...................................... 20,458,669 20,292,155 Property and equipment (Notes 4 and 5): Land and structures .................................... 14,637,631 14,052,722 Revenue equipment ......................................... 107,323,786 96,571,178 Service, office and other equipment .................... 10,947,496 9,872,201 ------------- ------------- 132,908,913 120,496,101 Accumulated depreciation and amortization .............. (36,769,320) (30,314,193) ------------- ------------- 96,139,593 90,181,908 Security deposits ......................................... 1,745,478 1,745,478 Other assets .............................................. 1,267,479 1,298,629 ------------- ------------- Total assets .............................................. $ 119,611,219 $ 113,518,170 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Bank drafts payable .................................... $ 425,485 $ 371,730 Trade accounts payable .................................... 3,397,593 3,125,666 Accrued expenses (Note 3) .............................. 11,139,369 10,978,135 Current maturities of long-term debt (Notes 4 and 5) ... 6,188,241 6,285,986 ------------- ------------- Total current liabilities ................................. 21,150,688 20,761,517 Long-term debt, less current maturities (Notes 4 and 5) ... 19,057,816 27,056,954 Deferred income taxes (Note 6) ............................ 14,576,038 11,641,824 Insurance and claims accruals ............................. 2,092,614 1,684,614 Commitments and contingencies (Notes 5 and 11) Stockholders' equity (Notes 4 and 9): Preferred Stock, $.01 par value; 1,000,000 shares authorized; none issued .............................. -- -- Common Stock, $.01 par value; 16,000,000 shares authorized; issued 9,437,097 shares in 1998 and 9,374,868 shares in 1997 ......................... 94,371 93,749 Additional paid-in capital ............................. 12,921,342 12,577,336 Retained earnings ...................................... 50,199,325 39,702,176 Less treasury stock, at cost (46,789 shares in 1998) ... (480,975) -- ------------- ------------- Total stockholders' equity ................................ 62,734,063 52,373,261 ------------- ------------- Total liabilities and stockholders' equity ................ $ 119,611,219 $ 113,518,170 ============= =============
See accompanying notes. 19 22 USA TRUCK, INC. STATEMENTS OF INCOME
Year Ended December 31, --------------------------------------------------- 1998 1997 1996 --------------------------------------------------- Operating revenues .................................. $ 145,216,121 $ 129,507,242 $ 108,312,633 Operating expenses and costs: Salaries, wages and employee benefits (Note 7) ... 61,296,860 53,122,136 45,122,323 Operations and maintenance ....................... 33,400,982 34,188,558 31,064,185 Operating taxes and licenses ..................... 2,547,449 2,160,408 1,963,888 Insurance and claims ............................. 7,249,853 6,773,001 6,422,064 Communications and utilities ..................... 1,468,485 1,827,608 1,612,030 Depreciation and amortization .................... 16,179,143 13,607,835 11,839,187 Other ............................................ 4,113,158 3,658,992 4,037,196 ------------- ------------- ------------- 126,255,930 115,338,538 102,060,873 ------------- ------------- ------------- Operating income .................................... 18,960,191 14,168,704 6,251,760 Other (income) expenses: Interest expense ................................. 1,714,662 1,379,481 729,885 Gain on disposal of assets ....................... (37,088) (1,731) (9,770) Other, net ....................................... 102,340 (190,641) (3,835) ------------- ------------- ------------- 1,779,914 1,187,109 716,280 ------------- ------------- ------------- Income before income taxes .......................... 17,180,277 12,981,595 5,535,480 Income taxes (Note 6): Current .......................................... 3,366,164 4,027,787 1,219,993 Deferred ......................................... 3,316,964 1,050,336 933,309 ------------- ------------- ------------- 6,683,128 5,078,123 2,153,302 ------------- ------------- ------------- Net income .......................................... $ 10,497,149 $ 7,903,472 $ 3,382,178 ============= ============= ============= Net income per share (Notes 8 and 9): Basic earnings per share ......................... $ 1.12 $ .84 $ .36 ============= ============= ============= Diluted earnings per share ....................... $ 1.11 $ .83 $ .35 ============= ============= =============
See accompanying notes. 20 23 USA TRUCK, INC. STATEMENTS OF STOCKHOLDERS' EQUITY
ADDITIONAL COMMON PAID-IN RETAINED TREASURY STOCK CAPITAL EARNINGS STOCK TOTAL --------------------------------------------------------------------------------- Balance at January 1, 1996 ............ $ 97,147 $ 16,320,361 $28,416,526 $(1,677,313) $ 43,156,721 Exercise of stock options, net (Note 9) ........................ 389 271,725 -- -- 272,114 Tax benefit of stock options (Note 6) ........................ -- 35,856 -- -- 35,856 Purchases of 247,000 shares of common stock into treasury ...... -- -- -- (2,422,874) (2,422,874) Retirement of 254,000 shares of treasury stock ............... (2,540) (2,790,157) -- 2,792,697 -- Net income for 1996 ............... -- -- 3,382,178 -- 3,382,178 -------- ------------ ----------- ----------- ------------ Balance at December 31, 1996 .......... 94,996 13,837,785 31,798,704 (1,307,490) 44,423,995 Exercise of stock options, net (Note 9) ........................ 608 374,439 -- -- 375,047 Purchases of 40,500 shares of common stock into treasury ...... -- -- -- (329,253) (329,253) Retirement of 185,500 shares of treasury stock ............... (1,855) (1,634,888) -- 1,636,743 -- Net income for 1997 ............... -- -- 7,903,472 -- 7,903,472 -------- ------------ ----------- ----------- ------------ Balance at December 31, 1997 .......... 93,749 12,577,336 39,702,176 -- 52,373,261 Exercise of stock options, net (Note 9) ........................ 622 290,941 -- -- 291,563 Tax benefit of stock options (Note 6) ........................ -- 53,065 -- -- 53,065 Purchases of 54,750 shares of common stock into treasury ...... -- -- -- (585,962) (585,962) Sale of 7,961 shares of treasury stock to employee stock purchase plan ................... -- -- -- 104,987 104,987 Net income for 1998 ............... -- -- 10,497,149 -- 10,497,149 -------- ------------ ----------- ----------- ------------ Balance at December 31, 1998 .......... $ 94,371 $ 12,921,342 $50,199,325 $ (480,975) $ 62,734,063 ======== ============ =========== =========== ============
See accompanying notes. 21 24 USA TRUCK, INC. STATEMENTS OF CASH FLOWS
Year Ended December 31, ------------------------------------------------ 1998 1997 1996 ------------------------------------------------ OPERATING ACTIVITIES Net income ............................................... $ 10,497,149 $ 7,903,472 $ 3,382,178 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ....................... 16,179,143 13,607,835 11,839,187 Provision for doubtful accounts ..................... 30,000 30,000 148,713 Deferred income taxes .................................... 3,316,964 1,050,336 933,309 Gain on disposal of assets .......................... (37,088) (1,731) (9,770) Changes in operating assets and liabilities: Receivables ....................................... (1,363,041) (186,827) (964,109) Inventories, prepaid expenses and other current assets .................................. (1,103,891) (106,694) 11,043 Bank drafts payable, trade accounts payable and accrued expenses ................................ 539,981 5,568,536 (1,031,939) Insurance and claims accruals - long-term ......... 408,000 408,000 562,077 ------------ ------------ ------------ Net cash provided by operating activities ................ 28,467,217 28,272,927 14,870,689 INVESTING ACTIVITIES Purchases of property and equipment ...................... (21,731,600) (32,777,855) (16,996,876) Proceeds from sale of equipment .......................... 6,395,382 8,174,217 4,894,329 Increase in other assets ................................. 31,150 (307,728) (117,777) ------------ ------------ ------------ Net cash used by investing activities .................... (15,305,068) (24,911,366) (12,220,324) FINANCING ACTIVITIES Borrowings under long-term debt .......................... 14,325,000 29,553,208 14,280,000 Proceeds from the exercise of stock options .............. 291,563 375,047 272,114 Proceeds from sale of treasury stock ..................... 104,987 -- -- Payments to repurchase common stock ...................... (585,962) (597,379) (2,154,749) Principal payments on long-term debt ..................... (22,800,000) (23,828,208) (11,880,000) Principal payments on capitalized lease obligations ...... (6,385,405) (6,683,864) (3,337,176) ------------ ------------ ------------ Net cash used by financing activities .................... (15,049,817) (1,181,196) (2,819,811) ------------ ------------ ------------ Increase (Decrease) in cash and cash equivalents ......... (1,887,668) 2,180,365 (169,446) Cash and cash equivalents: Beginning of year ..................................... 3,667,311 1,486,946 1,656,392 ------------ ------------ ------------ End of year ........................................... $ 1,779,643 $ 3,667,311 $ 1,486,946 ============ ============ ============
