USA Truck
Annual Report 1999

Plain-text annual report

Bigger. Bigger. Better. Better. Built To Serve. Built To Serve. Annual Report 1999 Company Profile Company Profile USA Truck is a medium haul, common and contract carrier specializing in truckload quantities of general commodities. The Company operates in the 48 contiguous United States and the Canadian provinces of Ontario and Quebec and in Mexico through the gateway city of Laredo,Texas. Table of Contents Table of Contents To Our Stockholders ................................ Financial Highlights .................................. Report Card .............................................. Recruiting and Retention ......................... Small Steps, Big Gains .............................. The Mexican Connection ....................... 2 3 4 6 8 9 Surfin’ USA Truck ...................................... 10 USA Logistics, Service First ....................... 13 Sales Force ................................................ 14 We'll Make It Right ................................... 16 Directors and Officers .............................. 19 Ten-Year Financial Statistics ..................... 20 Corporate Information ............................. 22 Business .................................................... 23 Selected Financial Data ............................ 27 Management’s Discussion and Analysis .............................................. 28 Report of Ernst & Young LLP, Independent Auditors ............................... 34 Financial Statements ................................. 35 U S A T R U C K , I N C . 1 To Our Stockholders To Our Stockholders The calendar year 1999 was an Financially, our Company had record and pricing elements. We believe important year for our Company. It revenues in 1999 of $166.4 million, USA Truck is well-positioned to be was a year of change where we saw up 15 percent from a year earlier. Net considered as a core carrier for any of internal growth, expanding dedicated profit decreased 17.7 percent to $8.6 the nation's largest shippers. business and an acquisition that million and diluting earnings per enhances the Company’s competitive share decreased proportionately to The winners in the coming decade position through continuing growth $.92. Cash flow remains at a record are going to be the companies with in target markets. level, generating an EBITDA of $34.5 the most motivated people working million. Stockholders’ equity with the best systems and the ones During the past year we concentrated exceeded $70 million at the end who can improve service while on our customers’ needs whether of the year. lowering costs. That takes a that was increased volume, dedicated effort and investing in the competitive pricing, dedicated Looking forward, we will continue to future. USA Truck has been quietly service, service to Mexico, single be challenged by volatile fuel prices doing that over the past several years. point of contact customer service or and driver turnover, but we will meet Internet access. Our on-time delivery that challenge as we have in the past. The Company is positioned better is at a record level, aided by an We are excited about the growth than ever for continued strong operational commitment and brought about by the CCC Express growth. Barring an unforeseen enhanced computer software such as acquisition. Annualizing the two decrease in economic activity in our “Drop and Swap,” which is used to months of post-acquisition revenues key markets, we believe 2000 will be identify and correct a predicted shows the Company running at a another strong year for USA Truck. service failure. Our active account list $220 million pace. This will allow a grew 15 percent this year to 1,600 lot of room for margin improvements Thank you for your accounts at the end of 1999. as we have time to work on the cost continued support. J. B. Speed Chairman Robert M. Powell President & Chief Executive Officer 2 U S A T R U C K , I N C . Financial Highlights Financial Highlights (Dollars in thousands except per share amounts) Year Ended December 31, 1999 1998 1997 1996 1995 Operating Revenue .................................. $166,363 $145,216 $129,507 $108,313 $102,400 Operating Income ................................... Net Income .............................................. Diluted Earnings Per Share ...................... 15,836 8,642 .92 18,960 10,497 1.11 14,169 7,903 0.83 Total Assets .............................................. 182,040 119,611 113,518 Long – Term Obligations ......................... Stockholders’ Equity ................................ Operating Ratio ....................................... Total Tractors (end of period) ................. Total Trailers ( end of period) .................. Avg. Miles Per Tractor Per Week ............... 64,453 70,108 90.5% 1,713 3,525 2,404 19,058 62,734 86.9% 1,132 2,004 2,441 27,057 52,373 89.1% 1,007 1,928 2,475 6,252 3,382 0.35 86,330 15,867 44,424 94.2% 862 1,510 2,407 10,439 6,037 0.60 78,908 13,361 43,157 89.8% 782 1,378 2,382 Price Range of Common Stock Price Range of Common Stock The Company’s Common Stock trades on The Nasdaq Stock Market under the symbol: USAK. 1999 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Sales Price High $10.44 $ 9.38 $ 9.25 $ 8.13 Low $10.19 $ 9.16 $ 8.88 $ 7.75 1998 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Sales Price High $16.13 $17.00 $17.88 $12.63 Low $10.75 $14.25 $10.13 $ 9.25 The high and low sales prices for the The Company has never paid a cash as other factors deemed relevant by Common Stock as reported on Nasdaq dividend on its Common Stock. It is the Board of Directors. Covenants on March 8, 2000 were 8.13 and 8.00, the current intention of the Company’s contained in the Company’s General respectively. As of that date, the Board of Directors to retain earnings to Line of Credit may limit the Company’s Company had 264 stockholders of finance the growth of the Company ability to pay dividends. record, including brokerage firms and rather than pay cash dividends. Any other nominees. The Company future payments of cash dividends will estimates that there were depend upon the financial condition, approximately 1,888 beneficial owners results of operations and capital of its Common Stock as of that date. commitments of the Company as well U S A T R U C K , I N C . 3 Report Card Report Card Wonder how we’re doing? The numbers show we’re making the grade, with honors, and headed for the top of the class. USA Truck had record revenues of $166,363,356 in 1999 for the 11th consecutive year, meeting our goal of 15 percent growth. In addition to increasing our business with current customers and starting new customer relationships, we aggressively targeted dedicated and other logistics markets. USA Truck increased its driver recruiting budget by 150 percent for 1999 to keep up with growth and unprecedented driver turnover. Like a rose, even a blooming economy has its thorns. This thriving economy is providing ample revenue 4 U S A T R U C K , I N C . opportunities, but it is also providing plenty of alternative job opportunities for truck drivers, making driver retention a difficult proposition. Despite those challenges, and rising fuel costs in the fourth quarter, we once again posted strong earnings of $8,641,502, or $0.92 per diluted share. USA Truck also reported solid earnings before interest, taxes, depreciation and amortization (EBITDA) during 1999, generating more than $34 million, or $3.70 per share. This number is an indication of the company’s ability to meet its operating, or variable, cash needs as they come due. USA Truck was in a very good position to do that in 1999. U S A T R U C K , I N C . 5 Recruiting and Retention Recruiting and Retention When it comes to recruiting and In 1999, we increased our drivers operators. A new on-line computer retaining drivers, we can’t afford to hired count by 67 percent, compared system for recruiting now enables us indulge in another familiar type of to our fleet growth of 55 percent. to identify our most fertile and sterile R & R -- rest and relaxation. There recruiting areas, so we can commit simply can be no letdown on our part We were able to stay ahead of our our resources accordingly. in this vital area. growth by restructuring our relationships USA Truck is in a better position than with truck ever before to meet the hiring needs driving schools of our Company. We will continue to to ensure a evaluate our recruiting and retention steady stream of policies every quarter and adjust to student drivers the changing needs of our fleet. to participate in our five-week From a service perspective, we training have no choice. Rest and relaxation program. We are poor substitutes for recruiting also put a and retention. The strong economy has made the job renewed emphasis on recruiting market tight and increased the experienced drivers and owner- volatility among fleet drivers who are looking for a better deal. USA Truck spent a considerable amount of money in 1999 to recruit drivers. The results were spectacular, but more important was the fact that we turned a corner philosophically. They say that necessity is the mother of invention, and necessity has spawned a challenge to our creativity. USA Truck’s increasing need for drivers to fuel growth, along with the unfortunate upswing in the turnover rate, has forced us to reinvent the way we recruit drivers. 6 U S A T R U C K , I N C . U S A T R U C K , I N C . 7 Small Steps, Big Gains Small Steps, Big Gains One of our core philosophies has It was no accident that USA Truck Because of that proximity, we were always been steady, controlled revenue waited as long as it did to enter the able to hire many CCC Express growth. Years ago, we set a goal to acquisition game. While many of our employees, providing us valuable increase our revenue at an average rate competitors were joining the liaisons with customers and drivers. of 15 percent a year. We knew that at consolidation frenzy that swept the The benefits of this are most evident in that rate we could double our size truckload industry during the 90’s, we the Operations area where we were every five years and do it slowly were quietly and conservatively able to hire virtually all of the enough to maintain our profit margins. studying acquisition candidates. We personnel, providing a more seamless wanted our first one to be a good fit transition for the drivers. CCC Express for our current operations and a good employed an Operations staff with a investment for our great deal of industry experience. stockholders, and Coupled with USA Truck’s own we accomplished Operations personnel, this acquisition just that. solidified a tremendous team of professionals dedicated to driver CCC Express, Inc. satisfaction, customer service and shared much in equipment utilization. common with USA Truck. It operated This acquisition has allowed our in similar lanes at company to grow substantially without similar rates and the burden of hiring and training new Our first decade was a testament to hauled general commodities drivers to fill the new tractors in a that philosophy. Through meticulously comparable distances for many of our highly competitive recruiting climate. planning and monitoring our revenue existing customers, as well as several Further, with increased equipment equipment purchases and trades, we very desirable new customers. Its availability to customers, USA Truck is grew at an average rate of 15 percent revenue equipment was comparable now poised to be a major player in the during our first 10 years. to ours and its general offices were truckload market for years to come. located in Fort Smith,Arkansas, USA Truck kicked off its second decade just across the Arkansas River from in a much more aggressive fashion. On our own headquarters in November 1, 1999, we set sail on our Van Buren, Arkansas. maiden voyage into the waters of mergers and acquisitions by purchasing the assets of CCC Express, Inc. for $35.3 million. Our fleet size grew by 43 percent overnight! 8 U S A T R U C K , I N C . The Mexican Connection The Mexican Connection USA Truck is continually looking for new markets for its services. Over the past few years, there has been a tremendous demand for international shipping. To better serve our customers, we are now hauling freight over most of North America. For more than a decade, we have served the Canadian provinces of Ontario and Quebec. Our revenue north of the border has been steady and rewarding. During 1999, we made significant strides to establish a stronger presence in the Mexican truckload market through the gateway city of Laredo,Texas. Our revenues from Mexican loads increased to $5.4 million in 1999 from $2.8 million in 1998 -- a whopping 93 percent growth rate! There are several economic advantages to servicing Mexico, including increased length of haul and a wider customer base. USA Truck is committed to becoming a major player in multi-national shipping lanes. U S A T R U C K , I N C . 9 Surfin’USA Truck Surfin’USA Truck 1 0 U S A T R U C K , I N C . For several years now, USA Truck has been quietly upgrading its technology and developing software from within. Our philosophy of internally developing our mainframe applications not only gives our programming staff invaluable experience, but it also customizes all of our systems, allowing for better customer service. All of our systems, regardless of their platforms, are routed through our central mainframe. Our new website is simply an extension of our fundamental philosophy of centering all of our technology around the mainframe. Our staff has worked diligently over the past few years developing and maintaining systems for the Company’s various departments. Now we’re focusing that energy and know-how on the worldwide web. While our new site will be on the cutting edge of technology and provide customers with all the bells and whistles they want, it will also be an area requiring constant upgrades and improvements as we move forward. We’re committed to serving our customers and stockholders with the latest Internet technology. Our website was designed specifically with the customer in mind. Our marketing department was instrumental in its design and participated in every stage of its development. Features such as load tracing, load tendering, available equipment maps, rate requests and more are all driven by intense customer demand. The site also offers accommodations for stockholders and potential investors, including a strong investor relations presentation complete with links to up-to-the-minute stock information from NASDAQ and all SEC filings. You may visit us at www.usa-truck.com. U S A T R U C K , I N C . 1 1 USA Logistics’ principal competitive strength is its ability and commitment to provide consistent premium service to shippers that demand a higher level of service than is generally available in the truckload market. 1 2 U S A T R U C K , I N C . USA Logistics, Service First USA Logistics, Service First Everyone likes options. New car buyers are turning to transportation partners like 19 dedicated projects, a private fleet want leather seats, power locks and USA Logistics. We will purchase a conversion and a robust brokerage windows, CD players and a sporty look; shipper’s fleet and manage it as a business. As of December 31, 1999, and they want it at a competitive price. dedicated fleet for the shipper. Through the USA Logistics fleet included Our customers are no different. That’s this arrangement, the shipper retains the 142 tractors and $11.5 in revenue. why we began operating our service levels they experienced with their USA Logistics division in the fourth private fleet and are allowed to focus on quarter of 1998. their core competencies. Today’s shippers are interested in carriers USA Logistics’ greatest asset is its ability to that can satisfy their total freight needs. offer a true third-party logistics service. Whether it’s truckload, less-than-truckload Our highly trained, innovative Marketing or rail, USA Logistics can deliver. and Operations staff specialize in listening to our customers needs then E E q q uip uip m m e e n n t t D riv e r s D riv e r s M aintenance M aintenance All Distribution All Distribution Ele Ele ents ents m m A focal point of this division is dedicated developing, implementing and managing The division was founded on aggressive, service. Through a dedicated service a customized transportation solution to relentless marketing. Name recognition is partnership with USA Logistics, our meet our customers’ needs. paramount in the booming logistics customers are provided a specific industry. This core philosophy, along with number of assets (drivers and equipment) This winning combination of an emphasis on customer service, made to meet their transportation needs. This transportation solutions is designed the phenomenal growth possible. The consistent group of drivers provides a to give shippers one-stop shopping CCC Express acquisition also contributed knowledgeable work force resulting in regardless of their transportation needs. substantially, adding 76 tractors and 11 superior levels of customer service. dedicated projects, as well as a senior Customer advantages to this ‘bundle’ of sales executive. Projecting post- services go beyond hassle-free shipping. acquisition numbers, It also relieves them of the expense and USA Logistics is anticipating 2000 burden associated with administering revenues in excess of $25 million. their own trucking operation, including labor, fuel, equipment, insurance and USA Logistics’ mission is to provide authority procurement. consistent coverage to all customers. In order to do this, we must maintain our This division has shown tremendous high standards and strive to achieve total revenue growth during its first five customer satisfaction. Our slogan, Operating a trucking company can be an quarters. At the end of 1998, the fledgling “Running with Pride,” is indicative of our expensive and exhausting endeavor. division had three dedicated projects commitment to being on time all the That’s why many private fleets – those requiring 37 tractors and generating time, knowing that our jobs depend on fleets owned and operated by large revenue of $1.5 million. One year later, it conformance to customer requirements. retailers, manufacturers and distributors – has grown 667 percent and now boasts U S A T R U C K , I N C . 1 3 Sales Force Sales Force The lifeblood of any company is single-point-of-contact staff its sales force. Not only can a members led by a veteran seasoned, well-trained sales force member of management. generate strong revenue, but it can also take care of the customer The single-point-of-contact with that personal touch. concept spares customers the aggravation of voice mail and the At USA Truck, we have been ‘hot potato’ syndrome, where they molding our sales effort to meet are transferred from person to both the sales demands of the person in search of answers. We North American truckload market want our customers’ needs met and growing customer service quickly and in a professional, demands. In addition to sales courteous manner. No more people, whose main responsibility passing the buck -- it stops with us. it is to generate revenue, we have created a formal customer service department that employs 11 32 25 22 16 14 1 4 U S A T R U C K , I N C . U S A T R U C K , I N C . 