See accompanying notes. 22 25 USA TRUCK, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS USA Truck, Inc. (the "Company"), operates as a truckload motor carrier with operating authority to provide service throughout the continental United States and parts of Canada and Mexico. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The carrying amount reported in the balance sheet for cash and cash equivalents approximates its fair value. CONCENTRATION OF CREDIT RISK The Company performs ongoing credit evaluations and generally does not require collateral. The Company maintains reserves for potential credit losses. Such losses have been within management's expectations. One customer represented approximately 11% and 12% of net trade receivables as of December 31, 1998 and 1997, respectively. A different customer represented approximately 10% and 13% of revenues for the years ended December 31, 1998 and 1997, respectively. INVENTORIES Inventories consist primarily of tires, fuel and supplies and are stated at the lower of cost (first-in, first-out basis) or market. PROPERTY AND EQUIPMENT Property and equipment is recorded at cost. For financial reporting purposes, the cost of such property is depreciated principally by the straight-line method using the following estimated useful lives: structures - 5 to 39.5 years; revenue equipment - 3 to 7 years; and service, office and other equipment - 3 to 20 years. Gains and losses on asset sales are reflected in the year of disposal. Trade-in allowances in excess of book value of revenue equipment are accounted for by adjusting the cost of assets acquired. Tires purchased with revenue equipment are capitalized as a part of the cost of such equipment, with replacement tires being inventoried and expensed when placed in service. 23 26 USA TRUCK, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CLAIMS LIABILITIES The Company is self-insured up to certain limits for bodily injury, property damage, workers' compensation, and cargo loss and damage claims. Provisions are made for both the estimated liabilities for known claims as incurred and estimates for those incurred but not reported. In 1998 the Company was self-insured up to $1,000,000 per occurrence for bodily injury and property damage, up to $500,000 for workers' compensation claims, and up to $100,000 per occurrence for cargo loss and damage claims. These self-insurance arrangements are secured by $1,010,000 in letters of credit. The workers' compensation self-insurance is secured by $300,000 in certificates of deposit maturing during 1999. The certificates of deposit are included in other assets on the balance sheet as of December 31, 1998 and 1997. REVENUE RECOGNITION Revenues are recognized based on a method whereby revenue is allocated between reporting periods based on relative transit time in each period and direct expenses are allocated on the same basis. INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets include temporary differences relating to depreciation, capitalized leases and certain revenues and expenses. EARNINGS PER SHARE Earnings per share amounts are computed based on Financial Accounting Standards Board Statement No. 128, Earnings per Share. Basic earnings per share is computed based on the weighted average number of shares of common stock outstanding during the year excluding any dilutive effects of options. Diluted earnings per share is computed by adjusting the weighted average shares outstanding by common stock equivalents attributable to dilutive options. COMPENSATION TO EMPLOYEES Stock based compensation to employees is accounted for based on the intrinsic value method under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25). Under APB 25 because the exercise price of employee stock options equaled 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 No. 123, Accounting for Stock-Based Compensation (SFAS 123). 24 27 USA TRUCK, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) NEW ACCOUNTING PRONOUNCEMENTS In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income. This statement was adopted in 1998 and had no impact on the Company's financial statements. In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information. The Company's operations are comprised entirely of one segment. This statement was adopted in 1998 and had no impact on the disclosures in the Company's financial statements. In 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. This statement provides guidance on the capitalization of certain costs incurred in developing or acquiring internal-use computer software. This statement was adopted in 1998 and did not have a significant impact on the Company's financial statements. 2. PREPAID EXPENSES AND OTHER CURRENT ASSETS Prepaid expenses and other current assets consist of the following:
December 31, ------------------------- 1998 1997 ------------------------- Prepaid licenses and taxes .... $ 938,881 $ 345,114 Prepaid insurance ............. 1,624,315 958,824 Other ......................... 77,365 177,379 ---------- ---------- $2,640,561 $1,481,317 ========== ==========
3. ACCRUED EXPENSES Accrued expenses consist of the following:
December 31, --------------------------- 1998 1997 --------------------------- Salaries, wages, bonuses and employee benefits ... $ 4,825,956 $ 4,451,409 Insurance and claims accruals .................... 4,071,832 4,334,109 Other ............................................ 2,241,581 2,192,617 ----------- ----------- $11,139,369 $10,978,135 =========== ===========
4. LONG-TERM DEBT Long-term debt consists of the following:
December 31, ------------------------------ 1998 1997 ------------------------------ Revolving credit agreement (1) ....... $ 2,900,000 $ 11,375,000 Capitalized lease obligations (2) .... 22,346,057 21,967,940 ------------ ------------ 25,246,057 33,342,940 Less current maturities .............. (6,188,241) (6,285,986) ------------ ------------ $ 19,057,816 $ 27,056,954 ============ ============
25 28 USA TRUCK, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 4. LONG-TERM DEBT (CONTINUED) (1) The Company's revolving credit agreement (the "Line of Credit") provides for available borrowings of $20,000,000, including letters of credit not exceeding $5,000,000. The Line of Credit matures on April 30, 2001, prior to which time, subject to certain conditions, the remaining balance may be converted at any time at the Company's option to a term loan requiring forty-eight equal monthly principal payments plus interest. The credit facility bears variable interest based on the lenders 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 credit facility for the year ending December 31, 1998 was 6.81%. A quarterly commitment fee of 1/4% per annum is payable on the unused credit line. The Line of Credit is collateralized by accounts receivable and all otherwise unencumbered equipment. The Company has outstanding letters of credit of approximately $1,010,000 at December 31, 1998. The Line of Credit requires the Company to meet certain financial covenants and to maintain a minimum tangible net worth of approximately $38,700,000 at December 31, 1998. The Company was in compliance with these covenants at December 31, 1998. The covenants would prohibit the payment of dividends by the Company if such payment would cause the Company to be in violation of any of the covenants. The carrying amount reported in the balance sheet for borrowings under the Line of Credit approximates its fair value since the interest rate is variable. (2) The leases extend through July, 2002 and contain renewal or fixed price purchase options. The effective interest rates on the leases range from 3.8% to 5.7% at December 31, 1998. The lease agreements require the Company to pay property taxes, maintenance and operating expenses. The Company made interest payments of approximately $1,699,000, $1,454,000 and $793,000 during 1998, 1997 and 1996, respectively. The Company capitalized $6,800 and $86,600 in interest as a result of construction during 1998 and 1997, respectively. 5. LEASES AND COMMITMENTS Capital lease obligations of $6,763,522, $12,416,151 and $6,141,601 were incurred during the years ended December 31, 1998, 1997 and 1996, respectively. At December 31, 1998, the future minimum payments under capitalized leases with initial terms of one year or more were $7,204,228 for 1999, $7,088,033 for 2000, $6,684,652 for 2001 and $3,344,409 for 2002. The present value of net minimum lease payments was $22,346,057 which includes the current portion of the capital leases of $6,188,241 and excludes amounts representing interest of $1,975,265. At December 31, 1998, property and equipment included capitalized leases which had capitalized costs of $28,666,354, accumulated amortization of $6,957,207 and a net book value of $21,709,147. At December 31, 1997 property and equipment included capitalized leases which had capitalized costs of $27,246,295, accumulated amortization of $6,075,925 and a net book value of $21,170,370. Amortization of leased assets is included in depreciation and amortization expense. Commitments to purchase revenue equipment, which are cancelable by the Company if certain conditions are met, aggregated approximately $31,909,000 at December 31, 1998. 26 29 USA TRUCK, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 6. FEDERAL AND STATE INCOME TAXES Significant components of the Company's deferred tax liabilities and assets as of December 31, 1998 and 1997 are as follows:
December 31, ------------------------------ 1998 1997 ------------------------------ Noncurrent deferred tax liabilities: Tax over book depreciation ................... $ 14,512,768 $ 11,623,611 Capitalized leases .............................. 63,270 18,213 ------------ ------------ Total noncurrent deferred tax liabilities ....... $ 14,576,038 $ 11,641,824 ============ ============ Current deferred tax assets: Revenue recognition .......................... $ (116,286) $ (86,131) Accrued expenses not deductible until paid ... (2,420,906) (2,296,296) Allowance for doubtful accounts .............. (53,033) (62,450) ------------ ------------ Total current deferred tax assets ............... (2,590,225) (2,444,877) Current deferred tax liabilities: Prepaid expenses deductible when paid ........ 1,016,860 488,762 ------------ ------------ Net current deferred tax assets ................. $ (1,573,365) $ (1,956,115) ============ ============
Significant components of the provision for income taxes are as follows:
Year Ended December 31, ---------------------------------------- 1998 1997 1996 ---------------------------------------- Current - ------- Federal ..................... $2,812,318 $3,491,181 $1,009,834 State ....................... 553,846 536,606 210,159 ---------- ---------- ---------- Total current ............... 3,366,164 4,027,787 1,219,993 Deferred - -------- Federal ..................... 2,883,617 862,092 830,388 State ....................... 433,347 188,244 102,921 ---------- ---------- ---------- Total deferred .............. 3,316,964 1,050,336 933,309 ---------- ---------- ---------- Total income tax expense .... $6,683,128 $5,078,123 $2,153,302 ========== ========== ==========
During 1998, 1997 and 1996, the Company made income tax payments of approximately $3,484,000, $3,644,000, and $1,255,000, respectively. During 1998 and 1996, the Company recognized a tax benefit of $53,065 and $35,856 related to stock options, respectively. These amounts were added to additional paid-in capital. 27 30 USA TRUCK, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 6. FEDERAL AND STATE INCOME TAXES (CONTINUED) A reconciliation between the effective income tax rate and the statutory federal income tax rate is as follows:
Year Ended December 31, ----------------------------------------------- 1998 1997 1996 ----------------------------------------------- Income tax at 34% statutory federal rate .... $ 5,841,294 $ 4,413,742 $ 1,882,063 Federal income tax effects of: State income taxes ....................... (336,172) (246,449) (106,447) Nondeductible expenses ................... 98,131 (3,582) 47,566 Other .................................... 92,682 189,562 17,040 ----------- ----------- ----------- Federal income taxes ........................ 5,695,935 4,353,273 1,840,222 State income taxes .......................... 987,193 724,850 313,080 ----------- ----------- ----------- Total income tax expense .................... $ 6,683,128 $ 5,078,123 $ 2,153,302 =========== =========== =========== Effective tax rate .......................... 38.9% 39.1% 38.9% =========== =========== ===========
7. EMPLOYEE BENEFIT PLANS The Company sponsors the USA Truck, Inc. Employees' Investment Plan, a tax deferred savings plan under section 401(k) of the Internal Revenue Code, that covers substantially all employees. Employees can contribute up to 15% of their compensation, with the Company matching 50% of the first 4% of compensation contributed by each employee. Company matching contributions were approximately $652,000, $558,000 and $491,000 for 1998, 1997 and 1996, respectively. 8. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
Year Ended December 31, ----------------------------------------- 1998 1997 1996 ----------------------------------------- Numerator: Net Income ............................... $10,497,149 $7,903,472 $3,382,178 Denominator: Denominator for basic earnings per share - weighted average shares ........ 9,399,727 9,355,671 9,462,717 Effect of dilutive securities: Employee stock options ................. 66,244 128,899 157,202 ----------- ---------- ---------- Denominator for diluted earnings per share - adjusted weighted average shares and assumed conversions ......... 9,465,971 9,484,570 9,619,919 =========== ========== ========== Basic earnings per share .................... $ 1.12 $ .84 $ .36 =========== ========== ========== Diluted earnings per share .................. $ 1.11 $ .83 $ .35 =========== ========== ==========
28 31 USA TRUCK, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 9. COMMON STOCK TRANSACTIONS The Company has a stock option plan which provides for the granting of incentive or nonqualified options to purchase up to 800,000 shares of common stock to officers and other key employees. No options may be granted under this plan for less than the fair market value of the common stock at the date of the grant. Although the exercise period is determined when options are actually granted, no option will be exercised later than 10 years after it is granted. The Company also has a nonqualified stock option plan for directors who are not officers or employees of the Company, which provides for the granting of options to purchase up to 25,000 shares of common stock. No options may be granted under this plan with exercise prices of less than the fair market value of the common stock at the date of grant. Although the exercise period is determined when options are actually granted, options will vest no less than six months or more than three years after the grant date and may not be exercised later than five years after the grant date. A summary of the Company's stock option activity, and related information for the years ended December 31, follows:
1998 1997 1996 --------------------------- -------------------------------- ------------------------------ WEIGHTED-AVERAGE Weighted-Average Weighted-Average OPTIONS EXERCISE PRICE Options Exercise Price Options Exercise Price ------------------------------------------------------------------------------------------- Outstanding-beginning of year 356,400 $ 6.90 425,320 $ 6.87 533,520 $ 6.67 Granted 46,000 11.59 9,600 9.73 62,400 10.67 Exercised (79,200) 6.30 (63,320) 6.25 (41,400) 7.05 Canceled -- -- (15,200) 10.50 (129,200) 7.57 ------- ------- ------- ------- ------- ------- Outstanding-end of year 323,200 $ 7.72 356,400 $ 6.90 425,320 $ 6.87 ======= ======= ======= ======= ======= ======= Exercisable at end of year 103,000 $ 6.46 142,200 $ 6.25 134,120 $ 6.25