1 5 With the fierce competition in the trucking industry these days,our survival hinges on doing right by our customers. We think that’s our strength,and we’re always looking for ways to make things better. USA Truck has vowed to eliminate anything and everything that inhibits customer satisfaction. We’ve already discussed how our recent acquisition, USA Logistics,our enhanced web site and our expanding international business can better serve our customers. Those are the high-profile projects we’ve developed. However, we’re proud to say there are several less visible ones that are every bit as important to a satisfied customer. Details like well-maintained revenue equipment and experienced personnel can make a world of difference in our competitive industry. We’ll Make It Right We’ll Make It Right 1 6 U S A T R U C K , I N C . Maintenance Quality tools in the hands of a skilled The Company benefits at trade time carpenter can become instruments of when the market rewards this art. High-end revenue equipment in the comprehensive maintenance plan with hands of an experienced,well-trained favorable pricing. driver can have the same effect. Stockholders reap the benefits of all USA Truck operates a modern fleet of of the above,owning shares in a late model revenue equipment. On company that is efficient, average,our tractors and trailers have competitive and profitable. only been on the road for 23 and 46 months,respectively. In addition to our strict equipment purchase and trade schedule,we have a thorough,on-line preventive maintenance computer system to keep our equipment functioning as efficiently as the day it rolled off the assembly line. Our tractors are equipped with optimized idle and are governed to run at a maximum speed of 63 miles per hour,drastically improving both fuel economy and safety. There is little doubt that these quality assurance programs pay dividends for drivers,customers and stockholders alike. Drivers keep running miles and making money in a comfortable,reliable tractor. Customers can count on one of the lowest preventable accident rates per mile in the industry,reduced service failures because of equipment breakdown and more competitive rates. U S A T R U C K , I N C . 1 7 Experienced Personnel More often than not,experience makes people more effective at anything they do. Trucking is no different. A Fleet Manager who’s been around the block a few times is going to be more effective at keeping drivers happy and keeping tractors rolling. Experience translates into better performance for our stockholders and better service for our customers. USA Truck generally targets young, college graduates to fill operational jobs. That is still our fundamental hiring plan, but a few years ago we began putting extra emphasis on hiring more experienced personnel. On average,an operations employee at USA Truck has been working in the trucking industry for 11 years,up from eight years in 1997. We believe that our drivers,customers and stockholders derive a great deal of benefit from that experience,and our record reflects that. 1 8 U S A T R U C K , I N C . Directors and Officers Directors and Officers James B. Speed Chairman of the Board and Director Robert M. Powell President, Chief Executive Officer and Director Jerry D. Orler Vice President, Finance, Chief Financial Officer, Secretary and Director George R. Jacobs Vice President, Operations and Director Patrick N. Majors Vice President, Sales Dwain R. Key Vice President, Corporate Development Gary I. Davis Vice President, Maintenance Jerry W. Cottingham Vice President, Logistics Roland S. Boreham Director (Chairman of the Board, Baldor Electric Company) Jim L. Hanna Director (President, Hanna Oil and Gas) Bobby W. Caldwell Treasurer Clifton R. Beckham Controller U S A T R U C K , I N C . 1 9 Ten Year Statistical History Ten Year Statistical History Balance Sheet Statistics (Dollars in thousands) Current assets Total assets Current liabilities Long-term debt - less current maturities Total liabilities Total shareholders' equity Income Statement Statistics (Dollars in thousands - except per share amounts) Revenue Operating expenses Operating income Other expenses, net Income before income taxes Income taxes Net income Diluted or primary (*) shares outstanding Diluted or primary (*) earnings per share Revenue - year-to-year change Operating ratio Financial Statistics (Dollars in thousands - except per share amounts) EBIT EBIT per share EBITDA EBITDA per share Operating cash flow per share Book value per share Return on average assets Return on average equity Funded debt to total capital Maintenance and repairs to fixed assets Times interest earned Revenue per non-driver Operating Statistics Total tractors (end of period) Average months in service - tractors Total trailers (end of period) Average months in service - trailers Trailer to tractor ratio Average miles per tractor per week Drivers Non-drivers Total employees Driver to non-driver ratio 1999 1998 1997 1996 $ $ $ $ $ $ 39,449 182,040 28,278 64,453 111,932 70,108 1999 166,363 150,526 15,837 1,624 14,213 5,571 8,642 9,354,441 0.92 14.6% 90.5% 1999 15,869 1.7 34,460 3.70 1.45 7.47 5.7% 13.0% 51.1% 6.1% 9.6 355 $ $ $ $ 20,459 119,611 21,151 19,058 56,877 62,734 1998 145,216 126,256 18,960 1,780 17,180 6,683 10,497 9,465,971 1.11 12.1% 86.9% 1998 $ 18,895 2.01 35,074 3.73 3.03 6.65 9.0% 18.2% 27.2% 6.4% 11.0 418 $ $ $ $ $ $ $ 20,292 113,518 20,762 27,057 61,145 52,373 1997 129,507 115,339 14,168 1,187 12,981 5,078 7,903 9,484,570 0.83 19.6% 89.1% $ $ $ $ 16,825 86,330 15,193 15,867 41,906 44,424 1996 108,313 102,061 6,252 717 5,535 2,153 3,382 9,619,919 0.35 5.8% 94.2% 1997 1996 14,361 1.54 27,969 2.99 3.02 5.59 7.9% 16.3% 36.2% 7.0% 10.4 379 $ $ 6,265 0.66 18,104 1.91 1.57 4.68 4.1% 7.7% 31.5% 8.9% 8.6 372 1999 1998 1997 1996 1,713 23 3,525 46 2.1:1 2,405 1,600 469 2,069 3.41 1,132 19 2,004 39 1.8:1 2,441 1,057 347 1,404 3.05 1,007 19 1,928 33 1.9:1 2,475 962 342 1,304 2.81 862 23 1,510 34 1.8:1 2,407 922 291 1,213 3.17 2 0 U S A T R U C K , I N C . December 31, 1995 1994 1993 1992 1991 1990 $ $ 16,008 78,980 13,295 13,361 35,823 43,157 $ 12,516 66,435 10,764 9,427 27,790 38,645 $ 11,371 54,711 8,627 10,898 24,233 30,478 $ 8,860 41,846 7,829 7,023 17,147 24,699 $ 10,987 38,566 10,056 20,022 31,487 7,079 9,642 37,511 8,966 22,855 32,436 5,075 Year Ended December 31, $ $ $ 1995 102,400 91,961 10,439 646 9,793 3,756 6,037 10,028,478 0.60 10.7% 89.8% 1994 1993 1992 1991 1990 $ 92,511 78,625 13,886 801 13,085 5,018 8,067 9,903,682 $ 0.81 21.9% 85.0% $ $ 75,875 65,853 10,022 679 9,343 3,764 5,579 9,873,665 $ 0.57 20.4% 86.8% $ $ $ $ 63,038 55,167 7,871 1,093 6,778 2,724 4,054 $ $ 52,538 46,731 5,807 2,462 3,345 1,342 2,003 * 9,150,214 * 0.44 20.0% 87.5% * 7,200,000 * $ 0.28 15.0% 88.9% $ 45,684 40,774 4,910 1,305 3,605 1,483 2,122 * 7,200,000 * $ 0.29 $ 25.6% 89.3% Year Ended December 31, 1995 10,592 1.09 21,737 2.24 1.85 4.44 8.3% 14.8% 25.8% 8.7% 13.3 402 $ $ December 31, 1995 782 19 1,378 32 1.8:1 2,382 778 255 1,033 3.05 1994 $ 13,866 1.37 22,991 2.28 2.08 3.99 13.3% 23.3% 22.6% 8.7% 17.8 390 $ 1993 1992 1991 1990 $ $ 10,052 1.00 17,524 1.75 1.31 3.16 11.6% 20.2% 29.5% 9.3% 14.2 383 $ $ 8,021 0.88 14,858 1.62 1.32 2.70 10.1% 25.5% 25.2% 10.1% 6.5 354 $ $ 5,709 0.79 11,640 1.62 0.99 0.98 5.3% 33.0% 75.5% 9.5% 2.4 313 $ $ 5,681 0.79 10,425 1.45 0.99 0.70 6.5% 52.9% 82.1% 9.9% 2.7 313 1994 1993 1992 1991 1990 711 17 1,202 31 1.7:1 2,565 712 237 949 3.00 571 18 1,023 35 1.8:1 2,551 563 198 761 2.84 496 25 840 37 1.7:1 2,508 508 178 686 2.85 412 22 705 43 1.7:1 2,404 418 168 586 2.49 363 12 622 38 1.7:1 2,414 358 146 504 2.45 U S A T R U C K , I N C . 2 1 Corporate information Corporate information This annual report and the statements contained herein are submitted for the general information of stockholders of the Company and are not intended to induce any sale or purchase of securities or to be used in connection therewith. The 1999 Annual Report filed with the Securities and Exchange Commission on Form 10-K is available to stockholders upon request by writing to the Secretary at the executive offices. A U D I TO R S Ernst & Young LLP A N N U A L M E E T I N G May 3, 2000 425 West Capitol, Suite 3600 10 a.m. Little Rock, Arkansas 72201 USA Truck, Inc. T R A N S F E R A G E N T A N D R E G I ST R A R Registrar and Transfer Company 10 Commerce Drive Cranford, New Jersey 07016-3572 C O R P O R AT E H E A D Q U A RT E R S 3200 Industrial Park Road Van Buren, Arkansas 72956 Telephone: 501-471-2500 3200 Industrial Park Road Van Buren, Arkansas 72956 C O M M O N STO C K Traded on The Nasdaq Stock Market under the Symbol: USAK W E B S I T E http://www.usa-truck.com Upon written request of any stockholder, the Company will furnish without charge a copy of the Company’s 1999 Annual Report on Form 10-K, as filed with the Securities and Exchange Commission, including the financial statements and schedules thereto. The written request should be sent to Jerry D. Orler, Secretary of the Company, at the Company’s executive offices, 3200 Industrial Park Road,Van Buren,Arkansas 72956. The written request must state that as of March 8, 2000 the person making the request was a beneficial owner of shares of the common stock of the Company. 2 2 U S A T R U C K , I N C . Business 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 1997, 1998, and 1999, the average length of haul for Company tractors was 920 miles, 916 miles, and 908 miles, respectively. The Company's principal offices are located at 3200 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, the Company (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 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. U S A T R U C K , I N C . 