Exercise prices for options outstanding as of December 31, 1998 ranged from $9.88 to $11.75 The weighted-average fair value of options granted during 1998 and 1997 were $4.30 and $4.46, respectively. The weighted-average remaining contractual life of these options is 2.44 years. In 1998, 1997 and 1996, 45,240, 60,007 and 38,210 options, respectively, were exercised for cash. In 1998 and 1997 additional options of 33,960 and 3,313 respectively, were exercised by the exchange of 16,971 and 2,588 shares of stock respectively, (with a market value equal to the exercise price of the options). The exchanged shares were then canceled. 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 1998, 1997 and 1996 consistent with the provisions of SFAS 123, the Company's pro forma net income would have been $10,431,143, $7,852,172 and $3,346,948, pro forma basic earnings per share would have been $1.11, $.84 and $.35, and pro forma diluted earnings per share would have been $1.10, $.83 and $.35, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The following weighted-average assumptions were used for grants in 1998: dividend yield of 0%; expected volatility of 0.457%; risk-free interest rates range from 4.29% to 5.44% and expected lives range from 3 to 5 years. The following weighted-average assumptions were used for grants in 1997: dividend yield of 0%; expected volatility of 0.535%; risk-free interest rates range from 5.45% to 6.17% and expected lives range from 3 to 5 years. The following weighted-average assumptions were used for grants in 1996: dividend yield of 0%; expected volatility of 0.884%; risk-free interest rates range from 5.24% to 6.65% and expected lives range from 3 to 6 years. 29 32 USA TRUCK, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 10. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The tables below present quarterly financial information for 1998 and 1997:
1998 THREE MONTHS ENDED ------------------------------------------------------------ MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, ------------------------------------------------------------ Operating revenues ..................... $35,223,203 $37,387,246 $36,266,931 $36,338,741 Operating expenses and costs ........... 30,993,887 32,208,832 31,213,221 31,839,990 ----------- ----------- ----------- ----------- Operating income ....................... 4,229,316 5,178,414 5,053,710 4,498,751 Other expenses, net .................... 403,265 598,909 435,041 342,699 ----------- ----------- ----------- ----------- Income before income taxes ............. 3,826,051 4,579,505 4,618,669 4,156,052 Income taxes ........................... 1,488,334 1,781,428 1,796,662 1,616,704 ----------- ----------- ----------- ----------- Net income ............................. $ 2,337,717 $ 2,798,077 $ 2,822,007 $ 2,539,348 =========== =========== =========== =========== Average shares outstanding (basic) ..... 9,378,054 9,418,826 9,417,520 9,375,927 =========== =========== =========== =========== Basic earnings per share ............... $ .25 $ .30 $ .30 $ .27 =========== =========== =========== =========== Average shares outstanding (diluted) ... 9,478,162 9,531,054 9,512,954 9,442,155 =========== =========== =========== =========== Diluted earnings per share ............. $ .25 $ .29 $ .30 $ .27 =========== =========== =========== ===========
1997 Three Months Ended ------------------------------------------------------------ March 31, June 30, September 30, December 31, ------------------------------------------------------------ Operating revenues ..................... $30,660,109 $32,079,177 $32,890,769 $33,877,187 Operating expenses and costs ........... 28,338,729 28,576,075 28,896,813 29,526,921 ----------- ----------- ----------- ----------- Operating income ....................... 2,321,380 3,503,102 3,993,956 4,350,266 Other expenses, net .................... 223,831 352,545 226,668 384,065 ----------- ----------- ----------- ----------- Income before income taxes ............. 2,097,549 3,150,557 3,767,288 3,966,201 Income taxes ........................... 815,947 1,225,567 1,465,475 1,571,134 ----------- ----------- ----------- ----------- Net income ............................. $ 1,281,602 $ 1,924,990 $ 2,301,813 $ 2,395,067 =========== =========== =========== =========== Average shares outstanding (basic) ..... 9,338,825 9,408,270 9,358,868 9,359,216 =========== =========== =========== =========== Basic earnings per share ............... $ .14 $ .20 $ .25 $ .26 =========== =========== =========== =========== Average shares outstanding (diluted) ... 9,415,695 9,528,750 9,508,090 9,522,347 =========== =========== =========== =========== Diluted earnings per share ............. $ .14 $ .20 $ .24 $ .25 =========== =========== =========== ===========
11. LITIGATION The Company is not a party to any pending legal proceedings which management believes to be material to the financial condition of the Company. The Company maintains liability insurance against risks arising out of the normal course of its business. 30 33 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no changes in or disagreements with accountants on accounting and financial disclosure matters during any period covered by the financial statements filed herein or any period subsequent thereto. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The sections entitled "Election of Directors", "Executive Officers" and "Section 16(a) Compliance" in the Company's proxy statement for the annual meeting of stockholders to be held on May 5, 1999, set forth certain information with respect to the directors, nominees for election as directors and executive officers of the Company and are incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The section entitled "Executive Compensation" in the Company's proxy statement for the annual meeting of stockholders to be held on May 5, 1999, sets forth certain information with respect to the compensation of management of the Company and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The sections entitled "Outstanding Stock and Voting Rights" and "Election of Directors" in the Company's proxy statement for the annual meeting of stockholders to be held on May 5, 1999, set forth certain information with respect to the ownership of the Company's voting securities and are incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The section entitled "Certain Transactions" in the Company's proxy statement for the annual meeting of stockholders to be held on May 5, 1999, sets forth certain information with respect to relations of and transactions by management of the Company and is incorporated herein by reference. 31 34 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) THE FOLLOWING DOCUMENTS ARE FILED AS A PART OF THIS REPORT: 1. Financial statements. The following financial statements of the Company are included in Part II, Item 8 of this report:
PAGE ---- Balance Sheets as of December 31, 1998 and 1997................................................. 19 Statements of Income for the years ended December 31, 1998, 1997 and 1996....................... 20 Statements of Stockholders' Equity for years ended December 31, 1998, 1997 and 1996............. 21 Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996................... 22 Notes to Financial Statements................................................................... 23
2. The following financial statement schedule of the Company is included in Item 14(d): Schedule II - Valuation and Qualifying Accounts................................................ 36
Schedules other than the schedule listed above have been omitted since the required information is not present or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements or the notes thereto. 3. Listing of exhibits. Exhibit No. Exhibit ----------- ------- 3.1 Restated and Amended Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1, Registration No. 33-45682, filed with the Securities and Exchange Commission on February 13, 1992 [the "Form S-1"]). 3.2 Bylaws of the Company as currently in effect (incorporated by reference to Exhibit 3.2 to Amendment No. 1 to the Form S-1 filed with the Securities and Exchange Commission on March 19, 1992 ["Amendment No. 1"]). 3.3 Certificate of Amendment to Certificate of Incorporation of the Company filed March 17, 1992 (incorporated by reference to Exhibit 3.3 to Amendment No. 1). 4.1 Specimen certificate evidencing shares of the Common Stock, $.01 par value, of the Company (incorporated by reference to Exhibit 4.1 to the Form S-1). 4.2 Fourth Amended and Restated Revolving Credit Agreement dated December 30, 1992, between the Company and Deposit Guaranty National Bank, as Lender (incorporated by reference to Exhibit 4.2 to the Company's annual report on Form 10-K for the year ended December 31, 1992). 4.3 Fourth Amended and Restated Revolving Note of the Company dated December 30, 1992, in the maximum principal amount of $12,000,000 payable to Deposit Guaranty National Bank, executed in connection with the credit facility filed as Exhibit 4.2 (incorporated by reference to Exhibit 4.3 to the Company's annual report on Form 10-K for the year ended December 31, 1992). 32 35 4.4 Fifth Amendment to Fourth Amended and Restated Revolving Credit Agreement dated December 30, 1996, between the Company and Deposit Guaranty National Bank, as Lender (incorporated by reference to Exhibit 4.5 to the Company's annual report on Form 10-K for the year ended December 31, 1996). 4.5 Sixth Amendment to Fourth Amended and Restated Revolving Credit Agreement dated December 30, 1997, between the Company and Deposit Guaranty National Bank, as Lender (incorporated by reference to Exhibit 4.5 to the Company's annual report on Form 10-K for the year ended December 31, 1997). 4.6 Sixth Amendment to Fourth Amended and Restated Revolving Note of the Company dated December 30, 1997, in the maximum principal amount of $28,500,000 payable to Deposit Guaranty National Bank, executed in connection with the credit facility filed as Exhibit 4.5 (incorporated by reference to Exhibit 4.6 to the Company's annual report on Form 10-K for the year ended December 31, 1997). 4.7* Seventh Amendment to Fourth Amended and Restated Revolving Credit Agreement dated October 30, 1998, between the Company and Deposit Guaranty National Bank, as Lender. 4.8* Seventh Amendment to Fourth Amended and Restated Revolving Note of the Company dated October 30, 1998, in the maximum principal amount of $20,000,000 payable to Deposit Guaranty National Bank, executed in connection with the credit facility filed as Exhibit 4.7. 4.9 TRAC Lease Commitment Agreement dated January 24, 1996, between the Company and Fleet Credit Corporation, as Lender. (incorporated by reference to Exhibit 4.9 to the Company's annual report on Form 10-K for the year ended December 31, 1995). 4.10 First Amendment to TRAC Lease Commitment Agreement dated November 13, 1996, between the Company and Fleet Credit Corporation, as Lender (incorporated by reference to Exhibit 4.8 to the Company's annual report on Form 10-K for the year ended December 31, 1997). 4.11 Equipment TRAC Lease Commitment Agreement dated November 12, 1997 and accepted November 19, 1997, between the Company and Banc One Leasing Corporation, as Lender (incorporated by reference to Exhibit 4.9 to the Company's annual report on Form 10-K for the year ended December 31, 1997). 4.12* First Amendment dated December 30, 1998, to the Equipment TRAC Lease Commitment Agreement dated November 12, 1997 and accepted November 19, 1997, between the Company and Banc One Leasing Corporation, as Lender. 4.13 Instruments with respect to long-term debt not exceeding 10% of the total assets of the Company have not been filed. The Company agrees to furnish a copy of such instruments to the Securities and Exchange Commission upon request. 10.1 Employee Stock Option Plan of the Company (incorporated by reference to Exhibit 10.6 to the Form S-1). 33 36 10.2 Nonqualified Stock Option Plan for Nonemployee Directors of the Company (incorporated by reference to Exhibit 10.7 to the Form S-1) terminated in January 1997, except with respect to outstanding options. 10.3 Description of Incentive Compensation Plan for executive officers of the Company (incorporated by reference to Exhibit 10.8 to the Form S-1). 10.4 1997 Nonqualified Stock Option Plan for Nonemployee Directors of the Company (incorporated by reference to Exhibit 99.1 to the Company's Registration Statement on Form S-8, Registration No. 333-20721, filed with the Securities and Exchange Commission on January 30, 1997). 21 The Company has no subsidiaries. 23* Consent of Ernst & Young LLP, Independent Auditors. 27* 1998 Financial Data Schedule - -------------- * Filed herewith. Management Compensatory Plans: -Employee Stock Option Plan (Exhibit 10.1) -Nonqualified Stock Option Plan for Nonemployee Directors (Exhibit 10.2) -Incentive Compensation Plan (Exhibit 10.3) -1997 Nonqualified Stock Option Plan for Nonemployee Directors (Exhibit 10.4) (b) REPORTS ON FORM 8-K: No reports on Form 8-K were filed during the last quarter of the fiscal year covered by this Annual Report. 34 37 USA TRUCK, INC. ANNUAL REPORT ON FORM 10-K YEAR ENDED DECEMBER 31, 1998 ITEM 14(d) FINANCIAL STATEMENT SCHEDULE 35 38 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS USA TRUCK, INC.
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E -------------------------------------------------------------- (1) BALANCE AT CHARGED BALANCE BEGINNING TO COST DEDUCTIONS END DESCRIPTION OF PERIOD AND EXPENSES -OTHER OF PERIOD -------------------------------------------------------------- Year ended December 31, 1998: Deducted from asset accounts: Allowance for doubtful accounts .......................... $170,250 $ 30,000 $ 59,580(a) $140,670 -------- -------- --------- -------- Year ended December 31, 1997: Deducted from asset accounts: Allowance for doubtful accounts .......................... $113,000 $ 30,000 $ 27,250(a) $170,250 -------- -------- --------- -------- Year ended December 31, 1996: Deducted from asset accounts: Allowance for doubtful accounts .......................... $104,000 $148,713 $(139,713)(a) $113,000 -------- -------- --------- --------
(a) Uncollectible accounts written off, net recoveries 36 39 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) 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) By: /s/ ROBERT M. POWELL By: /s/ JERRY D. ORLER -------------------------------- ------------------------------- Robert M. Powell Jerry D. Orler President and Chief Executive Vice President - Finance, Chief Officer Financial Officer and Secretary Date: March 25, 1999 Date: March 25, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ ROBERT M. POWELL President, Chief Executive Officer March 25, 1999 - ------------------------------------- and Director Robert M. Powell /s/ JERRY D. ORLER Vice President - Finance, March 25, 1999 - ------------------------------------- Chief Financial Officer, Secretary Jerry D. Orler and Director /s/ J.B. SPEED Director March 25, 1999 - ------------------------------------- James B. Speed /s/ GEORGE R. JACOBS Director March 25, 1999 - ------------------------------------- George R. Jacobs /s/ JIM L. HANNA Director March 25, 1999 - ------------------------------------- Jim L. Hanna /s/ ROLAND S. BOREHAM Director March 25, 1999 - ------------------------------------- Roland S. Boreham, Jr.
37 40 INDEX TO EXHIBITS
EXHIBIT SEQUENTIALLY NUMBER EXHIBIT NUMBERED PAGE ------ ------- ------------- 3.1 Restated and Amended Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1, Registration No. 33-45682, filed with the Securities and Exchange Commission on February 13, 1992 [the "Form S-1"]). 3.2 Bylaws of the Company as currently in effect (incorporated by reference to Exhibit 3.2 to Amendment No. 1 to the Form S-1 filed with the Securities and Exchange Commission on March 19, 1992 ["Amendment No. 1"]). 3.3 Certificate of Amendment to Certificate of Incorporation of the Company filed March 17, 1992 (incorporated by reference to Exhibit 3.3 to Amendment No. 1). 4.1 Specimen certificate evidencing shares of the Common Stock, $.01 par value, of the Company (incorporated by reference to Exhibit 4.1 to the Form S-1). 4.2 Fourth Amended and Restated Revolving Credit Agreement dated December 30, 1992, between the Company and Deposit Guaranty National Bank, as Lender (incorporated by reference to Exhibit 4.2 to the Company's annual report on Form 10-K for the year ended December 31, 1992). 4.3 Fourth Amended and Restated Revolving Note of the Company dated December 30, 1992, in the maximum principal amount of $12,000,000 payable to Deposit Guaranty National Bank, executed in connection with the credit facility filed as Exhibit 4.2 (incorporated by reference to Exhibit 4.3 to the Company's annual report on Form 10-K for the year ended December 31, 1992). 4.4 Fifth Amendment to Fourth Amended and Restated Revolving Credit Agreement dated December 30, 1996, between the Company and Deposit Guaranty National Bank, as Lender (incorporated by reference to Exhibit 4.5 to the Company's annual report on Form 10-K for the year ended December 31, 1996). 4.5 Sixth Amendment to Fourth Amended and Restated Revolving Credit Agreement dated December 30, 1997, between the Company and Deposit Guaranty National Bank, as Lender (incorporated by reference to Exhibit 4.5 to the Company's annual report on Form 10-K for the year ended December 31, 1997). 4.6 Sixth Amendment to Fourth Amended and Restated Revolving Note of the Company dated December 30, 1997, in the maximum principal amount of $28,500,000 payable to Deposit Guaranty National Bank, executed in connection with the credit facility filed as Exhibit 4.5 (incorporated by reference to Exhibit 4.6 to the Company's annual report on Form 10-K for the year ended December 31, 1997).