2 3 The Company has designed its own management information software systems, which it operates on a mainframe computer that the Company acquired in 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 used 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 locations, 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 2001 without substantial additional expenditures in the data processing area. Recent Events On November 1, 1999, pursuant to an Asset Purchase Agreement (the "Asset Purchase Agreement") dated October 31, 1999, the Company acquired substantially all the assets of CARCO Carrier Corporation, an Arkansas corporation, which operated under the name CCC Express, Inc. ("CCC"), for a purchase price of $35.3 million. The purchase price, which was subject to certain post-closing adjustments, consisted of (i) a cash payment of approximately $3.0 million; (ii) the assumption of approximately $6.5 million of liabilities including equipment notes held by Bank Boston, Mellon U.S. Leasing and Banc of America Leasing & Capital LLC and (iii) the refinancing with Banc One Leasing Corporation and Deposit Guaranty National Bank of approximately $25.8 million in other debt secured by equipment. The cash portion of the purchase price was paid with available cash and proceeds of borrowings under the Company’s credit facilities with Deposit Guaranty National Bank. The purchase price was equal to the net book value of CCC on the closing date,as adjusted in accordance with the Asset Purchase Agreement,plus $2.0 million. In connection with the acquisition, the Company’s borrowing limit under its General Line of Credit with Deposit Guaranty National Bank was increased from $20.0 million to $35.0 million effective October 28, 1999. The acquired operations include a fleet of 498 tractors and 1,103 dry van trailers, which the Company will use in its truckload motor carrier business. The acquisition represents an increase of 43% in the tractor fleet of the Company,which operated 1,149 tractors and 2,266 dry van trailers before the transaction. As part of the transaction, the Company also assumed three leases for dedicated shop and fuel facilities. 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, 1999, at least 93% of USA Truck's operating revenues were derived from customers that were customers of the Company prior to 1999. USA Truck establishes rates through individual negotiations with customers and through contracts tailored to the specific needs of shippers. 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 2 4 U S A T R U C K , I N C . 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 9.26% for the year ended December 31, 1999. Fleet managers supervise fleets of approximately 55 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. Safety USA Truck's safety program is designed to meet the Company’s goal of 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. 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 During 1999, the Company acquired 381 new tractors (a net increase of 83) and 600 new trailers (a net increase of 417). The Company purchased 68 fewer new tractors in 1999 than anticipated in response to the shortage of qualified drivers in the truckload industry. The process of converting to 53-foot trailers, growth in dedicated service and freight into Mexico, which traditionally requires more trailers that regular dry-van service, necessitated increasing the trailer fleet by 114 units above the amount anticipated. The CCC Express acquisition added an additional 498 tractors and 1,103 trailers to the fleet. The Company purchases equipment manufactured to its specifications, which provides efficiencies in training, parts inventory and maintenance. Equipment selection is based on safety, economy, resale value, driver comfort, and other factors. Management establishes and adjusts equipment purchase schedules to maintain acceptable equipment utilization rates in relation to current economic conditions in the truckload industry. The Company has a strict preventive maintenance program designed to minimize equipment downtime and to enhance trade-in value. 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. Currently, the Company replaces most tractors within 42 months from the date of purchase, thereby maintaining substantial warranty coverage throughout the period of ownership. 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 and additional trailers required to serve Mexico, the Company's trailer to tractor ratio was 2.1-to-1 at December 31, 1999. Management believes that a 2.1-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, 1999, 2,475 of the 3,524 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 2000 and 2001, the Company plans to acquire 641 and 695 new tractors and 650 and 825 new trailers, respectively. This will result in net increases of 66 and 267 tractors and 111 and 546 trailers, respectively. 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. U S A T R U C K , I N C . 2 5 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 32 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 29 of the 32 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. During 1999 the company acquired approximately 3 acres of adjoining land and plans to use this space for truck and trailer parking as soon as it can be prepared. The drivers' quarters also include a sales and recruiting 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, New Paris, Indiana and Fayetteville, North Carolina. Management believes that its facilities will be sufficient for its operations at least through 2000. 2 6 U S A T R U C K , I N C . Selected Financial Data 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 this Annual Report. 1999 Year Ended December 31, 1997 (In thousands, except per share amounts) 1998 1996 1995 $ 166,363 $ 145,216 $ 129,507 $ 108,313 $ 102,400 Statement of Operations Data: Operating revenues............................................. Operating expenses and costs: Salaries, wages and employee benefits.......... Operations and maintenance ........................ Operating taxes and licenses......................... Insurance and claims ..................................... Communications and utilities........................ Depreciation and amortization...................... Other ............................................................. Operating income ............................................... Other (income) expenses: Interest expense ............................................ Gain on disposal of assets ............................. Other, net ....................................................... Income before income taxes .............................. 70,198 42,480 3,005 7,987 2,000 18,592 6,265 150,527 15,836 61,297 33,401 2,547 7,250 1,469 16,179 4,113 126,256 18,960 53,122 34,189 2,160 6,773 1,828 13,608 3,659 115,339 14,168 1,655 (9) (23) 1,623 14,213 1,715 (37) 102 1,780 17,180 1,380 (2) (191) 1,187 12,981 Income taxes....................................................... Net Income ......................................................... 5,571 8,642 6,683 10,497 Basic: Net income per share.................................... Average shares outstanding ........................... Diluted: Net income per share.................................... Average shares outstanding ........................... Cash dividends per share.................................... Balance Sheet Data (at end of year): Current assets ..................................................... Current liabilities ................................................ Total assets .......................................................... Long-term debt, less current maturities .............. Stockholders’ equity............................................ $ $ $ .93 9,324 .92 9,354 – 39,449 28,277 182,040 64,453 70,108 $ $ $ 1.12 9,400 1.11 9,466 – 20,459 21,151 119,611 19,058 62,734 $ $ $ 5,078 7,903 0.84 9,356 0.83 9,485 – 20,292 20,762 113,518 27,057 52,373 45,122 31,064 1,964 6,422 1,612 11,839 4,038 102,061 6,252 730 (9) (4) 717 5,535 2,153 3,382 42,860 26,909 1,822 5,146 1,285 11,145 2,794 91,961 10,439 799 (1) (152) 646 9,793 3,756 6,037 $ $ $ 0.36 9,463 0.35 9,620 -- 16,825 15,193 86,330 15,867 44,424 $ $ $ 0.62 9,684 0.60 10,028 -- 16,008 13,295 78,980 13,361 43,157 U S A T R U C K , I N C . 2 7 Management’s Discussion and Analysis Management’s Discussion and Analysis The following table sets forth the percentage relationship of certain items to operating revenues for the years indicated: Year Ended December 31, 1998 1997 1999 Operating revenues................................................... Operating expenses and costs: 100.0% 100.0% 100.0% Salaries, wages and employee benefits.............. Operations and maintenance ............................ Operating taxes and licenses............................. Insurance and claims ......................................... Communications and utilities............................ Depreciation and amortization.......................... Other ................................................................. Operating income ..................................................... Other (income) expenses: Interest expense ................................................ Gain on disposal of assets ................................. Other, net........................................................... Income before income taxes .................................... Income taxes............................................................. Net income ............................................................... 