41
EXHIBIT SEQUENTIALLY NUMBER EXHIBIT NUMBERED PAGE ------ ------- ------------- 4.7* Seventh Amendment to Fourth Amended and Restated Revolving Credit Agreement dated October 30, 1998, between the Company and Deposit Guaranty National Bank, as Lender. 4.8* Seventh Amendment to Fourth Amended and Restated Revolving Note of the Company dated October 30, 1998, in the maximum principal amount of $20,000,000 payable to Deposit Guaranty National Bank, executed in connection with the credit facility filed as Exhibit 4.7. 4.9 TRAC Lease Commitment Agreement dated January 24, 1996, between the Company and Fleet Credit Corporation, as Lender. (incorporated by reference to Exhibit 4.9 to the Company's annual report on Form 10-K for the year ended December 31, 1995). 4.10 First Amendment to TRAC Lease Commitment Agreement dated November 13, 1996, between the Company and Fleet Credit Corporation, as Lender (incorporated by reference to Exhibit 4.8 to the Company's annual report on Form 10-K for the year ended December 31, 1997). 4.11 Equipment TRAC Lease Commitment Agreement dated November 12, 1997 and accepted November 19, 1997, between the Company and Banc One Leasing Corporation, as Lender (incorporated by reference to Exhibit 4.9 to the Company's annual report on Form 10-K for the year ended December 31, 1997). 4.12* First Amendment dated December 30, 1998, to the Equipment TRAC Lease Commitment Agreement dated November 12, 1997 and accepted November 19, 1997, between the Company and Banc One Leasing Corporation, as Lender. 4.13 Instruments with respect to long-term debt not exceeding 10% of the total assets of the Company have not been filed. The Company agrees to furnish a copy of such instruments to the Securities and Exchange Commission upon request. 10.1 Employee Stock Option Plan of the Company (incorporated by reference to Exhibit 10.6 to the Form S-1). 10.2 Nonqualified Stock Option Plan for Nonemployee Directors of the Company (incorporated by reference to Exhibit 10.7 to the Form S-1) terminated in January 1997, except with respect to outstanding options. 10.3 Description of Incentive Compensation Plan for executive officers of the Company (incorporated by reference to Exhibit 10.8 to the Form S-1). 10.4 1997 Nonqualified Stock Option Plan for Nonemployee Directors of the Company (incorporated by reference to Exhibit 99.1 to the Company's Registration Statement on Form S-8, Registration No. 333-20721, filed with the Securities and Exchange Commission on January 30, 1997). 21 The Company has no subsidiaries.
42
EXHIBIT SEQUENTIALLY NUMBER EXHIBIT NUMBERED PAGE ------ ------- ------------- 23* Consent of Ernst & Young LLP, Independent Auditors. 27* 1998 Financial Data Schedule
- ---------------------- * Filed herewith. EX-4.7 2 7TH AMEND TO 4TH AMENDED/RESTATED REVOLVING CREDIT 1 Exhibit 4.7 SEVENTH AMENDMENT TO FOURTH AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT THIS SEVENTH AMENDMENT TO FOURTH AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT (this "Agreement") is made and entered into as of the 30th day of October, 1998, by and between USA TRUCK, INC., a Delaware corporation (the "Borrower"), and FIRST AMERICAN NATIONAL BANK, operating as DEPOSIT GUARANTY NATIONAL BANK, a national banking association (the "Lender"). WHEREAS, pursuant to that certain Fourth Amended and Restated Revolving Credit Agreement, dated December 30, 1992, as amended July 21, 1993, December 12, 1993, December 22, 1994, and December 28, 1995, December 30, 1996, and December 30, 1997(as further amended, modified and supplemented from time to time, the "Credit Agreement"), between Borrower and Lender, Borrower and Lender entered into certain agreements regarding certain indebtedness and obligations of Borrower to Lender; WHEREAS, Borrower has requested, and Lender has agreed to make, certain amendments to the Credit Agreement in accordance with the terms hereof, and WHEREAS, Borrower and Lender desire to amend the Credit Agreement in accordance with the terms hereof; NOW, THEREFORE, in consideration of the premises, the mutual covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower and Lender hereby agree as follows: 1. Defined Terms. All capitalized terms used and not otherwise defined (including, without limitation, in the language amendatory to the Credit Agreement contained herein) shall have the respective meanings given such terms in the Credit Agreement. 2. Amendments to Section 1 of the Credit Agreement. A. The second paragraph of subsection 1(i) of the Credit Agreement is hereby amended, in its entirety, to read as follows: "The Revolving Note shall (a) be dated the date of the Seventh Amendment to this Credit Agreement, (b) be payable to the order of Lender, (c) be in the stated principal amount equal to the Revolving Loan Commitment, (d) be payable on the Revolving Loan Commitment Termination Date, (e) bear interest with respect to the principal amount from time to time outstanding at the rate per annum specified in subsection 1(iii) hereof, and (f) be substantially in the form of Exhibit "A" hereto, with blanks completed in conformity herewith." B. The Credit Agreement is hereby amended by deleting in its entirety subsection 1(iii) of the Credit Agreement and by substituting in place and instead thereof the following: "(iii) Interest. Borrower shall pay interest on the aggregate unpaid balance of all Loans (whether evidenced by the Revolving Note or the Term Note) at the applicable rates of interest provided herein, the selection of the applicable rate or rates of interest to be at Borrower's sole option, subject to the terms and conditions of this Agreement. The interest rate applicable to each Loan shall be the applicable interest rate in effect on the date such Loan is made (or, from and after the Conversion Date, on the date the applicable interest rate is selected or applied thereto) and there shall be no adjustment or modification of such interest rate during the Interest Period for such Loan. All interest charged hereunder upon the Eurodollar Loans shall be due and payable on the last Business Day of each Interest Period to which such rate applies, and at maturity of the Revolving Note or Term Note, however such maturity shall occur. All interest charged 2 hereunder upon the Domestic Loans shall be payable in arrears and due on the first Business Day of each month, and at maturity such maturity shall occur. All interest charged hereunder upon Fixed Rate Loans shall be payable in arrears and due on the first Business Day of each month, on the Fixed Rate Loan Maturity Date and at maturity of the Revolving Note or Term Note, however such maturity shall occur. The unpaid principal amount of each Loan (whether evidenced by the Revolving Note or Term Note) shall bear interest, calculated on the basis of a 360-day year and the actual number of days outstanding to but not annum which is equal to the applicable Domestic Rate, Eurodollar Rate or Fixed Rate in effect hereunder from time to time. If any Loan shall not be paid when due, the unpaid principal amount thereof shall bear interest at a rate per annum equal to the interest rate determined in accordance with the provisions of this subsection 1(iii) plus an additional two percent (2%) (the "Default Rate"). Borrower and Lender acknowledge that the Applicable Eurodollar Margin as of the date hereof is .60%." C. Subsection 1(ix) of the Credit Agreement is hereby amended, in its entirety, to read as follows: (ix) Revolving Loan Commitment Termination Date. As used in the Agreement, the term "Revolving Loan Commitment Termination Date" shall mean the earlier of April 30, 2001 or such date as the Revolving Loan Commitment is terminated pursuant to subsection 1(v) hereof." D. Subsection 1(xii) of the Credit Agreement is hereby amended by deleting in its entirety the third sentence thereof and by substituting in place and instead thereof the following: "Borrower agrees to pay the Lender a non-refundable letter of credit fee for the period of time that each Letter of Credit shall be n effect at the rate per annum, calculated on the basis of a 360-day year and the actual number of days elapsed, and on the maximum stated amount thereof outstanding (as the same may be reduced from time to time), which is equal to (a) if the Funded Debt to Cash Flow Ratio as of the last day of the immediately preceding fiscal quarter is greater than or equal to 1.50 to 1, 1.00%; and (b) if the Funded Debt to Cash Flow Ratio as of the last day of the immediately preceding fiscal quarter is less than or equal to 1.50 to 1, .50%. Borrower and Lender acknowledge that the applicable letter of credit fee hereunder as of the date hereof is .50%." 