42.2 25.5 1.8 4.8 1.2 11.2 3.8 90.5 9.5 1.0 – – 1.0 8.5 3.3 5.2% 42.2 23.0 1.8 5.0 1.0 11.1 2.8 86.9 13.1 1.2 – 0.1 1.3 11.8 4.6 7.2% 41.0 26.4 1.7 5.2 1.4 10.5 2.9 89.1 10.9 1.1 – (0.2) 0.9 10.0 3.9 6.1% Results of Operations Year Ended December 31, 1999 Compared to Year Ended December 31, 1998 Operating revenues increased 14.6% to $166.4 million in 1999 from $145.2 million in 1998, resulting from increased business with existing customers, additional business from new customers and the acquisition of CCC Express on November 1, 1999. Average revenue per mile increased to $1.13 in 1999 from $1.12 in 1998. The empty mile factor decreased to 9.26% of paid miles in 1999 from 9.78% of paid miles in 1998. There was a 15.1% increase in the number of shipments to 147,484 in 1999 from 128,179 in 1998. This volume improvement was made possible by an increase of 15.6% in the average number of tractors operated from 1,058 in 1998 to 1,223 in 1999. The net effect of the volume improvement and the Company’s continuing fleet expansion was a decrease of 1.5% in miles per tractor per week from 2,441 in 1998 to 2,404 in 1999. Operating expenses and costs as a percentage of revenues rose to 90.5% in 1999 from 86.9% in 1998. This change resulted primarily from an increase, on a percent of revenue basis, in operations and maintenance cost, communications and utilities, and other expenses. These increases were partially offset by a decrease, on a percent of revenue basis, in insurance and claims. The percentage increase, relative to revenues, in operations and maintenance cost was primarily the result of a an increase of 10 cents per gallon in the average cost of fuel in 1999 compared to 1998, offset by an increase in fuel efficiency to 6.46 average miles per gallon in 1999 from 6.41 in 1998. The increase in communications and utilities expense, as a percentage of revenue and in actual dollars, reflects the usage credits issued with the purchase of Qualcomm units in 1997 being used to reduce rates in 1998. The increase in other expenses, as a percentage of revenue, resulted primarily from higher recruiting costs brought about by a higher driver turnover rate and increased competition for drivers. The percentage decrease, relative to revenues, in insurance and claims expense was due to a decrease in the number and severity of accidents in 1999 compared to 1998. As a result of the foregoing factors, operating income decreased 16.5% to $15.8 million, or 9.5% of revenue, in 1999 from $19.0 million or, 13.1% of revenues, in 1998. 2 8 U S A T R U C K , I N C . Interest expense decreased 3.5% to $1.65 million from $1.72 million in 1998, resulting primarily from reduction in borrowings for most of the year offset by a substantial increase in borrowings following the acquisition of CCC Express on November 1, 1999. The Company had other income, net of $23,000 during 1999 compared to other expense, net of $102,000 in 1998. This increase in other income, 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 factors, income before taxes decreased 17.3% to $14.2 million, or 8.5% of revenues, in 1999 from $17.2 million, or 11.8% of revenues, in 1998. The Company’s effective tax rate increased to 39.2% in 1999 from 38.9% in 1998. The effective rates varied from the statutory Federal tax rate of 34% primarily due to state income taxes and certain non-deductible expenses. As a result of the aforementioned factors, net income decreased 17.7% to $8.6 million, or 5.2% of revenues, in 1999 from $10.5 million, or 7.2% of revenues in 1998, representing a decrease of 17.1% in diluted net income per share to $.92 from $1.11. The number of shares used in the calculation of diluted net income per share for 1999 and 1998 were 9,354,441 and 9,465,971. 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, 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. U S A T R U C K , I N C . 2 9 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. 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 increased during 1999 and there can be no assurance when diesel prices will decrease to price levels 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. Operational Data The following table sets forth certain operational information for the last three fiscal years: Year Ended December 31, 1998 1997 1999 Total loads moved during the year ............................................ Average number of tractors operated during the year .............. Number of tractors operated at year end .................................. Number of trailers operated at year end ................................... Total tractor miles during the year ............................................ 147,484 1,223 1,713 3,524 169,587,327 128,179 1,058 1,132 2,004 148,590,937 114,022 935 1,007 1,928 133,941,037 3 0 U S A T R U C K , I N C . 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 through borrowings under the General Line of Credit. Although the Company historically 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 $13.6 million for 1999 and $28.5 million for 1998. The Company's General Line of Credit provides for available borrowings of up to $40.0 million, including letters of credit not exceeding $5.0 million. The Company increased the maximum borrowing limit from $20.0 million to the current level based upon its evaluation of the Company’s borrowing requirements. As of December 31, 1999, approximately $1.0 million was available under the General Line of Credit. The General Line of Credit matures on April 30, 2001, prior to which time, subject to certain conditions, the amount outstanding can be converted at any time, at the Company's option, to a four-year term loan requiring 48 equal monthly principal payments plus interest. The interest rate on the General Line of Credit fluctuates between the lender's prime rate, or prime plus 1/2% or LIBOR plus a certain percentage which is determined based on the Company’s attainment of certain financial ratios. The effective interest rate on the Company’s borrowings under the General Line of Credit for the year ending December 31, 1999 was 6.48%. The principal maturity can be accelerated if the borrowing base 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. The Company is a party to a lease commitment agreement (the "Equipment TRAC Lease Commitment"), dated November 19, 1997, to facilitate the leasing of tractors. The Equipment TRAC Lease Commitment was amended on October 12, 1999 to provide for available borrowings of up to $6,000,000 available during the remainder of 1999 and until October 12, 2000. Each capital lease under this lease commitment has a repayment period of either 36 or 42 months. As of December 31, 1999, capital leases in the aggregate principal amount of $21.7 million were outstanding under the Equipment TRAC Lease Commitment with an average interest rate of 5.66% per annum. As of December 31, 1999, capital leases in the aggregate principal amount of $9.3 million were outstanding under a prior lease commitment with an average interest rate of 5.25% per annum. The Company's long-term debt, excluding current debt, increased by 238.2% to $64.4 million at December 31, 1999 from $19.1 million at December 31, 1998. This increase resulted from increased borrowings under the Equipment TRAC Lease Commitment for revenue equipment purchases and the acquisition of CCC Express, Inc., partially offset by the retirement of $14.8 million in debt. The retired debt had an average interest rate of approximately 6.6% and was repaid with cash flow from operations. During the years 2000 and 2001, the Company plans to make approximately $134 million in capital expenditures. At December 31, 1999, USA Truck was committed to spend $63.7 million of this amount for revenue equipment in 2000, and $64.2 million of this amount is currently budgeted for revenue equipment in 2001. 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 2000. There can be no assurance, however, that such sources will be sufficient to fund Company operations and all expansion plans through such date, or that any necessary additional financing will be available, if at all, in amounts required or on terms satisfactory to the Company. The Company expects to continue to fund its operations with cash flows from operations, equipment leases, the General Line of Credit, and the Equipment TRAC Lease Commitment for the foreseeable future. U S A T R U C K , I N C . 3 1 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, 1999, the Company had purchased 231,600 shares pursuant to this new authorization at an aggregate purchase price of $2,125,000. On May 5, 1999, the Board of Directors authorized the retirement of 100,000 shares of treasury stock that had been purchased at an aggregate cost of $.9 million. In addition, as of December 31, 1999, 9,589 of the remaining 131,600 repurchased shares had been resold under the Company’s Employee Stock Purchase Plan. The Company may continue to purchase shares in the future if, in the view of management, the common stock is undervalued relative to the Company’s performance and prospects for continued growth. Any such purchases would be funded with cash flows from operations or the General Line of Credit. Year 2000 Issues The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Potentially, the Year 2000 issue could have resulted, at the Company and at its vendors and customers, 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. Beginning in 1997, the Company undertook various initiatives intended to ensure that its computer equipment and software would function properly in the Year 2000 and thereafter. As of February 24, 2000, the Company has not experienced any material adverse effects related to the Year 2000 issue, and none of its key vendors have reported to the Company any material adverse effects related to the issue. At this time, the Company does not expect to encounter any Year 2000 issues that would have a material effect on its results of operations, liquidity and financial condition. Furthermore, the Company does not anticipate any significant expenditure in the future related to year 2000 compliance. However, latent Year 2000 problems may surface at key dates or events in the future. New Accounting Pronouncements 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. 