3. Amendments to Section 3 of the Credit Agreement. A. The Credit Agreement is hereby amended to add the following subsection 3E: "3E. Year 2000 Compliance. Have (i) begun analyzing the operations of Borrower that could be adversely affected by failure to become Year 2000 compliant (that is, that computer applications, imbedded microchips and other systems will be able to perform accurately date-sensitive functions prior to and after December 31, 1999); and (ii) developed a plan for becoming Year 2000 compliant in a timely manner, the implementation of which is schedule in all material respects. The Borrower reasonably believes that it will become Year 2000 compliant for its operations on a timely basis except to the extent that a failure to do so could not reasonably be expected to have a material adverse effect upon the financial condition of Borrower. The Borrower reasonably believes any suppliers and vendors that are material to the operations of the Borrower will be Year 2000 compliant for their own computer applications except to the extent that a failure to do so could not reasonably be expected to have a material adverse effect upon the financial condition or operations of the Borrower. The Borrower will promptly notify the Lender in the event the Borrower determines that any computer application which is material to the operations of the Borrower or any of its material vendors or suppliers will not be fully Year 2000 compliant on a timely basis, except to the extent that such failure could not reasonably be expected to have a material adverse effect upon the financial condition of the Borrower." 2 3 4. Amendments to Section of the Credit Agreement. A. The defined term "Eurodollar Rate" is hereby amended, in its entirety, to read as follows: "`Eurodollar Rate' shall mean an interest rate equal to the sum of (i) the Applicable Eurodollar Margin, plus (ii) a rate per annum determined pursuant to the following: London Interbank Rate --------------------------- 100% Minus Eurodollar Reserve Percentage" B. The defined term "Revolving Loan Commitment" is hereby amended, in its entirety, to read as follows: "`Revolving Loan Commitment' means $20,000,000 at all times during the term of this Agreement." C. The defined term "Revolving Loan Commitment Termination Date" is hereby amended, by substituting the date "April 30, 2001" in the place and stead of the date "April 30, 2000". D. The defined term "Eurodollar Rate" is hereby amended, in its entirety, to read as follows: "'Applicable Eurodollar Margin' means (a) if the Funded Debt to Cash Flow Ratio as of the last day of the immediately preceding fiscal quarter is greater than 2.10 to 1, 1.20%; (b) if the Funded Debt to Cash Flow Ratio as of the last day of the immediately preceding fiscal quarter is less than or equal to 2.10 to 1, but greater than 1.50 to 1, 1.00%; (c) if the Funded Debt to Cash Flow Ratio as of the last day of the immediately preceding fiscal quarter is less than or equal to 1.50 to 1, but greater than .90 to 1, .80%; and (d) if the Funded Debt to Cash Flow Ratio as of the last day of the immediately preceding fiscal quarter is less than or equal to .90 to 1, .60%." E. The defined term "Funded Debt" is hereby added to read as follows: "'Funded Debt' shall mean, as of any date, the sum of the following (without duplication): (a) Debt of the Borrower and its Subsidiaries as of such date, other than accrued expenses, trade accounts payable, deferred income taxes, deferred compensation, unearned revenue and obligations under any non-competition agreements, (b) Debt which would be classified as "funded indebtedness" or "long-term indebtedness" on a consolidated balance sheet of the Borrower and its Subsidiary prepared as of such date in accordance with GAAP, (c) all Debt, whether secured or unsecured, of the Borrower and its Subsidiaries, having a fixed maturity (or which is renewable or extendable at the option of the obligor for a specific period) of more than one year after the date of creation thereof, notwithstanding the fact that payments in respect thereof (whether installment, serial maturity or sinking fund payments, or otherwise) are required to be made by the obligor less than one year after the date of the creation thereof and notwithstanding the fact that any amount thereof is at the time included also in current liabilities of such obligor, (d) all Debt of the Borrower and its Subsidiaries outstanding under revolving credit or similar agreements providing for borrowings (and renewals and extension thereof) over a period of more than one year, notwithstanding the fact that any such Debt is created within one year of the expiration of such agreement, (e) the present value (discounted at the implicit rate, if known, or ten percent (10%) per annum otherwise) of all obligations in respect of capitalized leases of the Borrower and its Subsidiaries, and (f) the aggregate undrawn amount of all outstanding Letters of Credit." 3 4 F. The defined term "Cash Flow" is hereby added to read as follows: "'Cash Flow' shall mean the net profit which would be included on the consolidated income statement of the Borrower and its Subsidiaries, plus income taxes, depreciation, amortization charges, minority interests, and interest expense, and minus equity and earnings (losses) of unconsolidated affiliates, all determined in accordance with GAAP." G. The defined term "Funded Debt to Cash Flow Ratio" is hereby added to read as follows: "'Funded Debt to Cash Ratio' means the ratio which (a) Funded Debt bear to (b) Cash Flow. For purposes of this Credit Agreement, Cash Flow shall be measured quarterly as the cumulative sum of the most recent four (4) fiscal quarters' Cash Flow." 5. Representations and Warranties. In order to induce Lender to enter into this Seventh Amendment, the Borrower represents and warrants to Lender as follows: A. All the representations and warranties contained in Section 6 of the Credit Agreement, expect to the extent they specifically relate to an earlier date, are true and correct on and as of the date of this Agreement and on the date of execution of this Agreement, as fully as if made on each of such dates; and immediately on and after the execution of this Agreement, the Borrower shall be in compliance with all the terms and provisions set forth in the Credit Agreement, as amended by this Agreement, on its part to be observed or performed and no Event of Default specified in Section 5 of the Credit Agreement, as amended hereby, or any event that upon notice or lapse of time or both would constitute such an Event of Default, has occurred and is continuing. B. The execution, delivery and performance of this Agreement, The Revolving Note and the Security Agreement Sixth Amendment (i) have been duly authorized by all requisite corporate action, and (ii) will not violate any provision of law, any order of any court or other agency of government, the articles of incorporation or bylaws of the Borrower, or any indenture, agreement or other instrument to which the Borrower is a party or by which the borrower or any of its properties or assets are bound, or be in conflict with, or result in a breech of or constitute (with due notice or lapse of time or both) a default under, any such indenture, agreement or other instrument, or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Borrower. Borrower shall deliver to Lender concurrently with the execution of this Agreement a Corporate Certificate substantially in the form of Exhibit "G" attached hereto. C. Except as is expressly modified and amended hereby, the Credit Agreement shall remain in full force and effect in accordance with its terms. IN WITNESS WHEREOF, the Borrower and Lender have caused this Agreement to be duly executed and delivered by their authorized representatives, as of the day and year first above written, but in each case actually on the date appearing beneath the signature of each party hereto. USA TRUCK, INC. By: /s/ JERRY D. ORLER Title: CFO & Sec. Execution Date: 11/3/98 FIRST AMERICAN NATIONAL BANK, operating as DEPOSIT GUARANTY NATIONAL BANK By: /s/ RONALD L. HENDRIX Title: Vice President Execution Date: 11/5/98 4 EX-4.8 3 7TH AMEND TO 4TH AMENDED/RESTATED REVOLVING NOTE 1 Exhibit 4.8 SEVENTH AMENDED AND RESTATED REVOLVING NOTE $20,000,000 October 30, 1998 FOR VALUE RECEIVED, USA TRUCK, INC., a corporation organized and existing under the laws of the State of Delaware ("Borrower"), hereby promises to pay to the order of DEPOSIT GUARANTY NATIONAL BANK ("Lender") the principal sum of TWENTY MILLION AND NO/100 DOLLARS ($20,000,000.00) or, if less, the outstanding aggregate principal amount of all Revolving Loans (as defined in the Revolving Credit Agreement referred to below) made by Lender to Borrower, on the Revolving Loan Commitment Termination Date (as defined in the Revolving Credit Agreement), and to pay interest on the unpaid principal balance of each Revolving Loan from the date of such Revolving Loan until said principal amount is paid in full, at the times and at the rate or rates specified in the Revolving Credit Agreement. During the term of this Revolving Note the Borrower may borrow, repay and reborrow hereunder. This Note shall be deemed to be a contract made under the law of the State of Mississippi and for all purposes shall be governed by and construed in accordance with the laws of the State of Mississippi. Borrower expressly waives any presentment, demand, protest or notice of any kind in connection with this Note, now or hereafter, required by applicable law. Borrower agrees to pay and save Lender harmless from and against liability for payment of all expenses (including, but not limited to, attorneys' fees and costs) arising in connection with the enforcement by Lender of its rights under this Note. Payments of principal and interest are to be made in immediately available funds to, Deposit Guaranty National Bank, as Agent, at its main office in Jackson, Mississippi, in lawful money of the United States of America. This Note is the Revolving Note issued pursuant to that certain Fourth Amended and Restated Revolving Credit Agreement dated as of December 30, 1992, as amended July 21, 1993, December 13, 1993, December 22, 1994, December 28, 1995, December 30, 1996, December 30, 1997, and of even date herewith, between Borrower and Lender (as amended, modified and restated from time to time, the "Revolving Credit Agreement") and is entitled to the benefits and subject to the terms thereof. This Note constitutes an amendment, extension and restatement of that certain Fourth Amended and Restated Revolving Note from Borrower to Lender dated December 30, 1992 in the original stated principal amount of $12,000,000. This Note is subject to prepayment on the terms and in the manner set forth in the Revolving Credit Agreement, and this Note may be declared due and payable prior to its date of maturity in accordance with the terms thereof. The Revolving Credit Agreement also provides for the making by Lender to Borrower of revolving loan advance from time to time in an amount not to exceed the U. S. Dollar amount above written and contains provisions for the acceleration of the maturity hereof upon the terms and conditions therein specified. This note is subject to conversion to a term note in accordance with the terms and provisions of the Revolving Credit Agreement. "Business Day" shall mean any day other than a Saturday, Sunday or other day on which banking institutions in the State of Mississippi are authorized to close. USA TRUCK, INC., a Delaware Corporation By: /s/ JERRY D. ORLER Title: C.F.O. & Sec. EX-4.12 4 1ST AMENDMENT TO EQUIPMENT TRAC LEASE COMMITMENT 1 Exhibit 4.12 Banc One Leasing Corporation Tel 800 334 5422 PO Box 711085 Columbus OH 43271 1085 Jerry Orler December 30, 1998 Chief Financial Officer USA Truck, Inc. 3108 Industrial Park Van Buren, AR 72956 Dear Mr. Orler: We are pleased to confirm that Banc One Leasing Corporation (LESSOR) has committed to a new Lease Line of Credit for the calendar year 1999 no to exceed $12,396,497.00 to USA Truck, Inc. (LESSEE) for the type(s) of equipment as set forth below: New Freightliner FLD Sleeper Tractors with Detroit Diesel 12.7 series 60 Engines to be fully described on dealer invoices This new Commitment will expire November 15, 1999, (to be extended to year-end 1999 upon receipt of year end 1998 audited financial statements) subject to the following conditions: 1. The amount shall not exceed the amount committed. 2. In LESSOR'S sole judgement, there shall not have been a material adverse change in the financial condition or business of LESSEE or any guarantor. 3. There shall not have been a change in the Internal Revenue Code of 1986 or any regulation thereunder, which in LESSOR'S sole judgement would adversely affect the economics to LESSOR of the transaction. 4. The obligations due under any or all Lease Schedules between BANC ONE LEASING CORPORATION and/or any or all loans with Banc One Texas, N.A.and USA Truck, Inc. shall be governed by the existing Master Lease Agreement #0198077 dated July 13, 1993as amended and shall be cross-defaulted so that a default of the terms of one schedule may, at the sole option of the LESSOR, be considered a default of the terms of any or all other schedules. 5. At the end of each fiscal quarter tangible net worth must be more that the sum of $18,553,000 plus 50% of net profits after tax per GAAP, subsequent to March 31, 1993. 6. "Lessee's acknowledgement that the obligations of Lessee under each schedule of the existing Master lease Agreement constitutes an "obligation" under the Credit Agreement by and between Lessee and Bank One, Texas, NA." 2 USA Truck, Inc. December 30, 1998 Page 2 If the Lease Line of Credit covered by this Commitment is not funded by November 15, 1999, this Commitment shall expire. LEASE TERM: 42 Months LEASE TERM RENT: Lessee would be required to make forty-two (42) equal consecutive monthly rents, each in arrears, equal to the following Rent Factors as a percentage of Equipment Cost:
MONTH OF MONTHLY COST OF DELIVERY RATE FACTOR BORROWING INCLUDING 40% TRAC RESIDUAL August, 1999 1.724983% 4.9691% September, 1999 1.720299% 4.8915% October, 1999 1.717561% 4.8461% November, 1999 1.713172% 4.7734% December, 1999 1.708649% 4.6984%
Example: $2,500,000.00 Approximate equipment cost x .01717561 October, 1999 rate factor ------------- $ 42,939.03 Monthly payment ADJUSTMENTS TO RENT: The current Rent Factor is based upon the U.S. Treasury Note Index of 4.79% (June, 2003 Treasury Note) per annum as of December 30, 1998. If the U.S. Treasury Note Index increased or decreases before the funding date of a Lease Schedule, then the applicable Rent Factor shall be adjusted to reflect the effect of the change in the U.S. Treasury Note Index on the original implicit rate associated with the original Rent Factor. However, once a Lease Schedule is funded, the Rent Factor for that Lease Schedule will remain fixed for the Lease Term. 3 USA Truck, Inc. December 30, 1998 Page 3 INDEX FOR LEASE FACTOR: "U.S. Treasury Note Index" means the yield to maturity for 3 1/2-Year Treasuries (as defined below as published in The Wall Street Journal or if not published in The Wall Street Journal, in a comparable publication as reasonably determined by Lessor). 3 1/2-Year Treasuries means the U.S. Treasury Notes (not bills or bonds) which have a maturity month as near as possible to the month which is 3 1/2-years after the date the Lessor prepares the applicable funding documents; provided that 3 1/2-Year Treasuries shall exclude any stripped U.S. Treasury Notes and any U.S. Treasury Notes which have multiple maturity or call dates. If more than one issue of U.S. Treasury Notes has the applicable maturity month, then the U.S. Treasury Note with the highest yield to maturity shall be used to determine the Treasury Note Index. As it becomes necessary for LESSOR to make progress payments and/or advance payments to equipment suppliers, these advances will be evidenced by an interim funding schedule and other relevant documents which are attached. There will be a documentation fee for each interim funding schedule of $375.00, plus a fee of $25.00 for each disbursement of funds. If no progress payments are required by the vendor, no interim lease schedule shall be executed. This Commitment is subject to the terms and conditions outlined herein, contained in each Equipment Schedule, and in the Master Lease Agreement. By execution of this letter and the enclosed Master Lease, you will be agreeing to these terms. If this Commitment Letter is not received within 15 days of the above date, this Commitment is withdrawn. On behalf of Banc One Leasing Corporation, please accept my thanks for the opportunity to be of service. Should you have any questions, please contact Shane Taylor at (214) 290-2304. Sincerely, /s/ MATT DONOVAN Matt Donovan Vice President Acknowledged and agreed this 30th day of December, 1998. USA Truck, Inc. - ----------------------------------- LESSEE By: /s/ JERRY D. ORLER - ----------------------------------- Title: C.F.O. ----------------------------- 4 Bank One March 12, 1999 Jerry Orler Chief Financial Officer USA Truck, Inc. 3108 Industrial Park Van Buren, AR 72956 RE: Commitment Letter dated December 30, 1998 Dear Mr. Orler: In respect to the above referenced commitment letter, this letter will serve to amend the expiration date from November 15, 1999 to December 31, 1999. All other terms and conditions remain in full force and effect. Sincerely, /s/ MATTHEW A. DONOVAN Matthew A. Donovan Vice President EX-23 5 CONSENT OF ERNST & YOUNG LLP 1 Exhibit 23 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 33-48027, 333-20721 and 333-40317) pertaining to the Employee Stock Option Plan, the Nonqualified Stock Option Plan for Nonemployee Directors and the Employee Stock Purchase Plan, respectively of our report dated January 20, 1999 with respect to the financial statements and schedule of USA Truck, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 1998. ERNST & YOUNG LLP Little Rock, Arkansas March 24, 1999 EX-27 6 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 1,779,643 0 14,369,432 140,670 236,338 20,458,669 132,908,913 36,769,320 119,611,219 21,150,688 0 0 0 94,371 62,639,692 119,611,219 145,216,121 145,216,121 0 126,255,930 65,252 0 1,714,662 17,180,277 6,683,128 0 0 0 0 10,497,149 1.12 1.11
-----END PRIVACY-ENHANCED MESSAGE-----