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, 1999, the Company had $39.0 million outstanding pursuant to the General Line of Credit. The Company believes that the effect, if any, of reasonably possible near-term changes in interest rates on the Company’s financial position, results of operations, and cash flows should not be material. All customers are required to pay for 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. 3 2 U S A T R U C K , I N C . 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. U S A T R U C K , I N C . 3 3 Report of Ernst & Young LLP,Independent Auditors 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, 1999 and 1998, and the related statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. Little Rock,Arkansas January 18, 2000 3 4 U S A T R U C K , I N C . Financial Statements Financial Statements USA TRUCK, INC. Balance Sheets Assets Current assets: Cash and cash equivalents ...................................................................... Receivables (Note 5): Trade, less allowance for doubtful accounts of $269,150 in 1999 and $140,670 in 1998......................................... Other.................................................................................................... Inventories .............................................................................................. Deferred income taxes (Note 7)............................................................. Prepaid expenses and other current assets (Note 3) ............................. Total current assets ..................................................................................... Property and equipment (Notes 5 and 6): Land and structures................................................................................. Revenue equipment ................................................................................ Service, office and other equipment....................................................... Accumulated depreciation and amortization.......................................... Security deposits ......................................................................................... Other assets................................................................................................. Total assets .................................................................................................. Liabilities and stockholders' equity Current liabilities: Bank drafts payable ................................................................................. Trade accounts payable........................................................................... Accrued expenses (Note 4) .................................................................... Current maturities of long-term debt (Note 5)....................................... Total current liabilities ................................................................................ Long-term debt, less current maturities (Notes 5 and 6)........................... Deferred income taxes (Note 7)................................................................. Insurance and claims accruals .................................................................... Commitments and contingencies (Notes 6 and 12) Stockholders' equity (Notes 5 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 9,387,041 shares in 1999 and 9,437,097 shares in 1998.............................................................. Additional paid-in capital ........................................................................ Retained earnings.................................................................................... Less treasury stock, at cost (122,011 shares in 1999 and 46,789 December 31, 1999 1998 $ 2,145,707 $ 1,779,643 26,649,235 5,509,866 301,907 1,208,413 3,634,056 39,449,184 16,798,699 155,546,718 13,665,713 186,011,130 (43,873,074) 142,138,056 – 452,448 182,039,688 1,116,485 5,139,164 11,065,604 10,956,533 28,277,285 64,452,648 17,008,364 2,192,714 13,928,848 299,914 236,338 1,573,365 2,640,561 20,458,669 14,637,631 107,323,786 10,947,496 132,908,913 (36,769,320) 96,139,593 1,745,478 1,267,479 119,611,219 425,485 3,397,593 11,139,369 6,188,241 21,150,688 19,057,816 14,576,038 2,092,614 $ $ $ $ – -- 93,870 12,271,685 58,840,827 94,371 12,921,342 50,199,325 shares in 1998) .................................................................................... Total stockholders' equity ........................................................................... Total liabilities and stockholders' equity..................................................... (1,098,206) 70,108,176 182,039,688 $ (480,975) 62,734,063 119,611,219 $ See accompanying notes. U S A T R U C K , I N C . 3 5 USA TRUCK, INC. Statements of Income Year Ended December 31, 1998 1997 1999 Operating revenues .................................................... $ 166,363,356 $ 145,216,121 $ 129,507,242 Operating expenses and costs: Salaries, wages and employee benefits (Note 8) Operations and maintenance.............................. Operating taxes and licenses.............................. Insurance and claims .......................................... Communications and utilities ............................. Depreciation and amortization ........................... Other................................................................... Operating income ...................................................... Other (income) expenses: Interest expense ................................................. Gain on disposal of assets................................... Other, net ............................................................ Income before income taxes...................................... Income taxes (Note 7): Current................................................................ Deferred .............................................................. Net income................................................................. $ Net income per share (Notes 9 and 10): Basic earnings per share ..................................... Diluted earnings per share ................................. See accompanying notes. 70,197,581 42,480,525 3,005,166 7,987,208 1,999,548 18,591,780 6,264,876 150,526,684 15,836,672 61,296,860 33,400,982 2,547,449 7,249,853 1,468,485 16,179,143 4,113,158 126,255,930 18,960,191 53,122,136 34,188,558 2,160,408 6,773,001 1,827,608 13,607,835 3,658,992 115,338,538 14,168,704 1,655,558 (9,297) (22,588) 1,623,673 14,212,999 1,714,662 (37,088) 102,340 1,779,914 17,180,277 1,379,481 (1,731) (190,641) 1,187,109 12,981,595 2,774,219 2,797,278 5,571,497 8,641,502 3,366,164 3,316,964 6,683,128 10,497,149 $ 4,027,787 1,050,336 5,078,123 7,903,472 $ $0.93 $0.92 $1.12 $1.11 $.84 $.83 3 6 U S A T R U C K , I N C . USA TRUCK, INC. Statements of Stockholders’ Equity Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock Total $ 94,996 $ 13,837,785 $ 31,798,704 $ (1,307,490) $ 44,423,995 608 374,439 -- -- -- -- -- 375,047 (329,253) (329,253) (1,855) -- 93,749 (1,634,888) -- 12,577,336 -- 7,903,472 39,702,176 1,636,743 -- -- -- 7,903,472 52,373,261 622 290,941 -- -- 53,065 -- -- -- -- -- -- 291,563 53,065 (585,962) (585,962) -- -- 94,371 -- -- 12,921,342 -- 10,497,149 50,199,325 104,987 -- (480,975) 104,987 10,497,149 62,734,063 Balance at January 1, 1997..................... Exercise of stock options, net (Note 10).................................. Purchases of 40,500 shares of common stock into treasury .... Retirement of 185,500 shares of treasury stock....................... Net income for 1997...................... Balance at December 31, 1997 .............. Exercise of stock options, net (Note 10).................................. Tax benefit of stock options (Note 7).................................... Purchases of 54,750 shares of common stock into treasury .... Sale of 7,961 shares of treasury stock to employee stock purchase plan ........................... Net income for 1998...................... Balance at December 31, 1998 .............. Exercise of stock options, net (Note 10).................................. Purchase of 186,600 shares of common stock into treasury .... Sale of 11,379 shares of treasury stock to employee stock purchase plan ................. Retirement of 100,000 shares 499 278,219 -- -- -- -- out of treasury stock ................ Net income for 1999...................... Balance at December 31, 1999 .............. $ (1,000) -- 93,870 (927,876) -- 12,271,685 $ See accompanying notes. -- -- -- -- 8,641,502 58,840,827 $ -- 278,718 (1,662,883) (1,662,883) 116,776 116,776 928,876 -- $ (1,098,206) $ -- 8,641,502 70,108,176 U S A T R U C K , I N C . 3 7 USA TRUCK, INC. Statements of Cash Flows Operating activities Net income............................................................................ Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ................................. Provision for doubtful accounts................................ Deferred income taxes.............................................. Gain on disposal of assets ......................................... Changes in operating assets and liabilities: Receivables ........................................................... Inventories, prepaid expenses and other Year Ended December 31, 1998 1997 1999 $ 8,641,502 $ 10,497,149 $ 7,903,472 18,591,780 121,900 2,797,278 (9,297) 16,179,143 30,000 3,316,964 (37,088) 13,607,835 30,000 1,050,336 (1,731) (17,186,596) (1,363,041) (186,827) current assets ................................................... Bank drafts payable, trade accounts payable and accrued expenses............................................. Insurance and claims accruals - long-term ........... Net cash provided by operating activities ............................ (609,527) (1,103,891) (106,694) 1,103,205 100,100 13,550,345 539,981 408,000 28,467,217 5,568,536 408,000 28,272,927 Investing activities Purchases of property and equipment.................................. Purchase of CCC Express, Inc. ............................................. Proceeds from sale of equipment ......................................... Proceeds from sale of investments........................................ (Increase) decrease in other assets ....................................... Net cash used by investing activities .................................... (29,492,589) (22,891,055) 9,651,337 968,196 (153,165) (41,917,276) (21,731,600) -- 6,395,382 -- 31,150 (15,305,068) (32,777,855) -- 8,174,217 -- (307,728) (24,911,366) Financing activities Borrowings under long-term debt......................................... Proceeds from the exercise of stock options ....................... Proceeds from sale of treasury stock .................................... Refund of security deposits................................................... Payments to repurchase common stock ............................... Principal payments on long-term debt.................................. Principal payments on capitalized lease obligations............. Net cash provided by (used by) financing activities ............ Increase (decrease) in cash and cash equivalents ................ Cash and cash equivalents: 55,685,310 278,718 116,776 1,745,478 (1,662,883) (19,595,310) (7,835,094) 28,732,995 14,325,000 291,563 104,987 -- (585,962) (22,800,000) (6,385,405) (15,049,817) 29,553,208 375,047 -- -- (597,379) (23,828,208) (6,683,864) (1,181,196) 366,064 (1,887,668) 2,180,365 Beginning of year ........................................................... End of year ..................................................................... $ 1,779,643 2,145,707 $ 3,667,311 1,779,643 $ 1,486,946 3,667,311 See accompanying notes. 3 8 U S A T R U C K , I N C . USA TRUCK, INC. Notes to Financial Statements December 31, 1999 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 7% and 11% of net trade receivables as of December 31, 1999 and 1998, respectively. A different customer represented approximately 9% and 11% of revenues for the years ended December 31, 1999 and 1998, 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. U S A T R U C K , I N C . 3 9 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 1999 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 2000. The certificates of deposit are included in other assets on the balance sheet as of December 31, 1999 and 1998. 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). 4 0 U S A T R U C K , I N C . 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. Acquisition On November 1, 1999, pursuant to an Asset Purchase Agreement (the "Asset Purchase Agreement") dated October 31, 1999, the Company acquired substantially all the assets of CARCO Carrier Corporation, an Arkansas corporation, which operated under the name CCC Express, Inc. ("CCC"), for a purchase price of $35.3 million.The purchase price consisted of (i) a cash payment of approximately $3.0 million; (ii) the assumption of approximately $6.5 million of liabilities including equipment notes and (iii) the refinancing of approximately $25.8 million in other debt secured by equipment. Additionally, $5.9 million of the $25.8 million consisted of a non-cash transaction. The cash portion of the purchase price was paid from available cash and proceeds of borrowings under the Company’s credit facilities.The purchase price was equal to the net book value of CCC on the closing date, as adjusted in accordance with the Asset Purchase Agreement, plus $2 million. In connection with the acquisition, the Company’s borrowing under its General Line of Credit was increased from $20 million to $35 million effective October 28, 1999. The acquisition has been accounted for under the purchase method. Accordingly, the acquired assets and liabilities have been recorded at their estimated fair values at the date of acquisition. Operating results of the acquired business are included in the statements of income from the acquisition date. U S A T R U C K , I N C . 4 1 USA TRUCK, INC. Notes to Financial Statements (continued) 2. Acquisition (continued) 2. Acquisition (continued) The following pro forma summary of results of operations has been prepared as though CCC had been acquired on January The following pro forma summary of results of operations has been prepared as though CCC had been acquired on January 1, 1998.These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of 1, 1998.These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisition been made on January 1, 1998, or of results which may occur in the future. what would have occurred had the acquisition been made on January 1, 1998, or of results which may occur in the future. Operating revenues.......................................................................... Net Income ...................................................................................... Basic earnings per share .................................................................. Diluted earnings per share .............................................................. 3. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consist of the following: Prepaid licenses and taxes .......................................................................... Prepaid insurance........................................................................................ Other ......................................................................................................... 4. Accrued Expenses Accrued expenses consist of the following: Salaries, wages, bonuses and employee benefits......................................... Insurance and claims accruals .................................................................... Other ......................................................................................................... December 31, 1999 $ 222,089,793 6,127,054 $.66 $.65 $ 1998 211,937,321 9,074,624 $.97 $.96 December 31, 1999 1,381,345 2,039,749 212,962 3,634,056 $ $ 1998 938,881 1,624,315 77,365 2,640,561 December 31, 1999 4,352,233 3,585,366 3,128,005 11,065,604 $ $ 1998 4,825,956 4,071,832 2,241,581 11,139,369 $ $ $ $ 4 2 U S A T R U C K , I N C . USA TRUCK, INC. Notes to Financial Statements (continued) 5. Long-term Debt Long-term debt consists of the following: Revolving credit agreement (1) .................................................................. Capitalized lease obligations (2) ................................................................. Less current maturities................................................................................ December 31, 1999 $ $ 38,990,000 36,419,181 75,409,181 (10,956,533) 64,452,648 1998 2,900,000 22,346,057 25,246,057 (6,188,241) 19,057,816 $ $ (1) The Company's revolving credit agreement (the "Line of Credit"), effective December 15, 1999, provides for available borrowings of $40,000,000, including letters of credit not exceeding $5,000,000. The Line of Credit matures on April 30, 2002, 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, 1999 was 6.09%. 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, 1999. The Line of Credit requires the Company to meet certain financial covenants and to maintain a minimum tangible net worth of approximately $40,300,000 at December 31, 1999. The Company was in compliance with these covenants at December 31, 1999. 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 June 2003 and contain renewal or fixed price purchase options. The effective interest rates on the leases range from 1.89% to 10.15% at December 31, 1999.The lease agreements require the Company to pay property taxes, maintenance and operating expenses. The Company made interest payments of approximately $1,490,000, $1,699,000 and $1,454,000 during 1999, 1998 and 1997, respectively. The Company capitalized $6,800 in interest as a result of construction during 1998. U S A T R U C K , I N C . 4 3 USA TRUCK, INC. Notes to Financial Statements (continued) 6. Leases and Commitments Capital lease obligations of $21,908,219, $6,763,522 and $12,416,151 were incurred during the years ended December 31, 1999, 1998 and 1997, respectively. At December 31, 1999, the future minimum payments under capitalized leases with initial terms of one year or more were $12,731,609 for 2000, $11,203,043 for 2001, $10,012,512 for 2002 and $6,085,516 for 2003. The present value of net minimum lease payments was $36,419,151 which includes the current portion of the capital leases of $10,956,533 and excludes amounts representing interest of $3,613,529. At December 31, 1999, property and equipment included capitalized leases which had capitalized costs of $45,526,083, accumulated amortization of $7,944,872 and a net book value of $37,581,211. 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.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 $63,700,000 at December 31, 1999. 7. Federal and State Income Taxes Significant components of the Company's deferred tax liabilities and assets as of December 31, 1999 and 1998 are as follows: Noncurrent deferred tax liabilities: Tax over book depreciation .................................................................... Capitalized leases .................................................................................... Total noncurrent deferred tax liabilities ..................................................... Current deferred tax assets: Revenue recognition ............................................................................... Accrued expenses not deductible until paid .......................................... Allowance for doubtful accounts............................................................ Total current deferred tax assets................................................................. December 31, 1999 1998 $ $ $ 16,904,280 104,084 17,008,364 (89,392) (2,389,894) (99,166) (2,578,452) $ $ $ 14,512,768 63,270 14,576,038 (116,286) (2,420,906) (53,033) (2,590,225) Current deferred tax liabilities: Prepaid expenses deductible when paid ................................................ Net current deferred tax assets................................................................... $ 1,370,039 (1,208,413) $ 1,016,860 (1,573,365) 4 4 U S A T R U C K , I N C . USA TRUCK, INC. Notes to Financial Statements (continued) 7. Federal and State Income Taxes (continued) Significant components of the provision for income taxes are as follows: Year Ended December 31, 1998 1997 1999 Current Federal ................................................................................... State ....................................................................................... Total current.......................................................................... Deferred Federal ................................................................................... State ....................................................................................... Total deferred ........................................................................ Total income tax expense ..................................................... $ $ 2,406,997 367,222 2,774,219 2,350,248 447,030 2,797,278 5,571,497 $ $ 2,812,318 553,846 3,366,164 2,883,617 433,347 3,316,964 6,683,128 $ $ 3,491,181 536,606 4,027,787 862,092 188,244 1,050,336 5,078,123 During 1999, 1998 and 1997, the Company made income tax payments of approximately $3,105,300, $3,484,000, and $3,644,000, respectively. During 1998, the Company recognized a tax benefit of $53,065 related to stock options. This amount was added to additional paid-in capital. A reconciliation between the effective income tax rate and the statutory federal income tax rate is as follows: Income tax at 34% statutory federal rate .............................. Federal income tax effects of: State income taxes ......................................................... Nondeductible expenses................................................ Other .............................................................................. Federal income taxes ..................................................... State income taxes ................................................................ Total income tax expense ..................................................... 1999 4,832,420 $ (276,846) 58,846 142,825 4,757,245 814,252 5,571,497 $ Year Ended December 31, 1998 5,841,294 $ $ 1997 4,413,742 (336,172) 98,131 92,682 5,695,935 987,193 6,683,128 $ (246,449) (3,582) 189,562 4,353,273 724,850 5,078,123 $ Effective tax rate ................................................................... 39.2% 38.9% 39.1% U S A T R U C K , I N C . 4 5 USA TRUCK, INC. Notes to Financial Statements (continued) 8. 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 $634,000, $652,000 and $558,000 for 1999, 1998 and 1997, respectively. 9. Earnings per Share The following table sets forth the computation of basic and diluted earnings per share: Year Ended December 31, 1998 1997 1999 Numerator: Net Income........................................................................ $ 8,641,502 $ 10,497,149 $ 7,903,472 Denominator: Denominator for basic earnings per share - weighted average shares .................................... 9,324,037 9,399,727 9,355,671 Effect of dilutive securities: Employee stock options ................................................ 30,404 66,244 128,899 Denominator for diluted earnings per share - adjusted weighted average shares and assumed conversions ................................... 9,354,441 9,465,971 9,484,570 Basic earnings per share........................................................ Diluted earnings per share .................................................... $.93 $.92 Anti-dilutive employee stock options.................................... 94,600 $1.12 $1.11 -- $.84 $.83 3,000 10. 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. 4 6 U S A T R U C K , I N C . USA TRUCK, INC. Notes to Financial Statements (continued) 10. Common Stock Transactions (continued) A summary of the Company’s stock option activity, and related information for the years ended December 31, follows: Outstanding-beginning of year Granted Exercised Canceled Outstanding-end of year Options 323,200 -- (65,000) -- 258,200 1999 Weighted-Average Exercise Price $ 7.72 -- $ 6.25 -- $ 8.09 Options 356,400 46,000 (79,200) -- 323,200 1998 Weighted-Average Exercise Price $ 6.90 11.59 6.30 -- $ 7.72 1997 Weighted-Average Exercise Price $ 6.87 9.73 6.25 10.50 $ 6.90 Options 425,320 9,600 (63,320) (15,200) 356,400 Exercisable at end of year 95,600 $ 7.85 103,000 $ 6.46 142,200 $ 6.25 Exercise prices for options outstanding as of December 31, 1999 ranged from $6.25 to $13.00. The weighted- average fair value of options granted during 1998 was $4.30 and $4.46. No options were granted during 1999. The weighted-average remaining contractual life of these options is 2.14 years. In 1999, 1998 and 1997, 44,595, 45,240 and 60,007 options, respectively, were exercised for cash. In 1999, 1998 and 1997 additional options of 20,405, 33,960 and 3,313 respectively, were exercised by the exchange of 15,056, 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 1999, 1998 and 1997 consistent with the provisions of SFAS 123, the Company’s pro forma net income would have been $8,603,394, $10,431,143 and $7,852,172, pro forma basic earnings per share would have been $.92, $1.11 and $.84, and pro forma diluted earnings per share would have been $.92, $1.10 and $.83, 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 1999: dividend yield of 0%; expected volatility of 0.292%; 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 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. U S A T R U C K , I N C . 4 7 USA TRUCK, INC. Notes to Financial Statements (continued) 11. Quarterly Results of Operations (Unaudited) The tables below present quarterly financial information for 1999 and 1998: 1999 Three Months Ended Operating revenues .............................................. Operating expenses and costs ............................. Operating income ................................................ Other expenses, net ............................................. Income before income taxes ............................... Income taxes ........................................................ Net income........................................................... March 31, 36,199,447 32,063,006 4,136,441 313,880 3,822,561 1,498,444 2,324,117 $ $ June 30, 38,117,504 33,830,877 4,286,627 282,016 4,004,611 1,569,808 2,434,803 $ $ $ September 30, December 31, $ 51,629,555 47,302,491 4,327,064 719,180 3,607,884 1,414,291 2,193,593 40,416,850 37,330,310 3,086,540 308,597 2,777,943 1,088,954 1,688,989 $ $ Average shares outstanding (basic) ...................... Basic earnings per share ...................................... 9,392,817 $.25 9,373,109 $.26 9,298,377 $.18 9,257,361 $.24 Average shares outstanding (diluted)................... Diluted earnings per share .................................. 9,452,481 $.25 9,410,750 $.26 9,335,972 $.18 9,287,601 $.24 1998 Three Months Ended Operating revenues .............................................. Operating expenses and costs ............................. Operating income ................................................ Other expenses, net ............................................. Income before income taxes ............................... Income taxes ........................................................ Net income........................................................... March 31, 35,223,203 30,993,887 4,229,316 403,265 3,826,051 1,488,334 2,337,717 $ $ June 30, 37,387,246 32,208,832 5,178,414 598,909 4,579,505 1,781,428 2,798,077 $ $ September 30, 36,266,931 $ 31,213,221 5,053,710 435,041 4,618,669 1,796,662 2,822,007 $ December 31, 36,338,741 $ 31,839,990 4,498,751 342,699 4,156,052 1,616,704 2,539,348 $ Average shares outstanding (basic) ...................... Basic earnings per share ..................................... Average shares outstanding (diluted)................... Diluted earnings per share................................... 9,378,054 $.25 9,478,162 $.25 9,418,826 $.30 9,531,054 $.29 9,417,520 $.30 9,375,927 $.27 9,512,954 $.30 9,442,155 $.27 12. 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. 4 8 U S A T R U C K , I N C . USA Truck, Inc. / 3200 Industrial Park Rd. / Van Buren, AR 72956 / 501-471-2500 www.usa-truck.com 

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